Apple iWatch: Perception Is Reality

"Can't innovate anymore, my foot."

Those were the words of  Apple  (AAPL) Senior Vice President of Worldwide Marketing Phil Schiller during Apple's developer conference last week, when talking about the new Mac Pro Apple was showing off. Clearly, the perception that Apple can't innovate anymore is not only bothering investors, but the company as well. A new product, such as the iWatch, would go along way toward changing that perception, even if it isn't likely to have a major impact on the company's business.

Jefferies analyst Peter Misek notes that the iWatch "will more likely be a hobby for Apple than a major new product line." Misek, who rates, Apple shares "hold," notes that "Apple would need to redefine the watch market for it to have a substantial impact on our estimates."

Morgan Stanley  analyst Katy Huberty estimates the watch could be worth as much as $10 billion to $15 billion in annual revenue for Apple. Piper Jaffray's Gene Munster has thrown out similar numbers, as have others who've speculated on the yet-to-be-announced device.

Related Articles

• 5 Stocks Poised to Pop on Bullish Earnings
• Clouds of Doubt Reign Over Red Hat
• 5 Stocks for Your Kid's Portfolio

A product that does between $10 billion and $15 billion in annual sales isn't going to drastically move the needle for a company that is projected $171.4 billion in fiscal 2013, and $187 billion in fiscal 2014, per  Thomson Reuters . It's about changing the perception that Apple has a pipeline left, and can still make products that people want to buy, even if they don't necessarily need them.

Innovation is the heart of technology, and perhaps part of the reason Google shareholders have rewarded the company this year. Shares are up 25.3% year-to-date, as investors get excited about Google Glass, driverless cars, and other projects. Apple has not shown that to investors, and likely never will, as the company, led by CEO Tim Cook, likes keeping its product pipeline a secret.

Misek isn't the first analyst to say Apple needs to redefine the watch market. Currently no one dominates the space, despite attempts by Nike (NKE) and others, and reports that Google (GOOG) and  Microsoft  (MSFT) are planning similar devices. The market is still relatively small, especially when compared to Apple's other products.

The iPhone and iPad made up more than 70% of Apple's revenue last quarter. That trend isn't likely to change anytime soon, but it's the perception of change that investors are looking for.

Cook has said in the past that Apple has products in the pipeline. "Our teams are hard at work on some amazing new hardware, software, and services that we can't wait to introduce this fall and throughout 2014," Cook said on the last earnings call. "We continue to be very confident in our future product plans."

Apple's CEO has the backing of Wall Street, as the company continues to battle perception issues. UBS analyst Steven Milunovich, who rates Apple shares "buy" with a $500 price target, believes Cook is the right man for the job. "Jobs created Apple's culture, but the personality type to create the revolution is not the one needed to carry on after," Milunovich wrote in his note. Apple, vis a via Cook, needs to demonstrate the company's future did not leave when Steve Jobs passed away. The only thing that will change that perception is a new product or service that makes people stand up and take notice.

It's all well and good that Apple is confident in its product plans. It has to make Wall Street confident in these plans, and the iWatch would go a long way toward changing that mindset.

--Written by Chris Ciaccia at TheStreet.