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Monday, December 17, 2012, 12:20 pm PT (03:20 pm ET)

Apple predicted to build cheaper 'iPhone for the masses'

With the overall smartphone market now outgrowing the iPhone, one prominent analyst believes Apple will be pushed to release a lower-priced device.

Gene Munster with Piper Jaffray believes a so-called "iPhone for the masses" is likely an inevitable device from the company. He noted that the smartphone market grew 45 percent year over year in the third quarter of 2012, while his current iPhone estimates for the holiday quarter call for around 45 million iPhones sales, which would be 23 percent year over year growth.

"We believe the delta between smartphone market growth and iPhone growth will push Apple to release a lower priced device despite comments to the contrary," Munster wrote in a note to investors on Monday. "Looking back historically, Apple always priced Macs as the higher end of the market and ultimately the iPad, and now the iPad mini, became the 'Mac for the masses.'"

In his view, Apple "needs" to develop a low-cost iPhone for the masses that will compete with inexpensive Android devices that are currently finding success in the market.

For Apple to do this, Munster said the company could reduce the price of an existing phone, representing a more aggressive continuation of the company's current strategy. Or, he said, Apple could make small changes, such as a handset without a Retina display and moderate components sold for a $200 price point contract-free.

iPhones


Munster's sentiment expressed on Monday echoes those of another analyst, Ben A. Reitzes of Barclays Capital, who said earlier this month that he too believes Apple will expand its iPhone lineup with a new entry-level model. Reitzes noted that outside of the top six smartphone makers are a plethora of low-end handset makers, many of them from China, which already account for 28 percent of the total industry.

Retizes believes that smaller companies with low-cost handsets will see their sales grow by 70 percent next year, and another 27 percent in 2014. These sales will largely be driven by China, where customers want less expensive smartphones that can be purchased without a contract subsidy.

Apple already continues to sell its two previous-generation handsets alongside the latest flagship model to reach lower price points. Currently, an 8-gigabyte iPhone 4 is available for free with a new two-year service contract, while an unlocked and contract-free iPhone 4 is sold by Apple for $450.

Expectations of a low-price, contract-free iPhone are not new and have lingered for years. Apple has gradually expanded its lineup to offer previous-generation models at lower prices, but market watchers are still dissatisfied with the $450 unsubsidized price of the cheapest iPhone 4.