While many Apple (AAPL +0.03%) 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 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. 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.
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.
