“We’re looking forward to opening retail stores in India down the road, and we see huge potential for that vibrant country," said Cook on Wednesday. He had visited India in May.
The increasingly saturated Chinese smartphone market has shifted the Cupertino, California-based Apple’s focus to India as its next source of growth.
India iPhone sales jumped 51% in the first nine months of Apple’s current business year.
Cook visited India in May to seek the government’s approval to open local retail stores, and also launched a 4,000-employee office in Hyderabad to develop mapping products.
Apple’s sales in India crossed the $1 billion mark for the first time last year although it has a minuscule market share less than 2% of the country’s smartphone market.
But, in the case of Apple, India has refused to waive a condition that requires single-brand retailers to source 30% of the content locally. It has also been cold to Apple’s plans to sell refurbished, used iPhones in the country.
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In June, commerce minister Nirmala Sitharaman said Apple will have to reapply under new rules if it wants a waiver from the stipulation.
Under the norms changed in the same month, entities claiming to bring state-of-the-art and cutting-edge technology to single-brand retailing will get a waiver for three years with an option for a five-year extension. Hitherto, there had been no time limit for exemption from local- sourcing norms for the entities.
The 51% increase in iPhones sales in India is significant given that globally, sales of the smartphone have fallen for the last two quarters.
Apple reported a 15% drop in iPhone sales in the June quarter —from 47.5 million units in the corresponding quarter last year to 40.4 million units now.
The iPhone is so critical to Apple’s balance sheet that the sharp drop in its sales saw profit slumping 27% from the year-ago period to $7.8 billion, while revenue fell 14.6% to $42.4 billion.
According to market research firm Gartner, global smartphone sales will, for the first time, post single-digit growth in 2016. “The double-digit growth era for the global smartphone market has come to an end," said Ranjit Atwal, research director at Gartner. “Historically, worsening economic conditions had negligible impact on smartphone sales and spend, but this is no longer the case. China and North America smartphone sales are on pace to be flat in 2016, exhibiting a 0.7% and 0.4% growth, respectively."
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For a company that depends on iPhones for 60% of its revenue, the news is not good for Apple even as it prepares to release a new model in September. However, Gartner also predicts that countries such as India will help generate new mobile phone user growth and sales of smartphones in India will continue to grow at double-digit pace in the next two years. No wonder then that Cook and team are keen on tapping the world’s fastest-growing smartphone market to counter slowing sales growth in other markets.
During an earnings call, Cook also recounted his visit to India in May: “On a personal note, during the past quarter, I visited China and India, and I am very encouraged about our growth prospects in those countries."
According to Sanchit Vir Gogia, chief analyst and chief executive officer of Greyhound Research, India is the world’s third biggest consumer market after the US and China.
“Apple is eyeing India as the US has become saturated in terms of installed base and China’s economy is slowing down, coupled with the fact that local players like Xiaomi offer discounts and are tying up with local telcos. India, then, becomes a critical market for Apple to set up retail stores where they can increase their installed base by selling more devices and offering services and apps."
The long-term opportunities in India include Apple’s plans to establish a first-of-its-kind design and development accelerator to support Indian developers creating innovative applications for iOS in Bengaluru, besides the new office in Hyderabad to accelerate Maps. Setting up a development accelerator is also a vote of confidence by Cook in the Indian developer community, while for the local developers, it offers an opportunity to gain world-class design and development expertise.
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Gogia puts Apple’s strategy in perspective: “Apple in India has a three-pronged strategy: first, increase brand recall and enhance customer experience by opening Apple retail stores that offer the same look-and-feel of global stores; two, increase the installed base of their devices by offering special pricing and discounts in India; and finally, increase online services (content and apps) that they offer."
Bloomberg contributed to this story.