• UBS: Apple's New iPhone Upgrade Plan Seen as a "Smart Move"



    Investment firm UBS believes that Apple’s interest-free iPhone Upgrade Program is likely to make more customers buy a new handset every year. The program as a whole was called a “smart move” that could make the iPhone purchase cycle annual as opposed to every two years. Analyst Steven Milunovich told investors 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 which will end up boosting Apple’s revenue.

    The plan could also make the iPhone less of a “hits business” according to him. If Apple could somehow successfully lock customers into annual upgrades, the iPhone business would be more akin to an annuity, which would drive its stock prices higher. UBS’s Gareth Jenkins estimates that if Apple were priced as annuity business, the company’s stock could rise to over $200 per share.

    For those of you who didn’t know, Apple’s new iPhone Upgrade Program is an interest-free, two-year loan that covers the cost of a new iPhone as well as an AppleCare+ extended warranty. The cost of the iPhone and the 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. Many publications have concluded that the new iPhone Upgrade Program is a great deal for consumers who plan on buying AppleCare+ and would like a new iPhone once per year. Another thing to keep in mind here is that the iPhone obtained through this method is one that is unlocked as well, allowing customers to switch carriers or use their handsets internationally at any time.

    Ultimately the new program is an attempt by Apple to gain further control of its relationship with customers, forgoing the carrier partners. Despite the excellent long-term play here, the short-term effect of the iPhone Upgrade Program on carriers will be limited. More specifically the carriers’ activation fees will likely keep users from constantly changing providers. In the US, AT&T and T-Mobile charge a $15 activation fee while Sprint charges $36 and Verizon charges $40.

    To give you a better perspective on the situation, if 15% of the US iPhone install base were to participate in Apple’s new program by fiscal 2017, Milunovich sees an incremental 9 million iPhone units shipping in that year. This would translate to an additional 36 cents earnings per share, or roughly 3-4% EPS growth.

    One of the only downsides to Apple’s Program is that there could be a larger number of used iPhones on the market since consumers would be trading in to upgrade every year. Milunovich estimates that there are roughly 45 million and 55 million secondary iPhones in the market, which will continue to grow by 5-7 million each quarter. That being said, 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 continued to maintain its “buy” rating for AAPL stock with a 12-month price target of $150.

    Source: UBS via AppleInsider
    This article was originally published in forum thread: UBS: Apple's New iPhone Upgrade Plan Seen as a "Smart Move" started by Akshay Masand View original post
    Comments 15 Comments
    1. sknet's Avatar
      sknet -
      just IF i do not need to return my old phone after a year i down for this
    1. misterjrw's Avatar
      misterjrw -
      When's it coming to the UK??
    1. edwilk55's Avatar
      edwilk55 -
      Quote Originally Posted by sknet View Post
      just IF i do not need to return my old phone after a year i down for this
      How would that be possible? Apple would have to eat the $400 or so you'd have remaining. This is so you can finance your new iPhone interest free and upgrade every year w/out penalty because you're off contract with your carrier of choice.

      It's a great deal!
    1. Scotty Manley Silberhorn's Avatar
      Scotty Manley Silberhorn -
      Not a fan of them attaching apple care to it though. Just a way to boost cash income since a small percentage of people who purchase apply pay actually use it
    1. rolandgabor's Avatar
      rolandgabor -
      Quote Originally Posted by sknet View Post
      just IF i do not need to return my old phone after a year i down for this
      That is the whole point. You can pay apple for two years just like you do with any provider and keep the phone, do as you please with it. But if you want a new phone every year you MUST return the current device to Apple. It's in their terms and conditions when you sign up. I did it last week for two phones. When you go through Apple it's a contract free phone. Not tied to a carrier for any length of time. It's activated by Apple on your chosen one without a contract.
    1. dookie454's Avatar
      dookie454 -
      Quote Originally Posted by edwilk55 View Post
      How would that be possible? Apple would have to eat the $400 or so you'd have remaining. This is so you can finance your new iPhone interest free and upgrade every year w/out penalty because you're off contract with your carrier of choice.

      It's a great deal!


      It's not a good deal anyway you look at it.

      since 2008 I buy ATT subsisted phone for $299-399 depending on the phone that comes out.. then 1.5yrs later sell on Ebay unlocked for the same price I bought it for.. = free phone.

