In yet another sign that Apple Inc. (NASDAQ:AAPL)’s glory days may be over, or at least on hold, reports this week state that the world’s most valuable company is considering a foray into the trade-in and refurbished smartphone market. The move is thought to be the company’s way to boost lagging sales, especially in emerging markets.
Reported by Bloomberg early Thursday, the news had little effect on the stock’s movement. I think investors took the news with a grain of salt like they’ve grown to do about so many other rumors about Apple Inc. (NASDAQ:AAPL)’s plans that have yet to come to fruition. However, if this program comes to pass, it will mark a new way the company is trying to remain competitive.
Emerging markets’ growing player
As more people are switching to smartphones from regular mobiles, the key area for growth is in emerging markets. The International Data Corporation (IDC) forecasts that emerging markets will account for 64.8% of all smartphones shipped during 2013, which is up from 43.1% in 2010. Furthermore, it estimates that smartphone sales will dominate 67% of total phone sales by 2017, so it behooves makers of the faster and more functional devices to tap them, including Apple Inc. (NASDAQ:AAPL).
Samsung leads in global market share for mobile devices, followed by Nokia Corporation (ADR) (NYSE:NOK) and then Apple. Samsung leads largely due to the sheer number of devices at several price points it offers to meet consumer wants. Nokia’s second-place spot is partly due to it being able to still offer lower-priced phones. Its collaboration with Microsoft on the lower-priced Lumia Windows smartphone is helping.
Apple Inc. (NASDAQ:AAPL) is reportedly considering launching the trade-in program for those who have older versions of the iPhone so they can more affordably upgrade to the iPhone 5. Its plans could entail taking the models that are traded in and selling them in emerging markets, which Apple has been a laggard in.
China is key
One of the markets Apple Inc. (NASDAQ:AAPL) has not had great success penetrating is China, and this is where it stands to benefit hugely. In China the demand for less expensive smartphones is growing. By supplying this, the company could boost its sales, but the issue over how its margins could be negatively affected creates a dilemma.
The next hurdle relates to China Mobile. Regardless of the number of cheap devices Apple is able to sell in the country, the effort will only be as fruitful as its ability to sell to this carrier’s roughly 700 million customers. The parties are reportedly working on a deal. Until it’s inked, Apple Inc. (NASDAQ:AAPL)’s growth there will continue to be hindered.
Catering to the less elite not all bad
If Apple does take in old iPhones and sells them in emerging markets, it would mark a fundamental shift in the company’s approach to selling its flagship smartphone. If this comes to fruition, the trade-in program would mark the first time Apple has offered such an option on the iPhone.
The rare pricing strategy move is noteworthy for the world’s most valuable company considering its roughly $412 billion market cap was partly driven by the high-priced devices it had traditionally had no problem peddling to consumers.
That strategy must change as consumers’ patience for the lags in between the introduction of new products is short, regardless of who makes them. Look no further than the put-upon stocks of Research In Motion Ltd (NASDAQ:BBRY) and Nokia Corporation (ADR) (NYSE:NOK) to see the importance of having a deep lineup of offerings, as well as the commitment to tap emerging markets.
IDC analyst Kevin Restivo told the Investors Business Journal last month that the success of smartphone makers is “increasingly hinged on the success they have in emerging markets.” He citied Brazil, China and India as markets where smartphones powered by Google Inc (NASDAQ:GOOG)’s Android operating system have been very popular.