New iPhone Upgrade Program seen driving upgrades, giving Apple more control of customer relationship

Posted:
in AAPL Investors edited September 2015
Apple's new interest-free iPhone Upgrade Program is likely to make more customers buy a new handset every year, investment firm UBS believes, calling it a "smart move" that could make the iPhone more of an annuity business.




Analyst Steven Milunovich of UBS told investors on Tuesday that he believes Apple's iPhone Upgrade Program "could be a big deal." In his view, the plan will cause some customers to upgrade their iPhone more often, boosting revenue for Apple.

In addition, the plan could help make the iPhone less of a "hits business," he said. If Apple were to successfully lock enough customers into annual upgrades, the iPhone business would be more akin to an annuity, which should drive its stock higher.

UBS's Gareth Jenkins estimates that if Apple were priced as an annuity business, the company's stock could be worth over $200 per share.

Apple's new iPhone Upgrade Program is an interest-free, two-year loan, covering the cost of a new iPhone as well as AppleCare+ extended warranty. The cost of the phone and warranty are spread out over 24 payments, and users have the option to trade in their phone and upgrade to the latest model after one year.

AppleInsider analyzed the iPhone Upgrade Program 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.




To Milunovich at UBS, the new program is an attempt by Apple to gain further control of its relationship with customers, wresting it away from its carrier partners. UBS estimates that the short-term effect of the iPhone Upgrade Program on carriers will be limited, however.

Specifically, Milunovich said the carriers' activation fees will likely deter users from constantly changing providers. In the U.S., AT&T and T-Mobile charge $15 for activating a line, while Sprint charges $36, and Verizon charges $40.

If 15 percent of the U.S. iPhone installed base were to participate in Apple's new program by fiscal 2017, Milunovich sees an incremental 9 million iPhone units shipping in that year. That would translate to an additional 36 cents earning per share, or roughly 3 to 4 percent EPS growth.

One potential downside to Apple's program, he said, is that there could be more used iPhones on the market, with consumers trading in to upgrade every year. Milunovich estimates there are between 45 million and 55 million secondary iPhone users, growing by between 5 million and 7 million each quarter.

But to Milunovich, the net effect of users buying in to the iPhone ecosystem is a benefit to Apple in the long run, regardless of whether they purchase a new or used handset.

UBS has maintained a "buy" rating for AAPL stock, with a 12-month price target of $150.
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Comments

  • Reply 1 of 55
    Absolutely. AT&T gave me a good grief unlocking my iPhone 6 and charged a ridiculous activation fee. So happy I will not need to deal with AT&T anymore.
  • Reply 2 of 55
    rogifanrogifan Posts: 10,669member
    I see Chip Chowdry is at it again claiming investors have zero confidence in Apple management and board because according to him they're not unlocking "shareholder value". :lol:

    http://fortune.com/2015/09/15/apple-chowdhry-investor/
  • Reply 3 of 55
    Quote:

    Originally Posted by sog35 View Post

    snip

    "Plus you don't have to worry about accidental damage with AppleCar."

     

     


     

    So does that mean the new Apple car will be packed with sensors and never bump into anything else on the road?

  • Reply 4 of 55
    sog35 wrote: »
    Genius move by Apple.

    Most people don't want to mess with dealing with 2 year contracts.  Selling their old phone and then buying a new phone.  

    Just pay about $30 a month and get a new iPhone every year.  Plus you don't have to worry about accidental damage with AppleCar. This is basically the most frictionless plan as possible.  It may come to a point where you just can lease a new phone with your AppleID.

    At this point the carriers (AT&T, Sprint, ect) are just dumb pipes.

    Where do you see $30? It starts out at $32.41 for the cheapest model and goes up from there. It's more like pay about $35 - $40
  • Reply 5 of 55
    rob53rob53 Posts: 2,032member
    Quote:

    Originally Posted by SirLance99 View Post





    Where do you see $30? It starts out at $32.41 for the cheapest model and goes up from there. It's more like pay about $35 - $40



    iPhone 6S, 64GB, $36.58 + sales tax at signing. Even with iOS 9 only being 1.3GB, the 16GB model will fill up quickly with Documents&Data and that "Other" stuff. I was hoping the tax would be rolled into the money payment but no such luck. The tax adds another (almost) two months lease cost to the phone and I doubt we'll get any of it back when we trade in the old phone for a new one after one year. I like it being interest free but I'm sure the state governments will be happy collecting sales every time a "used" iPhone gets resold.  (I just wish Apple would get a 30% cut of the resale sales tax. /s)

     

    I made my two reservations for 9/25 for two iPhone 6Ss each. I contacted Apple and they said the phones will be there. I'm buying out my AT&T iPhone 6 and moving it to another family member while changing to Verizon (AT&T has minimal coverage outside the I-5 corridor in WA) . This way, nobody has to deal with an old hand-me-down and they can keep theirs for as long as they want. I see the iPhone 6S as lasting at least 3-4 years. Verizon says I can activate (Apple won't let you not activate per internal document per AppleStore sales rep  using a temporary phone number, then port all my phone numbers over when ready. 

  • Reply 6 of 55
    One good thing about the carriers iPhone plans is that they do not require your credit to be pulled in order to get an installment plan. With Apple you get the installment plan but your credit score will go down some.
  • Reply 7 of 55
    The used iPhone is a good thing. As long as everyone has one they will be buying Apple crap and they'll buy a new one eventually.

    And what exactly does "activating a line " entail?
    Sending a highly trained, highly skilled well payed tech out to your home?
  • Reply 8 of 55
    gordygordy Posts: 971member

    If I buy a phone from Apple directly, do I merely put my existing SIM car in it?  Is something else necessary?

