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Apple moved a lot more watches than Wall Street thought, IDC says

Market research firm International Data Corp. reignited the debate over sales of the Apple Watch on Thursday, with a surprisingly high estimate of early buying interest.

Apple (AAPL) shipped an estimated 3.6 million of the new devices in the second quarter, IDC said, about 1 million more than most Wall Street analysts had thought. Apple reported its second-quarter results on July 22 without disclosing the actual watch sales and lumping the revenue into a broad "other" category that also includes sales of iPods and other accessories.

The watch suffered from mixed reviews and early supply shortages stemming from a manufacturing glitch in the device's vibrate mode motor. Initially, consumers could only buy the watches online. Apple didn't start selling the watch in its own stores until mid-June and just announced sales would expand to Best Buy (BBY) starting next month.

Despite the challenges, IDC said that for the second quarter, the Apple Watch trailed only fitness tracking maker Fitbit (FIT), which shipped 4.4 million devices. Fitbit had already announced roughly that level of sales in its second-quarter report on Aug. 5. Fitbit's products -- which are generally less complicated than Apple's -- range in price from $60 to $250, well below the $350 and up price for the Apple Watch and have a more focused, if limited, range of features.

Among smartwatches only, which IDC defines as devices capable of running third-party apps and so excludes Fitbit devices, Apple took two-thirds of the sales, IDC said. "Apple has clearly garnered an impressive lead in this space and its dominance is expected to continue," Jitesh Ubrani, senior research analyst at IDC, said in the report. "Fitbit only sells basic wearables – a category that is expected to lose share over the next few years, leaving Apple poised to become the next market leader for all wearables," Ubrani added.

Fitbit CEO James Park told Yahoo Finance last week that his company plans to continue slowly adding more features to its trackers, as well as expanding its line of accessories.

Apple shares were up 1.6% to $111.43 in midmorning trading on Thursday, in line with the overall market. Investors have been disappointed with Apple's recent results and, even before the market swoon of the past few days, Apple's share price is well off its mid-July high of over $132. Shares of Fitbit gained 1.6% to $39.

The IDC estimate is likely to raise some eyebrows on Wall Street, where early analysis of Apple's second-quarter results concluded the company sold many fewer watches. The "other" category totaled $2.64 billion of sales for the quarter, increasing by only $874 million.

That led to some very quick comments, including by Piper Jaffray analyst Gene Munster, that Apple may have sold only 1 million watches, until Apple CEO Tim Cook added more detail on a call with analysts.

"The contribution from Apple Watch accounted for well over 100% of the growth of the category, and more than offset the decline of iPod and accessories sales," Cook said. "As we said in the past, we do not plan to disclose Apple Watch metrics, because we don’t intend to provide insight for our competitors."

Still, estimates immediately came down from what Wall Street had expected. RBC Capital analyst Mark Sue said he thought Apple sold 2.8 million watches in the quarter, less than the 4.5 million he expected. Piper Jaffray's Munster revised his view upward after Cook's comment but still estimated only 2.5 million sold. And Sanford Bernstein's Toni Sacconaghi said the "other" category would have had to hit $3 billion if Apple reached 3 million sold.

Those pessimistic views got more support a week after Apple reported, when Advanced Semiconductor Engineering, which makes some of the chips in the watch, said it failed to reach its "break even" level of manufacturing 2 million units per month in the second quarter.

IDC doesn't disclose its detailed methodolgy for estimating shipments. The firm's focus on units shipped, not sold, sometimes leads to a difference in estimates. But with Apple having trouble making enough watches to meet early demand, it's unlikely the company stockpiled many units it didn't sell.

The IDC researchers started their process with Apple's financials, initially leading towards an estimate closer to what Wall Street found, Ramon Llamas, research manager for wearables and mobile phones, explained. But interviews with industry participants eventually led to the higher number, he said.

"Like a lot of industry watchers, we started with making some calculations based off earnings results and assumptions around (average selling prices)," Llamas said. "We also conducted a number of checks and interviews which led us to the 3.6 million figure we put out there."

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