What’s the reality concerning Apple Watch sales?Notice how Apple’s CEO (AAPL) Tim Cook made no comment on the average selling price (ASP) per unit. Notice how Tim Cook made no mention of margin impact from sales? But why would he, right? Sure those are s a lot of questions to kick off an analytical piece, but these are the questions one needs to consider when being presented with contradicting headlines from Apple’s CEO and IDC regarding the “strength” of Apple Watch sales. I caption the word strength, regarding Apple Watch sales, because there is no real strength. The sales are dreadful and it is highlighted in the ASP that Tim Cook wisely didn’t offer to investors and analysts in his comments to “the street”. 

When we analyze Apple Watch sales year-over-year we are forced to recall that last year most every single Apple retail partner carried one Watch sku, the Series 1. Now, these same retailers are carrying two Watch skus, the Series 1 and Series 2. The former Watch was also reduced in price from what was the average selling price of $299 since sales commenced to the newer selling price of $269 since Apple Watch Series 2 was introduced. While Series 1 was introduced at $369, it never carried that as an ASP over the first 18 months of sales. But the price management of the products didn’t stop there and was a point of emphasis this holiday selling season.

You see, nobody is buying these useless watches at a premium price that must be tethered to a device that does everything the Watch does only better, the smartphone. Retailers literally have these Apple Watch products sitting in locked cabinets gathering very little dust, as dust is hard to collect in such locked cabinets. But nonetheless, a $269-$369 smartwatch that can only be operated with an existing iOS hardware device and does nothing but duplicate the function of said device is a very hard sale. Furthermore, it can’t really duplicate the smartphone as smartwatches are virtually impossible to act as gaming consoles, cameras or a private communications device.By the way, these are three of the top utilized applications for any brand smartphone… and they can’t be done with a smartwatch. Smart, not so much!But let’s get back to the Apple Watch analysis and with regards to the aforementioned comments from IDC and Tim Cook. 

So even at $269, the Apple Watch was not gaining traction, as retailers simply didn’t want to hold a lot of inventory for devices that have proven not to sell well and with a new iteration coming. Retailers bought into inventory for Apple Watch Series 2, but to a lesser extent than Series 1 most obviously and as a collection of products year-over-year. That’s the numbers indicated by IDC’s Q3 shipment report suggesting that Apple Watch shipments to retailers were down some 71% year-over-year. The margin of error I would assign to IDC’s reporting is and has always been 5-7 percent. Even if we accept a 7% error in reporting shipment data, sales were down quite significantly year-over-year. 

Moreover, here comes Tim Cook to the rescue after reading the grossly negative IDC reported headlines to calm the nerves of would-be and existing investors. Never mind you, the Watch has been an absolute failed product with regards to consumer adoption and as I had forewarned investors and analyst firstly in my research articles, but here is Tim Cook with rather woeful commentary.

“Sales growth is off the charts. During the first week of holiday shopping, our sell-through (a measure of how many units are sold, rather than stocked on retailers' shelves) of Apple Watch was greater than any week in the product's history. We're on track for the best quarter ever," CEO Tim Cook told Reuters.

Of course, sales are going to be better regarding units sold to consumers because you have a variety of units and price points finally.Secondly,Apple was likely forced to offer a gift card with purchase for its Apple Watch units, both Series at some participating retail outlets. Some retailers offered the Series 1 Watch in their Black Friday circular for $199, the lowest selling price since the product was introduced. If some or all of this commentary sounds bearish regarding gross margins, it certainly should.But to make matters worse, some retailers, like Target Corp. (TGT ), still have the Apple Watch on promotion with a $50 gift card free.  

Neither Target nor any other retailer would pay for such a promotion and take the margin hit. This promotion falls squarely on the back of the vendor, Apple! So for the so-called sell-through strength exhibited in Apple Watch sales as provided in Tim Cook’s commentary, it is no wonder the CEO made no mention of gross margins, ASP or re-orders.Apple discounted Apple Watches in efforts to continue to help retailers eliminate excessive inventory, but any good CEO would highlight pure sales while leaning on other product segments to hopefully fill the gap in gross margins produced by the Watch.When Apple introduced the Apple Watch, that’s exactly what the Apple Watch was hoped to provide, a margin boost in the face of falling smartphone sales and margins.When viewed in this light, it’s hard to paint a positive picture of the Apple Watch and from any point of analysis on the product line.

Having offered the very first negative analysis of the Apple Watch product offering on March of 2016, the analysis was proven most accurate.In my article titled “Apple's Watch Presents Less Potential Than Investors Think”, I invited readers and investors to better understand the potential of the Apple Watch. The article received a great deal of scrutiny as it was largely the most bearish sentiment offered on the Watch since the product commenced sales. Hardware is not an easy business and innovating hardware is even…harder! The Apple Watch was/is Apple’s attempt of transforming the user interface of its iPhone and in doing so changing the platform. But the Apple Watch, as noted earlier, is impaired in this evolutionary attempt by basic human anatomy and physiology. When we break down the difference of a phone and a watch we come to understand the impossibility of using a watch as a camera like we would our smartphone. Taking it a step further is the impossibility of private phone calls on a watch or playing games on a watch when compared to the ease of doing so on a smartphone. Human anatomy and physiology trumps hardware evolution every time!

As consumers become increasingly aware of the shortcomings from smartwatches, sales continue to decline as a sub-category within the wearables category. For this reason and as IDC continues to reduce their once optimistic forecast for smartwatch sales, I offered what I believe will be the fate of the smartwatch presence. In late July, I authored an article titled “Apple's Smartwatch And The Smartwatch Category Facing Retail Discontinuation By 2018”. In the article, I forecast that mainstream retailers will discontinue smartwatch sales. While retailers can and likely will continue to offer in limited locations and online, the mainstream market will be void of the product. In reviewing the most recent ASP slide from the Apple Watch, which Tim Cook will not discuss, this forecast is well within reach and arguably very much on course. Maybe the real focus shouldn't be on Tim Cook's most recent defense of Apple Watch sales but on the forecast for orders, going forward.