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This Is How Tim Cook Explained Initial Apple Watch Sales

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Today Apple released strong earnings, with the iPhone leading the charge. Many analysts have been speculating on Apple Watch sales numbers. The company already announced that it wouldn’t break out specific numbers for the Apple Watch, but Tim Cook meticulously explained how Apple feels about Apple Watch sales during the earnings call.

The company reported $2.6 billion in revenue for other products, which includes iPods, Beats accessories and, yes, Apple Watches. For comparison’s sake, Apple reported $1.7 billion last quarter and $1.8 billion last year in Q3 2014.

During today’s earnings call, Apple CFO Luca Maestri said that “the revenue from other products grew sharply.” Apple Watch accounted for “well over 100% of the growth in Other.”

If we do a bit of back-of-the-envelope calculation, the Other category grew by $874 million year over year. It means that Apple sold “well over” $874 million worth of Apple Watches. It doesn’t say much, and it’s exactly what Apple wanted. “As we said in the past, we do not plan to disclose Apple Watch metrics,” Maestri said, adding that the company doesn’t want to share these numbers with its competitors.

Later during the Q&A session of the call, someone asked Tim Cook about the Apple Watch. Here’s a transcript of Cook’s answer:

If you look at Other products category, and look at the revenue in here, it would not be an accurate thing to just look at the sequential change, or the year over year change and assume that was just Watch revenue. Because the aggregate balance of that category, both sequentially and year-over-year, is shrinking. Obviously the iPod is part of that but there are other things in there (accessories and so forth) that are shrinking.

Secondly, to provide a bit more color — sales of the Watch did exceed our expectations and they did so despite supply still trailing demand at the end of the quarter. And to give you a little additional insight, through the end of the quarter, in fact, the Apple Watch sell-through was higher than the comparable launch periods of the original iPhone or the original iPad. We only had 680 points of sale in the quarter for the Watch. Online sales were so great that we did not have inventory in our sales until June. And so those points of sale, pretty much the overwhelming majority of the low numbers of sales, were not there until the last two weeks of the quarter. As I look at all of these things, we feel really great.

Now, our objective of the quarter wasn’t primarily sales but also how we position the product in the long term because we are starting a new product category. And as I back up and look at this, with 8,500 apps, we’ve already announced the next watchOS 2 — It will bring native apps, which will be killer. Even though the store layout was delayed, we’ve learned a lot about the buying experience. We plan to expand channel before the holiday because we’re convinced that the watch will be one of the top gifts of the holiday.

Most importantly, customer sat is off the charts. So I sort of back up and look at this and feel fantastic about what the team has done and delivered, and I know I never go anywhere without the Watch. And it’s not because I’m the CEO of Apple, I’m that attached to it. I get a lot of notes from a lot of people that feel the same way. And so that’s how I look at the Watch.

So let’s say that Apple Watch revenue was $1 billion. The company probably sold a tiny amount of Apple Watch Edition — Apple said that there would be a very limited number of Apple Watch Editions when it first announced the Apple Watch last year. The Sport model is probably more popular than the Apple Watch — that’s what Apple Store employees have been saying over the past few months. So with a $500 average selling price, Apple could have sold around 2 million Watches.

As I said, this number should be taken with a grain of salt. To put it into perspective, Apple sold fewer than 1.4 million iPhones during the first two quarters after its release, and it is today’s most successful electronics product.

In other words:

  1. Apple doesn’t share exact numbers.
  2. Given the success of the iPhone, the early performance of the Apple Watch doesn’t really mean anything for the future of the Apple Watch.
  3. Tim Cook said that analysts shouldn’t use the Other category numbers to estimate Watch sales.