What Selling 6 Million Apple Watches Could Mean to Apple Inc.

Apple (AAPL -0.81%) has pre-ordered 5 million to 6 million units of Apple Watch, according to sources cited in a post on by The Wall Street Journal Digits page. That's similar to the number of units the company ordered for the iPad in 2010. The iPad was launched at the beginning of April and sold 7.46 million units in its first six months; it sold an additional 7.33 million units in the holiday quarter of that year.

Still, the Apple Watch could be the company's fastest-selling product yet. Let's take a look at what Apple's reported pre-orders might mean for the company.

Source: Apple

A breakdown of what Apple is reportedly ordering

Figures according to WSJ post, which cited "people familiar with the matter."

About half of Apple's orders are for the entry-level $349 Apple Watch Sport, according to the Feb. 17 WSJ post, which cited "people familiar with the matter." More interestingly, one-sixth of the orders are reportedly for the high-end Apple Watch Edition. Many expect the 18-karat gold smart watch to carry the highest price of any Apple product including the $4,000 Mac Pro. John Gruber of Daring Fireball thinks the high-end model could cost as much as $9,999, although he thinks it will more likely price at $4,999.

What's more, the WSJ report says Apple plans to order 1 million Apple Watch Edition units per month in the second quarter. That's on top of orders for the much more consumer-friendly models of the Apple Watch.

This figures indicate Apple is pretty confident that it's got another hit on its hands.

What selling those units could means for investors
Let's say that Apple sells just the reported pre-order breakdown of 3 million Apple Watch Sports, 2 million Apple Watches, and 1 million Apple Watch Editions in the first six months of sales. How would that impact Apple's revenue?

We know that 3 million Apple Watch Sports would fetch $1.05 billion in revenue. If the Apple Watch is priced at $649 -- a premium for its bigger screen made with sapphire and stainless steel design -- it would generate $1.3 billion from 2 million units.

The Apple Watch Edition, if priced at $4,999 would generate just shy of $5 billion from 1 million units. Even if the asking price were just $1,199, that would bring in $1.2 billion.

All together, with the lower price estimate for the Apple Watch Edition, that's $3.55 billion. Just about any company would be ecstatic with a $3.55 billion product in its first six months. But for Apple, that would represent just 2% of its fiscal 2014 revenue. Analysts are currently expecting Apple to grow revenue 23% in this fiscal year, which ends in September.

Of course, Apple sells more than its watches
Apple just reported its best quarter ever, selling 74.5 million iPhones. Revenue from iPhones increased 57% last quarter, but it's not clear that momentum will last. Analysts expect iPhone unit growth to slow significantly this quarter to just 16.7% -- similar to last year's 16.8% unit growth.

The key difference this time around is that the iPhone will likely carry a higher average selling price. The average iPhone sold for $687 in Apple's first quarter. That's up from $637 the year before. If Apple maintains its 7.8% increase in ASP throughout the year, iPhone revenue could easily grow 30% for the year.

Maintaining iPad revenue could prove challenging, however, as the company experienced a 22% decline in iPad revenue in the first quarter. Nonetheless, CEO Tim Cook remains resolute that the long-term outlook for the iPad is strong. Increased Mac sales, as well as iTunes and service revenue, should help offset declines in iPad sales to a certain degree.

Still, it looks like Apple will need strong sales of the Apple Watch to exceed analysts' expectations. If it is ordering 5 million to 6 million units up front, that is a strong signal that it could generate significant revenue right off the bat to supplement the substantial growth from iPhone, and offset declining iPad sales.

Keep in mind, as well, Apple is notoriously conservative with its pre-orders. Need I remind readers of the iPhone 6 Plus shortage just last fall, and the huge supply shortage when it launched the iPad? The Apple Watch could even provide upside to analysts' current estimates.