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The Wall Street Journal reported in January that Apple has, indeed, been working on a cheaper iPhone since 2009. However, the company could still discard the idea. One reason for dropping the plans could be the possible effect of a cheaper iPhone on the company’s profit margins.
“A less-expensive iPhone risks crimping the company's profit margins, which executives have been loath to sacrifice. Even small changes in margins often sway investors,” says WSJ’s Jessica E. Lessin.
Apple’s current “cheapest” iPhone is the iPhone 4, which is free with a two-year contract. The iPhone 4S is a close second starting at $99 with a two-year contract. This, according to Informationweek.com, makes it “unclear just what a budget iPhone would be, at least in the United States where phones are usually sold by carriers with a subsidy.” Of course, outside of the US, where carrier contracts are less common, iPhones cost closer to $700.
Subsidies are what allow Apple to sell the iPhone for such a low price through retailers. The contracts enable the company to recover their costs. The IW says that Apple will have to consider alternative subsidy models if they want to make a cheaper iPhone still profitable.
When Cook spoke at the same event a year ago, the public was still reeling from Steve Job’s death. Cook was reserved and quiet. This year, Cook passionately spoke about Apple, declaring his pride and vision for the company.