The iPhone has been the cornerstone of Apple's (AAPL 0.27%) success for years, ever since it disrupted the smartphone market when its first model debuted 16 years ago, but it looks like days of rapid sales growth for its flagship device may be over.
In its fiscal 2022 (which ended on Sept. 24), the Cupertino-based tech giant's iPhone revenue increased by 7%. While that may not seem like much, it is worth noting that Apple added $13.5 billion in incremental iPhone revenue during the fiscal year, bringing its total to $205.5 billion.
That massive revenue base explains why even multibillion-dollar jumps will appear fairly small on a percentage basis.
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Moreover, as the iPhone was responsible for 52% of Apple's revenue last fiscal year, the product's maturity means that its slow growth is weighing on the company's overall growth. This helps explain why Apple's total revenue in fiscal 2022 increased by just 8% to $394 billion.
Things are expected to get worse in the current fiscal year, with the top line forecast to increase by just 2.6%. So Apple is no longer the high-flying growth company that it was in 2021 when users were rapidly upgrading to 5G iPhones.
But don't be surprised to see Apple's iPhone sales growth accelerate once again in the coming years as the company pushes deeper into a huge smartphone market where it is still in its early stages of growth.
Making solid progress in a massive smartphone market
India is a huge country with a population of around 1.41 billion people, but the number of smartphones sold there is relatively small by comparison. Counterpoint Research estimates that 160 million smartphones were sold in India in 2022. That number is expected to increase to 175 million in 2023.
Statista estimates that India's smartphone penetration rate stood at 66% in 2022, and projects that figure could jump to 95% by 2040. This suggests that there's still a lot of room for growth in the Indian smartphone market. According to another estimate, smartphone sales in India could generate $281 billion in revenue by 2028, up from $139 billion in 2021.
Currently, Apple is scratching just the surface of this huge opportunity. It reportedly holds a market share of only 5% in India, but the good news is that it has been pulling the right strings to pick up a bigger chunk. Investors should note that Apple's share of the Indian smartphone market was an even smaller 2.5% five years ago. The company was struggling to gain a foothold in the Indian market then as customers weren't willing to pay up for iPhones given how expensive they were compared to rival devices.
But things have changed. The iPhone 13 was the best-selling smartphone in India in the fourth quarter of 2022. The entry-level model of the device starts at 61,999 Indian rupees (roughly $753 at the current exchange rate). Samsung's Galaxy M13 was the second-best seller, but the interesting thing to note here is that it costs just a fifth as much as the iPhone 13.
This indicates that more Indian customers are now willing to pay for iPhones, and that is translating into terrific growth for the company in that market. Apple's India revenue increased by 45% year over year to a record $4 billion in fiscal 2022. That amounted to over 1% of the company's total revenue for the year.
But the incredible $281 billion smartphone revenue opportunity in India and Apple's moves to increase its footprint there suggest that the world's second-most populous nation could become a much bigger contributor to the company's top line.
Making the right moves at the right time
Apple currently relies on China for a big chunk of its iPhone production. In 2019, between 44% to 47% of Apple's production happened in China. By 2021, it had reduced its dependence on China to 36%. More importantly, Apple is busily diversifying its supply chain into markets beyond China, and India is one of the beneficiaries of this strategy.
Apple and its partners have been investing in setting up production facilities in India. According to recent reports, Apple suppliers could invest 28 billion Indian rupees (around $340 million at the current exchange rate) to boost production in the country. Apple has reportedly asked its supply chain partners to boost output in other countries such as India after COVID lockdowns in China reduced the company's iPhone supply in recent months.
India reportedly makes 5% of the iPhones produced globally now. By 2025, a quarter of global iPhone production is expected to happen in India. The tech-focused newspaper DigiTimes estimates that India could manufacture half of all iPhones by 2027. As a result, Apple should be able to price its smartphones more competitively there.
This could encourage more Indian customers to come into Apple's fold, especially considering that people there are now spending more on smartphones. The average selling price of smartphones in India jumped 15% year over year in Q3 2022 to $226, while 5G smartphones carried a higher average selling price of $393.
Also, India's 5G smartphone market is still in its infancy, with network deployments having just begun. Only 10% of smartphones in India are 5G-capable. Growth in that segment could pave the way for Apple to gain more market share. That's because Apple is the leader in the market for smartphones priced at 30,000 Indian rupees (around $360 at the current exchange rate) and above, with a share of 40%.
The higher average selling price of 5G smartphones and Apple's move to enhance production in India could help it offer competitive prices and set the company up for solid market share gains in the future. If Apple only doubles its share of the Indian smartphone market over the next five years, it could generate close to $30 billion in annual revenue from that market based on the $281 billion estimate mentioned previously.
However, it won't be surprising to see the company generate more revenue from this market given that it enjoys a much higher average selling price of around $1,000. That would be nearly seven times the revenue Apple generated from India last fiscal year. As such, the Indian market could infuse life into Apple's slowing iPhone revenue growth and help accelerate the tech giant's overall growth in the long run.
