Apple Supplier Numbers Suggest Apple Watch Sales Are Below Analyst Expectations

[kdarling]

The latest data that hints at how the Apple Watch has fared comes from The Wall Street Journal, citing shipment information provided by analyst Mark Li from Taiwan's Advanced Semiconductor Engineering Inc. (ASE) most recent earnings call. ASE is the company that builds the S1 package housing the many chips and sensors used in the Apple Watch.

An ASE subsidiary reportedly failed to meet its "break-even volume" of two million units shipped per month during the second quarter and does not believe it will meet that target in the third quarter, either.

This headline is being repeated everywhere, but I'm uncertain that the source analyst got it right.

According to ASE's earnings call, the product that did not "break even" was DIFFERENT from the Apple Watch SiP.

"... margin came down because as I mentioned earlier the most of the revenue growth was driven by the new EMS SiP product unfortunately loading is still being run at the below breakeven level. therefore you had a negative impact on the gross profit margin for EMS business.

"In terms of revenue breakdown you can see that the consumer sector the percentage actually went up quite bit from 18% to 28% as a result of the new wearable product that we are shipping now."

- ASE CFO

So even though some of the questions in the call seemed to mix the two, I'm thinking that the Electronic Manufacturing Services (EMS) product is different than the consumer (Apple Watch) product.

In other words, I don't think the non-breakeven product was the Apple S1 chip.

I could be wrong, since the breakdown above is between margin and revenue, and you could have an increase in revenue but still less margin.

Of other interest was a reference to a later iOS product or update this Fall, and to making chips for IOT (Internet of Things) devices, which they see as their big coming market.

They also noted that yield on SiPs was not a factor holding them back.

In the past, Tim Cook has warned against attempting to infer information from single data points from the company's supply chain due to its complexity.

Sure, but it doesn't mean that supply chain sources aren't often valid as well. For example, it's pretty clear that there was a production delay due to problems with the haptic feedback module.

 

[dotnet]

That may be but it still reflects on low "second adopter" AW demand. AW availability reached the no waiting level a couple months ago. Pair that with ASE disclosing their production has not been robust, and even if it was because of their own production issues, it tells us demand is weak for AW. Fewer chips available + moderate demand should see some shipping delay, even if its just a few days. But there are fewer chips available and same day shipping and availability.

From this I infer that you assume ASE to be the sole S1 supplier. This seems highly unlikely.

 

[dotnet]

For example, it's pretty clear that there was a production delay due to Apple single-sourcing the haptic feedback module.

I thought it was clear they were not single-sourcing it, but that one of presumably two suppliers had issues. Since every watch needs one haptic module this can naturally cause delays until supplier #2 ramps up production or supplier #1 sorts out their issues.

 

[Benjamin Frost]

I agree it does feel very much like we are regressing back to the Apple of the post Jobs I Era. I don't think Apple needs a Jobs to "save" it -- otherwise Apple would be doomed because Jobs was a once-in-a-lifetime individual. His closest rival was Bill Gates, who in the scheme of tech revolutions was a one-hit wonder -- but a colossal world-changing hit it was. The iPhone will rain money over Cupertino until another company develops something to upstage it as the iPhone did to the BB.

What Apple desperately needs is a leader, not a caretaker. What it has now is typical "design by committee" and that never produces good product. And we see the results with Cooks pockmarked tenure littered with misjudgments, mea culpas, but no clear successes.

The AW is a good concept, and could even develop into an outstanding product, but it was stymied by a protracted launch time frame tease (early 2015 became 2015 as calendar 1Q slipped away) followed by an awkward launch with marginal product availability (no in-store sales and back ordered for anyone who didn't order in the first 2 minutes online.) Hard to get that "word-of-mouth buzz" going when no one can get their hands on the product. Then there is the issue with marketing, which use to be Apple's genius. Every AW I've seen is trite and confusing. If you take a look a the early iPhone and iPad ads they explain what the device is, why its different, and why you want it. The AW ads show pictures of the watch and some apps and an Apple logo -- like that's suppose to be a Bat signal to consumers to buy.

Advanced Semiconductor failing to produce a "break even" 2m chips. last quarter doesn't take a stock analyst to understand that means AW demand likely didn't just flatten after the early adopters buy-in, but that it cratered. I don't think that says as much about the AW as Cook's inability to sell and market product. And he hides AW sales numbers like a kid with a bad report card.

Very well put.

I admit that I sometimes exaggerate for effect. And I agree with everything you say. We can't expect another Jobs, but you've nailed it: Cook is not a natural leader.

