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Apple Inc. (AAPL - Analyst Report) is buying back older versions of its smartphones in exchange for credit that customers can use for purchasing the latest iPhone scheduled for launch on Sep 10. The trade-in program initiated at Apple stores is to ensure higher sales of the upcoming model.

A buyback option and a good buyback price will certainly boost the buyer sentiment and make it easier for them to grab the latest version. The credit given to customers will help them cover the purchase price of the new version. This is a good strategy to boost sales as the cost advantage makes the iPhone more affordable.

Companies like Gazelle Inc. as well as wireless carriers such as Verizon Wireless (VZ - Analyst Report) and AT&T Inc. (T - Analyst Report) purchase used handsets. They are also sold in emerging markets.

Of course, the exchange value or credit will depend on the condition of the old phone. To make it more clear, an iPhone 5 with 64 gigabytes of memory could be worth $350 through Gazelle’s website, whereas the iPhone 3GS may not be worth more than $10. The maximum price an iPhone can fetch at the Apple Store is fixed at $280. So we believe that this is a win-win situation for both customers and Apple.

The strategy will also help the company retain loyal customers and help stem market share losses. Apple has been successful at increasing iPhone sales, selling 31.2 million units of the iPhone in the latest quarter, up from 26 million a year earlier.

The decision is especially positive at this juncture, when Apple is facing tough competition from Google’s Android, which has also pushed back sales of BlackBerry (BBRY - Analyst Report) and Nokia (NOK - Analyst Report) phones.

According to industry sources, the iPhone launch on Sep 10 would be followed by an updated lineup of iPads.

Apple has a Zacks Rank #3 (Hold).

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