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Apple Just Got Huge News From India



Fundamentals


PREFACE
On May 16th we penned the article "Apple is Creating an Enormous Success in India." That article surrounded the inroads Apple Inc. (NASDAQ:AAPL) CEO Tim Cook was making in India following his first ever visit as CEO.


But news has broken today that pushes this narrative yet further along, and while Apple is facing censorship and possible corruption in China, India is shaping up to be an enormous success. Here's the breaking news and the details to support the bullish narrative.

BREAKING
India's Prime Minister (Narendra Modi) has a website and on that site comes this news (emphasis added):


The Union Government has radically liberalized the FDI regime today, with the objective of providing major impetus to employment and job creation in India.

With these changes, India is now the most open economy in the world for FDI.

Source: Narendra Modi

The note includes various industries from defense to pharmaceutical and on to aviation and technology. The critical takeaway with respect to Apple was this:


It has now been decided to relax local sourcing norms up to three years and a relaxed sourcing regime for another five years for entities undertaking Single Brand Retail Trading of products having 'state-of-art' and 'cutting edge' technology.

Source: Narendra Modi

WHAT THIS MEANS
What you will read little about (unless it comes from CML), is that Apple has already been earmarked as 'cutting edge' technology. That means that Apple can side-step the 30% manufacturing rule in India and begin opening Apple Stores and selling iPhones very soon. Here's what has happened in a very short period of time, and as far as we can tell, this is barely the beginning.

INDIA
India will represent the second largest smartphone market to China as of 2017, 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 local 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. But everything is changing.

EVERYTHING IS CHANGING
The media will have you believe that the recent meeting in India was the first for Tim Cook. It was not. In a meeting last year we learned this:

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." That phrase "cutting edge technology" should sound familiar -- it's exactly the language used today by India's Prime Minister.

But we don't have to rely on a wing and a prayer. It's already working for Apple in India.

IT'S ALREADY WORKING
News from Quartz actually came out this March that signaled a turning tide for Apple.


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. It's not even the tip of the tip of the iceberg. Apple is going to open stores and its brand awareness will proliferate. Remember that less than half of the populace in India has even heard of the Apple brand. But that's not the real change.

This narrative pushes forward when we also look to the iPhone SE -- a smaller version of Apple's trademark product that also has the lowest price point ever of $399. But there's more:

FOXCONN
News came out in early May that Apple's critical supplier, Foxconn, has plans to open a $10 billion iPhone manufacturing plant in India.


Foxconn is reportedly interested in a 1,200-acre area of land. The manufacturing plant built on this land is said to focus purely on iPhone manufacturing.
Source: 9TO5Mac

Then on May 16th we learned that Apple has opened a development center in India for 150 workers. The second largest country in the world with the second largest smartphone market is the world is about to open up for Apple.

APPLE CAN DO WHAT FACEBOOK, GOOGLE, AMAZON CANNOT
Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN) can't get into China. In another note we penned "It's Hidden in the Cracks, But: Google is Going After China," we remarked how Google and Facebook are making overtures to China. We wrote:


While it will take time and be hidden in the little seen acts like this, Google and Facebook are going to make a run for China again. That is a certainty.
Source: CML Pro

India is Facebook's second largest market. Apple has China and now it's going to have India. And, if India feels like the obvious new market for success for all tech giants, Amazon 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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Thanks for reading, friends. The author is long Apple shares in his personal account.