China is the world’s largest market for smartphones, although thanks to COVID-19, that market is shrinking. Can you guess which country represents the second-largest smartphone market? Hint: it is not the U.S. Actually, it is India; but as a developing country, Indian consumers don’t have much money to spend on top-shelf models. This explains why value for money manufacturers like Xiaomi are ripping it up in the country. It also explains why the mid-range Samsung Galaxy A series does so well in this market.
Apple did a brisk business in India with its budget-priced iPhone SE. But an import tax (yes, a tariff) was adding $100 to the retail price of the iPhone in the country, so Apple decided to start producing the iPhone SE in India. By doing this, Apple was able to avoid the import tax in a country where every dollar counts. It also helped Apple qualify for Prime Minister Narendra Modi’s Make In India initiative designed to make India a manufacturing center and a magnet for investors.
The iPhone SE, priced at the dollar equivalent of $250, started to get outsold by a 2-1 margin in India by the iPhone 6s. Apple stopped making the former in the country and started production of the latter; by last year, Apple was advertising “The Incredible iPhone 6s” (at the equivalent of $383 USD) even though it was then four years old. And last year, Apple added the iPhone XR to the phones it makes in India.
Still, premium smartphones do sell in India and these sales are growing at an annual rate of 29%. A premium phone is considered to be one that sells for the equivalent of $500 or higher in the country and Apple had 75.6% of this market in India during the fourth quarter of 2019.
What brings all of this up is the news today from the BBC that Prime Minister Modi has instituted a 21-day nationwide lockdown in India. This action is due to the continued spread of the coronavirus. The prime minister urged Indians not to panic and said, “There will be a total ban on venturing out of your homes.” And that means the production of the iPhone models made in India will come to a complete stop for three weeks.
Bloomberg reports that both of Apple’s contract manufacturers producing the iPhone in India, Foxconn and Wistron, have followed the Prime Minister’s announcement by suspending production. In a text message it sent to Bloomberg News, Foxconn wrote that it is awaiting permission from the Indian government to resume running its assembly lines. Wistron is adhering to the Prime Minister’s lockdown, according to a company representative who wouldn’t reveal which products were affected by the shutdown.
Besides the production of the iPhone in India, Apple has thousands of employees working out of an office in Hyderabad. These workers spend their time on Apple Maps. The office opened in 2016 and when it opened, the company said that it supported 640,000 developer jobs across the country.
While several analysts figured that Apple would move some iPhone production out of China and into India to avoid the tariffs charged to U.S. companies and consumers on products imported from China, the fact is that the company’s production facilities in the country are too small and a supply chain would take years to build. Due to Apple’s size and the products it makes, suppliers need to deliver parts and components in the quantity and quality that Apple needs. Despite this, a supply chain source said that Apple is revving up its plans to move production outside of China with the company shifting some iPhone manufacturing to India. Assembly of AirPods and the HomePod are being moved to Vietnam, the country that many believe will eventually replace China as the center of Apple’s manufacturing universe.