Apple needs a cheap iPhone to crack India

Apple’s problems in China are piling pressure on the company to find a way to grow in India, the world’s hottest market for smartphones.

But with the most expensive iPhone costing more than the average annual wage, Apple (AAPL) faces an uphill battle to take a much bigger share of India’s market than its current 2%.

Tariffs on imported smartphones, a ban on Apple Stores in India and the weakness of the Indian rupee against the US dollar have hobbled the Silicon Valley giant.
Meanwhile, global competitors such as Samsung and Xiaomi have carved up India between them, accounting for one in every two smartphones sold.

They’re supplying devices that compete on quality at much more affordable prices, and have set up huge local manufacturing operations to avoid tariffs and keep costs down.

Apple began making older, cheaper iPhones in India in 2017 at a plant near the southern tech hub of Bangalore, starting with the iPhone SE and adding the iPhone 6S in the middle of last year. CEO Tim Cook described that effort as having “gone well.”

Making iPhones in India

Now the company is reported to be considering expanding local production to include the latest iPhone models. One of Apple’s key manufacturing partners, Taiwan’s Foxconn, plans to start making iPhone X models at its plant in the southern Indian state of Tamil Nadu in 2019, according to multiple media reports.

Apple and Foxconn declined to comment on the reports.

The move would allow Apple to avoid the country’s heavy import taxes on iPhones, potentially making them cheaper for Indian customers.

Apple sets prices in different countries based in part on taxes and the local currency’s strength against the dollar. It jacked up its prices in India last year after the government raised smartphone tariffs from 15% to 20%.

The 64 GB variant of the iPhone XS costs about $430 more in India than it does in the United States.

“Assembly in India is important for Apple as it seeks to grow revenues in the Indian market,” analysts at research firm Fitch Solutions wrote in a note this week.

India is already the world’s second largest smartphone market behind China, where years of uninterrupted growth have come to an end. In India, however, there’s still huge potential: roughly 900 million people have yet to buy a smartphone.

Apple’s biggest competitors are already cashing in, but the iPhone has barely made a dent.

Still, Cook is confident in Apple’s ability to narrow the enormous gap with its competitors, and overcome restrictions that prevent single-brand retailers opening stores in the country. Regulations mandate that foreign retailers source at least 30% of their raw materials locally, a rule Apple has been seeking an exemption from.

“I am a big believer in India. I am very bullish on the country and the people and our ability to do well there,” he said during the company’s most recent earnings call in November. “I fully expect that, at some point, they will agree to allow us to bring our stores into the country.

Apple needs a cheaper product

Making high-end iPhones locally may shave a few hundred dollars off prices in India, where the cheapest XS costs $1,430 and the average annual wage is about $2,000, but making real headway will require Apple to offer a much cheaper product. (The most expensive 512 GB version of the XS Max costs $2,079.)

“While we continue to expect Apple to be focused on the Indian market, it will only find limited traction in the near term,” Fitch Solutions said.

“It must continue focusing on offering cheaper products to gain meaningful market share.”

Even the devices Apple already makes in India — the iPhone SE and iPhone 6S are out of reach for most people. They cost $430 and $270 respectively, compared with the country’s average smartphone price of $160.

Apple’s tendency to charge more for iPhones outside the United States has “led to slowing demand” in markets such as India, said Neil Shah, an analyst at Counterpoint Research. “Apple needs to correct its pricing strategy.”

Source: cnn.com