“There are a lot of people coming into the middle class, and I really feel that India is at a tipping point, and it’s great to be there,” Apple CEO Tim Prepare dinner stated in Could final yr.
His feedback underscore one motive Apple has lately made an aggressive play to expand operations in India: the nation has an enormous inhabitants, with a rising center class prepared to splash out extra on high-end telephones.
Nevertheless it’s not nearly gross sales for Apple. The tech big has additionally boosted its manufacturing footprint in India, through Foxconn, the Taiwanese agency that assembles iPhones. Apple now makes around 1 in 7, or 14%, of its iPhones in India, based on a Bloomberg report this month.
Final yr, an Indian authorities minister stated Apple was seeking to finally manufacture 25% of all of its iPhones in India.
It is led many traders to wonder if India can turn out to be the following China for Apple.
Within the newest episode of CNBC Tech’s “Beyond the Valley” podcast — which you’ll be able to take heed to above — Tom Chitty and I talk about why Apple is pursuing the Indian market — and if it may well stay as much as its promise.
If in case you have any ideas on this or earlier episodes, please e mail us at [email protected].
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Here’s a transcript of the episode of “Beyond the Valley” launched on Apr. 11, 2024. It has been edited for readability and brevity.
Tom Chitty
Earlier than we get again to our essential story, we have got to listen to Arjun’s stat of the week, which is…
Arjun Kharpal
18.8% market share.
Tom Chitty
18.8% market share. Okay, Arjun? Why is Apple seeking to scale back its reliance on China.
Arjun Kharpal
I feel now we have to return to type of the peak of Covid in China. China had very intense, very strict Covid prevention measures in elements of the nation. And that did not cease at manufacturing websites. So in 2022, there was type of a Covid outbreak in Zhengzhou, which is a metropolis in China the place Foxconn, the Taiwanese agency, which assembles Apple’s iPhones, runs the world’s greatest iPhone plant. Any that created disruption there, there have been employees who type of needed to be quarantined and issues like that. After which what adopted was some unrest amongst among the employees there as effectively. And that brought on big disruptions to manufacturing of iPhones out of the primary place the place the worldwide — the world’s provide — of iPhones are assembled. And I feel that received Apple considering, we have been talking lots about Apple’s reliance on China and Apple lowering its reliance, which hadn’t actually occurred in any respect. However I feel that second, what it did was put scrutiny on Apple’s reliance on China as a producing hub. It then additionally, I feel, for the corporate, accelerated plans for the corporate to suppose the place else can we diversify our provide chain? The place else can we manufacture our merchandise so if there’s any sort of disruption anyplace, that a minimum of we all know, now we have provides of those merchandise and may depend on different locations to ramp up manufacturing. And so I feel that is actually what occurred. It was the Covid period that sparked that. A few of these intense restrictions, I feel, uncovered how a lot reliance Apple truly had on China with regards to this. I feel one estimate put, at one level, I feel China was producing one thing like 90% of the world’s iPhones. And so that provides you the concept of the sort of reliance Apple had on the nation.
Tom Chitty
From Apple’s perspective as effectively. So I perceive they’re de-risking perhaps their provide chain, however the fee to maneuver a provide chain or a minimum of a part of a provide chain from one nation to a different: completely different languages, not essentially the historic manufacturing infrastructure in place to have the ability to help, you recognize, what China has been doing for a number of years, many years even is, is that well worth the de-risking of the availability chain?
Arjun Kharpal
I feel when you’re Apple, an organization like Apple, with that many merchandise, it’s well worth the danger, as a result of what occurs when there’s one other occasion out of your management, or as we all know, there’s these big commerce tensions that also exist between the U.S. and China? It might take an escalation of that to additionally hamper Apple’s capacity to provide in China maybe, capacity to promote in China maybe. So the best way Apple is taking a look at it’s effectively, you recognize, they are not going to go away China. You recognize, China continues to be an important manufacturing hub for Apple. Sure, it has type of barely lowered its reliance on China. Nevertheless it’s nonetheless an enormous half and can be for the approaching years. I feel what you are seeing although, is Apple make investments extra with its companions, the likes of Foxconn, as I discussed in locations like India, and Vietnam, as effectively. And we’ll communicate just a little bit about that later. However they’re taking a look at different areas and investing extra in these areas. In order that, you recognize, they’ll begin to maybe slowly scale back among the manufacturing in China. But additionally, if you concentrate on it have the power to ramp up manufacturing elsewhere, let’s simply say, there’s one other problem in China, that disrupts manufacturing to the iPhone, however they’re additionally manufacturing in say, India, then they may doubtlessly, if the manufacturing facility has capability, choose up that slack that was misplaced from China. So for Apple, you recognize, not having the ability to get the product to market will price them billions of {dollars} of gross sales. You recognize, if they are not in a position to get their iPhones and different issues to market, nobody’s gonna purchase and persons are going to attend, they may price so it is value them spending the billions to then put money into different hubs. And I feel that is what’s what they’re doing.
