India has long been a tough market for Apple (NASDAQ:AAPL) to crack for a wide variety of reasons, including complex regulations around foreign corporations owning and operating retail stores, as well as the fact that iPhone prices are out of reach for many average Indian consumers. The Cupertino tech giant has long struggled to grow its presence in India, which is now the second-largest smartphone market in the world behind China.

Apple's 2019 sales in the country are expected to hit their lowest point in years.

iPhone X lineup

image source: Apple.

iPhone units fell 42% in the first quarter

The Economic Times reports that Apple's iPhone sales in India plunged a gut-wrenching 42% to approximately 220,000 units in the first quarter, citing figures from Counterpoint Research. Sales had started to rebound heading into the second quarter thanks to a slew of promotions and discounts, before falling again near the end of Q2.

"Apple had a disappointing run in 2018 and the outlook for 2019 looks weaker, with shipments having fallen further compared to last year, with the exception of April, thanks to price correction that month," Counterpoint analyst Neil Shah told the outlet. "We have made some [pricing] adjustments in India, and we've seen preliminarily some better results there," CEO Tim Cook said on the April earnings call.

Counterpoint estimates that Apple will sell a total of 1.5 million to 1.6 million iPhones in India this year, which would represent a decline of 10% to 17% compared to 2018 volumes. That would be the worst annual performance in four to five years, according to Shah.

Apple has been moving production of certain high-end iPhone models to India, with initial monthly capacity estimated at 250,000. Most of that capacity would not be sold into India, but instead exported around the world as Apple continues to reduce its reliance on China for production due to President Trump's ongoing trade war with the Middle Kingdom. Assembling iPhones in India helps reduce prices (since India slaps hefty 20% import duties on smartphones), as well as meet local sourcing requirements necessary to open retail stores.

Cook also provided some more detail regarding India in April:

I think India is a very important market in the long term. It's a challenging market in the short term, but we're learning a lot. We have started manufacturing there, which is very important to be able to serve the market in a reasonable way. And we're growing that capability there. And we would like to place retail stores there. And we're working with the government to seek approval to do that.

Earlier this year, the chief executive also provided the first official disclosure regarding Apple's business in India: The company generated $2 billion in revenue in India in 2018, representing just 0.7% of total sales that year.

"It's not something that's going to be an overnight huge business," Cook said. "But I think the growth potential is phenomenal."

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