Early Installment Plan iPhone Upgrades Could Provide Tailwind for Apple (AAPL), Piper Jaffray's Munster Says

Apple (NASDAQ: AAPL) shares are lower again today given ongoing China currency worries as the country again moved to devalue its currency. However, according to Piper Jaffray analyst Gene Munster, Apple may have a new tailwind - a shift to U.S. carrier device installment plans.

These plans offer customers to pay no money down and, in some cases, upgrade their devices earlier instead of the typical two-year subsidized window. AT&T and Verizon launched their Next and Edge plans in summer 2013, almost two years ago, but all the major U.S. carriers have moved toward installment pricing over the past year, Munster notes.

"Over time, we believe this could result in a compressed upgrade window for some iPhone users, although the gradual roll-out of Next and Verizon's contract-less offering suggests that there may not be one specific quarter where the tailwind is recognized and it may be a more gradual and consistent slight tailwind for multiple quarters until the majority of users transfer to those types of installment plans," Munster commented.

Munster said as we move toward the iPhone 6S launch likely in September, they believe that customers on installment plans in Q3 and Q4 of 2014 are potential early upgrade customers.

Based on the firm's analysis of the estimated ~21.4 million and ~32.6 million U.S. smartphone users on installment plans in Q314 and Q414, respectively, potentially 2.9 million and 4.4 million U.S. smartphone customers would upgrade early in Q315 and Q415.

One downside of the early upgrade plans is that most require the customer to trade in their current device, Munster notes. "If iPhone users are upgrading every cycle, it would imply that a significant number of one-year-old devices, which typically become the mid-tier phone in Apple’s pricing structure, should enter the market," he comments. This could limit unit upside, although not ASP upside.

The analyst reiterated his Overweight rating and price target of $172 on AAPL.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $113.49 yesterday.

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