Why the iWatch Is Apple’s Next Big Success Story

Here's why you should not underestimate the potential of Apple's upcoming iWatch.

Apr 23, 2014 at 6:00PM

Apple (NASDAQ:AAPL) investors have traditionally underestimated the launch of a new product category. However, doing the same again can be a huge mistake. Rumors have long been suggesting that Apple is working on the development of its own version of a smart watch, called the iWatch, after Samsung (NASDAQOTH:SSNLF) moved into this market.

The iWatch has the potential to surpass the estimates of even the most optimistic analysts. Since Apple runs a very tight ship, speculations can take a long time to materialize. However, the so-called iWatch is expected to hit the market in the coming months. 

Keep a close watch on the iWatch
According to research firm IHS, the global wearable devices market will triple to $30 billion in the next four years, and given that the existing smart watches from companies like Sony and Samsung haven't really pleased tech fanatics, Apple can start with a bang. In fact, Morgan Stanley analyst Kate Huberty is confident that the iWatch will rake in nearly $17.5 billion in annual sales.

That's quite a bold prediction, but Huberty claims it's feasible, as every new Apple product has sold more rapidly than the one before it. Apple is reportedly making 65 million units of the iWatch, and if the company manages to sell all of them at an average sale price of $299, the sales will outdo even Huberty's optimistic expectations. Moreover, since Apple products tend to be viewed as a status symbol, an ASP of $299 seems rather underwhelming.

Already trending?
According to a recent survey conducted by Piper Jaffray, 17% of U.S. teens were willing to buy an iWatch if it was available for under $350. This survey, which interviewed nearly 7,500 teens, reported that 61% of the teens now own an iPhone, up from 55% in 2013. The chart below compares the result of this study to the four conducted before it.


Source: Piper Jaffray

17% is a pretty high rate, especially considering that only 6% of the interviewed teens already owned a smart watch. But, bear in mind that U.S. teenagers tend to be richer that teens in emerging countries, so it's highly unlikely that the iWatch will be as successful in other countries. Nevertheless, Apple derives a large portion of its sales from the U.S., thus the popularity of the iWatch in the nation is a good sign.

What are peers doing?
As stated above, the wearable gadget market is set to explode and, given its vast potential, it is certain that competing companies sit idly by while Apple makes the most of this opportunity. Samsung unveiled its Gear 2 line of smart watches last month, and it will likely be available to consumers in the coming months. The Gear 2 will have an integrated SIM card slot for calling capabilities in place of the Bluetooth "pairing" feature.

The first version of Samsung's Gear smartwatch sold 800,000 units in its first two months. However, the Gear is no match to what's expected from Apple's iWatch, and the Gear 2 may even struggle to surpass sales of its predecessor if the iWatch hits the market first.

Apart from Samsung, both LG and Motorola are developing their own smart watches. LG recently tweeted a picture of its prototype smartwatch, called the G Watch, while Motorola unveiled the Moto 360 on its official website.

Competition in the smart watch segment is heating up, and Apple is reportedly looking to up the ante by adding various health features to its iWatch. The tech giant has been hiring professionals in the medical field, which may just give the company a cutting edge over its peers.  

"Watch" out
Investors shouldn't downplay the potential of an iWatch from Apple since the wearable devices market is expected to grow at a fast rate. Also, many consumers are already excited about the prospects of a smart watch. Finally, considering that there are millions of iPhones in the U.S., an iWatch would be an ideal accessory in today's connected environment.

The biggest thing to come out of Silicon Valley in years, and it's not the iWatch
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Amit Patel has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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