As several people noted, they're not necessarily talking about needing cheaper phones for the first world markets. (As it turns out, people in those countries usually spring for the more expensive phones anyway, because of the subsidies.)
The world needs a good price: It's the rest of the world that needs and buys more affordable smartphones. Especially in today's economic climate. For example, last year over half the phones sold in Greece were the Samsung Mini, which sold from $125-$140 contract free.
A $200 device: This year the Samung Mini 2 came out. It sells for $150-$200 contract free. Its specs include 3G, GPS, 320x480 3.3" screen, 0.5GB RAM, 4GB Storage + up to 32GB microSD, 800MHz Cortex A5, FM Stereo. That's better than the the iPhone 3GS in some ways, and is basically the kind of model that the analysts want to see.
Subsidies: Carriers that subsidize are also beginning to push back on that model, some more, some less. It ties up a lot of their money for almost two years each time a customer upgrades. (Over a half billion just with AT&T some years.) Therefore some carriers have stopped offering iPhones subsidies, and Wall Street fears that if more do, sales of the high priced iPhone models will drop radically. Will it happen? Who knows, but that's the worry.
There's also the desire to attract first time buyers, who tend to be loyal to the first brand they get.
Apple's profit margin: Currently, Apple's phone has about a 30% net profit margin. E.g. for an average $640 iPhone, Apple clears $200 after paying for manufacturing, corporate, sales, licenses and taxes. That's a lot. The only other maker that ever came really close to that was RIM, who used to get about 28% a few years ago.
So could Apple build and sell a $200 phone with 3GS specs? Sure, if Samsung can do it, so can Apple. They'd net less than $50 per phone though, and it's hard to tell if Apple would go for that, unless they simply considered them like iPod Nanos... worth selling lots.
Edited by KDarling - 12/17/12 at 3:04pm