Point-Counterpoint: Cheap iPhone Release Likely or Silly?

By Craig Galbraith Comments

**Editor's Note: Click here for our list of December's hottest selling smartphones to see how the iPhone measured up to the competition, or click here for our complete breakdown of the iPhone 5.**

Industry insiders are lining up on both sides of the fence relating to this week's chatter that Apple is mulling the idea of selling a less expensive iPhone in emerging markets where fewer people can afford hundreds of dollars for an unsubsidized version of the Silicon Valley giant's iconic device.

Is a cheaper version of the iPhone pending for emerging markets?Despite a report from a Chinese newspaper quoting Apple marketing exec Phil Schiller as pooh-poohing the idea, Canaccord Genuity analyst Michael Walkley thinks it might happen – sometime. While not predicting a release date, Walkley thinks it's a good idea.

"We believe Apple could potentially launch a lower-end iPhone focused on more price-sensitive prepaid markets in conjunction with larger distributors, as we believe consumers in markets such as China, Latin America andEastern Europe would have very strong demand for a more affordably priced 3G iPhone," Walkley wrote in an investor note this week.

Also of note, Walkley noted that the latest version of its "high-end" iPhone – dubbed in many preliminary reports as the iPhone 5S – will launch by the end of the second quarter (end of June), which would be a deviation from Apple's normal yearly cycle between smartphone releases (although the iPhone 4S and iPhone 5 were only separated by 11 months). Walkley said that will help the company sell 169 million of the smartphones this year.

OK, back to the cheap iPhone talk. Before Apple's Schiller somewhat debunked the idea, two financial media giants – Bloomberg and the Wall Street Journal – this week heard from "sources who wished not to be named" that the device would come to fruition, perhaps by the end of the year. It would be made with cheaper, recycled components and sell for as little as $99.

Carl Howe, Yankee Group's vice president of research, has serious doubts.

“I’m very skeptical this new low-priced iPhone rumor," Howe noted, specifically commenting on the WSJ article. "Apple’s product strategy is to produce the best possible product it knows how to, not the cheapest. While a cheaper body might save a few dollars, it’s not enough of a change to suddenly make an iPhone 5 an affordable phone for emerging markets. Further, Apple has done very well selling older models of iPhones for entry-level prices, and that tactic has yielded huge revenue and profit dividends for Apple because of the massive economies of scale already developed in those devices."

Howe thinks different versions of Apple products might be coming down the pike, but they won't be focused on low price.

"What I think may be happening, though, is that Apple is developing new products that address a different customer segment. I don’t see Apple creating an iPhone 5 with a plastic instead of aluminum case, but I could see Apple creating a family of ‘good,’ ‘better,’ ‘best’ iPhones in different form factors for different uses; we can already see this trend in iPads with the mini and regular iPad. Yes, the iPad mini is cheaper than a full-sized iPad, but its design and use cases are distinct as well. iPad mini isn’t just a cheap iPad; it’s the best 8-inch tablet Apple could make and it appeals to a different set of customers."

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