Apple Inc. (NASDAQ:AAPL) shares have been sagging for weeks, and investors are actively looking for the next catalyst for growth. Thus far there doesn’t seem to be much on the horizon — except for those nagging rumors about a low-cost iPhone. And at this point we don’t even know if the company will actually do it.


Analysts at Bank of America Merrill Lynch issued a report to investors this week making a case for a low-cost iPhone. They analyzed the dynamics of the current smartphone market and the potential financial impact such a device would have on Apple Inc. (NASDAQ:AAPL).

BAML analysts said they believe that Apple Inc. (NASDAQ:AAPL) should add a low-cost iPhone because it doesn’t currently have a device that’s in the under $300 price range, which is about 70 percent of the devices in emerging markets. They said they believe emerging markets will “significantly outgrow mature markets” and that a low-cost iPhone could “nicely complement Apple’s ongoing international expansion.” They believe that if Apple Inc. (NASDAQ:AAPL) does add a low-cost iPhone to its product line, it could increase the company’s addressable market by about 55 percent.

They believe that Apple Inc. (NASDAQ:AAPL)’s focus on high-end smartphones has enabled it to “drive outsized revenue and profit share in the smartphone market in the past,” so the company could be impacted more than other smartphone vendors by the shifting market. The analysts point out that mature markets are heavily saturated with smartphones, so future business in those mature markets will have to be in replacement phones rather than new users.

However as emerging markets outpace mature markets in growth, Apple Inc. (NASDAQ:AAPL)’s ability to grow will be severely limited because it has “virtually no presence in the lower price segments.” The analysts note that other smartphone venders offer a wider variety of devices in different price points, which makes it easier for them to grow no matter which segment of the market is growing.

BAML analysts have maintained their Buy rating and $570 price objective on shares of Apple Inc. (NASDAQ:AAPL).