While “smartphones” have been around for more than a decade, the current paradigm of smartphones, essentially a computer in your pocket with app ecosystems, began with the introduction of the Apple Inc. (NASDAQ:AAPL)’s iPhone.
Apple Inc. (NASDAQ:AAPL) is expert at stoking desire, seducing consumers to line up and pay a premium for its newest models. At the moment, though, the hottest iPhones are less expensive—and old. Sales of refurbished iPhone 4’s and 4S’s are booming among price-conscious shoppers, especially in fast-growing emerging markets, and U.S. phone companies are racing to outdo one another with trade-in deals for customers willing to part with those models.
Apple iPhones are the most popular used smartphone brand
A.M. (Toni) Sacconaghi, Jonathan Cofsky and Eric C. Garfunkel of Bernstein Research expect the used smartphone market to grow rapidly over the next five years, from 53M units in 2013 to 257M units in 2017. According to analysts, Apple Inc. (NASDAQ:AAPL) iPhones are the most popular used smartphone brand, commanding premium prices at trade-in and at the point of resale. Consistent with new iPhone pricing, used iPhones are notably more expensive internationally. Interestingly, and not surprisingly, carriers are willing to pay more for a used phone locked. Sprint Nextel Corporation (NYSE:S), T-Mobile USA, Inc. (TMUS), and AT&T Inc. (NYSE:T) rely on contractors such as ERecycling Corps and Brightstar, who buy used phones, spend $50 or so to polish up scratches and wipe old data, and resell them at a profit to distributors, usually in Asia.
Sales of used iPhones are helping Apple compete with Android phones
Historically, Apple Inc. (NASDAQ:AAPL) has frowned on the refurbished iPhone industry as an impediment to new sales, but the trade-in boom is helping the company solve two problems at once. It’s clearing unsold Apple Inc. (NASDAQ:AAPL) iPhone 5 inventory in the U.S. while making used Apple Inc. (NASDAQ:AAPL)’s iPhones an option for hundreds of millions of first-time smartphone buyers in Asia, the Middle East, and Africa. Without these cheaper options, Apple Inc. (NASDAQ:AAPL) would be losing even more share to smartphones that run Google Inc (NASDAQ:GOOG)’s Android operating system, which has 59 percent of the global market to Apple Inc. (NASDAQ:AAPL)’s 19 percent.
There is huge growth in smartphone demand in price sensitive emerging markets where consumers want high end branded goods, particularly Apple iPhones, which are out of reach price-wise as new. Refurbished smartphones, particularly the Apple Inc. (NASDAQ:AAPL)’s iPhone, allow consumers in emerging markets to own an aspirational brand at a lower cost, potentially at a 15%-33%+ discount to the cost of a new, unlocked Apple Inc. (NASDAQ:AAPL) iPhone.