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the Apple (NASDAQ: AAPL) The watch line has clearly been a success for the tech giant. In fact, as CEO Tim Cook pointed out, when the company launched the product a few weeks ago, "Apple Watch is not just the # 1 smartwatch in the world, it's not just the world's # 1 smartwatch. is the watch n ° 1, period ".
The latest version, known as the Apple Watch Series 4, debuted at this event, with many upgrades since its predecessor, the Apple Watch Series 3.
Image source: Apple.
These enhancements, which my colleague Daniel Sparks has described in more detail here, include a faster S4 chip, larger screens (the Apple Watch Series 4, like its predecessors, comes in two sizes), a thinner case, "a new accelerometer and a gyroscope, are able to detect hard falls, as well as an electric heart rate sensor that can receive an electrocardiogram (ECG) with the help of the new ECG application, […]. "
In other words, it's a huge leap forward for the product category.
It is not surprising that TF Securities analyst Ming-Chi Kuo has some good news to share on the sales momentum of the new device. Let's take a closer look.
Increase shipping estimates
According to Kuo, "the demand for Apple Watch Series 4 is much better than expected."
In addition, he said: "The capacity of the assembler Quanta is already full". This means that until Compal (another Apple contract manufacturing partner) also begins producing the Apple Watch Series 4, the supply can not grow significantly .
Kuo's note indicates that Compal will start manufacturing Series 4 in November. In light of this, he raised his forecast for Apple Watch shipments for 2018 from 18 million (which would have been a solid figure) to between 18.5 and 19.5 million units.
Why is it important
There are two reasons why Apple investors should be satisfied with this news (assuming, of course, that Kuo's reading of the demand situation is correct). First, if the sales of the Apple Watch Series 4 are better than expected, larger deliveries of Apple Watch units will result in a higher turnover and gross margin than forecasts for the unit "other products" of the company.
Another thing to keep in mind, however, is that the Apple Watch Series 4 is selling at a price higher than that of its predecessor when it was the Apple Watch. As a backdrop, Series 3 was launched at $ 329 for the variant with just one GPS, and $ 399 for the one with GPS and cellular capability. The Series 4 debuted at $ 399 for the GPS model only and at $ 499 for the GPS-plus-cellular model.
To be clear, I do not think that Apple is increasing prices simply to try to attack customers. I therefore doubt that its gross margin per device has increased significantly with this generation of products. Instead, I suspect that the cost structure of the Apple Watch Series 4 is significantly higher than that of its predecessor, so the company had to raise prices to compensate.
Be that as it may, given the apparent popularity of the Apple Watch Series 4, the company might not just enjoy the growth of Apple Watch shipments over the next year. This could accelerate the growth of Apple's revenue in smartwatch.
Ashraf Eassa has no position in the mentioned actions. The Motley Fool owns shares and recommends Apple. The Motley Fool offers the following options: long calls from January 2020 to $ 150 and short calls from January 2020 to $ 155 on Apple. Motley Fool has a disclosure policy.
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