Apple's India dilemma: iPhones at cheaper rates help up sales, but profits sink - Economic Times

Avantika could not have asked for a better birthday gift. "I got an iPhone 5s," she screams, her face flushing with excitement as she flashes her mobile ostentatiously. "I love it," says Avantika, who turned 15 last week. It's not only Avantika, the daughter of the marketing head of a large Indian telecom service provider, who loves Apple.

The past few days have been incredibly lucrative for Apple retailers as iPhone 5s went out of stock in less than 24 hours of its retail launch in India — a first for the iPhone maker in the country. And if there are Indians who swear by Apple, CEO Tim Cook returned the compliment.

"Of course I love India," Tim Cook, Apple CEO, said in an earnings conference call last year. But there's still time for a happy ending to that love story. And that can only happen when — or rather if — the Cupertinobased smartphone giant comes up with a cheaper iPhone for the country.

While the latest iPhone models may have been a big hit in India, they are still in small numbers and too weak to nudge Apple from its distant eighth rank in the country (see Market share is still meagre). It's still not affordable to a vast majority of Indians and prohibitively expensive vis-avis its rivals.

Samsung and Micromax are selling eight to ten times more smartphones than Apple and are locking millions of consumers in the Android ecosystem every quarter, says Neil Shah, research director at Counterpoint Research, a global research firm specializing in technology products. "In India, it's a lost opportunity for Apple," adds Shah. It's a difficult choice to make for Apple in India. If it brings down prices, not only will that cut into its brand equity, it will also eat into its profit margins. For instance, while over the past few quarters Apple has seen its sales volumes grow annually in India, it has been driven largely by older models such as iPhone 4/4s.

"As a result, this has led to some profit erosion in this highly price-sensitive Indian market," explains Mumbai-based Shah. To succeed in a diverse market like India, a manufacturer needs a strong brand, extensive reach, quality products and above all a presence across multiple price bands. While Apple has the brands and quality products, it lacks the reach and broader portfolio, both of which can squeeze the margins, explains Shah. And this is exactly what has happened. Apple's India profit for fiscal year 2013 plunged to Rs 112.66 crore from Rs 311.5 crore a year ago as it aggressively chased volumes by unleashing a marketing blitz and promotional campaigns such as zero EMIs and smartphone buybacks to lure more Indians.

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