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After Hours

More Potential Profit in an Apple iWatch than a TV

More Potential Profit in an Apple iWatch than a TV
March 4, 2013 1:37PM

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"I've been expecting this product along with many others this year," said analyst Rob Enderle of an Apple iWatch. "The idea is an interesting one, put an informative screen on your wrist which is far handier than in your pocket or purse....It could provide a better user experience for those walking, running, riding a bicycle, or even driving a car."

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The iWatch rumors probably won't die until the world sees one. The latest chatter revolves around a Citigroup analyst's predictions about how much revenue Apple could generate from the wearable device.

According to Citigroup analyst Oliver Chen, the global watch industry witnessed more than $60 billion in sales in 2013 alone. Chen estimates the gross margins are about 60 percent on watches, so entering the watch market could be more profitable for Apple than entering the TV market. Anand Srinivasan, a Bloomberg Industries analyst, said gross margins on watches are four times bigger than for televisions.

"This can be a $6 billion opportunity for Apple, with plenty of opportunity for upside if they create something totally new like they did with the iPod -- something consumers didn't even know they needed," Bloomberg quoted Chen, who covers luxury-goods retailers, as saying.

iWatch by the Numbers

Apple has declined to comment on the possibilities of an iWatch, but that hasn't stopped the speculation. The numbers are compelling. IHS Electronics & Media estimates the TV industry will generate $119 billion in sales in 2013. Using Chen's margin estimates, Bloomberg figures a 10 percent share for Apple in the watch market would total a gross profit of $3.6 billion. At the same time, a 10 percent share for Apple in the TV market would total about $1.70 billion.

The rumors started in December when Chinese blog site Tech.163.com started reporting that Apple is in cahoots with Intel to build an iOS watch, and speculates that it is within the realm of possibilities. According to Tech.163.com, supply chain resources have leaked details that describe the watch as a Bluetooth-enabled device with a 1.5-inch OLED screen. Sources said Apple could roll out the iWatch to the masses as early as the first half of 2013.

Piper Jaffray analyst Gene Munster has said wearable computing is something Apple might move into eventually. Apparently, there's at least some market demand. Entrepreneurs raised more than $10 million in a Kickstarter campaign for an iPhone-connected smart watch called the Pebble.

The Jobs Effect

Rob Enderle, principal analyst at the Enderle Group, he was not surprised by the ongoing rumors.

"I've been expecting this product along with many others this year. The idea is an interesting one, put an informative screen on your wrist which is far handier than in your pocket or purse," Enderle told us. "With sensors and a connection to your smartphone it could provide a better user experience for those walking, running, riding a bicycle, or even driving a car."

Still, he said he's concerned that an iWatch might not be a smash success without the Steve Jobs marketing machine behind it. Jobs took the iPad into a market that had decided tablets were trivial and made it -- and the sector -- a tremendous success.

"While the watch market is huge, currently they aren't thought of as either trendy or cool, and that means this product will need a Jobs-like launch for folks to see the device as compelling," Enderle said. "I haven't seen Apple do a Jobs-like launch without Jobs. So the question isn't whether they can build a device that can be cool, it is whether they have what it takes to make us see the device as something we want to buy."

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