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Why Apple's new iPhones could turn off consumers

(MoneyWatch) Apple (AAPL) is expected on Tuesday to announce two new iPhone models. One device, the 5S, is supposed to improve on the iPhone 5 with a biometric fingerprint sensor for security, faster processor and possibly a bigger screen. The new 5C will reportedly be a cheaper version of the iPhone that could help the company make more headway in price-sensitive markets like China.

Apple to unveil new products Tuesday

Despite the roll-out, Apple faces a number of potential challenges that could undermine its broader goal: innovate its way to stronger growth.

Labor problems in China -- again

Even as a Apple seeks to enhance its products and enhance new lines of business, like TV, one persistent problem that continues to fester at Apple is the company's relationship overseas workers who make its products. Non-profit China Labor Watch last week said in a report that the new cheaper iPhone comes at the "expense of Chinese workers" in terms of employee rights, health and safety. Apple workers in a plant owned by Jabil Circuit (JBL), a U.S.-based company that makes electronics for a range of technology giants, allegedly stand for 11.5 hours per work day, work more than 60 hours a week, and are forced rack up 100 hours of overtime a month (not counting 11 hours of unpaid overtime). Such schedules exceed even more lenient Chinese legal limits.

Past reports of problems in these factories hadn't seemed to dampen the lust for iThings, but conditions have changed. With Apple revenue flat last quarter and profits declining, CEO Tim Cook is under pressure to turn things around.

For Apple, that means succeeding in China. Yet the company's sales in China dropped 4 percent year over year, and they were down 20 percent in Hong Kong. A cheaper iPhone might help, and Chinese consumers may have fewer concerns about grueling factory conditions. But when the factories are owned by an American company, that could elicit a different reaction.

Low price undermines exclusivity

Since its earliest days, Apple's strategy has been to emphasize high-quality, and high-margin, devices that redefine a product niche. The company touts the care and design of products and charges more than competitors. In that sense, Apple is less a purveyor of tech goods than a luxury brand, like Gucci, Rolex, Louis Vuitton, or BMW.

One major risk of such a strategy: Should competitors sell knock-off products at significantly lower prices, the brand owner faces the potential of losing public favor among trend followers. This is the basis for anti-forgery concerns in many industries. These companies know that most people don't have the extra cash to spend on a real Coach bag or Burberry coat, so the issue isn't really lost revenue. Rather, it's that even the appearance of overly broad distribution can be enough to drive off customers.

In this case, Apple may be creating its own knock-off with a cheaper iPhone. Apple may not have much of choice in introducing a more affordable device given its need to attract more budget-conscious consumers. But making tech for the masses, as opposed to the digital "in crowd," could certainly cost Apple its cool.

Copying Samsung?

According to the Wall Street Journal, Apple is testing new large-screen iPhones, with viewing areas of as big as six inches. Finally, you might be able to see what's on the screen more easily than with the 3.5-inch screens and even the 4-inch one on the iPhone 5.

Perhaps reducing the thrill for consumers is that Apple isn't the first company to go this route. In fact, it's at the back of the pack in introducing big screens for its phones. A number of Android phones already have screens exceeding five inches. In other words, should Apple unveil the feature tomorrow on its latest iPhones, it risks looking like a trend follower than a setter. It also would appear to be copying the likes of Samsung, which Apple keeps suing for allegedly copying its products. 

Meanwhile, producing less expensive iPhones represents another potential problem for Apple, a company that relies on high margins to drive earnings: lower profits. That could put additional pressure on Apple shares, which have sagged this year, as investors digest the company's move into cheaper devices.