The device could resemble the existing iPhone, but might use less expensive materials, such as a shell made of polycarbonate plastic, according to the report, which cited anonymous sources.
Apple could decide not to move forward with the lower-end iPhone, the report noted.
The product would represent the first time Apple has diversified its line of smartphones with significantly different models since launching the original iPhone in 2007.
The company faces pressure from rival smartphone-makers such as Samsung Electronics Co whose products use Google Incs Android operating system.
Apple declined to comment on the report.
Shares of Apple, which closed Tuesday's regular trading session at $525.31, are down 25.5% from their 52-week high of $705.07 in September.
Apple CEO visits China for second time in less than a year
Apple Incs chief executive Tim Cook is meeting partners and government officials in China on his second visit to the firms second-largest market in less than a year. China is Apples fastest-growing market, with the maker of the popular iPhone and iPad opening a raft of retail stores last year. Last month, Apple sold more than 2 million iPhone 5s in the country in just three days, the companys best ever smartphone launch in the country. Despite the roaring success of iPhone sales in China, analysts say the companys longer-term outlook in the market may hinge on expanding its partners to include China Mobile, the countrys top telecoms carrier. Tim is in Beijing meeting with government officials and partners. China is an important market for us and we look forward to continued customer excitement and growth here, Apples spokeswoman in China Carolyn Wu said on Wednesday. She declined to say whether or not Cook would be meeting with China Mobile executives. In China, the iPhone is currently sold through Apples seven stores, resellers and through China Unicom and China Telecom which together have fewer than half the mobile subscribers of bigger rival China Mobile.