Apple is about to reap a new crop of iPhone trade-ins, says analyst Wamsi Mohan, and it's paying a premium to do it.
From a note to clients that landed on my desktop Wednesday:
We contend that consumers are not realizing the residual value of the iPhones they own (highest residual value across brands) and believe that Apple will drive an initiative to increase trade-ins that we view as a subsidy to users who want to upgrade by lowering the effective cost of acquiring a new iPhone, thereby offsetting part of the decrease in upgrade rates.
Apple is offering trade-in values that are at a premium compared to 3rd parties ... especially targeting consumers replacing versions of iPhone 6/6 Plus, and 7/7 Plus, which we believe have a higher percentage of phones in the primary market versus secondary (used) market.
From our proprietary survey (~18K respondents covering China, India, Great Britain and the U.S.), we estimate the composition of the iPhone installed base. Respondents to our survey had iPhones ranging from the latest models (XS, XS Max and XR) to models older than iPhone 4. Even with this diverse set, the weighted average age of iPhones in our sample was 2.8 years. iPhone 6, 6S and 7 are the most popular models in our sample set, and these are exactly the models that Apple is targeting for trade-ins.
Maintains Buy rating, raises price target to $220 from $210.
Cue the charts:
Click to enlarge.
My take: Mohan may be on to something. By offering slightly higher prices than third-party resellers, Apple get a two-fer: It builds its inventory of refurbishable old iPhones while driving sales of the new.