After years of languishing on the fringes, Apple has finally made its presence felt in India with record sales and market share over the past two years. But has its winning strategy to effect the turnaround set it up well to mint further gains?
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Since Sumit Vij laid his hands on a MacBook Air for the first time in 2009, his business has grown manifold and the Delhi-based entrepreneur has bought almost the entire Apple products line-up. But when Apple introduced its new Mac portfolio built on the in-house M1 chipset last year, he had to get it. After using several Apple products, across generations, Vij was already a satisfied Apple loyalist. Yet, the new Mac's "unprecedented" performance surprised him.
"After getting positive reviews from my friends, I purchased the base model MacBook Air from the new Apple India online store. Not only was the buying experience seamless, but the performance of this new Mac is way above anything I have experienced before. This offers more value for money than any other computer I have purchased in the past 10 years," he says. Now Vij can edit ultra-HD videos on the base model Mac, for which he earlier needed Pro models that cost double the amount. For him, this innovation is another reason to stick to the brand.
Vij is not alone. If the numbers are anything to go by, there are thousands of Indians whom Apple has managed to attract and bring under its fold in the past two years.
Bolstered by a spurt in demand for its iPhones, MacBooks and iPads as the Covid-19 pandemic forced people to work and study remotely, Apple India has delivered record-breaking numbers. Its operating revenue in India surged 68 per cent to a record Rs22,845 crore in FY21, while net profit rose 32 per cent to Rs 1,226 crore. The revenue growth rate was not only a nine-year-high but came as other consumer electronics firms just about managed to hold fort. For example, its arch-rival Samsung India's operating revenue remained flat at Rs 75,886 crore in FY21.
Apple's stellar performance of late is best reflected in how the iPhone has ground out a bigger share of India's highly competitive and price-sensitive smartphone market. Apple sold 3.2 million iPhones in 2020, equalling its 2017 record and giving it a 2.13 per cent market share, according to CyberMedia Research (CMR). The research agency estimates Apple will sell over 5 million iPhones in 2021, notching a record-high 3.5 per cent market share.
Apple's fortunes in the personal computer (PC) and tablet market also turned last year. Robust demand for its Mac portfolio helped it break into the top five for the first time ever, with its market share exceeding 2 per cent in 2020 and crossing 5 per cent in January-September 2021. Apple made a sizeable dent in the tablet market, which is predominantly the playground of low-priced products, only in late-2020, CMR data shows. It surprised many by capturing a 29 per cent market share in the first three months of 2021, dislodging Samsung and trailing only Lenovo. It has since slipped to the No. 3 spot, but CMR estimates Apple will end 2021 with a 22 per cent market share, eclipsing its previous best of 17 per cent in 2020.
"Driven by unprecedented consumer demand arising from work-from-home, learn-from-home and unwind-at-home requirements, Apple has seen a strong uptick for its devices," says Prabhu Ram, Head, Industry Intelligence Group, CMR.
Prabhu Ram
Head, Industry Intelligence Group
CyberMedia Research
However, this was not always the case.
Apple's India story is over two decades old. But its portfolio of premium products, adorned with the famous bitten-apple logo, kept it on the fringes of the consumer electronics market, while the likes of Xiaomi, Samsung, vivo and Oppo dominated the smartphone market, and HP Inc., Dell, Lenovo, Acer and Asus lorded over the PC market. India was a market that Apple could not ignore. But there was little it could, or did, do. Until 2016.
Around that time, India had become the second-largest smartphone market, displacing the US and trailing China. And its double-digit volume growth was unmatched by any other large market. But Apple's local business was plateauing, its revenue growth stagnating. On the other hand, Xiaomi went from strength to strength despite entering India only two years prior. The other Chinese brands and Samsung were also making hay in a booming smartphone market. This worried Apple's CEO Tim Cook enough to make his maiden visit to the country in May 2016. He held a series of meetings with the who's who of the industry and the administration to set Apple's ship back on course.
Apple's new navigation strategy included three broad domestic ports of call. The first was to start assembling and manufacturing iPhones locally, dovetailing with the 'Make in India' programme the government was promoting heavily. The second was to start expanding its retail presence—partly in response to other smartphone makers carpet-bombing the nation with physical stores—and open its flagship Apple-branded online and offline stores down the line. The last was to gain market share by lowering prices, either through domestic manufacturing or by sacrificing margins.
