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What Do Cheaper iPhones Mean for Apple?

We don't expect a rebound in Apple's phone sales this year, and we think the stock's overvalued.

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Apple (AAPL) held its annual product showcase this week, during which it announced the launch of three new iPhone models: iPhone 11, iPhone 11 Pro, and iPhone 11 Pro Max. The last two devices feature an OLED display while the former has a liquid-crystal display. Apple modified its pricing strategy with the iPhone 11; the upgraded equivalent of last year’s iPhone XR will start at a price of $699, compared with the XR’s starting price tag of $749. The $50 drop for the newest least expensive model supports our belief that Apple’s switching costs have a limit and thus merit a narrow--not wide--economic moat rating.

We consider the improvements in the iPhone 11 series to be relatively marginal and suspect many users will opt to wait for a 5G-compatible iPhone in 2020. Thus, we are not forecasting a rebound in iPhone unit sales this year, particularly in China, where we believe 5G will be a bigger factor as many Android devices already include 5G modems. We are maintaining our $200 fair value estimate for Apple, and we view the shares as overvalued at current levels.

Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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