Apple expects producing 25% of its iPhones in India by 2025

When Apple launched its iPhone more than 10 years ago, the first port of call made by Steve Jobs was China. After all, the country had everything that Apple was looking for. They had cheap labour, a disciplined labour force, business friendly rules and the ability to manufacture and manage scale. Not surprisingly, most of the early iPhone manufacturing was done in China. However, the 2019-20 COVID pandemic was a classic wake up call for Apple as they found the supply chain constraints too oppressive and anti-business.

Now Apple, the world’s  most valuable company with a market cap of close to $2.8 trillion, is all set to expand its India franchise in a big way. Apple had already started manufacturing its products in India and Vietnam about 4 years back but it still remains a small player in the overall scheme of things. Now JP Morgan, in a recent note, has underlined that Apple was likely to move 5% of its iPhone 14 global production to India by end of 2022 and would rapidly scale to 25% of all iPhone production by the end of year 2025.

That is the perfect opportunity for India to scale up its electronics manufacturing services (EMS) expertise with the help of Apple. However, India still must compete with Taiwan and Vietnam, two very preferred manufacturing centres for Apple in Asia. Even going head, it is estimated that Vietnam would still contribute 20% of all iPad and Apple Watch productions. In addition, nearly 5% of MacBook and 65% of Air-Pods will also be manufactured in Vietnam by 2025. Apple is clearly betting on India, Vietnam and Taiwan; apart from China.

To a large extent, the more friendly policies adopted by New Delhi towards EMS has also been an important factor. India has already attracted investments from Foxconn and Wistron (both Taiwanese companies) as they have been trying to convert India as a key manufacturing hub for their operations. India has ample labour resources and competitive labour costs, which makes India a rather attractive location. Not just Apple, but Samsung, Xiaomi and OnePlus will use India as a manufacturing hub, apart from Google Pixel.

Google could be another interesting prospect in the mobile phone market. It plans to move some of its Pixel smartphone production to India. Incidentally, Google had skipped shipping flagship models in India for two generations and now it plans to launch the upcoming Pixel 7 models in India. For Apple, it is not just about India as a manufacturing hub but also India as a big market. Currently, Apple commands a very small market share in India and considering the rising populating and increasing purchasing power, India is a serious market for Apple

However, size wise, India is still very small in comparison to China. For instance, Foxconn (the largest outsourcer for Apple) has 20,000 operators in its iPhone assembly business in India while it has 350,000 employees at its iPhone assembling plant in China. But much of this could change drastically in the coming years. Apple is likely to shift its reliance on India from handling legacy models to manufacturing more recent and upmarket models. iPhone 14 is expected to be a turning point that is likely to shift Apple production to India.

The first good news for India is shorter interval manufacturing. For iPhone 14 and above models, Apple has asked EMS vendors in India to start production withing 2-3 months of starting production in mainland China. This compressed time line is a very positive signal for India. However, JP Morgan has also expressed the view that in the short term, China and Taiwan would continue to gain market share due to better cost structures.

Going ahead, the production in China is likely to gravitate more towards domestic producers as is their broad intent. However, it would be the Taiwanese EMS production that is likely to gravitate towards India. The bottom line is that after a long time Apple is looking at the Indian manufacturing capacity and the Indian market as a lucrative base for smart phones.