Apple's cheaper and not so cheap iPhone explained (FAQ)

For all its talk of doubling down on secrecy, Apple's efforts to keep its upcoming iPhones under wraps seems all for naught. Over the past few weeks there have been a flurry of photos of both plastic and metal iPhones that may or may not be (but probably are) its next-generation devices.
Most notable is that it looks very much like Apple's going to introduce not one but two new iPhones for the first time since the device first hit the market in 2007. That could have a big impact on Apple's fortunes, as well as the types of users it has gone after all these years.
Here's a quick guide for your most essential questions about both devices.
What's Apple expected to announce?
Two new iPhones: both a lower-cost model and a new top of the line model. Those devices are said to be debuting at an event on September 10, presumably in San Francisco or at the company's headquarters in Cupertino, where past unveilings have taken place.
What's different about the low cost one?
This model, rumored to be called the "iPhone 5C," will sport a plastic back instead of metal. Piper Jaffray analyst Gene Munster also recently suggested that Apple might carve out a feature or two, namely Siri, Apple's built-in voice assistant software.
However, the key difference will be price, not so much the what people pay with a multi-year contract from their carrier, but what the phone costs up front. We get into that a bit more lower down.
What's different about the new high-end model?
Leaks suggest Apple plans to offer the "iPhone 5S" in more colors, notably a "gold" or "champagne" color. The device is also said to sport a better camera with a dual-LED flash and a home button that can scan your finger -- something that's likely going to be used for security features.
Other expected specs include a 128GB storage option and a jump to a 64-bit processor, which could speed things up.
Wait, didn't Apple already have plastic iPhones?
Yes, the iPhone 3G and 3GS came in white and black plastic (see image to the right). Apple switched to glass with 2010's iPhone 4, resulting in a flat back that was substantially thinner, but could also shatter just as badly as the screen on the other side.
Where's the proof of either of these devices that I can look at?
There haven't been any fully functional devices, but there have been heaps of photos of the back casing for both phones. By pure volume there have been more shots of the so-called iPhone 5C and its plastic back, which has popped up in a handful of places and suggested Apple's planning to have brightly-colored devices, akin to what Nokia's been doing on its Lumia series phones.
One of the earliest leaks came in April by case maker Tactus, which posted a shot alleging to be the back chassis of a white, plastic iPhone.
In late June, one of the first shots of what might just be the iPhone 5S cropped up on MacRumors, showing off some of the internal changes to components, and the outside change like the dual flash.
Since then, there's been a series of photos of both devices documented by Sonny Dickson, a frequent leaker of all things Apple hardware. Dickson has been posting photos of everything, from buttons to various colors and internal components.
Why would Apple want to launch a second iPhone now?
The simple reason? Competition, and lots of it. Apple's getting hit on multiple fronts by rivals releasing myriad variations of phones, often several times a year. One of the biggest is Samsung, which has expanded its Galaxy line from phones to tablets and even smartphone camera hybrids. Not all of those are hits, but some, like the Note -- a cross between a tablet and a phone -- turned out to be a success.
The result is that Apple's growth in the smartphone market has been slowing. That's according to IDC, which this month said Apple's iOS was in 13.2 percent of smartphones in the third quarter, versus Android's 79.3 percent, marking a year over year decline in growth. Even so, these things can be hard to predict. Apple surprised in its last quarter, selling considerably more iPhones than Wall Street expected, and helping the company beat earnings expectations.
For years, one bright spot has been that Apple makes more money on its phones than any other company, something that remains the case.
What do iPhones cost right now?
In the U.S. you can get an iPhone 5 for $199, $299, and $399 with a 2-year contract from a wireless carrier. The contract-free prices for those devices is considerably higher at $649, $749 and $849 for the 16GB, 32GB and 64GB models respectively.
The 4S (2011's model) runs $99 on contract, and $549 off-contract, while the 4 (2010's model) is free with a contract, and $450 off-contract.
The price can vary considerably by country. In places like Italy, Norway, and Belgium, top-of-the-line iPhones off-contract can cost hundreds of dollars more than they do in the U.S.
How much would this this less-expensive iPhone cost?
An analysis from Morgan Stanley back in June suggested Apple could come in between $349 to $399. That's $50 to $100 less than what Apple's charging for the iPhone 4 right now.
How does that stack up compared to some rival devices?
In China, where a lower cost iPhone is expected to make waves, Morgan Stanley notes that the top models from companies like Coolpad, Huawei, Lenovo, and ZTE run about $405. The firm contends that Chinese consumers would be willing to pay a higher $486 for a lower-priced iPhone, based on poll of 2,000 Chinese mobile phone owners in June this year.
But some think Apple needs to go a bit lower.
"What they need to do is capture the markets that are growing and that tend not to have a carrier subsidized phone," says Wayne Lam, a senior analyst of wireless communications at IHS iSuppli. "At about 1,500 to 2,000 Yuan, which is roughly 300 bucks, that would be compelling."
How will Apple cut costs on a cheaper model?
A big part of trimming costs is using plastic, which can be simpler to mold and contour than Apple's current go-to of aluminum. Take the iPhone 5 as an example. Apple had to build windows in the back of the phone for wireless signals to make it through the metal. That won't be an issue with a plastic iPhone, and could actually cut the cost of the mechanical parts by around half from $33 to $16, Morgan Stanley's research suggests.
There are other ways to cut costs, specifically using slightly less cutting edge components, something Apple's done with the cameras and other bits found in the iPod Touch and iPad Mini.
Wait, couldn't a cheaper model torpedo sales of Apple's other models?
Yes, but the big question is how much. Piper's Munster is expecting a 25 percent rate of cannibalization into standard iPhone sales, which is down big from the firm's original estimate of 50 percent.
That's a big deal because Apple makes fatter margins on its high-end phones, charging consumers around $100 for a storage upgrade that's estimated to cost the company only around $10 to $20 more. When you're selling more of something that costs less, but doesn't cost much less to produce, it's not quite as lucrative as those higher margin models.
Apple, in the past, has attempted to assuage such concerns by saying that cannibalization is actually a "huge opportunity."
"Our core philosophy is to never fear cannibalization. If we don't do it, someone else will," Apple CEO Tim Cook told Wall Street analysts on an earnings call back in January when discussing the iPad mini. "We know that iPhone has cannibalized some of our iPod business. That doesn't worry us." Someone who buys an iPhone or iPad might also buy another Apple product, Cook added.
Why are people freaking out about Apple doing a second iPhone?
That's a good question. The company has a long history of expanding its product lines after something becomes successful. Most recently that was with last year's iPad mini. Apple's also done it with the iPod to iPod Mini, and PowerBook to iBook before that.
Perhaps it's best explained by pointing out that Apple has only ever done one new iPhone a year for the past six models. That makes any deviation noteworthy, even if it turns out to be mundane.
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Credits: CNET.COM