Back in July, Counterpoint Research director Neil Shah said, “It’s a Catch-22 situation for Apple in India.” And he was right. The tech giant wants to sell its ridiculously expensive iPhones in a country where per-capita GDP is only about $2,000. The 512GB iPhone XS Max costs $2070 in the country due to weakening Indian rupee and massive import tariffs. No wonder its market share is only about 1% in India, the world’s second largest smartphone market. Now two different reports suggest that Apple will soon start assembling the rather expensive iPhone X family devices in India to bypass the import tariffs and reduce its reliance on China amid the trade war tensions.
Foxconn expanding its facility to assemble the iPhone X family phones
Sources familiar with the matter told Reuters that Apple’s manufacturing partner Foxconn would start assembling the “flagship iPhone X family” handsets at its existing facility in Sriperumbudur near the southern city of Chennai in 2019. Foxconn’s Sriperumbudur plant currently employs about 15,000 people, 90% of whom are women. Indian newspaper The Hindu had also reported last week that Foxconn would start assembling various flagship iPhone models in Sriperumbudur next year.
Tamil Nadu’s Industries Minister M C Sampath told Reuters that the contract manufacturer would invest INR 25 billion ($356 million) to expand the plant for iPhone production. It is estimated to create 25,000 jobs. Foxconn doesn’t make iPhones in India yet. Wistron, another Apple partner, assembles the low-cost iPhone SE and iPhone 6S at a facility near Bengaluru. The older models such as the iPhone 7 series, iPhone 6S series and iPhone SE account for more than 50% of iPhone sales in India.
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The iPhone X family production in India will be modest compared to the iPhone production in China, where Foxconn employs over a million workers, most of them on the iPhone production lines. Other contract manufacturers such as Pegatron and Wistron also assemble iPhones for Apple in China. The production of iPhone X, XS, XR, and XS Max in India could be aimed at meeting the local demand rather than exports.
Local assembly could bring down the iPhone prices in India
Apple has been struggling to boost iPhone sales in India, a market dominated by Xiaomi, Samsung, Oppo, Vivo, and OnePlus. The Cupertino company sold only 1 million iPhones in the first half of 2018, and most of them were older models. Tim Cook told investors during the latest earnings call that the iPhone sales in India were flat in the September quarter, showing no YoY growth.
That’s quite surprising because India has a growing middle class. And 4G penetration has reached the most remote parts of the country and carriers offer ridiculously cheap data plans. For just $8, I get 3GB data daily for 84 days with unlimited calling. Apple has also partnered with major carriers such as Airtel and Reliance Jio to sell the iPhone X family devices, but that hasn’t helped much. Most Indian consumers don’t purchase phones via carriers and pay over 12, 18 or 24 months. They pay for the devices upfront and buy a SIM of their choice.
Manufacturing the iPhone X family devices in India will make them more affordable in the local market, which could help boost sales. The import tariffs on iPhones are 20% in India. Apple will be exempt from import tariffs by assembling the devices locally. It will also boost India’s drive to become a global manufacturing hub. The country has been offering numerous incentives to attract manufacturers.
Apple can no longer afford to ignore the Indian market. Sales in the US, Europe, and China have saturated. India has the world’s fifth largest GDP and it’s the world’s fastest-growing major economy. The company has been exploring new growth avenues amid slowing iPhone sales in the US.
Trade war a serious challenge
The move will also alleviate some pressure on Apple amid the escalating trade war tensions between the US and China. President Donald Trump said last month that the US was considering slapping a 10% import tariff on all Chinese-manufactured goods including the iPhones and Macs. The US and China have entered a “trade truce” since then, meaning the countries won’t slap import tariffs on one another for 90 days and try to work out a deal in the meantime. But the threat of a trade war looms large, and it could dramatically affect Apple, which assembles almost all its products in China.
Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA
— Donald J. Trump (@realDonaldTrump) September 8, 2018
India is not the only country where Foxconn is planning to setup the iPhone assembly lines. According to Vietnamese state media reports, the contract manufacturer is also considering a new factory in Vietnam to diversify its manufacturing base beyond China. Foxconn executives have admitted that the US-China trade war posed a serious challenge.