Apple Has Sold Over $1 Billion of Watches, but These 7 Charts Show the Apple Watch's Start Was a Failure

Even on the most optimistic sales estimate, the Apple Watch has not done well.

In the early hours of July 22, Beijing time, Apple reported its sales for April to June. Quarterly profit reached US$10.7 billion, up 38% from a year earlier. Yet in the four hours of after-hours trading that followed, Apple's shares fell 6.85%, wiping out more than US$50 billion in market value.

The iPhone keeps selling better and the iPad keeps sliding. But the product everyone watched in this quarter's results was the Apple Watch.

Unveiled last September, the Apple Watch has now been on sale for three months. It is the first new product Apple has launched since Tim Cook became CEO in 2011. It has to find Apple its next source of revenue after the iPhone, and it will show whether the company can still change the shape of computing after Steve Jobs.

Since the watch went on sale, however, Apple has never disclosed a single sales figure for it, and this quarter's report again lumped it into "Other Products." Cook said this was because production still could not meet demand, and because the watch is an entirely new product that Apple needs time to get on track.

Fortunately, "Other Products" is a small category. It contains only Beats headphones, Apple TV, the declining iPod and assorted accessories, so its growth gives us a rough idea of how many Apple Watches were sold.

How many Apple Watches were actually sold?

Apple's "Other Products" revenue this quarter was US$2.641 billion, up 49% from a year earlier. It is the first time in 10 quarters that the category has grown, and the growth can be credited almost entirely to the Apple Watch.

On the earnings call after the results, Apple CFO Luca Maestri gave two pieces of information about Apple Watch sales:

• Apple Watch revenue was "well over" the difference in "Other Products" revenue between the first two quarters of this year (US$952 million);
• In its first nine weeks on sale, the Apple Watch outsold the iPhone and the iPad in their first nine weeks.

Before the results, UBS estimated that the Apple Watch sold 3 million units in its first quarter, while Wall Street analysts on average expected 3.5 million. Among analysts who published their numbers, the highest estimate was 4.8 million units and the lowest only about 2 million.

If we assume US$1.5 billion in revenue and an average price of US$450 per watch (the 42mm Sport model costs US$399), the Apple Watch sold 3.33 million units in its first three months.

That is already a generous figure, because the real average selling price is almost certainly higher. The consumer data firm Slice Intelligence and KGI analyst Ming-Chi Kuo both put it at around US$503.

Actual sales are unlikely to be much above 3 million, and may be closer to UBS's estimate of 3 million units. After the results, Wall Street analysts cut their estimates to between 1.5 million and 3 million.

In fact, even if we use the optimistic figure of 3.33 million, the picture is not good.

What does 3.33 million mean? It is the best-selling smartwatch so far

In 2014, global smartwatch sales were 5.996 million units. The top three makers, Samsung, Pebble and Fitbit, sold 1.2 million, 700,000 and 600,000 respectively.

Unlike in smartphones, the top three smartwatch makers tend to use their own operating systems rather than Android Wear. Samsung, for example, puts its own Tizen system on its smartwatches.

As a result, only 720,000 Android watches were shipped in 2014, and 500,000 of those were the Moto 360, from a brand that Lenovo acquired.

In 2015, by contrast, the Apple Watch outsold in a single quarter what every other smartwatch maker sold in a whole year. And Android, which took the lead in smartphones by flooding the market with models, has lost outright to Apple's iOS on the wrist.

But that is not because the Apple Watch is so good. It is because its rivals are so weak.

But for an Apple product, this is nothing to be proud of

Since other smartwatches offer no meaningful comparison, we can instead set the Apple Watch against Apple's own products.

Measured by launch quarter, the Apple Watch is Apple's best-selling product: the iPhone sold a mere 270,000 units and the iPad 3.27 million.

But Apple's clout today is nothing like what it was then. According to data from the brand consultancy Interbrand, Apple's brand was worth only US$11 billion in the year the iPhone launched. By the time the Apple Watch launched, Interbrand's ranking valued it at US$118.8 billion, more than ten times as much:

The first iPhone also went on sale only in the United States, on a single carrier, AT&T, and the iPad likewise launched only in the US. The Apple Watch launched in nine countries and regions, including China.

Given how much Apple's distribution and brand have grown, the Apple Watch should have far outsold the iPad, the last new kind of device Apple launched, five years ago.

