The upcoming launch of the Apple (NASDAQ:AAPL) Watch in early 2015 will be a defining moment for Apple. It's a chance to show the world that Apple can still innovate without Steve Jobs and that it can claim a slice of the booming wearables market. Investors are also expecting the Apple Watch to offset declining iPad sales and to diversify Apple's sales away from the iPhone, which accounted for over half of its fiscal 2014 revenue.
Analyst expectations for the Apple Watch are lofty, ranging from 10 million (Gene Munster, Piper Jaffray) to 60 million (Katy Huberty, Morgan Stanley) units sold within the first year. Assuming a launch price of $350 , that would equal $3.5 billion to $6.0 billion in revenue in fiscal 2015, or 1.7% to 2.8% of Apple's projected 2015 revenue of $210.7 billion. However, pricey wristbands could easily double or triple the price per unit.
However, for sales to truly pick up steam worldwide, Apple needs China and the rest of Asia to fall madly in love with the Apple Watch. By 2018, Juniper Research estimates that nearly half of all wearables will be sold in China and the Far East, making the region the biggest smart watch market in the world.
Apple Watch was designed for Asia
Apple clearly designed the Apple Watch with the needs of Asian users in mind.
Apple Watch users can write messages quickly via handwriting input. While that's cumbersome for Westerners who are accustomed to typing quickly on QWERTY keyboards, it's convenient for inputting stroke-based Chinese, Korean, or Japanese Kanji characters. Since each character is an entire word, Asian Apple Watch users will generally be able to type sentences faster than Western users while using handwriting input.
Apple Watch's "digital touch" feature, which was merely seen as a picture drawing feature in America, speeds up that process by sending pictures/characters to another user in real time. By combining the "digital touch" and "tap to vibrate" features, Apple's Asian customers can buzz their friends to initiate a chat, then use real-time handwriting to quickly send a message.
High fashion and health-tracking appeal
In October, Apple chose Vogue China to make its editorial debut in the country and for good reason -- it wanted the watch to be recognized as a high fashion accessory instead of a niche gadget.
Apple adopted this strategy to complement the luxury appeal of the iPhone and to appeal to the rising middle class in China's urban centers. McKinsey & Company estimates that by 2022, over 74% of China's urban consumers will earn between 60,000 and 229,000 RMB ($9,750 to $37,200) annually, giving them the same purchasing power parity as Brazilians and Italians. Between 2012 and 2022, that urban population will swell from 256 million to 357 million.
Fashionable smart watches like the Apple Watch could prove popular with affluent urban consumers looking to stay connected on the go. Meanwhile, high-end Apple Watch bands, like the pricier gold-plated edition, could appeal to the same status symbol-seeking market that fueled strong sales of luxury fashion brands like LVMH's Louis Vuitton, Prada, and Coach in the past.
In addition to luxury appeal, Apple Watch's biometric health-tracking features could attract health conscious consumers in China. Earlier this year, Research Moz forecast that the value of the Chinese mobile health market will rise from 2.21 billion RMB ($360 million) in 2013 to 19.05 billion RMB ($3.1 billion) by the end of 2018.
Chinese demand for Apple products remains high, as we saw with the huge pre-order figures for the iPhone 6 back in October.
Demand for smart watches in China is also considerably higher than in other countries. A recent UBS survey found that 51% of Chinese respondents were either "very" or "somewhat likely" to buy a smart watch. The same survey found that only 23% of U.S. consumers were willing to do the same. Meanwhile, the global wearables market is expected to grow from 2 million units in 2013 to 135 million units by 2020, at a compound annual growth rate of 53.5% between 2014 and 2020, according to Grand View Research.
The growth of the wearables market, rising Chinese interest in smart watches, and status symbol appeal are all strong catalysts for the Apple Watch in China. We'll soon see if Apple can successfully capitalize on that pent-up demand. If it can do so, the Chinese market could eventually account for a large portion of global Apple Watch sales. Since the Apple Watch is exclusive to the iPhone, that could also encourage Chinese customers to buy more iPhones.
Therefore, investors should see if sales in China can help Apple stock -- which has already rallied 300% over the past five years -- soar to new heights.
Leo Sun owns shares of Apple and Coach. The Motley Fool recommends Apple and Coach. The Motley Fool owns shares of Apple and Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.