NEW YORK, NY – Come this summer, Apple is expected to dip its toe in the entry level market for its popular iPhone, according to a report by RBC Capital Markets analyst Mike Abramsky.

Apple is expected to debut a $99 iPhone, as well as an iPhone 3G with updated performance, sometime in June or July, according to Abramsky's research note on Tuesday.

Abramsky, in his report, states:

Checks reveal further entry-level iPhone details, including launches on existing carriers June/July with a data plan, entry-level pricing and a lower subsidy. Also expected is a 3G iPhone performance upgrade (performance, features, form factor).

An entry level iPhone could increase Apple's overall iPhone unit sales by 25 percent to 69 percent and bump up its slice of the smartphone market from an estimated 12 percent to 14 percent to 19 percent, the report notes.

But it could come at a price.

Apple could find itself cannibalizing its iPhones/iPod business. For example, Apple would need to sell the $99 iPhones to replace the gross profits of one 3G iPhone, Abramsky notes in his report. And it could also create a situation where Apple would need to lower its iPod pricing to sustain the momentum with its media player since the iPhone also offers such capability.

To compensate for a potential cannibalization of its gross profits, the computer maker would do well by expanding its distribution beyond its current list of iPhone carriers, the analyst notes.

From Abramsky's point of view, Apple investors should remain wary.

Apple's shares have risen 16 percent since it reported record first-quarter results. While the shares could possibly go higher ahead of the iPhone update, Abramsky remains concerned that Apple is still largely a premium-priced hardware maker standing in a global recession that's acting like quicksand.

Talk of an entry level iPhone has surfaced in the past, from rumors of an iPhone Nano to a $99 iPhone at Wal-Mart.

Apple was down less than 1 percent at $97.20 a share in early morning trading, coming off a 4.6 percent decline on Tuesday when it closed at $97.83 a share.

Copyright 2009 CBS Interactive Inc. All rights reserved. From http://www.cnet.com. By Dawn Kawamoto.
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