Apple Inc.’s iWatch – huge seller or a flash in the pan

Apple Inc. (NASDAQ:AAPL) has been planning the rollout of its wearable iWatch for some time now, though the company has remained tight-lipped about the details, which is its usual style. This, of course, has not stopped commentators and market watchers from speculating on the details of this product, considering what Apple hopes to achieve by its launch, and whether it will prove to be highly profitable or simply a minor sideline to Apple’s main sales of smartphones and tablets.

Katy Huberty, a Morgan Stanley analyst, has predicted that the iWatch will produce a rich windfall of cash. Ms. Huberty asserts that sales of $17.5 billion can be expected during the first 12 months after release, which would place the device more than $5 billion ahead of the iPad’s initial year sales if it proves to be true. Her optimistic scenario is based largely on a 30 percent increase in R&D spending and a 32 percent rise in capital spending, plus nebulous rumors that either 100 or 200 designers are working on perfecting the wrist-worn “smartwatch.”

The Motley Fool represents a group of commentators who are rather less sanguine about the iWatch’s rosy future. In an editorial, the well-known investment advice site predicted that the iWatch would be a flop for a variety of reasons. Highly functional smartwatches already exist, for example, and are priced far lower than an Apple product would likely be. Wristwatch sales in general are low, while the iWatch would need an iPhone to interface with – yet iPhones already offer so much functionality that, the argument goes, the iWatch would be superfluous.

A final possibility is that the iWatch is no more than “vaporware” – a much-bruited project that loiters in development and rumor for years, and never achieves physical reality. Apple Inc. has seen its share of vaporware in the past, and such dead-end projects tend to multiply as a company matures and, eventually, ossifies. Even if Apple plans to make the iWatch (and it has not definitely stated yet that such a product exists or will exist), it is possible that design difficulties and production costs will lead to its abandonment or indefinite postponement.

The most likely scenario is that the iWatch will indeed be released, and will be a modest success – somewhere between the glowing optimism of Morgan Stanley and the “doom and gloom” of the Motley Fool. Most Apple Inc products turn out to be more successful than their detractors forecast them as being, which in itself is enough to suggest robust sales if Apple is confident enough to push the smartwatch through to completion.

Conversely, the iWatch is more limited than many products, since it is rumored to have a narrower range of applications and to require another device such as an iPhone in order to function. This makes it more “specialized” and thus cuts its overall appeal, unlike a smartphone or a tablet, which are essentially universally flexible electronic tools. This suggests the most likely scenario is that medium sales can be expected, prompting a mild upward bump in Apple Inc.’s share prices.

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