By John Gruber
Kolide — User focused security for teams that Slack.
Lorraine Luk and Daisuke Wakabayashi, reporting today for the WSJ, “Apple Orders More Than 5 Million Watches for Initial Run”:
Apple has asked its suppliers in Asia to make a combined five to six million units of its three Apple Watch models during the first quarter ahead of the product’s release in April, according to people familiar with the matter.
I would wager — heavily — that these numbers come from supply chain sources, not Apple executives. I can’t see why anyone at Apple would see a strategic advantage to leaking these numbers, especially the split between Sport, regular, and Edition models:
Half of the first-quarter production order is earmarked for the entry-level Apple Watch Sport model, while the mid-tier Apple Watch is expected to account for one-third of output, one of these people said.
Orders for Apple Watch Edition — the high-end model featuring 18-karat gold casing — are relatively small in the first quarter but Apple plans to start producing more than one million units per month in the second quarter, the person said. Analysts expect demand for the high-end watches to be strong in China where Apple’s sales are booming.
Even in the initial quarter, 17 percent of “5 to 6 million” is 850,000 to 1,000,000 units. That’s a lot for a model that is going to be expensive. More interesting to me is that, according to this WSJ report, Apple is indeed going to assemble the Edition models in China. I have wondered, idly, whether Apple might assemble the Edition models in the U.S., like they do with Mac Pros, to further their prestige. At a million or more units per quarter, I can see why they might have to do it in China just to achieve the scale, but I believe it is unprecedented in the watch industry for a luxury model to be assembled in China.
Apple Watch Sport will start at $349. Apple hasn’t announced pricing for the other models, but Apple Watch Edition is expected to be among the most expensive products the company has ever sold, likely surpassing the $4,000 Mac Pro computer.
When I was a freshman at Drexel in 1991, there was a kid in my dorm with a $12,000 Mac IIfx. (He was an asshole who cheated at Spectre.) So the record — particularly inflation-adjusted — is pretty high.
Ancient Mac history aside, consider the numbers. If Apple actually sells 1 million Edition units per quarter, and they sell for an ASP of $5,000, that’s $5 billion in revenue per quarter — just for the gold Edition models. If the ASP is closer to $10,000, which I still think is possible, double that.
3 million Sport units at $350 comes to “only” $1 billion or so. 2 million stainless steel regular units with a $1,000 ASP would be an additional $2 billion.
So as a business — if the WSJ’s sources are correct,1 and if Apple is correctly predicting demand — Apple Watch revenue will be dominated by the gold Edition units, accounting for double or more of the revenue from all the other models combined. The Edition models would thus do to the Apple Watch lineup as a whole what the iPhone, iPad, and Macintosh do to the entire phone, tablet, and PC industries, respectively: achieve a decided majority of the profits with a decided minority of the unit sales.