Apple Inc. (NASDAQ:AAPL) international iPhone sales are in trouble because of China where revenue fell 14% year-on-year in the March quarter. Many analysts suggest the smartphone giant has “hit a ceiling” in the Chinese market – a market that is, by the way, the largest smartphone market in the world. Apple’s market share has already fallen below 10%. And further declines are likely due to cheaper competition from domestic companies like Huawei, Oppo, and Vivio who are dramatically improving the quality of their offerings.
Regardless, Apple’s management remains optimistic about the iPhone, and they believe the company can return to a growth trajectory in the coming years. But it is possible that the protectionist Chinese government will subvert Apple’s ambitions in the country, and moving on to another market may be a better idea than wasting more effort in China. To this end, India – a nation with over 1.3 billion inhabitants – could turn out to be Apple’s next big growth opportunity.
Expansion Into India
India is a massive market. Not only will India’s population soon surpass China’s, but its youthful demographics and untapped industries will probably keep its economy growing at a significantly faster rate than any other region on earth. That being said, there is a problem with India: poverty. 30% of the Indian population lives on under $2 per day, and this limits Apple’s potential in the Indian market.
Apple is addressing this challenge with a much cheaper version of the iPhone called the iPhone SE. The iPhone SE comes with iOS 10, Apple’s latest operating system, along with Apple Pay and Touch ID. The devices will be produced at a Wistron factory located in India to keep costs low, and the retail price is expected to be around $320 per phone.
The iPhone SE should appear in stores by next week, and without a doubt, Apple’s brand cachet and reputation for quality should make the new product a hit with India’s growing middle and upper classes. But is the iPhone SE cheap enough to capture mass-market appeal and compete in such a (relatively) cash-strapped market? Unfortunately, Apple’s Indian operations will face stiff competition from the very same cheap Chinese producers that messed things up for the smartphone maker in China.
Even with a sticker price of only $320, it will be difficult for the iPhone to compete based on price. And the success of the product will probably depend on its ability to maintain brand prestige and offer higher production quality and better technology than the competition.
Apple has completed an important milestone in its South Asian expansion with Indian-made models of its cheaper iPhone SE expected to hit shelves by next week. Expanding into India is a crucial next step for Apple because the smartphone giant’s international sales are under significant pressure in the Chinese market.
India is a massive opportunity for Apple, but it isn’t a magic bullet. Cheap Chinese competitors have already established a foothold in the subcontinent, and Apple’s devices will probably be limited to only the wealthiest consumers. But overall, Apple’s Indian expansion is good news for the stock because the new growth will help counteract slowing sales in other markets and give the company time to innovate the next big thing.