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Apple's iPhone Upgrade Program is proving popular among users

Apple's iPhone Upgrade Program is proving popular among users

October 1, 2015

It looks like consumers are pleased with Apple’s iPhone Upgrade Program.

The plan, which allows customers to upgrade their handset and purchase the latest smartphone from Apple every 12 months, was unveiled by CEO Tim Cook a few weeks ago (alongside the iPhone 6s and 6s Plus). Customers had the option of making a monthly payment of $32.41 per month, using a new iPhone from Apple, and enjoying the benefits of AppleCare+. Then, once a new handset was released, they could upgrade, hassle-free.

Now, data from RBC Capital (via Fortune) notes that some 20 percent of iPhone upgraders are planning on utilizing the iPhone Upgrade Program. RBC’s Amit Daryanani explains: "Assuming 20% of the USA install base of ~200M units utilizes the upgrade program, this would result in ~$0.15 in EPS."

Philip Elmer-DeWitt at Fortune goes on to outline the benefits of the iPhone Upgrade Program for Apple. Take a look at his wise remarks:

  • Commits customers into buying a new iPhone every year
  • Sells more high-margin AppleCare+ contracts
  • Halves the iPhone upgrade cycle (to 12 months from 24)
  • Builds an inventory of used phones that can be refurbished and resold
  • Unbundles hardware costs from carrier cost
  • Incentivizes carriers to sweeten their iPhone deals
  • Raises the iPhone’s gross margin, per an earlier RBC calculation, from 50% to 55%
  • If you’re the kind of iPhone owner who values Apple’s service and support and always likes to have the latest model, the Upgrade Program is a pretty good deal.

Of course, though there’s no imposed requirement for subscribers to upgrade their iPhone year in, year out, it seems unlikely that anyone who’s signed up to this program isn’t going to trade-in their old handset for a new one, especially if the monthly fee remains the same (which it will). This, along with the added benefits of AppleCare+, make the iPhone Upgrade Program a tempting option for many.

Though, as Elmer-DeWitt adds, "For Apple it’s even better."

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