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FORTUNE — Adding to the growing literature of sell-side analysts who think the answer to Apple’s (AAPL) market valuation woes (down 35% since September) is a low-cost iPhone, Morgan Stanley’s Katy Huberty has looked at China, the world’s largest smartphone market, and done the math.
She made several points in a note to clients Tuesday that struck me as new:
- Contrary to the consensus view — which assumes that smartphones in China will only get cheaper — she cites research showing that the average selling price stablized last year and has actually started to increase as Chinese users trade up to higher-quality smartphones.
- That Apple could launch a 2,000 yuan ($330) iPhone mini and be competitive with flagship products from Lenovo, Huawei, ZTE and Coolpad.
- That even at a lower profit margin (say, 40%) and a 1/3 cannibalization rate (i.e. Customers buy one third fewer full-priced iPhones), the cheaper iPhone would increase Apple’s revenue and gross profits (see her spreadsheet above).
- That an iPhone mini and a LTE license from the Chinese government this year or next could finally persuade China Mobile (CHL), with 700 million subscribers, to cut a deal with Apple.
- If all this comes to pass, Huberty estimates that Apple’s addressable smartphone market in China, which had dwindled to 10%, could triple to nearly 30%.
This assumes, of course, that Apple can find a way to build a $330 iPhone with cheaper parts, a slower processor, a lower resolution screen and perhaps a plastic body, that isn’t, in the phrase Tim Cook used at a Goldman Sachs conference last week, “a crappy product.”