DigiTimes.com, which specialises in news about the supply side of the technology industry, cited unnamed sources as saying an iPhone model made with less expensive parts would be rolled out in the second half of this year.
The rumour was later endorsed by the Wall Street Journal, which based its report on people briefed on the matter.
The low-priced iPhone will have a big screen along the lines of those popular with consumers today, according to DigiTimes.
Such a move would be a dramatic shift from Apple's unabashed style of crafting premium products that sell in the high-end of the market instead of getting caught up in price wars with rivals.
Apple sees huge potential in China, and coming out with a more affordable iPhone may be a necessary move to ward off competition from bargain-priced smartphones powered by Google-backed Android software.
Expanding the ranks of iPhone users would also increase the potential for the California-based company to sell people mini-applications, music and other digital content popular on smartphones.
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