Apple Using Rupee Drop to Win Smartphone Buyers: Corporate India

Apple Inc. (AAPL) is using the Indian rupee’s unprecedented plunge to lure customers in the world’s fastest growing smartphone market.

The Cupertino, California-based company has refrained from following Samsung Electronics Co. (005930) in raising prices. Apple is selling the iPhone and iPad to distributors such as Redington India Ltd. (REDI) at the same price as in 2012 even after the currency’s decline this year, Rajesh Khetarpal, head of Redington’s strategic business unit, said in an interview. Apple declined to comment on pricing in India in an e-mail.

Apple’s approach to cap prices is key to helping it boost sales in India, which IDC predicts will replace the U.S. as the second-biggest smartphone market by 2017. The largest technology company, facing rising competition from Samsung, will unveil a less-expensive model at its headquarters today to tap buyers in emerging economies, a person familiar with the plan has said.

“Even though Apple’s margins in India may be adversely affected, volumes are low and this strategy could pay off if stable prices lure new buyers,” said Kiranjeet Kaur, a Singapore-based analyst with researcher IDC. “This could be a wise move in India, especially if competitors increase prices.”

Photographer: Brent Lewin/Bloomberg

A customer tries an Apple Inc. iPhone 5 at a store in Connaught Place in New Delhi. Close

A customer tries an Apple Inc. iPhone 5 at a store in Connaught Place in New Delhi.

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Photographer: Brent Lewin/Bloomberg

A customer tries an Apple Inc. iPhone 5 at a store in Connaught Place in New Delhi.

The rupee advanced 2.2 percent to 63.84 a dollar in Mumbai today, narrowing its loss this year to about 14 percent, according to prices from local banks compiled by Bloomberg.

Average Prices

IDC estimates the average selling price for smartphones will fall below $200 by the end of 2013 in the world’s second-most populous nation. The 16-gigabyte iPhone 5 sells for 45,500 rupees ($712), according to iStore India, an Apple reseller. Samsung’s Galaxy S4 costs 41,500 rupees, according to the South Korean company’s local website.

Samsung raised prices in India by about 5 percent last month, a company official said, asking not to be identified because the person isn’t authorized to speak to the media.

Apple trails Samsung, Micromax Informatics Ltd., Karbonn Mobiles India Pvt, Nokia Oyj and Sony Corp. in India’s smartphone market, where IDC estimates shipments almost tripled to 9.3 million units in the quarter ended June. Samsung had a 26 percent share in the period, and Micromax was No. 2 with 22 percent, according to IDC.

Apple ranked second globally with a 13.1 percent market share in the quarter, according to IDC, trailing Samsung’s 30.4 percent.

Stiffer Rivalry

The competition among smartphone makers has intensified in India, where Boston Consulting Group estimates total consumer spending will almost quadruple to $3.6 trillion by the end of the decade.

“Others have increased prices, but we’re seeing robust growth of all Apple products,” Redington’s Khetarpal said by telephone from Chennai on Sept. 4. “So why mess with a good thing?”

Redington first became a distributor of Apple computers and iPods in 2007. It started selling the iPad in 2011 and last year began offering iPhones through its network. In June, the Chennai-based company was appointed by the local unit of Lenovo Group Ltd. to offer its smartphones across India.

Redington was unchanged at 58 rupees at the close in Mumbai trading. The shares have declined 33 percent this year, compared with a 2.9 percent increase in the S&P BSE Sensex.

The iPhone is also offered by phone service providers such as Reliance Communications Ltd. to users of its data services.

‘Losing Battle’

Apple has offered interest-free payment plans, trade-in offers and discounted service agreements in India this year.

The strategy of holding prices may not lift Apple’s market share in the country, said Abhay Gupta, chief executive officer of New Delhi-based retail consultancy Luxury Connect LLP.

Consumers looking to buy high-end smartphones choose a device based on their preference between Apple’s iOs, Google Inc.’s Android and Microsoft Corp.’s Windows operating systems, and cost is a secondary consideration, according to Gupta.

“Once customers in this category make up their minds, a few thousand rupees here and there is not a differentiating factor.” Gupta said by phone. “Apple has been fighting a losing battle.”

The rupee’s decline this year is the biggest after South Africa’s rand among emerging market currencies tracked by Bloomberg. The local currency’s drop has driven up the cost of imports, stoked inflation, discouraged consumer spending, and spurred the the government and the central bank to act.

Rate Increase

The Reserve Bank of India raised two interest rates in July to support the currency. The government has also increased import taxes on gold three times this year to moderate consumption and curb a record current-account deficit.

Electronic gadgets could face the threat of higher import duties, especially if oil prices keep rising, according to DBS Bank Ltd. Finance Minister Palaniappan Chidambaram on Aug. 12 said the government will rein in some “non-essential” imports.

“Curbing imports of such electronic goods wouldn’t affect businesses and vulnerable sections of society,” Radhika Rao, an economist at DBS Bank in Singapore, said in a Sept. 6 telephone interview. “So these are the lowest hanging fruit.”

Redington says the slower pace of economic growth in India isn’t denting demand for the products it distributes.

“In spite of the downturn, we’re seeing a lot of luxury goods markets growing,” said Khetarpal. “I’m happy so long as my billing is in rupees.”

To contact the reporters on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net; Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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