Can India Save Apple?

First China, and now the US. Last week, China officially banned foreign smartphones from government workplaces across at least eight provinces, instructing employees to start carrying local brands instead. 

China's efforts to reduce reliance on US technologies have boosted local smartphone sales, particularly for Huawei. The ban is expected to affect Apple's the most, which just reached a 23% market share in China last year. 

The ban's impact is expected to unofficially extend to private firms, as reports suggest that smaller companies in lower-tier cities have internally issued directives to discontinue the use of non-Chinese phones.

Despite official denials from the Chinese government about banning iPhones and Samsung phones in the past, the severity of the ban might differ among agencies. While some could restrict employees from using iPhones or Samsung phones within the workplace, others might enforce a complete prohibition altogether.

In another unexpected blow this week, the United States International Trade Commission has banned sales of the Apple Watch Ultra 2 and Apple Watch Series 9. The ITC's ban specifically targets their blood oxygen monitoring capabilities which violate a patent filed by Masimo in 2020. The ban extends to sales and imports after December 25, but only to the US. 

But Apple’s perfectly timed entrance to India may be its saving grace. 

India’s smartphone market is rapidly expanding

A decade ago, India's telecom industry shifted when Chinese and Indian companies introduced smartphones to the market. Key players like Nokia, Samsung, Micromax, and Lava set up manufacturing units in India to pump out affordable 3G and 4G devices to millions of customers.

Between 2016 and 2017, Chinese brands aggressively claimed over 80% of the market volume, impacting both Indian and global brands. 

Presently, smartphone sales focus on 5G and enhanced features. 

But despite Chinese brand dominance, recent reports note their low contribution to smartphone exports, contrasting with Apple's significant impact. However, value comparisons highlight Apple's unique position, with its Average Selling Price (ASP) four times higher than the average Android smartphone.

Until 2020, manufacturer investments primarily met domestic demand, limiting export capacity. In contrast, Apple, entering a saturated Indian market, focusing on exports before domestic sales.

Apple's recent success in India is attributed to strong sales of older models, constituting over 10-12% of total smartphone sales volume in the country. The company's decision to start exporting early, coupled with shorter replacement cycles, positioned it favorably. 

Following a two-year downturn in the Indian smartphone market due to adverse macroeconomic factors and pandemic disruptions, a 7% growth in 2021 countered a 1.7% decline in 2020, driven by pent-up demand. 

According to IDC India, the domestic market will grow 5-8% year-on-year in 2024, with shipments reaching 148 million units. Counterpoint Research estimates a 5% growth, with shipments ranging from 155-157 million units. CMR India predicts an 8-9% overall growth in smartphone shipments, including a 40% year-on-year growth in 5G shipments. 

Brands like Xiaomi, Vivo, and Apple are expected to actively pursue growth, while Samsung and Oppo aim for stability.

The adoption of lower priced 5G smartphones is anticipated to drive sales in 2024. Industry experts, including President of Xiaomi India, Muralikrishnan B, acknowledge the evolving landscape, expressing optimism about the possibility of multiple 5G models at a lower price point. 

Apple’s growing market share

For years, Apple faced challenges expanding its retail presence in India due to stringent local-sourcing rules. But the government's 2019 change to foreign direct investment rules opened the door for Apple's full entry into India's retail market, ending its reliance on third-party outlets. 

During its initial decade in India, Apple struggled to surpass a 1% share of the smartphone market, partly due to the iPhone's high cost compared to competitors like OnePlus and Xiaomi. Import tariffs of up to 20% contribute to India being one of the more expensive places to buy an iPhone, with the iPhone 15's basic version priced at roughly $960 compared to $799 in the U.S.

Sales of the premium iPhone 15 Pro Max in India have been reported as "good."

While the overall feature phone market saw a volume decline of 6% (year-on-year), Apple shipped 44% more phones, capturing a 6% market share in the country. Samsung led with a 23% market share, followed by Vivo at 16%.

In Q3 2023, 5G smartphone shipments reached 57% of all volume, with a 78% year-on-year growth. Additionally, 4G feature phones experienced a 300% demand growth according to CyberMedia Research (CMR). 