      These new plans your paying for 100% of the phone price! If your lucky, sell for 50% later on.. How is that good deal? And like they said, they will flood the used phone market... driving prices down even more.
    1. holyshnikes's Avatar
      holyshnikes -
      I'm wondering how this works for cost per line. Right now with AT&T I'm at $15 a month per line while under the Next program. If I'd bought the phone outright, it would be $30 or $35 because I wouldn't be getting the Next "discount". I wonder how that works? Anyone?
    1. sean637's Avatar
      sean637 -
      Will jailbreaking the iPhone kills the plan?
    1. Kotin6006's Avatar
      Kotin6006 -
      Quote Originally Posted by Scotty Manley Silberhorn View Post
      Not a fan of them attaching apple care to it though. Just a way to boost cash income since a small percentage of people who purchase apply pay actually use it
      It is attached so that the phone you are basically leasing, if you do trade it in once a year, is protected under their protection plan. I see it as more to ensure that the iPhone they are hoping to have traded back into them in a year will be repaired correctly by them with OEM parts.
    1. tallnatt's Avatar
      tallnatt -
      Quote Originally Posted by dookie454 View Post
      It's not a good deal anyway you look at it.

      since 2008 I buy ATT subsisted phone for $299-399 depending on the phone that comes out.. then 1.5yrs later sell on Ebay unlocked for the same price I bought it for.. = free phone.

      These new plans your paying for 100% of the phone price! If your lucky, sell for 50% later on.. How is that good deal? And like they said, they will flood the used phone market... driving prices down even more.
      AT&T doesn't offer subsidised phones anymore. From now on you pay full price or do their Next program which is essentially the same thing apple is doing but with apple's plan you are stuck with iPhone and not whichever phone AT&T offers.
    1. docmagoo2's Avatar
      docmagoo2 -
      Quote Originally Posted by misterjrw View Post
      When's it coming to the UK??
      That's what I want to know!!
    1. NewD's Avatar
      NewD -
      Quote Originally Posted by tallnatt View Post
      AT&T doesn't offer subsidised phones anymore. From now on you pay full price or do their Next program
      This is a 100% false statement. And I don't know why it's still circulating around these threads and on various forums. It is true that AT&T "wanted" to make the move toward no more subsidized phones. They even set a date of July 30 to end it. But there was such an outcry from the public that they cancelled this. I just made my pre-order for my new 6S on a two year contract for the subsidized phone rwith AT&T.

      So please everyone stop spreading this false statement. Get caught up. AT&T is still doing subsidized phones on 2yr contract just like Verizon - just like Sprint and just like T-Mobile.
    1. bmwraw8482's Avatar
      bmwraw8482 -
      Quote Originally Posted by dookie454 View Post
      then 1.5yrs later sell on Ebay unlocked for the same price I bought it for.. = free phone.
      you might be forgetting that you pay for the phone by paying a higher price for your on-contract plan than you would off-contract. you'll save money on your plan if youre not under contract, therefore offsetting the monthly price of the phone.
      dont get me wrong, ive been doing the same thing. i sell my phone for $300 after 2 years and pay $300 for a subsidized phone. i havent paid for that portion of it since 2009 when i bought my iphone 3g, but i have been paying for the higher priced on-contract plans. last year i bought my iphone 6 unlocked from apple so i've been saving $25/month on verizon ever since my contract ended.
      i like this idea because i've never had an 'S' model phone before and while it locks you into having an iphone for the next 2 years at least, who's going to complain about that!
    1. vinaygoel2000's Avatar
      vinaygoel2000 -
      Quote Originally Posted by bmwraw8482 View Post
      you might be forgetting that you pay for the phone by paying a higher price for your on-contract plan than you would off-contract. you'll save money on your plan if youre not under contract, therefore offsetting the monthly price of the phone.
      dont get me wrong, ive been doing the same thing. i sell my phone for $300 after 2 years and pay $300 for a subsidized phone. i havent paid for that portion of it since 2009 when i bought my iphone 3g, but i have been paying for the higher priced on-contract plans. last year i bought my iphone 6 unlocked from apple so i've been saving $25/month on verizon ever since my contract ended.
      i like this idea because i've never had an 'S' model phone before and while it locks you into having an iphone for the next 2 years at least, who's going to complain about that!
      I have 4 lines on my account. 2 under contract, 2 off contract. I pay the same price regardless on contract status. Not sure how u get cheaper plan if not on contract.
    1. NewD's Avatar
      NewD -
      Quote Originally Posted by vinaygoel2000 View Post
      I have 4 lines on my account. 2 under contract, 2 off contract. I pay the same price regardless on contract status. Not sure how u get cheaper plan if not on contract.
      They drop the per line charge from $40/mo down to $15/mo when you're off contract.
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