The news apparently comes from Taiwan's Advanced Semiconductor Engineering Inc., the company that is responsible for putting the watch's many chips and sensors into a small case, known as a system-in-package, or SiP.
Bernstein Research analyst Mark Li says that on a conference call, an ASE subsidiary told investors that it didn't reach its "break-even volume" of two million units per month in the second quarter. To make matters worse, the ASE unit doesn't expect to reach that level during the third quarter either, which is typically a busy production period before the holiday sales season. It wouldn't commit to reaching it during the fourth quarter either.
"The shortfall of Apple Watch is a disappointment," Mr. Li wrote in a note to clients. "We came in with a low expectation but below break-even still surprised us."
It's considered unusual for a company like ASE not to reach break-even volume, especially in the third quarter on a new product. Li expects the company to fall short of his previous forecast of 18 million units this year.
Apple has refused to break out sales numbers for the Apple Watch saying that it doesn't want to provide information that may help its competition. However, it did say that the Apple Watch sold better than internal forecasts despite limited supply.
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