Cheaper iPhone Would Have to Be an “Innovative, Category-Killer Experience,” According to Apple

Since the beginning of this year, rumors have been heating up that Apple will release not one, but two iPhone models this year. One of these devices would be the next flagship iPhone 5 based on the the current pricing structure, while the second device would be a cheaper (possibly pre-paid) “Nano” handset.

Apple’s COO and CFO have chimed in on what it would take for the company to release a cheaper iPhone. They describe that the product would need to be an, “innovative, category-killer experience.”

The only other time we’ve heard Apple directly comment on this rumor was when Tim Cook made the aside that, “we don’t want to be just for the rich” in a previous earnings call.

RBC Capital Markets analyst Mike Abramsky recently sat down with two of Apple’s head execs, Tim Cook and Peter Oppenheimer, to discuss Apple’s stance on a cheaper iPhone and other topics.

So, what would an “Innovative, category-killer experience” be like for an upcoming iPhone? The hopes have been that Apple would release a cheaper iPhone model to compete with the plethora of cheap Android handsets that have flooded the market in recent months. In the meeting with Abramsky, Apple execs commented that they observed an “explosion of low-priced Android smartphones” and that they are prepared to face the opposition with Apple’s “sustained advantages.”

“Despite the expected explosion of low-priced Android smartphones – detrimental to Nokia, RIM, others – Apple believes a) its integrated approach to hardware/software, b) oversight of user experience (including its ruthlessness about taking things out, and c) application ecosystem “curation” will sustain its competitive advantages and premium positioning.”

Apple could be ready to take on two-thirds of the world’s 1.5 billion mobile customers by introducing an iPhone for the pre-paid market. A recent report predicted that Apple was gearing up to launch a cheaper, retooled version of the iPhone 4 on China Telecom. Such a device would be a key asset for Apple to stay relevant in China’s huge pre-paid market. In the meeting with Abramsky, execs confirmed Apple’s “untapped global opportunity,” specifically relating to China.

On another note, Apple also commented that iCloud was ready to handle “significant scale” this Fall, and much of Apple’s focus has clearly been placed on iCloud and iOS 5 as of late.

RBC Capital predicts a $500 price for Apple stock, with shares reaching over $400 recently.