Why IDC Estimate of Apple Watch Sales is Wrong

:Last week IDC came up with its estimate of Smart watch and wearable sales for calendar third quarter of 2015. They placed Apple watch second in sales volume at 3.9 million units in just 3 months. They did not share with us any assumptions and their methodology is unclear. It is fair and safe to say there are assumptions and methodology behind these numbers. Yet the biggest problem is not sharing with us the confidence level for the numbers, in other words we do not know the margin of error in these numbers.

Let us subject the 3.9 million numbers to test.

Last month after Apple announced its fiscal fourth quarter (calendar Q3) numbers I did an analysis of Apple Watch sales numbers. Apple does not report revenue from Watch but combined them under “Other Hardware” category.  This category previously did not include iPod but now now includes iPod, Apple TV and other accessories.

other_hardware_rev

For the quarter in question this category revenue was $3,048 million, taking out estimated iPod sales (which is on the decline) the Accessories revenue was $2,728 million.

For the IDC estimate of 3.9 million units, even at the lowest average selling price of $400 for the Watch, revenue from Watch will come to $1560 million. That leaves $1,168 million for Apple TV and other accessories.

The Accessories revenue before Watch has not seen significant growth or decline but rather varies about a mean of $1,541 million with a standard deviation of $340 million. To see where IDC’s numbers fall in this, take a look at this chart below.

idc-watch-number

For IDC estimate of Apple watch unit sales to be true the revenue from other accessories has to fall below $1168 million. The chances this IDC Apple watch estimate is correct is a measly 12.5%. In the rest of the case the other accessories revenue are higher than $1168 million and hence  Apple watch revenue will be lower given we know the total Accessories revenue (listed in last column in table above).

The correct way to state is to give a range with a level of confidence. So here it goes (for ASP of $400)

  • We are 68.6% confident Apple sold between 2.07 to 3.77 million watches
  • We are 95.44% confident Apple sold between 1.21 to 4.6 million watches
  • We are 99.72% confident Apple between .366 to 5.47 million watches

When can we expect analyst firms to get numeracy right?