Written by Ophir Gottlieb
LEDE
India is the second largest smartphone market in the world and while Apple Inc (NASDAQ:AAPL) has nearly no footprint in the country, the news has accumulated to the point where the company's plans for success are no longer secret. Further, Wall Street estimates may have not accounted for the recent progress.
PREFACE
It takes a deep dive in to local newspapers and small local retail Twitter accounts, but the momentum and purpose is now observable. Apple Inc (NASDAQ:AAPL) doesn't move quickly anymore, but the company does move decisively -- here is the history and the breaking news:
First, we start with the chart of smartphone owners in India, through time:
India is also growing faster, even given its size, than any major market:
India's share of the smartphone market was pegged to grow a staggering 26% to 9.6% of the total global share by this year. For context, by 2017, India will be larger than the United States or about on par.
But, until now, Apple Inc has generated almost no revenue from the country. This chart is from the middle of 2015:
It appears everything is changing -- slowly -- and then quickly.
CATCHING UP TO THE PRESENT
A tectonic shift began in 2015 with a visit by Apple's CEO Tim Cook and a private meeting with India's Prime Minister. While the meeting was rather private, the results were not -- we included a full discussion on our dossier Apple's Secret: The Hidden Handshake with India Is Enormous. A few snippets are included below:
Shortly after the meeting we got this news: India has singled out "cutting-edge technology" as a segment that can side-step the 30% local producer rule and Apple has been singled out as "cutting-edge technology." What a coincidence.
Then the Times of India published an article with this snippet:
The government is set to waive the requirement of mandatory domestic sourcing for Apple, paving the way for the global technology giant to open its own retail outlets in the country.
The political landscape in India is not an easy one to navigate and it has kept US tech giant Amazon.com Inc (NASDAQ:AMZN) essentially isolated from that e-commerce market. These steps from Apple Inc (NASDAQ:AAPL) were deliberate but meaningful.
But that was just the start -- the news was back and forth -- success was up and down -- it was all rather hard to extract really good data. Then a sliver of sunlight crept through in 2016. If you recall that that 1%-2% market share we looked at in India as of mid-2015, news from Quartz broke in March of 2016 that the tide is shifting:
iPhone sales made up 4.6% of the overall smartphones sold in India's top 30 cities between October and December 2015.
That number has spiked to 5.8% in tier-I Indian cities. Here's the chart:
THE PROBLEM
The problem with India for Apple Inc was several fold. One was political -- the same politics that have hurt Amazon.com Inc (NASDAQ:AMZN). But, really, there was a much bigger problem -- one that was truly the limiter on the subject and it was far from trivial. The average price paid for a smartphone India was $132 in 2015.
In India, you can buy phones for as little as $30 Quartz.
However, the average is not the number we should be focused on. For context, China is Apple Inc's largest market and the average selling price for a smartphone in 2015 was $253.
Those numbers lead to two phenomena:
(1) Prices paid (afforded) in India are very low.
(2) When using China as a proxy, we see the number never has to reach the $424 that the United States yields for Apple to have a success.
Another phenomenon the smartphone world is seeing is lower average prices overall as volumes increase.
As less wealthy nations become flooded with slimmer featured and old smartphones, selling prices are dropping. This was the real belly-ache for Apple.
But now, there is news, again, and this time, it's not just a change in the relationship between Apple Inc and India, it's a change in the Indian consumer, and it has surprised many.
HIGHER ASP?
According to data published by CyberMedia Research in May of 2016, the average selling price (ASP) for a smartphone in India rose 25% year-over-year.
Recall that chart we discussed above, with that blue line that represented smartphone average selling prices diving. That is not the case in India. It appears that the Indian consumer that can afford it is in fact, now, seeking richer featured smartphones.
And now the bigger news:
APPLE IS IN INDIA - FOR REAL
Jay Somaney, a Forbes contributor, penned a note that opens up with the lede:
This past Thursday, Karnataka IT minister, Priyank Kharge stated that Apple would start churning out iPhones that were assembled locally in Bengaluru, India, according to an article on Livemint.
Priyank Kharge went on to say:
"In less than a month, we will have something out - Apple will start assembling and making its high-end iPhones at its plant in the city.
Assembling and making of iPhones in Bengaluru will boost Apple's chances of gaining a foothold in the fast growing Indian market because it will allow the company to lower prices."
WHAT'S HAPPENING?
Apple Inc pays a 16% duty on imported goods that are manufactured outside of India. With manufacturing in India starting, essentially now, that's a 16% cost reduction to the iPhone for Indian consumers. More from the Forbes article:
Apple has also asked the Indian government to grant it special tax breaks and subsidies in order to also start manufacturing the iPhone in India, further reducing costs going forward.
If Apple looks to manufacture its iPhone SE in India, already a discounted smartphone, and then is able to reduce its cost yet further at the same time the Indian consumer market is paying up for smartphones as the rest of the world is paying less -- Apple may in fact be on the path that Tim Cook has long been evangelizing.
Further, The Economic Times reported (our emphasis added):
Apple has set up over 100 small stores in India under the franchise mode in the pilot phase of an initiative aimed at a six-fold expansion of such outlets in the country in the next year to take on Samsung Electronics and Chinese rivals.
The Apple Authorised Resellers are a format through which the company plans to widen its presence in highrental, high street locations in large cities, neighbourhood localities and tier II and III markets, said two of its senior trade partners.
And finally, if we really dive deep into local Twitter accounts for retailers, we can see that Apple Inc has been reportedly selling the iPhone SE at a discount in India:
ITNET Infocom - a local retailer, tweeted today that it is offering 16GB iPhone SE units for as little as INR 19,999 ($305).
Source: GSMARENA
In fact, here is the tweet we found:
REPORTS OF LOST MARKET SHARE ARE ERRONEOUS
While the headlines will leave you believing that Apple Inc (NASDAQ:AAPL) is losing market share, those headlines are written either by machines, or reporters that act as machines. Apple is not losing market share, it is gaining market share.
The numbers that the headlines report refer to worldwide smartphones -- those $30 phones. In the $400 and up range, Apple is dominating.
The latest smartphone OS sales data from Kantar Worldpanel ComTech shows Android sales declined in the US, GB, and France, as iOS continued to make gains across most regions in the three months ending November 2016.
For Android, this marks the sixth consecutive period of decline in the US.
Source: Kantar
In fact, we recently published the dossier Apple is Getting Dead Serious About Growth. In that dossier we note that the iPhone took all of the top four spots of the top selling smartphones in the world.
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Thanks for reading, friends.
The author is long shares of Apple Inc (NASDAQ:AAPL) in his personal account.
