Why Apple, Inc.'s iWatch Could Surprise Us All

Are we at risk of underestimating the iWatch the same way we underestimated the iPod, iPhone, and iPad?

Jul 12, 2014 at 2:20PM

While many Apple (NASDAQ:AAPL) analysts are attempting to make estimates of how many so-called iWatch devices the tech giant could sell during its first year of availability, the elephant in the room can't be avoided: Analysts -- or anyone for that matter -- know very little about the device. So, how can anyone make a legitimate guess as to how the new product line will perform in the market?

Iwatch Concept

iWatch concept design by SET Solution. Image used with permission. Watch a video of this concept here.

Sure, there are figures on the wearable and smartwatch categories. Consider, for instance, the latest figures on the potential for the wearable computing market from IDC. The research company expects total wearable shipments to hit 19.2 million in 2014 and climb to 112 million by 2018.

But in such a nascent market, with so many players introducing and readying devices, putting a figure on the market is a nearly impossible task. Consider the immense difference in estimates from another research company: ABI Research. ABI expects 42 million of a more narrowly defined category, health and fitness wearable computing devices, to be shipped in 2014. By 2018, ABI expects the broader wearable computing device market to grow to 485 million in annual shipments. 

So how should investors approach the iWatch?
Look at history. The last major new products the company introduced were the iMac, iPod, iPhone, and iPad -- all of which exceeded the most bullish expectations. Even more, each subsequent launch of these major categories seemed to outperform expectations by an even wilder measure. Further, each product line started off with far greater first-year sales than any other prior Apple product in its first year of sales.

Ipad Air

iPad Air. Image source: Apple.

Consider the iPad. Going into the iPad launch, the most bullish estimate for the tablet's potential was 7 million sales. The consensus analyst estimate? Just 3 million. But Apple put all these estimates to shame, recording

14.8 million iPad shipments in 2010. Today, trailing-12-month unit sales for the segment sits at a comparatively monstrous 71 million.

Obviously Apple is a much bigger company today than it was when it launched the iPhone and even the iPad. So, even a very successful iWatch could have only a small impact on Apple's bottom line. That said, investors should still expect the iWatch to at least be a meaningful contributor to Apple's bottom line given Apple's successful history of entering new categories.

But putting an exact figure on the device's potential is probably not worth the time. There are simply too many unknown factors. But do expect the iWatch to provide some solid upside to Apple's business in the coming years.

Thoughts on Apple's strategy and potential
 No one's opinion on Apple's competitive strategies is more respected than Asymco's Horace Dediu.

Two quotes from his past literature stand out to me as relevant to the iWatch launch, both of which I feel are just as useful to investors as coming up with a specific sales estimate for the iWatch.

Iwatch Nano Tmf

Apple's iPod nano was the first Apple device that could be worn as a watch.

Following the outperformance of the iPad during its first year, Dediu wrote:

If analysts, to a man, fail, you can be sure that competitors are no wiser. This collective shrug amounts to the greatest competitive advantage any entrant could ever hope to obtain.

Looking back at the growth of Apple's product lines, Dediu extrapolated an interesting statement about the future:

The speed with which products are introduced and scaled is phenomenal so it is more important than ever to see beyond the trajectory of existing products into the pattern of the introduction of new product categories.

Markets are effective in anticipating the path of a technology as it ascends into the hands of users, especially if it is destined for ubiquity. But markets are completely incapable of anticipating the emergence of new technologies.

In this regard markets are a reflection of common sense rather than uncommon wisdom.

The iWatch could significantly outperform our expectations. This vague estimate is about all I feel comfortable making, but Apple's history, combined with its robust ecosystem of hardware, software, and services, gives me confidence that this outcome is likely.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Sparks owns shares of Apple. 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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