Over the weekend, one of Apple's (NASDAQ:AAPL) major contract manufacturers, Foxconn (NASDAQOTH:FXCOF), signed a deal with India's Maharashtra state to invest $5 billion in the country over the next five years. The move wasn't all that surprising considering there's been talk Foxconn might add more factories there, and the fact that India is one of the fastest-growing smartphone markets in the world.
And while there's no confirmation yet that Foxconn will be building devices for Apple there, it's likely the manufacturer's latest move will eventually lead to building iPhones in India. Apple is one of Foxconn's largest customers and manufacturing iPhones in China is starting to get more expensive. If Foxconn does use its India expansion for Apple device production, it could drive down iPhone price and boost Apple's smartphone position in India.
How Apple could benefit
Foxconn said a few months ago that it may build up to 12 factories and data centers there by 2020 and add about 50,000 jobs. Back in June, Reuters reported that Foxconn might open up a new iPhone factory in India in order to lower phone prices there and, hopefully, improve iPhone sales. Right now, Apple has just 2% smartphone market share in India, while mobile rival Samsung leads with more than 24%.
Apple's already targeting India as one of its next major smartphone growth markets, and just last month it began a new program to add 500 Indian resellers to expand sales.
Adding iPhone factories could help bring down the average selling prices of the devices -- though not cheap -- to better compete with local vendor Micromax and China-based Xiaomi. Micromax sells phones in India for as cheap as $50 and Xiaomi's devices cost about $100, meanwhile the iPhone's ASP is $660. Of course, Apple won't lower its selling price anywhere near most of its competitors, but lowering the selling price even just a little could help convince those looking for mid- to high-end devices to choose an iPhone over an alternate device.
As I mentioned earlier, Foxconn makes devices for other companies other than Apple, so we don't yet know if this will definitely change Apple's position in India. But it'd be surprising if Foxconn didn't devote some of its new attention there to making Apple products, considering Apple's focus on the country and the amount of business Apple brings the manufacturer.
And even if Foxconn's move does bring about new iPhone factories in India, we likely won't see the direct benefits for Apple for a while. Though India is growing quickly, it'll take some time for its middle class to reach the point where it can afford Apple devices on a mass scale. A recent study by McKinsey shows that India's middle class will expand from about 50 million people right now to 583 million by 2025, and will make up 41% of the population at that time.
Apple could benefit immensely from the latest Foxconn move, but the iPhone maker -- and its investors -- will need to take a long-term approach to India to see the real benefits.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends and 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.