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Will a Cheaper iPhone See the Light of Day?

Will a Cheaper iPhone See the Light of Day?
January 12, 2013 1:44PM

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"There will always be a possibility of Apple trying to make a lower-cost line of iPhones," said analyst Mike Morgan. "However I would also say that when or if Apple does release or make this cheaper model, it would be a signal to the market that Apple can no longer find a way to increase the penetration of its high-cost, high-margin original iPhone."

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As smartphones go, Apple's basic 16-gigabyte iPhone model isn't a bank account buster, at $199 with a two-year plan. But buy the iPhone 5 directly from Apple unlocked, and you're talking a hefty $649.

So it's not hard to believe that, as cheaper phones with prepaid plans start to gain momentum, Apple might be looking for a model with lower production costs for emerging markets, or even for budget-conscious U.S. customers.

Recycled Innards?

Such rumors have bounced around before, and gained a new life earlier this week with a report from The Wall Street Journal saying a new model might look much the same as the current iPhone but with a polycarbonate plastic shell and perhaps components from recycled iPhones. That model could launch by the end of the year.

The report cited people who have been briefed on the matter as the source and said the plan was progressing. Apple declined to comment to the Journal and did not respond to our e-mails seeking comment.

The Shanghai Evening News initially published an interview with Apple's senior vice president of marketing, Philip Schiller -- seemingly in response to the cheap iPhone reports -- saying Apple will continue making the best products and "never blindly pursue market share."

The paper later revised the story to remove the emphasis on smartphones and maintained a reference to a "cheaper, low-end product," Reuters reported. Apple acknowledged to the wire service that it contacted the Chinese paper to amend the article, suggesting that Schiller had not in fact ruled out the cheaper phone.

For a perspective, we asked two analysts if they envisioned a plastic, refurbished iPhone to make its way into sales channels any time soon and they were skeptical.

"Making a cheaper iPhone would not have to hurt Apple's cachet if it was executed properly," said Mike Morgan of ABI Research.

Too High a Price

"As I look at the economics of Apple and its iPhone business, I would say that there will always be a possibility of Apple trying to make a lower-cost line of iPhones. However I would also say that when or if Apple does release or make this cheaper model, it would be a signal to the market that Apple can no longer find a way to increase the penetration of its high-cost, high-margin original iPhone. Over the long term, I believe that it would not make great financial sense for Apple to trade market share for product margin."

Gartner Research analyst Ken Dulaney said Apple already has a low-cost iPhone option in the 4 and 4S, available for free or for $99 respectively, with a contract. The iPhone 4 sells for $450 unlocked.

"They are just saying that they don't want to deliver low functionality...that Apple stands for the best," Dulaney said. "That approach is an approach and its fine. Why does everyone have to deliver everything?"

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