ETrade Supply and DigiTimes sources claim that Apple is going to launch a low-cost iPhone this year, and analysts at JP Morgan think it will cost $350-400 (£226-£259). 

ETrade Supply is the parts and repair shop that leaked accurate photos of the iPad mini display panel and the iPhone 5 front and back panel last year, notes iDownloadBlog

According to ETrade Supply's blog, Apple is set to release a budget iPhone. "Apple needs to make money somewhere and keep the brand alive while they wait for a new idea. So by releasing lower end models they plan to recapture market share, hold interest in their OS and keep investors happy," writes the blog, which shows an iPhone mini concept image by VoucherCode's Nickolay Lamm (VoucherCodes has been flooding Apple blogs with such concept images, nobody is suggesting that the new products will look anything like those pictured).

DigiTimes also writes that its sources suggest that a low-cost iPhone will launch soon. "Speculation currently circulating in the iPhone supply chain in Taiwan indicate that Apple plans to launch an inexpensive model targeting emerging markets with initial quarterly shipments of only 2.5-3.0 million units to test market response."

This low-cost iPhone is expected to come with a 4-inch LTPS panel powered by an A6 processor, according to DigiTimes. It will also have a "cost-effective plastic chassis".

Yet more concept iPhone images over at AllThingsD, this time by Martin Hajek. That article asks: "What if Apple’s long-rumored low-end iPhone isn’t targeted at the smartphone market’s lower reaches? What if it’s targeted at the middle?"

This is the theory of Gokul Hariharan and Mark Moskowitz over at JP Morgan. They draw comparisons with the iPad mini, which though priced lower than a full sized iPad, is still more pricy than the competition. Apple did pretty much the same thing with the iPod nano, notes the report.

The issue with lowering prices is that the profit margins will suffer. And for Apple, profit margins tend to matter more than market share.

AllThingD highlights the issue with lower prices, quoting Tim Cook in the recent financial results conference call: "Now the iPad mini is another great example. We have priced it aggressively and its margins are significantly below the corporate average. However, we believe deeply in the long-term potential of the tablet market and think that we’ve made a great strategic decision."

JP Morgan suggests that the budget iPhone mini needs to hit a sweet price point that brings budget-conscious consumers into a higher price range.

Hariharan and Moskowitz wrote: "Currently Samsung dominates this segment ($200-500 price range) with 35+ percent market share. … We believe Apple could take 20-25 percent of this market in the next 12 months (from almost no market share currently), if it prices a lower-priced product at $350-400 levels." (£226-£259).

Earlier this year Piper Jaffray analyst Gene Munster suggested that Apple will launch a low-cost iPhone priced at around $199 (£130 ex VAT) in the September quarter of 2013.

The cheaper iPhone rumour is based on the idea that Apple needs a low-cost iPhone to compete in the huge markets of China and India. There is some debate as to whether Apple would be wise to forfeit profit margins and make a cheaper iPhone.

Follow Karen Haslam on Twitter / Follow MacworldUK on Twitter  

Related:

Allegedly leaked photos, price and launch date of Apple's budget iPhone emerge

New iPhone 5S: three colours, two sizes and a low-cost model, claims

Low-cost iPhone mini release date, rumours and leaked images

Low-cost iPhone mini 'makes sense' for Apple says analyst after meeting with Apple CFO

£130/$199 iPhone coming this September will win $135b emerging market, analyst

Should Apple make a low-cost iPhone, ponders ex Apple exec Gassee

Good profit margins, not growing market share is best for Apple

Does Apple really need to make a cheaper iPhone for China and India?

The Complete Guide to the iPhone 5s & 5c is on-sale now. Click here for buying information.