While Apple Inc. (NASDAQ:AAPL) might be known the world over as the maker of the popular iPhone, that doesn’t necessarily mean the iPhone sells well all over the world. India has been a tough nut to crack, so to speak, with most AAPL stock owners all too aware that the country’s 1.3 billion people represent a massive growth opportunity.
That tide may finally be turning.
This week, iPhones that were made in India are now officially for sale at select stores in the country. When all is said and done, they could cost $100 less than the iPhones made and sold in other parts of the world.
That’s going to give Apple a serious in-road to the nation’s consumers who have thus far preferred lower-cost alternative smartphones made by the likes of Oppo and Samsung Electronics (OTCMKTS:SSNLF).
Better still, because the device will be a home-grown good in addition to the proverbial red carpet the Indian government is rolling out for Apple, the company might finally make a meaningful dent in the market.
An Offer Tim Cook Can’t Refuse
An opportunity to penetrate the Indian market couldn’t have come at a better time. With iPhone sales in China continuing to slow through last quarter and the U.S. market not only being relatively small but also rather well saturated, India is the next best bet for AAPL stock.
That said, a key part of the reason India hadn’t yet paid off in a big way is simply that most of India’s 1.3 billion consumers aren’t able to spend big bucks on an iPhone … or most other kinds of goods.
General Motors Company (NYSE:GM) announced last week it was abdicating the Indian market because the cars those buyers wanted weren’t high-priced enough to drive adequate profits. And though Snap Inc (NYSE:SNAP) CEO Evan Spiegel denies saying it, it has been rumored he didn’t want to enter the Indian market because on a per-capita basis the country was poor.
Still, India’s GDP growth rate rolled in at 7% as of the fourth quarter of last year, and has been persistently stronger than China’s GDP growth of late.
Nothing quells poverty like outsize economic growth.
A key chunk of that reason for economic growth are the sweet deals the country’s economic ministers are offering to companies that bring jobs to the nation. Add Apple to that list. While CEO Tim Cook didn’t get the 15 years of tax-free imports of iPhone components he wanted, the Ministry of Electronics and IT has offered a scheduled and tiered tax-break plan that Apple is widely expected to agree to.
If accepted, manufacturing iPhones in India could become considerably cheaper than it costs to make them elsewhere, allowing Apple to sell them cheaper there as well.
It won’t be easy doing business in India. As Dhruv Ratra, founder and CEO of KhelNow.com (a social network for Indians) recently explained of other outfits with operations in the country:
“Samsung, Microsoft, Google, Facebook all face the issues of endemic corruption and draconian tax laws (in a) culturally unfamiliar territory … (They have succeeded by) changing their business model to make it India-centric and by tying up with local partners.”
It arguably will be worth it, though. India’s smartphone market is estimated to be worth $13.9 billion per year, and growing faster than any other smartphone market. That may be largely because two-thirds of its 1.3 billion people are younger than 35 — the crowd that loves the status and inclusiveness of the iPhone.
Bottom Line for AAPL Stock
A panacea? No. Apple shareholders looking for India to reignite the kind of growth the stock saw a few years back might not want to hold their breath. That’s not because India is a minor market, but because the buying power of its consumer base isn’t going to skyrocket ahead. Change takes time.
Still, Apple has better relations in India than it has been able to maintain in China. Considering India’s consumer base is similar in size, spending power and growth, the country might well end up being what China was supposed to be to AAPL stock not too long ago.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