Tom Chitty
For it to completely work although you would wish different international locations, whether or not it is India, or Vietnam, we’ll be speaking about in a bit, they want to have the ability to do it from finish to finish, or a minimum of fill these roles that China was doing, which, once more, will not be essentially price efficient.
Arjun Kharpal
Yeah. And I feel that is why the ramp-up hasn’t been as aggressive or as simple as folks thought. We have been talking about this for years Apple’s type of reliance on China, however not a lot had been finished, as a result of as you stated, it is a tough course of, you recognize, you’ll be able to’t simply shift and transfer away from China, as a lot as you recognize, India, and these different hubs are being spoken about, it isn’t simple to simply arrange manufacturing, that takes lots. Firstly, you recognize, it is issues like native rules and incentives and all of that, and ensuring it is well worth the return on funding. However then it is the experience, it is the precise workforce, who’re in a position to do this. That is an enormous a part of it. So once we discuss, you recognize, Apple manufacturing elsewhere, it is going take a very long time to considerably ramp up iPhone manufacturing elsewhere. And we have seen that in India thus far. I imply, thus far, India, apparently, based on a current Bloomberg report, now produces one in seven iPhones, or round 14% of whole world iPhones. And that was double the final fiscal yr, that is aggressive. However you’re you’re seeing it occur. However the query is, how a lot can India tackle and the way shortly so, you recognize, it is early levels but. So you recognize, maybe they have the capability. However have they got sufficient to scale to the extent China is. And the opposite level right here is, you recognize, Apple’s not going to wish to recreate its reliance on anyone nation. Once more, the entire level of attempting to scale back reliance on China is to have a diversified provide chain. So, you recognize, they are not going to say, oh, we would like you recognize, 60% of iPhones to be produced in India. Now. I doubt it. One minister, final yr, was suggesting that Apple had stated that, in the end, they need about 25% of iPhones, as you stated in your intro, by 2030 produced in India, which, you recognize, you are feeling like 1 / 4 of the world’s iPhones, you recognize, that may very well be essential, you recognize, a few of these are going to be bought in India, which is essential, native manufacturing. We did that episode speaking about India’s need to turn out to be the type of high-tech manufacturing hub of Asia. Apple’s efforts listed here are a part of that and a part of the federal government’s incentives to herald international corporations. In order that’s additionally what’s occurring right here. And so you recognize, they need that manufacturing in India, these merchandise can be bought to Indians, but in addition exported, as effectively. And so that you’re beginning to see, I feel the early indicators of what Apple can do and its companions can do by way of establishing manufacturing in India. However as you talked about, I do not suppose that is one thing now that is going to occur, or be equal to China, anytime quickly.
Tom Chitty
A few weeks in the past, you talked about we talked about India as a tech hub, or a future tech hub, we had, for example, a good bit of skepticism from listeners in India about whether or not it might legitimately step in and, you recognize, exchange a few of what China has been doing. You probably did say on the finish of that episode, that, you recognize, we’re nonetheless a good distance from India, being in that place. So simply to offer us just a little bit extra context to what we have been speaking about a few weeks in the past.
