Apple (NASDAQ:AAPL) is running out of places to sell regularly priced iPhones.

It's not an idea everyone agrees with. Even if the Americas market is nearing plausible saturation, China and the rest of Asia -- India in particular -- still hold lots of growth potential. Indeed, with the first Apple store set to open in India next year, it's clear Apple is ready to act on the opportunity.

It's not a bad bet either, on the surface. Although India became the world's second-biggest smartphone market last year, according to data from Counterpoint Research, the 158 million smartphones sold in India in 2019 is only about 11% of its population of 1.37 billion people. That leaves room for smartphone market growth on the order of 11% to 14% per year for the next few years, depending on the forecaster. And unlike other parts of the world, India's smartphone sales are on a clear growth trajectory.

Shareholders counting on this market to be a growth driver for Apple's iPhone, however, may want to think again.

Rising and falling arrow charts, with businessmen hanging on.

Image source: Getty Images.

The iPhone is losing steam

Don't jump to extreme conclusions. The iPhone is still a powerhouse. The sale of apps and digital downloads being facilitated by these devices is an increasingly important piece of Apple's revenue mix. But iPhone sales of $137.8 billion of its recently ended fiscal year still made up the lion's share of its business, accounting for half of the company's top line.

Like it or not, though, iPhone revenue is dwindling. The graphic below tells the tale.

Apple's iPhone revenue is slowly sinking despite higher average selling prices.

Data source: Apple quarterly Investor reports. Chart by author.

Market research company IDC fleshes the idea out in a slightly different way. Plotting its estimated iPhone unit sales (as opposed to the iPhone revenue Apple still publishes) for each quarter of the last several years shows us unit sales of the iPhone are indeed shrinking, as are overall sales of smartphones.

Worldwide smartphone sales are steadily falling, as are iPhone sales.

Data source: IDC. Chart by author.

Some suggest India could be a reason to expect rekindled iPhone growth. The country is just now in the heart of its smartphone evolution. That new business is up for grabs, and clearly some manufacturers are grabbing it.

India's smartphone market is still growing, overcoming the COVID-19 headwind.

Data source: IDC and Canalys. Chart by author.

The reality of the matter is, however, that Apple hasn't proven to be a particularly marketable brand there despite iPhones being available in India since 2008. IDC's look at India's smartphone market for the three-month stretch ending in September doesn't even register Apple among the nation's top five smartphone vendors. Those names are, from biggest to smallest, Xiaomi (OTC:XIACF), Samsung (OTC: SSNLF), Vivo, realme, and OPPO. Those companies collectively accounted for 90% of Q3's smartphone sales in India, mirroring their aggregate market share from the same quarter a year earlier. 

While it's difficult to pinpoint Apple's present piece of India's smartphone market, some put it on the order of 2% of the country's total. This remarkably low interest from Indian consumers is telling.

The premium price is the problem

Those who've followed the story will point out that Apple's not exactly been competing on a level playing field in India. Namely, foreign consumer tech companies such as Apple haven't been able to open stores solely dedicated to the sale of their own hardware. By law, a foreign company had to offer competing hardware. Apple chose not to build a retail presence at all rather than open the door to lower-cost competing products. However, this law has since been reversed, allowing the company to start planning its first-ever store in India next year.

In the meantime, fans tout the fact that at least within India's premium portion of its smartphone market, Apple is as competitive as rivals like the aforementioned Samsung, Vivo, and a manufacturer called OnePlus. Research from Canalys suggests sales of Apple's smartphones grew at a double-digit pace during the third quarter, boosted by the opening of an online Apple store aimed at Indian consumers.

In absolute terms, though, it means little. Apple still only delivered fewer than 800,000 iPhones to India last quarter, or right around 2% of all the iPhones IDC says Apple delivered during this time.

It's not likely that the high-end sliver of the market is going to suddenly develop anytime soon either. IDC notes that the average selling price for smartphones In India last quarter was a mere $156, with more than 80% of buyers spending less than $200 for their devices, mirroring year-ago numbers when the global economy was in a much better condition. IDC's Associate Research Manager Upasana Joshi added to the report that he "expects the low-end and mid-range segment to continue being the volume driver," with "upgrades and affordable 5G offerings in the US$200-$500 segment ... expected to drive growth."

For the time being, Apple's iPhones in India remain priced above $500. There's the rub for a cost-conscious market.

Bottom line

Never say never. Apple now assembles the lower-cost iPhone SE in India, which potentially opens the door to a lower-priced offering in the country. It's just not chosen to make that lower-priced offering -- at least not yet. Until the company starts to make price compromises that just aren't Apple-like, India's not going to be a big hardware growth driver.

Or, as Canalys Research Director Rushabh Doshi arguably understated it, "Apple's pricing strategy for its new iPhones in India needs serious consideration."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.