Why you should opt for the iPhone Upgrade Program
The best kept secret at last week’s Hey Siri event—the one even the best reporters didn’t see coming—may turn out to be Apple’s biggest money maker.
It’s called the iPhone Upgrade Program, and it will be offered for the first time a week from today to qualified customers who buy a new iPhone at any U.S. Apple Store.
It’s basically a leasing program with benefits.
For 24 monthly payments on terms roughly comparable to those offered by the carriers—anywhere from $32.41 to $44.91 a month—you’ll get AppleCare+ phone support/damage insurance (a $11/mos. value) and the option to trade in your iPhone 6S for an iPhone 7 (or whatever it’s called) a year from now.
Bottom line: If you like to own the latest iPhone and you value Apple support, and you qualify, you should grab it. You won’t get a better deal from the carriers.
But it’s an even better deal for Apple, as Morgan Stanley’s Katy Huberty was quick to point out. Other analysts have since weighed in, enumerating the multiple benefits Apple stands to reap from the program:
- It gets to sell more high-margin AppleCare+ contracts
- It locks customers into the iPhone indefinitely
- It halves the iPhone upgrade cycle (to 12 months from 24)
- It builds an inventory of used phones that can be refurbished and resold
- It takes control of, and legitimizes, the grey market for second-hand iPhones
- It unbundles hardware costs from carrier costs
- It leaves cell service complaints clearly in the carriers’ hands
- It raises Apple’s gross margin from 50% to 55% (see RBC Capital’s chart below)
“It takes what could have been negative sentiment—a sell-on-the-news event—and potentially turns it positive,” Thrivent Asset Management’s Peter Karazeris, told Barrons. See Apple Shares Could Rally 50% on New iPhone Plan.
Click to enlarge.