Last week, rumors surfaced that Apple (NASDAQ:AAPL) could be working on a new set of high-end over-ear headphones in an effort to expand its lineup of audio accessories. The product would be a natural extension of the audio portfolio to follow the success of AirPods and the recent launch of HomePod. KGI Securities analyst Ming-Chi Kuo believed the headphones could launch as early as the fourth quarter of this year.
Now we're hearing more evidence that these headphones could be in the works, with Bloomberg's Mark Gurman and Debby Wu corroborating the speculation.
Getting a second opinion
According to this morning's report, Apple is indeed targeting the end of 2018 to launch the new headphones, which will be over-ear and feature noise-canceling. The company has also reportedly run into "development challenges" that could jeopardize that target ship date. Product plans can always change and Apple could redesign the headphones or completely cancel them.
In addition to noise-canceling, Apple is expected to include the same seamless pairing technology found in AirPods, which is enabled by Apple's custom W1 wireless chip. The convenience of pairing AirPods, which subsequently automatically pairs them to all other linked devices, is a major selling point of AirPods.
Bloomberg's sources also confirm that Apple is planning to use its own brand for the new product instead of leveraging the Beats brand. The company will probably still keep the Beats brand around, but potentially target lower ends of the market, according to the report. Still, there is some cannibalization risk (not that Apple worries about cannibalization).
Wearables dominates "Other Products"
Given Apple's definition of wearables, which includes wireless headphones/earphones as well as Apple Watch, these new high-end headphones would also fit within that category and could help the company maintain its current momentum.
Wearables represented over half of the entire "Other Products" segment in fiscal 2017, generating $12.9 billion in revenue. Other Products revenue jumped 36% to a record $5.5 billion in the December quarter, driven by wearables growth of 70%. On the earnings call last month, CFO Luca Maestri even noted that wearables are now the "second-largest contributor to revenue growth after iPhone."
That trend should continue going forward, particularly as Apple is now the top dog in wearables thanks primarily to strong sales of Apple Watch, which outsold all competing smartwatches models combined last year.
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.