BofA says iPhone demand still strong despite reports of production cutback

Bank of America analysts said on Wednesday that iPhone demand is still strong despite a recent report that said Apple cut production of its iPhone 13 and new iPhone SE.

"While these articles might lead some investors to think there is risk to demand, we believe demand for iPhones remains strong based on our analysis of iPhone trade-in prices," the Bank of America analysts said in a note.

Bank of America said Apple lowered trade-in values for some iPhone models after the launch of the $429 iPhone SE in early March. An iPhone 12 Pro Max, the newest model available for trade-in, is now worth $650 as opposed to $700 before the launch, the note said. The analysts argue this shows demand is still strong since Apple doesn't need to pay as much to convince people to trade in older iPhones for new models.

An Apple spokesperson wasn't immediately available to comment on the trade-in price changes.

"This compares to the year 2019 when Apple was offering high trade-in prices vs 3rd parties to drive upgrades," the analysts said. "Separately, China has imposed another round of lockdowns in Shanghai; however, as we previously pointed out companies have learned to manufacture through COVID and Apple/Foxconn have the ability to relocate production to other areas and, as of now, we do not expect a material impact from these shutdowns."

In another sign of strength for Apple's new iPhone SE, Bank of America analysts said that a global survey it conducted in January showed 25% of respondents still owned an iPhone 8 or earlier. Old iPhone users are the target audience for the iPhone SE.

"We see this as an opportunity for driving a replacement cycle," Bank of America said. "Apple could be targeting to upgrade these users to a newer iPhone which could be a reason Apple still accepts the iPhone 6 and 6 Plus models for trade-in in China but not in the U.S. and UK."

Apple could benefit from increasing the installed base of iPhones, which can then be monetized to improve services revenue, Bank of America said. Apple's services business grew 24% year-over-year to $19.52 billion during fiscal Q1.