Could an Apple iWatch revolutionize smart watches the way the iPhone revolutionized smartphones? Morgan Stanley is betting the answer is yes.
Industry watchers expect the iWatch to make its way to the market later this year and Morgan Stanley analysts are already analyzing its potential success. In a Monday report, the firm boiled down its success to brand loyalty.
"In our view, Apple will introduce a device with more sensors, and better form factor and aesthetics than competing devices in the market priced at $100-250," Morgan Stanley writes in its note. Against that backdrop, the firm expects Apple to sell the iWatch for $300, which would equate to at least a 40 percent profit margin.
Would You Buy One?
Morgan Stanley’s Katy Huberty made a bold prediction in the research note: Apple will sell between 30 million and 60 million iWatches in the first 12 months. She bases that prediction on “historical penetration of past iDevice[s].”
Is this a plausible prediction? Consider a recent survey from Piper Jaffray that asked 10 people about watches and wearables. That survey reveals 14 percent would buy a $350 smart watch from Apple. Piper concluded that a $200 iWatch would be even more appealing.
Ultimately, 41 percent of those surveyed said they wouldn’t buy an Apple smart watch no matter how little it costs. More than 30 percent said they would invest in an iWatch if it cost $100 to $200. Morgan Stanley is predicting that the $300 price tag may not bode well for Apple. Then again, Apple has always pushed out premium products and typically sees strong demand.
Anything Is Possible
We caught up with Roger Entner, principal analyst at Recon Analytics, to get his thoughts on Apple’s chances to sell massive numbers of iWatches at a high price point. He told us if the iWatch is as transformational as the iPhone and iPad, Morgan Stanley’s predictions are realistic. In fact, he said if the iWatch is a truly transformational device, it could blow away all the projections.
“We are still waiting for the first wearable device done right. Apple has a very good track record of doing devices right. So we all hope Apple comes up with an iPhone-type device rather than a Rokr type device. The Rokr was the first device that came out with iTunes integration and it stunk,” Entner said.
“With Apple everything is possible. They have done magic before. They have a track record of doing truly inspired work that makes you step back and take a breath and saw ‘wow,'" he added.
The Bigger Picture
Market researcher IDC predicts the worldwide wearable computing devices market will reach a total of 19.2 million units in 2014. Primarily, Fitbit devices, Jawbone's UP bracelet, and the Nike+ FuelBand are driving the market.
IDC also estimated the Pebble smart watch, Samsung Galaxy Gear, and the Sony SmartWatch will take a giant step forward. According to IDC, the runway for smart wearables is long, and it will not be until 2016 that we begin to see millions of units shipping.
"Wearable computing is still at the launchpad. The market has certainly warmed up to the notion of wearables, but the spectrum of devices is so large, ranging from very simple, single-purpose devices to full-fledged computers that different categories will be able to gain salience sooner than others,” said Ramon Llamas, research manager with IDC's mobile phones team.
“This will either allow vendors to hone their products and services or jump in sooner and establish critical ties with suppliers, distributors, and other players in the ecosystem," he said.