"India has been a growth market for nearly a decade now, but the approach towards India has changed in the past few years. In recent times, it has become one of the key strategic markets for Apple. It was also the period when a growing number of Indian consumers were getting accustomed to premium products," a company official says on condition of anonymity as the person is not authorised to speak to the media. "Streamlining" prices and improving product availability outside of metropolises were important aspects of Apple's India strategy, the official adds.
Slowly but surely Apple executed its plans and, as is evident, they have borne fruit in the past couple of years. In fact, Apple's record-setting FY21 is only the start. The stage, say industry experts, is set for Apple's revenue to jump at least 50 per cent in FY22.
Indeed, Cook's recent comments indicate Apple has only gained momentum in this fiscal. "During fiscal 2021, we earned nearly one-third of our revenue from emerging markets and doubled our business in India," he said during an earnings call in October. The Cupertino, California-based company follows an October-September fiscal year, meaning the second half of its FY21 corresponds with the first six months of Apple India's FY22.
What's more astonishing is that Apple's growth, albeit off a lower base, is contrary to market trends. For example, Apple notched a 68 per cent jump in iPhone sales in 2020, benefitting from the rebound in demand during the second half of the year. But market leaders Xiaomi and Samsung sold fewer phones last year, leading to a 2 per cent slide in market-wide sales, according to research firm IDC. Apple's gains continued in the first three months of 2021, when the iPhone 11 and the then newly launched iPhone 12 were the top-selling premium handsets, helping the company capture nearly a third of the premium market (above the Rs 37,000 price band), per IDC.
The strong iPhone sales in that quarter were because while the iPhone 12 was imported at the time, the lion's share of the iPhone 11 and other models sold then was assembled in India. And that, in turn, was the result of meticulous planning and execution over the past few years. And Cook's visit.
Within a year of Cook's departure from Delhi in 2016, Apple began rolling out the first batch of Made-in-India iPhones. The attractively priced iPhone SE (1st generation) models were not only Apple's first locally made phones but also got India into an exclusive club of three, including China and Brazil, that made Apple handsets. Apple sold 3.2 million phones in India in 2017, of which about 5 per cent were sourced locally, according to industry estimates.
Since then, Apple has steadily grown its domestic portfolio to include newer models, including the iPhone 6S (in 2018), 7 and XR (in 2019), 11 and SE 2nd generation (in 2020) and 12 (in 2021). And while its overall handset sales were patchy until the past two years, an increasing percentage of the phones it sold were sourced locally. Nearly 80 per cent of the estimated 5 million-plus iPhones Apple sold in 2021 were assembled in India—in line with its domestic rivals, who procure more than 75 per cent of their smartphones locally, per industry estimates.
The most crucial benefit of local manufacturing is that the phones are much cheaper than imported ones. Take the iPhone 12, for instance, which Apple recently added to its Made in India portfolio. Industry estimates show Apple cut the landing cost by about 22 per cent by assembling the phone locally. As a result, Apple slashed prices on the base model by Rs 14,000, or 17.5 per cent, to Rs 65,900 in September, about two to three months after the locally made phone hit the market.
This was down to the efforts of Cook's India visit, which was a major turning point in Apple India's journey. People aware of the discussions between Apple's team, led by Cook, and the Union government, presided over by Prime Minister Narendra Modi himself, say that one of the key takeaways was addressing India's requirement of 30 per cent local sourcing. That settled, Wistron built the first Apple plant in Karnataka, which started off making the iPhone SE in 2017.
Soon, other contract manufacturers came on board and, like others globally, opened plants exclusively for Apple products. Foxconn has one plant near Chennai making iPhones, while Pegatron is scheduled to also open a plant soon. Foxconn has already started trial production of the iPhone 13, launched globally this September, and is expected to roll out the phones by March 2022.
While domestic production is key to lowering costs and prices, starting this as fast as possible after the global launch of a model is key to tapping into the nascent demand. Apple has been steadily closing this launch-to-production gap in India. When it started domestic manufacturing, the gap was one year. That narrowed to eight months for the iPhone 11 and 12. With iPhone 13, Apple plans to further close the gap to five-to-six months.
