India Production Could Buoy AAPL Stock
While Apple Inc. (NASDAQ:AAPL) famously manufactures its “iPhones” in China, sales within China have slowed significantly. To make up for this slowdown, the company may pivot to the second biggest mobile phone market in the world: India.
Gaining a foothold in India could pay dividends for Apple stock (AAPL) down the line, especially since the current government is welcoming foreign tech companies with open arms.
As such, Apple sent a letter to the government outlining its manufacturing plans and asking for certain tax exemptions and subsidies. More to the point, Apple may be able to open its own stores in India. (Source: “Apple Is Reportedly in Talks with This Country to Start Local Manufacturing,” Fortune, December 20, 2016.)
Prime Minister Narendra Modi has cleared the red tape that would traditionally keep those companies at bay. For instance, India had several roadblocks preventing foreign retailers from competing with local companies.
That law made it understandably difficult for foreign companies to squeeze into the Indian market. Modi scaled back those restrictions, making it possible for companies like Apple to enter India, but there was a price to pay.
The companies would have to source 30% of their materials from local sources. They’d have three years to make the transition, but it would ensure that India’s economy would reap the benefits. In making this compromise, Modi was trying to lure Apple and other tech firms to the subcontinent.
There’s some evidence it is working. Amazon.com, Inc. (NASDAQ:AMZN) has already ploughed billions into winning India’s e-commerce market. All of Silicon Valley’s titans are realizing that India is an oasis in the barren wasteland of global economic growth.
Apple’s misadventures in China are the perfect example. Chinese sales fueled Apple stock for the past few years, but an economic slowdown in the far east crushed Apple’s revenue. In fact, iPhone sales slipped for the first time ever in 2016.
The only frontiers left would be Sub-Saharan Africa and India. Since India is stable, democratic, and capable of supporting a growing middle class, it is the natural choice for AAPL stock.
Although Apple wouldn’t manufacture the iPhones or “iPads” itself, it would employ a third-party builder like it does in China. In fact, it is likely to keep the contractor—a company named Foxconn Technology Co Ltd—which also has a facility in southern India.
At present, iPhones account for less than two percent of India’s smartphone market. But that could soon change if Apple is allowed to build its smartphones locally. Gaining special incentives from Modi’s government could be the way to guarantee AAPL stock another decade of growth.