The Apple Watch is Apple’s (NASDAQ: AAPL) first foray into the world of jewelry. Surely the $349 Apple Watch Sport is a true smartwatch, one falling into the category of “wearables” and nothing more than a flashy new consumer electronic product.
But the $17,000 Apple Edition, the most expensive version of Apple’s new smartwatch, is a piece of jewelry. And that jewelry has a secret, a patented process used to make the Apple gold.
The tech company is reported to have invented a process through which gold powder is blended with ceramic powder, heated and then compressed. The new Apple gold “is up to twice as hard as standard gold,” according to the company’s website.
Before we dive into the details of the Apple gold, let’s first take a closer look at the Apple Watch itself and what separates the drastically more expensive models from the cheapest Apple Watch Sport model.
The Apple Watch Sport starts at $349, and the mid-tier Apple Watch starts at $549. While there are some minor differences in materials, there is no difference in functionality.
Apple Edition, the Apple Watch with pricing that starts at $10,000, also offers no additional functionality. The product is, in effect, a piece of jewelry with a $349 Apple Watch Sport inside of it.
This is the first time I can recall Apple selling otherwise identical products with one selling at a 2,700% premium simply because of fancier materials.
It comes as no surprise then that the company is training sales staff to offer fashion advice as part of the in-store Apple Watch sales pitch. Indeed, since the primary differences between the products are “fashion” rather than “function,” it makes sense to offer higher-fashion as an incentive for customers to choose higher-priced options over the cheapest Apple Watch Sport selling for $349.
Apple claims that in its process the gold molecules move closer together, making it twice as hard as standard gold. This is also reported to allow Apple to use half of the normal gold content for such an item, making the item cheaper to produce. Since karat refers to the mix of gold atoms, and Apple has kept the mix at 75% gold atoms, the product is still 18 karat gold.
The secret of the Apple gold is that it is a “metal matrix composite, not a standard alloy.” This enables the company to keep its Apple gold at 18 karats while using less of the material and making it “harder and more scratch-resistant.”
Why bother with the fancy new gold? For starters, less gold keeps the price point from growing beyond the already-lofty $17,000 the company is asking for its top model. But the fancy new Apple gold also allows Apple to keep profit margins strong, make its product more scratch-resistant and to market the watch for its high-tech gold.
As I said above, this is Apple’s foray into the world of jewelry. Whether or not Apple can be successful in producing jewelry is a huge unanswered question. We all know Apple can produce hit consumer electronics.
Perhaps the most interesting metric to monitor as the Apple Watch sales results roll in later this year will be the breakdown of watches sold at various price points.
If Apple is successful at creating a desirable item of jewelry and high-fashion luxury, then its Apple Edition will represent a higher percentage of the Apple Watches sold. Success in this area will result in a significantly higher product margin and could even help the company boost its overall margins.
However, if the company is not successful in its debut as a jeweler, we’ll see that the lower-priced Apple Watch Sport dominates the Apple Watch sales reports. This would be a sign to investors that the Apple Watch has not lived up to its promise.
I’m optimistic that, especially in markets with huge income disparity, like that found in China, the more expensive and gaudy Apple Edition will do well among luxury buyers. And I’m optimistic that the Apple gold will boost profit margins for the Apple Watch, and perhaps even Apple as a whole.
DISCLOSURE: I personally own shares of Apple.
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