iPhone 5se: A Reflection Of A More Proactive Apple?

UBS’ Steven Milunovich maintained a Buy rating for Apple Inc. AAPL, with a price target of $120, saying that the iPhone 5se could trigger upgrades among users of 4” phones.

FY16 Disappoints

So far, FY16 has been disappointing, with upgrades from the installed base falling short of expectations. The expectation of 70 percent of the installed base upgrading to iPhone 6 by the end of FY16 now appears too optimistic, analyst Steven Milunovich, while adding that the reasons could be marginal feature improvement and reduced phone subsidization.

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“Although in our view Apple is right not to go too far down market and erode its brand, we do think the company will more actively manage upgrades as seen with its iPhone Upgrade and trade-in programs,” Milunovich wrote.

iPhone 5se

The installed base comprises of users of four phone sizes, with 40 percent still using the 4" phones. The iPhone 5se is available at $450, and could result in upgrades by the 40 percent of users who still own 4" phones. “We estimate the 5se could add 12mn incremental units this year or about $0.25 per share conservatively,” the analyst commented.

Milunovich added that Apple may plan to become active in the used market by refurbishing phones. “Market maturity requires more aggressive upgrade incentives,” he said.

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