Are Apple (NASDAQ:AAPL) Watch sales cooling off already? A recent report from Slice Intelligence claims that 2.5 million orders for Apple Watches were processed since late April, but over half of those were placed on the first day. Since then, demand has declined to under 30,000 units per day, which would lead to sales of roughly 11-13 million units for the first year.
That would fall on the low end of analyst estimates, which call for first year sales between 8 million and 36 million units. At Slice's estimated average U.S. preorder purchase price of $707 per watch, the Apple Watch would account for only 3% of Apple's projected revenues for 2015.
Should Apple investors be worried? Probably not, because those headline-grabbing estimates neglect a lot of key facts.
Putting those numbers into perspective
Investors should remember that Apple hasn't released official sales figures for the Apple Watch yet. Slice's data comes from a sample of 14,000 consumers in the U.S. and doesn't account for major overseas markets like China, where demand for Apple devices is rising. Sales will also likely pick up once the Apple Watch reaches brick-and-mortar retail stores.
Selling 11 million units in the first year would also be a remarkable achievement for Apple. It took Apple over two years to sell two million iPods, and the iPhone sold 11.6 million units in its second year on the market.
Research firm Smartwatch Group estimates that while 89 companies made smartwatches last year, a mere 6.8 million units were shipped worldwide. If Apple sells 11 million smartwatches, market leader Samsung (NASDAQOTH:SSNLF) -- which controlled nearly a fourth of that market last year -- would quickly lose the top spot. Research firm IDC believes that Apple will claim 62% of the smartwatch market this year.
This means that Apple will rise to the top as the entire market grows. Research firm IHS estimates that by 2020, 101 million smartwatches will be shipped annually, with 5% of all smartphone owners owning one.
All eyes on Apple
Although the Apple Watch might only account for a single-digit percentage of Apple's top line this year, it's still an important device for three other reasons.
First, the Apple Watch might transform smartwatches from geeky niche devices to mainstream fashion accessories. Many industry watchers believe this could happen, given Apple's solid track record of turning laptops, smartphones, and tablets from bland productivity devices into desirable ones with premium price tags. If that happens, demand for Android Wear devices, Pebble Watches, and other smartwatches could finally heat up.
Second, the Apple Watch is a major test for CEO Tim Cook and Chief Design Officer Jony Ive, since it's the company's first new product line since co-founder Steve Jobs passed away in 2011. But whereas Jobs' introductions of the iPod, iPhone, and iPad all disrupted competing products with new innovations like a wheel, massive storage space, or full-sized touchscreens, the Apple Watch's features are arguably comparable to those found on high-end Android Wear or Tizen devices.
Lastly, the Apple Watch is an ecosystem play. It's designed to tether users to HealthKit, its unified platform for fitness app and electronic health record data. It can replace wallets with Apple Pay and communicate with car infotainment systems with Apple CarPlay. It might even unlock doors, adjust thermostats, or turn on lights with HomeKit, its upcoming smart-home platform. Those applications could make the Apple Watch (and all smartwatches) more practical and popular with mainstream consumers.
The key takeaways
The Apple Watch might dominate Apple headlines, but investors shouldn't miss the real story here. The Apple Watch is already on track to top early sales of the iPod and possibly second year sales of the iPhone. It could also turn smartwatches into mainstream devices, cast a "halo effect" on other players in the market, and tether more users to Apple's growing ecosystem.