There have been lot of rumors about Apple launching a low-cost iPhone at the end of 2011. Mike Abramsky of RBC Capital, however, is the one who gossips about the latest things and sees things a bit differently. He stated that Apple would be offering cheaper iPhone but he thinks it would probably be a 3GS, not the latest model.
He estimated that an iPhone 3GS with no upfront cost would add $7 billion of revenue and $1.82 earnings per share. Apple can easily sell 3GS at $399 full retail and they could still have good profit margins. Approximately $178 is the manufacturing cost Apple incurs for a single device plus a bit more for processing and shipping.
In addition to fall in price of 3GS, Mike Abramsky stated that iPhone 4 will be sold at $99. This won't be hard to swallow for Apple as it has lowered the price on all previous iPhone models with the release of new ones.