Refurbished phones are getting a lot of love as the price of new handsets soar

With the pricing of new flagship handsets now firmly planted in four digit territory, it appears that demand for refurbished models is stronger than ever. According to a report in today's Wall Street Journal, previously owned Apple iPhone and Samsung Galaxy S smartphones are being purchased by consumers who are getting turned off by the same sticker shock that affects new car buyers. Shipments of new smartphones hit a historic low during the fourth quarter of last year. From October through December 2017, shipments of smartphones actually declined for the first time ever during any three-month quarter.

As consumers decide to spend a few hundred dollars on a "refurb," this is taking business away from manufacturers who generate their largest profit margins on new-device sales. Industry executives say that a new phone today will go through four different owners before ending up in the scrap heap. And the buyers of these "previously loved" handsets are no longer found mostly in developing markets like India and Africa. Now, 93% of those buying second-hand smartphones via on-line auction house B-Stock are from the U.S.

Back in 2014, when carriers subsidized phone purchases and two-year contracts were the norm, U.S. consumers were upgrading to a new phone every 23 months according to BayStreet Research LLC. The research firm says that the latest data shows Americans upgrading every 31 months and that figure is expected to hit 33 months next year.

Some device makers like Apple do profit from refurbished iPhone units as purchasers add paid apps from the App Store, buy content from iTunes and use Apple Pay (on newer models) to ring up retail transactions. Apple CEO Tim Cook, well in sync with this trend, said during the company's February 1st conference call that the reliability of the iPhone has generally been "fantastic." Having said that, Apple had to throttle the CPU on some older models as weaker batteries forced these units to shut down during certain complex tasks. The tech giant issued a mea culpa and discounted the price of a battery replacement by $50 to $29 for the rest of 2018.

As for Samsung, mobile chief D.J. Koh says that the company might adjust its strategy due to the popularity of previously used phones. Instead of offering new, lower-cost models in some regions, the executive says that Samsung could decide to offer refurbished Samsung flagship units in those markets.

source: WSJ