Apple & Tim Cook’s India Ambitions 

Long queues, fanboys and fangirls camping out and jostling in front of cameras, Apple worshippers bringing their most prized possessions to the party — this was the scene at the opening of India’s first Apple Store this week.

Even with the fanfare typically associated with Apple, the response to the Apple Store opening would have taken CEO Tim Cook by surprise.

Despite being nearly two years late, the country’s first official Apple Store in Mumbai finally opened its doors this week, with the second one about to be inaugurated in Delhi on Thursday (April 20). While much of the attention has been grabbed by CEO Cook’s visit, there’s a lot more at stake for the tech giant than just launching a store in India.

The Apple Store is a signal that India is finally a first-tier market for the company. Till a few years ago, Indians had to rely on resellers and ecommerce marketplaces to purchase Apple products. With the launch of native ecommerce operations in September 2020, Apple went direct to consumers and this is its second major step in establishing its native sales stack in India.

The global geopolitical landscape has in many ways influenced Apple’s decision to focus on India in a bigger way. Cook’s visit to India includes plans to inaugurate both Apple Stores as well as meet Prime Minister Narendra Modi to discuss the tech giant’s plans and pain points in India.

For the past few years, Apple has become a key player in India thanks to the company embracing the government’s ‘Make In India’ project. Apple’s presence in India has made the country a destination for other electronics majors.

In the past, CEO Cook has said that the company is looking to take a page out of its China growth story for the Indian market. In China, the company enjoys nearly 25% market share as per the last quarter numbers. “There’s been a lot done from financing options and trade-ins to make products more affordable and give people more options to buy. And so there’s a lot going on there. We are, in essence, taking what we learned in China years ago and how we scale to China and bringing that to bear,” Cook said in the December quarter earnings call in February 2023.

Besides understanding how Apple is likely to expand its manufacturing capabilities in India, the meeting with Modi is expected to touch on topics such as employment created by Apple in India. PM Modi also reportedly is keen to understand the challenges faced by Apple and Cook in the Indian market and why the brand has not been able to get a biger market share.

It’s no surprise then that India has become such a huge focus for Tim Cook and Apple. And the Apple Store is a critical piece of the puzzle.

Apple’s Hardware-First Strategy

Analysts believe the first thing that we need to understand about the Apple Store launch in India is that this is more about marketing than sales at this point.

The adoption of Apple products has been driven by ecommerce marketplaces and sales by-and-large and this will not change in the near future, says Tarun Pathak, research director with Gurugram-based market research firm Counterpoint Technology.

“See, the first few Apple Stores will be about showing the customers the Apple experience. There are a lot of consumers who may not be aware of the extensive Apple ecosystem — from the accessories to services. The Apple Store is a major step because of just how grand the experience is,” Pathak told Inc42.

According to data shared by Counterpoint, Apple’s market share in the smartphone market has boomed since 2020 when the pandemic resulted in a surge in device purchases. “From around 2% before 2020, the market share is expected to grow to 6% by the end of 2023. This means a lot more visibility for Apple in public, and also that the company is on the cusp of becoming a major player in terms of market share as well as ancillary revenue from Indian customers.”

At one point of time, the online contribution to Apple’s India sales was as high as 60%, and all of this has come on the back of ecommerce sales.

A key part of Apple’s strategy in India has been to increase hardware penetration while more or less keeping services as a secondary revenue pipeline. Globally, services is a significant contributor to Apple’s bottom line, but the Indian market is not yet mature enough to contribute in terms of app revenue or even Apple’s own subscription products including Apple One, Apple Arcade, Apple Music, Apple TV+ and after-sales services.

But like globally, in India too, the gateway into Apple’s walled garden is the iPhone. “India is still a mobile-first market. Many consumers will buy a smartphone instead of a laptop (Macbook) or tablet (iPad) for their work or lifestyle needs. So I don’t know how much we can say about whether the Apple Store in India will drive purchases of other devices that make up the Apple ecosystem,” Counterpoint’s Pathak added.

Devices such as Apple Watch, Airpods and smartphone accessories are likely to see the most movement in the next few months, in addition to iPhones. These devices are largely associated with the iPhone and therefore Apple is likely to heavily promote the wearable and audio ecosystem in India through the stores.

Pathak believes that with Indian consumers, Apple might not see a high ‘attach rate’ as it sees in the US or Europe. Indians are still cost-conscious and in terms of brand appeal, the iPhone is a stronger draw than, say Macbooks or iPads in the Indian context.

