If Apple Inc. (NASDAQ:AAPL) released a low cost iPhone, what would it look like? That’s one of the topics analysts at Goldman Sachs covered in the report they issued today to investors. Analysts from numerous firms have speculated about a less expensive iPhone, with some reports indicating that it could sell for just $99.


However, Goldman Sachs Group, Inc. (NYSE:GS) analysts take a slightly different approach. Apple Inc. (NASDAQ:AAPL) has been downplaying the rumors of a “cheap” iPhone for some time, and Goldman Sachs analysts see a $249 iPhone as more likely than a $99 iPhone. They say if Apple Inc. (NASDAQ:AAPL) does offer a less expensive iPhone, it “would need to be compelling despite the lower price point, while leaving a noticeable value gap between itself and the original.” Goldman Sachs sees a $249 iPhone as enabling Apple  to expand its market coverage “while still delivering healthy gross margins.”

They also went into what types of features we might be able to expect in a less expensive iPhone. They believe Apple’s focus will be not just on exploring lower cost models of the iPhone but also ensuring that they don’t compromise on their “top-notch user interface and functionality.”

The current iPhone 4 is the least expensive version on the market. An unlocked model sells for around $450 without a contract on some carriers. They see a $249 iPhone as possibly having a cost base of $132 and a gross margin of 46.9 percent. Of course, they don’t know specifically what kinds of components Apple Inc. (NASDAQ:AAPL) would use in such a phone, but they used specs from the iPhone 3GS as a guideline.

Goldman Sachs expound two major criteria for a less expensive iPhone. First, it must remain compatible with iOS, and second it must have features and a cost that’s below the lowest-end model that’s currently available. They said the company might choose some higher-end version of some components, but they believe a less expensive iPhone might have a 3.5 inch display, although no smaller than that.

They note that the display and touchscreen are two of the main cost drivers in a phone, so by keeping the display small, the cost can be controlled. A display that’s smaller than 3.5 inches would be more cost-effective in their estimation, but it would likely “diminish the user experience.” Therefore they don’t believe Apple Inc. (NASDAQ:AAPL) would opt for a display that’s smaller than 3.5 inches.

Goldman Sachs Group, Inc. (NYSE:GS) analysts also believe the less expensive iPhone would start with 3G connectivity, but move into LTE gradually as network coverage improves and component costs start to fall. They predict 8 gigabytes of storage, which is less than the current iPhone lineup.