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What is the forecast of potential sales for the target market for iPhones in India?
Hello and thank you for your question on the sales forecast and potential market size of iPhones in India. As you can well imagine, India has become a major priority for Apple, especially considering that their growth slowed for the first time in 2016. The quick answer to your question is that Apple possesses a minor share of the smartphone market at the moment, but is positioning themselves to be a much larger player in the medium-to-high end market.
MARKET SIZE AND SHARE
THE SMARTPHONE MARKET IN INDIA
The cellphone market in India lags behind its more technologically advanced neighbour, China. Smartphone sales in India account for only 40% of all mobile device sales in India, while in China, the figure is 90%. Nonetheless, that figure still amounted to 106 million units in 2015, and by the end of 2017, it is expected to increase to 300 million. Smartphone sales in India are increasing at a rate higher than anywhere in the world, and in 2016, they displaced the United States as the second largest smartphone market, with 220 million active users.
APPLE IN INDIA
Although data is readily available, there is some disagreement over whether or not Apple is performing well in the Indian market. The vast majority of the mobile phone market in India is made up of lower-cost devices, a category in which Apple does not compete. In 2016, 97% of Indian smartphones were running Google's Android operating software. With just a 2% market share, Apple would seem to be a marginal player at best.
However, Apple has established a position of dominance when it comes to the luxury smartphone market (sets with a value of $450 or more), taking a 66% market share in the month of October 2016 (previous estimates had placed their share at between 40 and 50%). In the slightly lower-priced category of phones costing $300 or less, Apple increased its market share from 11% to 29% in the first quarter of 2016, growth that came entirely at Samsung's expense. Even those who have rated Apple's overall performance as poor concede that Apple has never chosen to participate in the low-cost market. This incursion into higher-priced categories has the potential to disrupt Samsung's entire strategy, which is based on profits generated largely by its own high-end devices.
CEO Tim Cook has said that Apple's investment in India is a long-term project, and that the company is looking at the prospect of taking up to 10 years to truly solidify their position in the market. He indicated in the company's Q1 2016 earnings call that India will be a major focus for the company going forward, and has said that India is currently the most important smartphone market in the world.
APPLE SALES FORECAST
2016 SALES RESULTS
While iPhone sales have decreased for the first time in its primary markets of The United States and China, sales in India have been rising at a significant rate. Annual sales rose 56% in 2015 and a further 51% in 2016.
The company sold 2.5 million phones in India in 2016, a third of which shipped in the fourth quarter. This left Apple in tenth position among the country's cell phone suppliers, far behind leader Samsung.
APPLE'S PLAN FOR THE FUTURE
In order to achieve their sales targets, Apple has identified several target areas that will help reduce the cost of individual sets, without changing its components or structure:
1. Reaching an agreement with the Indian government that would allow them to sell refurbished iPhones. A proposal to do so was rejected in 2015, however the company continues to pursue this option, offering a revised plan which is still under consideration. This would give them a lower-priced option, more competitive with Samsung models.
2. Establishing a manufacturing centre in India. Under the government's "make in India" initiative, products like Apple's, which are manufactured out of country, are subject to high import taxes, which inflates the price of an already expensive product. However, Apple's principle manufacturing partner for iPhones, Foxconn, is reportedly close to reaching a deal to establish facilities in India that would allow the company to meet the requirement of a minimum of 30% of the manufacturing process taking place in India to eliminate these economic barriers.
3. Selling directly to consumers through proprietary stores. Apple was given a temporary exemption to the "make in India" regulations, which allow it to open its own single-brand retail locations. Currently, their products are available only through distributors, whose markup increases cost to the consumer.
4. Improving iPhone-specific features. Apple has opened facilities in Hyderabad and Bangalore in order to improve their mapping features and apps, with the aim of making the "iPhone package" more attractive to Indian consumers.
The brand is also poised to maximize their benefit from the rollout of LTE service. The country's LTE network is still being established, but in the last quarter of 2015, consumers showed that they were eager to make the switch, as 50% of smartphone sales were of LTE-enabled devices.
2017 AND DEMONETIZATION
Apple had forecast sales of 3 million units in India for 2017 (well below the target of 10 million they had set for themselves three years earlier), however they, along with all smartphone manufacturers, have been hit hard by the Indian government's imposition of limits on cash withdrawals. Smartphone sales overall have tumbled 3035% since these measures came into effect, and Apple's strong market growth has been curtailed by 50%. The company has not yet released a revised 2017 forecast, but has acknowledged that demonetization is likely to prevent them from reaching their 3 million unit goal. (Some analysts have argued that Apple may have benefitted early on from demonetization, as people rushed to convert rupees to luxury items that would retain their value. However, it is clear that all high-end manufacturers are now suffering.)
SUMMARY
Apple remains a minor player in the overall Indian smartphone market, but they have quickly become a major part in high-end devices. While starting from a low base, their growth in India over the last three years has been enviable. The company is working towards increasing sales and market share on multiple fronts and, despite early setbacks this year due to demonetization in the early part of 2017, they have indicated that India will be a primary focus for the foreseeable future and that they are invested in long-term growth.
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