Here’s How Wireless Carriers Are Helping Apple
BMO Capital Markets analyst Keith Bachman has issued a note to investors, seen by AppleInsider, saying he believes that new smartphone early-upgrade plans from wireless carriers will stimulate more sales of Apple’s (NASDAQ:AAPL) iPhones, as consumers will be able to get their hands on a new device as soon as it comes out rather than waiting for a two-year contract to end.
All four major wireless carriers in the U.S. offer some variation of an early upgrade plan, in which subscribers pay the full price of a smartphone in monthly installments rather than receiving a subsidy from the carrier, then have the option to trade in the device for an upgrade much sooner than traditional contracts that offer subsidized devices. T-Mobile (NYSE:TMUS) was the first to come up with the idea, launching its Jump program last summer. AT&T (NYSE:T), Verizon Wireless (NYSE:VZ), and Sprint (NYSE:S) all soon copied the initiative.
Bachman only analyzed the upgrade programs from AT&T and Verizon. He predicted that the programs will be appealing enough that about 20 percent of the two largest wireless carriers’ customers will switch to an early upgrade plan by the end of the year. If that many subscribers have the ability to upgrade early, Bachman thinks it could net Apple an additional 5 million iPhone sales, with those sales representing people who will pay the full $700-plus for the phone over the course of monthly installments. That’s an added $3.7 billion in revenue.
The early upgrade phenomenon will also result in more refurbished iPhones hitting the market, which Bachman says will likely be sold overseas. Apple has been unable to crack emerging markets as successfully as rival Samsung (SSNLF.PK) due to the high price of its products and overall vision of itself as a luxury brand. When the iPhone 5C debuted last fall, the company was criticized for how expensive it was, given that it was thought to be Apple’s attempt at a cheap smartphone. CEO Tim Cook responded by saying that the company is “not in the junk business.” Using refurbished phones to target markets overseas is one way Apple can target those consumers with devices they may actually be able to afford, without degrading itself by making a phone that costs less than $700.
Bachman isn’t the only one feeling optimistic about Apple’s future. Morgan Stanley analyst Katy Huberty also issued a note to AppleInsider, saying that now is the right time to invest in the company. Huberty is optimistic about predicted upcoming product launches from the company this year, including the iPhone 6 and the iWatch, as well as Apple’s predicted entrance into the mobile payments market. Her research shows that Apple’s stock typically rises after long periods spent on research and development, and she said that the amount of money Apple has spent on R&D recently points to a long-awaited new product category. Huberty also said that many investors are underestimating the company’s ability to innovate.
Of course, not everyone is feeling the Apple love right now, as many still feel that Tim Cook hasn’t proven he can create innovative new products to continue the legacy of his predecessor Steve Jobs, and sales of the two iPhone 5 models have fallen below expectations.
BMO Capital Markets’ price target on the stock is $565; Morgan Stanley’s is $630.
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