Making Sense of Apple Watch Estimates

Due to Apple’s reluctance to divulge any Apple Watch numbers speculation around revenue, ASPs and therefore volume of sales and shipments has been feverish and a wide spectrum of estimates from 2 million to 4 million units sold has emerged. ABI Research believes that 2.3 million units were sold and just over 2.8 million units were shipped into the channel.

Some firms are estimating as many as 4.2 million units were shipped into the channel, as opposed to sold to end users/customers (N.B. much of the commentary and coverage has mixed these two (sales in and sales out) up, creating further confusion). This suggests inventories in excess of 1.5 million units, if we use the most common estimate of 2.5 million units sold. Given that the distribution and retail channel is Apple’s own, this level of inventory seems excessive and would be oddly inefficient.

Furthermore, Apple suggested that it was under supply constraints very late into the quarter. On July the 17th Tim Cook said, “Right now demand is greater than supply. And so we are working hard to remedy that. We’ve made progress over the last week or so and we’re able to deliver more customers an Apple Watch over the weekend than we had initially anticipated. We’re going to keep doing that. So I’m generally happy that we’re moving on with the ramp. It is a new product for us, and with any kind of new product, you wind up taking some time to fully ramp.”


Our Analysis of Apple’s Opaque Financial Figures

Apple’s quarterly report covers the period until June 27th, which includes 65 days of availability for the Apple Watch since the launch on April 24th. In an interview, Apple’s CFO Luca Maestri said initial sales of the Apple Watch exceeded the sales of the iPad during its initial launch period, without giving any figures. Again, it is dangerous to take this at face value. Back in 2010 Apple stated that they sold 3 million iPads during the first 80 days. If we multiply 3 million with (65 / 80) we get 2.44 million units. However, this linear interpolation does not take into account that the initial iPad sales curve was exponential, with significantly higher sales / day at the end of the period (after the first 65 days). Therefore, we believe this way of calculating an estimate overstates the actual sales figure.

In Apple’s latest quarterly report, revenues for “Other Products” went up from US$1.689 billion to US$2.641 billion (an increase of almost one billion dollars). In a comment at the analyst’s briefing, CEO Tim Cook said that more than 100% of this increase is attributable to the Apple Watch.

For our analysis we need an estimate of the category “Other Products” minus the Apple Watch. Apple puts iPod, Apple TV, Beats headphones and speakers, and other accessories into this category. During the last eight quarters, this category has shown a declining trend. YoY decline for 1Q has been 5%, 2Q sales fell by 10%, 3Q by 8%, and 4Q by 9%. (Note: Apple’s reported financial quarters are not calendar quarters.) 

ABI Research believes the decline of iPods has accelerated during 2015 and our estimate is a decline of at least 12% from 3Q 2014 to 3Q 2015 for the entire category. A decline of 12% from the 3Q 2014 figure of US$1.767 billion gives us an estimate of US$1.555 billion for non-Watch Other Products for 3Q 2015. Subtracting this figure from the 3Q 2015 total of US$2.641 billion gives us an estimated sales volume for the Apple Watch of US$1.086 billion.

An additional uncertainty is the ASP, due to the huge price variation between the cheapest (US$349) and most expensive (US$17,000) model of Apple Watch. An ASP of US$500 would give us a sales figure of 2.17 million units (1086 / 500); while an ASP of US$475 results in a sales volume of 2.29 million units. Our ASP estimate for the entire year is US$445 though we think ASP during the first quarter has been higher (US$475), due to these early adopters clearly being highly motivated Apple fans. So in short, ABI Research’s estimate is slightly lower than the average, with a sales volume of 2.3 million units at an ASP of US$475, with a shipped volume of 2.8 million units.