With Apple (AAPL 0.14%) stock approaching a split-adjusted $100 per share, Cook & Co. may have finally convinced the Street that the stock is worthy of rebounding to the all-time high it reached in 2012. Undoubtedly, part of resurgence of Apple stock has to do with Apple CEO Tim Cook's promises of products in new categories. But can Apple really live up to the market's higher standards for the company?
The ever-active Apple rumor mill has pretty much agreed on at least one product in a new category that Apple likely has in its pipeline: the so-called iWatch. Recent speculation asserts the company plans to launch the device in October. How will the device perform? Incredibly well, according to some sources.
Three different sources are predicting Apple will sell more iWatch devices in the first year of availability than the iPad did during its first year.
Morgan Stanley
Longtime Morgan Stanley analyst Katy Huberty has huge expectations for the iWatch.
In a February note to investors, Huberty said she believes the iWatch can boost Apple's top line by as much as $17.5 billion in the first year. That would be a 10% incremental gain over Apple's current top line. The figure would easily outperform the $12 billion the iPad contributed to Apple's top line during its first year of sales, making it Apple's most successful first-year product sales for a new category ever.
Her bullish outlook for the iWatch was based primarily on Apple's enormous guidance for capital expenditures in fiscal 2014, which came in at $10.45 billion. The figure is up 32% from Apple's 2013 capital expenditures.
"We believe this is an indication that Apple is investing in new product categories as single-digit iPhone and iPad growth no longer demands significant increases in capital expenditures," Huberty wrote.
UBS
In terms of units sold, UBS analyst Steven Milunovich is also bullish on the iWatch. He's estimating 21 million units sold in fiscal 2015. That compares to 19.5 million iPad's sold during its first year.
In terms of revenue, however, UBS predicts the iWatch will underperform the iPad. With an average selling price of $300, 21 million units would only boost Apple's current level of revenue by $6.5 billion.
"We expect iWatch sales to roughly track iPad unit sales -- similar penetration rates would mean higher sales. iWatch might do better because the customer base is larger than when iPad launched and the ASP might be less," Milunovich said (via AppleInsider). But his prediction has baked in some conservatism: "On the other hand, iWatch is the first product to be worn, which might not appeal to all users."
Apple?
But the most bullish source of all on the outlook for the iWatch may be Apple itself. As I detailed recently, a report last week from Nikkei Asian Review said sources familiar with Apple's plans assert the tech giant is planning for "monthly commercial output" of about three to five million units per month. Assuming an average selling price of $300, this figure could mean Apple expects slightly higher incremental sales from the device than Huberty's prediction.
Recent confidence from Apple's Internet Software and Services chief Eddy Cue seems to echo this rosy outlook for the iWatch.
Apple "has the best product pipeline I've seen in my 25 years at Apple," Cue said at the Code Conference earlier this month.
Finally, if Apple's previous blockbuster launches into new categories are any indication of how the iWatch will play out, Apple investors may be in for a pleasing fiscal 2015.