  • Reply 9 of 55
    gordy wrote: »
    If I buy a phone from Apple directly, do I merely put my existing SIM car in it?  Is something else necessary?
    Yes. That's all you need to do. But use the sim card not a car. Your phone will thank you ?
  • Reply 10 of 55
    How are they going to handle it when all these folks want to preorder the iPhone 7? They should lay that out...
  • Reply 11 of 55
    croprcropr Posts: 938member
    Quote:
    Originally Posted by sog35 View Post

     

    At this point the carriers (AT&T, Sprint, ect) are just dumb pipes.


    You do not have to agree but operating a wireless 3G/4G network is not an easy task.  In terms of complexity an iPhone looks just a dumb device in a high tech network.

  • Reply 12 of 55
    This would be nice if they would roll it out beyond they US. Although I am not sure the need to upgrade every year, I have been quite happy with my 5s, at no point have I wished I had the six or felt I had a worse phone than people with one.

    Carriers seem to be getting wise here to the second hand market as the sim only contracts are getting more expensive when compared to contracts that include service + phone. When looking at the prices it looks like it makes more sense for me to upgrade than to just pay for service and keep my 5s, due to the phone becoming less and less value via trade in prices the older it gets.
  • Reply 13 of 55
    This new program is very enticing to me because it means I never have to worry about my iPhone.

    If I were on this program, I would not have to buy and use a bulky case, I wouldn't care if I get scratches or if the cable starts to fray, I wouldn't have to baby the phone and accessories to keep its resale value, I wouldn't have to think about wasting battery cycles, I wouldn't have to envy other people's newer model iPhones, and as an AAPL investor, I wouldn't have to wonder if the the new ones are any good.

    Or to put it another way, I'm still on a 4S in great condition, and this program is making me reconsider paying more for a worry-free experience.
  • Reply 14 of 55
    1) Psychologically, I think this will also get people to go for the higher capacity device, and possibly even the larger device knowing they can get a new one after 12 months and only have to pay a few dollars more per month to try it out. For that reason I'm guessing Apple will see a higher ARP moving forward.

    2) This seems like a good way to check to see what availability there is for each store at any given moment, even if you wish to buy it outright.

    [LIST][*] http://www.apple.com/shop/iphone/iphone-upgrade-program
    [/LIST]
  • Reply 15 of 55
    One bit of good news is that, with a lot of iPhones coming back to Apple after but one year of use, the company won't be recycling them into pop cans. They're too valuable for that. Apple will be reselling them unlocked. The question is how those sales will be managed.

    Apple might want consider selling them to groups of people who're unlikely to buy new iPhones, who would find buying new a heavy burden, or who tend to buy Android phones. That'd create far more iPhone owners without any significant loss in the sale of new iPhones. Apple could limit those sales to groups such as:

    1. Software developers, musicians, and authors who market through Apple. Many are not rolling in the money. That'd reward them and encourage others to sign up.

    2. Students, both high school and college. Not everyone has rich parents. Those kids might convince their parents to get iPhones. When they graduate, they'll be more likely to buy a new iPhone.

    3. School teachers, both public and private, from grade school up. This would be something to make up for their often low pay. Ditto community college professors, whose pay is often even lower. That'll do something for education and perhaps create more Apple fans in the schools.

    It's certainly something for Apple to think about.
  • Reply 16 of 55
    pmzpmz Posts: 3,433member
    Quote:

    Originally Posted by sog35 View Post

    Plus you don't have to worry about accidental damage with AppleCar

    Lol, foreshadowing?

  • Reply 17 of 55
    pmzpmz Posts: 3,433member
    Quote:

    Originally Posted by mubaili View Post



    Absolutely. AT&T gave me a good grief unlocking my iPhone 6 and charged a ridiculous activation fee. So happy I will not need to deal with AT&T anymore.



    So who are you going to "deal with" now? Apple doesn't provide service. So who's service are you using?

     

    Unlockers are the most confused bunch of buyers. They are under the deluded impression that the grass is always greener, and that paying more out of pocket for their iPhone than any other human being is somehow a "win".

  • Reply 18 of 55
    rob53rob53 Posts: 2,032member
    Quote:

    Originally Posted by AppleinsiderFrm View Post



    The used iPhone is a good thing. As long as everyone has one they will be buying Apple crap and they'll buy a new one eventually.



    And what exactly does "activating a line " entail?

    Sending a highly trained, highly skilled well payed tech out to your home?

    I hope this was sarcasm. If not, activating a line is the process a cellular company goes through to update their infrastructure with the new IMEI/MEID and SIM card numbers. These are unique numbers and is what identifies the specific mobile device so it can be found around the world. I presume cellular technicians aren't paid very much so all that money goes to the CEOs and shareholders. I further presume all they do is input the numbers and press a button to update everything. The rest of the charged time is spent making sure they have a credit card to charge you. 

  • Reply 19 of 55
    rob53rob53 Posts: 2,032member
    Quote:

    Originally Posted by pmz View Post

     



    So who are you going to "deal with" now? Apple doesn't provide service. So who's service are you using?

     

    Unlockers are the most confused bunch of buyers. They are under the deluded impression that the grass is always greener, and that paying more out of pocket for their iPhone than any other human being is somehow a "win".


    I'll add an answer, just look at my initial comment above. Having an unlocked phone can be good for several reasons. 1) I don't have to argue with the cellular provider over my hardware costs. 2) I can take this phone outside of the US and use a foreign SIM card instead of paying exorbitant fees from the US carriers. 3) If I see a better deal and they offer better reception, I can change without having to worry about my hardware contract. I'm not confused.

  • Reply 20 of 55
    sirlance99 wrote: »
    Where do you see $30? It starts out at $32.41 for the cheapest model and goes up from there. It's more like pay about $35 - $40
    and he got the 6+ 64GB which is >$40/mo
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