Apple AAPL looks poised to make a splash in the Indian smartphone market that managed to expand 7.1% in the first quarter of 2019, when the global market was down over 6%, according to IDC.

There are a number of reasons why the iPhone maker had a slow start in the country-

The first reason was the government’s “make in India” policy that didn’t come at a good time for the company. Apple had to get its Chinese manufacturing partners Honhai and Wistron to set up units in India, which could assemble phones to be sold in the country. It also agreed to try exporting higher-end models that were assembled in India, in line with the government’s goals.

An app development accelerator in the IT hub Bengaluru along with a skills development program was also part of the deal. The goal of this unit is the development of iOS apps for customers the world over. All this took time.

The nature of smartphone marketing in India also made it difficult to protect the brand value without retail stores in India. Online channels typically sell phones at discounted prices that can have an effect on their brand value.

This method of operation has greatly helped Chinese brands like Xiaomi, Oppo, vivo, and more recently, Realme take share from the once market leader, Samsung. Apple tried negotiating with the government about opening its stores in the country, but there are certain input-sourcing requirements for single-brand retail outlets that it had to satisfy.

With all its Indian investments in place and the Wistron unit also shipping initial consignments of iPhone 6 and 7 to the EU, Apple is now ready to open its own retail stores. This isn’t just a branding exercise either. Despite all the hype around the online channel (which accounted for 40% of sales in the first quarter), Indian consumers still love buying their phones offline.

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This makes retail stores very important (the Chinese brand vivo has benefited from huge ads across mobile phone store windows and through sponsorship of the IPL cricket league). New ecommerce rules also require that online platforms don’t have any exclusive deals with brands. Therefore, retail stores are a must to market exclusivity.

vivo’s huge marketing initiative has helped generate growth in the $300-500 smartphone segment. The newly-launched vivo V15 Pro was responsible for the growth in the category. This also pushed the overall ASPs in India 3.3% year over year to $161. The iPhone SE falls in this price band, and while it’s a solid phone at a very low (discounted price), the small screen makes it relatively less attractive. So Apple has its work cut out.

Apple’s flagship models are of course in the $500+ category, where Samsung ruled in the first quarter with its Galaxy S10 flagship series. Samsung’s share of this segment was 36%, ahead of OnePlus, which shipped OnePlus 6T, the top-selling model in the category.

Apple may have taken some time getting its act together, but that isn’t so unusual for the company. Besides, in India, iPhones are viewed just as what they are: a coveted possession that feels out of reach. So the stage looks set.

Apple has a Zacks Rank #3 (Hold). Btter buys in the space include Lenovo LNVGY and HP HPQ. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.



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