Cheap 'iPhone 5x'? Don't get your hopes up

I've no doubt that a new iPhone is on the way – the rumor mill is calling it the iPhone 5C, or iPhone 5S, or iPhone 6 – and while no one really knows what Apple will unveil, many pundits are predicting that a cheaper iPhone will be added to the line up.

The reasoning behind this is two-fold. First, Apple is fighting to compete against a tsunami of cheap Android smartphones, and, according to pundit logic – the only way to compete against cheap is to become cheap. Another problem that Apple is allegedly facing is that it needs to break into emerging markets, and in order to be able to do that it needs a cheap iPhone.

But we should be careful not to confuse pundit wisdom with genuine wisdom. Pundit wisdom would have Apple building $500 MacBooks, $5,000 television sets, and iPhones with 6-inch displays.

But fortunately for Apple, CEO Tim Cook doesn't listen to pundit wisdom. And it seems that Apple is doing just fine without their help.

The problem with a 'cheap' iPhone are many and varied. Here are just a few:

Just how cheap is cheap?

Pundit wisdom would have Apple building $500 MacBooks, $5,000 television sets, and iPhones with 6-inch displays.

Just how cheap should the new iPhone be? How much should Apple shave off the price to make it cheap enough to compete? A buck? $10? $50? $100? $250?

The problem with entering into a price war is that there's no bottom to it. Companies are willing to scrabble in the dirt for razor-thin margins just to try to succeed. Just look at what happened to the PC market.

But cheap is also no guarantee of success. The Android smartphone scene is dominated by one player – Samsung. The cheap strategy doesn't seem to work for most Android players, so it's hard to see how it would work for Apple.

Compromises galore

To make a cheaper product, Apple would need to compromise on the design. But where should Apple cut corners? Cheaper screen? Lousier processor? Smaller battery? Poorer finish? Less storage?

None of these sound like the makings of a compelling, popular, and well-respected product.

So where's the savings to be made?

Fragmentation

The iPhone and a cheap iPhone would set up some sort of fragmentation point that would have a knock-on effect somewhere down the line (probably the app store).

Apple's product upgrade cycle at present seems to focus on more power and better displays, but a cheaper iPhone would, by default, be an inferior iPhone, and this cheaper twin might not be able to run new apps, so developers would have to code around it.

Apple hasn't done this before, and it's hard to see the company doing it in the foreseeable future.

Why bother?

Why exactly does Apple need a cheaper iPhone? The existing iPhone is selling about as fast as the company can make them, and the company is pulling in billions every quarter.

Given healthy sales, why does Apple need to react like Android is presenting such a threat?

There's already a cheaper iPhone (in fact, there's two)

Apple is already shipping a cheap iPhone. In fact, it has two. You can pick up an iPhone 4S for $99 or the iPhone 4 for $0.99 with a two-year contract. When the next iPhone is released, it is likely that the iPhone 4S will slip into the $0.99 price point, and the flagship iPhone 5 will be on sale for $99.

Given this structure, why exactly does Apple need a cheap iPhone, and where exactly does it fit into the price and spec ecosystem?