Mass Production of iPhones to Start in India

(Bloomberg) -- Foxconn Technology Group Chairman Terry Gou said the iPhone will go into mass production in India this year, a shift for the largest assembler of Apple Inc.'s handsets that has long concentrated production in China.

Gou said that Prime Minister Narendra Modi has invited him to India as his Taiwanese company plans its expansion in the country. Apple has had older phones produced at a plant in Bangalore for several years, but now will expand manufacturing to more recent models. Bloomberg News reported this month that Foxconn is ready to start trial production of the latest iPhones in the country before it starts full-scale assembly at its factory outside the southern city of Chennai.

“In the future we will play a very important role in India's smartphone industry,” Gou said at an event in Taiwan. “We have moved our production lines there.”

India has become the fastest-growing smartphone market in the world, while China stagnates and Apple loses share to local competitors such as Huawei Technologies Co. and Xiaomi Corp. Apple has been a minor player in India, in part because of its high prices, but local manufacturing would help the Cupertino, California-based company avoid import duties of 20 percent.

“For Foxconn, the China market for iPhones is saturated, and labor costs are three times higher compared with India,” said Karn Chauhan, a Gurgaon-based analyst at Counterpoint Research. “India is still an emerging smartphone market, it has a lot of potential domestically and could serve as an export hub for the region.”

Gou also said on Monday that he plans to step back from daily operations to focus on broader strategy. The founder isn't stepping down or relinquishing his chairmanship, said Louis Woo, special assistant to Gou.

It's not yet clear how Apple's steps into India will affect its China operations. China has been the company's most important manufacturing base for years, home to Foxconn's biggest facilities and hundreds of other partners.

Foxconn already has two assembly sites in the southern Indian states of Andhra Pradesh and Tamil Nadu, where it makes devices for Xiaomi and Nokia. Locating more production in India would help diversify Apple and Foxconn's manufacturing footprint away from China amid ongoing trade tensions with the U.S.

The Indian assembly line of Foxconn's Hon Hai Precision Industry Co. would serve local and export markets by the time Apple announces its next iPhone models in September, people familiar with the matter have said. The Taiwanese contract manufacturer, the biggest maker of iPhones, will initially invest about $300 million to set up for Apple with investments to ramp up as capacity expands, they said.

Gou said that his company is talking with the government about investment terms. He has a dozen software people in India and he plans to increase that to 600, he said.

“We are the primary assembler after all,” Gou said on Monday. “If our customer wants to boost its scale, it will need to depend on us to grow the comprehensive supply chain.”

Producing phones locally would also help Apple's retail push in India. The company needs to meet a 30 percent local sourcing rule to be able to open its own stores in the country.

Indians bought more than 140 million smartphones last year, with just 1.7 million sold by Apple, as consumers favored cheaper models from China. On Xiaomi's Indian website, the Redmi Note 7 has a price of 9,999 rupees ($143), which is about a 10th the price of Apple's iPhone Xs in the country.

To contact the reporters on this story: Debby Wu in Taipei at dwu278@bloomberg.net;Saritha Rai in Bangalore at srai33@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, Edwin Chan