Apple reportedly has three different phones in development, but reliable sources say that a new “low-cost” iPhone is indeed set to be released later this year.

Rumors about this cheaper iPhone -- possibly called iPhone 5S or iPhone 6 -- have been circulating since early January, when a slew of reports from supply chain sources and even major U.S. news sites such as the Wall Street Journal and Bloomberg took notice of a new iPhone in development strategically targeted toward lower-income, emerging markets like China and India.

On Monday, iLounge Editor-in-Chief Jeremy Horwitz followed up on his Friday exposé of next-gen iOS devices with a new report detailing what he calls the "budget iPhone 5," which will allegedly look like the iPhone 5 but feature several new design elements and tweaks.

“Yes, it will be made substantially from plastic,” Horwitz wrote, echoing an earlier report from DigiTimes that said the iPhone 5S or 6 would feature a hybrid chassis made of both plastic and metal. “No, it won’t just be a Retina- and Lightning-equipped refresh of the iPhone 3G or 3GS, Apple’s last plastic iPhones, nor will it look just like an all-plastic version of the iPhone 5. This new model is actually a cross between the iPhone 5, fifth-generation iPod touch and -- wait for it -- the iPod classic. Yes, really. It will have a 4” screen, like the iPhone 5, a bottom like the latest iPod touch and a shape that’s most similar to the iPod classic.”

The original DigiTimes report said the new iPhone’s internal parts could “be seen from the outside through a special design; if this turned out to be true, the finished design for the iPhone 6 might look like an iPhone 5 mixed with the plastic enclosure of the iPhone 3GS from 2009 mixed with the final design for the Bondi blue iMac in 1998, which was characterized by its brightly colored, translucent plastic casing, letting users see the inside of their desktop computer for the first time.

The new low-cost iPhone 5S or 6 is said to feature nearly identical specs to the iPhone 5 but “a half-millimeter taller and a half-millimeter wider,” according to Horwitz, as well as a full millimeter thicker. But iLounge noted that the biggest design change in this cheaper iPhone will be the curves.

“Apple’s budget housing looks closest to the iPod classic in shape, though not in materials,” Horwitz said. “Unlike the plastic iPhone 3G/3GS, which featured soft curves on all sides, the budget iPhone’s curves start and end at flat surfaces, so each side and the back are flat. This seems like a trivial change, until you realize that it allows Apple to use flat rather than curve-matched parts: the right side has a flat, centered SIM card tray just like the iPhone 5’s, while all of the buttons and ports are on flat rather than curved surfaces. A flat-backed iPhone won’t rock on a flat surface when it vibrates, either.”

In addition to the new form factor, Horwitz believes the iPhone 5S or 6 will have very similar features to the iPod Touch, including identical proportions and locations for the camera, microphone and rear flash. The headphone jack, Lightning dock, bottom microphone and speaker are in the same location as the iPhone 5, but the new phone is said to have an extra microphone on the bottom, as well as four individual holes for the speaker grill, rather than the 26 speaker holes at the bottom of the iPhone 5.

“In summary, the budget iPhone will look a lot like an iPhone 5 from the front, an iPod classic from the side and an iPod touch 5G on the bottom -- only made from plastic rather than glass or metal,” Horwitz concluded. “It won’t make any bold departures from past Apple designs, but then, it’s supposed to be an inexpensive iPhone and achieves that goal pretty much as expected.”

Why Apple Needs This Low-Cost iPhone

Apple’s Q1 2013 earnings, despite breaking all previous quarterly earnings records held by the company, was still not enough to assuage the concerns of investors and analysts, and its diminishing stock is a reflection of that. To reverse its poor stock fortunes, Apple needs to prove that it can still expand. This cheap, low-cost iPhone might be the key.

“One of our sources claims that Apple’s iPhone prices remain too high for most mainland Chinese customers -- the iPhone 5 hardware alone starts at $849 there, versus the iPhone 4 at $500, in a country where the average annual salary is around $3,000 per person,” Horwitz wrote in his Friday report. “The source has said that mainland Chinese iPhone 5 sales are already tapering off as a result of the pricing, which is higher than in Hong Kong. A budget iPhone model would help sales in populous but underdeveloped countries to grow.”

Thanks to newer, smaller, cheaper and more power-efficient chipsets, Apple can afford to build an entry-level to mid-range smartphone on top of the current iPhone -- either bigger like the Samsung Galaxy S3 or a smaller iPhone Nano -- to appeal to markets that can’t quite afford Apple’s most popular product, including many in China. Furthermore, if Apple’s iPhone 6 was not only cheaper but also smaller too, the phone would greatly appeal to the Asian markets where small devices are not only chic, but better to hold in their (smaller) hands.

Apple definitely wants to make inroads in China. The company is reportedly trying to strike a deal with China Mobile, the largest telecommunications carrier in the world with 703 million active subscribers, to build a TD-LTE version of the iPhone to work on the carrier’s high-speed networks. On Jan. 10, Apple CEO Tim Cook stopped by China Mobile headquarters to meet and discuss “matters of cooperation” with Xi Guohua, the company’s chairman.

