CES 2013: Apple Shadow Looms Large

Apple is not attending the Consumer Electronics Show, but that didn't stop it from making headlines this week with several reports suggesting the company will release a cheaper iPhone by the end of the year.

Citing people familiar with Apple's plans, The Wall Street Journal reported that a less expensive iPhone is being tested with cheaper materials to reduce the price. The Journal said that such an iPhone might drop the aluminum shell of the iPhone 5 and replace it with a polycarbonate (i.e., plastic) body.

Device manufacturer Foxconn has complained that the iPhone 5's body is difficult to manufacture. Plastics would presumably be easier to work with and less costly. Other parts and components of the device would remain similar, and Apple may even recycle materials from older, discarded iPhones.

Why would Apple, a company that prides itself on high-end gear, want to make a lower-cost iPhone? The same reason it made the iPad Mini. Lower cost products sell in higher volumes.

[ Take a look at some of the new handsets we'll see this week at CES. See CES 2013: New Smartphones On Deck. ]

The iPhone 5 costs a whopping $649 when sold without a contract. That's for the 16 GB model, mind you. The 64 GB model costs $849. Carrier subsidies reduce the price to something more palatable, like $199 for the 16 GB iPhone 5 with a carrier contract. But not all carriers offer contracts.

Walmart's Straight Talk prepaid service this week announced its own plans to sell the iPhone 5 without a contract. It will charge the full retail price for the device, $649. That's a lot of money to drop on a piece of hardware. Straight Talk doesn't subsidize devices, though it offers to finance purchases of the iPhone 5 through a Walmart credit card. A lower cost iPhone would be easier for Straight Talk to sell to its customers, even when charging full price for it.

So how much would this cheaper iPhone cost? Bloomberg chimed in to suggest the cost would be between $99 and $149 without carrier subsidies.

The iPhone's appeal has slipped in the last two years as Android has taken over the smartphone market. The sheer volume of Android smartphones, ranging from small and cheap to large and costly, has pushed the iPhone aside. Consider the number of smartphones announced at CES this week. New models from Huawei, Sony, ZTE and other OEMs will find their way to retail stores and consumers' pockets quickly. Why? They have larger screens, better cameras and offer a greater variety of features.