With its days of stellar growth in China coming to an end amid economic headwinds and smartphone market saturation, Apple has been looking towards India to pick up some of the slack. The appeal of the Indian market is evident – India is currently the fastest-growing large economy in the world, and smartphone penetration remains low. Wireless carriers in India have also been doubling down on building and expanding their high-speed data networks. Moreover, the Apple brand also has significant aspirational value among India’s growing middle class. That said, Apple face some meaningful challenges in the Indian market, including relatively weak purchasing power (which puts Apple’s products out of reach for most customers), regulatory headwinds as well as significant competition from premium Android vendors.
Apple Is Largely Priced Out Of The Market
Apple products are prohibitively expensive for much of India’s population. In fact, it would cost an average Indian more than 40% of his or her annual income to buy a new full-price iPhone. This compares to under 10% for China and under 1.5% in the U.S. An iPhone also costs close to 5x the average smartphone sold in India. It also doesn’t help that Apple products are priced as much as 20%-30% higher in India compared to the U.S. While Apple had planned to import and sell refurbished iPhones in the Indian market- a move that would allow the company to offer premium used devices at price points well below new iPhones – the Indian government recently rejected the proposal.
Profitability In India Remains Weak
Apple CEO Tim Cook has noted that its profits in India are lower than the rest of the world. While’s Apple’s low share of the Indian smartphone market (~2% in 2015) – and its aggressive spending on marketing – could be partially holding back its profitability, there are other issues as well. For instance, Apple faces high costs of distribution in India, in addition to having to contend with relatively high taxes and regulatory burdens. Additionally, much of Apple’s sales in India are believed to be coming from low-end or legacy devices such as the iPhone 5S, which are generally less profitable. While Apple has been trying to open retail stores in the country, which could cut distribution costs and improve brand visibility, the company will be required to source about 30% of goods locally, which appears unlikely at this juncture.
Android Is Deeply Entrenched In The Indian Market
Google dominates the smartphone space in India, with devices running its Android OS holding about 90% of the country’s smartphone market. The Android user experience is also becoming more polished and integration with Google’s strong service capabilities tailored for India (ex. Maps, Now) could make customers more reluctant to switch. Moreover, premium Android devices such as Samsung’s latest Galaxy S7 Edge have been receiving a lot of buzz. Per Counterpoint research, Samsung held about 47% of the Indian premium smartphone market (defined as devices costing upwards of Rs. 30,000 or $450) for the year ended March 31, 2016, making significant gains over Apple, which held about 45% of the market.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
