Fundamentals

BREAKING
News broke from Reuters that Tim Cook is making a trip to India to meet with the country's Prime Minister, Narendra Modi. According to the story, this would be Tim Cook's first meeting with the Prime Minister as CEO of Apple.

The little publicized (and unconfirmed) meeting is enormous, and the mainstream media has lost its focus again. First we get this:


But, Tim Cook has met with India's Prime Minister before -- it too was little publicized, and it had an astonishing impact on Apple's growth trajectory. And the end of this soliloquy has another abrupt reality: India is turning into a ridiculous success for Apple. Here's what's really happening:


INDIA
India will represent the second largest smartphone market to China as of this year, overtaking the United States. Here's the growth via Statista.



That's 204 million smartphone users in India in 2016. By 2017, India will be larger than the United States.

Until recently Apple had no footprint in the country because of a national law that protects local manufacturers. In fact, here's Apple's miniscule market share as of mid-2015:



Many people reported those numbers closer to 1%. Even more, Morgan Stanley reported that nearly half of the Indian population hasn't even heard of the Apple brand. So why get bullish now?

EVERYTHING IS CHANGING
A tectonic shift began last year with a visit by Apple's CEO Tim Cook and a private meeting with India's Prime Minister. While the meeting was rather private, the results were not:

Shortly after the meeting we got this news: India has singled out "cutting-edge technology" as a segment that can side-step the 30% local producer rule and Apple has been singled out as "cutting-edge technology." What a coincidence.

Then the Times of India wrote an article: "Apple may get to open stores without 30% sourcing norm."


IT'S ALREADY WORKING
If you recall that that 1%-2% market share we looked at in India as of mid-2015, news from Quartz broke in March that the tide is shifting, and it's building into a tsunami:


That number has spiked to 5.8% in tier-I Indian cities. Here's the chart:



IT'S GOING TO GET BIGGER
This massive increase is not even the tip of the iceberg. Apple is yet to open its stores in India. Recall that only 50% of the populace has even heard of the brand. That's good news for Apple -- that's room to grow. But that's not the real change.

Apple created the iPhone SE, a smaller version of its trademark product, but it also reduced the price to $399 -- the least expensive new iPhone ever. But there's more:

FOXCONN
We learned a week ago that Apple's gigantic supplier, Foxconn, is set to open a $10 billion iPhone manufacturing plant in India.


And now we learned that Apple has opened a development center in India, which will house 150 employees. It's going to take a couple of quarters for the numbers in India to impact revenue and EPS in a meaningful way, but they will.

APPLE CAN DO WHAT FACEBOOK, GOOGLE, AMAZON CANNOT
Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN) can't get into China. In another note we penned "It's Hidden in the Cracks, But: Google is Going After China," we remarked how Google and Facebook are making overtures to China. We wrote:


India is Facebook's second largest market. Apple has China and now it's going to have India. And, if India feels like the obvious new market for success for all tech giants, Amazon would have agreed, until this news came out: "Amazon and Flipkart are speechless after India announces new foreign investment rules" via quartz.

The Indian government clarified its policy for foreign direct investment (FDI) in the fast-growing e-commerce sector. FDI will not be allowed in inventory-based models.


That's another story, for another time, but Apple's special treatment in India is really special. As in, elite.

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Thanks for reading, friends. The author is long Apple shares in his personal account.