Over the last month, Apple (NASDAQ:AAPL) has been promoting an iPhone trade-in program that gives existing iPhone owners generous device buyback prices if they upgrade to its new iPhones. While Apple’s primary motive is to stimulate sales of its latest iPhone XS and XR models, which seem to have received a lukewarm response from customers, the company could also stand to gain meaningfully from a slew of new refurbished devices which it could use to expand its user base and in turn drive its services business.

Apple Is Promoting The Deal Aggressively 

Apple is offering as much as $300 on a two-year-old iPhone 7 Plus, allowing customers to purchase its latest mid-range handset, the XR, for as little as $450 under the trade-in program. Although Apple has quietly bumped up trade-in values for older iPhone models in the past, it appears to be promoting this deal more aggressively, while rolling it out to multiple regions including Europe and Asia. The promotion should help Apple bolster sales of its new devices, incentivizing users of older iPhones to upgrade, while also helping the company bolster the stock of quality refurbished devices that could be re-sold to customers in emerging markets. Apple’s partner Brightstar handles the processing of used devices.

Used Phone Market Growing Faster Than Smartphone Market

The market for refurbished devices has been growing faster than the market for new smartphones. Per a report from Counterpoint Research, the market for refurbished smartphones grew by 13% in 2017, coming in at 140 million units, compared to the market for new smartphones, which grew by just about 3% in the same period. High-end phones, particularly iPhones, are popular in the refurbished market. Bank Of America Merrill Lynch estimates that the iPhone installed base grew at a 15% CAGR over the last two years, despite the fact that new iPhone sales remained largely stagnant, as robust double-digit growth in the used iPhone market helped bolster Apple’s user base.

How Apple’s Services Business Benefits 

Apple’s Services business has overtaken the iPad and Mac to become the company’s second-largest business segment, growing at levels of above 20% percent over the last two years.  Key drivers of the services business include app installations, licensing revenue, and iCloud subscriptions, all of which are directly tied to the size of Apple’s user base. As many of these traded in devices are likely to be refurbished and find their way back to customers, it could help to bolster Apple’s iPhone installed base (projected to stand at 1 billion this year) driving incremental service revenue for the company. While users of refurbished or pre-owned devices could be less valuable from a revenue standpoint (due to potentially weaker purchasing power) they could nevertheless help Apple drive growth at a time when its hardware sales have largely stalled. We have created an interactive dashboard analysis on Breaking down Apple’s Services revenue. You can modify the various drivers including iPhone installed base and ARPU for various divisions to arrive at your own estimates for services revenue through 2022.

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