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Apple Inc. Watch Sales Expected to Slump in 2016

By Ashraf Eassa – Mar 31, 2016 at 11:30AM

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A report claims that Apple Watch sales have been weaker-than-expected and that the near-term outlook for the product category isn't great.

Image credit: Apple. 

Apple's (AAPL 0.25%) first smart watch, known as the Apple Watch, has done very well by smartwatch standards, with DIGITIMES reporting that the iDevice maker commands more than 50% of the entire smartwatch market.

That being said, the publication reports that shipments of the current generation Apple Watch have been "weaker-than-expected." This isn't a surprise given that Apple recently cut the price of its entry-level Apple Watch to just $299, down from $349 prior, without introducing updated models.

Apparently this weakness has led Apple to be "cautious about placing component orders for the second-generation model slated for launch later in 2016," DIGITIMESsays.

Moreover, the publication also says that companies within the Apple Watch supply chain think that it's likely that Apple Watch shipments in 2016 are likely to be lower than those in 2015.

Not surprising
This report, should it prove true, isn't particularly surprising. Many of the reviews of the Apple Watch clearly point to a product category that's still very much "work in progress." One review, from Wearable.com, praises the Taptic Engine, straps, comfort, and first party app selection. However, the review criticizes the quality of third party apps, battery life, fitness features, and the relatively steep price tag.

Over time, I expect the Apple Watch to evolve into something much better. As processing power moves up -- and I expect it to move up dramatically -- the device should become far more capable and useful to mainstream customers.

However, even if Apple's smartwatch offerings get a lot better, it's not clear yet that the smartwatch category itself even has much of a long-term future. Yes, there are some things that may be easier/more convenient to do on one's wrist, but a smartphone is still a vastly more useful device and it's a device that we carry with us virtually all of the time.

Apple can continue to try...for now
Apple Watch is selling well enough that it's raking in multi-billions in revenue for the iDevice maker. As long as sales of this device remain substantial, I would expect the company to continue to invest in the product line.

If I were an Apple shareholder, I would certainly welcome continued attempts here as the category may very well evolve into the "next big thing" that some are hoping for -- especially since the product line is probably profitable for Apple -- but it wouldn't be a material part of my investment thesis.

Apple is still very much dependent on the iPhone for the majority of its revenue and profits, and it is ultimately the health or lack thereof of this product line that will drive the real moves in the company's stock price.

That being said, I do think that the next generation Apple Watch could be a substantially more interesting device than the first gen model. If Apple has packed the upcoming device with many interesting new features and functionality -- particularly functions that are difficult/unpleasant to carry out on a smartphone -- then perhaps sales could return to growth during 2017.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. 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.

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