Apple Inc. (AAPL): Implications From Expansion of Trade-In Program

Apple Inc. (NASDAQ:AAPL) has joined hands with Brightstar to offer a trade-in program, people familiar with the matter told Bloomberg. It will help Apple Inc. (NASDAQ:AAPL) entice customers to upgrade their older iPhones (4 and 4S) to iPhone 5. RBC Capital Markets analyst Amit Daryanani said in a research report that Apple Inc. (NASDAQ:AAPL) has had a trade-in program on its website since 2011. But the latest one will be offered in retail stores as well, allowing customers to get instant cash/credit instead of waiting for weeks.

Apple Inc. (AAPL): Implications From Expansion of Trade-In Program

Apple to Bring Uniformity

Mr. Daryanani believes that the expansion of its trade-in program is aimed at driving growth of new products, and will help streamline the product cycle and create a uniform product offering. By allowing more options to trade-in older products (online, retail stores and Brightstar), Apple Inc. (NASDAQ:AAPL) will be able to generate additional demand for the iPhone 5. It will help the Cupertino, California-based company discontinue products with 30-pin connectors like iPhone 4, iPhone 4S and iPad 2.  Apple Inc. (NASDAQ:AAPL) wants to create a more uniform connector offering.

Bearish View

From a bearish point of view, the trade-in program can be seen as Apple Inc. (NASDAQ:AAPL)’s attempt to liquidate the excess iPhone supply before launching new models like iPhone 5S and low-cost iPhone in late 2013. The iPhone 5 sales haven’t been encouraging so far.  The expanded trade-in program may prove a headwind in the near-term for iPhone gross margins. RBC analysts believe that iPhone 5 gross margins have fallen below 50% due to higher product manufacturing complexity.

RBC Capital Markets believes that Apple Inc. (NASDAQ:AAPL) will remain focused on innovation after the WWDC event. Analysts expect several product lines to be refreshed in the second half of this year. The new products are likely to be a low-price iPhone, iPhone 5S, retina display iPad Mini and iPad 10″ refresh.

RBC said that emerging market penetration will remain Apple Inc. (NASDAQ:AAPL)’s revenue driver for the next several years. Moreover, new products like iTV, iWatch and others could further expand the company’s revenue and growth potential. RBC has an Outperform rating on the stock with $475 price target.

Apple Inc. (NASDAQ:AAPL) shares were up 0.55 percent to $440.89 at 3:22 PM EDT.