As rumors circulate that Apple might unveil a smaller -- and cheaper -- iPhone, or an iPhone nano, one components expert doesn't think it would mean smaller margins for Apple.

Apple makes phones for $178.45 according to a recent iSuppli estimate, and then sells them for anywhere between $200-$600. These high prices have marked Apple as a high-end phone manufacturer, with one analyst calling them the BMW of phones. However, recent reports from The Wall St. Journal and Bloomberg say Apple is developing a smaller iPhone that would be available at half the cost.

Andrew Rassweiler, director and principal analyst of teardown services at iSuppli, says a cheaper, more mass-market friendly iPhone may actually have little impact on Apple's profit margins -- which were near 38 percent in the first quarter of 2011. Even if the company produced a cheaper phone, it may simply be made with cheaper components.

Apple never makes anything that looks or feels cheap, or doesn't meet their standards: that's not in their DNA. Yet it is totally possible to bring the Apple experience to the phone market in a smaller form factor that would be less expensive to produce, Rassweiler said in an email.

According to Rassweiler, there are all kinds of areas that Apple can trim back or optimize to lower cost and create an entry level product. For instance, he says, some component costs scale down such as displays, touch screens and enclosures.

He also says there is precedent for Apple scaling down components to atone for a cheaper phone. Remember the iPhone 3GS changed in price, but it also changed in cost, and they reduced the amount of memory it held before dropping the price point on it. So even with existing product, the constant erosion of pricing they negotiate with suppliers always has their products on a path to greater profitability, Rassweiler said.

Even with the iPhone's popularity, Apple is still a relatively smaller player in the phone industry when market share is taken into account. According to Gartner's most recent numbers, it had three percent of mobile handset sales in 2010. A smaller, more mass market friendly iPhone could help change that, and Rassweiler doesn't see it affecting the company's traditional manufacturing approach.

One of Apple's strengths as a phone competitor thus far has been that they have only one model of phone, which allows them to focus their R&D efforts on a single product. Even if they had two phones, this still gives them relative strengths over manufacturers who have typically gone to market with dozens or hundreds of models at a time, Rassweiler said.

Apple did not respond to a request for comment.

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