Analyst: Apple to Release $250, Contract-Free iPhone

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Is Apple (NASDAQ: AAPL ) building a cheaper iPhone? Consumers will be the last to know, as company policy is to avoid commenting on virtually every rumor that circulates the Web. Topeka Capital analyst Brian White thinks he already knows the answer.

In a research note obtained by AppleInsider , White said that his team discovered multiple iPhones in "different screen sizes" for a potential launch in May or June 2013. This should allow Apple to "better bifurcate the market and pave the way for a lower-priced iPhone," White said.

With regard to the device name, White estimates the obvious. He believes that Apple will maintain the naming scheme of its iPad and refer to the handset as an "iPhone Mini," or copy the MacBook line and call it an "iPhone Air."

"We believe a $250 to $300 price point for a lower-priced iPhone would make sense and 58% below the $649 price point for an unlocked 16GB iPhone 5," said White. "A $250-$300 price range would also be competitive with China-based Xiaomi that offers a high-end phone experience at a mid- range price of ~$320 in Chinas."

White estimates that Apple was unable to address at least 60 percent of the smartphone market in 2012 -- mainly because the iPhone is simply too expensive. He believes that the industry's growth spurt will primarily occur outside of the high-end market, thus making the iPhone Mini concept much more appealing to Apple.

The device could almost be compared to an iPod Touch, as White expects Apple to use colors to "excite consumers." (Apple may also new use colors to hide the fact that is using cheaper materials.)

In January, Apple marketing executive Phil Schiller said that Apple would not build a cheaper iPhone. At the time, his comments seemed to be a defensive maneuver designed to uphold Apple's upscale appeal. While it is acceptable for Apple to developer smaller, lower-cost items -- such as the iPad Mini -- the company does not want any of its products to be thought of as being "cheap."

However, Apple helped thicken the plot when it recalled the story , indicating that the Mac maker will produce a cheap iPhone.

By taking this path, Apple faces the same challenges that it did when introducing the iPad Mini. First it must deal with the fact that consumers may not want a smaller device. Millions of them purchased the iPhone 5 because it was slightly larger than the previous iterations.

Do consumers really want a handset that is smaller than the iPhone 4S?

Second, there is the very real risk that consumers will shift to the cheaper option and leave the full-size iPhone behind. This seems to be the case with the iPad Mini, which might explain why Apple reports combined sales of each iPad model instead of the individual figures.

Third, it could dilute the brand. Right now, Apple products are viewed as top-of-the-line luxury items that people can't live without. It maintained that status with the iPad Mini by charging $329 for the device -- a mere $170 less than the full-size model, and only $70 cheaper than the iPad 2.

Consumers did not care that the smaller tablet had cheaper components, a smaller screen and a lower resolution. They simply wanted a compact iPad and appreciated the lower price.

If Apple takes a similar path with the iPhone Mini, it likely won't have a Retina Display, and will probably cost a bit more than the $250 - $300 price tag that White anticipates.

Follow me @LouisBedigianBZ

(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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This article appears in: Investing , Stocks

Referenced Stocks: AAPL

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