So how do the manufacturers keep their costs down?
Hugo Barra, a Vice President at budget Chinese electronics firm Xiaomi, told Tech Crunch that the secret for him lies in maintaining a small portfolio of products with a long shelf life.
Xiaomi has just two ranges of cheap phones – the Mi and Redmi.
“A product that stays on the shelf for 18 to 24 months – which is most of our products – goes through three or four price cuts. The Mi2 and Mi2s are essentially the same device, for example,” he said.
“The reason we do these price cuts is because we’ve managed to negotiate component cost decreases [with our suppliers] over time.
“The importance of having a very small portfolio is significant — the fact that we only launch a few products each year, and (the fact that) we only have two product families.”
The Apple factor
In November 2014 a research firm called Teardown took apart an Apple iPhone 6 and 6 Plus and estimated that the handsets cost the firm between £145 ($227) and £155 ($242) individually in terms of parts and assembly, reported Tech Insight.
And yet the cheapest iPhone 6 currently retails at £539 ($840) and the largest 6 Plus at £619 ($965) in the UK.
But it does not seem to be a deterrent – Apple reported another jump in profits last month, selling 47.5 million iPhones between April and June 2015 alone.
“People who have an iPhone are in love with the Apple experience,” said Mr Wood.
Perhaps part of the reason why iPhone fans swallow the cost is pure convenience – moving away from Apple’s notoriously locked down operating system can be frustrating.
“People who have gone from iPhone to Android find it a difficult experience,” Mr Wood added.
“I’ve always said the iPhone is like the Hotel California of smartphones – once you’re in it’s difficult to leave.”
In an era of fears about hacking and data privacy, one of the biggest issues with cheaper phones is how safe they are.
Most budget smartphones run on the Android operating system, which is much less restricted than Apple’s OS – and also more prone to hacks.
“Cheap phones are not a bad thing – the cost of hardware is always dropping – but the security is really reliant on the software,” said security expert Prof Alan Woodward from Surrey University.[related-posts]
Cheaper devices can be more difficult to update with essential patches issued by the operating system to tighten security, he added.
“It’s not that the technology prevents it but rather that the vendors tend not to issue the necessary updates,” he said.
“We’ve seen it for years with cheap routers where a flaw is found it is just not economic for a manufacturer to issue firmware updates for a device worth £32 ($50).
“If something is too good to be true it probably is. If you find you can buy a well-featured smartphone from some unknown supplier for pennies then you have to assume that you are the product and someone is likely to be harvesting data about you (for criminal purposes or other).”