Will The Smaller, Cheaper Apple iPhone SE Matter To Indians?

by Sohini Bagchi    Mar 22, 2016

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Apple has unveiled its latest 4-inch iPhone (iPhone SE) aimed at emerging markets like China and India and is expecting ‘a big deal’ from its much cheaper and smaller iPhone. While the phone has attractive features and a relatively low price tag, its prospects in the India market may be limited by its diminutive size, believe experts. That’s because India’s mobile first population, whose primary computing device is a smartphone, has already shifted to larger screen phones or phablets.

The growth trajectory

There’s also no denying the fact that India is among the fastest growing smartphone markets in the world and needless to say, iPhone is Apple’s most important product, and the company has cracked the Indian market successfully over the past two years.

Apple’s iPhone sales in India have seen a tremendous growth in recent times, even though revenue generated from the country is less than even 1-2% of overall sales. Apple, however believes that India will continue to be one of its fastest-growing markets and this growth will be driven by the country’s fast-growing middle class population.

Looking back at Apple’s growth in the country, iPhone makes up more than two-third of Apple’s total worldwide sales by revenue. Apple’s last reported quarter in India was its best ever in the country. In the fiscal year that ended in September 2015, Apple shipped 1.7 million iPhones in India. In the first quarter of 2016 itself, Apple shipped nearly 800,000 iPhones, which is close to half of what it shipped in four quarters of the preceding fiscal year, according to a Thompson-Reuters report.

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In fact, iPhone sales were up 76% in India for the quarter, compared to around 45% in Korea, the Middle-East and Africa, and just 18% in China. This is in complete contrast with the iPhone’s global sales growth of 0.4%.

At present India’s revenue contribution to Apple can be gauged from the fact that Apple sold a total of 74.8 million iPhones worldwide in just the last quarter, while it shipped only 800,000 units to India in the same period. Also, revenue from India hit $1 billion in the Indian fiscal year that ended on March 31, 2015. That was less than even 0.45% of the $233.7 billion in revenue Apple earned in its fiscal 2015. Moreover, iPhone’s market share in India is only 2%.

iPhone SE: The challenges ahead

With similar specifications to its outgoing flagship iPhone 6s Plus and a price tag of approx Rs 26,500, the iPhone SE is the most affordable smartphone from Apple. The iPhone SE will also replaces Apple’s ageing iPhone 5s model launched in September 2013, which currently retails at around Rs 18,500 in India.

Despite selling older models in the country with hefty price cuts, the trend in the last two quarters has seen a shift towards Apple’s larger iPhone 6 and 6s models.

Niel Shah, research director at Counterpoint Research told Reuters, “If you see the older phone models, even though Apple is pushing them at lower price points, are selling less. The sales mix of Apple phones in the last two quarters (second half of 2015) in India is made up by 75-80 per cent of the iPhone 6 and iPhone 6S.”

According to Shah, from that perspective, the 4-inch phone is a disappointing thing at Rs 30,000 in India. The addressable market is very small. It would have made sense if the device size is 4.7 or 5 inch.”

The share of devices with screens smaller than 4-inch and from 4 to 4.5-inch in India in December 2015 was 7-10% respectively, a big drop from 15-26% in the same month in the previous year. On the other hand, devices with screen sizes of 5.5 to 6 inch cornered 15 per cent of the market share, up from just 4%, according to Counterpoint Research.

Read more: Why Apple Can’t Afford To Ignore India Anymore

The research shows, only 10% of the total smartphones sold at the end of 2015 were 4 inch screen size which has shrunk from almost one-fourth of the market a year ago. In just one year, the consumer preference has completely shifted towards phablets. Shah noted, “India is a mobile first country. There is a clear trend towards consumers needing a bigger screen size. Not many people own a laptop or tablet, meaning the phone is the primary device not a second or third device.”

In a separate release, Apple claimed that it sold over 30 million 4-inch iPhones in the past one year, which would roughly contribute to 15 per cent of the company’s overall iPhone sales. Experts believe, while iPhone SE is offering incentives such as the latest processor, Apple Pay, a great camera and the latest software over the 5s and 4s, the small screen size might still remain a challenge to woo Indian customers.

Android can pose a threat too for iphones. While the cheaper iPhone could appeal to emerging markets customers, it may not be a runaway success, as it may still be pricier than competitors running Google’s Android system.

Smartphone penetration in India, the second largest mobile market after China, is less than 15% and is dominated by Google’s Android operating system. Nine out of 10 smartphones sold in India is an Andriod phone with Chinese and local phone makers such as Xiaomi and Micromax offering more powerful smartphones at lower prices than Apple’s iPhone. 

Why iPhone SE matters

Despite its size, which may pose a challenge for the enthused Indian users moving towards a phablet-like device and the popularity of Android devices, it would be wrong to say that there is no prospect in the new Apple SE. The iPhone SE is seen as particularly important for India, says Anshul Gupta, research director at Gartner, who expects the smartphones market to double to 200 million units in the next two years.

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The 4-inch iPhone SE with features from the iPhone 6 and 6s, such as a faster A9 processor, always-on Siri and Live Photos, but packaged in iPhone 5-sized casing. “A new phone with the latest OS and attractive price point will excite people in India,” said Gupta said at a pre-launch event to ET. He noted that the mid-range smartphones are well suited for emerging markets like India, Indonesia, Bangladesh, Brazil, Argentina and Vietnam.

The other positive thing is, Apple has been increasing its focus on India, witnessing a 76% growth in iPhone sales in the country during the October-December quarter. At the same time, Apple’s application with the government of India to sell certified pre-owned phones in the country, note experts and with a clear-cut strategy, Apple can play its cards well.

(With inputs from agencies)