“There are lots of people coming into the center class, and I actually really feel that India is at a tipping level, and it is nice to be there,” Apple CEO Tim Prepare dinner stated in Could final 12 months.
His feedback underscore one purpose Apple has lately made an aggressive play to broaden 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, by way of Foxconn, the Taiwanese agency that assembles iPhones. Apple now makes round 1 in 7, or 14%, of its iPhones in India, based on a Bloomberg report this month.
Final 12 months, an Indian authorities minister stated Apple was seeking to finally manufacture 25% of all of its iPhones in India.
It is led many buyers to wonder if India can turn into the following China for Apple.
Within the newest episode of CNBC Tech’s “Past the Valley” podcast — which you’ll be able to hearken to above — Tom Chitty and I talk about why Apple is pursuing the Indian market — and if it might reside as much as its promise.
When you’ve got 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 “Past the Valley” launched on Apr. 11, 2024. It has been edited for readability and brevity.
Tom Chitty
Earlier than we get again to our fundamental 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 cut back its reliance on China.
Arjun Kharpal
I believe we’ve got 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 staff who type of needed to be quarantined and issues like that. After which what adopted was some unrest amongst a few of the staff there as effectively. And that brought on enormous disruptions to manufacturing of iPhones out of the principle place the place the worldwide — the world’s provide — of iPhones are assembled. And I believe that obtained Apple considering, we have been talking quite a bit about Apple’s reliance on China and Apple lowering its reliance, which hadn’t actually occurred in any respect. However I believe that second, what it did was put scrutiny on Apple’s reliance on China as a producing hub. It then additionally, I believe, for the corporate, accelerated plans for the corporate to assume 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 at the least we all know, we’ve got provides of those merchandise and might depend on different locations to ramp up manufacturing. And so I believe that is actually what occurred. It was the Covid period that sparked that. A few of these intense restrictions, I believe, uncovered how a lot reliance Apple really had on China relating to this. I believe one estimate put, at one level, I believe China was producing one thing like 90% of the world’s iPhones. And so that provides you the thought 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 at the least 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 already know, what China has been doing for a number of years, a long time even is, is that definitely worth the de-risking of the availability chain?
Arjun Kharpal
I believe should you’re Apple, an organization like Apple, with that many merchandise, it’s definitely 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 enormous commerce tensions that also exist between the U.S. and China? It may take an escalation of that to additionally hamper Apple’s capability to provide in China maybe, capability to promote in China maybe. So the best way Apple is taking a look at it’s effectively, you already know, they are not going to depart China. You recognize, China remains to be crucial manufacturing hub for Apple. Sure, it has type of barely diminished its reliance on China. Nevertheless it’s nonetheless an enormous half and can be for the approaching years. I believe 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 converse 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 already know, they will begin to maybe slowly cut back a few of the manufacturing in China. But in addition, if you concentrate on it have the flexibility to ramp up manufacturing elsewhere, let’s simply say, there’s one other challenge in China, that disrupts manufacturing to the iPhone, however they’re additionally manufacturing in say, India, then they may probably, if the manufacturing facility has capability, decide up that slack that was misplaced from China. So for Apple, you already know, 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 are going to price so it is price them spending the billions to then spend money on different hubs. And I believe that is what’s what they’re doing.
Tom Chitty
For it to totally work although you would want different nations, whether or not it is India, or Vietnam, we will be speaking about in a bit, they want to have the ability to do it from finish to finish, or at the least fill these roles that China was doing, which, once more, just isn’t essentially price efficient.
