More challenges than cheer for Apple chief on Asia tour

Apps are future of TV: Cook

MUMBAI/BEIJING, May 24, (Agencies): With slowing iPhone sales in China, Apple Inc is having to take India more seriously, but investors hoping for a stock price fillip from CEO Tim Cook’s week-long Asia trip instead were given a taste of the daunting challenges that lie ahead.

The second leg of Cook’s trip, to India, the world’s third-largest smartphone market, comes at a crucial time as Apple battles slowing growth in China, its second-biggest market. But the challenges suggest it will be years before India is anything close to a major earnings pillar for the US tech giant.

“With China saturating, everybody has no choice but to look at India, and Apple’s rivals have been strengthening there in the last two years. Apple is playing catch-up,” said Ville-Petteri Ukonaho, a senior analyst at Strategy Analytics.

While the numbers in India suggest huge potential — fewer than two in every 10 of the country’s 1.3 billion people have a smartphone — the world’s fastest growing major market operates differently to other markets where Apple has enjoyed stellar growth and high margins.

Apple’s traditional model is to sell its phones at full price to local telecoms carriers, which then discount them to users in exchange for charging them for data as part of a multimonth contract. Not so in India.

“In India, carriers in general sell virtually no phones and it is out in retail — and retail is many, many different small shops,” Cook told analysts recently. “Because smartphones there are low-end, primarily because of the network and the economics, the market potential has not been as great,” added Cook, likening India to the Chinese market 7-10 years ago.

Discussed

In meetings with India’s two largest carriers, Bharti Airtel and Vodafone, Cook discussed ways to work more closely to sell iPhones, including whether a contract pricing model could work in India. He said Apple sees opportunities to expand in the market as operators roll out 4G services.

“The trip was more about understanding the Indian market, but was also about signaling to the world that Apple has arrived in India,” said Vishal Tripathi, research director at Gartner.

Another challenge for Apple is how to be a premium-end player in a low-income market.

“In India, incomes are so low that not many customers appreciate the full value of the Apple ecosystem, and it will take a lot more effort for Apple to sell the Macs and iPads in Indian stores compared to China,” said Strategy Analytics’ Ukonaho.

India is a more price sensitive market than China, and Apple’s relatively expensive iPhones are out of reach to most Indians, who on average live on less than $3.10 a day according to World Bank data.

With per capita income of $1,570 as of 2014 and the average smartphone selling for less than $90, a third of the global average, India’s market growth is predominantly led by cheaper phones. High-end smartphones — costing from $300 — make up only 6 percent of the market, or just 6 million units, according to Morgan Stanley.

Rebuffed by India’s government in its plan to import and sell used, refurbished iPhones, Apple has seen only slow growth in a market dominated by Samsung Electronics and Chinese brands.

That issue was not resolved in talks with Indian Prime Minister Narendra Modi — which a Modi aide called “extremely successful” — and government officials have pressed Apple to set up manufacturing facilities in India, said officials involved in discussions, a move that would create jobs and boost Modi’s “Make in India” initiative.

Future

Apple CEO Tim Cook said Tuesday that apps are the future of television and that the company wants to help change the entertainment industry.

Cook was speaking at a meeting of tech and other startups in Amsterdam, two months after Apple announced software enhancements for its TV system, Apple TV, and knocked $50 off the price of its smart watch.

Since launching Apple TV, “it’s clear to us as we pull that string that there’s a lot left to do and we’d like to be a catalyst in changing the world of entertainment,” said Cook, whose company already radically changed the music industry with its iTunes store.

The Apple boss told a meeting in the Dutch capital that the Apple Watch also should become a vital tool for wearers to keep a check on their health.

“The holy grail of the watch is being able to monitor more and more of what’s going on in your body,” he said. “It’s not possible technologically to do it today to the degree that we can imagine it, but it will be.”

Cook said that health is a field Apple is focused on now and into the future. In March it announced CareKit, a set of tools for developers who create mobile apps for medical use. Such apps could help patients monitor chronic conditions such Parkinson’s disease and share that data with their doctors.

Apple remains the world’s most valuable company, but sales of both its iPhones and iPads have been falling as consumers increasingly hold off on upgrading their devices. That sales slowdown is the main reason Apple’s stock has fallen by nearly 30 percent during the past year.