Apple Inc. (NASDAQ:AAPL) Should Focus on Services, Indian Market

Apple Inc.

Apple Inc. has just announced its first drop in quarterly revenues in 13 years on the back of falling iPhone sales.

The company reported revenues of $50.6bn in the second quarter, while profits stood at $10.5bn. This is a considerable decline from revenues of $58bn and profit of $13.6bn reported in the second quarter of 2015. This translates to a decline of 13 percent in revenues and 23 percent for profits.Apple Inc.

Apple announced that it sold 51.2 million iPhones in the quarter, down 16 percent from 61.2 million units in Q2 2015. Sales of iPad also fell to 19 percent to 10.2 million units from 12.6 million in Q2 2015.

However, Apple is unlikely to fret a lot about the figures, as its cash reserves total an immense $233bn, up 8 percent from first quarter.

Focus on Penetrating Indian Market

Realistically, Apple executives are likely pacing up and down the halls in the company’s Cupertino, Calif. Campus in search of ways to boost further growth. The question is what should the company do with its massive $233bn cash pile.

The key lies in focusing on Indian market. With a vast population that is only second to China, India offers a great opportunity for Apple CEO Tim Cook and his top honchos. However, Apple has faced various challenges such as informal retail structure and sluggish networks. This has hindered it from achieving its full market potential.

Though it is the world’s third-biggest smartphone market, the Indian market is mainly dominated by low-end smartphones. Fortunately, Cook views India as being where China stood about a decade ago, and therefore an ideal market for future growth.

China is Apple’s second-largest market after the U.S. However, iPhone sales fell 11 percent in China, compared with a growth of 56 percent in India.

Cook has said Apple will focus on emerging markets such as India, where growth is phenomenal, unlike in much developed countries such as the United States. Fortunately, India is rolling LTE wireless network this year. This is expected to unlock the high-tech features of the iPhone in a way that older wireless technologies such as 3G or 2.5G couldn’t.

Building Retail Channels to Boost Market Penetration

Unlike in the U.S. where carriers sell iPhones, in India, carriers rarely sell any phones. This means the iPhone is sold in several informal shops and other retail distribution channels.

As if on cue, Apple has been actively organizing its distribution structure in India over the last one year. So far, the results have been impressive, with Cook saying the company stands to gain a lot from its investments there.

Apple Should Increase Focus on Services

Apple didn’t fare badly in all sectors, with revenue from its services unit increasing in the second quarter. The services division encompasses AppleCare, Apple Pay and iTunes.

The services division has recorded explosive growth, partly due to the company’s record one billion active devices and its users’ cult-like loyalty. Apple Pay saw its transaction volume surge 5 times compared to a year earlier. The service is also bringing on board 1 million new subscribers every week.

In the six countries that it is available-Canada, the U.S., U.K., Singapore, Australia and China-Apple Pay can be found in 10 million contactless facilities. 2.3 million of these locations are in the United States.

The company’s music streaming service, iTunes, also recorded tremendous growth in subscribers. 13 million active users were registered on the site, up from 10 million in February this year.

In total, Apple recorded $9.9 billion in revenues from the services division, up 37 percent from the previous year. The tech giant expects its third-quarter revenue to top $41bn to 43bn. This fares badly compared to the Wall Street expectation of $47.3bn.

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