Outside the Box: Apple probably didn’t sell more than 3 million watches last quarter
After Monday’s preview post on Apple Watch sales, I thought I’d take a stab at interpreting Tuesday’s earnings report and call on this specific point. My earlier post highlighted the challenges and pitfalls inherent in such an exercise, so I’ll walk you through all my assumptions so you can follow along and decide whether you agree on the way.
Apple’s ‘Other Products’ revenue
The starting point for this analysis of Apple AAPL, -4.51% is revenue from “Other Products,” the segment that includes all hardware products but the big three, along with both Apple’s own and third-party accessories. That category has been in decline, but not a very consistent rate of decline. Revenues in the latest quarter were $ 2.641 billion in this segment, compared with $ 1.767 billion a year earlier (on the restated basis Apple provided in January, which includes Beats headphones). That means growth of $ 874 million year over year and $ 952 million sequentially. I always find annual growth a more useful measure, so we’ll focus on that. I’m going to assume that Other Products revenue excluding Apple Watch declined by 10% to around $ 1.6 billion.
That is based on the recent rate of decline, and you could argue that we might put this number as low as $ 1.4 billion, but I’m not necessarily ready to go quite that low. Cook confirmed on the earnings call that both iPod and accessories shrank year over year, but didn’t say by how much. If we take $ 1.6 billion as our number, that gives us just over $ 1 billion in revenue for the Apple Watch, which is obviously a lot lower than I talked about previously.
Also read: 3 reasons the Apple Watch disappointed
Average selling prices and unit sales
The next challenge is to set an average selling price (ASP) to divide this revenue figure by, to get a unit shipment number. My assumption for average selling price had been that it was likely somewhere around $ 500, which is a nice sort of midpoint between the lowest and highest prices for the two mainstream models, the Watch Sport and Watch, implying that the two had sold in roughly equal proportions, and/or that Edition sales helped push ASP up a little if Sport sales outweighed Watch sales.
However, there are a couple of things that suggest we should moderate this: One is some survey data that suggest a heavy skew toward Watch Sport sales, and therefore a lower ASP. But the stronger signal came from Apple itself. On the earnings call and in conversations with reporters, Apple’s executives have suggested that sell-through for the first nine weeks for the Apple Watch was ahead of the same period for the iPad.
That’s a specific thing to say, and deliberately doesn’t give us a specific number to work with either, since the iPad was on sale for 12 weeks when its first quarter of sales was reported. So we don’t have a nine-week number for iPads. The first reported quarter number was 3.27 million iPads shipped (not necessarily sold through), so perhaps we apply a 75% figure to that, which assumes a somewhat straight-line trajectory, which may or may not be realistic. So 75% of 3.27 million is 2.45 million. If we want, we can also make an adjustment for the fact that this is shipments, not sell-through, and perhaps reduce it a tad more. But on this basis, Apple might have sold 2.5 million Apple Watches by the end of the quarter.
See: It’s too soon to abandon Apple, analysts say
So let’s take that number and figure out what it implies about average selling prices. A total of $ 1 billion in revenue divided by 2.5 million shipments suggests an ASP of exactly $ 400, quite a bit lower than my original $ 500 figure. But if sales did indeed skew heavily toward the Watch Sport, and if most buyers didn’t buy extra straps and so on, it’s just about realistic.
Moving to a range