“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 Cook dinner stated in Could final yr.
His feedback underscore one motive Apple has not too long ago made an aggressive play to broaden operations in India: the nation has an enormous inhabitants, with a rising center class keen to splash out extra on high-end telephones.
However 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, in keeping with a Bloomberg report this month.
Final yr, an Indian authorities minister stated Apple was trying to ultimately 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 hearken to above — Tom Chitty and I focus on why Apple is pursuing the Indian market — and if it could actually dwell as much as its promise.
In case you have any ideas on this or earlier episodes, please e-mail us at beyondthevalley@cnbc.com.
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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 major 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 trying to scale back its reliance on China.
Arjun Kharpal
I believe we have now 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 largest 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 among the staff there as effectively. And that precipitated large disruptions to manufacturing of iPhones out of the primary place the place the worldwide — the world’s provide — of iPhones are assembled. And I believe that acquired Apple considering, we have been talking rather a lot about Apple’s reliance on China and Apple decreasing 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 may be any form of disruption wherever, that a minimum of we all know, we have now 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 truly had on China in the case of 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 form 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 associated 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 assist, , what China has been doing for a number of years, many years even is, is that definitely worth the de-risking of the availability chain?
Arjun Kharpal
I believe for those who’re Apple, an organization like Apple, with that many merchandise, it’s definitely worth the threat, as a result of what occurs when there’s one other occasion out of your management, or as we all know, there’s these large commerce tensions that also exist between the U.S. and China? It might take an escalation of that to additionally hamper Apple’s skill to supply in China maybe, skill to promote in China maybe. So the way in which Apple is it’s effectively, , they don’t seem to be going to depart China. You already know, China continues to be an important manufacturing hub for Apple. Sure, it has type of barely lowered its reliance on China. However 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 communicate just a little bit about that later. However they’re different areas and investing extra in these areas. In order that, , they’ll begin to maybe slowly scale back among the manufacturing in China. But additionally, if you consider it have the flexibility to ramp up manufacturing elsewhere, let’s simply say, there’s one other situation in China, that disrupts manufacturing to the iPhone, however they’re additionally manufacturing in say, India, then they might doubtlessly, if the manufacturing unit has capability, decide up that slack that was misplaced from China. So for Apple, , not with the ability to get the product to market will value them billions of {dollars} of gross sales. You already know, if they don’t seem to be capable of get their iPhones and different issues to market, nobody’s gonna purchase and persons are going to attend, they may value so it is value 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 completely work although you would want 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, is just not essentially value efficient.
Arjun Kharpal
Yeah. And I believe that is why the ramp-up hasn’t been as aggressive or as simple as individuals 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’ll be able to’t simply shift and transfer away from China, as a lot as , India, and these different hubs are being spoken about, it is not simple to only arrange manufacturing, that takes rather a lot. Firstly, , 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 try this. That is an enormous a part of it. So after we speak about, , 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 to this point. I imply, to this point, India, apparently, in keeping with 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 might be you might be seeing it occur. However the query is, how a lot can India tackle and the way rapidly so, , it is early levels but. So , maybe they have the capability. However have they got sufficient to scale to the extent China is. And the opposite level right here is, , Apple’s not going to need 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, , they don’t seem to be going to say, oh, we wish , 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 are feeling like 1 / 4 of the world’s iPhones, , that could possibly be necessary, , a few of these are going to be bought in India, which is necessary, 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 here are a part of that and a part of the federal government’s incentives to herald overseas firms. In order that’s additionally what’s taking place right here. And so , they need that manufacturing in India, these merchandise can be bought to Indians, but additionally 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 organising 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 example, a good bit of skepticism from listeners in India about whether or not it might legitimately step in and, , change a few of what China has been doing. You probably did say on the finish of that episode, that, , 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 deal with a few of these considerations. You already know, 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, , 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 embrace, , experience and workforce, to do a few of this manufacturing, notably in areas like semiconductors, which is extremely, extremely specialised, , additionally the workforce to be assembling these iPhones must be skilled, and so forth. within the nation, , that takes a little bit of time as effectively, and different electronics. There’s additionally complaints round nonetheless among the crimson tape, paperwork 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, , 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 take care of now, to show itself right into a critical rival to China. And never solely that, I imply, India is just not the one rival to China. Vietnam, Thailand, Indonesia, all of those locations are vying to attempt to … as world electronics firms, not simply Apple, however world electronics firms trying to diversify their provide chains to different elements, Southeast Asia typically, are going to be massive beneficiaries. And you have already seen different international locations additionally. So India is just not 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 skill to be a producing, high-tech hub but, however what we have been speaking about is what sort of groundwork they’re laying the way in which that the Prime Minister Narendra Modi is speaking to all of those overseas firms, together with Tim Cook 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, is just not solely on the manufacturing facet, it is that large inhabitants.
