Steve Jobs, one of the flashiest tech innovators who also single-handedly carries the burden of expectations of his company, is on medical leave; but strategy is not out of his mind.

While on medical leave, the Apple co-founder is crafting the next generation iPhones which will be cheaper and smaller, according to media reports. Bloomberg reported on Friday that Jobs is involved in strategic decisions while on medical leave and that he prefers lower priced iPhones to score against mushrooming Android devices.

Chief Executive Officer Steve Jobs, who remains involved in strategic decisions while on medical leave, would use lower prices to widen the iPhone’s appeal and keep it from losing further ground to Android devices, the report said.

Lower-priced iPhones will also take the smartphone battle to Nokia's camp. Apple currently holds only 16 percent of the global smartphone market while Google Android's market share rose exponentially in recent months.

The report says Apple was considering selling the new, cheaper iPhone for $200 without a contract. This move will definitely make Apple iPhone highly appealing in a crowded smartphone market.

And the good news is that the new product could come as early as mid-year. Bloomberg says not many in Apple are privy to more information on the secret project. Besides, Jobs is well known for his secretive processes leading up to product launches.

According to Bloomberg's source, the prototype was about one-third smaller than the iPhone 4, and it had no “home” button. Lower prices mean the smartphone will have a processor, display and other components similar to those used in the current model, according to the report. That means the phone will not have more advanced features expected in the next iPhone.

Apple is definitely eyeing the burgeoning markets like China and India where price sensitivity is high.