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Apple needs a low-cost iPhone, says analyst

An analyst with BTIG now rates Apple a "buy" based in part on his belief that the company will unveil a less expensive iPhone by year's end.

Apple's iPhone 5.
Apple's iPhone 5.

Apple needs to launch a low-cost iPhone to boost earnings and market share, says BTIG analyst Walter Piecyk.

In an investors note out today, Piecyk said he raised his opinion on Apple stock to "buy" from "neutral" based partly on the assumption that a low-cost iPhone will launch before the year is over.

The analyst's crystal ball sees around 36.5 million such iPhones sold in fiscal 2014 at an average non-subsidized price of $300. Assuming that projection comes true, the lower-cost iPhone could add $11 billion in revenue to Apple's next fiscal year, which kicks off in October.

"As we have previously detailed, we believe a product that addresses the more than 70 percent of global wireless subscribers that are unsubsidized pre-paid is necessary in order for Apple to grow its EPS (earnings per share) next year," Piecyk said. "This is not rocket science and our belief is based on basic logic not questionable 'channel checks' or trips to Asia.

A low-cost iPhone could be achieved without compromising the Apple philosophy of "only making great products," the analyst added, pointing to such lower-priced devices as the iPad Mini and the iPod Nano. Piecyk also had strong words of advice for Apple stockholders if the company fails to deliver a less expensive iPhone.

"If the management team does not follow this basic logic, as we expect they will, investors will need to push for a new management team," the analyst said. "At the moment they have earned the benefit of the doubt that they will go after this market."

At the same time, Piecyk thinks a larger-screen iPhone would help Apple win more customers.

He confessed that Samsung's Galaxy Note looks too big to him. But he said that large-screen phones such as Samsung's Galaxy S4 and the HTC One "look great and could generate a lot of interest in the upcoming quarters."

Seeing demand for high-end, large-screen smartphones, Piecyk believes that a larger iPhone could prompt more people to upgrade compared with those who moved to the 4-inch iPhone 5.

"To be clear, Apple's brand awareness, existing market share, and quality software experience should protect it enough with its existing size, but a larger phone could be another opportunity to lift revenue growth further," Piecyk added.