Piper Jaffray analyst Gene Munster is convinced that Apple will launch a low-cost iPhone priced at around $199 (£130 ex VAT) in the September quarter of 2013.
He expects that the new handset will unlock a market estimated to be worth $135 billion (£88b) this year.
Munster thinks that Apple will release this affordable phone to target the emerging markets in China and India, and he thinks that in the final quarter of 2013 Apple could move 37 million units of this budget iPhone.
Morgan Stanley analyst Katy Huberty is similarly confident that Apple could benefit from launching a low cost phone to these markets.
She believes that a new budget iPhone could help double Apple's market share in China. The iPhone currently has 10% of the China smartphone market, according to reports.
The market for smartphones
The reason why so many reports are pointing to the need for Apple to address these emerging markets is the realization that the smartphone market has hit a plateau in developed markets where smartphone penetration levels have reached saturation point.
It has recently emerged, in a report from research firm Flurry, that China has now surpassed the US in terms of smartphone in operation, and there are a lot more people in China than there are in the US.
According to that report, by the end of February China should at the about 246 million devices, compared to 230 million in the US.
Incidentally, during January 2013 the UK had 43 million active iOS and Android device, according to Flurry Analytics. (We are surprised by that figure as there are only 62.6 million people in the UK, so that suggests that 69% of people here already own smartphones).
Are lower margins bad news for Apple?
Many have expressed concerns that if Apple produces a budget iPhone it will affect the company's profit margins. Munster disagrees: "Despite its lower margin, it should accelerate gross profit growth given the size of the low-end market (we estimate $135b in 2013)," he said, reports Apple Insider.
Huberty also notes that margins may shrink, but thinks it will be inconsequential. She notes "Even in a scenario of low 40% gross margin and 1/3 iPhone cannibalization rate (flattening legacy iPhone shipment growth), which we view as conservative, the iPhone Mini adds incremental revenue and gross profit dollars," Apple Insider reports.
Even if Apple's gross profit margin declined by 2% to 49%, the new handset would boost the company's iPhone business by almost $2.4 billion in gross profit, she suggests.
China Mobile iPhone delays
Huberty notes that the iPhone is currently only available through two of China's mobile networks, and significantly not from China Mobile, which is the world's largest mobile carrier.
According to Huberty, Apple could gain a 20% share of China's smartphone market if a $330 (£215) iPhone mini was launched there, along with a China Mobile deal.
Also significant, nearly 40 percent of all 3G smartphones shipped in China are TD-SCDMA, and Apple's iPhone doesn't support this protocol. This is likely one reason why Apple and China Mobile are yet to sign an agreement.
How India might prove that cheaper isn't the only solution
As we've mentioned before, India is also a significant emerging market for Apple to target with a low-cost iPhone. It may be the case that in the US China is getting more attention in the US, while here in the UK the government is working closely with India, pushing that country to the top of the agenda here.
It certainly appeared, from Apple CEO Tim Cook's recent comments that India was farther down the list of priorities than China. "I love India, but I believe that Apple has some higher potential in the intermediate term in some other countries," he said. "That doesn’t mean that we’re not putting emphasis in India - we are. We have a business there; that business is growing, but the multilayer distribution there really adds to the cost of getting products to market. So we’re going to continue putting some energies there, but from my own perspective, in the intermediate term there will be larger opportunities outside of there."
Either way, it appears that Apple is not ignoring the country.
There is a suggestion that in contrary to the idea that Apple needs to produce a cheaper iPhone to be successful in that country, it may be able to win market share with an installments-based model.
Apple had been selling iPhones in India on the open market, rather than through carriers that subsidize them and in so doing lower their selling price, but it is now working with Indian distributors to offer installment-based payment plans.
CEO of TheMobileStore Himanshu Chakrawarti told Economic Times: "Apple understands that installments-based payment is an effective tool for bridging the gap between value and affordability. We started the EMI scheme with Apple early this year and witnessed a three-fold increase in sales."
It appears that Apple has also increased its focus on India. Jayanth Kolla, founder & partner at Convergence Catalyst, told Economic Times: "Apple is doing what it did in China three or four years ago. They studied the market, learned consumer needs and suddenly went aggressive. From having about 30 people here six months ago, Apple India is now about 150-people strong."
It appears to have been a success: IDC India analyst Manasi Yadav told Economic Times that iPhone sales in India have increased by 3-4 times in the past three months. Part of the success is due to an open distribution model, he suggested, with Apple signing up distributors Redington and Ingram Micro.
"Apple is aggressively looking at the Asia-Pacific market with strong focus on China and India," Yadav said.
"We have seen overwhelming demand for Apple iPhone in India, not just for the latest iPhone 5, but also the lower cost previous versions," IDC analyst Ryan Keith told AllThingsD. "It’s a huge market with great opportunity for Apple."
Why not sell the cheaper iPhone 4?
Munster also dismissed the idea that the iPhone 4 (currently Apple's entry-level iPhone) could be a cheap enough offering for those markets. He said that the iPhone 4 is still 133 percent more expensive than the global average for a low-end smartphone, according to the Apple Insider report.
What is the average price of a smartphone in emerging markets?
According to Munster's data the average price of a low-cost handset in China and India is $138 (around £90). The iPhone 4 is 265% more expensive than those handsets, he claims.
This low-cost sector of the market, estimated to be worth $135 billion, will account for 60% of smartphones this year, according to Munster. That's 540 million units at an average price of $250 (£165) each.
Huberty notes that research suggests that the average selling price of smartphones in China stablized last year and has actually started to increase as Chinese users trade up to higher-quality smartphones, notes Fortune.