At last week's Apple event, the Apple Watch was overshadowed by new iPhone and iPad models and updated tools for healthcare applications. However, Tim Cook did announce that the Apple Watch was getting a price cut. The cheapest model now costs $299, down from $349 originally.
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The Apple Watch is now $50 cheaper than before. Photo: Apple
The price cut has some pundits worried that the Apple Watch is selling very poorly. But while it hasn't been a smash hit, the first-generation Watch has put in a credible performance -- and the upcoming next-gen model should be able to build on that foundation.
Moderate first-year sales performanceApple has never released official sales figures for the Apple Watch. However, third party reports from Canalys and IDC both suggest that Apple Watch shipments totaled about 12 million in 2015. These sales estimates seem reasonably accurate, based on the revenue trend for Apple's "other products" category.
If so, it means that sales fell short of many analysts' expectations. 20 million sales in the first year was a fairly common estimate. (The Apple Watch didn't ship until April, so 2015 wasn't a full year of sales -- but that wasn't a difference-maker.)
However, in comparison to previous new Apple products, the Watch's performance doesn't look too bad. In the iPhone's first 12 months on the market, Apple sold about 6 million units. For the iPad's first 12 months, it sold about 20 million. Apple Watch sales will end up somewhere in between.
Furthermore, Apple smoked the competition in 2015, grabbing more than half of the smartwatch market. It still needs to convince a lot more customers that they should buy a smartwatch, but none of its would-be rivals are in a position to eat Apple's lunch.
What about that price cut?The recent Apple Watch price cut isn't really a desperation move, either. Most people don't remember it now, but the iPhone got a $200 price cut a few months after being launched in 2007. That didn't stop it from becoming a global smash hit in the following years. Apple now regularly cuts the prices of year-old iPhone and iPad models by $100.
Apple routinely reduces the prices of its iPhone models as they age. Photo: Apple
The Apple Watch was first unveiled 18 months ago and has been on sale for nearly a year. Tech products don't gain value with age -- so it shouldn't have been a big surprise that Apple was ready to drop its price.
Will the Apple Watch 2 drive growth?Even with a new starting price of $299, the Apple Watch isn't likely to fly off the shelves during the next few months. While many Watch owners are very satisfied with their purchase, the first-generation device clearly has limitations. Battery life has been an issue for many users, and Apple should be able to make improvements there for the Apple Watch 2.
Fans and critics alike have come up with numerous other ways that Apple could make the Apple Watch better. History shows that this is an opportunity more than a problem. It might be hard to imagine now, but the original iPhone didn't have an app store -- that only came with the iPhone 3G. (And the App Store launched with a paltry 552 apps.)
Obviously, it's possible that the Apple Watch will never really catch on. But it's way too early to make that call. Apple has huge opportunities to improve the Watch over the next few years. As it gains new functionality, it will be able to meet the needs of more and more consumers. Apple investors just need to be patient as this process plays out.
The article Should Investors Be Worried About the Apple Watch? originally appeared on Fool.com.
Adam Levine-Weinberg is long January 2017 $85 calls on Apple. The Motley Fool owns shares of and recommends 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.
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