Bright spot in India amidst Apple's revenue slump, but challenges remain

How exactly Apple decides to woo Indian consumers who have been spoilt by cheap, spec-heavy Chinese Android handsets will ultimately determine its success
Written by Rajiv Rao, Contributing Writer

It's not often that being "substantially behind China" is a good thing -- but a China-obsessed country which, in reality, is eons behind its neighbour from a technology and development standpoint can at least take some solace from Apple CEO Tim Cook, who said yesterday "I view India as where China was maybe seven to 10 years ago," insinuating good times ahead for both the company and its Indian consumers.

This is because smartphone growth has pretty much flatlined in China as the market is reaching saturation point. For anyone who wants to make a lot of money selling phones -- and Apple always wants to be in the eye of that storm -- India is where the action is going to be. The fact that revenue slumped 11 percent in China in the last quarter only underscores this trend. India by contrast grew 56 percent.

Apple is at a crossroads of sorts. For the first time since the introduction of the iPhone, it posted a decrease in both number of phones sold as well as revenues. The company's profits also plummeted 22 percent causing an 8 percent drop in its stock price and a staggering $46 billion erasure of its market share. It needs to find a new replacement for China, and it needs to make that substitution as quickly as possible, as recent numbers have shown, if it wants to keep posting gaudy numbers.

Cook's upbeat tenor hinges on the fact that India has had some pretty mediocre infrastructure -- 2G and 3G till now. Subsequently, "smartphones that are working there are low end, primarily because of the network and the economics ... but the LTE rollout with India just really began this year, so we'll begin to see some really good networks coming on," Cook pointed out.

That's the good news. Another big victory is the imminent roll out of Apple stores in a country where distribution is king. Previously, Apple was not allowed to open its own stores due to a "single-brand retail" rule that stated that any brand that had ambitions of opening its own storefronts across the country would have to source at least 30 percent of goods (components used to manufacture these devices) from Indian domestic suppliers, which was a dealbreaker for most phone companies. However, the government recently said that it would make exceptions for what it dubbed "state of the art and cutting-edge" technology and apparently Apple made the cut.

Seeing is believing, but if this does materialise, it could be a heaven-sent boon for Apple. As Cook pointed out in his earnings call, "In India, the carriers in general sell virtually no phones. And so it's out in retail, and retail is many, many different small shops." Which, as any phone maker in India knows, can be pure hell, especially for a company like Apple which wants to firmly control the career of its product from R&D to post-sales service with an eye on quality control.

While all this is peachy, the burning issue at hand is yet to be answered -- and this more than anything else will determine Apple's success in India -- namely, what phone is it going to flog.

Apple ostensibly introduced its latest device, the $399 4-inch iPhone SE, to bring in the mid-level Indian phone buyer in droves, but according to Mint newspaper, this is far from happening. The Economic Times suggests that a similar lukewarm reception seems to be taking place in and around China as well. Meanwhile, Apple has not released figures for the SE, and the Indian consumer has gotten quite used to cheap Android handsets with fancy specs thanks to hard-charging Chinese companies like Gionee and the value-heavy Moto G (now owned by Lenovo).

So, while the distribution conundrum looks like it will be solved and the infrastructure is getting an overhaul with pan-India 4G LTE around the corner, without a phone that the public can afford, Apple's India campaign may find itself dead in the water.

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