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Was Warren Buffett Wrong about iPhone’s Pricing?

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Berkshire Hathaway

In the previous part, we discussed analysts’ estimates for Apple Inc.’s (Nasdaq: AAPL) revenues in the coming quarters. Apple’s revenues will likely take a hit due to falling iPhone sales. At the end of the third quarter, Apple was Berkshire Hathaway Inc.’s (NYSE: BRK.B) largest holding. At the end of the third quarter, Warren Buffett’s company owned ~252.5 million Apple shares with a value of $56.99 billion—up 22.2% from $46.64 million in the second quarter.

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Warren Buffett

In an interview with CNBC in October, Buffett said that the iPhone is “enormously underpriced.” While commenting on iPhone sales, he said that “I do not focus on the sales in the next quarter or the next year, I focus on the … hundreds, hundreds, hundreds millions of people who practically live their lives by it [iPhone].”

In contrast, New Street Research analyst Pierre Ferragu recently said that “iPhones are getting more and more expensive … and so you think of it twice before refreshing your hardware.”

While Buffett is known for his great insight on businesses, his argument about iPhones being “enormously underpriced” might not sound accurate considering the huge competition in the smartphone market.

Last year, Apple lost its title as the world’s most valuable public company (SPY). On January 7, Amazon.com, Inc. (Nasdaq: AMZN) become the world’s most valuable company. As of January 9, Amazon’s market value was $811.4 billion. Amazon’s market value beat Microsoft Corporation’s (Nasdaq: MSFT) value of $800.4 billion. Alphabet Inc. (Nasdaq: GOOG) and Apple were ranked third and fourth with market caps of $749.8 billion and $727.5 billion, respectively. Facebook, Inc. (Nasdaq: FB), China’s Tencent Holdings (OTCMKTS: TCEHY), Intel Corporation (Nasdaq: INTC), and Walmart Inc. (NYSE: WMT) had market caps of $414.5 billion, $397.9 billion, $219.1 billion, and $275.7 billion, respectively.

Next, we’ll discuss if the iPhone’s fall could take Apple on a path similar to BlackBerry Ltd. (NYSE: BB).

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