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 The launch of such a phone - expected to be called the iPhone SE -
would represent Apple's second bid for the crowded mid-tier market
after an unsuccessful foray three years ago.
It might give the world's best-known technology company a boost in
the fast-growing Indian, Middle East and African markets, but also
risks cutting its average phone prices and profit margins.
"The iPhone SE provides a new incentive to upgrade for iPhone
holdouts who don't want a large-screen phone," said analyst Bob
O'Donnell of TECHnalysis Research.
A less expensive iPhone could appeal to emerging markets customers,
said O'Donnell, but is not a sure-fire hit, as it may still be
pricier than competitors running Google's Android system, and many
in emerging markets have already developed a taste for larger
screens.
Apple has invited reporters to an auditorium at its Cupertino,
California headquarters in Silicon Valley on Monday, a cozy venue
compared with the massive San Francisco stages where it typically
unveils new iPhones and major products.
 As is its tradition, Apple has been silent about what is on offer,
but technology and financial analysts predict a cheaper, entry-level
phone with a screen around 4 inches (10 cm) that still runs some of
the latest features such as Apple Pay.
The more compact design comes after its move to expand the size of
the screens in its high-end iPhone 6 and iPhone 6 Plus phones in
2014, featuring a screen as large as 5.5 inches. That was broadly
seen as an attempt to match rival Samsung Electronics <005930.KS>
with its large-screen Galaxy phones.
The iPhone is sold around the world, but with a price starting at
$649 for the current top model without a contract, it is beyond the
reach of many. A mid-range or entry-level phone could broaden
Apple's appeal, although it is not clear what price range it will
aim at.
Apple still believes the mid-size market is worth pursuing, analysts
have said, as it looks to counter the global spread of phones
running Android, made by Alphabet Inc's <GOOGL.O> Google.
Technology research firm IDC is expecting an uptick in sales of
devices running Android this year, to account for almost 83 percent
of smartphones sold worldwide. It expects iPhone sales to fall
slightly, making up 15 percent of the market.
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Apple said in January it expects a decline in iPhone sales overall
this quarter compared to the same period a year ago, the first such
dip since Apple essentially created the smartphone market nine years
ago. The product drives about two-thirds of Apple’s sales and no
other gadgets in its lineup are close in popularity.
Wall Street analysts worry the company does not have another
blockbuster product to replace the iPhone. Apple is also expected to
announce a new iPad on Monday in an attempt to buoy flagging tablet
sales, and new bands for Apple Watch, the wearable gadget it
released last year to mixed reviews.
If the iPhone SE is unveiled on Monday, it will be Apple's second
run at the entry-level or mid-tier market following the iPhone 5c, a
lower-end phone with a colorful plastic body that was launched in
2013. After initial excitement, it did not prove to be a big seller
and has since been dropped from Apple's lineup.
The anticipated iPhone SE could give Apple a short-term boost
without running into the low end of the smartphone market dominated
by Android devices, said analyst Patrick Moorhead of Moor Insights &
Strategy, especially if it has the company's high-powered A9 chip
and supports a feature that makes phones work better on wireless
networks, called "carrier aggregation."
But even with that, he warned the new phone will face tough
competition from Android.
"The new phones from Huawei <002502.SZ>, LG <066570.KS>, Samsung and
Xiaomi [XTC.UL] are the best I have seen from them in years," said
Moorhead.
(Reporting by Julia Love; Editing by Peter Henderson and Bill Rigby)
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