Wearables: Slowdown Could Spell Trouble For Apple in 2020
Analysts project wearable sales growth to slow down this year. The logic is simple and intuitive: there is less demand for smartwatches during a quarantine, or for headphones when people are not roaming around town as much. In addition, the need to save money ahead of a global recession could bode ill for discretionary spending.
The worse news for Apple is that the company’s wearables division has been, by far, the fastest growing on the product side. Last year, total company revenues declined 2% on the back of a maturing smartphone business. If not for the Apple Watch, AirPod and their close cousins, total sales would have been down nearly 5% instead.
In 2020, ABI Research predicts that growth in the wearables market will slow down drastically to 5% from 23% in 2019.
Apple will not be immune
Apple dominates the wearables space, particularly smartwatches. Before the COVID-19 crisis, the company had been consolidating its position of leadership while pushing away underdogs like Fitbit. Smartwatch market share had increased to an astonishing 55% in the first quarter of 2020, up more than one percentage point year-over-year.
But not even Apple’s strong competitive position will save it from taking a hit this time. I estimate that Apple Watch and AirPod account for at least 70% of Apple’s wearables revenues. Both could suffer from lower demand in the short term, as consumers become less mobile for now.
This is especially unfortunate for Apple’s wireless headphone category. The AirPod had been riding strong tailwinds with the introduction of the more expensive Pro version, in late 2019. I estimate that AirPod revenues doubled in 2019. Now, Apple seems to be decreasing production for the first half of 2020 by more than 10% from its original orders of around 45 million units.
HomePod and Apple TV: the silver lining
The slightly better news for the segment is that lockdowns could lead to higher demand for HomePod and Apple TV. To be fair, I estimate that these two products combined accounted for no more than $5 billion in sales, and less than one-fifth of “wearable and other” revenues. Still, I am cautiously optimistic about Apple’s entry into the smart speaker space, while both the HomePod and Apple TV could help the company boost service sales.
In the end, it will once again boil down to the ecosystem. Should softness in wearable sales come to fruition, the Cupertino company will need to make up for lost revenues elsewhere in the product and service portfolio.
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