Unlike a few years ago, India is now a priority market for Apple. Not only are all its products and consumer services available here, all new products are also launched simultaneously in India and two dozen other key markets. Even four years ago, a product used to make its way to India months after its launch, after traversing about 25-30 other priority markets.
"India is only the third country in the world where iPhones are made. This is a testimony to how important this market is now. In the past five years, operations have been expanded into multiple directions like growing local sourcing, retail reach and the Apple online store," says another Apple official, who also requested anonymity as the person is not authorised to speak to the media.
Given Apple's laser-sharp focus on India in the past few years, three of its global contract manufacturers—Foxconn, Wistron and Pegatron—have also invested heavily in building their manufacturing heft. In October 2020, the trio was selected to participate in the Indian government's newly launched production-linked incentive (PLI) scheme to boost the local manufacturing and export of smartphones.
Despite its record performance, experts say the iPhone's heydays are yet to come. Apple has about 50 million users in a country that houses some 500 million Android users, per market research firm Counterpoint's estimates. "This is a very big opportunity for Apple now to draw those Android users into the iOS universe," says Tarun Pathak, Research Director at Counterpoint Research.
Tarun Pathak
Research Director, Counterpoint Research
Further, with the average selling price of a smartphone surging to an all-time high of nearly Rs 20,000, a large section of Android users are closer to the lowest-priced iPhone that usually costs about Rs 30,000-35,000. Currently, smartphones costing Rs 20,000-30,000 account for roughly 13 per cent of total sales, while phones above Rs 30,000 account for about 10 per cent. In a market where more than 160 million smartphones are sold each year, Apple now has an unprecedented opportunity to make the dent it always aspired to. All thanks to local manufacturing.
Cook's recipe for a larger India foray, though, was not limited to the iPhone.
While apple doesn't yet manufacture MacBooks in India, it wasn't content with being a fringe player in this segment. However, it couldn't lower its landed cost for the imported laptops, so it decided to drop prices instead to boost its market share. The company started cutting prices of Macs around 2017-18. Bringing down the price of its entry-level notebook to a small premium over the competition worked wonders, as it did for the iPhones.
Ambi Parameswaran
Founder, Brand-Building.com
"A vast majority of college-goers, who will soon become active buyers, aspire to own Apple devices. Thus, keeping the fruit just at the edge of their reach has helped Apple recently," says Ambi Parameswaran, veteran brand strategist and Founder of advisory firm Brand-Building.com. "This is a welcome change from its previous stance when buying an Apple product in India was not only exorbitantly costly but its availability was a major issue as well."
Although Apple's recent performance in the PC market was driven by its consumer products, it is now steadily gaining steam in the enterprise segment as well, says Navkendar Singh, Research Director at IDC India. This is crucial as apart from bulk sales, enterprises also ensure a steady flow of service revenue. "Once you can convince the enterprises that your software and hardware can work seamlessly, it is a great business opportunity for Apple that remains to be exploited in India," says Singh. In fact, Apple has already established a dedicated team to crack the enterprise PC market. And if demand continues northward, it may even consider assembling Macs in India, say sources familiar with Apple's plans.
Navkendar Singh
Research Director, IDC India
Besides manufacturing and pricing, the third arrow in Apple's quiver to change its fortunes in India was controlling its distribution. From a few hundred stores about seven years ago, Apple products are now available in well over 10,000 outlets run by premium sellers or dealer-cum-distributors such as Unicorn, Redington and Ingram Micro. It also has a tie-up with Reliance, which operates the largest number of branded retail outlets in the country. That partnership had its genesis in 2016 when Cook met Anant Ambani, the son of Reliance Industries Chairman Mukesh Ambani, and others.
This retail footprint was necessary since its rivals were also expanding their physical presence, largely aping the strategy of the Chinese incumbents like vivo, Oppo and Lenovo. Xiaomi, for example, entered India in mid-2014 with an online-only strategy but had 15,000 owned and partner stores by mid-2021. Samsung, the No. 2 in India and Apple's only real competitor, has over 100,000 stores that also sell its consumer durables products.
