Earlier this month, reliable KGI Securities analyst Ming-Chi Kuo claimed that Apple (NASDAQ:AAPL) is planning to launch a new 4-inch iPhone at some point in the first half of 2016. He also said that, in order to make sure that iOS 9 and the future iOS 10 operating systems run smoothly on the device, Apple may equip this phone with the same A9 processor that debuted with the iPhone 6s/6s Plus.

However, a new report from Macotakara claims that this device will use the older-generation A8 processor that first debuted with the iPhone 6/6 Plus.

What are the puts and takes associated with going with the A8 rather than the A9 in such a device? Let's take a closer look.

The A8 is cheaper to implement; would make iPhone 6s/6s Plus look better
The obvious benefit to using the A8 processor rather than the A9 processor inside of such a device is cost. The A8 is an 89 square millimeter chip built on TSMC's (NYSE:TSM) 20-nanometer process, while the A9 is larger when manufactured on the more complex/expensive 14/16-nanometer processes from TSMC and Samsung (NASDAQOTH:SSNLF).

However, that's not where the cost argument ends. The A8 memory controller supports cheaper (but slower and less power efficient) LPDDR3 memory while, to my knowledge, the A9 chip only offers support for the newer LPDDR4 standard.

From a system bill-of-materials perspective, using the A8 would mean the use of cheaper memory. In fact, in this case, unless Apple were to boost the amount of memory in the new 4-inch iPhone, memory costs in going from the iPhone 5s to the new 4-inch iPhone should be identical. 

Additionally, by employing the A8, this would very clearly indicate to consumers that the iPhone 6s/6s Plus are "the" flagship devices while the 4-inch model is essentially a budget iOS device. 

There are many advantages to using the A9 in such a device
Although there are some pretty clear up-front cost and product segmentation benefits to using the A8 rather than the A9 in such a device, there are also some very real advantages to using the A9 in even a "budget" iPhone.

First of all, by using the A9, Apple would be able to deliver a product with much better performance than it would if it used the A8, making it a significantly more compelling upgrade from the A7-powered iPhone 5s.

Indeed, there are people who will buy the 4-inch iPhone simply because they prefer the smaller form factor, not because they're unwilling to spend big to get something nice. A more substantial upgrade by using the A9 (and potentially two gigabytes of LPDDR4 memory) could make the device much more appealing to these potential customers, of which there are probably plenty within the iPhone installed base.

Additionally, by using the 14/16-nanometer manufactured A9 (though Ming-Chi Kuo thinks TSMC will be the sole supplier of A9 chips for the new 4-inch iPhone), Apple soaks up more of the industry's 14/16-nanometer wafer capacity.

This could not only provide cost benefits that actually help lower the effective cost of Apple's A9 and future A10 chips (Apple buying more 16-nanometer wafers means it may be able to negotiate better prices, leading to lower A9/A10 costs), but it might also make it difficult for competing chipmakers to get ahold of 14/16-nanometer wafers, potentially driving up their own costs and in the process hurting their competitiveness or margins.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.