Last quarter, Apple Inc. (AAPL) logged revenue of $42 billion as sales of the iPhone 6 and iPhone 6 Plus models reached 10 million units in the first weekend the phone was available. That’s billion with a “b”, and quarter with a — well it’s only 13 weeks, folks.
But the company is still seeking out new avenues for growth, and India is reportedly the next stop.
According to The Times of India, Apple has plans to open 500 stores in India, the world’s second-largest country by population, with more than 1.2 billion people.
The only trouble with that is that archrival Samsung Elect Ltd(F) (SSNLF) is already entrenched as the major player in the Indian mobile phone market. It’s not that AAPL has entirely ignored India — Apple sold about 1 million iPhones in the country last fiscal year — but it has focused on the larger urban markets to date. That number is expected to rise to 3 million next year, and the focused push into India will aim to take that growth even further.
Unfortunately this move will turn out to be more of a curse than a blessing for AAPL stock.
Tim Cook: Kissing Apple’s Premium Image Goodbye
The problem is that Apple’s hunger for immediate growth at all costs is causing the company to do things it wouldn’t have done 10 or even five years ago when Steve Jobs was at the helm. In short, AAPL is diluting its brand image and practically begging to sacrifice its margins in the name of market share, which is a futile and fiscally irresponsible endeavor.
In fact, Apple’s lamentable shunning of product quality is the main reason I think the glory days are over for AAPL stock.
Of course, the fact that Apple is focusing on India doesn’t mean the quality of its products will necessarily decline. But I wouldn’t be shocked if quality did suffer, and I’m certain the Apple brand will take a blow from these expansion efforts. As goes the Apple brand, so goes AAPL stock.
Here’s why: The plan is to open mini-Apple stores between just 300- and 600-square feet in India’s less populous cities, where the company feels there is strong untapped demand. That’s quite a contrast to the company’s typical 2,000 square-foot store, and cheapens the sleek and premium AAPL image with an uncharacteristically cramped retail environment.
Plus, let’s not forget that if Apple wants to hit sexy unit sales figures with its Indian expansion, it’ll likely have to lower the price or offer lower quality phones, or both. I’d argue that the iPhone 6 “bendgate” controversy gives good evidence that process has already begun, but that’s another story.
About 30% of India’s population still lives below the poverty line. According to the IDC, Samsung, Micromax, Lava, Karbonn, and Motorola are the top five smartphone brands in India in Q3 2014. Karbonn has gotten popular because a whopping 85% of its phone shipments in India come handsets that cost less than $100.
There will be margin pressure as a results of Apple’s push into India. There will be further Apple brand dilution. And there will be blood in the streets for AAPL stock if it continues to apply its recent “sales first, quality second” mentality to its global operations in the coming years.
As a shareholder myself, I beg you, Tim Cook — don’t go to India.
As of this writing John Divine owned shares of AAPL stock. You can follow him on Twitter at @divinebizkid.