Apple's stellar performance in recent quarters has also reflected well on its retail partners. Take Baljinder Paul Singh, for instance. His association with Apple harks back to 1996 when Apple was selling computers to a handful of enterprise-level clients. Singh gave up playing professional table tennis at that time to distribute Apple products. Now, his venture, Unicorn, is a Rs 1,000-crore business that, he claims, is India's largest premium reseller of Apple products.
Both the pace of expansion and sales growth have accelerated in the past two years and, despite the pandemic, demand for Apple products has jumped by nearly 50 per cent in FY21, Singh said in an earlier interview to this correspondent. He declined to share specifics due to Apple's strict policy on media interactions for its employees and partners.
Apple's stellar performance convinced Singh that it was the right time to place his bet. Unicorn has both opened stores in small towns like Palghar (Maharashtra) and grown its presence in bigger cities like Lucknow (Uttar Pradesh). In line with the traditional Apple Store, Unicorn unveiled 3,000 sq.-ft showrooms in Delhi that cost 150 per cent more than a standard 800-1,000 sq.- ft store.
Similarly, Redington, one of the largest distributors of Apple products in India, has also benefitted. In FY21 "the contribution of this particular vendor [Apple] to our overall revenue was significant, as high as close to about 38-40 per cent", Raj Shankar, Vice Chairman and MD, Redington India, said during an earnings call in August. And despite challenges on the supply side, the Chennai-based company's revenue from India shot up 41 per cent to Rs 12,271 crore between April and September in 2021, while international revenue remained stagnant. That was largely due to Apple, which accounted for about 29 per cent of Redington's revenue by September, up from 26 per cent a year ago.
However, the increasing retail footprint came at the cost of Apple's famed exclusivity factor. Now, Apple is focussing on bringing its go-to-market route under its fold. After numerous delays, it is set to inaugurate its first Apple Store in Mumbai in early 2022, followed by ones in Delhi and Bengaluru. Apple's long-standing partners are hailing this development. "The Apple Store will be very positive for us. The kind of marketing they will do for the entire ecosystem is remarkable. I welcome Apple Stores in the country," says Unicorn's Singh.
Apple also launched its India online store in September 2020, which Cook said helped the company's performance the following quarter. "Last quarter (October-December 2020) was the full first quarter of the online store. That has gotten a great reaction and has helped us achieve the results that we got last quarter," Cook said on an earnings call in January. "We are also going in there with retail stores in the future and so we look at that to be another great initiative, and we continue to develop the channel as well." Apple already gets over 20 per cent of its revenue through online sales from partnerships with e-commerce majors such as Amazon and Flipkart.
And strong product sales ultimately feed into Apple's cash cow—services. While services account for nearly 22 per cent of its global revenue, its share in India is insignificant. However, Indians' growing affinity for over-the-top subscriptions, especially since the pandemic, has opened up that market for Apple as well. To begin with, it offers Apple Music and Apple TV+ at Rs 99 per month each, which "is the lowest price globally", according to a source in Apple familiar with its pricing strategy. Apple's ecosystem is arguably the most well-established and well-entrenched in the world, and given the rate of increase in product sales, India will soon be a significant part of that web.
Feeding into that web is Apple's app development centre in Hyderabad, which opened in 2016 (yes, coinciding with Cook's visit). "Today it employs over 5,000 people and is one of the largest globally for Apple," says the source. The company's app accelerator programme in Bengaluru makes India one of the "very few countries that have a developers' academy", the source adds. In fact, the company has already made dedicated apps for automaker Maruti Suzuki as well as Hero Cycles, among others, to manage their inventory, sales and customer interface. The next focus is to cash in on the burgeoning e-learning sector in India, said Priya Balasubramaniam, Apple's Vice President of Product Operations, at a recent event. "We see an exciting opportunity for India to go further and train its emerging workforce in the foundations of smart manufacturing, intelligent design, connected and optimised systems."
From being a fringe player in the country's electronics market, Apple has now finally managed to crack the India code. The various pieces of its India strategy are not only falling into place but also interlocking seamlessly. If this continues, a $3-trillion market capitalisation will be only one of the few records under Apple's belt next year.