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Is India the Next Big Market for Apple's (AAPL) iPhones?
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Indians will soon see Apple Inc.’s (AAPL - Free Report) iPhone 6 and 6S models packaged with a tag line of ‘Assembled in India’. Yes, it’s true.
Per The Wall Street Journal, the company’s Taiwanese supplier – Wistron – is likely to start making the aforesaid models in the next four to six weeks at its manufacturing facility in Bengaluru, India. It should be noted that Wistron, in late Dec 2016, sought permission for expansion of its manufacturing facility from the Indian government.
Though, Apple’s shares were down 0.4% yesterday, it has gained 21.6% so far this year. Notably, the stock’s year-to-date return is almost in line with the Zacks categorized Computer-Mini industry’s gain of 21.5%.
Why is Apple Highly Focused on India?
Since 2016, Apple has been increasing its focus on India to claim a greater share of the vast smartphone market in the country, of which it reportedly holds only 2% as of now. Apple has been facing a slowdown in iPhone demand in most regions, either because of stiff competition or regulatory hurdles (China) or market saturation (the U.S). Thus, it makes sense for the company to solidify/fortify its position in India, which is projected to become the second largest smartphone market in the world.
Notably, in fiscal 2016, Apple sales in India surged approximately 50% over the prior fiscal. Moreover, during its last quarterly earnings conference call, the company revealed that its smartphone sales in the country registered 51% year-over-year growth in the first three quarters of fiscal 2017.
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 - Free Report) to Alphabet (GOOGL - Free Report) , to Facebook Inc. , all remain laser focused on the Indian market.
Furthermore, a younger and skilled population, along with increasing investment in broadband network by the government, makes India an attractive growth opportunity for Apple over the long run. In fact, the Indian government, under Prime Minister Narendra Modi, is eager to bring foreign capital and boost manufacturing facilities in the country.
The recently outlined FDI policy by Indian government 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 retail stores in India. Thereafter, the company will have to comply with the rule. In addition, company 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, as well as a map development office in another 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.
Will the Move Aid Apple’s Cause?
Per analysts, the lion’s share of Apple’s revenues in the country comes from devices, which are a couple of generations old. Newer models have relatively low demand given the hefty price tag. According to reports, the Apple team in India is trying to increase revenues to $3 billion by fiscal 2017–18. Also, by local assembling operations, the company can start operating its own retail outlets and avail a 10% tax benefit. This, in turn, is likely to lower prices.
However, a Forbes analyst observes that even if Apple starts production locally, the prices might not come down as much. This is because, at present, only assembling operations can be carried out in India as the country lacks a robust supply chain like China. Furthermore, the analyst argues that though labor cost in the country is cheaper than 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 pressing 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. The iPhone manufacturer is already late to the party. Its rival Samsung has long been in the market, and with reportedly 23% share, it is currently the leading player in the country.
Bottom Line
Despite Modi’s historic move of demonetizing Rs 500 and Rs 1000 currency notes to combat corruption, the company registered all-time record revenue figures in third-quarter fiscal 2017, while its various competitors were hurt by the same. In our opinion, this shows Indians’ immense love for Apple’s products.
However, the company lags behind its competitors on the pricing front. We believe that the latest move will allow Apple evade import duty tariffs. This will enable it to price its smartphones more competitively.
Furthermore, by manufacturing iPhone models in India, Apple will be able to capture considerable market share in one of the world’s fastest growing economy, where it has a meager presence when compared with other rivals such as Samsung, Micromax etc.
Despite the pros and cons, Apple is expected to continue its expansion drive in India. The company will be taking up a lot more initiatives this year. However, whether those initiatives yield desirable results remains a wait and watch story.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>
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Is India the Next Big Market for Apple's (AAPL) iPhones?
Indians will soon see Apple Inc.’s (AAPL - Free Report) iPhone 6 and 6S models packaged with a tag line of ‘Assembled in India’. Yes, it’s true.
Per The Wall Street Journal, the company’s Taiwanese supplier – Wistron – is likely to start making the aforesaid models in the next four to six weeks at its manufacturing facility in Bengaluru, India. It should be noted that Wistron, in late Dec 2016, sought permission for expansion of its manufacturing facility from the Indian government.
Though, Apple’s shares were down 0.4% yesterday, it has gained 21.6% so far this year. Notably, the stock’s year-to-date return is almost in line with the Zacks categorized Computer-Mini industry’s gain of 21.5%.
Why is Apple Highly Focused on India?
Since 2016, Apple has been increasing its focus on India to claim a greater share of the vast smartphone market in the country, of which it reportedly holds only 2% as of now. Apple has been facing a slowdown in iPhone demand in most regions, either because of stiff competition or regulatory hurdles (China) or market saturation (the U.S). Thus, it makes sense for the company to solidify/fortify its position in India, which is projected to become the second largest smartphone market in the world.
Notably, in fiscal 2016, Apple sales in India surged approximately 50% over the prior fiscal. Moreover, during its last quarterly earnings conference call, the company revealed that its smartphone sales in the country registered 51% year-over-year growth in the first three quarters of fiscal 2017.
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 - Free Report) to Alphabet (GOOGL - Free Report) , to Facebook Inc. , all remain laser focused on the Indian market.
Furthermore, a younger and skilled population, along with increasing investment in broadband network by the government, makes India an attractive growth opportunity for Apple over the long run. In fact, the Indian government, under Prime Minister Narendra Modi, is eager to bring foreign capital and boost manufacturing facilities in the country.
The recently outlined FDI policy by Indian government 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 retail stores in India. Thereafter, the company will have to comply with the rule. In addition, company 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, as well as a map development office in another 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.
Will the Move Aid Apple’s Cause?
Per analysts, the lion’s share of Apple’s revenues in the country comes from devices, which are a couple of generations old. Newer models have relatively low demand given the hefty price tag. According to reports, the Apple team in India is trying to increase revenues to $3 billion by fiscal 2017–18. Also, by local assembling operations, the company can start operating its own retail outlets and avail a 10% tax benefit. This, in turn, is likely to lower prices.
However, a Forbes analyst observes that even if Apple starts production locally, the prices might not come down as much. This is because, at present, only assembling operations can be carried out in India as the country lacks a robust supply chain like China. Furthermore, the analyst argues that though labor cost in the country is cheaper than 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 pressing 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. The iPhone manufacturer is already late to the party. Its rival Samsung has long been in the market, and with reportedly 23% share, it is currently the leading player in the country.
Bottom Line
Despite Modi’s historic move of demonetizing Rs 500 and Rs 1000 currency notes to combat corruption, the company registered all-time record revenue figures in third-quarter fiscal 2017, while its various competitors were hurt by the same. In our opinion, this shows Indians’ immense love for Apple’s products.
However, the company lags behind its competitors on the pricing front. We believe that the latest move will allow Apple evade import duty tariffs. This will enable it to price its smartphones more competitively.
Furthermore, by manufacturing iPhone models in India, Apple will be able to capture considerable market share in one of the world’s fastest growing economy, where it has a meager presence when compared with other rivals such as Samsung, Micromax etc.
Despite the pros and cons, Apple is expected to continue its expansion drive in India. The company will be taking up a lot more initiatives this year. However, whether those initiatives yield desirable results remains a wait and watch story.
Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>