Peter Cohan, Forbes:

A cheaper iPhone marks a fundamental shift in strategy to Low Cost Producer. And it is highly unlikely that Apple — with its enormous fixed costs including a $5 billion headquarters complex under construction in Cupertino – will be able to lower its costs below competitors’ in order to win as the industry’s low cost producer.

I think many analysts and pundits are making far too much of the “cheap iPhone” as if it’s a leading product that Apple expects to somehow save the iPhone or make it relevant again. They seem to forget that Apple has had a “cheap iPhone” for over two years now — it’s called the “two-year-old model.” When the iPhone 4S first came out, Apple continued selling the iPhone 3GS as an entry-level unit - $0 on contract in most cases - and the iPhone 4 took up the middle position. With the release of the iPhone 5, those positions went to the iPhone 4 and 4S, respectively.

The problem is that this year, an iPhone 5S will come out. Traditionally, this would drop the iPhone 5 into the middle-tier, and the iPhone 4S would become the “cheap iPhone.” Problem is that the iPhone 5 was a major shift for Apple — it got a 4” screen and the new Lightning connector. An iPhone 5S would presumably follow the same path, leaving the iPhone 4S looking like the completely orphaned stepchild (“One of these things is not like the others…” :) ).

In this case, a “new” cheap iPhone — let’s call it the iPhone 5C — makes a lot more sense, since it could fill that bottom tier while presenting a unified product line. Suddenly, the lineup becomes 5C/5/5S instead of 4S/5/5S. 4” screens across the board, and Lightning connectors everywhere.

Further who doesn’t doubt that Apple wants to kill the Dock Connector as soon as it possibly can? I think even the hastily thrown together fourth-generation iPad was a good example of that, since now Apple has a product that can easily replace the iPad 2 as the “lower-end” iPad model when the fifth-generation iPad arrives. Ditto for the iPod touch, since after all the iPhone is the only iOS product that Apple continues to sell three models of. Suddenly, every product Apple is selling uses their shiny new Lightning connector and the old 30-pin connector becomes a distant memory.