There are several problems with this hypothesis. Apple has said it before that they're getting more iPhone orders than they can manage to build in many cases. At $625 per iPhone and they're selling like hotcakes on top of their recent Verizon expansion, even if they could produce a lower cost iPhone, why would they? The profit margin doesn't make sense and isn't typical of Apple.
Of course I could be wrong and Apple may do an iPhone nano but this would also greatly diminish the user experience on the phone and apps experience by minimizing the screen. If you've ever played on an iPad, you'll know many apps work a lot better on the iPad. The screen size do make a difference. Shrinking the iPhone doesn't seem to be helpful in this area.
Lastly, Apple is not known for making half assed products with cheap components. Using older components doesn't equate to cutting costs low enough for profit margins on a retail $200 phone to make sense when they're raping $625 per phone as it is now. Would you do it? The economics just doesn't seem to make sense here.
Firstly, strategy. Apple launched the iPod shuffle, to help cover the market, top to bottom. It's not just about increasing sales, it's also owning the market, which denies oxygen to other entrants. It's strategic. However, to me, this wouldn't seem to especially target android devices, as they tend to mostly be at the high end (it seems to me).
Secondly, supply. The iPod is dying, so they'll have capacity coming online there. Anyway, it's worth increasing capacity if it'll give you a strategic advantage.
Thirdly, user experience. The screens on the first three generations have a resolution of 320 x 480 at 163 ppi, while that of iPhone 4 has a resolution of 640 x 960 at 326 ppi. Therefore, they could make a physically smaller screen, using the old resolution, which could run three generations of apps (plus special-purpose ones).
You're right that making half-assed products is not the Apple way. The Apple way is to take a weakness and turn it into a strength. The shuffle example again: the lack of a display enabled it to be tiny, and that's a plus. In general, the iPod had fewer features than its competitors. An "iPhone nano" will do something similar, both in its technical capabilities and how it is marketed. BTW, I think a tinier iPhone would be pretty cool in itself, provided it still feels snappy to use.
Lastly, cost. I agree it might not be possible yet. Perhaps they could go two generations back, or cut costs in a creative way. For example, a smaller screen costs less, and also uses less power, so therefore needs a smaller battery, which again costs less. Perhaps there'll be some cheaper way to do things that is actually a benefit to the targeted customers? Another option is for Apple to wear some loss, for a while, for the strategic advantage. It's also plausible that they'll just wait a bit until it is affordable. It could also be something really wild, like a voice-controlled phone, with no display/controls at all! That would be parallel to the shuffle. It would also be amazingly cool, but I'm not sure whether it would take off...
But one thing I'm sure of: trying to cover the market is on Apple's mind. Whether they can do it yet is the question.
If we think about the revenue coming in from app sales (I don't know for sure if money coming in from selling just the phone is bigger than that) it's sensible to get more people to buy something that can put iPhone apps in.
Oh and with Nokia seemingly jumping off the cliff, this iPhone nano thing can seem more sensible, though it's highly unlikely that Nokia scene influenced iPhone nano even if it turns real.
Then again the company being "Apple" I'm pretty sure they won't ship second grade products no matter what (Not an Apple fan myself).
Agreed on all your points. Given that this rumor has been around since last year, I'm inclined to think of the iPhone Lite as a contingency plan and/or leverage for negotiations with AT&T and Verizon. Revealed properly, a gun doesn't have to leave its holster to be effective.
When I read this kind of article I can't think that the current cost of an iPhone is less that $180[1] and it's sold at around $600-$700 without contract around the world...
So how much has to cost a smaller iPhone to Apple to sell it at this price?
While I'm not saying 600-700 is fair price, I'm sure a lot of money went into R&D. I wouldn't doubt that R&D accounts for a significant portion of the difference in price. It would be interesting to know how much profit they are making on each device.
Apple charges the high price without contract now because it is under the contract model still. EG: It sells to AT&T et all for $600 in the contract model and is subsidized. AT&T would not be happy if Apple sold that same phone without a contract for $300 or $400.
The nano idea is for a phone that does not sell subsidized, and is differentiated from the subsidized ones by not being the current generation. For instance, it might not have a retina display.
If Apple can make it for $99, they will be happy to sell it for $199. I think this is quite possible using year old chipsets and components. I can see Apple also making it for $140 and selling it for $199. Both provide sufficient margins. Apple also invested $4B in strategic deals to secure the supply of components last fall, which may allow them to get these components cheaper than everyone else.
I don't think margin is the problem, I think getting the networks to go along with the plan is the hard part.
This strategy seems a no-brainer to me, as Apple will soak up wide swaths of the market with a "feature iphone".
The other challenge, though, is getting manufacturing capacity to produce it. I think this means that this iphone will not be as stylish in order to make it easier to manufacture for less sophisticated contract manufacturers, and this subdued style will also help it differentiate from the contract phones.
Apple didn't want to sell subsidized phones in the beginning- they wanted to sell the phones and have the carriers provide lower cost service plans (because they didn't need to recoup the subsidy.) This plan didn't work and so apple relented.
We may be seeing Apple's second attempt at reforming the mobile industry... this time from a position with more power.
Of course I could be wrong and Apple may do an iPhone nano but this would also greatly diminish the user experience on the phone and apps experience by minimizing the screen. If you've ever played on an iPad, you'll know many apps work a lot better on the iPad. The screen size do make a difference. Shrinking the iPhone doesn't seem to be helpful in this area.
Lastly, Apple is not known for making half assed products with cheap components. Using older components doesn't equate to cutting costs low enough for profit margins on a retail $200 phone to make sense when they're raping $625 per phone as it is now. Would you do it? The economics just doesn't seem to make sense here.