Can India become an exciting battlefield for Apple's "PUBG"?

Earlier this month, Apple launched its largest franchise flagship store in Mumbai, India's largest city. The Apple Premium Reseller Flagship (FAPR) store occupies two floors of the High Street Phoenix Mall in Mumbai, with a total area of ​​8,000 square feet (about 743 square meters), and will showcase Apple's full range of products in India.

High Street Phoenix is ​​Mumbai's most popular high-end shopping mall, with more than 500 brands, including many internationally renowned luxury brands.

Earlier, in the quarter ending in June this year, Apple India's revenue grew 3% month-on-month and double-digit year-on-year, rebounding. Apple CEO Tim Cook said in a conference call for the fiscal quarter ending in June that "we are very happy with this", and his excitement was beyond words.

According to IDC data, Apple's market share in China was 12.9% in the fourth quarter of 2017 and 11.5% in the fourth quarter of 2018. According to CINNO Research data, by the first half of 2019, Apple's smartphone market share in China was 8.6%.

Research organization Aurora Big Data also pointed out in the report that in the first quarter of this year, the number of users in the Chinese market who switched from iPhone to Huawei phones increased from 12.6% to 16%, and the proportion of switching is still increasing.

It is not difficult to understand that India's rebound is a shot in the arm for Apple, no wonder Cook is so generous in praising it. It is also not difficult to understand Apple's strong determination to open the largest flagship store in India and fight a desperate battle.

However, another cruel reality is that according to the Indian high-end smartphone market report for the second quarter of 2019 released by research firm Counterpoint, OnePlus from China once again led the Indian high-end smartphone market (priced above approximately RMB 3,000) with a market share of 43%. Samsung ranked second, and Apple could only rank behind the two, with a share less than half of OnePlus.

Global smartphone sales continue to decline, and in China, the largest smartphone market, Apple's market share is also declining. Can India become a stimulating battlefield for its "PUBG"?

"India has rebounded", with double-digit year-on-year growth

Well-known research company Gartner released a report in July stating that this year will be the year with the most severe decline in smartphone sales so far. Looking around the world, according to mobile phone market research reports released by many institutions, although their research data are different, they all point to one thing: global smartphone shipments are continuing to decline.

According to IDC data, global smartphone shipments in the first quarter of 2019 totaled 310 million units, down 6.6% from last year; according to Canalys data, global smartphone shipments in the first quarter of 2019 were 313.9 million units, down 6.8%, the sixth consecutive quarter of decline and the lowest level in nearly five years; according to Counterpoint data, global smartphone shipments were 345 million units, a year-on-year decrease of 5%, which is also the sixth consecutive quarter of decline in shipments in the global smartphone market.

Amid the global sales decline, the Indian market is a standout and one of the few growing markets in the global smartphone market. According to the latest research report from market research firm Strategy Analytics, in the second quarter of 2019, India's smartphone shipments reached 35.6 million units, a year-on-year increase of 3%.

In this emerging market with a population second only to China, Apple also took advantage of the upward trend in the second quarter, with quarterly revenue increasing by 3% month-on-month and a double-digit year-on-year increase.

It should be noted that Apple's revenue in India has been declining sharply in the previous few quarters. According to data from Counterpoint Research, iPhone sales in India plummeted 42% in the first quarter of this year, with only about 220,000 units sold.

In comparison, in terms of brand shipment rankings, Xiaomi India’s shipments exceeded 10 million in the second quarter, ranking first with 10.2 million units. Samsung followed closely with 9.4 million units shipped, a year-on-year increase of 15%. Vivo, OPPO and realme ranked third to fifth, with shipments of 3.9 million, 2.9 million and 2.8 million units respectively.

As a result, Apple CEO Tim Cook said in a conference call for the quarter ending June 2019, "India bounced back. We returned to growth in the quarter."

“We’re very happy with that.” On a constant-currency basis, revenue in emerging markets rose.

Apple CFO Luca Maestri elaborated on the earnings call, winning back growth in emerging markets, ... India and Brazil grew double digits, and "we set new third quarter (quarter) records in Thailand, Vietnam, and the Philippines."

“From a regional perspective, year-on-year growth rates in emerging markets have improved significantly compared to the first half of the fiscal year, particularly in the BRIC countries, which grew 3% in the June quarter, compared to a 25% year-on-year decline in the first half of the year,” added Luca Maestri.

Good things come in pairs. Just a few days later, Apple unveiled its largest franchisee flagship store in Mumbai, covering an area of ​​8,000 square feet and occupying two floors of the Phoenix mall on High Street in Mumbai.

"This is the largest Apple flagship store in India," said Sutinder Singh, founder of Aptronix, which operates the store. Aptronix already operates more than 30 Apple franchise stores in different cities. "This store will provide the best Apple experience in India."

Singh said the store will also sell third-party products such as Apple accessories and health and fitness products.

