Apple Commits to Invest More in India as It Diversifies Supply Chain
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Apple (NYSE: AAPL) CEO Tim Cook has inaugurated two stores in India this week and has committed to invest more in the country as it continues to diversify its supply chain from China.
China still accounts for the bulk of Apple’s production but gradually it has reduced its reliance. For instance, around 5-7% of iPhones are currently assembled in India, and in India’s most recent fiscal year which ended in March, it exported around $7 billion worth of iPhones from the country.
India’s iPhone production has scaled up massively over the last few years as in 2021 it accounted for only about 1% of the total iPhone shipments.
Apple is bullish on its prospects in India
Another aspect worth considering is that Apple’s sales in India have also soared and it now has a 5% market share in the country. While the overall market share would seem low that’s because most of the smartphones sold in the country are in the budget range. But when it comes to premium smartphones, Apple is the market leader in India.
During Apple’s earnings call for the December quarter, Cook was upbeat on the company’s prospects in India and said it posted record revenues in the country in the quarter even as its overall revenues fell 5%.
During the earnings call, Cook said, “India is a hugely exciting market for us and is a major focus.”
He added, “We actually did fairly well through COVID in India, and I’m even more bullish now on the other side of it or, hopefully, the other side of it and that’s the reason why we’re investing there.”
Apple to invest more in India
After meeting Indian Prime Minister Narendra Modi, Cook tweeted, that Apple is “committed to growing and investing across the country.” The Indian government said earlier this year that Apple would produce a quarter of iPhones in the country.
Apple hasn’t provided any official comments on how many iPhones it intends to make in the country over the long term, but analysts believe that 25% looks too farfetched.
Dan Ives of Wedbush told CNBC that the goal looks “lofty” and 10-15% looks a more realistic target.
China has unique manufacturing advantages
Nitin Soni, senior director at Fitch Ratings also echoed similar views and said “It will take Apple years to diversify away from China.” Soni added, “The country is still a very large pocket for Apple — not just in the assembly line, but the semiconductor ecosystem and testing as well.”
Notably, while India’s iPhone production has scaled up rapidly, the country still imports many of the components including chips. While Foxconn and Vedanta have announced plans to set up India’s first chip plant, it is yet to take off.
China has built an enviable manufacturing ecosystem that is tough to emulate. That said, given the growing US-China tensions many companies are diversifying their supply chain from China.
Why does Apple want to diversify from China?
For years, Apple defended its sourcing from China. However, things have changed over the last couple of years and Harvard Business School Professor Willy Shih listed China’s zero-COVID policy and last year’s protests at Foxconn’s factory in China’s Zhengzhou as the key triggers behind Apple looking to diversify its supply chain.
Shin said. “To me, Apple was the [ultimate] champion of the Chinese manufacturing model. Through the Trump trade war, Apple seemed to lose faith in China, but what you saw in the COVID lockdowns has caused this shift.”
Speaking with Yahoo Finance, Shih added, “Western companies looked at that and said, ‘We don’t know what to expect now’ and that’s what’s causing this tone shift. This highlights that India is on the rise if it can get its act together.”
Indian population to surpass China
India’s population is set to surpass China which would make it the world’s most populous country – with a growing and aspirational middle class.
As Ives put it “The population growth and pure opportunity around India is the golden goose for Apple. It’s been a difficult market to ramp for Apple on the iPhone front over the years but now is clearly starting to find its stride.”
Apple opening retail stores in the country signifies India’s growing importance for the iPhone maker.
US-China tech war
Also, with little chance of reconciliation between the US and China and the tech war between the world’s two biggest economies only expected to escalate, India looks in a sweet spot given that it’s a key US strategic ally.
India accounts for under 2% of Apple’s total revenues currently. However, it is growing fast and during the December quarter, the iPhone makers’ sales in the country rose by double digits.
During the company’s most recent earnings call, Cook said that the company would use the learnings from China to grow its business in India.
The country could help Apple beat the slowdown blues in other major markets like the US and Europe.
According to Ives, “China and the US along with Europe remain the hearts and lungs of the Apple story with India set to become a top 5 market focus for Apple. High hopes India can be a major incremental growth driver for Cupertino in the years ahead.”
