Will Apple's India initiatives Help it Gain Market Share?
Apple Inc.’s AAPL Taiwanese supplier, Wistron has sought permission from the Indian government to expand its manufacturing facility in the southern Indian city of Bengaluru, per media reports. Citing a government official, media reports add that Wistron indeed has “requested that its application be fast-tracked”.
Why Apple is So Focused on India?
Since the last year, Apple has been increasing its focus on India to claim a greater share of the vast smartphone market, of which it reportedly holds only 2% as of now. Apple faces slowing iPhone demand in most of the regions, either because of competition or regulatory hurdles (China) or market saturation (the U.S). Therefore, it makes sense for the company to solidify its position in India, which is projected to become the second largest smartphone market in the world. In fiscal 2016, Apple sales in India grew approximately 50% over the prior fiscal.
Apple, of course, is not the only tech player eyeing India for growth. Given the potential of this market, Silicon Valley’s interest is well understood. From Microsoft Corp. MSFT to Alphabet GOOGL to Facebook Inc. FB all remain laser focused on the Indian market.
Furthermore, a younger (and skilled) population and increasing investment in broadband network by the government also make India an attractive growth opportunity for Apple over the long run. In fact, the Indian government under PM Narendra Modi is eager to bring foreign capital and boost manufacturing facilities in India.
The recently outlined FDI policy also bodes well for the company as it eliminates the requirement to locally source products for at least a three-year period. This will enable Apple to open its solely-owned retails stores in India. Thereafter, the company will have to comply with the rule. The company also has partnered with telecom company Reliance, which is providing its Jio (a unique all-IP network) service for free with the new iPhones.
Last year, Tim Cook was on a charm offensive in India. Besides meeting Modi, he also announced the opening of an iOS App Design and Development Accelerator in Bengaluru and a map development office in another southern Indian city, Hyderabad in collaboration with regional firm RMSI. He was also seen hobnobbing with industrialists and movie stars during his maiden visit to the country.
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However, the market is cost sensitive and Apple will have to fight it out vigorously with dominant players like Samsung, which sells handsets running on Alphabet’s Android system.
Reportedly, Apple has chalked out a strategy to manufacture handsets in India for only local sale. Last week, citing sources familiar with the matter, The Wall Street Journal had reported that the incentives “sought” by Apple to set up manufacturing facilities in India are likely to be reviewed by the Indian government soon.
Will Setting up Manufacturing Facilities Aid Apple’s Cause?
Per analysts, the lion’s share of Apple’s revenues in the country come from devices, which are a couple of generations old. Newer models have relatively low demand given the hefty price tag. Per reports, the Apple team in India is trying to increase revenues to $3 billion by 2017-18 and by local assembling operations, the company can start to operate its own retail outlets and avail a 10% tax benefit. This should lower prices.
However, a Forbes analyst observes that even if Apple starts to produce locally, the prices might not come down as much. This is because, at present, only assembling operations can be done in India as the country lacks a robust supply chain like China. Plus, the analyst argues that though labor is cheap compared with China, productivity is relatively better in China. Simple assembling may not drastically bring down prices. However, if India can “spark” a creation of local supply chain like China, then it will be a big positive.
Moreover, another analyst observes that Apple’s lack of focus on regional customers’ demand is a concern. India is categorized by handsets that work on dual SIMs. Apparently, Apple is not keen on making dual SIM handsets. This could be a very big impediment to growth in the country. Apple is already late to the party. Its rival Samsung has long been in the market and with reportedly 23% share, it is a leading player in the country.
Despite the pros and cons, Apple is expected to continue its India drive. It will be taking up a lot more initiatives this year. However, whether those initiatives yield desirable results remains a watch and see story.
At present, Apple has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past one year, shares of Apple have registered growth of 9.94% compared with the Zacks Computer Mini industry’s gain of 11.03%.
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