Apple Inc. (NASDAQ:AAPL) investors might not expect Apple Inc.’s watch to become as great a commercial success as its iPhone has become but due to how high-priced some of its versions are, some investors believe the watch would still be immensely profitable. Colin Gillis of BGC Partners was on CNBC to prove this impression wrong. According to Gillis high prices can run Apple Inc. the risk of running behind broader market unit growth.
“That’s a great point that they continue to want to maintain their profitability and I think the ASP’s for the watch are going to come in higher than people are initially expecting – that may again come at the expense of unit growth. But, even in the best case scenario for the watch, it’s going to be around 7% of the revenue. So, if you’re looking as an Apple investor in the March quarter results, you care a lot more about how do we do in terms of iPhone inventory increases and then in the June quarter, how is the iPhone going to maintain its unit shipments versus the impact of the watch?” Gillis said.
Samsung Electronics Co Ltd (SSNHY)’s smart-watch failed the acid test and it had more or less carried the same functions as Apple Inc.’s watch would. But, Samsung Electronics Co Ltd had decided to market their watch more as an accessory than an independent product. Apple Inc.’s marketing strategy is different than that of Samsung Electronics Co Ltd but we do not know if Apple Inc.’s watch breaks any ground in smart-watch making. Gillis’s point is that, on one side, Apple Inc.’s competitors are putting all their resources to close the functionality gap between their products and Apple Inc.’s; and then on the other hand Apple Inc. is answering that with widening the price gap. That would mean slow unit growth for Apple Inc. – and that might also put Apple Inc. (NASDAQ:AAPL) slowly out of growth.
“The ASP’s can go up more but they run the risk of running behind the broader market unit growth. That means that you’re serving the high end of the market place. That’s fine, but if competitors are able to close the functionality gap, while the price gap widens, you’re going to see slower unit growth. That’s the risk that happens particularly after this current upgrade cycle, where people have a phone, you may see the longevity; those phone last longer than two years,” Gillis said.
Being that no company that has ever had the market cap exceed half a trillion dollars has ever been able to sustain that overtime, Gillis believes that Apple Inc. (NASDAQ:AAPL) must work on creating more revenue streams.
“What gets me excited is: can they build up recurring revenue streams? The notion of having a subscriber base for TV – that is, you know, in itself, is mildly appealing – but if they can use that customer data a build up a targeted advertising stream that could go along with that – because consumers view Apple as a trusted guardian of their data – that would get me very excited,” Gillis said.
Gillis has long insisted that smartphone market would one day dry up and that Apple Inc. must work on building up more sources of generating revenue to sustain its growth.
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