281 billion reasons you might regret not buying Apple stock

iPhone was the cornerstone of an Apple‘s (AAPL 1.01%) It’s been years since it disrupted the smartphone market when its first model debuted 16 years ago, but it looks like the days of rapid growth in sales for its flagship device are over.

In fiscal 2022 (which ended Sept. 24), the Cupertino-based tech giant’s iPhone revenue increased 7%. While that may not sound like much, it’s worth noting that Apple added $13.5 billion in incremental iPhone revenue during the fiscal year, bringing its total to $205.5 billion.

This huge revenue base explains why billion-dollar jumps appear rather small on a percentage basis.

Moreover, since the iPhone was responsible for 52% of Apple’s revenue in the last fiscal year, the product’s maturity means that its slow growth is affecting the company’s overall growth. This helps explain why Apple’s total revenue in fiscal 2022 increased by just 8%, to $394 billion.

Things are expected to get worse in the current fiscal year, with the cap expected to increase by just 2.6%. So Apple is no longer a fast-growing company It was in 2021 When users were quickly upgrading to iPhone 5G devices.

But don’t be surprised to see Apple’s iPhone sales growth accelerate again in the coming years as the company pushes deeper into the huge smartphone market as it’s still in its infancy.

Making strong progress in the huge smartphone market

India is a huge country with a population of around 1.41 billion, but the number of smartphones sold there is relatively small by comparison. Counterpoint Research estimates that 160 million smartphones were sold in India in 2022. This number is expected to increase to 175 million in 2023.

Statista estimates that smartphone penetration in India will be 66% in 2022, and this number could jump to 95% by 2040. This indicates that there is still a lot of room for growth in the Indian smartphone market. By another estimate, smartphone sales in India could generate $281 billion in revenue by 2028, up from $139 billion in 2021.

For now, Apple is only scratching this huge opportunity. It is said to have only 5% market share in India, but the good news is that it has been pulling the right strings to capture a larger portion. Investors should note that Apple’s share of the Indian smartphone market was less than 2.5% five years ago. The company was Struggling to gain a foothold In the Indian market, where customers were not willing to pay for iPhones due to their high price compared to competing devices.

But things have changed. iPhone 13 was the best-selling smartphone in India in the last quarter of 2022. The entry-level model of the device starts at INR 61,999 (about $753 at the current exchange rate). samsungThe Galaxy M13 was the second best seller, but the interesting thing here is that it only costs a fifth of the iPhone 13.

This indicates that more Indian customers are now willing to pay for iPhones, and this translates into impressive growth for the company in this market. Apple’s revenue in India increased 45% year over year to a record $4 billion in fiscal 2022. That amounted to more than 1% of the company’s total revenue for the year.

But the opportunity for the staggering $281 billion in smartphone revenue in India and Apple’s moves to increase its presence there suggest that the world’s second most populous country could become a much bigger contributor to the company’s earnings.

Make the right moves at the right time

Apple currently relies on China for a large portion of its iPhone production. In 2019, between 44% and 47% of Apple’s production occurred in China. By 2021, it has reduced its dependence on China to 36%. More importantly, Apple is busy diversifying its supply chain into markets outside of China, and India is one of the beneficiaries of this strategy.

Apple and its partners are investing in production facilities in India. According to recent reports, Apple suppliers can invest 28 billion Indian rupees (about $340 million at the current exchange rate) to boost production in the country. Apple has reportedly asked its supply chain partners to boost production in other countries such as India after COVID lockdowns in China slashed the company’s iPhone supplies in recent months.

India is said to make 5% of the iPhones produced globally now. By 2025, a quarter of global iPhone production is expected to occur in India. The technology-focused newspaper DigiTimes It is estimated that India could manufacture half of all iPhones by 2027. As a result, it must manufacture Apple able to price its smartphones more competitive there.

This may encourage more Indian customers to come into Apple’s fold, especially given that people there are now spending more on smartphones. The average selling price of smartphones in India jumped 15% year-on-year in Q3 2022 to $226, while 5G smartphones carried a higher average selling price of $393.

Also, the 5G smartphone market in India is still in its infancy, with network deployments just beginning. Only 10% of smartphones in India support 5G. Growth in this segment could pave the way for Apple to gain more market share. That’s because Apple is the market leader in smartphones priced at INR 30,000 (about $360 at the current exchange rate) and above, with a 40% share.

The higher average selling price of 5G smartphones and Apple’s move to boost production in India could help offer competitive pricing and set the company up for strong market gains in the future. If Apple doubles its Indian smartphone market share over the next five years, it could generate close to $30 billion in annual revenue from this market based on the $281 billion estimate mentioned earlier.

However, it wouldn’t be surprising to see the company generate more revenue from this market given that it has a much higher average selling price of around $1,000. This would be nearly seven times the revenue Apple generated from India in the last fiscal year. As such, the Indian market can breathe life into Apple’s sluggish iPhone revenue growth and help accelerate Apple’s growth tech giant long-term overall growth.

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