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 Until now, customers could only lease subsidized phones on two-year
contracts requiring an up-front payment.
"We think this program should act as a tailwind for iPhone sales,
since they serve to shorten the replacement cycle...," Susquehanna
analysts wrote in a note on Thursday.
The deal for iPhone owners, which will initially apply to the United
States and 11 other key markets including China, emerged as one of
the most positive announcements at Apple's annual launch event.
Along with the new iPhones - which come with better cameras, faster
chips, new colors and a force-sensitive "3D Touch" - Apple also
unveiled a bigger iPad and a new TV set-top box that responds to
voice commands.
The new products got tepid response from investors, though, with
commentators saying Apple had failed to deliver a truly
transformative product that would merit a surge in its stock.
Apple's shares closed down nearly 2 percent at $110.15 after the
product event, and remained around that level in premarket trading
on Thursday.
The company's shares have lost more than 16 percent since they hit a
year-high in April, hammered by concerns about demand in China and,
more recently, by a broader stock market rout.
Apple's shares also fell on Sept. 9 last year when the company
rolled out the iPhone 6 to lukewarm reviews.
But sales of the phone - and the company's stock price - soared in
the following months, and Apple's revenue in the most recent quarter
increased by nearly a third.
Analysts say there's still plenty of room for sales to grow,
particularly with the new incentive program.
"We view it as the right strategy at the right time," FBR Capital
Markets analyst Daniel Ives told Reuters, noting that less than 30
percent of customers have upgraded to an iPhone 6.
"Apple needs to aggressively do everything in their power to
catalyze upgrades and this is another step in that direction."
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Analysts at Morgan Stanley also said the upgrade program should
shorten the iPhone sales cycle and boost shipments.
Assuming 10 percent of U.S. iPhone users choose this program in 2016
and upgrade to a newer version in 2017, the program would likely
boost iPhone shipments by 6.5 million units in 2017 or add 25 cents
per share to earnings, the brokerage said.
However, Canaccord Genuity analysts said that while the program
should be popular with consumers, "(we) will watch for reaction by
carriers to the proposal."
Apple shares were trading at $109.91 before the bell.
No brokerages announced ratings downgrades on Apple's shares, but
two - Macquarie Capital and Jefferies & Co - cut their price
targets, to $133 and $126 respectively.
Of the 47 analysts covering Apple, 35 have a "buy" or higher rating
on the stock, 11 have a "hold" and only one rates it a "sell",
according to Thomson Reuters data.
The median price target on the stock is $147.50.
(Reporting by Tenzin Pema in Bengaluru; Additional reporting by
Devika Krishna Kumar; Editing by Sayantani Ghosh and Ted Kerr)
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