Following recent meetings with Apple CFO Peter Oppenheimer, Morgan Stanley analyst Katy Huberty has concluded that Apple is likely to release a cheaper 'iPhone mini'. 

In a note to investors on Friday, Huberty said that innovation is a "top priority" at Apple, so she expects that the company will expand the iPhone lineup. She also believes that Apple will introduce new services to "unlock significant value" that will drive hardware sales, reports Apple Insider.

With the surprisingly strong demand for the iPhone 4, Apple's low-end smartphone offering, during the December quarter, Huberty thinks that a new low-cost iPhone, dubbed iPhone mini, could increase revenue and gross profit for the company. 

"We also see several signs that a lower priced iPhone makes sense," said Huberty, with the first being the expansion of Apple's customer base in emerging markets thanks to the iPad mini.

"Chinese consumers show a desire to purchase the latest version of the iPhone (instead of older generations)," Huberty added.

"The company's approach to product decisions and innovation has not changed in the past several years despite the CEO transition," said Huberty. "Making great products remains Apple's core strategy and the company is as confident as ever about the future pipeline of new products and services."

Also in the note on Friday, Huberty said that she expects Apple to return more money to its shareholders due to its significantly higher cash balance, meaning a possible 6 per cent dividend. Currently, Apple's quarterly dividend is $2.65 with a 2.3 per cent yield.

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