Analyst: Apple to Offer iPhone 3GS for Free

iPhone 3GS
Apple is planning to lower the retail price of a subsidized iPhone 3GS to US$0.00 in September, according to RBC Capital analyst Mike Abramsky. The analyst said that when Apple unveils the next generation of its iPhone line in September, that it will cut the price of the iPhone 4 to $99, and keep the now-two year old 3GS on the market as a free, entry-level device.

“As its entry-level iPhone strategy, Apple is expected to cut iPhone 3GS to $0 (on contract, $399 unsubsidized) in conjunction with iPhone 5 launch,” the analyst wrote in a research note obtained by Forbes. “This approach is intended to target mid-market smartphone buyers and counter Android’s mid-market expansion.”

Mr. Abramsky cited a proprietary survey conducted by his firm that found Apple could double its market share with this strategy.

Apple currently offers the iPhone 3GS at $49 with a subsidized two-year contract. If the company followed the same path when it refreshes the iPhone in September, the 3GS would go away while the iPhone 4 was offered at a reduced rate, alongside the new device that would be offered at the same price the iPhone 4 is offered today ($199 and $299).

The new strategy described by the analyst would simply extend what Apple has done in the past by leveraging a device whose R&D costs have long been paid and go after entry-level smartphone customers.

The analyst maintained hus $450 price target on Apple’s stock and his “Buy” rating.

Shares of AAPL briefly traded higher during the mid-morning session, but quickly gave back those gains. In the eary-afternoon session, the stock was trading at US$334.32, down $0.94 (-0.28%), on moderate volume.

*In the interest of full disclosure, the author holds a tiny share in AAPL stock that was not an influence in the creation of this article.