Why a Respected Apple Analyst Foresees a Steep Decline in Apple Watch Sales

KGI securities analyst and respected Apple observer Ming-Chi Kuo has circulated a note to investors projecting 15 to 25 percent declines in Apple Watch sales for this year. In it, Kuo states that he’s revised Apple Watch sales projections down from 10.0-10.5 million units to 8.5-9.0 million in 2016. In 2015, by comparison, Apple sold 10.4 million units over a period of 8 months.

Kuo gives four reasons for his pessimistic projections, namely, that Apple Watches have poor battery life, lack killer applications, over-reliance on iPhones, and the “likelihood that multi-touch will not be the best UI solution for wearable devices.”

It’s largely the Apple Watch Series 1 that’s responsible for dragging down sales of Apple smartwatches. The Series 1, which sports an S2 SiP processor, was released as a replacement for the now-discontinued line of original Apple Watches and costs $80 to $100 less to boot. Which is puzzling, since lower price tags ostensibly drive higher sales.

On the other hand, Kuo believes that sales of the Series 2 will spike by 10%, which still isn’t enough to make up for lackluster Series 1 sales. The Series 2, which is priced similarly to the original Apple Watch, bears a number of striking similarities to the Series 1. It looks exactly the same as the Series 1, though it is waterproof, has GPS radio, and faster processing.

Apple has also been struggling to compete with Fitbit, which, although it doesn’t support as many functions, does a few things very well. Kuo likens the Fitbit to the iPod for its “minimalist key functionality and outstanding design.”

“This suggests that sales of the new Apple Watch models are indeed driven by hardcore Apple (US) fans, first-generation replacement demand and niche demand, rather than by the mass market,” Kuo writes, which is to say that Apple Watches have limited mass appeal and suffers from something of an identity crisis.

When it comes to Apple Watch sales figures, Apple plays its cards close to its chest. However, one market research firm, IDC, estimates that Apple sold 1.6 million watches in the second quarter of this year, which would represent a 56.7% sales decline annually. On the plus side, the Apple Watch isn’t really the product that’s driving Apple’s bottom line.