Analyst: iWatch Won't Have iPhone's Appeal

Apple is hosting a media event on September 9 where it is expected to show off the iPhone 6 and the iWatch. Wells Fargo analyst Maynard Um thinks Apple's first wearable device will interest consumers, but won't have the same appeal as the iPhone because it will be seen more as jewelry or a status symbol.

Analyst: Apple's iWatch to be successful, but not like the iPhoneAnalyst: Apple's iWatch to be successful, but not like the iPhone

In a note to investors, Mr. Um said,

We believe an iWatch announcement is possible tying into HealthKit. However, we believe an iWatch may not have as broad appeal as its other products as watches, in our opinion, are more akin to jewelry/status symbols.

The consensus is that the still unannounced iWatch will be a wrist-worn smartwatch loaded with sensors to track our health and fitness activities. It's expected to come in two sizes, and a new report claimed it will also sport a curved OLED display and built-in NFC support, possibly as part of a mobile payment system.

If the iWatch includes biometric sensors, it makes sense to include tight HealthKit integration. HealthKit is Apple's new platform for collecting fitness data from multiple devices and will be included as a feature in the soon to be released iOS 8 update for the iPhone, iPad, and iPod touch.

Apple hasn't officially confirmed the iWatch, but what looks like a staged leak from the company backs up the idea that an unveiling is coming soon.

The company's September 9 media event will very likely introduce the iPhone 6, too. Mr. Um expects it will be available with 4.7-inch and 5.5-inch screen sizes, and that the smaller of the two will stick with Apple's current pricing structure. The 5.5-inch model, however, will come with a higher price tag.

He expects, just like most everyone else, that the iPhone 6 will also include a better processor, higher quality camera, longer battery life, and more memory. He also expects Apple will introduce its own digital wallet system, adding that the company will need to find a way to set its payment system apart from other options that are already available.

"While we expect an announcement on mobile payments, we do not believe it will be a material revenue driver but, rather, serve as a tool to retain customer loyalty," he said. "The question is what incremental benefit will Apple drive when some apps already have payment capability (Uber, Starbucks, etc)."

Mr. Um thinks Apple will need to show a year over year increase in launch weekend iPhone sales to please investors. Those sales figures will have to hit the low teens, meaning at least 13 million units, to be seen as a successful launch weekend.

Looking forward, Mr. Um is raising his gross margin estimate for fiscal 2015 based on iPhone sales and the addition of the iWatch to the company's product offerings. His new EPS for fiscal 2015 comes in at US$6.88, up from $6.56.

Mr. Um also raised his target price range from $86-$96 up to $89-$99. Apple is currently trading at $99.09, up 0.97 (0.99%).