(ATF) Apple's top contract manufacturers plan to ramp up production in India will not only solve supply bottlenecks, but is expected to rev up its sales on the Subcontinent, analysts say.
iPhone resellers in India have cheered Pegatron’s announcement that it will make an initial investment of $150 million to manufacture iPhones, as the move is likely to ease or eliminate nagging supply hurdles, as well as making the “highly desirable” brand cheaper and more affordable.
Making iPhones in India will also boost growth in a country that is already eager to get more of the American IT behemoth's products.
Taiwan-headquartered Pegatron Corp, Apple’s second largest contract manufacturer, confirmed on Friday that it has finalised an initial investment of $150 million to set up a plant in India to assemble iPhones from the second half of next year.
Pegatron had problems with Apple last week, with the US tech giant forced to suspend business with the Taiwanese manufacturer because it violated the group's Supplier Code of Conduct, by allowing student workers to work nights and/or overtime and sometimes work on projects unrelated to their major.
However, Pegatron CEO Liao Syh-jang later told an investor conference that the company's investment in India would go ahead – and be increased over the next two years.
Pegatron and two other Apple suppliers – Foxconn and Wistron – recently received entitlements of concessions under India’s production-linked incentive (PLI) scheme that kicked off on August 1, 2020.
Pegatron, which registered in India in July, will be the third iPhone maker in India. Foxconn and Wistron already assemble the iPhone XR, the iPhone 11 and the iPhone SE 2020 in India.
Foxconn and Wistron have started benefitting from the PLI concessions, that could spur Apple to locally produce devices worth $50 billion over the next five years. But the bulk of that production would be exported, according to the government.
Foxconn and Wistron have reportedly committed to invest $750 million over the next five years to tap into the PLI scheme, which offers local handset makers five years of cash incentives on any increase in sales from 2019-20.
“With gradual lowering and rationalisation of prices over the years, suddenly iPhones in India have become more affordable and reachable than other premium smartphones,” Rushabh Doshi, research director at Canalys India told Asia Times Financial.
“Making in India enables Apple to lower the prices because it doesn’t have to pay the import duty (of 22%) for importing handsets.”
Industry sources say over the past year the average selling price of an entry-level iPhone handset has fallen by over $300 – “and each time Apple introduces a new handset model, the incumbent bestseller (currently iPhone 11) gets even more affordable,” Manish Khatri from Mahesh Telecom, a reseller based in Mumbai, told ATF.
Hours after the iPhone 12 launch in mid-October for instance, the price of iPhone 11 dropped by $200.
Small wonder that Apple is on a roll.
In a call to analysts early this year to announce the company's December 2019 quarterly performance, Apple CEO Tim Cook said that while many developed markets witnessed double digit growth, “emerging markets led by Brazil, Mainland China, India, Thailand, and Turkey," grew in double digits.
And in an earnings call in last month (October), Cook added that despite seven months of pandemic-driven lockdown, Apple “also set a September quarter record in India, thanks in part to a very strong reception to this quarter's launch of launch of our online store in the country.”
Doshi of Canalys said: “The appetite for smartphones is definitely high for Indian buyers of premium handsets, and iPhone is just one of the only three (Samsung and One Plus are the others) choices now available in the market.”
Solving supply constraints
During the October call, Cook also talked about the supply constraints the company faces when producing iPhones, saying Apple had supply issues with iPad and Mac line-ups also this year – triggered by heavy demand from remote learning and people working from home due to the pandemic.
But it was hard to say how long Apple would face such problems, he added.
“Ramping up production in India will also help Apple address that problem,” an industry source who requested anonymity, said.
Resellers say, the lead time from putting in an order for stocks to actually receiving the supply is long; often too long to take advantage of a sudden spike in demand.
“By making in India the hope is that Apple would be able to reduce the delivery lead time significantly; I reckon the lead time could be cut by half at least,” said the source.
Analysts said given that Apple has targeted doubling its iPhone sales in India by September 2021, it will have to continue focusing on the country aggressively.
“Apple currently sells a little over 1 million iPhones a year and if it has to achieve its India growth target it needs further reductions in prices to increase affordability. But investments by Pegatron, Wistron and Foxconn reinforce the belief that Apple will continue with its India ambitions,” Doshi said.
According to techARC, total mobile handset sales in India are expected to touch 270 million units by the end of this year.