Apple Set to Introduce Two New iPhones this Fall, According to Analyst

It’s no secret that smartphones cost an arm and a leg, especially for consumers in the unsubsidized market. Moreover, those looking for a pre-paid smartphone solution don’t have a viable option, yet. In a note sent out to clients this morning, Deutsche Bank analyst Chris Whitmore states “It’s time for a mid-range iPhone”. Whitmore notes that there is a potential market of 1.5 billion mobile phone customers worldwide and Apple only claims about 6% of it so far (about 87 million devices). Of these 1.5 billion customers, roughly two thirds of those are pre-paid users! Apple’s iPhone is designed for mass market adoption, so what is holding the product back from reaching more of these billions of customers? The price.

2011 marks the first year where Apple didn’t launch a new iPhone exactly a year after its’ predecessor. As a result, analysts believe the Cupertino tech giant is preparing to make big changes to their product line. This year Apple is expected to reveal two new iPhone models: a low-end model for the pre-paid market (let us call it the iPhone 4S), and a high end model to succeed the iPhone 4 (we will call this the iPhone 5). The iPhone 4S will be Apple’s new pre-paid solution and will probably be similar to the iPhone 4 in terms of the overall design and the hardware components used. The iPhone 5 will be a huge generational leap forward (much like the iPhone 4 to the 3GS) with a radical new design and more powerful hardware.

The prospect that Apple may unveil a cheap iPhone may sound out of the ordinary for the company. Apple has consistently delivered high priced premium quality products and a pre-paid iPhone could possibly tarnish that reputation. However, we have to remember that Apple has never dominated a market as strongly as they currently do. If they want to take their market growth to the next level they have to offer mid-range/low-range solutions. China has a market of around 700 million customers and a majority of these customers are not willing to pay the premium price for an iPhone (along with data plans as well).

The current unlocked iPhone 4 models are sold at a staring price of $649 and are estimated to have a manufacturing margin of 70%. Whitmore suggests Apple will price this pre-paid iPhone 4S model in the $300-$500 range, which would undoubtedly generate less revenue than the iPhone 4. However, if Apple simply manufactured an iPod Touch will cellular hardware inside, analysts estimate they could still generate 53% revenue margins on the product.