Tom Chitty
Yeah, I need to get into that, as a result of that is an enormous a part of this. In India, what are the preferred telephone 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, , crippled their, their smartphone enterprise. However the Indian smartphone market to date has been dominated by some low to mid-priced smartphones, proper? You already know, primarily Android telephones. However what you are seeing now, and that is once more, why the India market specifically is changing into fairly essential, I believe, to Apple and Tim Cook dinner’s occupied with the place to focus on is the huge inhabitants, what’s it 1.4 billion or so individuals there, but it surely’s exhibiting among the related dynamics to what China confirmed just a few years in the past, a rising center class getting wealthier, keen to spend on expertise, notably 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 , opening a bodily Apple retailer usually for Apple is an indication of a giant deal. It is a market they need to goal first Apple shops in 2023 offers you a way of what Apple is when it seems to be in India. Sure, the manufacturing is necessary. Sure. It’ll be a key hub for manufacturing for iPhones, however truly the buyer is what pursuits Apple rather a lot 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 concerning 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, , it is then competing with the U.S. and different international locations now. So it is in high 5. Out there, Apple solely has about 7% market share. In the meanwhile, it is behind Samsung, it is behind Xiaomi is behind Oppo these massive, , 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 already know, we have talked for years concerning the type of stagnating development within the smartphone market in Europe within the U.S. However , Apple India going, wow, we have solely acquired 7% of market share there, we might develop large 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 through the years is the way in which that it confirmed itself, or billed itself as a high-end premium luxurious model within the smartphone market. And while you have 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, , one facet of the equation, but additionally, , 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 it is going into these markets, it is not simply occupied with the iPhone, it is occupied with its companies enterprise as effectively to the shoppers there, and the way it may localize a few of that, but additionally all the opposite merchandise in addition to the Apple Watch, and the Mac books, and so forth. And so for this reason I believe India stands out as a marketplace for Apple versus different international locations in Southeast Asia due to a few of these dynamics which are taking place, which I believe Apple feels, is the place we are able to actually have a major 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 towards that, proper? That is the issue that Vietnam faces the place, , 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 in the case of 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 right this moment. Really, as we’re recording this Apple CEO, Tim Cook 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 consider, and maybe if we have now any listeners in Vietnam, they’ll appropriate 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 already know?
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 can not attest to how and I would like to strive it. Yeah, it sounds completely improbable. And Vietnamese espresso is admittedly sturdy and daring, good. So I reckon it tastes superb. However so he loved a kind of. Apparently, he is assembly with content material creators, builders, and so forth. As he goes across the nation, however I believe when Tim Cook 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 believe, the place the corporate’s focus is. Vietnam has been very spectacular to this point 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 a giant push from Apple. I believe it will be attention-grabbing to see if any of the iPhone manufacturing shifts there, , but it surely’s an analogous story, , do you have got 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, , they’re based mostly in Taiwan. They have their largest operation for the iPhones up in Zhengzhou, China, , how can they arrange store? All of that these questions nonetheless stay. However the different humorous factor about Vietnam a really attention-grabbing factor, , Apple has quietly turn into the third largest 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 accrued a powerful place in Vietnam’s smartphone market, as effectively. That is fascinating.
Tom Chitty
Nicely 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 concerning the shifting of producing, or a minimum of among 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 crimson carpet over the previous couple of months to overseas companies, to get them to take a position to construct up confidence once more. And so with an organization like Apple, a world company, begins to diversify the availability chain, when different firms start to scale back dependency available on the market, China can be nervous about that, notably for it type of overseas investments. By way of the Chinese language smartphone gamers, , they’re holding up fairly sturdy. They’re nonetheless doing very effectively in so many markets. Xiaomi and Oppo, specifically, have finished extraordinarily effectively globally. And I’d take this chance to rapidly speak about one other Chinese language firm Transsion, in all probability nobody’s ever heard of it. One of many high 5 massive smartphone gamers on this planet I believe quantity 4 now. They personal a model known as Tecno. One of many largest smartphone gamers on this planet proper now. It is a related story to Oppo and Vivo just a few years in the past when these type of manufacturers got here up, , 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, numerous different locations as effectively. They’ve made massive waves as effectively. So the Chinese language smartphone gamers are doing fairly effectively. In the meanwhile. Xiaomi specifically 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. The truth is, 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, among the Chinese language gamers are bringing out very sturdy 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 almost 10% yr on yr. I believe a big a part of that’s China right here and among the weak spot in that market. So, , 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, , it is going through slowing world iPhone gross sales, and it wants some development. And I believe in the end, when it seems to be at the place the expansion may come from, it will be markets like India and like Vietnam, because it type of plans for the following few years. It is not tomorrow, impulsively, India and Vietnam are going to be , two of the most important markets for Apple. No method. It is gonna take a very long time to construct up that model, to construct up that buyer base within the hopes that , these are the markets which may energy firm’s development going ahead and unlock billions, doubtlessly 10s of billions {dollars} value 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 need 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
Doubtlessly. Might need been a crimson 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 believed perhaps I would throw you off as a result of we have been speaking a lot about India.
Tom Chitty
I do know. However it was. I felt like I might see, , we have sat throughout from one another for some time and your face made a, you made a face, which steered 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 admittedly unhealthy. Yeah. I believe I simply type of smile after I’ve acquired good playing cards and issues like that.
Tom Chitty
You’ll want to get some shades.
Arjun Kharpal
Yeah, I want to only put on type of a masks.
Tom Chitty
Masks and shades. Cool. All proper. Nicely, that is it for this episode. I’m on a little bit of a run on stat of the week.
Arjun Kharpal
You’re. You’re 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 fee us and bear in mind, e-mail us at beyondthevalley@cnbc.com. Thanks, Arjun.
Arjun Kharpal
Thanks, Tom.
Tom Chitty
We’ll be again subsequent week for an additional episode of Past The Valley. Goodbye.
