Apple’s Secret Plan to Boost iPhone Sales Is Working

December 15, 2015, 1:23 PM UTC
Courtesy of Apple

Analysts were quick to see the benefits for Apple in the company’s new iPhone Upgrade Program, the one announcement that took everybody by surprise at Apple’s (AAPL) Sept. 9 iPhone event.

What they couldn’t foresee was whether Apple’s customers would see the benefits to the buyer. Piper Jaffray’s Gene Munster, for example, predicted that 15% of new iPhone customers would opt for what is, in effect, a 24-month lease.

He was way off.

In a note to clients issued late Monday, Munster reported that of 188 iPhone 6S buyers surveyed in mid-November, 70 people (37%) chose the new program. By the end of the quarter, Munster believes, the actual rate could turn out to be as high as 50%

The deal is basically a leasing program with benefits.

For 24 relatively low monthly payments—anywhere from $32.41 to $44.91—customers get AppleCare+ phone support/damage insurance (a $11/month value) and the option to trade up to an iPhone 7 (or whatever it’s called) a year from now.


AT&T (ATT), Verizon (VZ) and T-Mobile (TMUS) have started offering similar deals on somewhat sweeter terms, but Munster believes many customers will prefer to deal with Apple than with a carrier. “In that regard,” he writes, “we believe Apple has the upper hand.”

As we wrote in September, the upgrade program is a good deal for customers and an even better deal for Apple.

  • It gets to sell more high-margin AppleCare+ contracts
  • It locks customers into the iPhone indefinitely
  • It halves, in theory, 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 could raise, according to RBC Capital, Apple’s iPhone profit margin from 50% to 55%.


No wonder Apple is pushing the plan hard for the holidays in its retail stores, on its website and, most recently, in unsolicited e-mails.

Munster predicts that 75% of Apple’s iPhone customers will eventually move to an annual upgrade, lifting Apple’s U.S. iPhone unit sales 10% over the next three years.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple (AAPL) coverage at or subscribe via his RSS feed.

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