Despite the months of speculation that the future of Apple hinges on a rumored "cheap iPhone," it turns out this magic device already exists: when given the option to buy the brand newest, fastest, sleekest version of the iPhone, a lot of people choose a cheaper, totally decent version instead. During this week's earnings report, Apple posted better-than-expected phone sales not because of the fancy new(ish) iPhone 5, but because of the iPhone 4 — the cheapest and worst performing of the three Apple phones for sale these days. The iPhone 5 is still its best seller, but the 4 — no, not its successor the 4S — is "a key reason" for the overall rise in phone sales, according to The Wall Street Journal.
Apple doesn't break out exact sales figures for each of its devices, but reported that the average phone price dropped to about $580 from $613 last quarter, and CEO Tim Cook cited sales of the iPhone 4 — which is available on the Apple Store for $0 with a two-year contract or $450 unlocked — as the reason. "We want to attract as many of these buyers as we can," he said during the analysts call. These buyers are people that want the cheapest possible iPhone they can get. Note how these people don't choose the iPhone 4S: a markedly better phone, that retails for only $99 more. They want an iPhone for as little as possible. For them the iPhone 4 is the cheap iPhone.
But if a cheap iPhone market already exists, it makes sense to make a cheaper cheap iPhone. Every time Apple sells one of its expensive, glass encased iPhone 4 devices for $0 (the carriers pay Apple for the phone in exchange for finding them a new customer), the gadget maker gets a much smaller profit margin than if it sold the iPhone 5, which is the argument against a cheap iPhone in general. Expensive products make Apple more money.
But the cheap iPhone market already exists, so why not try to make the potential profits better? The cheap iPhone will inevitably have smaller profit margins than whatever iPhone 5 refresh comes out this fall. But the device itself made from "sturdy plastic" and other low cost parts will cost Apple a lot less to make than the iPhone 4, increasing the profit margins of its already existent cheap iPhone business. Apple isn't making a cheap iPhone for the masses, its making a cheap iPhone for itself. The mass-market cheap iPhone already exists.