Bangalore: Apple Inc. may fall tantalizingly short of its target of $1billion (around Rs.6,400 crore) in annual revenue from India this year because of the rupee’s depreciation against the dollar and delayed shipments of some products to the world’s second largest phone market, where its iPhone is battling competition from cheaper smart phones.
Top executives at Apple’s Indian unit had been preparing to celebrate the $1 billion milestone before the rupee’s continued weakness dimmed its prospects of achieving the target.
Apple may take a little longer—until January—to reach the target, which it had expected to cross in the current calendar year, said three people directly familiar with Apple’s India business. They requested anonymity because Apple can fire staff for sharing private financial information.
Apple’s India business is expected to end 2013 just around $20-30 million short of the $1 billion mark, said one of the three people.
As of press time Thursday, an Apple spokesperson had not responded to an email query sent on Wednesday.
Since January, the rupee has weakened 13.81% against the dollar and has lost the most among Asian currencies in the year to date. The rupee’s decline gained speed after the US Federal Reserve indicated in May that it may start to wind up its economic stimulus programme, which has pumped liquidity into emerging markets.
To be sure, Apple’s growth in India has been impressive, especially since the launch of the iPhone 4S in November 2011. From less than $200 million in sales in 2009, the company’s India business is set to become one of several markets where it earns $1 billion a year, said the person cited above.
The iPhone and the iPad tablet are pacing its growth in India, where it also sells the iPod music player, the iMac desktop computer and the MacBook Pro laptop.
The growth has come under Manish Dhir, a former head of international outsourcing operations at AOL who joined Apple in 2010 as India country manager.
“In many ways India has been a unique market in terms of pushing for different sales and distribution models, offering trade-offs and discounts among other strategies. But all of that seems to be paying off,” this person added.
Customers such as Saket Nath, a student in Patna, Bihar, said availability of Apple products in non-metro towns and awareness about its features spread by the Internet, are among the reasons why many in his town who can afford it want to buy an iPhone.
“Two years ago, one of my cousins travelled to Kanpur in UP for buying an iPhone, I just bought it in January this year from a dealer on Boring Road in Patna,” said Nath, who bought an iPhone 4.
Despite higher prices for its phones compared to what’s available from phone makers including Samsung and Nokia in India, a change in strategy over past one year has made a difference. The tactics included distributing iPhones through more retailers beyond just its Apple Premium Resellers stores. Apple now has 65 of the Premium Resellers stores, said a second person, involved in formulating some of the company’s sales strategies. “Some 400 large format retail stores and 2500 multi brand outlets are selling iPhones across the country today,” he added.
Global experts tracking Apple’s progress in markets such as India said the company has given more autonomy to its Indian executives in defining its sales approaches, which has helped.
“A more interesting scheme is the equated monthly instalment (EMI) payment scheme for its devices. There is clearly financial risk in this approach, but Apple has given its Indian operation more room to make such judgement calls. If successful this is a model that Apple could roll out in other heavily prepaid markets such as Indonesia,” said Daniel Gleeson, an analyst with London-based research firm IHS Electronics & Media.
Apple’s India business is dwarfed by the firm’s growth in China, a market that contributed nearly $5 billion during the April-to-June quarter alone.
According to research firm Gartner Inc., India is the second largest market in the world after China by unit sales of mobile phones, but is further behind in smart phone sales.
Smart phones contributed only 7.4% (16.5 million) of overall sales in 2012, compared to 43.6% (177.8 million) in China. The wide price gap between smart phones and feature phones leads to low adoption of smart phones across emerging markets.
“In India, the price gap was even greater, due to a large installed base of ultra-low cost feature phones. The average selling price of mobile phone here was $50 to $56, compared to $87 to $110 in China,” Gartner analyst Anshul Gupta said in a June research note.
Some of the changes in strategy have paid off.
“Few growth opportunities in mature markets for devices of more than $450 have pushed Apple to reassess its strategies for emerging markets like India,” Gupta said in his note. According to Gartner, Apple has revamped its device distribution model in India since moving on from selling only exclusive communications service providers’ locked iPhones to unlocked iPhones through open channels. Apple appointed Redington and Ingram Micro as its distributors for selling unlocked devices directly through an open channel.
Apple launched its iTunes store in 2012 for customers to buy songs and videos in local currency. The company also partnered with different Indian banks to offer iPhones on 6 and 12 EMIs at zero interest and further sweetened the deal by offering discounts on iPhone 4 and 4S.
But all this will not be enough to achieve a double-digit market share in the Indian phone market.
“Without a major change in its pricing strategy, the very best Apple could hope for would be a 2% share of the India handset market. This would be between 4 to 5 million iPhone sales per year. It is some way off this position still at the moment and its Android challengers grow stronger every year,” said Gleeson of IHS.
According to IHS, Apple will hit 3 million annual iPhone sales in India in 2015. This would be just over 1.5% of Apple’s forecasted worldwide iPhone volume.
Not all customers are happy with Apple’s new “cheap” phones (iPhone 5C), which would effectively end up being priced at around Rs.40,000.
“When I read about Apple launching those colourful, cheap phones, the estimate I had in mind was around Rs.20-25,000. But as we now understand, it will surely be above Rs.30,000, and that’s not cheap by any measure in India,” said Priyadarshini Sharma, a commerce student in Mumbai.
The pricing of iPhones will hold back customers, especially the first time smart phone buyers, experts said.
“Apple in India struggles to reach the variety of customers that Samsung, its primary competitor, does. Samsung boasts a huge range of devices across a number of different price points. Apple has also struggled with distribution which also severely limited the availability of its smartphones outside of big cities,” said Gleeson. And the third-generation (3G) mobile phone spectrum is still not helping.
“Furthermore, 3G coverage in India is very patchy outside cities. The iPhone is much more of a content consumption device than a telephone and high speed data connections are needed to fully benefit from it. Without good 3G coverage, the iPhone is less useful,” Gleeson added.