Is the New Apple Watch DOA?

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When Apple Inc. (NASDAQ: AAPL) had its product launch event in early September, the iPhone X took center stage. Several other revelations, such as upgraded artificial-intelligence capabilities and the rising potential for augmented reality, took a back seat to the flagship iPhone. With the latest version of the Apple Watch, the most exciting development was that the device could be uncoupled from the iPhone and work independently. This was the result of a built-in LTE chip that could connect to cellular service for a $10 monthly fee, and it allowed the device to make and receive calls, send texts, ask questions of Siri, and get notifications, all absent the iPhone. 

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However, the Watch Series 3 began having connectivity issues almost immediately, as The Wall Street Journal (subscription required) and The Verge both reported. Bugs are fairly common in software, but having troubles out of the gate could potentially dent sales for the new device and dampen enthusiasm for the much-hyped product.

Can you hear me now?

The ability to untether from the iPhone was a key selling point for the new Watch and an incentive for users to upgrade from previous models. Sports and fitness devotees let out a collective cheer at the prospect of leaving the phone home and just wearing the device for running, bicycling, and even swimming.

The Watch had other features that would be particularly appealing to health enthusiasts, including what Apple called "powerful new health and fitness enhancements." The device has "intelligent coaching features, water resistance [to] 50 meters, and a new barometric altimeter that measures relative elevation."

Several early reviewers experienced connectivity issues with the new Watch, which occurs when the device uncouples from the iPhone and mistakenly attempts to connect to Wi-Fi networks that users have saved in public locations, such as hotels or restaurants, thus preventing the Watch from connecting with the cellular service.

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Help is on the way

Apple issued a rare mea culpa even before the device was due to ship:

We have discovered that when Apple Watch Series 3 joins unauthenticated Wi-Fi networks without connectivity, it may at times prevent the watch from using cellular. We are investigating a fix for a future software release.

Reports emerged that deleting the offending Wi-Fi network from the list of saved networks would work as a temporary fix for the issue until Apple comes up with a more permanent solution.

Apple CEO Tim Cook later downplayed the problem, pointing out that it was affecting a relatively small number of users:

"The issue is very minor; it will be fixed in a software update," Cook said. "It has to do with the handoff between WiFi and cellular, and we'll fix that. It only happens in a rare number of cases. I've been using it for quite a while and it works great. So we're very happy about it." 

Demand is still high

You might have expected the issues with the Watch to dampen enthusiasm, but that may not be the case. A week has passed since the problem was first reported, and that doesn't seem to have curtailed demand. When the Watch was released on Sept. 22, it "sold out in so many places around the world," according to Cook, and the company was working hard to meet demand. 

KGI Securities analyst Ming-Chi Kuo echoed that view, stating in a note to investors that demand was "significantly stronger" than expected for the LTE version of the Watch. While he initially estimated that the cellular version would account for 30% to 40% of sales, he now believes it is commanding 80% to 90% of sales. The device began selling out within 15 minutes after the company began accepting pre-orders, and it will probably be several weeks before current orders are filled.  

Users are apparently willing to take Cook at his word that the fix is forthcoming, and that speaks volumes about the company's reputation among its target market.

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Danny Vena owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has a disclosure policy.