Apple's iWatch Could Be Super Profitable

Apple's iWatch, which is reportedly coming this year, could kill three birds with one stone for Apple.

1. It gives Apple an experimental entry in the wearable computing market which is said to be the next big thing

2. If done well it would kill the Apple-can't-innovate-without-Steve Jobs meme

3. It could be super profitable.

Let's tackle the third one. Bloomberg, citing a Citigroup report, says the global watch industry will do $60 billion in sales this year, with average gross margins of 60 percent.

Apple's iWatch, should it be released, will probably not fit neatly into the watch industry, so these comparisons are probably moot. (The margins on a $54,000 Audemars Piguet watch are probably pretty high, but unrelated to a mini-computer on your wrist.)

However, that doesn't mean we can't take a shot at trying to figure out how much money Apple could make on an iWatch.

In 2010, iSuppli estimated Apple's cost of goods plus manufacturing bill was $45.10 for an iPod Nano. The iPod Nano was the little square iPod with a touch screen. It actually wound up being used as a watch by a lot of people, and perhaps was a preview of an iWatch at Apple.

The iPod Nano

Apple sold the 8 GB iPod Nano for $149 and the 16 GB iPod Nano for $179. It's always an imperfect science relying on iSuppli for costs since Apple buys in bulk and hammers out special deals. However, using iSuppli as a rough estimate suggests the iPod Nano was super profitable.

We don't know what Apple is planning for the iWatch, but if we use this rough estimate, it's not hard to imagine the margins on an iWatch being quite healthy.

One of the chief concerns for Apple, from an investor's perspective, is the risk of margin collapse. If Apple could get margin on the iWatch like it did on the iPod Nano it would help the company's overall margins significantly.

Compare this to a TV, which many people have been anticipating. As Bloomberg points out, the margin on a TV is much smaller, and the market is much more competitive.

Going with an iWatch could be a more lucrative, innovative move from Apple.