Apple targets Indonesia with $44 million in R&D investment

Apple is working hard to break into the Indonesian smartphone market, announcing plans to invest roughly $44 million in a research and development (R&D) center over the next three years.

The investment will let the company sell its iPhone 7 there after the Indonesian government recently announced that as of January 2017, all 4G-enabled phones sold in the country must include at least 30% local content, which can be reached via hardware, software, or an investment.

Indonesia presents a massive growth opportunity for Apple, which posted its first annual decline in revenue in 15 years during Q3 2016. The year-over-year decline is primarily due to the decelerating global smartphone market since the iPhone comprises almost two-thirds of the company’s total revenue.

Nevertheless, Apple is unlikely to find immediate success in Indonesia, much as it has in other emerging markets such as India. The smartphone market is largely controlled by Samsung, which accounted for 26% of smartphone shipments in Q2 2016, according to IDC. Meanwhile, low- to mid-tier devices from local and Asian vendors such as OPPO, ASUS, Advan, and Lenovo make up the rest of the top five vendors, by share.

The low- to mid-tier smartphone market is a key area in which Apple does not yet have a significant presence. This is a missed opportunity Piper Jaffray analyst Gene Munster noted during Business Insider’s IGNITION conference in December. And while the iPhone SE at $400 could be seen as an attempt by the company to partly capture the mid-tier market, it’s still marginally more costly than those being offered by local and Asian vendors. The OPPO F1, for instance, retails for around 3.8 million Indonesian Rupiah (roughly $283 USD).

The global smartphone market is expected to slow considerably over the next few years. Despite a record-setting holiday quarter, 2015 was likely the last year of double-digit growth for smartphone shipments.

Mature markets were at the heart of this year’s deceleration. Adoption has reached new highs in key markets in the United States, Europe, and China. The pool of first-time buyers in these countries is shrinking rapidly, and sales are now primarily coming from phone upgrades.

Meanwhile, emerging markets will continue to see robust shipment growth. India and Indonesia, in particular, will help fuel a large share of the shipments growth within the global smartphone market over the next few years.