Why iWatch Can Outshine iPhone, But Will Not Become Apple's Flagship

| About: Apple Inc. (AAPL)
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Apple will be unveiling the iWatch during a special event in October this year.

Apple is very optimistic about the smartwatch and plans to produce 3 to 5 million iWatch units each month.

Apple is expected to sell 18 to 21 million iWatch units by the end of the year.

In terms of volumes, iWatch can outshine iPhone.

iPhone will still continue to be Apple’s flagship offering.

Apple (NASDAQ:AAPL) may not have been able to fully capture the attention of its investors and customers in the WWDC 2014 event, but the situation is expected to be completely the opposite in its next event, to be held in October. Everyone attending the event was looking to get some information about Apple's next great gadget, but all they got was information about the software side of its gadgets and how the devices will be able to better interact with each other, causing a little disappointment.

However, there are reports that suggest Apple, in a special event later this year, will finally launch the much awaited iWatch along with iPhone 6, both running on the latest version on the operating system, iOS 8. The Cupertino giant is super positive about the response it expects for the smartwatch from the audience, evident from the company's huge production plan of 3 to 5 million units per month.

Even analysts and industry experts are looking forward to the device as they believe it may change the face of the connected devices totally. And this brings many of them to the question, if iWatch can outshine iPhone this year and move up to become bestselling product from Apple? And, can iWatch become Apple's flagship offering?

The Bubbling Demand!

It's been a long time since the industry and the gadget-addicts got their hands on something new and exciting and this might just be the reason for iWatch's success. Surely a smartwatch is not an absolutely new concept and Samsung (OTC:SSNLF) has already launched a couple of those, but these devices failed to meet the mark. Even Sony (NYSE:SNE) had tried its luck in the segment, but to no avail.

The moment the Apple brand is associated with a gadget, the basic expectations from the gadget increases. So far Apple has been able to live up to these expectations and keeping its reputation in mind, one can expect the same to continue. Analysts following the industry predict the demand for smartwatches to increase substantially in months to come and according to Brian Blair of Rosenblatt Securities, Apple can sell as many as 18-21 million iWatch units by the end of this year. Now that's a huge number!

What Analysts Think

Apple has always taken very good care of what it has to offer, how it has to offer depending upon whom it has to offer. The company tries to get the best possible combination of things, not too much nor too less, and this has always worked in Apple's favor. A key point for the success of the iWatch is the success of HealthKit. Though iWatch won't be the only device supporting HealthKit, it will surely be the most easily accessible device. Moreover, a lot of the features of HealthKit will only be accessible through iWatch, such as continuous heart-rate monitoring.

The tech giant has worked hard to develop the offering and side by side it has worked equally hard to develop external relations with health institutions and high-profile hospitals. The partnered bodies will have the necessary capabilities to extract and analyze the health data from the iWatch or iPhone which industry experts believe to be a huge development.

Can it Outshine iPhone And Become Apple's Flagship Product?

With iPhone 6, Apple is going to enter the segment of the large-screen smartphones. But apart from that the company won't have much new things to offer that will be unique to iPhone 6. The handset might get some improvements as far as the hardware is concerned, but that's nothing out of the ordinary.

On the other hand, it's clear that Apple has huge expectations from its smartwatch and even analysts predict the gadget to do exceptionally well. Again, since for some time now there has been a huge demand for smartwatches which could not be met by the existing offerings from other players, the entire pent-up demand might get directed towards iWatch which can result in an unimaginable sales number for Apple. Analysts expect anyone owning an iPhone that will get an upgrade to iOS 8 to be a potential buyer of the iWatch.

But, this can't be said for iPhone 6. Apple users who recently got their hands on iPhone 5, 5C or 5S are surely not going to buy the next iPhone. Only those using iPhone 4S or older are prospective buyers apart from new-to-iPhone buyers. From this angle, iWatch might outshine iPhone as Apple might end up selling more iWatches than iPhones.

However, this does not mean that iWatch will become the flagship offering from Apple. It's true that the iWatch has huge upside potential, but one point which we need to remember is - iWatch is not going to be a core offering from Apple. It's going to be more of a complementary offering that will help enhance the overall user experience.

A person who does not own an iPhone or an iPad is least likely to buy an iWatch. He or she would first own an iPhone which will run on iOS 8 and then will think of an iWatch. The smartwatch in isolation will be almost useless. To put it simply, demand for iWatch will always be tied to the demand for iPhone. Apple might sell a far greater number of iWatches this year, but in the long run iPhone sales will decide iWatch sales.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.