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Rumors Tell the Apple Watch Story

Quinten Plummer

Apple hasn’t been saying much, as usual — but insiders and analysts are fitting together pieces of the Apple Watch puzzle through sales estimates, revelations about the vast gulf separating production costs from final prices, and expected features of the next version.

During Apple’s second-quarter earnings report, CEO Tim Cook said the company was off to an “exciting start to the June quarter with the launch of Apple Watch.” However, Cook and company have not shared any sales figures for the device, which launched in April.

Unless it suits the company’s broader strategy, Apple generally doesn’t divulge all of its financial details, observed Charles King, principal analyst atPund-IT.

“That the company is being closemouthed about watch sales … suggests they are in the modest-to-expected range,” he told the E-Commerce Times.

Although Apple has been cagey, Slice Intelligence and IHS Research have sketched vivid estimates of the smartwatch’s shipments and hard figures on its profit margins.

Meanwhile, inside sources reportedly have leaked details about what to expect in the second generation Apple Watch.

Apple Profit

Close to 20 percent of all Apple Watch customers ponied up extra cash for at least one accessory for the smartwatch, and about 17 percent of them bought more than one, Slice Intelligence shared with Reuters.

Apple has sold about 2.79 million Apple Watches already, the research firm estimated, based on email receipts it pieced together. In its sample of 2 million receipts, 20,000 were generated by Apple Watch sales.

Complementing that data, IHS last week reported that it had pinned down the production cost of the Apple Watch Sport to US$83.70. The Apple Watch Sport retails for $349. While some — particularly those outside of Apple’s ecosystem — may be put off by the gulf between the watch’s production cost and final price, most consumers really won’t care about the massive markup, suggestedDavid F. Giannetto, author of Big Social Mobile.

“Consumers rarely allow high profit margins to influence their buying behavior, especially if it’s a lifestyle brand and is primarily targeted at early adopters — both of which apply to the iWatch,” Giannetto told the E-Commerce Times. “It’s also unfair to base the profit margin of an iWatch on just the manufacturing, materials and hardware.”

Years of research and development are a huge part of what goes into the final price of a product, he pointed out.

“Apple will have to sell a significant amount of units, even at it’s current price, to recoup that cost — but Apple — much like Google with their Glass product — is playing the long game on wearables,” said Giannetto. “When wearable products mature and the market develops, Apple will be positioned as an industry leader, recouping their total development costs and significantly more.”

The Next Watch

The Apple Watch is much like the very first iPod, observed Andy Abramson, CEO of Comunicano.

“It’s the shape of things to come,” he told the E-Commerce Times.

Like the iPod, it may go through several iterations before it catches on in a big way, and rumors already are circulating about the second-generation Apple Watch’s capabilities.

For example, the next version, which could launch as early as next year, will offer WiFi independent of the iPhone and a Face Time video camera, sources told 9to5Mac.

Conjecture abounds.

“You’re going to see faster processors, smaller radio technology and brighter displays — all along with image capture technology — as each new edition of the Apple Watch comes out,” Abramson said.

What’s most interesting about the rumors published in 9to5Mac is that they focus on some of the Apple Watch’s biggest problems, noted Pund-IT’s King, such as its reliance on the iPhone and the “absurd difference in price” between the top and bottom end of the Apple Watch lineup.

Poor battery life is another serious issue, although based on the information leaked, that may not significantly improve.

“Addressing these issues would all be worthy goals for the next-gen Apple Watch,” said King.

“The FaceTime camera is an interesting concept, though it would certainly elicit comparisons to Dick Tracy’s radio watch, and using it for public calls could set a new standard for fatuous geekery,” he quipped. Google Glass would likely be happy to pass that baton to Apple.”