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Analyst says a cheaper iPhone would make sense

The huge demand for the cut-price iPhone 4 shows it'd make sense for Apple to launch a cheap handset, one analyst says.

We've heard talk of a cheaper iPhone for a while now, with Apple rumoured to break with tradition and launch a budget blower. Now an analyst has weighed in, saying she reckons a more affordable iPhone definitely makes sense, Mac Rumors reports.

The reason? People want to pay less for an iPhone, but will still want a new model over an old one.

Katy Huberty, an analyst at Morgan Stanley, points to the iPad mini as a good example of Apple diversifying into slightly more affordable products. That and the fact the iPhone 4 sold very well towards the end of the year, against its newer and pricier bigger brother, hints that people are keen on cheaper Apple products.

The relatively low-priced iPad mini is bringing Apple new customers too, with 50 per cent of purchases in China and Brazil first-time Apple buyers, according to Huberty. And even though a cheaper iPhone may eat into sales of Apple's flagship handset, Huberty reckons it'll still happen.

"Even at a low 40 per cent gross margin and 1/3 cannibalisation rate, we see an 'iPhone mini' as incremental to revenue and gross profit dollars," she writes.

Apple's Phil Schiller told The Shanghai Evening News recently that the company aims to provide "the best products" and it'll "never blindly pursue market share". But he didn't rule out a cheaper phone.

Apple cut the price of the iPhone 4 following the launch of the iPhone 5, and boss Tim Cook was surprised at the demand for the older handset. But he wouldn't be drawn on whether he had a budget blower up his sleeve.

The cheaper iPhone -- possibly called the iPhone 5S, although I'd say that'll be this year's flagship model -- is rumoured to be mostly made of plastic to keep the price down. Though as ever, I'd suggest taking these rumours with a hefty dose of salt.

Do you reckon Apple will launch a cheaper iPhone? How much would you pay for it? And what kind of specs would you like to see? Let me know in the comments, or on Facebook.