One of the misconceptions about Apple’s iPhone run was that China was an emerging market. If anyone had been to China in the last four or five years, you would realize there are two China markets. There are parts of China which are under developed but there are also very large parts of the country which are extremely developed and actually quite rich. I’d argue China was ready for Apple before Apple was ready for China. This became clear to me when I started studying the grey market for iPhones many years ago before Apple’s presence was strong there. Every year there are questions about how Apple can grow iPhone sales. But growing revenue is actually a better metric. People fail to see that point so iPhone growth remains a key story.
Wall St. analysts’ opinions are mixed. No one doubts growth will slow for Apple, but whether 2016 sales will be up or down slightly is a key debate. I still maintain China remains a massive growth opportunity but how Apple plans for other emerging markets is perhaps a similarly interesting conversation.
It is no secret Android is hands down the dominant operating system in emerging markets. Using India as an example, Apple’s share of smartphones is less than 5%. In markets where cost is central, iPhones don’t sell well. This is not a surprise. Which is why, in this vein, the lower-cost iPhone keeps entering the conversation. As I explained in this analysis, there is smoke around a lower-cost product but it’s centered around a smaller form factor. Which I personally believe doesn’t line up with emerging market trends in hardware form factors.
When I think about Apple’s strategy for emerging markets, I believe India is the market to watch. The point I made about China being ready for Apple before Apple was ready for China is not true of India. India is thoroughly dominated by Android and my study of the market suggests Indian consumers are quite happy with it and, more specifically, Google’s services. India is also a market very focused on price and value. Apple has a bit of an uphill climb if they want to grow in India and some moves they’ve made, I believe, are focused on learning about the market and their consumers.
Namely, this move to lower the cost of the iPhone 5s in India is quite interesting to me. To some degree, I feel Apple is trying to understand their magic price point in the India market. Via our data, the 5s has seen the most success in terms of consumer interest in India. Colleagues of mine in the analyst community have been tracking Apple to pass 2m iPhones sold in India in 2015 and, with this lower price move, I could actually see them get near 1m in India this quarter alone. Apple is trending up in India — just not nearly sharp enough to make a massive difference.
Apple also has no official store presence in India. They sell through retailers but my sense is Indian consumers, with an emphasis on value and trust, would support an official presence by Apple retail. I could see this as the beginning of a catalyst for Apple in the market.
India could be the market Apple uses as their template for other regions. Brazil is another market Apple has been tentative in and I expect Latin America at large to become a continued focus. Apple has not needed to be in a rush but rather let markets develop and, when the timing is right, start to build their presence. This is likely the strategy of the next five years, the timeline in which many of these emerging markets will develop.
Apple is playing a long game with emerging markets and, hopefully, the street takes this view as well and does not judge them too harshly on some of the short-term market slowdown trends in smartphones.
There are a great many different strategies Apple can take in emerging markets but, in many of them, their presence will add another element of competition which will ultimately benefit consumers in these regions as well.
