Why India is so important to Apple

Tim Cook, Apple’s Chief Executive (CEO), greets the press with folded arms outside the Apple Store at Jio World Drive Mall, Mumbai, India on April 18, 2023.

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Apple CEO Tim Cook has been in India for the past week. He has opened two new Apple Stores, is set to meet Prime Minister Narendra modi, and will be visiting customers and seeing sites in India.

Apple's international trip is a clear sign that India is a major strategic focus, as Apple has moved its supply chains away from China. The iPhone market in India is also growing.

India could play the same role in Apple's business as China did for the past 15 years. A huge market with a growing middle class that can drive sales growth and a potential home base for millions of Apple products.

Analysts believe that India's growing economy and large population make it the perfect place for Apple to gain a foothold in India by increasing its marketing efforts and opening retail stores. CNBC reported that India's government wants to work closely together with Apple in order to allow manufacturing to take place there.

Angelo Zino is a senior analyst with CFRA Research. He said that there's still room for Apple to expand on the subcontinent. Apple has less than 5 percent of the market share for smartphones in India, while it holds 18 percent in China. Both countries have versions of Google's Android operating system that are used for the majority of smartphones sold.

Zino stated that India is very similar to China from 15 or 20 years back. It's the natural wealth effect that will help Apple penetrate India and have a higher revenue potential.

Apple made $74 billion of sales in China, Hong Kong and Taiwan during fiscal 2022. This is about 18% Apple's total revenue for the period.

India has not yet reached that level. India is reported under a category called "rest Asia Pacific" which only reported $29 billion of sales for the same period.

Bloomberg reported this week that Apple had reported sales of nearly $6 billion for the fiscal year ending March.

Cook also compared India and China to investors.

Cook stated on a call for earnings earlier this year that "we are, in essence taking what we have learned in China over the years and how we scaled to China, and bringing it to bear."

India is the biggest market where the iPhone is still not fully established, which is why it's critical to sales growth.

Cook boasted that Apple was successfully wooing the "switchers", or new iPhone users, in the country in February. Apple says this to Android users who decide to switch over and buy an iPhone. Cook stated in February that Apple's best ever iPhone sales quarter in India was the quarter ending December.

A woman poses in front of the Apple tablets on display inside the Jio World Drive Mall, Mumbai, India after the launch, 18 April 2023.

Ashish Vaishnav - SOPA Images - Lightrocket / Getty Images

Indians who purchase iPhones are more likely to switch than other customers, because Android dominates in India. Samsung and several Chinese brands lead the market. Statcounter reported that Android had a market share of over 95% in India.

Price is the main factor. The majority of phones sold in India cost less than the cheapest new Apple iPhone. In February, industry analyst IDC estimated that the average smartphone price in India was $224. This figure had increased by 18% to 2022. Apple's entry-level phone, the iPhone SE, retails in the U.S. for $429.

Apple can address this problem by offering customers the option to pay in installments or a discount if they trade in an old device. Cook spoke about these strategies in February when asked about India.

Cook stated that "there's been much done to make products more accessible and to give people more choices to purchase," including financing options and trading in old items.

Sales are expected to be boosted by the two Apple stores that opened this week, as well as the online Apple Store which will launch in the country in 2020.

Second, Apple will build products in the country. This is a huge project that not only requires Apple's attention but also the efforts of its manufacturing partners, local and national government.

In the last five years, nearly all iPhones have been assembled in China. This has led to some issues, including trade tensions, possible tariffs, and supply chain disruptions due to Covid's policies and China's Covid policy, which caused sales shortfalls.

India could be a major winner, as Apple searches for non-Chinese production options. India's Commerce Minister told CNBC in January that Apple is manufacturing its iPhone 14 in India and has a goal of producing as much as 25% all iPhones there.

Foxconn is Apple's main manufacturing partner. It oversees the assembly of many new iPhones, and it has expanded in India as well. A $700 million iPhone parts plant in Bangalore, India, was reported to be under construction.

Indian officials are eager to use Apple as a symbol for attracting other high-tech firms to India to manufacture and develop. This is a parallel to China. In the last 20 years, Chinese government officials at all levels have been working to build massive factories such as Foxconn’s Zhengzhou plant -- also known as “iPhone City” -- in China.

Seema Mody, CNBC's Seema Mody, reported that Modi would like to know about Apple's plans to manufacture in the country and create manufacturing jobs. He wants to know the challenges Apple faced in increasing its user base within the country.

It's not the first time investors have expressed excitement about Apple's India potential. However, some analysts caution that it could take a long time before India becomes a major market.

Zino told investors that the India hype they've been hearing this week was great. "It is, in our opinion, a huge opportunity over the next decade. But don't expect it to happen overnight."

Apple also encountered challenges during its initial manufacturing experiments in the country. The most notable was at a Wistron plant in Bengalaru that assembled older models of iPhones. This led to a labor strike in late 2020.

Tim Cook, Apple’s Chief Executive Officer, reacts when a man shows him an Apple Macintosh in the Jio World Drive Mall, Mumbai, India, on April 18, 2023.

Ashish Vaishnav - Sopa Images - Lightrocket - Getty Images

Apple has been eyeing an India expansion at least since 2016, when Cook met Modi.

Cook informed Modi of the possibility for Apple products to be manufactured and sold in India. Cook has returned to India six years after the initial meeting with Modi. He is opening Apple's two first-owned-and-operated stores.

Apple had a similar view of India in 2008: Cook told CNBC Jim Cramer that India would be the largest country in the entire world by 2022, and it has "huge potential".

Apple's India strategy can be summarized best by a quote Cook made to the local media in 2016 during his trip to India.

Cook stated, "We put enormous energy into this, and we're not here just for the next quarter or two, or for the next quarter or next year or next year. We're here for the next thousand years."