Piper Jaffray: Apple could sell 5-10 million iWatches in first year

October 7, 2013, 11:29 AM UTC
From Apple’s smartwatch patent.

FORTUNE — Apple (AAPL) does not sell a smartwatch. It hasn’t introduced one or said anything about making one. But it has filed patents for a computerized touchscreen wristband, and this summer it registered the iWatch trademark in half a dozen countries.

On the strength of that, Piper Jaffray’s Gene Munster recently set out to gauge how big the market for such a device might be. His team asked 799 U.S. customers whether they would spend $350 on a watch that connected to an iPhone.

88% said no and 12% said yes.

Figuring that not everybody who said they were interested in an iWatch would actually purchase one, and that U.S. consumers are wealthier than the average international iPhone owner, Munster estimates “conservatively” that 2-4% of Apple’s global iPhone base would buy an iWatch the first year it became available, and that Apple could sell 5 to 10 million units in 2014.

Munster’s bottom line:

“If you assume that Apple sells 7.5 million units in the first year (midpoint of our 5-10 million unit range) at an ASP of $350 and a 30% gross margin, it would increase our 2014 revenue estimates by $2.6 billion or 1% and gross profit dollars by $790 million or 1%.

Morgan Stanley’s Katy Huberty went through a similar exercise last February and came up with an estimate about 10 times higher than Munster’s.

She started with the number of iTunes accounts (at the time 500 million) and figured a penetration rate of 20% to 60% for devices priced between $100 and $300. She concluded that Apple might sell 50 to 150 million iWatches a year and generate $10 to $15 billion of extra revenue ($2.50 to $4 ESP) annually. See What Apple iWatch?

Munster in his conclusion makes a reference — as he often does — to the Apple television he believes is just around the corner:

“While we do not view the watch as a likely needle-mover for Apple in terms of revenue in 2014, we put it in a similar category as the television in that it could demonstrate Apple’s ability to innovate (good for the multiple) and potentially lead to a more meaningful new product category in wearable tech.”

Huberty’s calculations below: