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More affordable iPhone predicted to grab Apple 11% share of low-end market in 2014

A new $300 contract-free iPhone model could easily capture more than 10 percent of the low-end smartphone market in its first year alone, one industry analyst believes.

Gene Munster of Piper Jaffray said on Tuesday it's "achievable" for Apple to corner 11 percent of the low-end smartphone market right off the bat in calendar year 2014. He expects Apple to launch a $300 iPhone as soon as September of this year.

Apple's current iPhone lineup.

To put his estimate in perspective, Apple currently controls 42 percent of the high-end smartphone market with its existing iPhone lineup. Market watchers widely anticipate that Apple will launch a new, less expensive iPhone model this year to address a market segment where it currently does not compete.

Munster believes Apple could achieve 30 percent gross margins with a $300 iPhone, down from the estimated 55 percent gross margins the company currently sees from existing iPhone models. The current lineup has an average selling price of $620, typically offset by a carrier contract subsidy.Piper Jaffray on Tuesday also cut its AAPL price target from $767 to $688.

In his "worst case" estimates, a low-end iPhone would cannibalize about 30 percent of existing iPhone sales. If that were to happen, he sees the company's gross margins dipping from 38.6 percent in the December 2012 quarter to 36.6 percent in calendar year 2014.

In the more immediate term, Munster expects Apple will guide June revenue below Wall Street expectations, to between $34 billion and $36 billion. Currently, investors expect an average guidance of $39.6 billion for the June quarter.

He also anticipates that Apple will increase its quarterly dividend when reporting its March quarter results next week. The company is scheduled to disclose its earnings on Tuesday, April 23.

Piper Jaffray has maintained its "overweight" rating for AAPL stock. The firm on Tuesday revised its price target down from $767 to $688.