Rumor: Low-cost ‘iCloud iPhone’ to accompany iPhone 5 by Philip Elmer-DeWitt @FortuneMagazine August 11, 2011, 1:18 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Using iPhone 4 parts and less memory, Apple might bring the subsidized cost to $0.00 Image: Apple'N'Apps There’s been much speculation over the past year about the possibility of Apple AAPL shipping a lower-cost phone to compete in markets where the top-of-the-line iPhones have proved too expensive. Writing in Apple’N’Apps Thursday, Trevor Sheridan — a writer whose track record we can’t vouch for — offers what nonetheless seems like a plausible scenario. Citing three unnamed “independent sources,” he claims that Apple is set to launch two iPhones this fall: 1) The iPhone 5 about which so much has already been written. And 2) a cheaper device known within Apple as the iCloud iPhone. “The iPhone 5 will be a quality upgrade, but the star of the show will be the cheaper iCloud iPhone alternative. Apple wants to offer a lower priced iPhone while still maintaining their industry leading profit margins. According to our sources, Apple is going to do this by using less on board Flash memory which are also falling in price. When looking at the iSuppli cost breakdown of the parts of the iPhone 4, the storage accounts for 15% of the cost to build the device, and that’s true for the 3GS as well. Reducing 15% of the cost across millions of units is a substantial savings. The iCloud model will be for users who will want to use the iCloud heavily for storage, and keep a lot less on the iPhone itself. This will also help Apple make iCloud a feature by itself and reason to use the entire Apple ecosystem.” According to Sheridan, Apple is aiming for a $400 price point, about $200 less than the unsubsidized cost of the iPhone 4. Assuming carriers offer their usual subsidies, that could bring the initial cost to consumers to $0.00. You can read Sheridan’s full report here.