Youth preferences are set to influence the Indian smartphone market significantly, with a TechArc survey showing 4 out of 10 smartphones are purchased by individuals under 25. Notable brand loyalty exists among Samsung and Vivo owners. And Apple users, especially students, expressed a 100% commitment to upgrading exclusively to iPhones.

“If you look at Apple retail stores [worldwide], less than 10% of sales come from actual retail stores; the vast majority of sales come from e-commerce,” said Wedbush’s Dan Ives. “[But] the retail stores are how consumers come in; they feel the products. That's been the key DNA of Cook-Cupertino, and why Apple is where they are today.” He expects Apple to open eight more stores in India by 2025, up from the current two.

Foxconn and Apple lobby for change

Apple aims to significantly increase its production capabilities in India, targeting an annual output of over 50 million iPhones within the next two to three years, as part of a broader strategy to enhance production. If successful, India could represent 25% of global iPhone production by 2025. Foxconn, a key supplier, has expressed support and announced a $3.2 billion investment in India, including manufacturing facilities for Apple.

The Taiwan-based company, which assembles around 70% of iPhones and is the world's largest contract manufacturer, has been diversifying production away from China following COVID-19 disruptions and geopolitical tensions.

It has rapidly expanded its presence in India over the past year by investing heavily in manufacturing facilities in the south of the country.

Foxconn's factory in Karnataka, set to open in April 2024, plans to produce 20 million smartphones a year, primarily iPhones. Apple's manufacturing plans include a simultaneous global shipment of the iPhone 15 from factories in both India and China, a departure from the traditional centralized production model.

Apple also announced an investment of $600 million in two projects to make casing components for iPhones and chip-making equipment in Karnataka.The investments coincided with Apple and Foxconn's efforts to relax labor laws in Karnataka, with the state passing an amendment allowing 12-hour shifts, up from the previous 9-hour limit, and allowing women to work in factories.

"India is in the best position to make the best of the current geopolitical situation between the US and China, something we have already seen happen with Apple which has ramped its manufacturing presence here significantly over the years," said an industry executive who didn't wish to be named to Reuters.

India's biggest conglomerate Tata Group also plans to open 100 stores across the country that will only sell Apple products, the Economic Times reported, citing two people aware of the matter.

Tata Group's Infiniti Retail, which runs the consumer electronics store chain Croma, will be an Apple-authorized reseller and set up stores at shopping malls, high-street and neighborhood locations, the report said.

While Apple's push into India is robust, suppliers are not expected to exit China anytime soon, accounting for over half of iPhone production last year according to Counterpoint's data. Foxconn Chairman Liu Yangwei affirmed China's continued dominance in the company's capital investment plans.

Indian’s want wearables

But how will Apple make up for wearables losses in the US?

India's wearable technology market experienced remarkable growth in 2023, with a 29.2% year-over-year increase, reaching 48.1 million units sold in the third quarter of 2023, as reported by the IDC India. This contributed to a total shipment of 105.9 million units in the first three quarters of 2023, surpassing the 100.1 million units shipped in all of 2022. 

In the overall Indian wearable market, Apple remained a significant player, and new smartwatch and ear wear models were introduced during the third quarter of 2023. Additionally, the emergence of smart rings, like Oura, gained prominence.

Despite Apple's long standing dominance in the wearables market, companies like boAt and Noise have been very resilient, driven by consumer preferences and lifestyle changes during the pandemic. 

Apple dominated the market with a 30% share in 2023, led by a double digit increase in Apple Watch shipments. Apple's AirPods Max headphones also contributed to its success, despite their $549 price tag. Xiaomi, Samsung, Huawei, and boAt rounded out the top five vendors, all experiencing year-on-year growth in shipments.

Apple remained the world's largest wearables vendor this year, with an estimated 20% global market share.

As Apple faces challenges in key markets, India has emerged as a pivotal player in the company's growth narrative. Strategic moves to increase production, open retail stores, and capitalize on the booming smartphone and wearables market in India reflect Apple's resilience and adaptability. 

And the market knows this. Despite the news of simultaneous product bans in China and the US, Apple stock did not decline at all, trading at an average price of $196. In short, Apple isn’t going anywhere.