It didn’t have the craziness of an iPhone launch. You didn’t have to worry about dodging a long line of campers outside your local Apple store.

And, in the end, that works for the Apple Watch division. It is all about the margins the company can secure off the smartwatch.

Apple has already announced the initial run has sold out, and ship dates for pre orders are stretching deep into June. The question, which we won’t get a firm answer on until earnings season pops again, is exactly how many units were in that initial run.

Carl Howe, an analyst with Think Big Analytics, estimates the initial production run of the Apple Watch was around 3 million units. He breaks down the models:

1.8 million Sports, 1.3 million Watches and 40,000 Editions.

Using that estimate, Apple will not be able to trumpet sheer volume of sales as the company loves to do with iPhone sales. Instead, Apple gets another gaudy number Wall Street will love.

60 percent.

The number is a market estimate of the gross margins is enjoying with the Apple Watch. Yeah, every business dreams of those types of figures.

With the Apple Watch ‘selling out’ in its first run, revenue has been estimated at $2 billion. Not bad for a device that is a new category for Apple.

Small Production Run for Big Data

Granted, it’s Apple, but there was zero data on how this would play out. Restricting the initial run was smart business according to Howe.

apple watch revenue margins

The company could offer multiple models, and keep the core assembly line streamlined.

“Instead of guessing at the right mix of models to manufacture, I believe that while Apple has manufactured a large number of Apple Watch electronics modules, it will perform the final assembly of actual products – the unique combinations of module, case, and band – to order.”

Two Sizes to Profit

While you can damn near buy any band or strap under the sun, the core of the watch comes in two sizes – 38mm and 42mm. What makes the watch ‘smart’ only has to fit those sizes.

“The core electronics modules in the expensive models are the same ones used in the Sport models, and they just don’t cost that much,” said Mr Howe.

And here’s where the money comes in. The cases and straps. Apple already has the technology fitting two distinct sizes, so it went all in on the straps, bands and cases.

Instead of dealing with pricing structure of electronics, the company can shift pricing towards the jewelry vertical. Sure, tossing in gold and designer bands add to the cost per unit, but the premium paid by consumers makes the option worth it.

Apple Watch Backorders

Don’t expect the Apple Watch backorders to vanish anytime soon. Marketing 101 says scarcity rules, and a slow ramp in production will allow the company to gather consumer data on what options work and which ones do not.

Also, the app ecosystem. Allow it to develop while consumers continue to see stories of the smartwatch that is impossible to find in stores.

Well played, Apple. Well played.


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