The iPhone Pulls the Apple Cart

Smartphones are a bright spot in tech, and the iPhone is Apple's (AAPL) one big reason to shine.

Collins Stewart analyst Ashok Kumar upgraded Apple to a buy from neutral Wednesday, citing the iPhone's advantageous position in the smartphone battle with Research In Motion (RIMM) and Microsoft (MSFT) Windows operated devices.

Apple's Macs are facing more market share losses this year with the PC industry recharging with Windows 7 in October. And the iPod has stalled as phones like the iPhone take on more of the digital music duties.

The big opportunity for Apple is a cheaper iPhone, says Kumar. The cost of materials to build an iPhone has fallen to $130, which "should enable the 8-gigabyte iPhone to hit the $99 price point and stimulate demand elasticity," Kumar wrote in his upgrade note.

Speculation has abounded that a cheaper iPhone may debut as early as next week, when Apple hosts its Worldwide Developers Conference. As TheStreet.com reported, exclusive telco partner AT&T is considering a lower-priced calling plan to help make the iPhone more appealing to lower-spending consumers.

Kumar is the third analyst in two weeks to call for a $99 iPhone. Last week, RBC's Mike Abramsky predicted that a $99 price could boost iPhone sales by as much as 40% this year.

Apple needs to find a way to juice iPhone sales as the device enters its third year with the same design. Three years tends to be about how long hot designs can stay hot.

Apple also needs to keep its edge as new devices like Palm's (PALM) Pre and Nokia's (NOK) N97 keyboard and touchscreen devices hit the market.