Implications of iPhone “Extra Credit” Unclear

Implications of iPhone “Extra Credit” Unclear

This week Apple announced an “extra credit” of $25-$100 for a trade in of an iPhone 6, 7, 8, or X towards a new XS or XR. While it appears to be a negative read on iPhone demand in the December quarter, this limited promotion may not be a helpful read on near-term sales.
  • If there was an iPhone demand issue, it’s unlikely this $25-$100 trade-in promotion would have a measurable impact on sales. We are currently only seeing this promotion available in the US.
  • It does show a new willingness of Apple to experiment with iPhone pricing, likely to test new segments of the iPhone demand curve to maximize revenue.
  • We believe this unprecedented pricing strategy underscores Apple’s focus on making it easy for iPhone users to upgrade. The promotion will drive trade-in activity. From there, users are more likely to join the iPhone Upgrade Program – the fullest (current) expression of an iPhone “subscription” and Apple as a Service.
  • Since we won’t be getting iPhone units and ASPs on the Dec-18 earnings report, the best read on iPhone sales will, of course, be overall revenue which we remain comfortable with (Street $91.9B). The hardware margin reporting metric will also be helpful in the context of past hardware gross margins. Apple will likely provide previously reported quarters hardware margins when they announce Dec-18 results late in January or February.

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