Booming IPhone 3GS Sales Justify Cheaper IPhone

Booming IPhone 3GS Sales Justify Cheaper IPhone

The deeply-discounted iPhone 3GS is outselling some new Android handsets, making a case for a cheaper, smaller version of the iPhone.

The 3GS, the Cupertino, Calif.-based company’s flagship phone in 2009, is now $50 on AT&T. It’s outselling the HTC Inspire and Motorola Atrix according to analyst Michael Walkley at Canaccord Genuity.

“At AT&T, our checks indicated new Android smartphones primarily gained share from Windows 7 smartphones but not from the iPhone,” Walkley said. “Our checks indicated modest share gains for the HTC Inspire, but the Inspire gained share from the Windows phone 7 smartphones and the Motorola Atrix.”

The strong demand for a cheaper, less capable iPhone suggests that if Apple released a budget handset, which carriers could offer with more affordable plans, it would see significant sales.

That might cut into Android’s market share, or at least help Google in smacking down Microsoft’s Windows Phone, if Walkley’s figures are to be believed. And such an iPhone would also let Apple establish itself in developing markets where Android is already finding fertile ground.

But it’s questionable whether Apple really could deliver a much cheaper iPhone and still offering an experience comparable to “real” iPhones with full App Store access. The company would have limit the phone’s capabilities substantially to hit the rumored unsubsidized price target of $200 — for comparison, an 8-gigabyte iPhone 4′s unsubsidized price is $500.

Apple could conceivably resort to an iPhone “feature phone” informed by the iOS interface but without full App Store compatibility. This could be viable in emerging markets, but probably wouldn’t fly in places where smartphones are already established.

Android recently became the number one mobile platform in the U.S., but it runs on multiple handsets from many makers. The iPhone 4 remains AT&T’s best-selling handset, according to Walkley.

In February, Apple was reportedly developing a smaller, cheaper iPhone with a similar set of components as the iPhone 4, such as a 1-gigahertz chip and retina display, in the $200 range, people familiar with the matter said. At the time, sources said the new iPhone could arrive as soon as mid-year, or be delayed or completely scrapped, since the company routinely works on projects that may or may not reach the market.

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