Daybreak - Close to bringing in $10B in revenue this year, India's becoming the apple of Apple Inc's eye

Episode Date: November 10, 2023

Last Friday Apple reported the sixth straight record quarterly revenue from iPhone sales in India. Its FY2023 revenue from the country now stands at almost $6 billion. In fact, analysts say that by the end of this year, especially with the festive season around, it is very close to hitting $10 billion. Apple’s share in India’s smartphone market is now estimated to have touched 6%. CEO Tim Cook while speaking about Apple's performance called the Indian market extraordinary.But for over a decade since it launched in India, Apple's growth was sluggish to the point of being stagnant.What brought about this turnaround?Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio recording, episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. In the last week or so, two Americans have used the same word to describe the Indian market. Extraordinary, both of them called it. One of them was the famous, or shall I say slightly infamous businesswoman Martha Stewart? And the other.

was Apple's CEO Tim Cook, and he had good reason to celebrate. Last Friday, Apple reported the six straight record quarterly revenue from iPhone sales in India. Its FY 2020 revenue from here now stands at almost $6 billion. And analysts say that by the end of this year, especially with the festive season around the corner, it is expected to hit $10 billion. Even its share in the India's smartphone market is now estimated to have touched 6%. And it makes sense. Last year, around the same time when Apple was already seeing record revenues from India, a mobile retailer had told the kin, and I'm quoting him, if you bury an iPhone in the ground, a customer will dig it out and leave money there. So, one of the reasons for

this is also what Tim Cook mentioned himself recently, that a lot of people are moving into the middle class in India. Listen to what Gene Master of Deepwater Assessment Management had to say about India while speaking to CNBC about Apple's latest earnings. What's on my mind is India. It's come up on a couple of questions. They've definitely highlighted. We're going to hear a lot about India when it comes to Apple.

But all of this is coming for Apple in India after almost more than a decade of being here and dealing with very sluggish growth, almost to the point of being. stagnant. So what changed? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday the 10th of November. Begin with, let us look at what happened after Apple came to India. It was sometime in 2007 and for a while

it was a leader in India's premium smartphone segment. But Chinese and Korean competitors took the Indian market by storm towards the end of that decade. They began matching Apple on specs and design, and most importantly, for a market that is known to be one of the most price sensitive in the world, these competitors started beating Apple on price too. By 2017, Apple was floundering in the world's most attractive. smartphone market. And unlike other big brands, Apple has always been a bit overse to discounting its products. So why would it change that for India? And honestly, India has never really been a big market for high-end premium smartphones anyway. So things got so concerning after a point that even CEO Tim Cook took cognizance of the situation at the time. And he blamed it all on currency weakness.

He said that Apple was under pressure in emerging markets like India, Turkey, Russia, Brazil, because their currencies had weakened over the recent period. And this still holds true. As of last night, one US dollar is worth a little more than 83 Indian rupees. Apart from the competition from China and Korea and the weakening rupee, there is also another important reason why Apple products have been almost unaffordable for most Indians. Apple has to pay a customs duty of 22% and an 18% GSD on its base price in India. An iPhone 15 Pro Max in India currently costs 1,000,000 dollars.

But in the US, the same phone costs a little more than 91,000 rupees. So that explains a lot, doesn't it? Until now, the tables have really turned for Apple in India. Stay tuned. I'm going to throw in a few numbers at you to give you a better sense of the extent of this turning around of Apple's fortunes here. So maybe pay a little extra attention. So Apple India posted a nearly 50% rise in revenue for FY 2020. Its shipments grew by more than a third year on year and crossed 25 lakh in India for the July to September quarter of this year.

This is based on Counterpoint's monthly India smartphone tracker. So what is behind this turnaround? The thing is, Apple knew that its phones were unaffordable for most people in this country. And it also knew that it had to find a way to fix this problem. So it found the answer in easy financing. And here is what Apple figured out. Instead of providing upfront discounts, if it covered the cost of zero interest financing, it could make its products more affordable.

