Apple Inc.'s iPhone SE Is Failing in India: What Investors Should Know

By Markets Fool.com


Image source: Apple.

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Apple (NASDAQ: AAPL) has hoped for a while now that its iPhones would find their footing in India, the world's second-largest smartphone market.

The company has made some progress in the country, with India recently allowing Apple to open its own stores in the country. That will eventually allow Appleto sell phones directly to consumers, instead of through third-party retailers like it does now.

But new smartphone shipment data recently released by IDC brought back to light Apple's problems in India.

The IDC data shows that Apple still trails behind the market leader Samsung (NASDAQOTH: SSNLF) in the country and is fighting an uphill battle against Chinese vendors as well.

The new iPhone SE, debuted back in March, was supposed to help Apple gain a foothold in India. The device sports a 4-inch Retina display, 12-megapixel rear camera, and is powered by Apple's A9 processors and M9 motion co-processor.

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But despite the specs and cheaper price (it starts at $399 in the U.S.), the phone is failing to deliver in India. According to IDC, "Apple's iPhone SE failed to make any significant impact in the premium segment while its previous generation iPhone 5S continued to contribute majority volume."

Apple is, of course, expensive in India. The average price for a smartphone in the country is about $150, and Apple's phones begin selling in India for 39,000 rupees (about $580). For that price, consumers can easily get a larger Android device with similar specs and much more internal memory.

The iPhone SE not only failed to make a dent in the country's smartphone market, but it was also unsuccessful in capturing the majority of the high-end market. That position belongs to Chinese vendors, which now hold one-third of the high-end market in India (up from just 9% a year ago).

That growth has been spread out among Lenovo, Xiaomi and some other Chinese companies. In the past, Lenovo was the only Chinese vendor to ship over 1 million smartphones in India in a quarter. Now there are three Chinese vendors doing it.

Where Apple goes from here

Apple is much closer to selling its phone from its own stores in India after a recent proposal was ratified by India's finance minister. This means that Apple, and other single-brand companies that make high-tech goods, don't have to follow India's current law that requires foreign companies to source at least 30% of their devices' material from India.

Having Apple stores in India might eventually help the company's brand in the country, but I think the only way the iPhone maker is going to make any headway is to lower prices.

Apple's iPhone manufacturer, Foxconn, is building a new plant in India that's rumored to be for Apple device production. If it is, and Apple makes some of its iPhones in India, then the company may be able to lower its iPhone prices to better compete with other companies.

Or, it could simply drop the prices before that in order to gain some sliver of market share. At this point, Apple needs to be more aggressive in getting Indian consumers to buy its devices -- and it's becoming increasingly clear that the iPhone SE isn't the best strategy.

India is too large of a market for Apple to keep getting it wrong. If the company's notoriously high margins have to be shaved just a little in order to increase sales, then it might just be well worth the sacrifice.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.