By Newley Purnell and Rajesh Roy in New Delhi, and Tripp Mickle in San Francisco
NEW DELHI -- Apple Inc. is broadening its attack on India,
perhaps the iPhone's last great growth market.
The company's first ever Indian-made iPhones began hitting
shelves here this month with hopes that reduced prices will boost
sales in the sprawling country where Apple has just 3% market
share.
The Cupertino, Calif. company is considering plans to open
flagship stores in India's megacities and is assisting hundreds of
third-party resellers in opening new shops at an unprecedented
pace. It also has set up development centers to build apps for
Indians and enhance local mapping capabilities.
While Apple's strategy typically is to sell high-price handsets
to telecom carriers, its effort in India reflects the realities of
an emerging market where wages are low, cellular speeds are
sluggish and consumers mostly buy phones from small, unaffiliated
shops. The company also must overcome weak brand awareness and its
relatively late arrival in a market where Samsung Electronics Co.
has a head start.
"It's not a push for premium -- it's a push to sell an Apple
device by any means necessary," said Lauren Guenveur, an analyst
with market research firm Kantar Worldpanel.
India is already the world's second-largest mobile market after
China but is expected to add more mobile subscribers -- 310 million
-- than any other country in the four years through 2020, according
to estimates from GSMA, a global association of mobile-service
providers. Apple wants a better foothold in India so all the growth
doesn't go to Samsung and rising Chinese companies such as Xiaomi
Corp. and Lenovo Group Ltd.
There is "a lot of headroom [in India] in our mind, and so we
are working very hard to realize that opportunity," Chief Executive
Tim Cook said on a call with investors in October.
Samsung has 24% market share in India's smartphone market and
announced earlier this month it was doubling its capacity in India
with a new, $760 million investment in its smartphone and
refrigerator factory outside India's capital.
Chinese brands such as BBK Electronics Corp.'s Oppo and Vivo are
gaining ground, doubling their smartphone market share in the first
quarter to 50% from a year earlier, according to Kantar
Worldpanel.
Apple may need to temper investor expectations in India where it
is only likely to grow to control a 5% market share by 2020 worth
about $10 billion, not much for a company with more than $215
billion in annual revenue, said Mizuho Securities analyst Abhey
Lamba.
"They can't ignore it," he said "But it's not enough to move the
needle."
New Delhi is using its giant domestic market to woo global
manufacturers, charting a different path to development than the
export-powered economies of Japan, South Korea and China. If a
lower-cost iPhone became popular with a rising middle class of
Indian consumers, production could be expanded, more jobs could be
created, and demand could increase as living standards improve. It
is comparable to what Ford's inexpensive Model-T did a century ago
for the young, up-and-coming economy in the U.S.
India has worked hard to persuade Apple to produce phones
locally. The government has eased foreign-investment restrictions
to become more open, with an eye toward fostering an ecosystem of
phone-parts manufacturers to supply international electronics
makers, bolstering Prime Minister Narendra Modi's Make in India
initiative.
Under investment restrictions, foreign-owned single-brand
retailers like Apple were required to source around 30% of their
products locally in order to open their own shops.
Apple was rejected when it pushed for that restriction to be
waived. New Delhi later said companies could be given three years
to reach the requirement, according to government officials. Apple
was also refused permission to import used iPhones to be
refurbished and sold in India, said one Trade Ministry official who
asked not to be named.
"The government is eager to have the world's most-valued company
have its operations here," the official said. "We hope something
mutually-agreeable is worked out in near future."
When the company decided to make its own phones here, Apple
picked Taiwan's Wistron Corp. to begin assembling the iPhone SE,
its least expensive model, with production starting in May.
The high prices on iPhones are the biggest reason Apple can't
sell more in India. Analysts estimate more than 75% of the
smartphones sold in the country sell for less than $250 and 95%
sell for less than $500. Now the cost of the iPhone SE -- which was
introduced last year at about $600 and now sells for around $325 --
could fall to a level more Indians can afford.
If prices for the model fall below $300, they could be
attractive enough to appeal to consumers now spending a similar
amount for higher-end Android phones, said Faisal Kawoosa,
principal analyst at research firm CMR.
The company also has been trying to expand its distribution
network in India, where about 85% of smartphone sales occur across
a fragmented network of small retailers, according to Mizuho
Securities. Apple supports resellers with marketing materials,
furniture and other assistance. It plans to back 200 new stores in
the next year, according to a person familiar with the company's
thinking.
As it plunges into India, Apple faces a consumer-awareness
problem, with nearly half the population unfamiliar with the brand,
according to a Morgan Stanley survey. To build awareness, the
company has been considering opening flagship stores in New Delhi,
the tech hub of Bangalore, and the financial center of Mumbai,
according to a person familiar with the company's plans.
Meanwhile Apple is doubling down on content. In March it opened
Apple's first-of-its-kind app-development center in Bangalore to
help coders making iOS apps for India. India has nearly 3 million
mobile app developers, but fewer than 15% of those make iOS
products, said Jayanth Kolla, founder of research firm Convergence
Catalyst. Apple has also opened an office in Hyderabad to boost
mapping capabilities.
Of course, Indians don't have to buy iPhones to bond with the
Apple brand. In a bid to get young users hooked, Apple this year
started offering Indian college students its Apple Music service,
which is also available on Android devices, for the equivalent of
93 cents a month -- less than one fifth the cost in the U.S.
--Karan Deep Singh in New Delhi contributed to this article.
Write to Newley Purnell at newley.purnell @wsj.com, Rajesh Roy
at rajesh.roy@wsj.com and Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
June 22, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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