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According to one expert, if rumours of a hardware subscription are genuine, Apple might be on the cusp of a significant business change away from iPhone shipments and toward installed base monetization.
Lead Morgan Stanley analyst Katy Huberty says in a note to investors viewed by AppleInsider that a speculated hardware subscription that would allow consumers to purchase an iPhone with monthly payments would "shift the investor narrative away from transactional to recurring sales."
According to Huberty, Apple now pays only $1 per day for hardware and services. She believes, however, that the ordinary user would be prepared to pay extra to have access to both Apple hardware and software.
When it comes to the distinction between a hardware subscription and the iPhone upgrade programme. A pure subscription service, for example, , ould eliminate fixed payment periods, implying that an iPhone user would "pay a particular fee every month in perpetuity to have access to their device."
To that aim, Apple is likely to launch a number of products at various price points. A lower-tier service may provide consumers with access to a vintage iPhone every 24 months, whilst higher tiers could provide them with access to newer smartphones and other benefits.
"While there are a plethora of different bundles Apple can eventually create with a subscription offering, the introduction of pricing tiers - rather than a single flat subscription rate - would allow Apple to capture each user's greatest willingness to pay based on their consumption of Apple products and services," she writes.
Huberty argues that a subscription model might minimise device replacement cycles, boost expenditure per user, and promote uptake of first-party Apple services. By avoiding carriers or merchants, it may transfer more customers to a direct-to-consumer approach.
The analyst also expects Apple will continue to engage with a third-party finance business to unload repayment concerns. Apple already does this with Goldman Sachs for the Apple Card or the Apple Pay.
Huberty claims that Apple's high retention rates and increasing ecosystem have already resulted in the creation of a platform. Given the lifetime worth of an Apple customer, a shift away from typical transactional sales and toward recurring revenue would "deliver considerable upside to Apple's share price," she says.
The analyst maintains her $210 price forecast for Apple over the next 12 months. The target price is based on a 6x enterprise value-to-sales multiple (EV/Sales) for Apple's product division and a 10.6x EV/Sales multiple for Services, implying a target price-to-earnings multiple of 33.2x.
