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Apple's Tim Cook lays some groundwork for growth in India

MUMBAI Apple chief executive Tim Cook wrapped up a four-day visit to India on May 21 without making the big splash some industry watchers had anticipated. Still, it was a start: This is the first time a sitting Apple chief has visited the country, a challenging market for the company.

There had been talk that Cook would announce plans to set up a manufacturing base in India, along with a concrete timeline for opening an Apple Store there. He did discuss such matters with Prime Minister Narendra Modi on the final day of his stay, but it remains an open question how the U.S. company intends to gain ground in a country where its smartphones are considerably pricier than those of its rivals.

Cook's meeting with Modi lasted about an hour. They chatted about everything from Apple's plans to the chief executive's experience visiting temples, hobnobbing with Bollywood stars and taking in a cricket match, according to a government statement.

"Cook shared Apple Inc.'s future plans for India," the government said in its statement. "He spoke of the possibilities of manufacturing and retailing in India. He appreciated the breadth of young talent in India, and said the youth have significant skills which Apple would like to tap."

Earlier, Cook announced investments in an app design accelerator in Bangalore as well as a map development business in Hyderabad. Both cities in southern India are known for their large concentrations of tech companies.

Apple has applied to open stores in India, and last year, the Indian government relaxed a rule that required single-brand foreign retailers to source 30% of their product materials domestically. Some say the rule change was meant to woo Apple and its cutting-edge technology.

Cook did say that India could get its first Apple store next year.

UPHILL BATTLE Cook's predecessor, Steve Jobs, paid little attention to the Indian market during his tenure. Jobs did, however, draw inspiration from the country. Facebook CEO Mark Zuckerberg said Jobs urged him to visit.

"He told me that in order to reconnect with what I believed was the mission of the company, I should visit this temple that he had gone to in India, early on in his evolution of thinking about what he wanted Apple and his vision of the future to be," Zuckerberg said. "The month-long trip reinforced for me the importance of what we were doing."

Now, Cook is looking at practical ways to capitalize on the massive market. But Apple is in a difficult position -- in India and in general.

Apple posted its first ever drop in global sales in the January-March quarter, largely due to the economic slowdown in China. Its overall quarterly revenue declined 13% to $50.6 billion, while net income was down 23% to $10.5 billion.

Apple's stock has lost its luster. The projected price-earnings ratio for a year from now is about 11, compared with an average of 17 for companies in the Standard & Poor's 500 index. This means Apple is undervalued in comparison with other big American corporations.

Investors are losing faith in Apple's growth prospects. India is one market where the company clearly has room to expand, but it is not going to be easy.

Apple faces stiff competition in India from Samsung Electronics of South Korea, as well as Chinese companies like Xiaomi and OnePlus. All of them offer cheaper products.

During the quarter ended December, Apple's share of the Indian smartphone market was just 3.2%, compared with Samsung's 26.8%, according to data from IDC. India's Micromax controlled 14.1%, while China's Lenovo group had a 11.6% share.

Price is a big factor. Morgan Stanley Research says the average smartphone price in India is only $130 -- less than half the global average of $300 -- though urban consumers are inclined to upgrade and are willing to pay $180 for their next handset. At the low end, a smartphone can be had for as little as $35.

Apple's phones sell for $160 to $787 in India, while dominant player Samsung's cheapest model is tagged at around $58.

Cook acknowledged that iPhones are expensive by Indian standards. "Our profitability is less in India, materially less, but still I recognize the prices are high," he told broadcaster NDTV. "I want the consumer in India to be able to buy at a price that looks like the U.S. price."

TECH MAGNET There are promising signs for the company: Its Indian sales grew 56% on the year in the latest quarter. Yet Cook is treading cautiously.

In his meeting with Modi, Cook brought up Apple's desire to import refurbished iPhones as a way of bridging the price gap. The Telecom Ministry has balked at this plan, citing environmental concerns, and the government has yet to make the final call.

Analysts said Modi would be more interested in having Apple establish a production base in India than simply letting the company sell used phones. After all, the prime minister continues to champion his "Make in India" campaign, and there are already plenty of low-priced phones available from Chinese, South Korean and domestic manufacturers.

"There are clearly incentives for local manufacturing in India," said Anshul Gupta, a research director at U.S.-based advisory Gartner. "There are duty differences. Maybe Apple does not [have the] volume as of now, but it will make sense for them to have [a] manufacturing facility in India. It will help them to bring down prices."

India has captured the attention of the broader tech industry. It has received a steady stream of visits by information-technology luminaries such as Microsoft's Satya Nadella, Google's Sundar Pichai, and SoftBank's Masayoshi Son and Nikesh Arora. Google is involved in a project to set up Wi-Fi at 500 Indian train stations, while Microsoft plans to make the country a cloud services hub.

For Apple, however, India's slow rollout of fourth-generation telecom infrastructure poses a challenge, since its products require high-speed wireless connectivity. And getting clearance to open a factory would still take time, despite Modi's efforts to loosen regulations and speed up administrative processes.

Market watchers, nevertheless, will be looking for Apple to show it sees India as something more than a market for secondhand phones.

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