Arjun Kharpal
As you talked about, we did we did handle a few of these issues. You recognize, we have been speaking a bit about what India is attempting to do now, the groundwork is attempting to put to attempt to rival China in Asia as a producing hub, a high-tech manufacturing hub, simply to be clear, it is nowhere close to China at this level, you recognize, that that is, that is fairly clear and evident at this level. There’s a variety of challenges that stay in India, I feel we have we have talked about a few of them right here. These embrace, you recognize, experience and workforce, to do a few of this manufacturing, significantly in areas like semiconductors, which is extremely, extremely specialised, you recognize, additionally the workforce to be assembling these iPhones have to be skilled, and so on. within the nation, you recognize, that takes a little bit of time as effectively, and different electronics. There’s additionally complaints round nonetheless among the pink tape, forms that is still, among the guidelines, all of those sorts of issues at this level, are challenges for the India market, in addition to in fact, you recognize, guaranteeing that there’s belief within the political system, to some extent, as effectively. So there’s all of those challenges, I feel India has to cope with now, to show itself right into a critical rival to China. And never solely that, I imply, India will not be the one rival to China. Vietnam, Thailand, Indonesia, all of those locations are vying to attempt to … as world electronics corporations, not simply Apple, however world electronics corporations seeking to diversify their provide chains to different elements, Southeast Asia typically, are going to be massive beneficiaries. And you’ve got already seen different international locations additionally. So India will not be solely attempting to type of rival China in that extent. There’s different international locations which are additionally vying for that place and competitors, that are immediately additionally competing with India. And so it is a actually attention-grabbing dynamic at play right here. And so, yeah, it is clear India is nowhere close to China at this level by way of its capacity to be a producing, high-tech hub but, however what we have been speaking about is what sort of groundwork they’re laying the best way that the Prime Minister Narendra Modi is speaking to all of those international corporations, together with Tim Prepare dinner, the CEO of Apple, and lots of the different electronics makers in addition to semiconductor gamers to woo them to arrange store in India. And the promise of India, in fact, will not be solely on the manufacturing facet, it is that huge inhabitants.
Tom Chitty
Yeah, I wish to get into that, as a result of that is an enormous a part of this. In India, what are the most well-liked cellphone manufacturers?
Arjun Kharpal
It is Samsung, it is Xiaomi. It is Oppo. So it is the Chinese language manufacturers and Samsung.
Tom Chitty
Huawei?
Arjun Kharpal
Huawei, not a lot as a result of they’ve had a variety of issues on the worldwide market. However at one level, they have been doing very, very effectively earlier than U.S. sanctions, you recognize, crippled their, their smartphone enterprise. However the Indian smartphone market to this point has been dominated by some low to mid-priced smartphones, proper? You recognize, primarily Android telephones. However what you are seeing now, and that is once more, why the India market particularly is changing into fairly essential, I feel, to Apple and Tim Prepare dinner’s occupied with the place to focus on is the large inhabitants, what’s it 1.4 billion or so folks there, nevertheless it’s exhibiting among the comparable dynamics to what China confirmed just a few years in the past, a rising center class getting wealthier, prepared to spend on know-how, significantly within the massive cities, the likes of Mumbai, the likes of New Delhi the place they’ve opened truly their first Apple Shops final yr. And you recognize, opening a bodily Apple retailer usually for Apple is an indication of an enormous deal. It is a market they wish to goal first Apple shops in 2023 offers you a way of what Apple is taking a look at when it appears to be like in India. Sure, the manufacturing is essential. Sure. It is going to be a key hub for manufacturing for iPhones, however truly the patron is what pursuits Apple lots now. And the truth that they’re that the high-end a part of the smartphone market is rising in India, that is the place Apple targets and coinciding with these shops, with the elevated manufacturing, you see a variety of effort going into this market. Simply to offer you a type of sense proper now, I spoke earlier in regards to the quantity of iPhones being produced proper now in India. Gross sales, so first shops final yr. Within the second quarter of final yr, India, for the primary time turned considered one of Apple’s high 5 markets for gross sales. So, you recognize, it is then competing with the U.S. and different international locations now. So it is in high 5. Available in the market, Apple solely has about 7% market share. For the time being, it is behind Samsung, it is behind Xiaomi is behind Oppo these massive, you recognize, Android distributors. So it is nonetheless very early days by way of gross sales for Apple. However once more, it is a part of laying the groundwork for what it hopes will turn out to be its subsequent China.
Tom Chitty
I imply, it is an enormous space of progress, is not it? You recognize, we have talked for years in regards to the type of stagnating progress within the smartphone market in Europe within the U.S. However you recognize, Apple taking a look at India going, wow, we have solely received 7% of market share there, we might develop big quantities. And while additionally doing these different issues with the availability chain, I imply, it is a win-win in lots of respects.
