Apple – The wrong wrist

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Watch expectations are already beginning to fall.

  • The hype surrounding the Apple Watch is beginning to suffer from a healthy dose of reality causing the loftiest estimates to start falling.
  • The range of sales estimates in the first 12 months is huge with the most bearish on less than 10m units and the most bullish on 100m.
  • Consensus is somewhere around 40m which is double RFM’s generous estimate of 20m.
  • The problem is that the reviews of the device are beginning to come in and a clear trend is emerging.
  • The Apple Watch is a nice piece of kit but it is not a must have is the opinion of most reviews and this theme is being echoed by the surveys being done to ascertain consumer purchase expectations.
  • Importantly, the battery life is much better than I expected and can comfortably do a day’s use without having to be recharged.
  • This assumes that fitness tracking is not used because when it is switched on, it substantially increases the power drain on the battery.
  • This battery life is in line with the Microsoft Band which is not as elegant but has the same functions and costs half as much.
  • A BMO survey has found that less than 1 in 10 people who own an iPhone 6 or iPhone 5s intend to buy an Apple Watch.
  • Furthermore, one of the biggest draws for the device is fitness tracking for which there are many other, just as good, but cheaper options.
  • I think the biggest problem is that Apple has targeted the wrong wrist.
  • By designing it as it has and naming it the Apple Watch, Apple has ensured that it must be used as a replacement for the wrist watch.
  • Users will feel very foolish with an Apple Watch on one wrist and a regular timepiece on the other.
  • Other offerings like Fitbit, Microsoft, Misfit and so on are targeting the empty wrist and their products are designed and sold accordingly.
  • As result users don’t feel foolish wearing one of these products as well as a wrist watch whereas Apple has to convince users to consign their beloved timepiece to a drawer.
  • Apple has failed to come up with a killer use case for a wrist mounted computer and as simply come up with a series of gimmicks where the novelty is likely to quickly wear off.
  • Apple will outsell its wearable rivals by a very wide margin but it will do this on the power of its brand and its design alone.
  • This is not enough to sell in anything like the volume that the biggest bulls are predicting and I see further cuts to estimates coming.
  • Consequently, I am sticking to my 20m forecast for the first 12 months and see the potential for some sogginess in the stock as reality sets in.
  • Microsoft and Google remain my preferred ways to gain exposure to the mobile and digital ecosystem space.

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

Blog Comments

I think the problem with RFM reviews is the method. Looking for past precedents, evaluating by feature and comparing to competition is fine for mature markets, but it doesn’t work for new experiences. It leads to laughable conclusions, like the reviewer of the first Mac who pointed out that there’s no evidence that people need a mouse.

This Apple Watch review makes the same mistake. There’s no evidence that the Apple Watch will be successful either, but there are plenty of reasons to judge that it will. First you have to recognise what it is, which this review fails to do.

For a much better Apple Watch review, check out what John Gruber had to say at daringfireball.com

This is not a review. Its a comment with regards to expectations and reality. So far the data is going my way.

“So far the data is going my way.”

There is no data, only speculation.

There are pre orders, supplier commentary and Apple’s own comments which give a strong indication

Exactly. Several different forms of speculation.

>”Consequently, I am sticking to my 20m forecast for the first 12 months and see the
> potential for some sogginess in the stock as reality sets in.”

Just a few years ago, any product that were priced at more than a few hundred dollars, the so called “spousal approval threshold”, and still sold more than million a month was considered a great one. Now, it is called disappointing. It is amazing how perceptions have changed with the smartphone revolution.

Its irrelevant. all that matters is how it performs relative to expectations. If people had been expecting 5m to sell this would be a blow out result.

As usual apple worshippers come out in droves to proclaim apple can do no wrong, even when reality bites them in the ass