How low will Apple's cheap iPhone go?

Will the strategy work or can it backfire and cannibalize sales of the more expensive iPhones?

By Benzinga Jul 25, 2013 12:19PM

iphoneBy Louis Bedigian

Contrary to popular belief, Apple (AAPL) CEO Tim Cook did not actually confirm that the company will release a lower-cost iPhone this week.

Despite his reluctance to say one way or another, analysts continue to report that Apple is secretly developing a low-cost smartphone. A new Bloomberg video has only increased that speculation.

If Apple does release an "affordable" or "budget" iPhone, one has to wonder how low the company might be willing to go.

Nokia (NOK) only charged $249 for the Lumia 620 when it was released late last year. Unlike the many high-end smartphones that are available, the $249 price came without a contract. Thus, it was a pretty good deal for a smartphone that was designed to run with Microsoft's (MSFT) latest mobile operating system, Windows Phone 8. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

On the other hand, Nokia is selling its latest device -- the Lumia 1020 -- for $300 with a contract, making it one of the most expensive handsets available.

BlackBerry (BBRY) is expected to increase BB10 exposure with the release of the Q5, which retails for around $400 without a contract. That might be a little high for consumers who are persuaded by the low-cost Android and Windows Phone handsets.

BlackBerry is somewhat of a prestigious brand to acquire though, as is iOS. This may be why both companies are reluctant to sell cheap smartphones.

It could be risky for Apple to sell a smartphone for less than the price of the iPhone 4, which currently sells for $450. If Apple sells a cheaper (more colorful) iPhone, consumers may be less interested in the vastly more expensive iPhone 5S (Benzinga).

Apple might have been willing to take that risk if iPhone sales had begun to suffer. That is essentially the move Apple made after iPad sales were threatened by seven-inch competitors last year.

In the beginning, this strategy worked beautifully. iPad sales soared in the December and March quarters, providing Apple with an increase in revenue.

That changed in the June quarter when iPad sales plummeted to their lowest level since September 2012.

In other words, a lower-cost iPad may have been enough to reignite tablet sales for a couple quarters, but it wasn't enough to maintain the device's high level of growth.

If Apple ever needs a cheap iPhone to increase sales, investors could see a similar result after the initial allure wears off.

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