Next Big Thing from Apple (AAPL) Could be a Big Flop - Analyst

June 18, 2013 7:39 AM EDT
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Those looking for the next big thing from Apple (NASDAQ: AAPL) have pointed to the rumored 'iWatch,' a powerful wristwatch-like computer/phone device. However, Jefferies analyst Peter Misek calls the project from the iPhone-giant nothing more than a "hobby."

"We believe iWatch will more likely be a hobby for Apple than a major new product line," Misek said in a research report Tuesday.

The analsyt sees the iWatch failing into the mid segment of the $50 billion global watch market, or a price point of $50-$300. That said, Apple will need to redefine the categories to be truly successful.

Overall, Misek is not convinced smart watches will resonate with consumers.

"We have been trialing four smart watches: iWatch, Pebble, Nike, and a white label. While we like Nike for running, we are having difficulty seeing the general use case for smartwatches. We do not see the need to have a watch that has a hard-to-use touchscreen given its size and the size of our fingers; we find it relatively easy to pull the phone out of our pocket. We only see a use case if several new technologies materialize: extremely precise and widely functional voice control, gesture control, and next-generation display technologies that create a hologram on your wrist. The good news for Apple is that our smartwatch experiences have largely been poor and the bar for Apple is very low."

Misek also doesn't see a sizable opportunity for iWatch.

"We do not believe the iWatch will have a cellular chip so it will need to be paired with an iPhone for full functionality. Therefore we use our estimate of the iPhone installed base (250M) as the addressable market. Our base case assumption is for 5% penetration leading to annual shipments of 6M (assuming a two-year replacement cycle), $175 ASP, and 30% GM. This equates to ~$1B in revenues and $0.27 in EPS (a ~1% increase)."

Jefferies maintains a Hold rating and $420 price target on Apple, citing greater competition, decreased likelihood of EPS upside, and margin pressure.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $432.00 yesterday.

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