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Is Apple Inc. Wrong About India?

By Chris Neiger - May 25, 2016 at 10:27AM

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The iDevice maker is looking to India for more smartphone growth, but it's having a hard time making headway in the country.

You've probably noticed Apple (AAPL 1.62%) has increased its focus on India lately. The iPhone maker has been wooing the country for the past few years and Apple CEO Tim Cook recently ramped that up with a business trip to India. 

Apple is doing everything it can to make India its next big growth market. And there are plenty of good reasons for this. 

The first being that India is expected to overtake the U.S. as the second-largest smartphone market next year, and is currently growing 5 times faster than China's smartphone market. 

But selling phones in India isn't easy. Government regulations and low average selling prices (ASPs) are stifling Apple's progress. 

Apple sees massive smartphone potential in one of the world's most populous countries, but is the company wrong to think it can succeed there?

The problem with Apple in India

Apple's problems in India can be summed up with just two simple facts: iPhones are too expensive and the company is struggling to bring down their price in the country.

The average selling price for an iPhone in India is $612. The high price tag comes partly from Apple's famously high margins, but also because India charges more in taxes for devices that don't have 30% of their components sourced in its country. Apple asked for an exception from this, but the country recently denied that request.

Meanwhile, Samsung's (NASDAQOTH: SSNLF) smartphone ASP in India is just $173. That means Apple's phones are 253% more expensive, on average, than Samsung's. Not many Americans would pay for that price difference and in India, where wages are substantially lower, it's even harder to convince consumers.

Perhaps that price difference is why Samsung is sitting at the top of the smartphone vendor list in India with 26.6% market share, while Apple holds just 1.9%.

India's middle class is growing, which could eventually help Apple's iPhone sales in the country, but it's not helping much right now.

Apple knows its phones are expensive for Indian consumers, and that's why it recently requested to sell refurbished devices in the country. But India has so far rejected that request, which only adds to Apple's problems. 

Apple doesn't have a choice

There are few reasons why Apple continues trudging along with its India strategy despite its current position. 

As I mentioned earlier, India will become the second-largest smartphone market, behind China, very soon. On top of that, Apple is facing slowing iPhones sales in the U.S.

The iPhone accounts for about 65% of Apple's total revenue. So if the company wants to continue using the devices as its main revenue stream, it'll have to look to new markets that are growing quickly -- like India.

Investors may not want to hear this

Even if Apple does eventually see an uptick in smartphone sales in India, it's not likely that it will experience the same type of success we've seen for the company in the U.S. or China. 

India is a country with a growing population and economic position, but the average yearly income in India is just under $1,600, according to the World Bank. No matter what Apple does strategically to sell iPhones, it can't change that fact. Apple will have to settle for whatever market share it can scrape together until India becomes more wealthy. 

The problem for Apple is it needs to sell more iPhones now, but Indian consumers just aren't ready. 

It's not that Apple is wrong in looking to India for more smartphone growth, it's just that the iPhone's price tag is essentially an insurmountable hurdle right now, and nearly everything the company's done to change that hasn't worked. 

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