Why the iWatch Is Apple’s Next Big Success Story

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.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2926764, ~/Articles/ArticleHandler.aspx, 12/22/2014 2:45:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement