J.P Morgan released a report a few days ago, that went into a lot of detail about the possibility of a cheaper iPhone and what sort of impact it would have on the markets. It’s taken a while for this report to circulate through the news due to being 28 pages of analysis. The main points are as follows:
Apple needs a cheaper iPhone to help it in the lower ends of the smartphone market – the high end market has started to become increasingly competitive with both HTC and Samsung releasing compelling rivals.
The cheaper iPhone would probably have a plastic case, one-generation old internals (so if it came out in September, it’d be the same insides as an iPhone 5) and support for LTE. They’ve estimated the cost of production and believe that if Apple goes for a 35% mark-up (less than iPhone 4S/5), it will cost $350, putting it in line with the Nexus 4.
If Apple were to enter the market it would likely bring a lot of currently lower-end smartphone purchasers up, while also limiting cannibalization due to the older components and cheaper casing. It’s unlikely that current iPhone owners will choose the cheaper model when their contracts end so Apple shouldn’t lose any money from having this device.