Apple defies Steve Jobs, eyes cheaper iPhone

Stung by its declining market share, Apple (AAPL) reportedly may offer a less expensive iPhone, a reversal of the strategy of its late CEO Steve Jobs, who believed in quality over quantity.

The Wall Street Journal, which broke the story, says "a less expensive version of its flagship device could launch later this year." Apple would make the new iPhone with a less expensive polycarbonate plastic body instead of metal with parts recycled from older models. Bloomberg reports that Apple is considering prices of $99 to $149.

Don't look for the cheaper phone in the U.S. anytime soon, because a lower end iPhone may pressure the company to cut the prices of more advanced iPhones. The company would likely first sell the device in China and other developing markets. Eventually, however, the new iPhone could surface the U.S. in some form, given the surging popularity of Android. It may be attractive to those skilled at "jail-breaking" iPhones, freeing them from carrier restrictions and allowing them to run software not approved by Apple.  

Shares of Apple, which have slumped more than 13% in the past six months, were off by less than 1% in Wednesday morning trading, indicating that investors may be skeptical about whether a cheaper iPhone is the answer the company's perceived woes. It's easy to understand why.

According to Gartner, Google's (GOOG) Android operating system probably commanded 49% of the smartphone market at the end of last year compared with 18.9% for Apple. Android, which Google offers to phone makers for free, probably increased its share from 38.5% in 2011 while Apple's share may have declined from 19.4%. Apple gets about half of its revenue from the iPhone and related services.

If Apple hopes to justify its market cap that tops $494 billion and a share price topping $525,  the company can't afford to be second fiddle to anyone. Apple, for its part, has been fighting to regain share by offering new products such as the iPad mini. The company, though, can't seem to catch a break from Wall Street lately. 

Investors are probably concerned that Apple might sacrifice profit margins as it chases lower-end consumers. A cheaper iPhone, however, might help the company boost sales in emerging markets, where smartphone use is continuing to rise at a faster rate than in the developed world. It's unclear if these sales will offset stagnant demand in mature markets.

Jobs was known for an almost maniacal focus on the quality of his products. The company needs to retain that tradition while at the same time finding a way to make its products more affordable. Though such a strategy may have enraged Jobs, the company has little choice but to defy the wishes of its visionary leader.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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