John Egan

Apple is working on a low-cost iPhone priced between $99 and $149, Bloomberg has reported. In doing so, Apple – which hasn’t confirmed the cheap iPhone – has its eye squarely on an enormous prize: China.

Gang Lu agrees with this strategy. He is founder and chief editor of, a blog written in Chinese and English that covers tech developments in China and other Asian countries. Apple, he said in an interview, has “to have the cheaper phone to compete with Android devices in China.” As measured by the number of units sold, China now ranks as the world’s largest market for smartphones.

Lu spoke Thursday at the China Innovation Forum, held during Macworld/iWorld in San Francisco. organized the forum.

According to Lu, residents of China’s two major cities, Beijing and Shanghai, don’t mind paying extra money for “luxury” products like the iPhone or Apple devices. But people outside those cities aren’t willing to cough up the cash for an iPhone. That’s why Apple must roll out a cheap iPhone in China to do battle with Samsung, Lenovo, Huawei and other smartphone rivals, Lu said.

Apple is looking to the Chinese market for major growth. In January, Apple CEO Tim Cook told China’s Xinhua News Agency that China will become his company’s largest market. Currently, the US is Apple’s No. 1 market and China is No. 2.

In the first quarter, China, Hong Kong and Taiwan collectively accounted for $6.8 billion of Apple’s $54.5 billion in revenue. That represented a 67 percent jump in revenue from the same quarter a year earlier.

However, market research company IDC reported in December that in China’s fiercely competitive smartphone market, Apple’s share slipped two notches in the third quarter of 2012 – from fourth place to sixth place.

In a recent conference call with Wall Street analysts, Cook said he was “very happy with how things are going” in China. “It’s clear there is a lot of potential there,” he added.

Market analysis firm weighed the pros and cons of a cheap iPhone in China in a recent posting on

“While we think such a move may dilute Apple’s brand and prove counterproductive in the developed markets, doing so for the emerging markets without compromising much on the build quality and margins (in a move similar to the iPad Mini) may not be that bad an idea,” the team wrote.

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