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Wistron in limbo as Apple overestimates iPhone SE demand in India

LiveMint logoLiveMint 11-09-2017 Rozelle Laha

New Delhi: Tepid sales of Apple Inc.’s iPhone SE in India and a failure to secure concessions from the government has put the company’s Taiwanese contract manufacturer Wistron Corp.’s business plans in trouble.

Apple overestimated demand for its iPhone SE model in India, said a person with direct knowledge of the matter. Wistron’s production capacity at its plant in Bengaluru is about triple Apple’s sales for the iPhone SE model, a cheaper version of its flagship model which was aimed at emerging markets.

Local assembly of the iPhone SE did not help in reducing the cost of the device, thereby failing to improve demand. As a result, Wistron’s plant remained underutilized, the person said, requesting anonymity.

“iPhone SE model does not sell enough in India, barely enough to fill one shift for the factory. It doesn’t have enough demand, and Apple Inc. is thinking of adding in a high-selling model in addition to the current one to improve utilization of the plant,” the person said.

Apple has sought concessions on import duty for components to start full-scale production in India, demands that have not been met by the government so far. The stand-off has impacted Apple’s manufacturing plans.

Apple did not respond to an email sent on 7 September seeking comments for the story. An email sent to Wistron remained unanswered till press time.

Apple contracted Wistron to assemble semi-knocked-down units to build iPhone SE devices, for which the Taiwanese company set up the Bengaluru plant with an annual capacity of around 75,000 units. The plant was to work in three shifts for 26 days a month, the person cited above said.

According to the contact manufacturing agreement, Wistron was to bear the initial cost of setting up and running the factory, the person said.

In addition, said the person, there has been no clarity from Apple on its future investments, production volume, capacity utilization and cost structure. Plans to export phones also seemed to be stuck as the government has not allowed duty-free import of components.

“There is no policy basis for this and this is where the other problem is. If the government allows this, it will create a very messy situation with so many other manufacturers who never asked for this in the first place. Add to this, the GST (goods and services tax) and administrative problems for duty-free import under existing schemes,” the person said, adding that the top management at Wistron is currently assessing its agreement with Apple.

Apple has been in talks with the Indian government since May 2016, when its chief executive Tim Cook and Prime Minister Narendra Modi agreed to set up an Apple production and export base in India that goes beyond just assembling iPhones.

The company is looking to India after sales in China, once a major growth driver, started sliding. China sales fell 14% from a year earlier to $10.7 billion in the three months ended April. Apple has not disclosed the revenue it generates in India but said that sales grew by “strong double digits” in the country in the most recent quarter, Reuters reported in June.

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