Arjun Kharpal
Yeah. And I believe 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 already know, you’ll be able to’t simply shift and transfer away from China, as a lot as you already know, India, and these different hubs are being spoken about, it is not simple to simply arrange manufacturing, that takes quite a bit. Firstly, you already know, it is issues like native laws and incentives and all of that, and ensuring it is definitely worth the return on funding. However then it is the experience, it is the precise workforce, who’re ready to do this. That is an enormous a part of it. So once we discuss, you already know, 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 international iPhones. And that was double the final fiscal 12 months, 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 already know, it is early levels but. So you already know, 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 already know, Apple’s not going to wish to recreate its reliance on anybody nation. Once more, the entire level of attempting to scale back reliance on China is to have a diversified provide chain. So, you already know, they are not going to say, oh, we wish you already know, 60% of iPhones to be produced in India. Now. I doubt it. One minister, final 12 months, was suggesting that Apple had stated that, finally, they need about 25% of iPhones, as you stated in your intro, by 2030 produced in India, which, you already know, you’re feeling like 1 / 4 of the world’s iPhones, you already know, that could possibly be essential, you already know, a few of these are going to be offered in India, which is essential, native manufacturing. We did that episode speaking about India’s want to turn into the type of high-tech manufacturing hub of Asia. Apple’s efforts listed below 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 already know, they need that manufacturing in India, these merchandise can be offered to Indians, but in addition exported, as effectively. And so that you’re beginning to see, I believe 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 assume 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 instance, a good bit of skepticism from listeners in India about whether or not it may legitimately step in and, you already know, exchange a few of what China has been doing. You probably did say on the finish of that episode, that, you already know, we’re nonetheless a great 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 tackle a few of these considerations. 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 already know, that that is, that is fairly clear and evident at this level. There’s loads of challenges that stay in India, I believe we have we have talked about a few of them right here. These embody, you already know, experience and workforce, to do a few of this manufacturing, notably in areas like semiconductors, which is extremely, extremely specialised, you already know, additionally the workforce to be assembling these iPhones should be skilled, and many others. within the nation, you already know, that takes a little bit of time as effectively, and different electronics. There’s additionally complaints round nonetheless a few of the pink tape, paperwork that is still, a few of the guidelines, all of those sorts of issues at this level, are challenges for the India market, in addition to in fact, you already know, making certain that there’s belief within the political system, to some extent, as effectively. So there’s all of those challenges, I believe India has to cope with now, to show itself right into a critical rival to China. And never solely that, I imply, India just isn’t the one rival to China. Vietnam, Thailand, Indonesia, all of those locations are vying to attempt to … as international electronics corporations, not simply Apple, however international electronics corporations seeking to diversify their provide chains to different elements, Southeast Asia usually, are going to be massive beneficiaries. And you’ve got already seen different nations additionally. So India just isn’t solely attempting to type of rival China in that extent. There’s different nations which might be additionally vying for that place and competitors, that are straight 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 capability 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 most 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, just isn’t solely on the manufacturing aspect, 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 preferred 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 loads of issues on the worldwide market. However at one level, they have been doing very, very effectively earlier than U.S. sanctions, you already know, crippled their, their smartphone enterprise. However the Indian smartphone market so far 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 believe, to Apple and Tim Prepare dinner’s fascinated by the place to focus on is the large inhabitants, what’s it 1.4 billion or so folks there, but it surely’s displaying a few of the comparable dynamics to what China confirmed a number of years in the past, a rising center class getting wealthier, prepared to spend on expertise, notably within the massive cities, the likes of Mumbai, the likes of New Delhi the place they’ve opened really their first Apple Shops final 12 months. And you already know, opening a bodily Apple retailer typically 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 seems to be in India. Sure, the manufacturing is essential. Sure. It is going to be a key hub for manufacturing for iPhones, however really the patron is what pursuits Apple quite a bit 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 loads 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 12 months. Within the second quarter of final 12 months, India, for the primary time grew to become considered one of Apple’s high 5 markets for gross sales. So, you already know, it is then competing with the U.S. and different nations now. So it is in high 5. Out there, Apple solely has about 7% market share. In the mean time, it is behind Samsung, it is behind Xiaomi is behind Oppo these massive, you already know, 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 into its subsequent China.
Tom Chitty
I imply, it is an enormous space of development, is not it? You recognize, we have talked for years in regards to the type of stagnating development within the smartphone market in Europe within the U.S. However you already know, Apple taking a look at India going, wow, we have solely obtained 7% of market share there, we may develop enormous 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 while you take a look at the type of Indian client, 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 chance now. And naturally, as we all know, with Apple, the {hardware} is the, you already know, one aspect of the equation, but in addition, you already know, Apple makes billions of {dollars} off of its providers enterprise, which incorporates issues like its App Retailer charges, it is Apple Pay, Apple TV, all of these different services. So when you already know it is going into these markets, it is not simply fascinated by the iPhone, it is fascinated by its providers enterprise as effectively to the customers there, and the way it may localize a few of that, but in addition all the opposite merchandise in addition to the Apple Watch, and the Mac books, and many others. And so for this reason I believe India stands out as a marketplace for Apple versus different nations in Southeast Asia due to a few of these dynamics which might be occurring, which I believe 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’ll be competing in opposition to that, proper? That is the issue that Vietnam faces the place, you already know, this market that India has is big, a burgeoning center class that need and might afford a premium product like an iPhone. How can Vietnam problem that relating to attracting Apple to make extra of the parts or at the least a few of the parts in Vietnam?
