Apple iWatch Could Rival iPhone, iPad In Popularity, Morgan Stanley Predicts

When Apple Inc. (NASDAQ:AAPL) begins selling its long-awaited iWatch, which is expected to take place later this year, sales of the wearable technology will far outpace expectations of many analysts, a Morgan Stanley report stated Monday. And the reason is brand loyalty.

Katy Huberty of Morgan Stanley (NYSE:MS) said in a note that she expects Apple to sell the iWatch for $300, with a 40 percent to 50 percent profit margin on each wearable sold. Huberty and her team predict 30 million to 60 million iWatch “sales in the first 12 months of availability based on historical penetration of past iDevice[s].”

The report said that investors draw the wrong conclusions about Apple, quarter after quarter, because they underestimate the company’s sales by gauging its prospects through the lens of other established brands selling what are seen as similar products. The iPad was likened to a netbook upon its initial release, which turned out to be a faulty comparison, the report said, as were comparisons between the iPod and the Walkman, and the iPhone and BlackBerry handsets.

While Apple sold 5.5 million iPhones in the first 12 months after its intial release in 2007, those sales rose to roughly 55 million in 2013. In the first 12 months that followed the introduction of the iPad, Apple sold 19.5 million units. Brand loyalty for the iPhone rose from 73 percent in the last month of 2011 to 90 percent in March 2014, the report said.

In the same way, Apple customer loyalty will drive iWatch sales in its first year, Huberty said.

Morgan Stanley also raised its 12-month price target for Apple’s stock from $99 to $132 per share, with a low end of $74.

The heavy demand that Huberty expects may hit some speed bumps. Noted Apple analyst Ming-Chi Kuo issued a report last Thursday that said the iWatch supply will be constrained when the device is released. Kuo has some success in discussing Apple’s plans for future products, but has also been criticized for his failures.

“We have pushed back our estimated time of iWatch mass production from late-September to mid-/ late- November. We also lower our forecast of iWatch 2014 shipments" by 40 percent to 3 million, Kuo said in the report. Apple has faced more complex engineering feats in entering a new product category, the report says.

Kuo expects the iWatch will feature a sapphire-coated, flexible Amoled display. It will be waterproof as well, the analyst said. Apple’s HealthKit software, which it will begin selling this year as an update for the iPhone and iPad operating system (iOS 8), will help the iWatch accumulate information about exercise, such as the number of steps taken and calories burned.