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No Incremental Benefit Expected from Apple's (AAPL) Trade-In Program

June 7, 2013 10:16 AM EDT
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On Thursday, Apple (Nasdaq: AAPL) was said to launch a new trade-in program at its retail locations. The move was said to aid in sales of newer devices, cutting the down payment of a new iPhone and making it basically a free trade.

BMO Capital is out with a few comments on the news. The firm notes that this isn't the first time that Apple has conducted a trade-in program. Apple has run a swap program on its website for some time and other vendors have offered similar types of programs. Many iPhones have been sold on eBay (Nasdaq: EBAY) as well, so the system is not without precedent.

The idea is a good one, BMO said. The firm continued, "The initial reaction may be that Appleā€™s new phones do not have enough features to compel users to upgrade without some form of payment for a trade in. However, we think Apple is appropriately aligning to the increasingly competitive state of the high-end handset market."

Payments being made by Apple to the reseller weren't disclosed, but BMO thinks that "Apple benefits by selling high ASP/gross margin phone even if we assume some incremental cost associated with payment for a trade in phone."

Putting numbers to the chatter, BMO said Apple sold about 70 million iPhone units for the four-quarters ended June 2011. Should 60 percent come off a 2-year contract and were sold in the U.S. or Europe, that's 40 million units. Continuing further, if 10 percent to 20 percent of users were positively influenced by the trade-in program, that's an immediately addressable market of 4 million to 8 million iPhones.

Finally, BMO speculates that the program might hint at more mid-priced devices later in the year from Apple, rather than low-end handsets. The firm notes, "Trade-in values for iPhone 4 and 4s listed on Gazelle suggest end user sales prices of $150-$300. We believe that the new midpriced iPhone to be announced in the next few months will be priced around $350-$400 (we have assumed $375 in our model)."

BMO has a Market Perform on Apple with price target of $435.

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 $438.46 yesterday.


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