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India Is Turning into a Ridiculous Success for Apple



Fundamentals


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INDIA
India will represent the second largest smartphone market to China as of this year, overtaking the United States. Here's the growth via Statista

SMARTPHONE USERS IN INDIA


That's 204 million smartphone users in India in 2016. By 2017, India will be larger than the United States.


Until recently Apple had no footprint in the country because of a national law that protects home grown manufacturers. In fact, here's Apple's miniscule market share as of mid 2015:

SMARTPHONE MARKET SHARE IN INDIA


Many people reported those numbers closer to 1%. Even more, Morgan Stanley reported that nearly half of the Indian population hasn't even heard of the Apple brand. So why get bullish now?

EVERYTHING IS CHANGING
A tectonic shift began last year with a visit by Apple's CEO Tim Cook and a private meeting with India's Prime Minister. Suddenly, the earth shook:

Shortly after the meeting we got this news: India has singled out "cutting-edge technology" as a segment that can side-step the 30% local producer rule and Apple has been singled out as "cutting-edge technology." What a coincidence.

Then, yesterday, the Times of India wrote an article: "Apple may get to open stores without 30% sourcing norm."

"The government is set to waive the requirement of mandatory domestic sourcing for Apple, paving the way for the global technology giant to open its own retail outlets in the country."

IT'S ALREADY WORKING
If you recall that that 1%-2% market share we looked at in India as of mid 2015, news from Quartz broke in March that the tide is shifting, and it's building into a tsunami:

"iPhone sales made up 4.6% of the overall smartphones sold in India's top 30 cities between October and December 2015."

That number has spiked to 5.8% in tier-I Indian cities. Here's the chart:

SMARTPHONE MARKET SHARE TIER-1 INDIA


IT'S GOING TO GET BIGGER
This massive increase is not even the tip of the iceberg. Apple is yet to open its stores in India. Recall that only 50% of the populace has even heard of the brand. That's good news for Apple -- that's room to grow. But that's not the real change.

Apple created the iPhone SE, a smaller version of its trademark product, but it also reduced the price to $399 -- the least expensive new iPhone ever.

iPHONE SE RENDERING


India's median income is well below that of the U.S. and China and price has been a major issue in India. And, while Wall Street laughed heartily at the iPhone SE as a desperate attempt to save iPhone sales that was destined to fail, those headlines have gone away because of facts, like these:

"Since it launched just over a week ago, the iPhone SE has seen demand outstrip supply"
(Source: RBC).

"Virtually all models with all carriers [are] out of stock at Apple's retail stores"
(Source: Apple Insider).

"Demand is also exceeding supply internationally"
(Source: Apple Insider).

It's going to take a couple of quarters for the numbers in India to impact revenue and EPS in a meaningful way, but they will.

FACEBOOK AND GOOGLE FACE TROUBLE
India is Facebook's (NASDAQ:FB) second largest market and if the iPhone becomes the smartphone of choice, as it has everywhere else in the world, Facebook will face a stringent challenge as Apple soon unveils its own new social media network as well as blocking to outside apps.

PROLIFERATION OF AD BLOCKING APPS


And Alphabet's Google (NASDAQ:GOOG) faces a challenge that very few saw coming. In the latest earnings release from Apple, CEO Tim Cook noted rather enthusiastically (emphasis added):

"We recorded the highest rate on record for Android switchers last quarter at 30 percent."

And, if India feels like the obvious new market for success for all tech giants, Amazon (NASDAQ:AMZN) would have agreed, until this news came out: "Amazon and Flipkart are speechless after India announces new foreign investment rules" via quartz.

The Indian government clarified its policy for foreign direct investment (FDI) in the fast-growing e-commerce sector. FDI will not be allowed in inventory-based models.

"[T]he new policy seems to have left some of the large incumbents dumbstruck."

That's another story, for another time, but Apple's special treatment in India is really special. As in, elite.

WHY THIS MATTERS
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The author is long Apple shares.

Thanks for reading, friends.

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