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Recently, it was reported that Apple will assemble the high-end models of the iPhone 16 series, iPhone 16 Pro and iPhone 16 Pro Max, in India through its partners this year.

In this regard, Dan Ives, an analyst at Wedbush Securities, told the First Financial reporter, "I think India can produce some basic models or other parts of Apple hardware. But high-end models such as Pro and Pro Max will continue to be produced in China, and we haven't seen any changes."

Apple began producing iPhones in India in 2017, but at the time it only produced older models such as the iPhone SE. The turning point came five years later: less than three weeks after the iPhone 14 was first launched, Apple announced that it had begun producing the model in India - the first time India has produced Apple's latest model of mobile phones. Prior to this, the number of iPhones assembled in India was very small.

Last year, since the global launch of iPhone 15, India began to produce and sell the model simultaneously with China. Later, it also produced iPhone 15 Plus locally through Apple supplier Pegatron, but high-end models such as Pro and Pro Max still need to be imported from China.

Ensure a flawless supply chain

As for the iPhone 16, which will be launched in the second half of the year, Ives said, "For the iPhone series, iPhone 16 may be the most important release for Apple in the past 10 years. Therefore, it is very important to ensure that the supply chain is foolproof."

It is reported that Apple plans to ship more than 90 million iPhone 16s in the second half of this year, an increase of about 10% over the previous generation.

As for the new Apple Intelligence feature added to iPhone 16, Apple CEO Cook said in a previous earnings call that it is "too early" to judge whether Apple Intelligence will drive people to upgrade their devices, but he is "very excited" about the feature and the company has increased spending to prepare for the launch of the service.

"I don't think India is a country that Apple can rely on in any form to ensure that this very important cycle goes smoothly," Ives said.

He also told reporters that the heart and lungs of Apple's ecosystem are in China.

As of press time, Apple has not responded to Yicai Global's request for comment.

At the same time, recently, there have been reports that Apple is evaluating plans to produce iPads in India, and will also start producing AirPods in India in early 2025, and let Jabil, an American manufacturing company based in India, increase the production of AirPod wireless charging case components.

In addition, iPhone production in India is also accelerating. About 14% of all iPhones produced in fiscal 2023 are assembled in India, worth $14 billion, up from 7% the previous year.

"I think Apple has high hopes for India, so it's important that India starts to have the capability to produce iPads... I think not just the iPhone, but probably other versions, and even the Mac may start to be produced across India," Ives said. "But this is just the beginning stages of a broader plan in India, which at one point accounted for 3% of India's demand, and I think in the next two years, it could be 10%."

As part of its supply chain diversification strategy, Apple is also actively expanding into Southeast Asia.

In April, Apple announced it would increase spending with Vietnamese suppliers after Cook arrived in Vietnam for a two-day business visit, and later during a meeting with Indonesian President Joko Widodo, Cook said Apple would consider building a factory in the country.

In this regard, Ives said, "India may get more share. From the demand perspective, demand will eventually lead to a gradual increase in supply."

India has indeed performed well in Apple's emerging markets in recent years. Data shows that in the 12 months ending in March, Apple's Indian business revenue increased by about 33% year-on-year to US$8 billion, and Apple's high-priced iPhone accounted for more than half of sales.

In a conference call last Thursday, Cook told investors that Apple had set quarterly revenue records in more than 20 countries and regions, including India and Canada. Apple Chief Financial Officer Luca Maestri also said that Mac product sales in June set records in emerging markets such as Latin America, India and South Asia.

It is worth noting that although India is one of Apple's fastest growing markets, it only accounted for about 2% of Apple's $383 billion in sales in the most recent fiscal year. In the Indian market, although the smartphone market has shown a trend of high-end, Apple still faces fierce market competition.

According to a report by research firm Counterpoint Research, the top three mobile phone shipments in India in the second quarter of this year were Xiaomi, Vivo and Samsung. In terms of market value, Apple ranked third with 16.3%, lagging behind Samsung (24.5%) and Vivo (16.8%).

What challenges does India face in joining Apple's supply chain?

After coming to power in 2014, Indian Prime Minister Modi proposed "Make in India", focusing on expanding opening up and attracting foreign investment, in an effort to promote the development of India's manufacturing industry. In 2021, the Indian government announced a production-linked incentive (PLI) plan for 14 industries, including telecommunications and automobiles, to attract manufacturers in key areas and cutting-edge technologies to invest and build factories in India.

Morgan Stanley's 2023 report shows that India's share of the global electronics manufacturing industry has risen from 1% a decade ago to more than 3%. According to data from the Indian Ministry of Commerce, India's smartphone exports will increase by 42% to US$15.6 billion in fiscal 2024, becoming the country's fourth largest export product.

However, India still faces many challenges in seizing the opportunities of supply chain diversification.

For example, although "Made in India" mobile phones use many locally produced parts, due to supply chain constraints, many high-end parts are imported from China and other places and are subject to high import tariffs, which raises the overall cost. US Ambassador to India Eric Garcetti has also repeatedly called for a reduction in tariffs.

On July 23, India announced that it would reduce import duties on smartphones, printed circuit board assemblies (PCBAs) and mobile chargers from 20% to 15%. Earlier this year, the Indian government also reduced import duties on mobile phone components such as SIM card slots from 15% to 10%.

Neil Shah, co-founder of analysis firm Counterpoint Research, said that India imports about 10% to 12% of iPhones each year, and a 5% tax reduction will allow Apple to earn $35 million to $50 million annually.

In terms of attracting overseas talent, India's Department for Promotion of Industry and Internal Trade is working with the Ministry of Home Affairs and the Ministry of External Affairs to provide fast-track visas for engineers and technicians needed by Indian factories, reducing visa processing time from the current 4 to 5 months to less than 30 days.

"What they need to work through is the red tape or bureaucracy, logistics, shipping, tariffs, and those are all issues they're trying to work through with different parts of the government," Ives said. "I think they've made progress, but it's not going to happen overnight."