Will The Apple Watch Be Good Enough?

What’s been going on with Apple (AAPL) stock lately? Not much, to be honest. Though shares are up 15.04% year to date and 40.64% over the last full year, they’ve been rather anemic over the last three months, up only 0.17% over that time.

How does the Apple Watch play into this? As the April 24 release date approached, investors seemed willing to hop onto the Apple bandwagon and shares jumped 6.3% in the week leading up to the release. But they were back down to the same level just a week later, giving the impression that investors weren’t as impressed with it as Apple would have hoped.

Estimates pulled back

That’s not good news for Apple. In fact, research company KGI also pulled back on its estimated sales of the wearable for 2015. While the general consensus says that the company will sell between 20 and 30 million watches during its inaugural year, KGI estimates just 15 million units sold.

Of course, that’s on the ultra-conservative side of forecasts. On the other hand, Morgan Stanley analyst Katy Huberty raised her sales forecast to 36 million just a month ago. She states that it could have been as high as 50 million if Apple didn’t have those pesky supply chain problems that plagued its launch.

"US Apple Watch demand increased around 60 percent since March," Huberty said. "Importantly, Apple enjoyed the biggest increase in Watch purchase intentions post making the product available in mid-April. While the survey data extrapolates to 50 million annual Watch demand, we see this as a bull case given supply limitations."

More recently, MacRumors reported that Slice Data, an intelligence firm that tracks email receipts to gain its data, estimates that 2.79 million Apple Watches have been sold since its launch two months ago. While it’s hard to say what this means because the data isn’t 100% verifiable, the numbers are looking more toward the 15 million figure than the 36 million one. Although, the holiday season will likely bring in more sales, so it’s hard to know for sure.

The next generation

Apple has been known to make things right on the second generation of its products. Consider just a few examples:

• The first iPhone, released in 2007, didn’t have an App Store, 3G capability, GPS or a front-facing camera. Can you imagine not having that on your phone now?
• The first generation iPad didn’t have any cameras. It also couldn’t multitask, meaning you had to relaunch an app every time you wanted to use it, which was a slow process.
• The original iPod Touch didn’t have Bluetooth — a seemingly basic capability now — or a camera.

So it’s not surprising that Apple is already planning some major upgrades for its second generation Apple Watch. According to a new report, the device will include a FaceTime video camera, tetherless Wi-Fi access (meaning you don’t have to have your iPhone nearby to use data), a longer battery life and new variations of the watch beyond the current Sport, Steel and Edition versions.

The company will likely wait until 2016 to release the second generation Apple Watch.

So the question that may be on your mind is this: “If they’re already planning on adding these functionalities so soon after the launch of the first generation, why didn’t they just include them in the original one?” It’s hard to say for sure. On one hand, the company may not have had the time to do so, considering the market’s expectation for Apple to constantly innovate and the ripeness of the smartwatch industry.

On the other hand, it may simply be a matter of strategy. Why put all your good stuff into the first one if you know you can get those same people to buy the next one just a year later? Of course, I’m not accusing Apple of taking advantage of its customers. But if you use up all your energy at the beginning of the race, what strength do you have by the end to win it?

Conclusion

Apple will continue to remain the top dog in its industry. While the iPad is struggling to maintain sales and the iPhone will likely top out at some point during 2015, there’s no telling what Tim Cook et al have up their sleeves. And though the first generation Apple Watch may not reach that 36 million units sales estimate this year, that shouldn’t be considered a cause for investors to give up on it. Rather, it’s more than likely that future generations of the smartwatch will prove good enough to make this another one of Apple’s legendary products.