Apple Stock (AAPL) to Gain from iPhone Market Expansion
Apple Inc. (NASDAQ:AAPL) is in the news again after its partner, Foxconn Technology Co Ltd (TPE:2354), grabbed headlines last weekend on the possibility of investing around $7.0 billion for a display-making plant in the United States.
Apple stock has strengthened of late, and is hovering around the $120.00 level. There is a sense of optimism that has taken over since President Donald Trump started warming up to the tech community and promised to ease regulations and provide incentives to them. And the latest news on Apple “iPhone” production may bring some relief to investors who have been worrying over the future of the iPhone.
Apple Inc. has been in talks with the Indian government over iPhone production in the country. Reports have come in that Apple has had quite a constructive dialogue with Indian officials concerning the expansion of the company’s local operations in the country. Apple executives were to meet industry officials on Wednesday to further discuss details of the plan. (Source: “Apple says dialogue with India on local expansion plans was ‘constructive’,” Reuters, January 25, 2017.)
The company’s China issues have been growing severe for a while now, hitting AAPL stock hard. Apple Inc. has been focusing on stopping the decline in iPhone sales by considering markets like India. This move has gained significance recently, as there has been pressure from Donald Trump on Apple to stop building iPhones in China.
But shifting iPhone assembly to the U.S. would result in a sharp rise in costs, which may not go down well with either customers or investors. Assembling in India makes better sense not only from cost point of view, but also from the view of the market potential of the country. The smartphone maker has also demanded a series of tax and sourcing concessions from India, and it’s likely that the Indian government will agree to the demands.
But perhaps, most importantly, Donald Trump sees India as a friend, which could be good for Apple stock. On Tuesday, Donald Trump spoke with Indian Prime Minister Narendra Modi and said that Washington considers India a “true friend and partner in addressing challenges around the world.” It is said that Trump and Modi have discussed opportunities to strengthen their partnership on the economy and defense. (Source: “Donald Trump tells Narendra Modi he considers India a ‘true friend’,” CNN, January 25, 2017).
Donald Trump is more benign toward India as opposed to China, and has called the latter a currency manipulator. A number of companies are in a fix as the trade frictions are expected to increase under the Trump administration. Moreover, Apple may consider joint investments with its partners to build plants in the U.S. that make strategic sense, would appease the Trump administration, and help buoy AAPL stock.
Apple iPhone Growth Catalyst
India has become an important growth area for Apple Inc., as the company does not have a significant smartphone market share in the country, leaving a lot of room to grow. Moreover, the iPhone sales from Greater China have been on a decline, with the rise of local players like Xiaomi and Huawei Technologies Co., Ltd. eating into Apple’s market share. This has been a key reason for Apple stock’s decline last year.
With Donald Trump as the new president of United States, the company’s China problem has just become more serious, raising concerns of AAPL stock investors. Considering expansion into countries like India looks like the right thing to do for Apple right now. Along with growth in “Apple Services,” if the company can grow its iPhone sales in growing markets like India, Apple stock will keep its upward march intact and may even surprise investors.