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Apple's India dreams slip as competition intensifies

Ritesh Shukla | NurPhoto | Getty Images

Apple's ambition to make a splash in India's growing smartphone market appears to be slipping, with recent data suggesting success could be elusive in the near term.

Not only does Apple have to contend with dethroning market leader Samsung and competing with local players, it now has to contend with the growing popularity of Chinese handset makers in Asia's third largest economy, analysts said.

The Cupertino, California-based company failed to crack the top five, in terms of smartphone market share, in India for the fourth quarter of 2016, according to a report from research firm Canalys released Tuesday. Chinese smartphone brands, on the other hand, occupied four of the five spots behind leader Samsung.

The overall smartphone market grew by 4 percent annually in the October-December quarter, with 28.1 million smartphones shipped; Samsung dominated with 22 percent of the marketshare, despite seeing an 11 percent on-year decline in shipments.

Local players Micromax, Intex and Lava, which accounted for nearly 30 percent of the market in the final quarter of 2015, fell out of the top five in the final three months of 2016 after the Indian government's demonetization sparked a cash squeeze.

"Local brands' target customers typically buy in cash and from independent retailers. With the short-term liquidity crunch caused by demonetization, these retailers are suffering a slowdown in consumer spending," said Rushabh Doshi, an analyst at Canalys, in the report.

"Local vendors are losing out as retailers look to shift their stock to fast-moving, current devices," he said.

Chinese smartphone maker OPPO saw a massive jump in its marketshare annually; in 2016, it shipped 2.6 million units in India, up from 200,000 handsets in the same period a year earlier.

Canalys cited the Chinese company's aggressive marketing tactics – the company has sponsored popular TV shows, cricket tournaments and tapped Bollywood celebrities to become brand ambassadors – as a key factor underpinning the growth numbers.

A similar report from Counterpoint Research showed the likes of vivo, OPPO, Xiaomi and Lenovo pushed out Indian handset makers from the top five in the fourth quarter, capturing nearly 36 percent of the market share.

Apple falling behind the pack

Though the Canalys report did not provide numbers on how many smartphones Apple shipped in the fourth quarter of 2016, Counterpoint Research said the iPhone maker came in 10th in the smartphone rankings for the quarter, although it led market share in the premium segment.

Analysts point to the iPhone's high price point as an obstacle in Apple's attempts to expand its presence in India.

Gartner's research VP, Mark Hung, told CNBC's "Street Signs" on Wednesday, "Apple needs to bring the prices further down in India so that it's more (affordable) to a greater populace."

The iPhone 7's starting price is $649 in the U.S., but in India, once import taxes are factored in, it can climb as high as $900. For comparison, the average annual income in India is just over $1,500, according to World Bank data.

One way of reducing the price of the iPhone in India, Hung said, was to manufacture the handsets locally to circumvent India's import taxes.

According to local media reports, the iPhone maker recently met with Indian government officials to discuss a series of concessions on taxes and imports of components to set up an iPhone manufacturing unit in the country, which included asking for a 15-year customs duty holiday on imported iPhone kits as well as capital equipment.

The government had previously rejected Apple's request for a waiver of the compulsory 30 percent local sourcing norm to open fully-owned retail outlets, the Economic Times reported.

The lobbying from Apple puts the Indian government in a tricky situation, according to analysts.

On one hand, rejecting Apple's requests could be seen as a blow of Prime Minister Narendra Modi's key Make In India initiative, while allowing the concessions could lead to other big international companies asking for similar allowances.

"I think it's a fine balance at this stage," Ram Gorlamandala, co-founder and director at Sydney-based Tat Capital, told CNBC's "The Rundown" on Wednesday, pointing out having local manufacturing units would let companies such as Apple train the Indian workforce and boost local employment.

Gartner's Hung added that initially Apple would find it difficult to locally source the high-tech components that go into assembling the iPhones because they are not currently being made in India, making it necessary to import.

"Overtime, if (Apple) commits to a path where eventually those high-end components can be sourced locally, then I think the Indian government may be more amenable to providing them with some of those breaks initially."

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