Apple Looks Undervalued as It Tunes Up Lineup

In our view, a shifting product portfolio was the highlight of

Apple’s event brought three main adjustments to the firm’s product lineup. Most important, Apple launched the iPhone SE, with a 4-inch screen similar to the two-year-old iPhone 5s, but with many updated components comparable to the latest iPhone 6s. We’re a bit surprised by Apple’s aggressive pricing of the SE at $399, $50 lower than all prior entry-level iPhones, such as the 5s. The SE should make Apple more competitive in the midtier, as emerging-market customers, in particular, may be happy with a smaller screen that carries the Apple brand and iOS ecosystem over high-quality Android phones from firms like Xiaomi.

Apple also introduced a 9.7-inch iPad Pro, positioning it as more than a consumer product, but more as a PC replacement. The $599 starting price is $100 higher than all prior iPad (non-Pro) introductory prices. Again, we think that most iPad Pro sales will be made to those that were likely to buy other iPads or Macs anyway. Finally, Apple announced a $50 price cut for the Watch Sport, down to $299. We suspect that the price cut is not only an attempt to drive demand for the new product category, but also for clearing out inventory before a new device launch later this year.

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