iPhone trade-in program: Apple hopes to kickstart iPhone 5 sales, sources say

An AT&T customer tries out an Apple iPhone

An AT&T customer tries out an Apple iPhone 4 at an AT&T store in Palo Alto, Calif. Soon Apple customers may be able to trade in their older model iPhones for an iPhone 5. (Jan. 11, 2011) (Credit: AP)

Apple Inc. (AAPL) is starting an iPhone trade-in program this month aimed at getting users to upgrade to the iPhone 5 and turn in older models, people with knowledge of the plans said.

Apple has teamed up with Brightstar Corp. (STAR), a mobile-phone distributor, to run the exchange program, said the people, who asked not to be identified because Apple hasn’t publicly announced the plan.

Brightstar also handles trade-ins for AT&T Inc. (T) and T-Mobile US Inc. (TMUS), as well as other carriers and device makers, amid brisk demand for refurbished iPhone 4s and 4Ss in emerging markets. By offering money for older smartphones, Apple Chief Executive Officer Tim Cook is seeking to entice consumers to upgrade to the latest models, part of the company’s efforts to reignite sales growth and combat declining shares.


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“This will help them sell more phones, because it will lower the consumer’s out-of-pocket expense,” said Roger Entner, an analyst at Recon Analytics LLC in Dedham, Massachusetts.

Amy Bessette, a spokeswoman for Cupertino, California-based Apple, and Patrick Foarde, a Brightstar spokesman who works for Ketchum Inc., declined to comment.

AT&T is currently paying as much as $200 for working iPhone 4s and 4Ss, which could let some customers buy an entry-level iPhone 5 for no money down. Ganot estimates that 20 percent of U.S. consumers buying a smartphone this year will do so using a trade-in, up from 11 percent in 2011.

REFURBISHED PHONES

Until now, Apple paid little attention to the refurbished iPhone market. That’s changing as Apple’s growth has slowed in recent quarters. Samsung Electronics Co. (005930) became the best-selling smartphone brand in the U.S. in May, T. Michael Walkley, an analyst at Canaccord Genuity Inc., wrote in a report this week.

Apple sold 37.4 million units of the iPhone in the latest quarter, compared with 35.1 million a year earlier. Apple shares have declined 38 percent from a record in September, weighed down by investor concerns that the company’s era of rapid growth, fueled by the 2007 debut of the iPhone, may be over.

While Cook has said some “game changer” consumer electronics products are in development, Apple is still trading at an 18 percent discount to Suwon, South Korea-based Samsung on a price-to-earnings basis, according to data compiled by Bloomberg. Apple shares declined 1.5 percent to $438.46 at Thursday’s close in New York, leaving them down 18 percent this year.

EMERGING MARKETS

Samsung has become a market leader by offering smartphones based on Google Inc. (GOOG)’s Android mobile operating system, which captured 75 percent of the market in the first quarter, compared with 17 percent for phones running Apple’s iOS software, according to IDC.

Trade-in programs are used to support sales of new hardware in mature markets such as the U.S., where many prospective customers already own a smartphone. Used iPhones collected in the U.S. will only be resold in emerging markets, where Apple’s share is lower and demand for cheap devices is greater, said one of the people. That way, the resale of Apple’s older models won’t cannibalize iPhone 5 sales in the U.S., the person said.

Selling used iPhones in emerging markets may also keep first-time smartphone buyers around the world from committing to Android, buying time for Apple to introduce new models.

“The overall size of this market is increasing rapidly,” said Israel Ganot, chief executive officer of Gazelle Inc., an online mobile device trade-in company.

GLOBAL DEMAND

Apple runs a Web-based recycling service, in a partnership with Roseville, California-based PowerOn Services Inc., offering to pay people for their used iPhones, iPads or Macs. The new trade-in program with BrightStar will only be available at Apple’s retail outlets, letting consumers receive payments instantly and avoid the hassle of shipping their older gadgets, the people said.

Apple also worked with Brightstar to help AT&T and T-Mobile with their recent trade-in promotions, said the people. Brightstar set up its trade-in division a year ago and is on track to buy and resell more than 15 million devices this year, according to Bela Lainck, president of the buyback and trade-in business at Miami-based Brightstar.

The company collects 80 percent of its used devices in the U.S., and resells most of them through distribution centers in 50 countries, Lainck said in an interview in late May. Brightstar also owns an auction house in Hong Kong, and a division that provides refurbished phones to insurers seeking inventory for clients who have lost or broken a smartphone.

INSTALLED BASED

“The iPhone is an iconic device that people around the world want to own,” said David Edmondson, CEO of eRecyclingCorp, another trade-in processor. “If they can’t afford a new Mercedes, they’ll get a used one.”

Getting more people to buy iPhones -- whether new or used - - is also becoming more important as Apple starts to introduce services that are delivered via mobile devices, according to Walter Piecyk, an analyst at BTIG LLC.

Cook, who has also hinted that new services were being developed in addition to new hardware, is planning to introduce a new music-streaming service at Apple’s annual developers’ conference in San Francisco on June 10, people familiar with the matter said this week.

“The key is to get iPhones into as many people’s hands as possible,” Piecyk, who is based in New York, said in an interview. “Selling used phones is one way to do that.”

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