Apple's low-cost iPhone could outsell iPhone 5S in 2014, says analyst

Will over half of Apple's total iPhone sales will come from the rumoured 'iPhone Lite'?

Apple's rumoured low-cost iPhone could outsell the iPhone 5S in 2014, an analyst has predicted.

According to a new research note from UBS analyst Steve Milunovich, picked up by Barron's this week, the cheaper iPhone, which he calls the "iPhone M" but is more commonly referred to as the "iPhone Lite" or "iPhone 5C," will launch in September and account for 53 per cent of Apple's total iPhone unit sales in its first full year on the market.

Milunovich believes that the low-cost iPhone will reach sales of 92 million units in fiscal year 2014, outselling the next-generation iPhone, dubbed iPhone 5S, that is expected to release alongside the cheaper iPhone.

However, Milunovich warns that the strong sales of the cheaper iPhone could mean Apple's margins take a knock. "In our model, the iPhone M is dilutive not only to gross margin but to gross profit dollars," he said. "The impact of the M depends on assumptions. We estimate the iPhone 4/4S, which the M would replace, currently have a gross margin of 55 per cent because of the low cost of older components. We also assume the gross margin of the M will be near 32 per cent."

"Because the M has such a lower gross margin than the 4/4S, the M reduces earnings in our model," he concludes, noting that the purpose of launching a cheaper iPhone despite the risk to profits would be to expand its market reach at the expense of short-term profit.

Rumours about a low-cost iPhone have been hotting up in recent months, as several leaked parts that allegedly belong to the cheaper iPhone have emerged online.

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