Apple to Launch Cheaper iCloud-Based iPhone? [RUMOR]

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The rumor comes courtesy of one Trevor Sheridan, writer of the blog Applenapps.com. It seems to be well-sourced -- Sheridan claims to have spoken to three independent sources "who are all connected to Apple in different capacities," and one of them appears to have given him the scoop on Lion's launch date ahead of time. Not a bad report, but we'd have a lot more confidence if we -- or any other site reporting this -- knew anything about Sheridan's bona fides. (Pro tip, Trevor: a short bio page can come in very handy.)

Sheridan's sources say the iCloud iPhone will "look like a small iPad," and that it will retail for $400 -- or no money at all once you factor in the 2-year contract signup discount. The sources are a little short on details of exactly how this will rely on iCloud more than any other iPhone. In iOS5, iCloud will back up your entire phone, including apps. But is Apple ready for a device that runs entirely from the cloud, straight after the launch of iCloud? More to the point, are the carriers ready? Would users have enough data bandwidth to make such a phone viable? We doubt it.

It does make sense for Apple to produce a low-cost version of the iPhone 4 after the iPhone 5 launches -- after all, that's exactly what the company has done with the iPhone 3GS (now $49 at the AT&T store). As Sheridan points out, using figures from the analysts at iSuppli, flash memory is roughly 15% of the cost of an iPhone 4. So if you were to keep it down to, say, 8GB of internal memory, and replace the expensive back cover of the iPhone 4 with cheaper plastic, the result would make a lot of sense as a budget device.