Neil Hughes
The new official iPhone financing plan is seen by investment firm RBC Capital Markets as a benefit not only to Apple, but also to its customers, both of whom should gain leverage over wireless carriers.
Analyst Amit Daryanani believes the iPhone Upgrade Program will drive customer loyalty from carriers toward Apple, and also force carriers to offer more aggressive pricing. Users who buy a handset through Apple's program receive an unlocked iPhone contract-free, meaning they are free to change carriers at any point.
Under the iPhone Upgrade Program, users are able to trade in their handset and exchange it for the latest model after the first 12 payments. The program is a 24-month, interest-free loan to pay off the cost of an iPhone and an AppleCare+ extended warranty.
Daryanani's thoughts were shared in a note to investors issued on Wednesday, a copy of which was provided to AppleInsider.
Apple hasn't yet announced what it plans to do with the iPhones that are traded in, but presumably the company will be able to resell those used handsets as refurbished and turn a healthy profit.
It's for that reason that Daryanani believes that Apple's gross margins will benefit from the new iPhone Upgrade Program. He sees margins increasing from an estimated 50 percent to as high as 55 percent due to a combination of factors, including more frequent user upgrades to the latest model.
Daryanani estimates that users currently wait an average of 26 months to upgrade their handset. That's slowed from 22 months in 2013, as carriers have moved away from subsidized pricing that lowers the price of a new handset in exchange for a new two-year service contract.
He believes many customers with two-year contracts ending in 2015 will opt to end their contracts and instead adopt Apple's upgrade program, which will enable them to upgrade their handset to the latest model on an annual basis.
"We think near-term this helps bolster share gains, increase customer stickiness to AAPL and enable a more competitive pricing environment for iPhones," Daryanani wrote.
His sentiment was echoed earlier this week by UBS and analyst Steven Milunovich, who views the iPhone Upgrade Program as a potential "big deal." He believes the plan will cause some customers to upgrade their iPhone more often, boosting revenue for Apple, and making the iPhone business more of an annuity.
AppleInsider analyzed the iPhone Upgrade Program last week and found it's a great deal for consumers who plan on buying AppleCare+ and would like to upgrade their iPhone once per year. Of particular interest is the fact that the iPhone sold through the program is unlocked, meaning customers can switch carriers or use their handset internationally at any time, with no contract commitments or restrictions.
RBC has maintained its "outperform" rating for Apple stock, with a price target of $150.
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45 Comments
I was considering this program until I discovered that it's being done through a third-party bank and not through Apple. They should tag such programs to my iTunes/iCloud account so that all my Apple payments happen in one place.
Please gut AT&T. Thank you!
The T-Mobile deal is quite a bit better, though you then have to be on the T-Mobile network.
Please gut AT&T. Thank you!
Dumb.
I truly want to believe this is true and the carriers will lower prices, at the present, unless I am missing something, AT&T are a non starter at present for anyone wanting to use Apple's plan. I was looking at AT&T's rates for using your own iPhone yesterday. They offer only $300 off the annual bill, not a lot. So something has to change. I understand the iPhone would be owned and able to be sold at the end of the year but I can see this also causing a massive drop in the value of second hand one year old iPhones as the new Apple purchase plan gains traction. I would bet I can kiss my my 'grandfathered in unlimited data' goodbye too. I wonder if Apple now might consider buying a carrier in the USA and entering that business as a service to Apple users only, since competing isn't an issue with their own purchase plan in place? Last thought just now, why not the same purchase plan for iPads?