Apple's diagnosis

China and the iPhone slow, but India shines

Quarterly results from Apple, Samsung and other smartphone makers describe the contours of the global demand slowdown. Notably, India is an outlier, with rising smartphone sales and strong gains in particular for the iPhone. Assuming global smartphone sales are a reasonable proxy for discretionary consumption, stagnation here is worrying. The smartphone segment was one of the few bright spots in the global economy, generating double-digit growth through 2014 and 2015. The poor results from Apple triggered a sell-off that shaved eight per cent off the market capitalisation of the world's most valuable company. The iPhone's sales declined 16 per cent year-on-year in volume terms, to 51.2 million units (from 61.3 million in Jan-Mar 2015). Revenue dropped to $641 per handset (versus $658 the previous year).

This is a major departure: it is the very first time that iPhone sales have dropped since it was launched in June 2007. The iPhone generates 65 per cent of Apple's revenues. So, it is not surprising that the company's revenue dipped 13 per cent and profits declined 22 per cent year-on-year. This was the first quarterly profit decline for Apple in 13 years. But the iPhone's travails reflect global stagnation in the smartphone market. Some 334.9 million smartphones were shipped in Jan-Mar 2016, only marginally more than 334.3 million units in Jan-Mar 2015. Samsung, which holds the largest market share, ahead of Apple, saw sales dip 0.6 per cent. Lower-end players like Huawei, Vivo and Oppo gained market share at its expense. Gartner has estimated global sales at 1.5 billion units in 2016. Even that would require a substantial pickup in the next three quarters. If at all achieved, it would be seven per cent growth, and it would be the first time that growth would have dropped to single-digits in the smartphone segment.

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In India, iPhone sales rose 56 per cent, to 1.9 million handsets, with a large contribution from the old iPhone 5S. The new iPhone SE with reduced price (approximately Rs 25,000) and small (4.1 inches) screen was only introduced in April. Anecdotal feedback says it is popular. But this is a small slice of a big market. For the first time, smartphones outsold feature phones in 2015, when Indians bought 95 million smartphones. Over 75 per cent of volumes were logged at price points of Rs 10,000 or less. That meant volume growth of 32 per cent. The demand is fuelled by the rapid adoption of e-commerce and the use of associated mobile wallets and apps like fitness-trackers, news and online taxi services. Adding to this demand push is also the consumption of video entertainment and social media. As the recently launched Unified Payment Interface catches on and more government services are offered via app on mobile, demand will surely rise. Faster mobile networks with more affordable data plans could also lead to an acceleration of the already impressive growth. Penetration at around 239 million smartphone users is still low. By 2020, Cisco reckons there will be over 700 million Indian smartphone users.

But India is a value-conscious market. Even the "cut-price" iPhone SE costs more than twice as much as a mid-range Android. Apple CEO Tim Cook reckons India is where China was "seven to 10 years ago" in "terms of market potential". Disposable income would have to rise very fast to match China's growth curve - but at least this explains why Apple is increasing its India focus. Good policy making could provide a fillip to growth in this space - and, in turn, faster networks, cheaper data plans and more smartphone penetration would result in multiple positive external factors. Apart from sorting out legal tangles and disputes, policy makers should look to speed up the processes of spectrum auctions and allocations and also streamline policy on spectrum sharing and mergers.