Reportedly, Apple Inc. (AAPL - Free Report) will use Foxconn’s local unit to assemble top-end iPhone products, including iPhone XR, iPhone XS, and iPhone XS Max, in India in 2019. The tech giant is expected to invest $356 million in a manufacturing facility in the state of Tamil Nadu.
This move is anticipated to create 25,000 jobs in the region. Previously, only the lower-end phones like SE and 6S models were assembled in Bengaluru. More than 50% of Apple’s sales volume in India comprised models older than iPhone 8, which was launched in 2017.
Apple’s decision to choose India as the assembly hub can be attributed to the ongoing trade war between China and the United States. The turmoil resulted in tariff imposition on $250 billion of Chinese imports. U.S. President Donald Trump had also threatened to increase tariffs from 10% to 25% on $200 billion worth of Chinese goods.
Moreover, it was also expected that Trump would impose a 10% import duty on iPhones and laptops imported from China, adding to Apple’s woes. However, a 90-day temporary truce has been called by both the countries. Choosing India as the manufacturing hub is expected to safeguard the company against risks associated with any new U.S. trade policies in the near future.
Coming to price performance, shares of Apple have declined 7.7% on a year-to-date basis compared with the industry’s decline of 7.5%.
India Gaining Precedence as a Manufacturing Hub
Per a report from ICA (Indian Cellular Association), India is now the second largest manufacturer of smartphones in the world. The country is the new manufacturing hub for Xiaomi's and OnePlus’ smartphones. Moreover, Samsung unveiled the world's largest smartphone assembly plant in the country in July.
Apple considers India to be an important growth market for its devices, with iPhone being the primary growth driver. The country presents an attractive growth opportunity for the company over the long run, given its younger population and increasing investment in 4G network infrastructure.
However, in the last reported fourth quarter fiscal 2018, weakening value of rupee against dollar and the growing dominance of Chinese companies including Samsung, Oppo, Vivo, Xiaomi and Huawei that offer a wide range of affordable smartphones stalled its growth in India.
Per reports, Apple accounts for only 1% of smartphone shipments, which is a major concern. The government of India levies a 20% import duty, which leads to an increase in price of iPhones, making the device expensive compared to other premium smartphones brands.
Therefore, with the opening of the assembling facility in Tamil Nadu, iPhones are expected to cost less, as the country will no longer rely on imports from China. This move will also bolster Prime Minister Narendra Modi’s initiative to make India a manufacturing hub.
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