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Apple Needs Cheaper iPhone, Netbooks to Thrive

Stocks in this article: AAPL

Updated from 12:07 p.m. EST

Apple (AAPL) may be faring better than other recession-hit tech firms, although tightening IT spending could still force the company to rethink its product strategy.

This is the message from Apple watchers who are keen to see the notoriously secretive tech company overhaul its product roadmap with low-cost netbooks and iPhones.

Apple, which holds its annual shareholders' meeting Wednesday, should make mini-laptops, or netbooks, one of its top priorities for 2009, says Ezra Gottheil, an analyst at Technology Business Research (TBR).

"They need to address the netbook problem," he told Gottheil said that, ideally, this would not be a general-purpose PC, but rather a $600 device for email, Web browsing and games.

With mini-laptops growing in popularity, Gottheil thinks that a low-cost, stripped-down, netbook-style product would open new revenue streams for Apple without cannibalizing its more expensive MacBooks.

"I think it's a strong possibility," he said. "I would expect it to come out before the end of the third quarter, possibly before the end of the second quarter -- the timing depends on how badly Apple is hit by the global recession."

Despite Apple's strong first-quarter results, research firm NPD recently warned that Mac unit sales dropped 6% year over year in January, with iPod unit sales falling 14%.

A move into low-cost computers would be a major strategic shift for Apple, which has traditionally prized performance over price, and it would pit the firm against the likes of Hewlett-Packard (HPQ) and Asus

Apple's stand-in CEO Tim Cook did not dismiss this possibility during a recent conference call.

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