[IAmGraydon]

So they're going to subtract the residual from the price and divide that by some term, just like leasing a car. Doesn't seem like a bad way to get a phone and in the end, they just automatically own the residual instead of buying it from you. It seems like a more predicable way to do the same thing most people are already doing.

[xp84]

I think "most people" have been shifting towards longer than 24-month replacement cycles. Leasing with a fixed end is probably predicted in their financial models to do a better job of getting more people onto a strict 24 month cycle. Nobody will want to actually buy out their lease on a 2-year-old phone, so they'll turn it in and lease another one, so Apple can throw it into the shredder[1] and show an additional sale on their books.

[1] https://www.ifixit.com/News/94386/the-truth-about-apples-fre...

[pishpash]

They won't throw it into the shredder. They'll capture the residual by wholesaling it second-hand, same as with trade-in's.

[xp84]

They already do shred as many as they can (as my link documented) because used iPhones merely existing compete with Apple's offerings.

Think of it from Apple's perspective: You sell a phone for $1,100 and get a 37%[1] margin on it, so that's a $407 profit margin, and a $693 cost to make it.

That phone gets Apple $768 in lease payments according to their site.

Then they take the phone back from the user at 2 years old. EBay shows 2-year-old iPhone 15 Pros going for about $400 so let's assume the wholesale prices is $300.

So Apple has the old phone and can sell it for $300 pure profit before tax or $237 after 21% federal tax, but they know that its existence will displace a new iPhone sale somewhere. Or they can declare it as "too damaged to resell" and shred it, probably take a tax deduction (for the official residual of $332? I'm not sure) for that loss, offsetting $70 of taxes elsewhere, and (very very important point here) because they know they'll sell one incremental new phone, they can expect to have an additional $1100 of topline revenue to show, and another $407 gross profit that they get to book.

Sell it: $237 - $70 opportunity cost of tax deduction they don't get = +$167 to gross profit, Shred it: +$1100 topline, +$407 in gross profit, +$70 in EBITDA.

I'm not a real accountant so I'm sure a few of these figures are off, but I think my main point is valid: Since Apple's main motivation is to increase their stock price, they may benefit more from shrinking the aftermarket than they would from harvesting the value of the old iPhone.

This logic does depend on an additional working semi-late-model iPhone finding its way into the hand of a person, or there being a chain of people, at the end of which having someone who won't buy a brand new iPhone this year, but I think it's hard to argue it doesn't.

[1] https://axis-intelligence.com/apple-statistics/

[2] https://www.apple.com/shop/buy-iphone/iphone-17-pro?purchase...

[pishpash]

Conversion is different at $1100 vs. $400 so it's not a straight 1:1 $167 vs $70; the beancounters will weight by the likelihood of getting the amount in the first place. You also have to consider the long-term value of converting, e.g. the being in the Apple ecosystem vs. going to Android if they don't convert. Finally, the cannibalization argument is stronger if the alternative is a new low-tier phone like SE or some special pricing for third-world markets. That's not selling at $1100, it'll be much closer to residual on the used phone. It's hard for me to believe the market pricing is off by so much that something that destroys value in the system like shredding working phones is a net economic gain even for Apple.

Note that in your earlier link they are shredding non-working phones that need repair, so those residual values are closer to scrap value. That's different.