Rumors of a Cheaper, 8GB iPhone Make No Sense

NEW YORK (TheStreet) -- It's amazing what happens to your shares when you're Apple (AAPL) and there are rumors you will release a cheaper iPhone -- your shares rise almost 1% to $529.74.

According to Techcrunch, not only is Apple planning to release a cheaper phone, the device, which is said to be an 8GB version of the iPhone 5c, will be unveiled as early as Tuesday.

We've been down this road before and it seems investors haven't learned anything. Aside from the popular talking points about Apple's perceived lack of innovation, the company's margins continue to be cited as impediments to the stock's upward movement.

So if this report is true, which pegs this 8GB iPhone at $85 less than the regular 5c, it doesn't make financial sense for Apple to pursue this route. It will only add more margin pressure.

The other thing is when combining apps, photos, videos and so on, I just don't see how an 8GB device will support the volume of data that would be required to make this phone useful. There are no meaningful savings in terms of supply costs to justify the idea.

Let's not also forget that several months ago, Apple CEO Tim Cook adamantly stated that Apple "is not in the junk business." So if this 8GB device is truly in production, from my vantage point Tim Cook is going back on its word.

Would it make any sense for Apple to mass produce an 8GB device that would presumably carry less storage than the rumored iWatch? Logic would suggest that all costs and resources associated the iWatch be placed with the iWatch.

The last thing Apple needs is more critics reminding the company of how it has cannibalized another category.

Apple has failed to launch any ground-breaking products since the release of the first iPad and iPhone 4 back in 2010. Since then, Apple has focused solely on incremental upgrades across its entire line of products. This move, if true, would have strong financial and/or market-share consequences.

I get that investors want another catalyst to topple products from Samsung and those based on Google's (GOOG) Android platform. This isn't it.

With 51 million iPhones sold in the first quarter, consumers have demonstrated they are willing to pay a premium for a distinguishable device. They value a product that stands out from the rest. This is how Apple plans to grow market share. It can do this without dropping its prices.

With the stock still trading at around $529, these shares look dirt cheap, even when stripping out Apple's cash. My suggestion to investors is to remain patient and let Tim Cook return Apple to its glory.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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