The report, in Wednesday's Wall Street Journal, said the company's work on a lower-end model represents a "big shift" in its corporate strategy, as its position among smartphones has been challenged on both the high and low ends. The report cited "people briefed on the matter."

The Journal's sources said that, while such a model has been discussed by outsiders and considered by Apple for years, this time the work is progressing and such a device could be launched later in 2013. Apple has declined to comment.

Less-Expensive Casing

Such a lower priced model could provide many of the same features and functions as the standard iPhone, but could make up most of the savings with a less-expensive casing made of polycarbonate plastic instead of the iPhone 5's aluminum one.

Apple has been finding its worldwide market share of handsets slipping. For instance, its third-quarter 2012 share was 14.6 percent of worldwide smartphone shipments, a drop from 23 percent in the first quarter. At the same time, Samsung Electronics' was 31.3 percent in the third quarter. In the U.S., the iPhone is still the top-selling smartphone.

Since the iPhone's launch in 2007, Apple has sold only one latest iPhone, with storage variations, although earlier models have remained for sale when new versions came out. Under the new management of CEO Tim Cook, the company has begun to expand some of its product line, such as offering the iPad mini. But the company cannot afford to let the iPhone's market position slip, since it accounts for nearly half its total revenue.

News reports have indicated that the company has seriously considered a cheaper model before, such as prior to the launch of its iPhone 4 in 2010, but Apple dropped the idea for concerns about issues with manufacturing the various models simultaneously.

Has Not Chased Lowest Prices

The company has enjoyed high profit margins, which a lower-cost model could affect, but a cheaper phone could enlarge Apple's customer base -- especially in markets where carriers do not subsidize the high cost of the phone.

On the other hand, a lower-priced model could end up taking customers away from the higher-priced model, a dilemma created by the fact that, if you wanted the latest iPhone before, you only had the higher-priced choice. Some observers have suggested that Apple might introduce a lower-priced model only in markets where it does not threaten its higher-priced base, such as outside of North America or Europe.

Ross Rubin, principal analyst for Reticle Research, noted that Apple has traditionally "not tried to chase the lowest price point segment of a market," but, on the other hand, he pointed out that the company offered a lower price with a different form factor for the iPod and the iPad.

Rubin also said that, while phones subsidized by carriers are the dominant model in the U.S., the small prepaid market is growing here, and is more robust in other markets -- which are primarily occupied by Android phones.

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