India may not be the first country that comes to mind when talking about growth frontiers for Apple (NASDAQ:AAPL), but the Mac maker is starting to make some meaningful traction in the world's second most populous nation.
Apple has long faced structural challenges with growing its position in India. The company doesn't conduct direct online sales or have retail stores due to regulations that apply to foreign companies. The Indian government recently stood by its long-held rule of limiting foreign investments in multi-brand and single-brand retail stores, contrary to speculation that the government would ease its restrictions. That's why Apple has no choice but to sell through third-party retailers and distributors.
Still, even with those hurdles, Apple is crushing it.
India's The Economic Times reports that Apple sold 500,000 iPhones in the final quarter of 2014, according to Counterpoint Research. That figure may not seem all that impressive in the grand scheme of Apple's consolidated results, but it is quite an achievement compared to the 1 million iPhones sold in India during the previous 12 months.
Furthermore, half a million iPhones is meaningful progress compared to just a few years ago. In 2011, Apple shipped merely an estimated 25,000 iPhone 4s units into India for launch, and just 100,000 iPhone 5s units into the country for the 2013 launch.
Apple overhauled its Indian operations in early 2013 to better address some of the unique difficulties, such as creating new financing plans to make its devices more affordable to low-income consumers. Within a matter of months, Apple had already grown its revenue share to over 15%.
The iPhone maker has cut the credit period that it extends to retailers to 7 days, improving Apple's local cash flow. Reducing the credit period suggests that demand is healthy and Apple can tighten requirements on retailers. Apple will then turn around and put that money toward other consumer offers like store-level marketing, among other things.
A long and winding road
Like other unsubsidized smartphone markets, the iPhone's high price can limit its mainstream appeal. Affordability initiatives are incredibly important to Apple's ability to address the growing Indian smartphone market, perhaps the single most important aspect.
Generally, Apple prefers to have control over the purchase and after-purchase experience, utilizing its aptitude for vertical integration, but the local regulations simply don't make that an option. This challenge isn't unique to Apple by any means, as a wide range of other foreign companies face the same constraints. Until the Indian government decides to change its ways, foreign multinationals are put at a distinct disadvantage.
Despite challenges, Apple continues to work its way to expand its presence in India. In December, the Times of India reported that Apple was planning on adding 500 new resellers that focus primarily on selling iOS devices. Given the importance of iOS devices, comprising nearly 75% of revenue in fiscal 2014, it makes sense why the company would prioritize iDevices.
India may never be as important to Apple as China, but every little bit helps.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.