Apple, Inc. Reportedly Preparing to Begin Manufacturing iPhones in India

By Evan Niu, CFA Markets Fool.com

There's been a lot of talk over the past few months about where Apple (NASDAQ: AAPL) may or may not expand its manufacturing footprint. President Trump would naturally like it if Apple brought some manufacturing jobs back home, despite the massive cost increases that would come along with such a move. But Apple has long faced challenges with expanding sales in India in part due to a government requirement that requires 30% of a product to be locally sourced in order to open single-branded retail stores.

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Following reports that the Mac maker was considering moving forward with having one of its contract manufacturing partners set up shop in India, The Wall Street Journal says the initiative is almost a go.

iPhone 7 Plus, which is not expected to be made in India. Image source: Apple.

Just a couple months away

Taiwanese contract manufacturer Wistron is reportedly in the final stages of moving forward with opening an iPhone manufacturing facility that will produce the iPhone 6, iPhone 6s, and iPhone SE. iPhone 6 and 6s production could commence in as little as four to six weeks, while the iPhone SE is scheduled to start being produced in roughly three months.

By assembling iPhones in the country, retail prices should come down by approximately $100, as Apple should be able to avoid having to pay import duties. Apple's pricing still sits out of reach for many Indian consumers, so every little bit that it can do to incrementally reduce prices is welcome; the company has long suffered from single-digit market share in India.

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And if manufacturing the handsets locally can help Apple meet the 30% local sourcing requirement, it could also pave the way for Apple retail stores, which are strategically important distribution channels where Apple can control and maintain consistent customer experiences.

That's what he said

Over the years, Apple has vaguely made comments that it wants to expand more in India, but we've only started to see meaningful action in the past year or two. The good news is that the company is already seeing results, and India is becoming one of its fastest-growing geographical markets. That may not say much since its business there is relatively small, so high growth rates aren't all that hard to hit, but CEO Tim Cook's comments throughout 2016 are certainly encouraging.

April 2016 earnings call:

From an India point of view, if you look at India, and each country has a different story a bit, but the things that have held not only us back, perhaps, but some others as well, is that the LTE rollout with India just really begins this year. So we will begin to see some really good networks coming on in India. That will unleash the power and capability of the iPhone, in a way that an older network, 2.5G or even some 3G networks, would not do. The infrastructure is one key one, and the second one is building the channel out.

July 2016 earnings call:

India is now one of our fastest-growing markets. In the first three quarters of this fiscal year, our iPhone sales in India were up 51% year on year. We just announced a first-of-its-kind design and development accelerator to support Indian developers creating innovative applications for iOS, and we opened a new office in Hyderabad to accelerate Maps development. We're looking forward to opening retail stores in India down the road, and we see huge potential for that vibrant country.

October 2016 earnings call:

On India, I think it's important to look not only at per capita income, which may be what you're looking at, but sort of look at the number of people that are or will move into the middle class over the next decade. And, the age of the population -- if you look at India, almost 50% of the population is under 25. So, you have a very, very young population. The smartphone has not done as well in India in general.

On the January 2017 earnings call, Cook noted that despite India's move toward demonetization, which has hurt some companies there, Apple enjoyed "all-time record revenue results" in the country. It only goes up from here.

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Evan Niu, CFA owns shares of Apple. 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. The Motley Fool has a disclosure policy.