Make In India, Sell Globally

It was in 2017 that Apple began manufacturing iPhones in India, and since then, the company has worked with suppliers to assemble iPhone models and produce a growing number of components. Now, the company is eyeing a major push in this regard, which is intrinsically linked to the retail launch.

Foxconn, one of Apple’s contracted iPhone manufacturers in India, is looking to expand its manufacturing capabilities by adding two new buildings to its Chennai plant. This is apart from the two other manufacturing facilities that have already been constructed at the Chennai site.

The Taiwanese contract manufacturer is also looking to establish a research and development facility in Bengaluru’s Whitefield to back the manufacturing efforts. Last December, Foxconn announced that it would invest $500 Mn in its India unit, per an exchange filing in Taiwan. The manufacturer is also reportedly also looking to invest $200 Mn in its Telangana plant for Apple Airpods.

Earlier this year, Union Minister of Commerce Piyush Goyal said Apple is set to increase its production in India to 25% of its total production, but as of now, there’s no timeline attached to this scaling up.

In particular, iPhone exports from India have reportedly increased by 4X to reach $5 Bn in FY23, thanks to iPhone production reaching $7 Bn since last March. At the same time, Apple’s revenue from the country is said to have increased 50% since 2022 to reach $6 Bn.

For FY22, Apple posted sales of INR 32,000 Cr or roughly $4.1 Bn in the Indian market. About 4% of India’s 700 Mn+ smartphone users are iPhone users, but Apple led the market in terms of unit sales of devices above $365 last year, Counterpoint said.

According to the Union Minister of State for Electronics and Information Technology Rajeev Chandrasekhar, Apple has also become one of the largest job creators in India, having created more than 1 Lakh jobs because of its manufacturing and India distribution focus.

Foxconn, Pegatron and Wistron – the three contract manufacturers in India – alone employ 62,300 employees among themselves, a number which is set to rise as the company is looking to bring more of its production to India.

As of now, India accounts for 7% of all iPhones manufactured. During Apple’s earnings call for the December quarter, CEO Cook said, “I’m very bullish on India,” and addressed the Indian market as an ‘exciting one’, adding that Apple is putting a significant amount of energy into succeeding in India.

India set a record for sales during the quarter with all-time high iPhone revenue, double-digit growth in the installed base, and continued adoption of Apple Business Essentials, Apple Care as well as financial services.

Of course, one cannot overlook the geopolitical factors in Apple’s major India push. As the Cupertino giant turns its focus away from China to diversify its supply chain, India has emerged as the hotspot. Companies such as Apple and Tesla have been hit hard by China’s strict quarantining policies for the Covid pandemic, and other headwinds such as strained US-China relations.

India has become a trusted alternative because of the government push as well. Up to 14 of Apple’s Chinese supply partners received initial approval from the Indian government to set up assembly plants in the country.

“Every major tech player is going for a China-plus-one policy and Vietnam and India are benefitting the most from this. The question for Apple is whether it will continue to make in India for exports consumption or domestic consumption, as this will be critical to assess the returns on Tim Cook’s India investments,” according to an exec at a Bengaluru-based Apple distribution partner.

Apple Store & The Walled Garden

Typically speaking, Apple gets a bigger return on investments in India from the international market, where hardware and services revenue often go hand-in-hand. In the US, Europe, Australia and other more mature economies, the company manages to sell more devices than just smartphones to the same set of users. The Apple device upgrade cycle is a powerful push for revenue from these geographies.

The billion-dollar question (perhaps even more valuable) is whether Apple is able to replicate this in India as well.

“For Apple, the priority is to grow the installed base and the walled garden effect will be the function of this larger installed base. This is where services and the app economy will grow in India. I think eventually it will happen, but right now it’s all about selling more hardware and locking them in and then obviously services and cloud and everything else will follow,” said Pathak.

Of course, thus far, the company has relied on ecommerce sales to drive hardware adoption. Will the Apple Store result in a slowdown when it comes to these online discounts on Amazon India and Flipkart? And will Apple look to reduce its reliance on marketplaces in the near future?

Analysts believe this will be in Apple’s long-term plans for India. Despite the exponential growth for Apple iPhone in India since 2020, the country is still far from embracing the walled garden approach. Think about it this way, the iPhone is the easiest sell for Apple. It didn’t need the store to do this, but it needs a store to go beyond the iPhone.

“This is a wait-and-watch period for analysts and Apple. Right now, Apple’s strategy is not fully clear because the market is not yet mature. But we think this is going to change post-2024 when consumer spending is likely to bounce back,” the exec quoted above added.