Over the weekend, longtime Apple (NASDAQ:AAPL) analyst turned venture capitalist Gene Munster put out a research note to investors, which included updated estimates on the Mac maker's booming wearables business. That segment was a key driver of growth in the third quarter, helping to offset weakness in the core iPhone business.

For competitive reasons, Apple aggregates its wearables segment with its home and accessories products, obfuscating financial details around wearables. Instead, the company likes to make cryptic comparisons to the Fortune 500, the most recent of which would peg trailing-12-month (TTM) wearables revenue at approximately $18.9 billion.

Close-up of Apple Watch Series 5

Apple Watch Series 5. Image source: Apple.

Here's what Munster expects for 2020.

Beating the Mac

Munster believes that wearables will overtake the Mac in terms of revenue in 2020. The Mac is a very mature business that isn't growing much anymore while broader wearables adoption continues to march higher. Wearables, home, and accessories brought in $24.5 billion in revenue last fiscal year, while the Mac generated $25.7 billion in sales.

X-ray view of AirPods Pro

AirPods Pro. Image source: Apple.

"We now expect wearables to account for 11% of revenue in CY20, up from 8% in CY19, slightly exceeding Mac revenue at 10% of total next year," Munster wrote. "Our model suggests wearables growth of 45% next year down from 58% in CY19."

AirPods and Apple Watch are the tech company's flagship wearables products, and Loup Ventures is modeling for 60% and 30% growth in unit volumes next year, respectively. Apple is expected to ship 95.8 million AirPods units and 36.8 million Apple Watches in the coming year, according to the firm's model. Average selling prices (ASPs) for AirPods should climb while Apple Watch ASPs are expected to dip modestly.





AirPods units

28.5 million

59.9 million

95.8 million

AirPods ASP




Apple Watch units

22.25 million

28.4 million

36.8 million

Apple Watch ASP




Data source: Loup Ventures estimates.

Beats is a much smaller contributor to the business, expected to generate just $800 million in revenue. That should all translate into total wearables revenue of $30 billion in 2020, according to Loup.

Apple's attach rates for its wearables products are a closely guarded secret. CEO Tim Cook declined to provide that metric on the last earnings call when asked directly, but the chief executive was willing to share that 75% of Apple Watch buyers are first-time purchasers, suggesting that the product is still early in the adoption curve. Apple Watch is "relatively young," Cook said, so there haven't been "enough upgrade cycles to really establish a pattern as yet."

"Overall Watch adoption remains nascent, which we believe supports 20-30% unit growth for the next five years," according to Loup. Eventually, Munster argues that Apple Watch can hit an attach rate of 40%, which will make it a nearly $50 billion business by 2025.

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