Unease over iPhone 15 pricing

The iPhone 15, unveiled on Tuesday, is the first product from Apple’s lineup to join the initial production run, starting in August, well ahead of its launch.
The iPhone 15, unveiled on Tuesday, is the first product from Apple’s lineup to join the initial production run, starting in August, well ahead of its launch.

Summary

India production part of move to diversify supply chains; manufacturing cost in China seen as lower than in India

Apple’s decision to manufacture iPhone 15 locally in India isn’t solely about pricing, instead it represents a significant strategic move to diversify its supply chains globally, industry experts said.

One should not perceive it just as a cheaper manufacturing decision, but goes beyond mere cost-cutting considerations, they said in response to the massive outrage over a price disparity of new iPhones in India, compared to, say, the US or the UAE.

The iPhone 15, unveiled on Tuesday, is the first product from Apple’s lineup to join the initial production run, starting in August, well ahead of its launch.

iPhone 15 starts at 79,900, maintaining the same price point as the iPhone 12, launched in October 2020. However, this year, the iPhone 15 Pro models are dearer by 5,000, while iPhone 15 Pro Max prices have surged by 10,000 across all storage variants.

Following the launch, Indian handles on social media platform X highlighted the price disparity of the new iPhone models versus global markets, despite the Made-in-India tag.

Navkendar Singh, associate vice-president of International Data Corp. (IDC) India, said there was no impetus for Apple to revise pricing. “Apple has kept the price of its base iPhone variant constant over the past three years, since it is the primary revenue driver for the brand in India. ‘Pro’ iPhone models account for less than a fifth of all iPhone sales here. At this end of the market, buyers don’t have an alternative offering everything that an iPhone 15 Pro does similar to the niche Samsung’s ‘Fold’ range enjoys at over 1.5 lakh. Such buyers do not put off their purchases due to minor price differences."

Experts, including Singh, said the cost of assembling a smartphone in India is almost on par with China. which remains Apple’s biggest manufacturing hub.

“China, due to economies of scale in its overall supply chain, presents a manufacturing cost that’s lower than India by nearly 5%. However, this difference is diminishing in India’s favour, and will continue to change further, as China’s cost of labour is increasing, while India is affordable for contract manufacturers like Foxconn," said a senior industry consultant working with Apple, as well as multiple other brands, seeking anonymity.

Taiwan-headquartered Foxconn, (Hon Hai Precision Engineering Co. Ltd), is Apple’s largest manufacturing vendor, followed by Taiwanese manufacturers Wistron Corp and Pegatron. All three now have manufacturing facilities in India.

Tarun Pathak, director at market research firm Counterpoint India, said despite multiple assembly partners, Apple does not have the supply chain bandwidth in India to meet its local demand. Around 80% of sales in India come from the assembly lines here, and the rest is still imported, he added.

Singh agreed: “Apple’s supply chain falls short of its initial demand—the iPhone 15 is a sizeable upgrade for those who are using the phones for three or more years. With the launch coming in the festive season, Apple’s India assembly capacity will fall short at least till February next year."

Therefore, the present situation will have no impact on how Apple prices its products for India. Instead, it is looking at its India facilities as part of its bid to diversify its supply chain.

“Last year, Apple’s iPhone 14 supplies were affected due to outbreak of covid-19 in China. This, coupled with geopolitical tensions, raised the need for the company to diversify its overall supply chain away from China, and India is a promising destination to achieve that," said Pathak.

However, industry experts remain divided on price disparity of Apple’s iPhones in India over other markets. “The iPhone 15 Pro has a price difference of nearly $500 in India and the US and the UAE. With India becoming an increasingly important market for Apple, this disparity is hard to explain. It may help the brand maintain its halo among customers to a certain extent, but beyond a certain point, Apple will need to look at pricing strategy if it aims to break into the top-five brands of the smartphone market here and hit 20 million device shipments a year," Singh said.

Apple is expected to cross 9 million device shipments per year in 2023, up nearly 40% from last year. With an average price of 85,000, against the industry average of sub- 25,000. It is also set to overtake Samsung in terms of revenue-based market share.

 Experts said that the pricing strategy Apple has used here is to offer its older iPhones at steadily increasing discounts, which is helping it capture more of the market. IDC pegged the iPhone 13 and 14 to jointly account for 70% of the iPhones to be sold in India this year. Prabhu Ram, head of industry intelligence at Cybermedia Research, said that a similar trend was seen over the past one year too—despite the launch of iPhone 14, older generation phones accounted for over 54% of all iPhones sold.

“The upcoming festive season will see the iPhone 13 and 14 receiving large discounts, which will move first-time and upgrading users of the iPhone," Singh added.

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