Everybody is awaiting confirmation from Apple Inc. of its official release of the much anticipated budget iPhone. The budget iPhone will be the company's answer to its competitor Samsung Electronics Co. Ltd and Nokia Corporation which reportedly dominate the bulk of the market in the developing market in China, India and Brazil.

However, investors expressed their apprehension about the budget iPhone. They fear that the much cheaper unit will pave the way to iPhone cannibalisation. Their fears were provoked with what previously happened when iPad Mini cannibalised the market from the iPad.

In an answer to this, analyst Katy Huberty of Morgan Stanley published her estimated price of the budget iPhone and its marginal breakdown, as reported by Apple Insider.

According to Ms. Huberty, it will cost Apple $244 for a 16-gigabyte budget iPhone. This price is already inclusive of all charges incurred for the bill of materials, manufacturing and warranty and other miscellaneous factors. Her analysis is based on financial reports within Apple's international supply chain.

With this estimated capital from Apple's end, it is already safe for the company to sell the budget iPhone at $349 to $393 to cover all of Apple's gross margin dollars and other marginal percentages.

Ms. Huberty's estimates aimed to put investors at ease that the said cheaper iPhone will not in any way reduce Apple's gross revenue. According to Ms. Huberty, the budget iPhone, in fact, will slightly increase Apple's overall revenue if Apple will decide to price it at $399.

According to her prediction, Apple will likely introduce the budget iPhone in the market much later this year. Upon the introduction of the budget iPhone, Apple Inc. will then discontinue the selling of iPhone 4s and iPhone 4 models which had been a temporary answer to the customer's demands for cheaper Apple mobile units. She based her foresight on Apple's strategy for iPad Mini and iPad where ipad Mini was introduced at an affordable price of $329 ($170 less of the price of iPad).

Ms. Huberty said, "We now see the most likely starting price for the low-end iPhone at $399, as supply chain components appear similar to the current iPhone line-up and the low-end iPhone would replace the iPhone 4/4s sold in the $450-549 range before recent discounts."

She further explained that, "At this price point, even with 50 per cent low-end volume mix, the low-end iPhone is 5 per cent accretive to total company revenue. 6 per cent accretive to gross profit dollars and 10 basis points accretive to gross margin versus our current second half calendar 2013 estimates."

Based on Ms. Huberty's calculations, Apple Inc. will reap the following benefits through the introduction of the budget iPhone:

  • The $399 16-gigabyte low-cost iPhone would carry a gross margin of 35.7 per cent. This figure is stil below Apple's premium iPhone lineup but still in line with other Apple products.
  • Margins will increase to 42.3 per cent for a $499 32-gigabyte model and 44.9 per cent for a $599 64-gigabyte model.

As for the Apple's patrons who want to stick in buying the trademark quality of Apple products, Me. Huberty said that Apple might be launching a high-end iPhone 5S by the end of this year and an 8-gigabyte iPhone 5 model, unlocked, to be sold for $549 without a service contract.