Earlier reports pointed out that Apple announced in January that it plans to launch six large outlets (5,000 square feet) in India this year, three of which are in Delhi NCR and Mumbai. Currently, the stores operated by iPhone manufacturers in India are generally 1,500 square feet, and the newly opened large FAPR stores will be three times larger than the current average area. In the end, the area of ​​the Mumbai flagship store is more than five times that of Apple's average sales point in India.

India requires single-brand companies that choose foreign investment of more than 51% to source 30% of their products locally. As a result, Apple's single-brand retail application has been stagnant for years and it has been unable to open its own stores in India. Apple has been seeking to open franchise stores in India, an important and growing market for the US tech giant.

According to foreign media reports, Apple introduced the iPhone to India in 2008. The initial goal for the iPhone was to attract wealthy Indians through high-end retail stores, but later expanded its target customers to the middle class through monthly payment plans. By 2015, Apple's annual sales in India had increased from about $100 million in 2011 to more than $1 billion.

This growth rate has also attracted the attention of Cook and senior executives at Apple headquarters. A person familiar with the matter revealed that "Cook and his team want to make India the next growth market for Apple and have drawn up a five-year plan to increase Apple's sales in India to $5 billion by 2020."

Two major growth areas: software and accessories

In fact, iPhone sales are hitting rock bottom this year, with iPhone sales falling to less than half of quarterly revenue this quarter, the first time in seven years.

So, what is the reason for Apple's growth in emerging markets?

The answer is Internet services and accessories. Tim Cook said that this change has enabled Apple to successfully shift from a single product to a diversified one.

At the spring new product launch, Cook got straight to the point: "Today's launch is all about services." In other words, Apple's spring launch began with "All In Services." This caught many people off guard - Apple has always been a hardware company, whether it was the Macintosh computer 20 years ago, the iPod 15 years ago, or the iPhone 10 years ago, Apple made a lot of money from these hardware.

However, ten years after the iPhone launch, both the iPhone and the entire mobile phone market have begun to show signs of decline. Although Apple released three new iPhones in September last year, iPhone shipments in the fourth quarter of 2018 still fell by 11.5%, and iPhone shipments for the whole year also fell by 3.2%.

However, 12 years after the release of the iPhone, Apple still has not found the next breakthrough in smart devices. Faced with revenue pressure and the vitality of the iPhone is sluggish, software services and accessories are almost the only antidote.

Cook said the total number of Apple device users in mainland China grew in the third quarter, which helped increase its services market, with sales in mainland China up more than 10%. Cook told Reuters: "We actually grew in mainland China. Non-iPhone revenue grew 17%. We grew in all categories outside of iPhone."

Globally, software services revenue grew 12.6% to $11.46 billion, a record despite a slightly slower growth rate and slightly below expectations, while wearables and other accessories revenue grew nearly 50%, beating expectations.

Apple doesn't break out the number of active devices, but in January it said the number was 1.4 billion, of which 900 million were iPhones. Investors use that number (the Installed Base) as a baseline for how many users its services business can gain.

In July, Cook told investors on a conference call that Apple had 420 million paying customers who use its services and third-party apps, and the company has set a goal of growing that number to 500 million by 2020.

Trip Miller, managing partner at Apple shareholder Gullane Capital, said he wants to see services grow into the 20% range and believes Apple needs to use its billions of dollars in cash to buy media assets to fuel its upcoming TV service.

“You have to have a larger customer base and provide services that people get value from,” Miller said.

In the quarter ending in June, Apple's Mac and iPad products achieved revenue growth in India and other emerging and developed markets. In addition, Apple is also continuing to make efforts in accessories.

For example, recently, Apple has begun to intervene in users' self-replacement of batteries from third-party manufacturers. After the sensational "speed reduction gate", Apple launched the battery health function for iOS, allowing users to check the battery health. Now, after replacing a third-party battery, the iOS system will pop up a battery message "Unable to verify this iPhone has a genuine Apple battery. Health information not available for this battery (It cannot be confirmed that your iPhone is using an original Apple battery, and the battery information will not be available)". In other words, these devices will not be able to check the "battery health" or even manually cancel the speed reduction.

On August 12, Apple's official website officially launched a USB-C digital audio and video multi-port adapter. The number of interfaces on the new docking station remains the same, but the HDMI support standard is upgraded to 2.0, so that users can directly output 4K 60Hz picture signals. The price of this docking station is 486 yuan, which is basically twice that of third-party ones.

Apple has been racking its brains and thinking hard about services. This month, the much-anticipated Apple Card was finally unveiled. Apple said that when you buy something with the Apple Card, the cash back you get will be directly returned to the Apple Card on the same day, rather than monthly. For example, you can get an unconditional 1% cash back when you use Apple Card to make purchases, a 2% cash back when you use Apple Pay to pay, and a 3% cash back when you buy goods in the Apple Store. There is no upper limit on the cash back amount, and it will be credited to your account the next day.