When it comes to the Apple Watch, I don't think Jobs would have green-lighted it. But I think that if Jobs had been CEO of Apple with today's Apple Watch, it would have sold far more, because he knew how to draw out the best from everything.

 

[kdarling]

I thought it was clear they were not single-sourcing it, but that one of presumably two suppliers had issues. Since every watch needs one haptic module this can naturally cause delays until supplier #2 ramps up production or supplier #1 sorts out their issues.

Right, thanks. I tried editing it before going to work, but my %#$% iPad kept giving me "reloading web page". In any case, there was a parts problem that came to light because of supplier info leaks.

The point is that sometimes supply chain rumors can indeed be used to help figure out things.

Too many people incorrectly took Cook's warning to mean that such info was never a valid indicator.

 

[Mike_Trivisonno]

Steve Jobs would have ended the Watch introduction by saying, "...and you can buy all models right now". He would have had people lining up to buy them for days. The way Apple botched the introduction of the Apple Watch allowed many time to re-consider their purchase ... something Steve would have never allowed!

 

[dotnet]

Too many people incorrectly took Cook's warning to mean that such info was never a valid indicator.

Yes, of course every verified fact has some meaning. Whether it is enough to piece together a big picture is a different story. The media (and commenters in this thread) have chosen to interpret the ASE comments to mean "there is no demand for Apple Watches". They may as well have read into it "troubles with S1 production may mean half of Apple Watches will fail in a few months", or "ASE run into the ground like GT Advanced by over-demanding Apple".

What we need is a fresh batch of tea leaves

 

[kdarling]

What we need is a fresh batch of tea leaves

Yes, the more tea leaves, the better

 

[joecool99]

of course Tim is not going to say: "we screwed up, underwhelming interest and sales".
is anyone surprised? what do you expect CEO's to say?

 - start focusing on computers again, not gimmicks.

 

[xaqt93]

It's true that it's expensive, but that 2-5x more as unplugme71 claims doesn't apply when the phone isn't subsidized. With the unlocked price the Apple Watch Sport model starts at approximately 50% of the price of the latest base model iPhone. But yes, a lower price would help a bit here as the phone is rather expensive already and they're expecting me to drop 400 something euros on a watch when I already have a smartwatch that cost less than half of that, delivers notifications, shows the time without any additional acrobatics, and lasts days on a single charge. Yes, I would like to start filling circles too and enjoy the crisp and colorful display, but I'm not quite sure if it's worth the extra money.

Yes...the iPhone out right is more expensive then the watch. I am only agreeing with the fact that the Watch is to expensive. The iPhone on contract or through NExT, Edge, or Easy pay, doesn't count. I really only care that the watch it self starts at 350 no matter what. Not very many people would have an iPhone if they were still forced to pay the nearly $1000 the first iPhone was.

 

[gijoeinla]

Read your post until this word. Are you 12 years old?

lol! Ask yourself the same question for posting such a lame comment

 

[gijoeinla]

And what suddenly made Apple fans ready for a larger iPhone? Because everyone else had them for 2 years. Apple was late to the party.

What party? The party started when Apple announced it sold 74 million larger phones and their competitor say a decline that continues today. Who cares when they arrived to the "party". They got there when I get there. Fashionably late

 

[Chupa Chupa]

From this I infer that you assume ASE to be the sole S1 supplier. This seems highly unlikely.

Ah, but didn't your father warn you not to ASS U ME things? Your inference is incorrect and I never implied as such. That aside, ASE is the MAIN supplier of chips. They are the leader in SiP chip sector which is why Apple chose them. I am unaware of a secondary SiP supplier for the AW, but if you can supply me with a name maybe you can carve out a debate point.

But again, here is my main point, one that is indisputable: as long as Apple is not forthcoming with AW sales data then when poor supplier sales data emerges, not by assumption, but by that suppliers admission, one has every right to hypothesize that translates to poor AW sales. Apple says it's withholding the information for its own strategic purposes. Fair enough, but live by the sales #s, die by the lack of disclosing sales #s, because generally people become suspicious when a question is answered "no comment," after years of shouting sales numbers off the tallest building.

 

[elmaco]

Once Apple ships a watch with GPS and wireless headphones, it will be a huge success for all iPhone users who likes to run. Today most people run with their phone, which is big, hard to look at and not easy to control.

 

[tongxinshe]

Maybe we need to figure out what the definition of "flop" is.

Is it selling more smartwatches than all other smartwatches combined... in just 3 months?

Is it bringing in almost a billion dollars in revenue?

