Forecasting Apple's (AAPL) holiday quarter sales has been more of a dark art than a science on Wall Street the past few years. Analysts look to everything from supply chain clues and consumer surveys to the number of Google searches mentioning iPhones, but there's been no reliable method yet discovered.
This year there's a new contender, as IBM (IBM) decided to throw the mighty weight of its Watson data analytics software service at the holiday prognistication problem.
Data scientists at IBM have set Watson loose reading millions of posts on thousands of social networks, blogs and web sites ahead of Black Friday in an effort to predict the hottest gifts of this gift-giving season. The big surprise so far? The top gift by far appears to be not a cute Star Wars robot or a talking Barbie doll but the Apple Watch, left for dead by analysts and panned by most reviewers.
If Watson is correct, Apple's holiday quarter could be a lot better than Wall Street expects. Analysts see Apple selling 76.5 million iPhones, up a paltry 3% from last year, along with an almost irrelevant 6 million of the new Apple watches, according to FactSet. At that level, the watch, which starts at $349, would bring in only about $2 billion to $3 billion, or maybe 5% of total revenue for the quarter.
Whether Watson hits the mark or not, the debate has been roiling Apple's stock price as Black Friday and Cyber Monday approach.
The kerfuffle started back on Nov. 10, when Credit Suisse analyst Kulbinder Garcha said he was hearing of reduced orders from Apple's Asian suppliers. "Apple has lowered its component orders by as much as 10%, according to our teams in Asia," Garcha wrote. He also slashed his estimate of iPhone sales over the next year and reduced his earnings forecast. Apple's stock fell 8%, from $120.57 to a low of $111, over the next five days.
Predictions based on the supply chain have a shaky track record, however -- Apple CEO Tim Cook went out of his way to deride the method in April. And since Garcha's report, other signs have emerged that maybe Apple's holidays won't be quite so glum, helping the stock recover somewhat. The shares were almost unchanged in midday trading on Tuesday at $117.91.
UBS’s Steve Milunovich noted that interest in Apple products as seen in Google searches is high, especially in China. Brian White of Drexel Hamilton looked at surveys of consumer buying intentions for the holidays. Tablets, where Apple's iPad is the leader, were the second most popular category and smartphones were fourth. Smartwatches were far behind, but up 50% from last year. White said Apple watch sales would be much bigger than expected.
If that turns out to be the case, there may be a lot more interest in Watson on Wall Street next Christmas.