Arjun Kharpal
Yeah. And that is a part of it. One of many issues Apple’s finished very efficiently over time is the best way that it confirmed itself, or billed itself as a high-end premium luxurious model within the smartphone market. And if you take a look at the type of Indian shopper, and like I stated, type of that rising center class, that is what they need premium luxurious units, premium luxurious merchandise. And that is the place Apple has a possibility now. And naturally, as we all know, with Apple, the {hardware} is the, you recognize, one facet of the equation, but in addition, you recognize, Apple makes billions of {dollars} off of its companies enterprise, which incorporates issues like its App Retailer charges, it is Apple Pay, Apple TV, all of these different services and products. So when you recognize it is going into these markets, it isn’t simply occupied with the iPhone, it is occupied with its companies enterprise as effectively to the shoppers there, and the way it would possibly localize a few of that, but in addition all the opposite merchandise in addition to the Apple Watch, and the Mac books, and so on. And so that is why I feel India stands out as a marketplace for Apple versus different international locations in Southeast Asia due to a few of these dynamics which are occurring, which I feel Apple feels, is the place we will actually have a big market sooner or later. However once more, not very quickly.
Tom Chitty
So, for the likes of Vietnam, who we talked about earlier, they are going to be competing towards that, proper? That is the issue that Vietnam faces the place, you recognize, this market that India has is large, a burgeoning center class that need and may afford a premium product like an iPhone. How can Vietnam problem that with regards to attracting Apple to make extra of the elements or a minimum of among the elements in Vietnam?
Arjun Kharpal
Vietnam is fascinating, I used to be writing about it at the moment. Truly, as we’re recording this Apple CEO, Tim Prepare dinner is correct now in Hanoi, Vietnam. He had an egg espresso. I have been to Vietnam earlier than. Have not ever sampled an egg espresso. I imagine, and maybe if now we have any listeners in Vietnam, they’ll appropriate me on this, however I feel it is a Hanoi specialty. And it is type of made with espresso, condensed milk, and like, whipped egg, sounds actually good. Like that is a breakfast in a cup. Yeah. You recognize?
Tom Chitty
Yeah, I used to be simply imagining the whipped egg like an eggnog.
Arjun Kharpal
I feel it is one thing like that once more. I have never had it so I can not attest to how and I might like to attempt it. Yeah, it sounds completely incredible. And Vietnamese espresso is de facto robust and daring, good. So I reckon it tastes wonderful. However so he loved a type of. Apparently, he is assembly with content material creators, builders, and so on. As he goes across the nation, however I feel when Tim Prepare dinner goes someplace, it is usually an indication of Apple’s dedication to that nation. He is been over the previous yr or two to India to China to Vietnam now. Provides you a way I feel, the place the corporate’s focus is. Vietnam has been very spectacular thus far in billing itself as a key manufacturing hub, not only for Apple for different electronics producers as effectively. However you are now beginning to see the MacBook, the Apple Watch the iPad, all starting to be produced in and assembled there in Vietnam. And that is been an enormous push from Apple. I feel it may be attention-grabbing to see if any of the iPhone manufacturing shifts there, you recognize, nevertheless it’s the same story, you recognize, do you may have the experience to have the ability to arrange factories there that understand how to do that? Clearly, Foxconn is the important thing participant right here for Apple. By way of meeting, you recognize, they’re based mostly in Taiwan. They have their greatest operation for the iPhones up in Zhengzhou, China, you recognize, how can they arrange store? All of that these questions nonetheless stay. However the different humorous factor about Vietnam a really attention-grabbing factor, you recognize, Apple has quietly turn out to be the third greatest smartphone participant in Vietnam?
Tom Chitty
In opposition to, I think about, an entire host of Chinese language smartphones?
Arjun Kharpal
There’s two forward of them. Guess the businesses.
Tom Chitty
Oppo?
Arjun Kharpal
Yeah, that is two. Who’s primary?
Tom Chitty
Xiaomi?
Arjun Kharpal
Not Chinese language.
Tom Chitty
Samsung?
Arjun Kharpal
Yeah. However very quietly, it has simply type of gathered a robust place in Vietnam’s smartphone market, as effectively. That is fascinating.
Tom Chitty
Effectively let’s transfer the lens to China and what they should be considering the challenges to their very own smartphone manufacturers, as a result of it feels as a lot about that because it does in regards to the shifting of producing, or a minimum of among the manufacturing. Do you suppose there will be some issues, the truth that on their doorstep, Apple are making critical performs?