It is reported that after reaching an agreement with Goldman Sachs, Apple's commission on this credit card may be twice that of an ordinary card, but it is still a win-win project - for Apple, the credit card can obtain more recurring income from iPhone users and further integrate them into their service network, while Goldman Sachs has gained a large number of retail users.

A sea of ​​stars or a sea of ​​red?

India's largest flagship store + software services + wearable devices + accessories, it seems to be a 360-degree combination punch, but can this combination of punches have a smooth path in India?

The outcome remains unpredictable.

A report released by market research firm IDC showed that in the first quarter of 2019, although global smartphone sales fell 6% year-on-year, sales in the Indian smartphone market increased by 7.1% year-on-year to 32.1 million units.

As one of the few smartphone markets in the world that is still growing, competition in India is extremely fierce. In the Indian mobile phone industry, we see quite a lot of new devices launched every month, and brands are fighting with each other to maintain their market share. Among the top five, vivo, OPPO and realme shipped 3.9 million, 2.9 million and 2.8 million units respectively. The gap is not particularly large, which also shows the fierceness of the competition.

Some foreign media once listed the top 20 mobile phones in India in June, but there was no iPhone among them.

Even in India's high-end mobile phone market (over 3,000 yuan), according to the market share of India's high-end mobile phone market in the second quarter of 2019 released by the global market research organization Counterpoint, it can be found that Apple, which has always been popular among consumers, has fallen to third place, and the first place is actually the domestic mobile phone brand OnePlus.

A 43% market share means that in the high-end smartphone market in India, one out of every two phones sold is a OnePlus phone. According to a report by Counterpoint, it took only a little over a month for the OnePlus 7 Pro to gain a 26% market share in the Indian high-end smartphone market, almost a quarter of the Indian high-end smartphone market.

OnePlus 7 Pro is equipped with the first 2K+ resolution, 90Hz refresh rate AMOLED display, Qualcomm Snapdragon 855 mobile platform processor, up to 12GB RAM + 256GB ROM storage configuration, and UFS 3.0 flash memory, making it a very competitive product in the local Indian market. The user experience is improved.

In contrast, in addition to continuous failures in the market, Apple as a company is also losing its "soul" and its products are losing their innovative genes.

On June 28, Apple announced a number of personnel appointments. Among them, the most regrettable one for many Apple fans was that Apple's chief design officer Jonathan Ive would leave the company later this year. On the same day, due to this news, Apple's market value also evaporated by $9 billion.

Regarding Jonathan's resignation, he said in an interview with the media that it was mainly because Cook was not interested in product development. Cook even saw some new products for the first time in the actual operation area after the Apple press conference. In addition, Apple under Cook's leadership pays more attention to operations and performance, and the design department is no longer as high up as it was in the Jobs era.

This directly leads to a decline in product experience. According to data from Counterpoint Research, iPhone sales in India plummeted by 42% in the first quarter of this year, with only about 220,000 units sold. At the beginning of the second quarter, iPhone sales rebounded due to promotions and discounts, but fell again at the end of the quarter. The agency also predicts that Apple's total iPhone sales in India this year are expected to be 1.5-1.6 million units, a decline of 10-17% from last year. This is also Apple's worst performance in India in the past four or five years.

In fact, although Apple's revenue increased in the second quarter, its profit decreased. In the second quarter, Apple's revenue was $53.8 billion and its quarterly net profit was $10 billion, while its revenue was $53.3 billion and its quarterly net profit was $11.5 billion in the same period last year.

Price is undoubtedly another important reason. According to data released by Counterpoint Research, the largest smartphone shipments in India (by sales volume) have always been in the 10,000-15,000 rupee price range, but this share has dropped from 32% in the June quarter of 2018 to 30% in March 2019, and further dropped to 27% in April-June this year.

Analysts attribute the shift to consumers’ willingness to open their wallets and trade up in the smartphone segment — into the Rs 15,000-20,000 range, which doubled its share to nearly 16% in June from 8% a year earlier.

Unfortunately, smartphones in the Rs 10,000-15,000 price bracket include some products from Xiaomi, OPPO and Samsung, while the Rs 15,000-20,000 price bracket is dominated by Samsung, vivo and Xiaomi’s recently launched high-end product Redmi K20.

As Indian consumers mature and start to move into higher price and quality phones, the premium segment is also emerging as another beneficiary. In the June quarter, shipments in the premium segment (over Rs 30,000) grew nearly 33% year-on-year.

"The growth in this segment was primarily driven by the launch of the OnePlus 7 series flagship products," said Anshika Jain, research analyst at Counterpoint. In terms of market share, the premium segment accounted for 4% in June, up from 3% in the same period last year.

But in a nutshell, Apple is still far from enjoying the benefits of this wave of consumption upgrades.