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Robust Demand for Used iPhones Is Serving to Apple in A number of Methods – jj
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Robust Demand for Used iPhones Is Serving to Apple in A number of Methods

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A robust market for used iPhones has become an important — and still generally unappreciated — part of Apple’s (AAPL) growth story.

On Tuesday, research firm IDC estimated that sales of used smartphones rose 17.6% in 2019 to 206.7 million, and forecast that they’ll grow to 332.9 million in 2023. The numbers suggest that about 1 out of every 8 smartphones sold last year was a used device, and that the ratio could be around 1 out of 5 or 6 in a few years’ time.

Notably, IDC’s numbers also suggest used smartphone sales grew at a healthy double-digit clip during a year in which sales of new smartphones appear to have been flat to slightly down. IDC has estimated that shipments of new smartphones were down 6.6% annually in Q1 2019, down 2.3% in Q2 and up 0.8% in Q3 (an estimate for seasonally big Q4 should arrive within the next few weeks).

All of this is quite relevant to the iPhone installed base growth Apple has kept reporting in recent quarters, even as sales of new iPhones have slumped. Though Apple’s iPhone revenue has registered annual declines ranging between 9% and 17% during its last four reported quarters, it has also said on each earnings call that its iPhone active installed base reached a new high, while typically adding that installed-base records were hit across all major geographic segments.

Apple reported last January that its installed base of active iPhones had grown by nearly 75 million over the prior 12 months to more than 900 million — a solid majority of Apple’s total active device installed base, which stood at 1.4 billion — and it wouldn’t be surprising if that number is now above 1 billion. While a changing demographic mix for new iPhone sales has contributed to this growth — a greater portion of sales have been going to first-time iPhone buyers relative to existing owners, who on average are now taking longer to upgrade — used iPhone sales appear to be a major contributor as well.

And a larger iPhone installed base has of course spelled a larger base of consumers to potentially monetize via services running the gamut from App Store and Apple Pay transactions to Apple Music and Arcade subscriptions. And it also spells more opportunities to cross-sell other Apple hardware — including the Apple Watch and AirPods, both of which are tightly integrated with the iPhone and have seen sales take off in recent quarters.

In addition to driving installed base growth, there’s also another way in which used iPhone demand has been a growth driver for Apple: They’re making it easier for buyers of new iPhones to justify purchases of costlier models.

As fund manager Gavin Baker pointed out in a recent podcast, the fact that the resale value of iPhones tends to hold up better than that of comparably-priced Android iPhones gives Apple more smartphone pricing power, since buyers of new phones are often aware that (provided a phone remains in decent condition) they’ll likely get a decent amount of money back when they upgrade in two or three years’ time.

A look at sale prices on used phone marketplace Swappa drives home just how much more resale value iPhones tend to retain relative to peers. Whereas Swappa indicates the 64GB iPhone X, which carried a $999 list price when it launched in Nov. 2017, had a December average selling price of $440, it indicates the 64GB Samsung Galaxy Note 8, which had a $929 list price when it launched in Sep. 2017, had a December average selling price of $258. And the 64GB Galaxy S8+, which sold for around $850 when it launched in April 2017, the December average selling price was $228.

Apple, it’s worth adding, made it easier in late 2018 for consumers to get decent value for used iPhones, courtesy of improved trade-in offers at Apple Stores. Likewise, some major carriers have recently upped their iPhone trade-in offers.

And eventually, most of the iPhones that are traded in end up being sold to other consumers — including a lot of first-time iPhone buyers whose activations will serve to grow Apple’s iPhone installed base.

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