Apple launched their watch and from everything we hear it's the best attempt that anyone has made to create a device that doesn't merely replicate the smartphone experience on an inferior form factor. Is this Apple Watch the final iteration? We all surely hope not, but that shouldn't be a barrier to adoption.
Several analysts pointed out that even if Apple sells 25 million watches, it will barely move the needle for Apple. But what about the watch industry? If we assume that only 5 percent of new iPhone buyers are getting an Apple Watch, the impact on the watch industry will be massive. If we used Q4 2014's 39.2 million devices as run rate, we get to an arguably conservative 7.8 million watches per year. Considering a 60 percent Watch Sport, 39.5 percent Watch, and 0.5 percent Watch Edition split, we get to an average selling price of $512. This translates into $4 billion in revenues just in year one.
The 96 year-old Rolex, the world's third largest watch manufacturer, has roughly $4.5 billion in revenues. Using the same split and considering a conservative 50 percent gross profit margin, Apple's Watch segment will have gross profits of $2 billion. The world's largest watch manufacturer, Swatch, with $8.8 billion in revenues, has only profits of $1.8 billion.
It looks like Apple is poised to become the most profitable watch maker in the world. After mobile payments this would be the second new business segment Apple enters within a year and instantly becomes the leading provider.
If Apple figures out how to make the connected watch a stand-alone device and it starts to cannibalize the smartphone business the impact on its smartphone competitors will be as dramatic as when Apple entered the "phone" business.
Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.