Apple Supplier Says They Are Not Meeting “Break-Even” Point For Apple Watches

A key Component Supplier for Apple Watch says they failed to meet its “break-even volume” of two million units per month in the second quarter.

While Apple is claiming that Apple Watch sales exceeded their expectations with a surge in June, a key component supplier for Apple Watch is saying they have not reached Break-Even volume in the second quarter of 2015. The supplier is a subsidiary of Taiwanese firm Advanced Semiconductor Engineering that is responsible for assembling Apple Watch’s S1 system-in-package design.

According to The Wall Street Journal, citing Bernstein Research analyst Mark Li, writes that an ASE subsidiary told investors that the company did not hit its “break-even volume” of two million Apple Watch units per month in the second quarter of 2015. Furthermore, ASE does not expect to reach the two million per month number during the third quarter either, which is unusual seeing that it is the quarter leading up to the popular holiday shopping season.

“The shortfall of Apple Watch is a disappointment,” Mr. Li wrote in a note to clients. “We came in with a low expectation but below break-even still surprised us.”

In an interview, Mr. Li said it is unusual for a company like ASE not to reach break-even volume during a typically busy period like the third quarter, especially when dealing with a new product.

He said that he now expects ASE to fall short of his forecast of shipping 18 million units this year, peaking in June.

Apple CEO Tim Cook during Apple’s conference call for the third fiscal quarter of 2015 dispelled reports that Apple Watch sales collapsed after what appeared to be strong initial demand, saying shipments have held steady and actually peaked in June. He also warned analysts not to draw conclusions from supplier reports as such information is but a small part of a much larger picture. However, the company refused to share any insight on Apple Watch sales to prevent competitors from gaining unwanted operational insight, and instead lumps the Apple Watch with iPod, Apple TV, Beats hardware and accessories in an “Other” accounting category.

Despite Apple’s assurances that Apple Watch is meeting internal expectations Wall Street saw the non-announcement as a miss. The reaction was a swift one that briefly sent Apple stock (AAPL) tumbling even after the company posted yet another record quarter.

Adding to the confusion are analysts who continually adjust their own wildly differing forecasts. Ahead of Apple’s recent earnings call, analyst estimates of Apple Watch sales during its first quarter of availability ranged from 2.85 million to 5.7 million, averaging out to 4.07 million. After the call, many analysts adjusted their estimates, with the consensus largely changing to between 2.2 and 3 million units sold. Estimates continue to vary, however, with Strategy Analytics suggesting Apple sold 4 million units in a recent report.

It is interesting to hear Apple and Tim Cook repeatedly claim that Apple Watch was beating expectations during its first full quarter of availability, with ASE claiming that sales have been less than expected. With Apple claiming it does not want to report specific sales numbers for competitive reasons, it is unlikely that we will get any confirmation anytime soon.