By Newley Purnell and Daisuke Wakabayashi
NEW DELHI--To reignite its growth, Apple Inc. is looking to
India to be its next China. But the formula that worked so well in
China won't be easy to duplicate.
Chief Executive Tim Cook is visiting India this week to push
Apple proposals to open its own stores and sell secondhand phones.
On Wednesday, Apple unveiled plans to open in early 2017 a center
in Bangalore--a city in southern India that is home to many
startups and technology workers--to encourage the development of
apps for its iOS software, which powers its mobile devices
including the iPhone and iPad.
But Mr. Cook's ambitions are much grander: to become a bigger
force in what is about to become the world's second-largest
smartphone market.
In India, Mr. Cook sees similarities to China: a large,
developing economy where rapid growth could make Apple devices
attainable luxuries.
"I sort of view India as where China was seven to 10 years ago,"
Mr. Cook told analysts last month.
The reality is much tougher. Indian consumers have significantly
less disposable income than Chinese. Per capita economic output in
India today is 31% less than in China a decade ago.
Moreover, Indian consumers typically don't buy their handsets
from carriers, so carriers can't accelerate the iPhone's expansion,
as China Mobile did.
"Compared [with] China, India will be slower in iPhone adoption
as disposable income of the Indian middle class is still less as
compared with China," said Tarun Pathak, a Delhi-based analyst at
technology research firm Counterpoint.
To succeed, Apple will have to win over consumers like Sanjay
Kumar, a university student here.
Shopping with friends on a recent afternoon at New Delhi's Nehru
Place, a dusty market jammed with smartphone shops and
computer-repair kiosks, Mr. Kumar said he isn't interested in Apple
phones, including the new iPhone SE. That smaller-screen model is
Apple's least expensive new iPhone ever; in India, it typically
costs more than $500
"IPhones cost too much," said Mr. Kumar, who said he plans to
stick with his Xiaomi Corp. Note smartphone that cost him 8,000
rupees ($119).
While in India, Mr. Cook is scheduled to meet with Prime
Minister Narendra Modi, said two Indian government officials
familiar with the matter.
One of the officials said Mr. Cook likely would try to move
along an existing proposal to refurbish and sell secondhand iPhones
in the country. That could help Apple gain a toehold in a market
where 70% of smartphones sold last year cost less than $150. The
proposal may be approved with conditions, the official said.
In January, Apple said it had sought government approval to open
its own retail stores and sell products online, to supplement
Indian-owned distribution firms and retailers. An approval is
expected "soon," said one of the government officials.
Tapping into growth in India is especially important as China's
economy slows. After years of rapid growth in China that made the
country Apple's second-biggest market behind the U.S., sales in
China fell 26% in the first quarter.
In the fiscal year ended September 2015, Apple's revenue in
India surpassed $1 billion, a milestone the company reached in
China six years earlier.
Without much investment in India so far, Apple's revenue grew
56% in the first quarter, compared with the prior year. But Apple's
share of smartphone sales in India is falling as cheaper phones
from rivals flood the market.
Research firm Strategy Analytics said Apple's market share fell
to 2.7% in the first quarter, from 6.6% in the first quarter of
2012. Apple is "struggling to gain traction in India," said Neil
Mawston, an analyst with the research firm.
While Apple introduces new models only once or twice a year,
homegrown rivals such as India's Micromax Informatics Ltd. have
gained ground by pumping out new, inexpensive smartphone models
every few weeks at various prices, often under $150.
China's Xiaomi and Lenovo Group Ltd. also offer inexpensive
handsets with features typically found in higher-end devices, while
Samsung Electronics Co.'s Galaxy J series, selling for $100 to
$250, also is popular.
Another obstacle for Apple in India is distribution. In China,
Apple struck a deal with China Mobile in 2013, making the iPhone
available in thousands of China Mobile outlets. In India, though,
consumers typically buy handsets separately and use prepaid carrier
services.
Apple is struggling to get its iPhones into smaller cities,
where many shoppers purchase smartphones from mom-and-pop
shops.
To help reach such users here, Apple increasingly has turned to
distributors with relationships in various regions of the country,
analysts say.
"Apple has a long way to go to crack distribution in India,"
said Mr. Mawston. He reckons Apple only has penetrated about 1% of
the roughly one million shops, market stalls and websites in the
country.
Workers at several mom-and-pop shops in the Indian capital said
they don't display the new SE model because they have few of the
devices on hand and not many customers ask for them.
Many buyers instead prefer India's best-selling iPhone model,
the older 5S, which costs about $300, workers said. But that model
likely will be phased out in the next four or five months, said Mr.
Pathak of Counterpoint.
"Most important is the price," said Jas Nain, a worker at a shop
selling smartphones and other goods Monday in Delhi's Palika
Bazaar.
Most customers, he said, want to spend $60 on a smartphone.
"Very few people are curious for the iPhone," he added.
Rajesh Roy contributed to this article.
Write to Newley Purnell at newley.purnell@wsj.com and Daisuke
Wakabayashi at Daisuke.Wakabayashi@wsj.com
(END) Dow Jones Newswires
May 18, 2016 03:10 ET (07:10 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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