Apple Inc. (AAPL)’s Smartwatch May Prove Majorly Disappointing to Investors

Apple Inc. (NASDAQ:AAPL) has said they are not going to disclose their total smartwatch units sold by the end of the quarter, but some surveys have suggested that Apple Inc. is going to sell one million smart watches in its opening week. It does give an idea that there are really certain Apple Inc. fans who are waiting at Apple stores for this watch to arrive, but, it really does not give an idea about the Watch’s deeper impact on Apple Inc.’s gross margins. Gene Munster of Piper Jaffray was on CNBC to talk about what investors should be looking at in terms of important metrics to measure the Watch’s impact on Apple’s overall momentum.

AAPL, Apple Smart Watch

“As we’ve been surveying over 10,000 people over the last year in the U.S. and the attach rate of iPhone owners is: about 5% to 7% of those iPhone owners say that they are going to get the watch. […] We went back and looked at how many units were sold at iPhone 6 launch and we assumed 8%. So a little bit of the fanboy effect and we got to the million units. So, there is actually some logic around that,” Munster said.

So, after the fanboy dirt settles down, things will actually die down for Apple Inc.’s smartwatch a little bit. According to Munster, the Watch is probably going to become a big category for Apple Inc., but it will take some time. Investors will be carefully looking at charts to point out that slight lift in Apple Inc. (NASDAQ:AAPL)’s gross margins due to the watch, but as Munster pointed out, there is another big and important factor which will come into play.

“Investors are going to look to some of the biggest developers to see how they are actually building applications for the Watch. What we have heard from those developers so far is that Apple is limiting the functionality that they are allowing them to tap into the Watch: part of it for power reasons, part of it for stability reasons,” Munster said.

Apple Inc. (NASDAQ:AAPL) needs to work its way around improving the functionality of the Watch to encourage big developers to put their resources into building apps for its smartwatch because investors might not be happy if they do not see major mobile application developers starting to build all sorts of apps for the watch. From the consumer’s point of view, without its ability to handle all those cool and compelling apps that we are so used to in today’s world, which average consumer would want to buy a watch which is that expensive? As Munster pointed out, average consumers are really struggling with the value of the Watch. Apple Inc. needs to get the average consumer excited about the Watch and its functionality to have a product that will appeal to more than just its most diehard fans.

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