Why India is so essential to Apple

Apple Chief Executive Officer (CEO) Tim Cook greets the media with clasped hands in front of the Apple Store at Jio World Drive Mall, Mumbai, India, April 18, 2023.

Ashish Vaishnav | Sopa Pictures | Light Rocket | Getty Images

Apple CEO Tim Cook is in India this week. He has opened two new Apple Stores, is scheduled to meet with Prime Minister Narendra Modi, and is sightseeing and visiting customers around the country.

The international trip is the strongest sign yet that India has become a major strategic focus for Apple as supply chains move away from China and the smartphone market becomes increasingly saturated with iPhone owners.

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India may mirror the role China has played in Apple’s business over the past 15 years: a huge market with an expanding middle class to drive sales growth and potentially a home base for the production of millions of Apple devices.

Analysts say India’s large population and mature economy are ideally suited for Apple to gain a foothold in the country through increased marketing efforts and retail offerings. At the same time, the Indian government is keen to work closely with Apple to enable manufacturing in the country, CNBC reported.

There’s room for Apple to grow on the subcontinent: Apple has less than 5% of the smartphone market share in India, versus about 18% in China, said Angelo Zino, senior analyst at CFRA Research. The majority of smartphone sales in both countries use versions of the Android operating system created by Google.

“If you look at India today, it’s very similar to China 15 or 20 years ago,” Zino said. “It’s really this natural wealth effect over time that will help Apple really break into India and see significantly higher revenue potential.”

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The opportunity could be huge: Apple had sales of $74 billion in fiscal 2022 in China, Hong Kong and Taiwan. That’s about 18% of Apple’s total revenue during the period.

India is not there yet. It is reported in a category with other markets called “Rest of Asia-Pacific,” which only posted sales of $29 billion over the same period.

Company filings in India, reported by local media, suggest Apple’s revenue in the country was about $4 billion in fiscal 2022, and Bloomberg reported earlier this week that Apple reported nearly $6 billion in revenue for the year ending March reported billions of dollars.

Cook also gave investors the India-China comparison.

“We’re essentially taking what we learned years ago in China and how we’re scaling into China and bringing that to bear,” Cook said on a conference call earlier this year.

Almost all android

India is the largest market yet to be fully tapped by the iPhone, meaning it’s crucial for revenue growth.

Cook boasted in February that the company was successful in promoting “changers” in the country. That’s Apple’s word for previous Android phone owners who have decided to buy their first iPhone. Cook said in February that Apple had its best-ever quarter of sales for iPhones in India in the quarter that ended in December.

A woman poses for a photo near the screen showing Apple’s tablets in store after launch at Jio World Drive mall, Mumbai, India April 18, 2023.

Ashish Vaishnav | SOPA images | Light Rocket | Getty Images

Indians who buy iPhones are more likely to “switch” than customers elsewhere because Android dominates the Indian market, led by Samsung and several Chinese brands. According to Statcounter, Android had over 95% of the market share in the country.

The main reason is the price. Most phones sold in India are even priced below the cheapest new Apple iPhone. Industry analyst IDC estimated in February that the average retail price of a smartphone in India is $224, an increase of 18% in 2022. Apple’s entry-level iPhone SE costs $429 in the US

One way Apple is bridging this gap is by giving customers the option to pay for their phones in installments, or by giving them a discount for trading in an older device. Cook mentioned these strategies when asked about India in February.

“A lot has been done to make products more affordable and give people more purchasing options,” Cook said.

The two physical Apple Stores that will open this week and the online Apple Store that launched in the country in 2020 should also boost sales.

“Doing in India”

The second part of the strategy is to build Apple products in the country, a massive project that requires attention not only from Apple but also efforts from its manufacturing partners and local and national governments.

Almost all iPhones are currently assembled in China, which has caused a number of issues over the past five years, ranging from trade tensions and potential tariffs during the Trump administration to more recent supply chain disruptions caused by Covid and China’s Covid policies, resulting in lost sales.

India could end up being a big winner as Apple seeks non-Chinese manufacturing opportunities. In January, India’s trade minister told CNBC that Apple is manufacturing its latest iPhone 14 in the country and aims to produce up to 25% of all iPhones in the country.

Apple’s main manufacturing partner, Foxconn, which oversees much of the assembly of new iPhones in China, is also expanding in India, reportedly building a $700 million iPhone parts plant in Bangalore.

In another parallel with China, the Indian government is keen to embrace Apple and use it as a symbol to lure other high-tech companies to the country for manufacturing and development. Over the past 20 years, Chinese governments have worked at multiple levels to enable giant factories like Foxconn’s Zhengzhou factory — known as “iPhone City.”

Modi wants to discuss Apple’s plans for manufacturing nationwide and creating manufacturing jobs, CNBC’s Seema Mody reported. He also wants to know about the challenges Apple has faced in expanding its user base in the country.

Not so fast

This isn’t the first time investors have been excited about Apple’s potential in India, and some analysts are warning that it could take a while for it to become a huge market.

“I have this to say to investors: all the hype you’re hearing about India this week is great,” Zino said. “I mean, it’s a huge opportunity for the next decade from our perspective, but don’t expect things to change overnight.”

Apple also faced challenges in its early experiments in manufacturing in the country, particularly at a Wistron factory in Bengalaru that assembled older iPhone models, which erupted in a labor riot in late 2020.

Apple Chief Executive Officer (CEO) Tim Cook reacts as a man shows him Apple’s Macintosh in front of the Apple Store in Jio World Drive Mall, Mumbai, India, April 18, 2023.

Ashish Vaishnav | Sopa Pictures | Light Rocket | Getty Images

Apple has been eyeing expansion in India since at least 2016, when Cook previously met Modi.

At that meeting, Cook shared with Modi about the potential for manufacturing and selling Apple goods in the country. Now, six years later, Cook is back in India to open the company’s first two own-retail stores.

Apple was also optimistic about India at the time: “India will be the most populous country in the world by 2022,” Cook told CNBC’s Jim Cramer at the time, saying it had “huge market potential.”

Apple’s long-term strategy in India is best summed up by a quote Cook gave to local media during his 2016 trip to the subcontinent.

“We’re investing tremendous energy here, and we’re not here for a quarter or two quarters or the next quarter or the next year or the next year, we’re here for a thousand years,” Cook said.

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