Forget China: India Is Apple's Most Disappointing Market
In early January, Apple (NASDAQ: AAPL) warned that its revenue would fall 5% year over year during the first quarter of fiscal 2019, compared to a prior forecast for 1% to 5% growth, due to soft sales of iPhones -- particularly in China. The shocking guidance cut sent bulls scrambling, since the Greater China region generated nearly a fifth of Apple's revenue last year.
Investors have paid less attention to India. Apple once considered India to be its next major growth market. After all, the number of smartphone shipments in India surged from 80 million in 2014 to 150 million in 2018, according to Counterpoint Technology Market Research, and rising income levels in the country should have boosted demand for iPhones. Yet demand for Apple's products has hit a brick wall in India, according to Counterpoint.
Image source: Apple.
The firm reported that Apple's iPhone shipments in India more than doubled from 1.5 million in 2014 to 3.2 million in 2017, but plunged roughly 50% to just 1.6 million to 1.7 million units in 2018 -- or about 1% of India's smartphone market. Counterpoint attributed the drop-off primarily to the high prices of Apple's latest models and tougher competition. Discounts on older iPhones, zero-down-payment offers, and cash-back plans also failed to attract new buyers.
A market ruled by cheap Android devices
Indian smartphone users clearly favor cheaper Android devices over iPhones, so Chinese OEMs like Xiaomi, Oppo, and Vivo; Indian OEM Micromax, and South Korea's Samsung rule the market. Here's how their market shares shifted between the third quarters of 2017 and 2018:
Smartphone | Q3 2017 | Q3 2018 |
|---|---|---|
Xiaomi (NASDAQOTH: XIACF) | 22% | 27% |
Samsung (NASDAQOTH: SSNLF) | 23% | 22% |
Vivo | 9% | 10% |
Micromax | 6% | 9% |
Oppo | 8% | 8% |
Others | 32% | 24% |
Source: Counterpoint Research.
Apple is stuck in the shrinking "others" category as these Android OEMs carve up the market. It also faces tough competition within the fragmented market of underdogs -- Counterpoint recently reported that Chinese premium Android device maker OnePlus shipped 500,000 units in India during the fourth quarter, while Apple shipped just 400,000 units.
Apple's dismal performance in India shouldn't have come as a surprise, since the average Indian consumer has less purchasing power than the average Chinese consumer. Microsoft and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have already been struggling with that fact.
Before Microsoft shuttered most of its mobile hardware business, its India strategy was focused on selling its cheapest Lumia devices and cheap "smart feature phones" there. Google launched its Android One initiative to set unified standards for low-end Android devices in emerging markets, and invested in the popular KaiOS operating system for smart feature phones. Neither company saw a bright future for premium phones in India.
Image source: Getty Images.
Apple's launch of the "cheaper" iPhone 5c in 2013 seemed to mirror those strategies, but with its small screen and a nearly $600 debut price, its appeal was limited. Apple likely made the same mistake with the iPhone XR, a less-expensive variant of the iPhone X family that was still far too pricey to lure customers away from mid-range Android devices.
The cheapest iPhone XR still cost over $1,000 when it launched in India -- about 40% more than its price in the U.S. That price could fall slightly as Apple moves some iPhone production to India, but the move may have more to do with avoiding tariffs than selling iPhones at lower prices.
Can Apple still grow in India?
Apple generally doesn't break out its sales figures for India separately. However, CEO Tim Cook stated during last quarter's conference call that sales were flat in India for that quarter. Yet he also said that he was still a "big believer" in India and "very bullish" on the country's growth prospects. Cook also thinks that opening Apple Stores across India could attract more customers to the company's products.
Yet Apple's options in India seem limited at this point. It probably won't launch significantly cheaper devices in an effort to gain market share from its Android rivals, since that would tarnish its brand. Therefore, Apple needs to get ahead of the tech curve and impress the high-end niche market -- but that won't be easy with its rivals launching head-turning devices this year, including Samsung's foldable Galaxy phones and notchless full-screen devices like Xiaomi's Mi Mix 3.
More From The Motley Fool
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool owns shares of Microsoft and is long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
