Apple Inc. Reportedly Confident About Second-Gen Apple Watch

By Markets Fool.com

Image source: Apple.

Continue Reading Below

According to DIGITIMES, Apple has "stepped up procurement of chips and components for the second generation Apple Watch." The publication cites "sources from the supply chain."

The report goes onto say that component orders for the second-generation Apple Watch have been "higher than expected." The orders, claim DIGITIMES' sources, could mean that Apple is gearing up to ship approximately 2 million next-generation Apple Watches per month.

DIGITIMES' sources also claim that because sales of the first-generation Apple Watch have been sluggish, the robust orders for the next-generation models are "rather aggressive."

What does this mean for the iDevice maker? Let's take a closer look.

Apple Watch 2 could be great

Continue Reading Below

Perhaps the most obvious explanation that comes to mind is that the next-generation Apple Watch might just be a really good product. The first generation Apple Watch was quite limited in its functionality and performance, and with all of the time that Apple has had to refine its next-generation version, I have little doubt that the new version will be a lot better.

A much improved version could drive sales by people who like the idea of the Apple Watch but know from their past experiences with Apple products that the second generation is usually a lot better than the first generation of a new product category.

My personal expectation is that the new Apple Watch will see a substantial improvement in raw performance, which should enable many a step-function up in what users and developers can do with the device.

As long as smartwatches grow, Apple Watch 2 sales could grow

As long as the category for smartwatches themselves grow over the next year, I can see Apple delivering year-over-year growth in Apple Watch sales. Apple has managed to capture a substantial market share even though it was far from first to market with a smartwatch.

This seems to suggest that, at least in the near future, Apple should at least grow with the market (in other words, not lose market segment share). That said, if smartwatch sales ultimately tank, then Apple will probably have to scale back its build/order plans as it could suffer a year-over-year decline in the coming product cycle.

Apple Watch is worth watching, but don't base investment decisions on it

At the end of the day, Apple Watch is a nice new product category for the iDevice maker. If the company can continue to grow it out in time, then that's good -- more gross-margin-positive revenue is generally welcome.

However, I don't think it'll ultimately turn out to be the next iPhone or, frankly, even the next iPad in terms of revenue and profit contribution.

My expectation is that Apple will need a bunch of these relatively small product categories in aggregate (i.e., Apple Watch, Apple TV, future Apple product categories) in order to ultimately have a source of revenue that can offset weakness in other product categories.

In other words, Apple is just so incredibly large and successful that it takes a lot to positively move the needle.

The article Apple Inc. Reportedly Confident About Second-Gen Apple Watch originally appeared on Fool.com.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.