Apple Watch Sales are not declining as thought – CEO challenges research

Apple’s latest Q3 earnings report usually contains no clear information about Watch sales besides grouping it in the Home & Accessories category. As the following extract from the Q3 chart shows, there has been a significant year-on-year drop in Wearables, Home and Accessories sales.

Most commenters (me included) assume from that information that Apple Watch sales are falling, especially when 3rd party shipment reports from Counterpoint confirm the same. But the situation appears more nuanced.

Apple Watch Sales Decline for the second consecutive year, say counterpoint

Apple CEO, Tim Cook, recently confirmed that

The Apple Watch installed base reached a new all-time high with over half of customers purchasing an Apple Watch during the quarter being new to the product. We also set a quarterly record for upgraders on Apple Watch and the latest customer satisfaction for Watch in the U.S. was reported at 97%…we saw a June quarter record for upgraders to Apple Watch…The other things I would say are that the installed base hit a record high in Greater China, and we set an all-time record for the iPhone installed base. The iPhone upgraders in Mainland China set a record for the June quarter. And according to Worldpanel, which was formerly known as Kantar, iPhone had the top 3 models in Urban China, which is extraordinary. Also, if you look at the other products, Mac, iPad and Watch, the majority of customers that are buying in China Mainland were new to the product.

In terms of the country of origin…the vast majority of the iPhone sold in the U.S. or the majority, I should say, have a country of origin of India and the vast majority of the products, other products, the Mac and the iPad and the Watch have a country of origin of Vietnam that are sold in the United States. [Cook, CEO Apple]

My Take Out

OK Cook nuanced what he said a bit, but if there was any error in what he said around the Earning Call, a retraction would have been made (it wasn’t).

Thus, we now know that the situation for Apple Watch is not quite as dire as thought. My take is that the key driver has been that existing owners, happy with their product, have been upgrading to Watch 10 this year outside of China. Inside China, it’s simply a case of lots of new customers driving sales there.

• Watch revenues in China are increasing.
• Watch owners are upgrading
• Watch owners report 97% satisfaction, despite battery woes
• Total number of Watch users is increasing

Apple’s problems with Watch, or at least one of them, appear to be that it is not attracting as many new customers outside of China. That starkly contrasts with Garmin’s CEO’s comments earlier this week, which state precisely the opposite for that company.

Also, as widely reported elsewhere, Apple Watches now destined for the US market are made wholly in Vietnam. This minimises tariff risks but also sensibly gives an alternative production option to China going forward, should there be further economic or other disruptions. Finally, Americans: Your Apple Watch is NOT “Made in China”.

Garmin confirms strong new customer growth – bad news for competitors