After it launches, Apple will reportedly begin to manufacture the iPhone 14 in India, breaking away from relying solely on its usual main manufacturing hub in China. It's a bit of a shift for the tech giant, and will present challenges to Indian manufacturers as Apple requires rigorous privacy and security. But if those challenges can be overcome, what would it mean for Apple, its consumers, and the Indian market? Angelo Zino, Senior Equity Analyst at CFRA Research, joins Closing Bell to discuss. 

Closing Bell

Examining Impact of Apple's Reported Move to Manufacture iPhone 14 in India

an Apple making a big production move ahead of the iphone 14 launch. Tech giant reportedly set to start manufacturing its latest iphone in India about two months after its initial release from china. While the move coming as Apple looks for an alternative to chinese manufacturing, citing President xi Jinping's adversarial relationship with the U. S. As well as Covid lockdowns that have disrupted economic activity. Questions do remain about the challenges that Apple could run into by diversifying and supply changing whether existing infrastructure in India can handle this switch. So joining me now is Angelo Zino, senior equity analyst at C. F. R. A research. Angelo always good to see you. What's your big takeaway from this news? Yeah, I think, listen, this is something that shouldn't be too unexpected, right? I mean at the end of the day, Apple has kind of, you know, over the last several years been toying around and has had a significant desire to really kind of penetrate into um India within kind of the supply management side of things. And they've really been trying to push box cons specifically to kind of get more entrenched within India and you're starting to see that. So I think the real, the real kind of surprise here is the fact that they're going to try to start ramping up iphone 14 production in India within two months. Whereas the last cycle, it was closer to about 67 months and the prior cycles before that. I mean, we weren't even talking about kind of um, them being able to produce kind of next generation phones within china. So they're definitely making some nice efforts within china within India. There's still kind of a long ways to go there, but definitely a good sign to see in terms of trying to diversify that supply base. So what does this mean for consumers? Angelo, Could they get their iphones faster? Might they be cheaper? Will they function differently? What does the consumer need to know? Yeah, I mean listen, I think as far as the consumer is concerned, I don't know if there's kind of much that they need to kind of really need to know here. I think um you know historically when we start thinking about um some very kind of strong cycles for Apple, they've been supply constrained initially, right. I mean typically they are supply constrained in the first couple of weeks and months of their cycles. And the big reason is um you know, it just takes a lot to really kind of fill that channel across all geographic regions and it really at the end of the day for Apple um they're more supply driven over the first kind of couple of months rather than demand driven. So this could potentially help them um you know, maybe ease some of the potential um supply constraints across certain devices um off, you know, in the in the first couple of months, but at the end of the day I don't think it has huge implications for them. I think over time though um it definitely could be positive. So the late steve jobs known for the visionary behind apple tim cook currency of the company. I handed the reins after jobs passing known as as a supply chain expert. I know you said this was expected Angelo, but do you think India does have the infrastructure to be able to successfully handle this? Does Apple feel confident in that or might we expect some hiccups going forward? I think expect some hiccups. I think this is kind of again a slow process. I mean you kind of look at over the last last year, less than 5% of their production did come out of India. So it's still, we're still talking about very low base here I do think kind of hopefully over the next 3 to 5 years, that number starts starts creeping closer to something along the lines of mid teens, right? But I think it's also important to note that um if Apple really wants to be um significantly entrenched in India, they also want to see the demand actually come to fruition with India and that necessarily hasn't come yet right, still less than 5% market share within India. So if you kind of look at what Apple has been able to do within China now, 20% of the revenue is within China. So it does help to kind of have a big chunk of their manufacturing, over 90% of their manufacturing come from China because from a logistics side of things that helps. Um so you know, they do want to see the demand side of things also work out in India, I think that does happen, but again, it's gonna come kind of at a snail's pace here because ultimately it's just gonna take time for India to just gonna get wealthier um and turn into more of a developed nation nation and that's what's gonna help Apple kind of get greater sales out of out of. But at the end of the day here, Apple just kind of continue continuing to push on the supply side of things I think is good for everybody involved here. So just quickly Angelo, we are a bit tight on time, but is this going to raise the cost of manufacturing is going to be more expensive in India versus china. Do we know it should be less. I mean to be honest with you over time it actually should be less um to actually produce a device out of India than than it should in china. I will say this though, I mean clearly there, they're kind of capacity expansion plans and what have you, so again, it's all going to be dependent on, you know, how quick kind of um you can kind of get Foxconn out there and kind of rent that capacity and and the rest of the ecosystem to kind of buy in it as well but we do think if there's any, the company that does it, um it is Apple, but again, it's going to take time. I think ultimately if there's one region where Apple can and should kind of expand their capacity, it is India and that's why they're doing it. It's not going to be in these western nations, it's not gonna be, you know what intel is doing out there and kind of expanding into more of these Western type of market because it just doesn't make sense in the US. It costs about 30 to 40% more to make an iphone. It does in china, the the kind of comparisons are much more favorable when you kind of look at it in India, Angelo, I was granted a little bit more time. So I hope you'll stay for one more question. I do know that India is expected to be a massive market going forward consumer market. Right? So all of the hopes, I think that big technology companies had to do business with the chinese consumer, some of those didn't come to fruition just because the world's 1st and 2nd biggest economy have very different regimes running both of these countries. I think the expectation is that India could be a massive market for technology companies like an Apple for instance selling the iphone, a cheaper version of the iphone, like the iphone S. E two, that India clientele does this change the game at all Apple being able to manufacture these phones in India. Does it give them a leg up when it comes to selling iphones potentially in India. I think it helps. I mean it definitely doesn't hurt the situation here. I mean, whether it be kind of getting, you know, brand recognition out there, what have you? Um, I think the problem for apple is going to continue to at least within India is going to continue to be the price point there, especially, you know, now you're looking at them kind of ditching the many here in the next cycle, the focus continues to be on larger, more expensive phones. Um, and ultimately that's going to help their business model. They're going to get higher revenue, higher profits, which is why we think kind of, you know, in this next cycle that the numbers are still too low in terms of the street. Um, but you know, all that being said, um, yes, I think it does help them. Um, I think you're going to see other big tech names continue to follow, but maybe to the point you alluded to earlier, I think kind of finding the right the right talent, the right skills, you know, The right individuals out there is gonna be the biggest obstacle because in China, you can kind of do it on a dime. I mean you can kind of really expand that capacity quickly in the terms of 1-2 quarters where it takes a lot more time in China to do so because you just don't have that skill talent right now. All right, Angela Zeno, senior equity analyst at CFR Research Angela, thank you as always.