Why Apple, Inc. Can't Be Totally Opaque About Watch Results Next Week

Image source: Apple.

Apple reports earnings next Tuesday after the close, and naturally the market will be watching to see what the Mac maker has in store. Of course, the iPhone's performance will be the most financially important to the company.

The good news is that the iPhone is expected to continue its run with better-than-expected sales. At the same time, investors are going to want to hear how the Apple Watch fared during its launch quarter, because the new wearable device represents the first new product category that Apple has entered in five years.

The company has already braced investors for some opacity, saying last October that it would include Apple Watch sales in its "Other Products" category. Apple simplified its reporting for fiscal 2015, and doesn't intend to break out Apple Watch performance explicitly. At the time, Tim Cook promptly shut down the notion that this was being done out of low expectations for the new device. Rather, he said that the new reporting categories were based on current revenue bases, and that it was also "useful" to aggregate the information so as not to give rivals any ideas.

But realistically, Apple can't remain completely mum about Apple Watch's performance. Will Apple share anything next week about how Apple Watch is doing?

Setting the record straightThere simply will be too much interest for Apple to ignore, and Tim Cook will inevitably be grilled by Wall Street analysts to spill the beans. Disclosing absolutely nothing would be a mistake, because investors would assume the worst, and Apple doesn't want that. The last thing that Apple wants is for investors to believe absurd headlines like, "Apple Watch Sales Plunge 90%," and succumb to the ensuing hysteria.

There's no shortage of third-party researchers and analytics companies that are all trying to figure out how many Apple Watches the company is selling; but these researchers could be adopting faulty methodologies. On top of that, analysts are quite good at deciphering whatever data that they're provided with, and many will come up with their own estimates based on whatever high-level results Apple provides for its Other Products category. There will likely be a sequential bump in Other Products revenue attributable to Apple Watch sales, and absent any data, investors will have to speculate.

Apple is a control freak, and it will want to have some semblance of control over the launch's perception, especially if the last thing people remember is the aforementioned headline of sales falling 90% from launch. Apple will want to change that narrative as soon as possible, and the easiest way to do that is to provide a nugget or two of data.

The company has always prided itself on the fact that it's one of the few smartphone OEMs that directly reports its unit volumes, frequently taking jabs at competitors, and saying their market shares are uncertain because they won't report shipments. Choosing not to report Apple Watch units would be somewhat hypocritical in that regard.

Apple can't say nothingInstead, what I believe is most likely is that Apple will casually provide some approximate figure of unit volumes without disclosing a precise revenue figure. Perhaps something like, "more than 5 million units," which would be vague enough to achieve Cook's stated strategic disclosure goals while also allaying fears about weak demand. Analysts already expect Apple to be shipping about 2.5 million units per month, which would be pretty impressive considering the total market was 6.8 million units throughout all of 2014.

While Apple never explicitly discloses product mix in any of its categories, average selling prices give investors (and competitors) an idea of what the company is shipping. But Apple Watch pricing is unique in that it has the widest spectrum of any Apple product (by far), ranging from $350 to $17,000. Perhaps the competitive fear here is that if Apple shows rivals that there's demonstrable demand for a $10,000 smartwatch, they'll attempt to jump in also with gold models. It's understandable why Tim Cook doesn't want that; but at the same time, saying nothing whatsoever is not an option.

Give investors what they want, Apple. Apple Watch is too important to be completely opaque about. Don't be like Amazon.

The article Why Apple, Inc. Can't Be Totally Opaque About Watch Results Next Week originally appeared on Fool.com.

Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of 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.

Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.