Ripe for picking: Apple's India iPhone assembly decision bears fruit

The decision to assemble in India paid off even though it was focused on exports in the beginning. In FY19, only 10% of Apple's phones sold in India were assembled in India, a figure that has now grow

There are seven mentions of Apple or apples in the Economic Survey presented in Parliament on Monday. Only two of those refer to the fruit. The other five are about the Cupertino, California-based technology giant, Apple Inc.

Indeed, there is a buzz around Apple Inc in India that goes beyond the gushing of its fan base over a newly released gadget or the opening of Apple’s stores in India, though these are important, too. And there are numbers underlying the buzz.

In 2023, Apple Inc quietly rose to the top spot in revenue market share in India’s smartphone segment with a 23 per cent share, according to Counterpoint Research. It pushed Samsung into the second spot, albeit by just one percentage point.

This is a dramatic change from 2019, when Apple’s revenue market share of smartphones was 5 per cent and Samsung had 25 per cent. A Samsung spokesperson did not respond to queries.

In the quarter ending March this year, Apple achieved record revenue in India, enthusing CEO Tim Cook to say the company was “very, very pleased”. In a call with analysts in early May, he said: “As you know, as I’ve said before, I see it (India) as an incredibly exciting market and it is a major focus for us.”

There is more excitement in the offing.

According to people in the know, Apple Inc is poised to report a 35 per cent surge in its India revenue during 2023-24 (FY24) compared to the previous year. The company’s official financial filing is anticipated to be submitted by September-October to the Registrar of Companies. Apple declined to comment.

Despite the robust growth, Apple’s India share in its overall global sales remains modest — 1.5 per cent of overall turnover in FY23, which is projected to have risen slightly to cross 2 per cent in FY24.

Nevertheless, India has emerged as a pivotal hub as Apple shifts more of its iPhone production out of China. As the Economic Survey noted: “Over the last five years, a seismic change has occurred in the global manufacturing realm, with major multinational companies, including Apple and others, looking to ‘de-risk’ themselves from China, which was traditionally known as the 'world's factory'.”

That five-year period is significant.

Assembling success

Five years ago, Apple came to India to assemble iPhones to reduce its dependence on China and concentrate on exports. And thus began the dramatic change in its India fortunes, especially when it decided to assemble iPhones in India in large volumes and including the latest models.

In these five years, its India revenues have risen seven fold. The cornerstone of this success has been the growing popularity of the iPhone, which accounts for 60 per cent of Apple’s India revenues compared to the global average of 52-53 per cent. Curiously, its volume share is only 6 per cent, but it gets much higher revenue share from its presence in the highest price brackets, because of which its average sale price is higher than that of its competitors.

“Apple’s market share has grown especially after it started assembling phones in India… When smartphone users who have already changed two or three phones were looking at another upgrade, the iPhone was a clear choice,” says Neil Shah, Founder of Counterpoint Research in India.

The decision to assemble in India paid off even though it was focused on exports in the beginning. In FY19, only 10 per cent of Apple’s phones sold in India were assembled in India, a figure that has now grown to 85 per cent.

The decision helped the company save 17 to 18 per cent of costs by assembling in India compared to importing the phones with a basic customs duty of 22 per cent and then paying goods and services tax of 18 per cent. It still pays duties on the many imported components, as a result of which the entire 10 per cent disadvantage of assembling in India compared to China has not been fully neutralised by the government’s production-linked incentive scheme. But it has helped close the price gap between India and other countries and given Apple the flexibility to absorb some of the costs to develop the domestic market.

Apple’s move to make phones in India coincided with a fundamental change in the smartphone market. Though the number of phones sold annually has been stagnant at around 150 million, the proportion of premium phones has been growing as more and more customers upgrade.

Shifting market

In 2018, according to Counterpoint, phones priced above Rs 30,000 constituted only 6 per cent of the market; half of the market was with phones priced below Rs 10,000. That has changed dramatically. In FY24, the segment above Rs 30,000 was 21 per cent of the market and the share of sub-Rs 10,000 phones fell to 21 per cent.

Sensing its opportunity, Apple floated attractive EMI schemes (24-month, interest-free, and so forth) with exchange offers on old iPhones. This brought down the cost of acquisition substantially. Aggressive online sales through its own web store and ecommerce sites helped — analysts say online sales would be more than 40 per cent of iPhone sales.    

Acquiring an iPhone for the first time has become easier, too. Older generation phones supported by continuous software upgrades and discounted prices have attracted a new category of consumers. Experts say the ratio of older models to the latest model in overall sales is 60:40, but it would flip in the fourth quarter each year when a new upgraded phone is launched.

All this is backed by 3,000 retailers across the country and sitting atop them are the two mega company-owned stores, one in Mumbai and the other in Delhi, which opened last year amid much fanfare. The advantage Apple has is that an iPhone buyer is a sticky customer who rarely switches to Android. But Android users shift merrily between brands, of which there are many.

Apple’s domination in the ultra premium smartphone market is unrivalled. It has 62 per cent share of this market in volume and 63 per cent in value. Its closest competitor, Samsung, has a 27 per cent market share in volume and 26 per cent in value.      

But Samsung is now flexing its muscles in the ultra premium segment and so is Google, with the Pixel, which will soon be assembled in India, instead of getting imported, is mounting its own challenge.

A week ago, Samsung launched the Galaxy Z Fold 6 as well as Galaxy Z Flip 6, which, it hopes, will expand its sales in the ultra premium segment. It is an area where Apple Inc has no product to match. Also, Samsung has been ahead in launching artificial intelligence-enabled phones with the Ultra 24. Apple only recently tied up with Microsoft to bring AI to iPhones.

The new aggression has helped Samsung increase its market share in the ultra premium segment in value terms from 25 per cent in FY23 to 28 per cent in FY24. In this period, iPhone’s share has fallen by two percentage points.