Is it exciting thousands of developers to add Watch functionality to their apps?

Na... it can't be any of those things...

For it to be not a flop, from an Apple standard, it needs to at least contributes as much as iPad does, or a quarter, a third, or even half of what iPhone contributes.

 

[Michael Scrip]

For it to be not a flop, from an Apple standard, it needs to at least contributes as much as iPad does, or a quarter, a third, or even half of what iPhone contributes.

What a strange set of requirements...

Source?

 

[grimwanderer]

Nice, same here. We totally dig on ours (wife and I both have 42mm sport models), it's been great for a fitness data, super handy for several other functions (keeping the phone stashed way more as the Watch is way more convenient, and in some cases far more effective/usable)

Exactly. The Apple Watch has changed the way I interact with my iPhone. On a typical day, I can get to the end of the day with 80% battery (iPhone 6+) and with my watch around 50% battery (sometimes a bit more, sometimes a bit less... I think I've completely drained it 2 or 3 times in over 3 months (mostly when i first received and fiddled with it).

While it is arguable that it doesn't have one "killer app" that some people are looking for, it is also true that it does a lot of things very well (IMHO). Notifications, communication with the other half, Apple Pay, pushing me to get up and away from my desk more / be more active, etc. etc.

I love my Watch and wouldn't dream of returning it. You can call me a fanboy (won't deny it) but I'm a fanboy because Apple has produced devices that I genuinely enjoy using and that work very well for me.

 

[MeatballTheBulldog]

This headline is being repeated everywhere, but I'm uncertain that the source analyst got it right.

According to ASE's earnings call, the product that did not "break even" was DIFFERENT from the Apple Watch SiP.



So even though some of the questions in the call seemed to mix the two, I'm thinking that the Electronic Manufacturing Services (EMS) product is different than the consumer (Apple Watch) product.

In other words, I don't think the non-breakeven product was the Apple S1 chip.

I could be wrong, since the breakdown above is between margin and revenue, and you could have an increase in revenue but still less margin.

Of other interest was a reference to a later iOS product or update this Fall, and to making chips for IOT (Internet of Things) devices, which they see as their big coming market.

They also noted that yield on SiPs was not a factor holding them back.



Sure, but it doesn't mean that supply chain sources aren't often valid as well. For example, it's pretty clear that there was a production delay due to problems with the haptic feedback module.

I'd beg to differ, it's pretty obvious (during the call, or previous comments, both from management and analysts) that ASE's EMS revenue grow was the Apple S1 SiP... (I'm fluent in mandarin, and have been reading semiconductor news in Taiwan).

Nonetheless, please see my previous post for a perhaps more optimistic take.

 

[ErikGrim]

For it to be not a flop, from an Apple standard, it needs to at least contributes as much as iPad does, or a quarter, a third, or even half of what iPhone contributes.

What a bizarre statement. For the ᴡᴀᴛᴄʜ not to be a flop it needs to:
- Generate at least $1 in profit for Apple
- Provide utility and satisfaction for the customers that bought it

 

[kdarling]

I'd beg to differ, it's pretty obvious (during the call, or previous comments, both from management and analysts) that ASE's EMS revenue grow was the Apple S1 SiP... (I'm fluent in mandarin, and have been reading semiconductor news in Taiwan).

I bow to your Mandarin expertise. Thank you!

Nonetheless, please see my previous post for a perhaps more optimistic take.

I'm sorry that I had somehow missed that post! Everyone should read it.

I'm surprised and pleased that anyone else took the time to try to check the original source. Just wish that tech reporters would try to do the same instead of riding the internet echo wave

 

[The Game 161]

You guys think garment vivoactive watch is a better option than the apple watch?
Really tempted by Apple watch but price is my only think I'm not sure on

 

[StyxMaker]

Hate that name.

It used to be a Marathon.

I'm 65 and Snickers have been Snickers my entire life. A Marathon bar was something different.

 

[OllyW]

I'm 65 and Snickers have been Snickers my entire life. A Marathon bar was something different.

Not in the UK, Marathon bars were rebranded as Snickers here in 1990.

The bar was marketed under the name "Marathon" in the UK and Ireland until 19 July 1990, when Mars decided to align the UK product with the global Snickers name (Mars had marketed and discontinued an unrelated bar named Marathon in the United States during the 1970s).

https://en.wikipedia.org/wiki/Snickers

 

[Michael Scrip]

I'm glad we solved the Candy Controversy...

 

[ninethirty]

The Apple Watch a flop? I'm shocked! I gave it 5 days before I went back to my Panerai for good.