The Apple Watch was released on March 9. A Wall Street Journal article said several weeks ago that Apple may have ordered 5-6 million Apple watches to be manufactured in Taiwan. Analysts believe that 10 million units, or at the most 20 million units, may be sold the first year.

For Apple AAPL, that would be a drop in the bucket. If you assume an average price of $400, that would be $4 billion in sales, or just 2.2% of Apple’s total sales last year.

Here is what I see:

  1. I believe that the 10 million number is far too optimistic. Younger people don’t wear watches.
  2. You need an iPhone 6 or 6+ for efficiency. But about 84% of smartphones globally are Android. And most iPhone users do not have the 6 or 6+ version.
  3. It needs to be recharged daily. That’s the killer. Many “wearables” are used at night for monitoring.
  4. It’s very pricey. The 18k gold model will cost $10,000. Imagine such a watch that is technologically obsolete when the technology is improved within a year.

Do we really need another gadget, or “accessory,” at a high price, which works only if you have the phone in your pocket? Why not pull out the phone you already have? To me it’s like a product looking for a purpose. Perhaps the app developers around the world will come up with something that will give the Apple Watch some purpose in our lives.

However, initial reports will mention the millions of Apple Watches ‘shipped.’ It won’t be sales. Will retailers get stuck with them? Or will Apple guarantee to take them back, similar to book publishers?

Without the iPhone sales, what does Apple have? Is Apple a one-trick pony? What happens when Apple’s “pony” is trampled by the competition? The iPhone has a huge profit margin. That attracts a lot of competition. Eventually, Apple has to decide, does it want to compete with the iPhone, or just be a very expensive novelty for people with excess money.

The greatest achievement under the new CEO is financial engineering, probably tutored by one of the greatest corporate takeover artists in history. Apple’s huge stock buybacks, which will eventually be about 200 million shares, have propelled the stock upward, making it the largest company by capitalization in the world. It’s amazing what a phone company can do.

Will Apple now focus on true product engineering, developing another revolutionary product? Judging by the post-Jobs era, I have my doubts. Every item has been a “me too” enhancement. Even the Apple Watch is similar to what Samsung and others have offered for two years.

But it’s always possible that I could be surprised, although history shows that when a company gets this large, the entrepreneurial spirit gives way to corporate arrogance. The fantastic, huge, flying saucer office building that Apple has in the works is a sign of hubris. Eventually, that building will be half empty.

It’s similar to the building frenzy around the world to build the tallest building. There are more than 30 such skyscrapers in planning, 14 of which are under construction, and 13 that are still in planning phases. History shows that such a frenzy in tall buildings occurs ahead of big economic upsets. Does anyone think that a company making a vastly overpriced cell phone can withstand economic forces?

However, I hope Apple will come out with more revolutionary products, called category killers. You can’t depend on primarily one product forever.

Apple is a great company, with terrific product designs. Most people love the products. The company has great customer loyalty, which is remarkable considering that the products are very expensive compared to the competition. Apple is a boon to U.S. design expertise and promotes a positive image for the U.S. abroad.

But there is big competition. On Feb. 19, Samsung announced “LoopPay,” a payment system to compete with Apple Pay. It uses the existing ‘point of sale’ systems retailers already have while Apple Pay requires a new terminal. This could be big. The new Samsung Galaxy S6 will be released in April. It promises to be very exciting and very competitive with the iPhone.

The fact is that obscenely high profit-margins attract lots of competition who want some of those products. That means prices have to come down, profit margins shrink, the ecosystem collapses. When that happens, you have the Apple company pre-iPhone and pre-iPod. That wasn’t much.

Oh, I forgot the Apple car to be released in about 5 to 7 years. I predict that project will never come to fruition. Cars are low margin, unless you have the subsidies that make Tesla viable and a chairman with the name of Elon Musk. It will be like the Apple TV console, which never saw daylight.

Wishing you successful investing,

Bert Dohmen, Founder
Dohmen Capital Research, Inc.