Foxconn’s Second-Hand Business

Selling Used iPhones in an Eager Market

CCS Insight expects more than 1 billion smartphones will be bought as upgrades during 2015, leading to a market of hundreds of millions of fully functional second-hand devices. Older phones are collected by operators or get a new life through Internet channels and personal contacts.

Demand in China for second-hand iPhones has been strong enough to drive the creation of an Apple-sanctioned refurbishment process by Foxconn. The company will purchase used iPhones in bulk through domestic trade-in programmes and from other markets, then resell them through its online store and via Taobao, a Web-based shopping site owned by Alibaba.

It would be tempting to warn of a cannibalization effect, but in reality this isn’t so straightforward. Second-hand markets for basic GSM devices have been a mixed blessing for handset makers and operators. In many developing markets, entrepreneurial street retailers would repair or meld together used handsets, enabling more subscribers and supporting a connectivity network effect: there was some loss, but also a gain.

Web site Patently Apple reports that Foxconn could purchase between 50,000 and 60,000 iPhones per day, or about 20 million per year. Apple sold 193 million iPhones worldwide during 2014 — 20 million would be a boost for iOS in China and globally.

We expect that Foxconn will reach a market which, if not completely unable to be addressed by Apple, would otherwise be underserved. The company will touch lower price points and enable consumers in urban and rural markets to choose an iOS device over an Android device, expanding Apple’s reach in China. The expanding network effect for iOS will make it a more attractive platform for Chinese developers and service providers.

CCS Insight forecasts that sales of new smartphones will reach almost 440 million in China and 1.5 billion globally during 2015. A robust second-hand market has long existed for high-end devices and iPhones in particular, but Foxconn has recognised the potential and formalised the process of bringing them to market. This certification programme for pre-owned phones could catch on, and is something for other device manufacturers to follow.

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