The most important recent development for Apple (AAPL stock) shareholders was the company’s decision to reduce its iPhone manufacturing objectives for the second half of 2022 to a meager 90 million units.
An iPhone or All Apple (AAPL stock) Products Made in India
Those who keep tabs on India saw something very different. A few short weeks after opening its flagship factory in China, technology giant Apple (NASDAQ:AAPL) kicked off the manufacturing of its brand-new iPhone14 in the city of Chennai, India.
It’s possible that this is the beginning of a significant pattern. J.P. Morgan analysts expect that by 2025, India will be responsible for the assembly of 25% of the world’s iPhones, which is an increase from the current 3% share. According to what they have written, “For iPhone, India looks to be the best site to diversify the supply chain away from mainland China.” They anticipate that Vietnam will become a hub for the distribution of other Apple products.
It’s not just about mobile devices. According to Venkat Pasupuleti, portfolio co-manager for India at Dalton Investments, the long-promised Make in India project of Prime Minister Narendra Modi is now getting traction in areas ranging from automotive components to pharmaceutical ingredients. “Right in front of our very eyes, there is a structural shift that is taking place.”
In terms of precise manufacturing, Vietnam is light years ahead of India. A competitor to Apple (NASDAQ:AAPL) already manufactures half of its phones there. The field of advanced engineering is one in which India excels. There, tens of thousands of smart people are employed by companies that design microchips, such as Qualcomm (QCOM) and Intel (INTC).
Apple (NASDAQ:AAPL) and its Taiwan-based production partner Hon Hai Precision Industry, better known as Foxconn, are probably more interested in the fact that China has a population of 1.4 billion people as the economy grows at an expected rate of more than 6% annually.
According to Mehdi Hosseini, a senior tech analyst at Susquehanna International Group, “For Apple, India is the final major undiscovered territory.”  According to Tarun Pathak, research director at Indian consultant Counterpoint Technology, premium devices such as the iPhone presently account for barely 7% of the market.
Prime Minister Modi has introduced policies that favor import substitution. For newly established manufacturing businesses, Delhi reduced tax rates to as low as 17%. It is granting so-called production-linked incentives, which are designed to encourage enterprises to acquire scale and are worth a total of $30 billion. At the end of the previous year, it increased the subsidies for semiconductor manufacturers by $10 billion.
Altering the structure of anything still takes some time. Hosseini believes that India has the potential to swiftly ramp up low-margin assembly for Apple (AAPL stock). The more profitable component industry in China, not to mention that of Taiwan or South Korea, is more difficult to poach than in other markets. “Companies still don’t get the idea that they can relocate out of China and be cost-competitive,” he adds. “[T]hey still don’t get the feeling that they can move out of China.”
Pathak says that India is trying to have its cake and eat it, too, in terms of its economic policies by becoming an export power while also retaining protective import tariffs. This could be the most significant barrier that Apple (NASDAQ:AAPL) must overcome in order to expand there. There is no question that Hon Hai stands to gain the most from Apple’s relocation to India. The production of iPhones by the company is currently highly dependent on two enormous complexes located in China.
The selection of Indian producers is more difficult. To this yet, Dalton has shown little more than a rhetorical passion for the industry. According to Pasupuleti, investments are restricted to only two small-cap manufacturers of automobile components: Sansera Engineering (SANSERA.India) and MM Forgings (MMFL.India).
However, it is abundantly clear that geopolitical winds are blowing in India’s favor. Tensions between the United States and China predate Donald Trump’s administration and, arguably, increased throughout Joe Biden’s tenure as vice president. Investors are confused s a result of Beijing’s disruptive lockdowns of Covid-19, which show no indications of letting up. China may have difficulty regaining its previous growth rate of 5%, but India has taken over as the leader of world economic expansion.
According to Pasupuleti, India needs to make the most of this chance by seizing it with both hands. Apple’s (NASDAQ:AAPL) action appears to have some potential.
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