Arjun Kharpal
Vietnam is fascinating, I used to be writing about it as we speak. 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 we’ve got any listeners in Vietnam, they will right me on this, however I believe 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 believe it is one thing like that once more. I have not had it so I am unable to attest to how and I would like to strive it. Yeah, it sounds completely unbelievable. And Vietnamese espresso is absolutely robust and daring, good. So I reckon it tastes superb. However so he loved a type of. Apparently, he is assembly with content material creators, builders, and many others. As he goes across the nation, however I believe when Tim Prepare dinner goes someplace, it is typically an indication of Apple’s dedication to that nation. He is been over the previous 12 months or two to India to China to Vietnam now. Offers you a way I believe, 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 believe it will be attention-grabbing to see if any of the iPhone manufacturing shifts there, you already know, but it surely’s an analogous story, you already know, do you will 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. When it comes to meeting, you already know, they’re primarily based in Taiwan. They have their greatest operation for the iPhones up in Zhengzhou, China, you already know, 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 already know, Apple has quietly turn into the third greatest smartphone participant in Vietnam?
Tom Chitty
In opposition to, I think about, a complete 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 accrued 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 have to 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 at the least a few of the manufacturing. Do you assume there will be some considerations, 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 a much bigger battle that China is going through proper now, and that’s investor confidence within the nation since Covid. You’ve got seen Beijing actually attempt to roll out the pink carpet over the previous couple of 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, notably for it type of international investments. When it comes to the Chinese language smartphone gamers, you already know, 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 would 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 believe quantity 4 now. They personal a model known as Tecno. One of many greatest smartphone gamers on the earth proper now. It is a comparable story to Oppo and Vivo a number of years in the past when these type of manufacturers got here up, you already know, oh these are type of quantity three and 4. Transsion has made massive waves promoting very aggressively priced smartphones into rising markets world wide, really barely sells into China. They promote exterior Latin America, Africa, numerous different locations as effectively. They’ve made massive waves as effectively. So the Chinese language smartphone gamers are doing fairly effectively. In the mean time. Xiaomi particularly has seen a reviva. And naturally in China, we have finished the episode on it a number of months again now, however Huawei has been type of reviving as effectively and difficult Apple in China. In actual fact, China proper now for Apple, by way of from the gross sales viewpoint, is a tough market. It is a tough market. It’s going through renewed competitors, like I stated, from Huawei, a few of 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 international shipments within the first quarter down practically 10% 12 months on 12 months. I believe a big a part of that’s China right here and a few of the weak point in that market. So, you already know, Apple is going through its personal challenges in China, the Chinese language smartphone gamers are holding up fairly effectively in the meanwhile. I believe for Apple, the query is, you already know, it is going through slowing international iPhone gross sales, and it wants some development. And I believe finally, when it seems to be at the place the expansion may come from, it will 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, swiftly, India and Vietnam are going to be you already know, two of the largest 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 already know, these are the markets that may energy firm’s development going ahead and unlock billions, probably 10s of billions {dollars} price of gross sales.
Tom Chitty
Good 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 throughout the podcast.
Arjun Kharpal
Probably. Might 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 would 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 may see, you already know, we have sat throughout from one another for some time and your face made a, you made a face, which recommended 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 not performed shortly. Yeah, I believe my poker face is absolutely dangerous. Yeah. I believe I simply type of smile once I’ve obtained good playing cards and issues like that.
Tom Chitty
You’ll want to get some shades.
Arjun Kharpal
Yeah, I want 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’d like some prizes.
Tom Chitty
All proper, earlier than we go, please comply with and subscribe to the present. And you may charge 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.