And it could do it without. compromising on its value proposition. So after the pandemic in 2020, Apple made financing tie-ups with banks a mainstay in India. Most major banks now offer EMI options on credit cards for Apple products across online and offline channels. Some, like the leading credit card issue in the country, HGFC Bank, even offers no-cost EMIs for iPhones where buyers actually get back the interest as an upfront discount on the purchase. Former and current banking executives say that brands like Apple often bear the cost of giving up interest on EMI's

since banks are banned from providing zero interest credit. A former HGFC executive had told the Ken last year that banks too were really eager to boost consumer spending as the pandemic slowed down. That is why they came up with offers like no-cost EMIs. Plus, regular Apple customers are rich, so the tie-up with Apple was a win-win for the banks. And there's more to it. Tarun Patuk, a market analyst from Counterpoint India, told the Ken that most iPhone buyers in India are first-time iPhone users.

And 7 out of 10 buyers prefer buying the iPhone through EMI's. And now coming back to its latest financials. Turns out, in China, Apple's performance for the latest quarters, saw or decline because of slower Mac and iPad sales. Which brings us to how Apple is doing the groundwork for India to be bigger than China. Stay tuned to find out more. The ever-increasing tension between China and the US has really changed the order of things for the tech giant. You knew this already.

We've seen how much disruption Apple had to deal with in its China production because of China's extreme lockdown policies during the pandemic. A massive workers' protest broke out at Apple supply of Foxcorns plant in China over COVID restrictions and claims of overdue pay in January this year. So now, naturally, Apple has been gradually looking to diversify its production units outside of China. And one country that it's closely looking at is, of course, India. India is all set to become Apple's next manufacturing hub. The company has been doing it through its contract manufacturers here. In fact, just a few days after Apple's FY 2020-23 results came out last week, Tata confirmed that it had acquired the iPhone manufacturing unit of the Taiwanese firm Wistran Corp.

Tata will now take over Wistran's Karnataka plant where iPhone 14s are assembled. Before this, Tata was also manufacturing the metal body of iPhones in its. Tamil Nadu plant. And by the end of next year, the production of Apple AirPods at Foxcon's Hyderabad facility is also expected to begin. The Hyderabad plant is projected to start large-scale manufacturing of Apple components with a $400 million investment by Foxconn. Foxconn, by the way, is one of Apple's official contract manufacturers. Now, while all of this sounds amazing, there are a few points that I'd like to point out before I wrap up this episode. First, let me play that clip from earlier in the episode again

where Gene Munster of Deepwater Set Management was talking to CNBC about Apple's latest financials. What's on my mind is India. It's come up on a couple of questions. They've definitely highlighted. We're going to hear a lot about India when it comes to Apple. Just get ready for it. They don't break it out, but it's just under three. percent of total revenue.

Mainland China, they don't break that out, but I estimate it's about 12% of revenue. Did you notice what he said towards the end? India, one of the world's largest markets, as good as it may be looking for Apple right now, only contributes less than 3% to Apple's total revenue. China, in comparison, makes up four times that. Though with the way things are going for it right now in India, you could say that it may soon give China some serious competition. But there is also another concern that analysts and researchers pointed out to live Mint recently. They said that Apple's immediate growth potential looks strong,

but there are chances that it can slow down. Nowkandr Singh from IDC India told Mint how at some point in the near future, Apple will hit the ceiling. And this is because the market for premium phones is only about one-fifth of the total market in India. He said, and I'm quoting, Apple can only sell so many $1,000 phones in the long run, and at this point, the room for exponential growth will run out. End quote. Also, with the opening of Apple's own giant stores in Delhi and Mumbai this year, Apple's old-time partners, the smaller offline retailers may suffer. Brick and Motto store owners had told again last year how gross margins offered by iPhones are lesser than what rivals like Samsung give.

And that is that from me today. If you have any thoughts on this episode, please do write to me at Snigda at the ken.com. It's S&I GDHA at the rate the hyphenken.com. I would really like to hear from you. Also a very happy Diwali in advance. Please do not burst firecrackers. the Supreme Court has banned them all over the country. Have a good one.

I will catch you next week. Thank you for listening. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the Ken.com and click on the red subscribe button on the top.

top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.