As the world’s second-most-populous country, it should be no surprise that India has become one of the fastest-growing smartphone markets.
In 2015, India generated 23% more shipments than the previous year — which is why big-name smartphone makers have flocked to the rapidly developing country to plant their roots. Last year, Alphabet Inc’s (GOOG, GOOGL) Android phones held a bulk of the market share there, and Apple Inc. (AAPL) is also trying to throw its hat into the ring by building a handful of Apple stores.
But is it too late for AAPL sto0ck to gain a foothold, or can this emerging market help lift the company’s bottom line?
The Problem for AAPL Stock
The classic challenge with India is that it is vast but very poor.
Many Indian workers only earn 40 cents U.S. an hour, and so there are only about seven or eight million households that can theoretically afford a Western-style smartphone. AAPL was astoundingly lucky to increase revenue over 44% last year in that market segment.
Still, India is just roughly 1% of the global iPhone market, far less than AAPL’s presence in China, and it’s unlikely that it’s going to be a transformative opportunity for years (if not decades) to come. Odds are good that most growth for the remainder of the decade will come from deep-discount refurbished iPhone shipments and not the traditional new-in-box devices.
Another part of the problem is that Apple stock is late to the party. Chinese consumers overwhelmingly gravitate toward AAPL as a mark of prestige, but that sort of brand saturation has not pervaded the Indian consumer base.
Instead, India has become a huge market for nontraditional, non-Western smartphones priced below $100. That last bit is important because many Asian companies like Huawei and Xiaomi specialize in those low-end devices. Meanwhile, a cheap iPhone in India costs close to $400 — at least half a year’s wages for approximately 600 million Indian workers.
About 100 million of that group bought a cheap non-Western smartphone last year, and it was a significant sacrifice. They won’t be upgrading every year because they can’t afford to.
In other words, the problem for AAPL here is not a lack of retail outlets. CEO Tim Cook can build all the Apple stores he likes, but it won’t matter if the consumers who want the product can’t afford the manufacturers’ suggested retail price.
This conflict may bubble to the surface once AAPL stock tries to peddle its new 4-inch iPhone SE model. As a higher-end device with a high price point, it’s a step in the wrong direction for India — especially considering the recent hubbub over an Indian company launching the country’s cheapest smartphone at less than $4 (though there is some question as to the legitimacy of that product).
So something needs to change in order to make India interesting for Apple stock. The country’s middle class is growing at a substantial clip, but I’m not wholly convinced the pace is fast enough for AAPL to settle in right away.
At the end of it all, if AAPL cannot tweak its product line to mesh with the needs of Indian consumers, it will continue to be edged out by more flexible companies.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