The bigger problem is where the trend is heading

Google search interest is an important measure of how much attention a product gets. On this measure, the Apple Watch's 11 months since its unveiling last September fall far short of the iPhone's and iPad's over the same span:

The comparison shows two things. The Apple Watch draws far less search interest than the iPhone or iPad in absolute terms, and its interest went flat once it went on sale. Interest in its two older siblings, by contrast, rose sharply after they went on sale.

In the Google data, the Apple Watch figure covers searches for both "Apple Watch" and "iWatch." We did not use Baidu because its data only goes back to January 2011, too late to show how the iPhone and iPad did at launch.

Apple Watch or iWatch?

Beyond falling sales and search interest, one small detail points to another problem: the Apple Watch has simply failed to make its name stick. Just count how many people around you still call it the iWatch.

Search for "iWatch" on Sina Weibo and you will immediately find a flood of promotions offering an Apple iWatch as a prize, such as a slogan contest run by ZTO Express and a repost-to-win giveaway for the game Inception Heroes.

On both Google Trends and the Baidu Index, searches for "iWatch" are still high today. On the Baidu Index in particular, they have held steady at about half the volume of searches for "Apple Watch."

Apple's habit of naming devices with an "i" is, of course, deeply ingrained. But the name Apple Watch has been in Apple's marketing for nearly a year, since the launch last September. That "iWatch" still draws so many searches on Baidu shows the Apple Watch has failed to establish its identity.

What if we judge the Apple Watch purely as a watch?

Before the Apple Watch came out, many people expected it to hit the Swiss watch industry hard. Elmar Mock, a co-inventor of the Swatch, even said it would push Swiss watchmaking into an ice age. Jony Ive, Apple's head of design, also said the Swiss watch industry was in trouble.

Over the past three months, the Apple Watch has indeed sold far more than Swiss watches at similar prices.

Data from the Federation of the Swiss Watch Industry (FH) shows that Swiss watch exports dipped year on year after the Apple Watch went on sale, most sharply in May. From June, however, shipments in almost every price bracket returned to normal.

Only watches priced between US$208 and US$522 (200 to 500 Swiss francs) are still falling, and that is also the bracket where the Apple Watch sells most.

Judging by the correlation, the Apple Watch does seem to have dented the Swiss watch industry when it first went on sale. But as its sales fell quickly, by June Swiss watches outside the middle price range showed almost no sign of its effect.

Of course, if we see it simply as a fashion accessory for iPhone users, 3.33 million units is quite respectable.

But Apple wants more than an accessory

For now the Apple Watch works only with an iPhone and looks like an iPhone accessory. But the improvements Apple has made over the past six months show that it wants the watch to become a standalone smart device.

At its WWDC developer conference in early June, Apple released watchOS 2.0, which lets the Apple Watch connect to Wi-Fi directly without going through the iPhone. It also opened up a new development tool, the Native watchSDK, which gives developers more freedom by letting third-party apps run directly on the watch and use its sensors.

Reports also say that the next-generation Apple Watch, due this autumn, will have a camera, and that Apple will add a fourth, upper-mid-priced line between the stainless steel and gold editions.

Clearly, Apple is making the product more independent rather than leaving it as an iPhone accessory.

Thanks to the iPhone and Mac, Apple can afford to experiment

Although many analysts have lowered their expectations for the Apple Watch, they remain upbeat about Apple as a whole. The iPhone now carries Apple's revenue, and the large, steady profits from the iPhone and Mac give Apple plenty of time to improve the watch.

According to Canaccord Genuity, the iPhone took 93% of the entire phone industry's profits in the last quarter of last year. Other phone makers earn very little from hardware. Chinese phone makers are all copying Xiaomi: push hardware prices down, then, once the user base grows, make money from game distribution, app store advertising and the like.

It is not just the iPhone. According to Asymco's calculations, the Mac takes 60% of the personal computer industry's profits. Apple's computers sell for more than US$1,200 on average, against US$450 for every other computer maker, so once again Apple takes most of the market's profit.

Phones and computers are today's two most important forms of computing, and Apple alone captures most of their profits, which leaves it with plenty of cash.

But the question in front of Apple has not changed: how to produce the next success on the scale of the iPhone.

Graphics: Tang Yiyuan