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Avise Analytics | Can Reliance JIO Liven Up The Muted Growth Story Of Apple
Reliance Jio marks the start of 4G wave in India. Will this new wave help Apple revive its trimming market share in the mobile industry?
Research, Analysis, Outsourcing, Apple, Reliance Jio, 4G, iPhone 7, Investment Ideas, Company Analysis, Event Update, Avise Analytics
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Can Reliance JIO Liven Up The Muted Growth Story Of Apple

08 Sep Can Reliance JIO Liven Up The Muted Growth Story Of Apple

Apple Inc. released the latest generation of the iPhone7 and iPhone 7 plus yesterday. There was a time when every such launch by the company had been eagerly awaited, however, this time around the new device failed to generate as much interest and excitement as its predecessors. The model incorporates several new features like a pressure-sensitive home button, better camera, a faster processor, improved battery life and no headphone jack, nevertheless, regardless of these changes, the upgraded phone is quite similar to the previously released iPhone 6s and 6s Plus. Given that the launch has failed to surprise the market with any of its new features, it seems likely that Apple will face hard times in the years to come, despite the fact that it has worked extremely hard to keep up its market share and muted growth story.

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Over the years, Apple has continued to invest heavily in Research and Development. From 2014 to 2015, the expenditure under this head increased by 34%, from $6,041 million to $8,067 million. However, the company seems to be saving radical changes in design for 2017, which will mark the iPhone’s 10 year anniversary. Rumours are rife that next year, the new iPhone will boast of a chassis made entirely from glass, and an edge-to-edge display with an OLED screen. Given that this will be a step up from the LCD screens used currently, it may bring about significant growth in Apples top-line in 2017. However, as far as this year is concerned, it seems unlikely that the company’s sales figures will reverse their downward trajectory.

According to research firm KGI Securities, Apple is expected to decrease shipment number to about 65 million this year for the iPhone 7 – this is just 60% of the figures recorded during the same time last year. Only 74 million iPhone 7 devices are expected to be built in 2016 – a 10 million reduction in units when measured against its production last year. Apple saw a fall in revenue for two consecutive quarters post the launch of iPhone 6s in 2015, and unless the company comes up with something new, it may find itself facing a similar conundrum this year as well.

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Perhaps the best thing that Apple can do to climb out of this predicament is form a tie-up with Reliance Jio, an upcoming provider of mobile telephony, broadband services, and digital services in India that is slated to provide 4G services on a country-wide level using LTE technology. The company is being touted as a market disruptor due its innovation that will enable consumers to make free voice calls to any 4G enabled phone which has an active data connection.  Jio will use data services to provide free calling facility, thereby revolutionizing the voice calling concept. In addition, it is expected to offer high-speed 4G data connections that are 10 times faster than those of current service providers, at just one-tenth the cost.

Apart from data and voice services, the company will also offer peripheral services like instant messaging, live TV, movies on demand, news, streaming music, and a digital payments platform. Its aim is to reach a target of 100 million customers “in the shortest possible time”, and given its aggressive pricing strategy of free voice calls and rock-bottom data prices, it seems quite likely that it will easily achieve the same. According to experts, Jio needs 40 million to break even at the EBITDA level, and about 30 million more subscribers to break even at the PBT level.

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However, in order to use these 4G services, consumers in India need to upgrade their smart-phones to new devices that are compatible with the new technology. Expectations are that this year, 4G enabled devices will constitute 72% of the 120 million smartphones shipped to India, up from 32% of 100 million in 2015. Moreover, the number of 4G phones being used is expected to rise to 100 million by October from 70 million at present. This presents a unique opportunity – as more and more users switch to 4G compatible phones, it would be beneficial for Apple to chalk out a deal with Jio through which it can sell its new iPhone to the new consumers. This is not something unheard of – the company had entered into a similar deal with China Mobile, a leading telecommunications services provider in Mainland China, back in 2014.

Thanks to the deal with China Mobile, Apples sales had seen an 84% y/y jump in Greater China alone, from a figure of $ 31,853 M in 2014 to $ 58,715 M in 2015. While this region contributed towards 17% of Apples total sales in 2014, the percentage had shot up to about 25% in 2015.

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China Mobile has the world’s largest mobile network and the world’s largest mobile customer base. It operates in all 31 provinces, autonomous regions and directly-administered municipalities throughout Mainland China and in Hong Kong Special Administrative Region. Given its huge subscriber base, China Mobile had done wonders for Apples sales figures. Similarly, Reliance Jio is one of the largest holders of spectrum resources in India. It has access to all 22 zones in the country – an achievement that only one of its competitors – Bharti Airtel can boast of. It already connects 200,000 villages and 18,000 towns and by the end of March next year, aims to cover 90% of India. According to top investment banker Morgan Stanley, the company may have more than 30 million subscribers by the end of this financial year doubling to 60 million by the next.

Given this sort of growth expectations, a tie-up with Reliance Jio could be extremely beneficial for Apple and may help to support the falling sales of the company. Apple accounted for only 800,000 of the 30.7 million smartphones shipped to India in the second quarter of 2016. This represented a 33% drop from a year earlier for Apple although the overall market expanded by 19%. Moreover, during this time, the company’s market share reduced to half, from 4% to 2%.

At present, Apple is in talks with its manufacturing partner Foxconn to discuss the possibility of making the iPhone in India in the next two to three years. Should Apple begin to manufacture the iPhone in India, prices would get noticeably cheaper for customers, which are currently quite steep thanks to import taxes that are applied to the price of iPhones in the country. Setting up retail stores could also help the company’s efforts to expand and increase demand for its products throughout India.

Whatever may be its course of action, it cannot be denied that Apple needs to now focus on India, as it is probably the only country that can help arrest its dwindling sales. And to achieve this ambition, Reliance Jio could prove to be an important ally for the company.

 

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