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Apple management answers questions on the market performance of Apple Watch

Katy Huberty (Analyst – Morgan Stanley): You’ve said in the past that the watch may take longer to ramp given the new category and new interface to customers. Is that, in fact, playing out? Is the watch ramping slower than past product categories?

Tim Cook (CEO): Katy, when you use the word ramp, do you mean from a — I assume you’re talking about supply?

Katy Huberty (Analyst – Morgan Stanley): Yes. Pre-orders and first week in sales and any other data points that you track in terms of interest versus, say, when the iPad launched in 2010?

Tim Cook (CEO): Let me talk about supply and demand and sort of separate those two. Right now demand is greater than supply. And so we are working hard to remedy that.[1]

We’ve made progress over the last week or so and we’re able to deliver more customers an Apple Watch over the weekend than we had initially anticipated. We’re going to keep doing that. […] So I’m generally happy that the — that we’re moving on with the ramp.

It is a new product for us, and with any kind of new product, you wind up taking some time to fully ramp.

Having said that, I think we’re in a good position. And by some time in late June, we currently anticipate being in a position that we could begin to sell the Apple Watch in additional countries. And so that’s our current plan.[2]

From a demand point of view, it’s hard to gauge when you don’t have product in stores and so forth. And so we’re filling orders completely online at the moment.

The customer response from people that have gotten theirs over the weekend have been overwhelmingly positive. And we’re far ahead of where we expected to be from an application point of view.

To give you a comparison, when we launched the iPhone we had about 500 apps that were ready. When we launched iPad, we had about 1,000. And so our internal goal was to be able to beat the 1,000 level and we felt — we thought it would be great if we were able to do that by a little bit.

And as I’ve mentioned before, we now have over 3,500 apps in the App Store for the Watch. And so we couldn’t be happier about how things are going from that point of view.

We are learning quickly about customer preferences between the different configurations. There’s a much larger breadth of possibilities here for customers than in our other products. And in some cases, we called that well and some cases we’re making adjustments to get in line with demand.

But I’m really confident that this is something we really understand how to do and will do. And so I’m really happy where we are currently and happy enough that we’re looking forward to expanding into more countries in late June.

[…]

Gene Munster (Analyst – Piper Jaffray and Co.):  …question for Luca, in terms of any thoughts on what the margin impact from the Watch as that ramps over the next couple of years?

Luca Maestri (CFO): Apple Watch is, not only a new product, but it’s a brand new category with a lot of new features, a lot of new innovative technologies. And Apple Watch margins will be lower than the Company average.

[…]

Toni Sacconaghi (Analyst – Bernstein): I just wanted to revisit the watch.

Tim, I think you said when you were talking about your new products, you said we’re, quote, very happy with the reception. And in response to a previous answer you said, relative to demand, it’s hard to gauge with no product in the stores.

I would say relative to other product launches where your commentary around demand was characterized by superlative after superlative, that assessment feels very modest. And part of the reason that I ask is, A, are we reading you right in terms of that? But if we look at consensus, consensus is expecting that Apple will ship more watches in its first two quarters than it did iPads, despite, as you said, very limited distribution in terms of only selling through your stores.

So I’m wondering if you can talk a little bit about putting those demand comments in context, given that they do seem different from how you’ve characterized product demand for other products. And how, if at all, we should think about the modeling demand in the context perhaps of the iPad, which was your most recent significant new category? And then I have a follow-up, please.

Tim Cook (CEO): I’m thrilled with it, Toni. So I don’t want you to read anything I’m saying any way other than that. So I’m not sure how to say that any clearer than that.

And in any situation, whether it’s the watch or in the past on iPad or on iPhone, when demand is much greater than supply, it’s difficult to gauge exactly what it is. And so, as you know, we don’t make long term forecasts on here. We maybe forecasts for the current quarter. And so I don’t want to make any comment about the consensus numbers.

Honestly, I haven’t even studied those. We’ve got enough to think about here.

I feel really great about it. The customer response, literally from what I’ve seen, is close to 100% positive. And so it’s hard to imagine it being better.

——-

Excerpts from Apple Earnings Report: Q2 2015 Conference Call Transcript, April 27, 2015.

Notes:
  1. This is still true today, three months later []
  2. This has been achieved according to plan. []
  • mjoecups

    Why is this dated today? It’s stale.

    • http://naofumi.castle104.com/ Naofumi

      Some people have forgotten or didn’t pay attention, and are still chasing reports and jumping to funny conclusions. With supply still being constrained, reports can only measure the lower limit of potential demand.

      • mjoecups

        It’s too old to be relevant,
        From my point of view supply is NOT constrained as of the date of republication of this article.

        The Apple store shows availability tomorrow for almost all of the Apple watch configs (at least in the US).

        Those of us that are “paying attention” read this when it was relevant.

      • http://naofumi.castle104.com/ Naofumi

        It has clearly been constrained for most of the past quarter, which is what the reports and funny conclusions are about.

    • jameskatt

      Pay attention. With Apple about to reveal its revenue numbers, this story is very pertinent. It provides a level of expectation about what the numbers may be.

  • Martinicat

    This is remarkably similar to the interview that took place during last quarter’s conference call. cheers, or “here’s mud in your eye?”

  • Camden1

    Re: Footnote 1. “This is still true today” (Right now demand is greater than supply. And so we are working hard to remedy that.)

    How do you know this to be true?

  • mieswall

    I’ve spent these last days at the British Open in St Andrews. The proportion of iphone vs any other smartphone i’ve seen there is at least 20/1 (and everyone brought his smartphone, given the cool app available for tracking the action). Truly amazing. But among tens of thousands of people, many of them americans, I haven’t seen a single Watch. Both in London and Edinburgh Applestores, the watch displays are almost empty, and that is after just weeks of being available at he UK. I expected to find a good number of watch users among healthy golf fans, that, after all, I see as some of the most prone to use the device.
    A very kind salesperson at the Applestore told me that, once the people get aware of what the watch can do for them, they are thrilled. The problem is to convince them of that before, and not after, they buy the watch. Even myself, a complete Apple fan, have not made my mind about buying one. In the end I’ll buy it, but most of all because of experimentation than true conviction.

  • http://bigapplecontest2015.blogspot.com/ Laham Stacy

    I want apple watch so much, can’t wait for it. Apple have so many great ideas last times :). Hope they do it in future!
    http://bigapplecontest2015.blogspot.com/

  • lrd555

    Let me put this way, Apple doesn’t need to announce that it’s managing its expenses in order to excite its investors and make its stock go up.

    Like how pathetic would that be!