Is Apple management being too optimistic on the number of gold Apple Watches they can sell in just a few months?
Analysts have been debating how much of a difference the Apple Watch will make on the company’s top and bottom lines. Many have said previously that sales of the smartwatch probably won’t be enough to move the needle on sales at the behemoth that is Apple because of its sheer size.
However, if Apple’s own projections end up being right, the company could see billions of dollars in revenue each quarter just from sales of the gold version alone.
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$5B in quarterly sales of gold Apple Watches?
Tech community insider John Gruber of Daring Fireball points out that Apple could rake in $5 billion per quarter just from selling the 18-karat gold edition of its watches. The amount assumes an average selling price of $5,000 for the gold model. That $5 billion estimate comes from a story in The Wall Street Journal, which states that half of the over 5 million Apple Watch units Apple is ordering for the first run will be the low-end model, which starts out at $350.
One-third of that first order will be the mid-range Apple Watch, which has not officially been priced yet. That leaves 17% of the run to be the high-end, also as-yet unpriced Apple Watch Edition model, which is made of 18-karat gold.
The Edition model is expected to be priced at more than $4,000, which is the price tag of the Mac Pro. Of course that would make it one of Apple’s most expensive offerings ever.
Will Apple really sell so many gold Apple Watches?
Gruber also points out that it seems pretty unlikely that Apple will sell so many of the most expensive model of its smartwatch. Based on the initial run of 5 million to 6 million total units, if 17% will be the gold model, then that would be between 850,000 and 1 million of them for the initial run. The Wall Street Journal story added that Apple is planning to produce over 1 million gold Apple Watches per quarter starting with the second quarter.
That’s a whole lot of gold Apple Watches, and I agree with Gruber that it sounds like far more than Apple can sell in just a few months—simply because the price tag is so crazy high. Do people even wear watches anymore anyway? Of course that could change when there’s a watch with Apple’s name on it, but I digress…
Predicting product mix of the Apple Watch
If Apple management is right that they will sell such a large number of gold models, then the gold models alone will make up at least double the sales of the other models combined, according to Gruber.
He further noted, “The Edition models would thus do to the Apple Watch lineup as a whole what the iPhone, iPad, and Macintosh do to the entire phone, tablet, and PC industries, respectively: achieve a decided majority of the profits with a decided minority of the unit sales.”
Indeed, what Gruber is talking about is a phenomenon we have seen in the smartphone industry time and again over the years. Apple grabs the lion’s share of the profits, but Samsung and other Android smartphone makers win in the number of units.
But what happens if Apple management is wrong and they produce far more gold Apple Watches than what they can sell this year? Wall Street would certainly hate to see an inventory write-down due to an incorrect prediction of product mix for the smartwatch.
As of this writing, shares of Apple were down by 0.08% to $127.73 per share.