Apple's local manufacturing doesn't necessarily mean iPhones will get cheaper
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Apple will soon start manufacturing its iPhones in India. Yes, we can soon expect to see iPhones with laser engraving on the back depicting that they are "Designed by Apple in California. Assembled in India." Apple has been considering India as its next base for manufacturing for some time now and it has received the nod from the Karnataka government to commence its operations.
The State government issued a release welcoming Apple's decision to start local manufacturing in Bengaluru. Apple is yet to comment on the government's disclosure, but the company has already chosen Wistron as its OEM partner. Apple will use Wistron's Peenya facility for manufacturing and will scale up to add Foxconn and meet future demand.
Here are three things you need to know about Apple’s proposed operations in India:
India in Apple’s crosshairs: Apple recently announced its first fiscal quarter earnings where the company saw iPhone sales reaching 78.3 million units and the average selling price hit an all time high of $695. The revenue came in at $78.4 billion in the quarter ending December 2016, but profits and sales from China declined. In an earnings call, Apple CEO, Tim Cook, said, "India is the place to be."
For Apple, India is more important than it has ever been before. According to Strategy Analytics, global smartphone shipments saw a modest growth of 3 percent in 2016, but India’s smartphone user base is growing exponentially. With increasing internet connectivity and 4G penetration, India is poised for a digital boom and Apple wants to tap into this growth.
Apple executives have met government officials in the past to discuss its vision of starting a local assembly unit. The company is seeking exemption from a norm that requires companies to source 30 percent of inputs locally. It is also reportedly seeking a 15-year tax exemption on import of components and other equipments. The government has said it is considering Apple’s demands, but the Commerce Ministry is yet to conclude its decision.
Make In India: Apple's idea of starting local manufacturing in India aligns perfectly with the Government's Make in India initiative. The Cupertino-based company has already set up a new iOS App Design and Development Centre in Bengaluru. At the time of its launch, CEO Cook said, "India is home to one of the most vibrant and entrepreneurial iOS development communities in the world."
The company has also opened a new Apple Maps office in Hyderabad to improve its mapping feature. Apple Maps offers features like 3D View, Public Transmit system, options to explore nearby areas, but it is barely usable here in India. With services being tapped, Apple has to start manufacturing and enabling these services on its products. For the record, Samsung, Xiaomi, Vivo, Asus and many other OEMs assemble their smartphones in India.
What’s in it for India and Indians: Will iPhones get any cheaper in India? It is unclear whether there will be any immediate impact on the pricing of the iPhone. Apple assembles a large chunk of iPhones in China, but the product costs way more in that country, than in the US. According to IHS Markit, it costs Apple nearly $225 to make the 32GB iPhone 7 and the product is retailed in the US for $649. The unsubsidised cost of that same 32GB iPhone 7 is 5388 Yuan (approximately $784) in China. The cost of the iPhone will come down only if Apple decides to cut its margins.
However, one thing is for certain - Apple starting local manufacturing in India will generate employment opportunity here. A ‘Made in India’ iPhone will definitely be a big win for the Modi Government and it will also help attract other OEMs to set up shops here.
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