This line of thinking happens in a lot of tech companies and it's why these companies eventually die. It's documented in [0] though the book is incredibly hard to read.

The gist is that companies very rarely move downmarket when threatened with competition and instead move upmarket to protect their high margin customers. Over time, the entry level competitors gain more and more features and move up, squeezing the original players.

So you're correct that a $40 Android phone is not a worry to apple, but when those manufacturers start releasing a $300-$500 phone that has most of the features of the iPhone, that's when Apple has to be worried. But by the time they notice, it's too late. If we look at [1] we see that iPhone sales peaked in 2015, and then have been slightly down since then. But it took until 2020 to release a new lower-end phone.

0. https://www.amazon.com/Product-Strategy-High-Technology-Comp... 1. https://www.statista.com/statistics/276306/global-apple-ipho...