No Incremental Benefit Expected from Apple's (AAPL) Trade-In Program
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Rating Summary:
39 Buy, 25 Hold, 7 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 0 | Down: 0 | New: 0
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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 Appleās 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.
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 Appleās 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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