There is 'lackluster interest' in the Apple Watch, says UBS

Interest in the Apple Watch is "tepid," says UBS analyst Steven Milunovich.

Milunovich is lowering his estimates for Apple Watch sales in fiscal 2016 based on "global search activity". He is predicting Apple sells 31 million Apple Watches, down from a prior estimate of 41 million. (Apple's fiscal year starts in October. So, calendar Q4 is fiscal Q1 for Apple.)

Here's Milunovich explaining his thinking:

Our latest Apple Watch Monitor continues to find lackluster interest as measured by global search activity. Watch supply has been limited, but our change is based on demand. We look for 11mn Watches to be shipped in F15 and are cutting our F16 estimate from 40mn to 31mn for two reasons: (1) search interest has deviated lower relative to an index of 30 consumer electronics introductions and the first iPad and iPhone releases-the week of launch, the Watch is about 20% of iPad and iPhone interest; and (2) we now think about 7% rather than 10% of the expected iPhone 5/6 average installed base of 430mn in F16E is likely to buy a Watch.

31 million watches is still an impressive number. But, the fact that he's seeing weak interest shortly after the product was released is worrisome.

In his note, he says part of the reason interest is subdued is because of Apple's watch sales process. People need appointments to test out the watch in the store. But, he thinks this is smart since it allows Apple to train people on how to use the watch: "Word of mouth will be important, so training users is needed."

One problem with the word of mouth idea? We're skeptical word of mouth will do much with the watch. After a few days of using the watch, we've found that it's main strength is as a watch. Which is not super compelling to most users. The watch is not like an iPhone, or even an iPad, where there is a broad array of features to show off for people.

Milunovich lowered his EPS target for 2016 based on his lowered watch numbers to $10.26 from $10.52. The Watch is going to provide 40% of Apple's EPS growth in 2016, he says.

Apple, for its part, says demand is stronger than supply right now. On Apple's earnings call, Tim Cook said response to the watch has been nearly universally positive on social media.

But, those are early adopters. The next wave of consumers will be the real test for Apple.