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Much Ado About The Apple Watch

Posted on Wednesday, May 13th 2015

There is just no stopping Apple (Nasdaq: AAPL). The company recently announced stellar financial results, another strong growth for iPhone sales, and released the much awaited Apple Watch, marking their entry into the wearables segment.

Apple’s Financials

Apple’s second quarter revenues grew 27% over the year to $58 billion, significantly ahead of the Street’s estimates of $55.95 billion. EPS of $2.33 was also significantly ahead of the market’s forecast of $2.15 per share.

During the quarter, Apple sold over 61.2 million smartphones compared with the market’s expectations of 57 million. iPhone sales were driven by the rising adoption of the phones in China. During the last quarter, China contributed $16.8 billion in revenues for Apple making them the second largest market for Apple. Overall phone revenues grew 55% to $40.3 billion for the quarter.

Meanwhile, Apple continued to beat the trend of declining global PC sales. Mac sales increased 10% to 4.56 million bringing in $5.62 billion in revenues. iPad sales, however, fell 23% to 12.6 million units, contributing $5.43 billion in revenues. Revenues from other services increased 9% to $4.8 billion and revenues from other products declined 10% to $1.69 billion.

By region, Americas revenues grew 19% to $21.32 billion. Investments in China are paying off as the market grew 71% to $16.82 billion while the European market grew 12% to $12.2 billion. Japan’s sales fell 15% to $3.46 billion and from the rest of Asia Pacific increased 48% to $4.2 billion.

For the current quarter, Apple forecast revenues of $46 billion-$48 billion, in line with the market’s expectations of $47 billion.

The Apple Watch

After much waiting, Apple finally released the Apple Watch to mixed reviews. The Apple Watch carries forward Steve Jobs’ legacy of successfully integrating technology with an elegant design. But it comes with its issues. Users have complained about apps being too slow to load, having too many bugs, and in some cases being excessive for a screen that size.

That is an issue that will likely get fixed as more developers get into the market to develop apps for the product. Companies are already offering new apps for the Apple Watch. Recently, Volkswagen announced the Car-Net app that lets users remotely lock or unlock their cars, honk horns, flash lights, check gas tank and battery status, and even track if the car is being driven somewhere and its speed, all from their Apple Watch app.

Additionally, the Apple Watch’s first release also came with its share of bugs. For instance, the Apple Watch’s ability to monitor the user’s heart rate is compromised in case of tattoos and for people with darker skin.

But the bigger issue for Apple lies in offering a big USP for the Apple Watch. For instance, when Apple released the iPhone, its biggest selling feature was that it was a device that integrated the phone with the Internet. The Apple Watch is yet to offer something similar. For now, many believe that Apple Watch falls in the nice-to-have category instead of a must-own.

According to an IHS forecast released last week, the global smartwatch market is projected to grow from 3.6 million unit shipments in 2014 to 101 million shipments by the year 2020. The researcher projects Apple to ship 19 million units this year.

Overall, you can count me a skeptic on this product line. I don’t see the value.

Apple’s Tablet Sales

Apple surely needs a big product soon considering that they are losing some ground in the Tablet segment. Recent IDC research report reveals that their Tablet market share has fallen from 40.2% in Q1 2013 to 32.7% in Q1 2014 to 26.8% in Q1 2015. Many attribute the declining share to increased competition from both the Netbooks – the lighter and thinner Notebooks and phones with bigger screens. In fact, Apple’s own iPhone 6 and 6 Plus are themselves cannibalizing iPad’s sales.

Apple is trying to address the issue by increasing their focus on the Enterprise segment. Their agreement with IBM last year is expected to help them improve their Enterprise reach. More recently, through their IBM tie-up, Apple announced plans to deliver iPads and specialized apps and services to Japan’s elderly.

Their stock is trading at $126.32 with a market capitalization of $727.73 billion. It touched a high of $134.54 late last month.

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