Apple sold approximately 10.6 million units in 2015, and this year it's likely to see sales of fewer than 7.5 million units, according to the KGI report. Apple will report the results of its second fiscal quarter on Monday, April 25. The statement may offer more guidance.
The reasons for the drop are twofold, according to Kuo: a still immature wearables market and an Apple wearable that still fails to fully impress.
Kuo argues that the device lacks killer applications as yet, and that the form factor has room for improvement, 9to5Mac reported. He also believes that its limited battery life and its reliance on the iPhone for functionality are holding back demand.
The KGI report also expects that Apple will treat the Watch with the same interval schedule it applies to its iPhones, providing a major update every other year and focusing on internals on the years in between.
It's expected that Apple will introduce its newest Watch during its upcoming Worldwide Developers Conference (WWDC), which, if history is any guide, is likely to take place June 13 to 17 at the Moscone West center in San Francisco.
At the WWDC, Kuo expects news of a larger battery and a display with improved outdoor visibility. Those anticipating a thinner design will have to wait until 2017.
That forecast contradicts an April 8 note from analyst Brian White with Drexel Hamilton.
While on a "Chinese tech tour," according to a MacRumors report, White wrote that Apple may unveil an "Apple Watch 2 [that] could be 20-40% thinner than the current Watch" at this year's WWDC.
That same report noted that Cowen and Company analyst Timothy Arcurio have also predicted the mid to late June introduction of a thinner Apple Watch.
During Apple's first fiscal quarter, CEO Tim Cook said that Apple had expanded its distribution of Apple Watch to nearly 12,000 locations in 48 countries, and that, as expected, Apple "set a new quarterly record for Apple Watch sales, with especially strong sales in the month of December."
The Watch became available on April 24, 2015.
Slowing Watch sales could account for the handful of new Watch ads Apple released April 11. Seemingly aimed at a broad demographic, the 13- to 15-second ads feature celebrities including Nick Jonas, Alice Cooper, and Chloe Sevigny.
When it comes iPhones, Apple's every-other-year approach -- paired with massive global expansion -- would seem to be working just fine. In the December quarter, Apple sold 74.8 million iPhones, which Cook called an all-time high.
"To put that volume into perspective," Cook added, "it's an average of over 34,000 iPhones an hour, 24 hours a day, seven days a week for 13 straight weeks."