Apple Tries Its Hand at Cheaper iPhones

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It's time for all the cash-strapped MacHeads in the Far East yearning for the coveted iPhone to celebrate.

Reports suggest Apple (NAS: AAPL) is working on building a stripped-down version of the iPhone 4 that would house a smaller 8GB of flash memory. Asian manufacturers are already assembling the new model. This information comes at a time when the company plans to unveil its much awaited iPhone 5 in early September.

Apple is also reported to be in talks with Chinese service providers China Mobile (NYS: CHL) and China Telecom (NYS: CHA) .

So what effect will a cheaper iPhone have on the competition? Will the existing iPhone lineup be in jeopardy? Let's try to find out.

A new game plan
This move doesn't come as too much of a surprise, as Apple has done something similar in the United States. Remember the 8 gigabyte iPhone 3GS that was released for just $99 almost alongside the iPhone 4?

Apple's plan could significantly increase market share in the Asia Pacific region by bringing the iPhone within reach of a large chunk of low-income consumers. This could be nightmarish for India and China's low-cost mobile manufacturers, especially for market leader Nokia (NYS: NOK) , which is expected to release a new phone running Microsoft's (NAS: MSFT) mobile Windows operating system by year end. The Finnish company has already suffered an erosion in sales due to the boom in sale of phones running Google's (NAS: GOOG) Android operating system.

While Apple's second-quarter revenue figures grew at modest rates for America (62.6%), Europe (70.6%), and Japan (65.9%) from the same last year. Second-quarter revenue from the Asia Pacific region soared about 3.5 times from 2010's quarterly figure of $1.8 billion to a staggering $6.3 billion for the same in 2011. The figures show the explosive growth Apple could expect from the Asia Pacific region in the future, as it rolls out plans for greater growth and market penetration.

In order to continue fueling this scorching growth, Apple would have to keep thinking of newer ways to generate profits to keep hungry shareholders happy.

Risky business
There are two possible risks associated with this move, however. By introducing a cheaper phone, Apple risks jeopardizing the popularity of its premium models. Secondly, and more importantly, this strategy could hurt profit margins.

The iPhone is largely seen as a premium product compared to low-cost phones that companies such as Samsung and Nokia manufacture. Selling cheap phones could dent the Apple brand among its more quality-conscious disciples.

The Foolish bottom line
While Apple's decision is not entirely risk-free, it was only a matter of time before the company made such a move. It's pretty hard for any dynamic company to ignore a fast-growing consumer base in emerging markets such as China in the Asia Pacific region, particularly when Europe, Japan, and the U.S. are suffering from a stagnant economy.

At the time this article was published Keki Fatakia does not hold any shares in the above mentioned companies. The Motley Fool owns shares of Apple, China Mobile, Microsoft, and Google.Motley Fool newsletter serviceshave recommended buying shares of Apple, China Mobile, Microsoft, and Google.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft.Motley Fool newsletter serviceshave recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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