Why Apple may be staring at its toughest year in India

NEW DELHI: Apple could be staring at its toughest year in India in recent times, given the sharp fall in shipments in the first half of 2018. Analysts attributed this to the company’s change in strategy to prioritise profitability rather than growth by cutting discounts and distribution. Some said the numbers could recover after new models are released in September, ahead of the festive season.

The smartphone maker recorded a 55% drop in the June quarter from the year ago and a 30% drop sequentially. In the March quarter shipments fell 22% on year and 46% from the preceding three-month period, as per the estimates of Singapore-based Canalys. International Data Corporation (IDC) India, Counterpoint Research and Cybermedia Research, which are yet to issue April-June figures, say their data will also reflect sharp declines for the first half of this year.

“2018 could well be the worst year for Apple… market share drop is expected for the full year given the weak second quarter,” said Rushabh Doshi, research manager at Singapore-based research firm Canalys.

This could result in a decline of the iPhone maker’s market share in India, where it has been struggling to expand its presence, if it does not manage strong growth in the current and December quarters, when shipments historically tend to pick up on the back of new flagship launches.

But competition in the premium market–where Apple has been traditionally strong–has intensified with new entrants such as OnePlus marking a strong presence, besides a resurgent Samsung, experts said.

“In the premium segment alone, Apple’s share fell to 20% in the January-March quarter this year, compared to 43% last year,” said Counterpoint Research research analyst Shobhit Srivastava,

He expects Apple’s overall market share in India to fall to anywhere between 1.5% and 2%, from around 3%, unless the company stages a turnaround in the second half.

Apple is not in a “good situation at all,” said Faisal Kawoosa, head, new initiatives, Cybermedia Research. “It will be a very challenging year for them.”

Since 2014, the company’s shipments have been rising consistently. In 2015, it shipped nearly 1.8 million phones, followed by 2.8 million in 2016 and 3.2 million last year, as per Counterpoint Research.

In the first half of 2018, the company shipped 850,000 units, 30% lower than in the year-earlier period, IDC India told ET.

In the past few months, Apple has said it’s curtailing distribution to two partners--Ingram Micro and Redington—besides enforcing prices, weeding out discounts other than those offered by the company itself. This follows a recent change in top management.


Apple didn’t comment.

The company though has been talking about increased focus on India for over a year now.

Apple CEO Tim Cook recognised the low share that the smartphone maker has in India? ?whose expanding middle class and expansion into 4G offers a strong growth opportunity amid slowing global demand for the devices.

"India is the third largest smartphone market in the world. There's obviously huge opportunities there for us and we have extremely low share in that market overall,” Cook said on an earnings call with analysts after the company announced its best-ever overall March quarter results.? ?“And so we're putting a lot of energy there (in India) and working with the carriers in that market and they're investing enormously on LTE networks and the infrastructure has come quite a way since we began to put a lot of energy in there, because of their leadership,” he said.

But experts? ?said Apple needs to recognise the heterogenous nature of the fast-growing Indian market and develop a strategy that includes expanding its retail presence, building further on its brand and manufacturing more models locally to save on import duties.

“The brand wants to sell one product all around the world, but it will have to change that mindset to be successful in a country like India, where customers aspire to own an iPhone but at affordable prices,” CMR’s Kawoosa said. “There have to be more models at lower price points than just the iPhone X.”

Counterpoint’s Srivastava said Apple needs to manufacture more models in India than just the iPhone 6 and the SE as this will reduce prices by about 20%, the import duty on every phone shipped into the country. This is why the iPhone is the most expensive in India, compared with other markets such as the US or Singapore.

IDC India’s associate research director Navkendar Singh expects the company to do better in the latter part of the year, when demand for the latest iPhone peaks along with the festive season in India around Diwali.

“I think there will be demand for the iPhone 7 and possibly the iPhone 8 if there is a price drop, which will happen when new models launch, so on a shipment basis, numbers should come back on track,” he added.