Apple, in China and India?
What does the steep decline in iPhone sales in China foretell for India? Is it possible that Apple will choose this country to make its next big business bet? How will it go about doing that?
Thursday (Wednesday in the United States) cut its revenue expectations for the first quarter of 2019 (the financial year in the US runs from January through December) to $84 billion from the earlier estimate of between $89 billion and $93 billion. In a letter to investors, Apple Chief Executive Tim Cook blamed, among other factors, the decline in sales in China — “we did not foresee the magnitude of the economic deceleration, particularly in Greater China”, he said. “Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook said.
China: the slowdown
Missing revenue targets is a 16-year first for the world’s most valuable company and brand. The announcement by Cook is hard evidence of the sputtering of China’s economy, which has for long been a turbocharged superachiever by any standard.
“Apple is a bellwether,” a report in The New York Times Thursday quoted Mark Zandi, Chief Economist at Moody’s Analytics, as saying. “The iPhone is something that everyone knows and buys, and if people aren’t buying it, then that’s a pretty good sign they’re having a hard time.”
Apple has been extremely successful in China — the country has more than 40 Apple stores, and is Apple’s third-largest market worldwide. The company’s sales in China touched almost $52 billion in the most recent fiscal year, the bulk of which were iPhones, The NYT report said.However, after the Chinese economy began to slow in the second half of 2018 with, as Cook said, “government-reported GDP growth during the September quarter [being] the second lowest in the last 25 years”, the “climate of mounting uncertainty” sharply impacted consumer traffic to Apple’s retail stores and channel partners in China.
India: the opportunity
With Cook blaming weak China demand as the primary reason for the fall in growth, followed by supply constraints of new products and slowing iPhone demand in many markets, some analysts believe Apple could possibly begin to put more emphasis on India for its future growth.
“With its challenges in China and other markets, India becomes more important for Apple,” said Navkendar Singh, associate research director, devices and ecosystem: India & South Asia, at the IT and telecom market intelligence and advisory services company IDC. “But to find success in India would call for a recipe that is different from other markets due to this market’s immense value-conscious nature and huge diversity.”
Apple has been trying to bring down the affordability barrier for its devices in India by offering finance solutions for most of its products. Still, Singh said, Apple’s market share in India’s smartphone market was only 1.2% between January and September, 2018, and even this was driven by the popularity of older models like the iPhone SE, which can be bought for Rs 16,999. By contrast, the iPhone XR, the cheapest of the new iPhones, costs Rs 76,900.
Singh guesses if Apple does indeed get more aggressive in India, it may not necessarily opt to push volumes or discounts; it may rather choose the value game — with structured distribution and price discipline. “They are not looking at volumes, but they are definitely bullish on the value that this market can deliver in the long term of five to 10 years,” he said.
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