Apple faces emerging markets challenge

31 July 2012

NEW YORK: Apple, the electronics giant, is facing some major challenges in emerging markets, where observers believe low levels of affluence and infrastructure development are limiting its growth.

Upon reporting its latest results, the firm revealed quarterly sales for Greater China – housing China, Hong Kong and Taiwan – rose by 48% year on year to $5.7bn, and iPhone purchases doubled. (Warc subscribers can read more on Apple's strategy in China here.)

However, revenues fell by 28% from the previous three months, a trend Tim Cook, Apple's CEO, attributed more to "changes in the channel inventory" than an "obvious impact ... we would associate with the economy."

By contrast, he suggested that the difficulties associated with forging success in India meant other fast-growth economies held a stronger appeal for the "intermediate term" at least.

"We have a business there, that business is growing, but the sort of multi-layer distribution there really adds to the cost of getting products to market," he told the Financial Times.

Horace Dediu, a mobile analyst at Asymco, argued the nascent progress of 3G networks, credit card adoption and organised retail in markets like India effectively restricted Apple's "integrated" telecoms and software-driven model.

"It's the first time the company has made a clear signal as to why they don't penetrate in India and I think that applies also to Africa, parts of Asia and Eastern Europe," he said.

"They are constrained on options ... As an observer, I'm growing increasingly impatient with their inability to crack this nut."

In demonstration of this, Apple holds an estimated 3% to 4% of India's smartphone market, whereas Google Android handsets claim some 40% of sales. This situation is actually similar to the US.

"It is very clear that Android is hoovering up market share in emerging markets," Benedict Evans, an analyst at Enders Analysis, said. He stated that the average device utilising this system cost $200.

By contrast, an iPhone typically commands $630, according to Canaccord Genuity. Michael Walkley, a senior equity analyst at the company, thus argued Apple should consider selling the older iPhone 3GS at a cheaper rate.

"I don't think Apple is going to compete with these low-end Android smartphones, it's not in their DNA," he said, "but they can tier the 3GS to reach price points that make it more affordable in those markets."

Data sourced from Financial Times; additional content by Warc staff