Apple eyes future handset + services revenue boost by assembling in India

Image: Shailesh Andrade / Reuters

An iPhone 7 Plus 32 GB variant was listed for about Rs 68,400 on Amazon’s Indian website at the time of writing this — in other words, about $1,000 at prevailing exchange rates — owing to import duties and other local taxes. The phone costs about 25 percent less in the US.

By making the phone in India, Apple could significantly narrow that disparity. This will help the company put the iPhone in the hands of many more Indian consumers, expanding the base for its rising services business in the world’s second-biggest smartphone market.

Even though Apple now sells in the range of 2 million-plus iPhones in India and growing, the high prices associated with its handsets have prevented more people from owning them in India. Android smartphones from China, such as the Moto G4, which sell in the range of $150, are hugely popular at the lower to mid-end, whereas Samsung’s Galaxy S flagships, such as the S7 Edge lead the premium end.

The Samsung Galaxy S7 Edge 32 GB variant was listed for Rs 50,900 on Amazon’s Indian website, which isn’t exactly an apples-to-apples comparison, but you get the point. Samsung has long assembled its phones locally in India and has also invested in expanding capacity. Apple is now taking the plunge.

Apple is holding talks to “commence initial manufacturing operations” in Bengaluru, according to a press release from the government of the southern Indian state of Karnataka. Apple’s executives in India had “positive discussions” with the state government’s officials, according to the February 2 release from the state’s Information and Biotech Minister Priyank Kharge’s office.

While the press release doesn’t specify iPhones, it stands to reason that the smartphones will be the first off of the local assembly line, reportedly being set up by a contract manufacturer. The iPhone accounts for more than half of Apple’s revenues.

The world’s most valuable tech company just finished the December quarter with record numbers, bringing in more than $78 billion in revenue. Sales rose in “double digits” in regions, including India, CEO Tim Cook told investors in a conference call on February 1.

A growing component of Apple’s revenue is its services business, which includes downloads from its App stores, the iTunes store and the Apple Music subscription service. Songs can be downloaded for say Rs 15 apiece, while of course prices vary from one to the next.

Apple Music subscription is available for as little as Rs 65 (about $1) per month and subscribers get to stream all they want. They do have to bear the cost of data separately, paying their broadband providers, but the service is still priced at a level that tens of millions of households can afford.

Apple has also made it easy to legally buy and store songs by offering its iCloud service again at Rs 65 a month for 50 GB of storage — a service that is also very handy for work, for many. Especially as Apple has made strides in building out its office productivity suite of applications and making them collaboration friendly.

On how many people might shell out the steep prices, even if lowered by local manufacturing, Apple has cleverly kept its older makes alive in India. For instance, the iPhone 5S is still popular in India and during a recent sale on Amazon was available for as little as Rs 16,000. What’s to stop Apple from continuing that strategy or making the iPhone 6 in India even as it rolls out the iPhone 8 later this year?

As mobile devices become more central to everyone’s entertainment, health and home automation, and not just work, Apple’s manufacturing bet in India today will ensure that it won’t remain a bit player in a nation of 1.3 billion people, where the smartphone user base is set to rival China’s in only a few years.