The Strategist

Analysts Expect a Decline in Demand for Apple Watch

05/25/2015 - 16:48

Volumes of deliveries of Apple Watch will be twice lower than expected: analysts of KGI organization, famous for accuracy of forecasts, note decrease in interest to smart watches, and their production causes a number of technical problems. Experts believe that consumers do not accept the high price of the device, and also its ambiguous functionality and the field of application.
According to the research of KGI Securities, deliveries Apple Watch to the world market in 2015 can appear below expectations for 50%.

KGI Securities is known for exact forecasts concerning products of Apple. Analysts of KGI were the first who declared future release of iPhone 5c in the plastic case and existence of the sensor of a fingerprint in iPhone 5s at the beginning of 2013.

Now experts claim that demand for Apple Watch within preorders was much lower than expectations of the company. As a result, the management of Apple made the decision to reduce the volume of deliveries of watches to retailers from 20-30 million to 15 million pieces in 2015.

At the time, in the third quarter, only 5-6 million devices will be delivered to the world market, although earlier the corporation predicted significant increase in demand after the smart watches’ release.
By the way, initially, start of Apple Watch sales on the world market had to take place for a month later - in July. However, the corporation decided not to hesitate with release of the product. Analysts of KGI Securities regard it as one more proof of rather low demand for the gadget.

The matter is that so late date of release initially was explained by problems with production of the smart watch components by number of the enterprises - partners of Apple. Failures in deliveries arose in production of the Taptic Engine mechanism at plants of the Chinese AAC Technologies Holdings in the city of Shenzhen. This mechanism became one of the main innovations of Apple Watch as it provides special tactile interaction with a wrist when getting notices and work with cards.

The tests which are carried out in February showed that the Chinese mechanism was too unreliable, and as a result, the company was compelled to suspend deliveries and destroy some large consignments of Apple Watch.

After that, the corporation addressed to one more supplier of Taptic Engine - the Japanese company Nidec. However, at first, they needed to increase production of the mechanism.
Besides, Apple began test assembly of Apple Watch at Foxconn subsidiary. Chinese company Hon Hai Precision Industry Co., responsible also for assembly of iPhone, will begin a mass production of hours towards the end of 2015.

At the same time, postponement of release of Apple Watch for earlier date can withness that the American corporation already overcame production difficulties and now tries to fight against decrease in interest of users in a gadget.

The success of smart hours is extremely important for the company as expectations of the market are inseparably linked with their release. So, after the emergence of news about problems with production of Taptic Engine, the price of Apple stocks in NASDAQ decreased more than by 1%.
The destiny of Apple Watch is not less important for the management of corporation too, as the smart watches became the first new product of the company after Tim Cook's arrival on the CEO's post. Failure of the project would mean in many respects that Steve Jobs's successors are not capable to introduce innovative products successfully.

Tim Cook repeatedly declared that demand for Apple Watch surpasses the offer, though refused to reveal concrete volumes of orders. According to him, the speed of implementation of preorders has to increase after postponement of release of smart hours for June.

Let's note that the corporation presented Apple Watch in September, 2014. Results of their pre-sales were not included in financial statements of Apple. Then record sales of iPhone 6 became the main driver of growth of revenue. More than 60 million smartphones sold allowed the company to increase the cumulative income by 27%, to $58 billion, and net profit for 35%, to $13,6 billion.