A $250 Billion Opportunity That Could Send Apple Stock Soaring

Sales of 5G smartphones are taking off in India. That growth might explain why Apple (AAPL -4.91%) is focusing more on a market that has been a negligible contributor to the company’s top line so far.

The tech giant is manufacturing iPhone 14 models in India through its partner Foxconn in the city of Chennai. What’s remarkable is that Apple’s latest iPhones will now be made in India so soon after their global launch, This is a departure from the company’s prior strategy of only making older models in this market.

J.P. Morgan Chase‘s investment firm estimates that 5% of global iPhone 14 production could take place in India this year. What’s more, the country is expected to account for a quarter of Apple’s global iPhone production by 2025. Apple’s efforts to grow production in the world’s second-largest smartphone market could be a big deal, especially since there is growing adoption of 5G smartphones in India.

Let’s see how Apple’s decision to make more phones in India could supercharge the company’s growth.

Apple wants to maintain its terrific growth in India

Apple reportedly generated $3 billion in revenue from India in fiscal 2021 (ended Sept. 25, 2021), with its top line increasing 68% over the prior year. The company’s revenue from India is expected to hit $4 billion in fiscal 2022, according to third-party estimates, and the trend seems to have continued in the recently begun fiscal 2023. CEO Tim Cook pointed out on the company’s Q3 earnings conference call in late July that Apple’s India revenue nearly doubled during the quarter that ended in June.

Apple’s impressive momentum in India is attributed to the adoption of 5G smartphones, which carry a higher average selling price (ASP) as compared to the overall smartphone market. The ASP of a 5G smartphone in India stands at 33,600 Indian rupees (around $412 at the current exchange rate). That’s well above the overall smartphone ASP of $196 for the Indian market.

The higher smartphone spending has been a boon for Apple as it has been able to attract more users to its ecosystem and become a major player in the premium smartphone space (devices priced above $400) in the country. And now, the local production of the latest iPhone model could give Apple a boost in the Indian market.

Apple can save 20% in production costs (in the form of import duties) by locally making the iPhone 14 in India. It is worth noting that the iPhone 14 starts at a price of 79,900 Indian rupees ($980). That is higher than the $799 starting price in the U.S. market. Now, it remains to be seen if Apple would pass on this benefit to Indian consumers.

But if the company decides to do so and offers discounts to customers through banks or other third-party platforms, then the iPhone 14 could become more affordable in that market. Such a move could give Apple’s sales volumes in India a nice shot in the arm. Analysts are already anticipating the iPhone 14 to record a 50% increase in shipments in India during the launch quarter over the prior generations of the device and push its share of the premium smartphone market to 47%.

This bodes well for Apple as the share of premium smartphones in India is just 7% at present, but it is expected to increase to 10% of the overall market in 2023. Even better, sales of premium smartphones are growing at a faster pace than the overall smartphone market in the country, driven by the growing adoption of 5G. And this is where the long-term opportunity lies for Apple.

Getting ready to dig into a massive revenue opportunity

Around $250 billion worth of smartphones could be sold in India between 2022 and 2026, with cumulative shipments reaching 1.7 billion units, according to estimates from Deloitte. Of that total, 5G smartphones are expected to account for 840 million units. More specifically, 5G devices could account for almost 80% of Indian smartphone shipments in 2026 at 310 million units.

For comparison, India is expected to have an installed base of 70 million to 80 million 5G smartphones by the end of 2022. So, there’s massive room for growth in the Indian market, which is why it would make sense for Apple to make more iPhones locally and price them competitively. Such a move would allow the company to maintain its dominant position in the premium smartphone market in India.

The higher ASP of 5G smartphones and the growing share of shipments they will account for by 2026 means Apple improves its chances of benefitting from the $250 billion potential revenue opportunity in India.

The company cornered 12% of India’s smartphone revenue in Q2 2022, according to Counterpoint Research. A similar share through 2026 means that Apple may be able to record $30 billion in incremental revenue from the Indian smartphone market over the next four years, based on the $250 billion additional revenue opportunity.

But Apple’s momentum and its efforts to increase production in India mean the company could grab an even bigger share. For instance, a 20% share of the Indian smartphone market’s revenue could add $50 billion to Apple’s top line in India through 2026. That would be a big jump over the company’s revenue from that market in the last couple of fiscal years, so it is easy to see why the Indian market could turn out to be a big growth driver for this tech stock. 

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends JPMorgan Chase and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.