Apple Inc. Moves Deeper Into This High-Growth Smartphone Market

With investors concerned about critical growth markets such as China, Apple is taking bold new steps to gain market share in another potentially massive space.

Andrew Tonner
Andrew Tonner
Oct 26, 2015 at 10:10AM
Technology and Telecom

It's been a rough few months for Apple (NASDAQ:AAPL)

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As concerns mounted over critical growth drivers, especially China, investors have dumped Apple shares, fearing that the tailwinds from the massive iPhone upgrade could stall in the coming quarters. Such concerns fall well short of observable data, however, and Apple is already laying the foundation for its next great growth market.

In the coming weeks, Apple will open a series of new retail locations in India, marking its first officially branded presence in this budding smartphone market. Here's what investors need to know.

Apple doubles down on India
For a number of reasons, Apple has struggled to establish a meaningful presence in India. The company simply hasn't prioritized India as a key emerging market, focusing its growth efforts in places such as China instead, but it's also come up against Indian government policy, which prohibits foreign companies from establishing their own wholly owned retail outlets. That's created a barrier to entry for the Mac maker.

Initially, Apple dealt with the obstacle by creating distribution partnerships with several of India's largest electronics retailers, attempting to expand its presence as India's premium phone market slowly gained volume. However, such third-party retail partners have failed to provide the same kind of customer experience and after-sale support that helped Apple create one of the most powerful retail models in all of business. For a company so laser-focused on the customer experience as a hallmark of its aspirational brand, these arrangements have left much to be desired.

To overcome these challenges, Apple is reportedly less than a month away from opening six "store within a store" concepts across Mumbai and Bangalore. According to reports, these new Apple outposts will resemble their American counterparts at big-box U.S. retailers including Best Buy and Target. To take this step, Apple will partner with Croma stores, a subsidiary of Indian industrial giant Tata, to serve as the Indian-based operator of its new mini-stores. These stores will incorporate many of the defining elements of Apple's retail outlets, including their wooden table layouts, lighting elements, and Apple employees working the floor. And although too small to have a meaningful impact on Apple's financial results, this move is undoubtedly the right call for Apple.

Patience is a virtue
Although this is an exciting step, the Indian growth strategy will require plenty of patience. Aside from the often confounding business environment, the Indian smartphone market itself is in its early stages. For the 2014 calendar year, the Indian smartphone market saw just 81 million total shipments, by one analyst's reckoning. In contrast, Apple sold nearly 170 million iPhones globally last year. However, with an Indian population of over 1.2 billion, creating a presence in the subcontinent is an imperative long-term growth objective for Apple. The long-term economic growth story is too compelling to ignore.

Throughout all of 2015, the market for premium smartphones such as Apple is expected to reach roughly 8 million shipments. That may not sound like much, but consider that in its FY '15 Q3 earnings report, Apple mentioned that sales in India increased by 93%, versus 87% in China.

The Indian smartphone market is fragmented, with Asian smartphone makers such as Micromax and Samsung enjoying outsized popularity. Emerging brands such as China's Xiaomi are also targeting India for many of the same reasons as Apple. However, as we've seen in China, Apple has been able to create incredibly profitable franchises even as it remains a small supplier within these massive smartphone markets. So while Apple's India operations will remain well behind those of other growth engines such as China for years to come, the company's moves also position it to capitalize on India's coming smartphone boom, and that's good news for a company in need of all the growth drivers it can find.