Arjun Kharpal
The Apple shift of producing exterior of China is a microcosm of an even bigger battle that China is dealing with proper now, and that’s investor confidence within the nation since Covid. You have seen Beijing actually attempt to roll out the pink carpet over the previous few months to international companies, to get them to speculate to construct up confidence once more. And so with an organization like Apple, a world company, begins to diversify the availability chain, when different corporations start to scale back dependency available on the market, China can be fearful about that, significantly for it type of international investments. By way of the Chinese language smartphone gamers, you recognize, they’re holding up fairly robust. They’re nonetheless doing very effectively in so many markets. Xiaomi and Oppo, particularly, have finished extraordinarily effectively globally. And I’d take this chance to shortly discuss one other Chinese language firm Transsion, in all probability nobody’s ever heard of it. One of many high 5 massive smartphone gamers on the earth I feel quantity 4 now. They personal a model referred to as Tecno. One of many greatest smartphone gamers on the earth proper now. It is a comparable story to Oppo and Vivo just a few years in the past when these type of manufacturers got here up, you recognize, oh these are type of quantity three and 4. Transsion has made massive waves promoting very aggressively priced smartphones into rising markets world wide, truly barely sells into China. They promote exterior Latin America, Africa, varied different locations as effectively. They’ve made massive waves as effectively. So the Chinese language smartphone gamers are doing fairly effectively. For the time being. Xiaomi particularly has seen a reviva. And naturally in China, we have finished the episode on it just a few months again now, however Huawei has been type of reviving as effectively and difficult Apple in China. In reality, China proper now for Apple, by way of from the gross sales standpoint, is a tough market. It is a tough market. It’s dealing with renewed competitors, like I stated, from Huawei, among the Chinese language gamers are bringing out very robust high-end choices. There have been some figures out from IDC, simply once more, as we’re recording this podcast, that confirmed Apple’s world shipments within the first quarter down practically 10% yr on yr. I feel a big a part of that’s China right here and among the weak point in that market. So, you recognize, Apple is dealing with its personal challenges in China, the Chinese language smartphone gamers are holding up fairly effectively in the intervening time. I feel for Apple, the query is, you recognize, it is dealing with slowing world iPhone gross sales, and it wants some progress. And I feel in the end, when it appears to be like at the place the expansion would possibly come from, it may be taking a look at markets like India and like Vietnam, because it type of plans for the following few years. It isn’t tomorrow, rapidly, India and Vietnam are going to be you recognize, two of the most important markets for Apple. No means. It is gonna take a very long time to construct up that model, to construct up that buyer base within the hopes that you recognize, these are the markets that may energy firm’s progress going ahead and unlock billions, doubtlessly 10s of billions {dollars} value of gross sales.
Tom Chitty
Great things. Alright. We’ll depart it there. However earlier than we go, we have got to do in fact, stat of the week. Do you wish to remind us what it was?
Arjun Kharpal
18.8% market share, Tom.
Tom Chitty
I am simply gonna simply say, I really feel like you’ll have given this one away in the course of the podcast.
Arjun Kharpal
Doubtlessly. May need been a pink herring although.
Tom Chitty
Okay. Right here we go. The market share of Apple smartphones in Vietnam.
Arjun Kharpal
I did purposefully say the Vietnam factor. However I assumed perhaps I might throw you off as a result of we have been speaking a lot about India.
Tom Chitty
I do know. Nevertheless it was. I felt like I might see, you recognize, we have sat throughout from one another for some time and your face made a, you made a face, which instructed that there was one thing extra to this.
Arjun Kharpal
Do I’ve a stat of the week face?
Tom Chitty
Yeah, you would not be nice at poker. Are you any good at poker?
Arjun Kharpal
I have never performed shortly. Yeah, I feel my poker face is de facto dangerous. Yeah. I feel I simply type of smile after I’ve received good playing cards and issues like that.
Tom Chitty
It is advisable to get some shades.
Arjun Kharpal
Yeah, I would like to simply put on type of a masks.
Tom Chitty
Masks and shades. Cool. All proper. Effectively, that is it for this episode. I’m on a little bit of a run on stat of the week.
Arjun Kharpal
You might be. You might be doing rather well? Yeah we want some prizes.
Tom Chitty
All proper, earlier than we go, please comply with and subscribe to the present. And you’ll price us and keep in mind, e mail us at [email protected]. Thanks, Arjun.
Arjun Kharpal
Thanks, Tom.
Tom Chitty
We’ll be again subsequent week for one more episode of Past The Valley. Goodbye.