DigiTimes isn’t alone in believing Apple’s working on a newly sized, low-cost iPhone. On Jan. 2, Topeka Markets analyst Brian White said Apple is likely to release its next iPhone in more colors and screen sizes, implying Apple might sell an iPhone smaller or larger than the current iPhone 5 or even previous-generation iPhone 4S or 4 units.

"Although Apple offers a 4-inch screen on the iPhone 5 and a 3.5-inch screen on the iPhone 4S and iPhone 4, the company has never offered multiple screen sizes for a single model," White said. "We believe this is about to change with the next iPhone offering different screen dies that we believe will allow Apple to better bifurcate the market and expand its reach."

Considering Apple’s urgency to strike a deal, in addition to the mounting number of rumors pointing to a 2013 release date, it’s very likely that we could see a cheaper iPhone 5S or 6 launch later this year.

iPhone 6: What We’ve Heard So Far

In addition to an all-new, low-cost iPhone, Apple is also expected to release an updated iPhone 5 this year, which could also earn the label iPhone 5S or even iPhone 6, depending on what else Apple decides to release.

“The iPhone 5S is still months away from mass production, but our source suspects that the star feature will be an upgraded rear camera -- perhaps featuring Sony’s 13-Megapixel sensor, plus the aforementioned flash upgrade -- along with a processor bump,” Horwitz said last week. “Current prototypes are codenamed N51 and N53, with July mentioned as the target date.”

While his details may be accurate, contrary to Horwitz’s report, we’ve heard that the biggest focus of the iPhone 5S or 6 will actually be the home button, which is said to include an integrated fingerprint sensor to replace the need for usernames and passwords on the phone.

A fingerprint sensor makes great logical sense to be an iPhone 6 feature: Unlike other smartphones with multiple buttons the bottom, the iPhone has only one mechanical button on its face, which makes it exceedingly easy and intuitive for users to find and use this feature. Furthermore, given Apple’s urgency to acquire Florida-based AuthenTec last July (as noted in the company’s own filing to the SEC), there’s an excellent chance that we’ll see this unique feature in the iPhone 5S or 6.

According to KGI Securities analyst Ming-Chi Kuo -- one of the best at the business at predicting Apple’s product pipeline -- the iPhone 5S or 6 will also feature a number of notable upgrades besides the fingerprint sensor, including a new A7 processor from Apple and a new f2.0 aperture on the rear side camera with an advanced “smart LED flash” for enhanced photo-taking.

We’ve also heard that Apple is investing a great deal of time, energy and money on the display for its next-gen iPhone 5S or 6.

A Jan. 3 report released by the China Times said Apple might switch to a "Touch On Display" panel currently in development at Taiwan-based Innolux Corp., which has reportedly been licensed to use Sharp's proprietary IGZO display technology.

Whether or not Apple chooses Innolux to make the next iPhone's screens, however, Apple is most likely going to feature Sharp's ultra-thin IGZO display technology in its next iPhone.

In late December, DigiTimes and Apple analyst Horace Dediu both mentioned Apple’s alleged investment in the ultra-thin IGZO displays produced by Sharp, predicting the inclusion of the technology in Apple’s next batch of iOS devices, including iPhones and iPads. Dediu also pointed to Apple’s recent $2.3 billion investment in “product tooling, manufacturing process equipment and infrastructure,” believing the cash was used to help bail out Sharp, which had been in financial straits in 2012. Sharp is reportedly going “all in” on IGZO technology, so it’s possible Apple saved Sharp to leverage its investment in the next generation of displays.

IGZO display technology is not only thin and tough, but it can even handle higher screen densities than Apple’s Retina display, which is visually stunning on its own. IGZO displays can reportedly handle display densities north of 330 ppi; for a quick comparison, the new iPad 4 can only achieve 264 ppi.

One of the advantages of IGZO display technology is its lower power consumption. Most Apple products, from the iPhone 5 to the iPad 4, require cartoonishly big batteries to achieve just eight hours of power -- this is because current-gen Retina displays are extremely power hungry. If Apple wanted its iPhone 6 to not only last longer during the day but also charge faster when plugged in, IGZO seems to be the way to go for the next generation of iOS devices.

Giving credence to these rumors, Taiwan-based AU Optronics. or AUO, reportedly plans to develop a Retina display for the next-generation iPad Mini, which may require IGZO technology to make such a Retina display feasible.

Besides rumors about the display, however, there haven’t been too many other legitimate reports on the iPhone 6, but we have noticed a few interesting patents: A patent filed in March but published last September described tactile keyboards, flexible displays and laser microphones and speakers built into an iPhone, designed to conform to the user's needs. Flexible displays would allow for easier holding and typing, while the highly advanced tactile screens would create buttons when needed so users can feel "keyboard" letters as they type or touch the topography on Apple's Maps.

It's wishful thinking that Apple would include all these technologies in this year’s iPhone 5S or 6, rather implement them over time, but it's certainly fun to think about.

Apple sold 47.8 million iPhones and 22.9 million iPads in Q1 2013.

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