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iPhone 4S to woo customers from 4G Droids, says analyst

The lower upfront cost of the iPhone 4S will help Apple grab more customers than those opting for a 4G Android device, according to a Deutsche Bank analyst.

Lance Whitney Contributing Writer
Lance Whitney is a freelance technology writer and trainer and a former IT professional. He's written for Time, CNET, PCMag, and several other publications. He's the author of two tech books--one on Windows and another on LinkedIn.
Lance Whitney
2 min read

Apple's iPhone 4S
Apple's iPhone 4S Apple

Apple will win customers away from 4G Android phones by offering the iPhone 4S at a lower cost but still managing to rake in hefty profit margins.

At least, that's the take of Deutsche Bank analyst Chris Whitmore. In an investors note released Sunday, Whitmore compared the prices of the iPhone 4S with those of several Droid phones. Though the monthly fees for each phone are comparable and depend on the carrier, the upfront cost for the new iPhone is lower, which Whitmore believes will lure in more customers.

The 16GB iPhone 4S costs $199 with a two-year contract. Though that price is in line with other 3G phones, it represents a lower entry point than that of key 4G Android phones, such as the Samsung Galaxy S II ($229), the Droid Bionic, ($299) and the HTC Thunderbolt ($249).

"We expect customers who do the math to opt for the iPhone," Whitmore said in his note. "In addition, those who don't do the math, will likely reach for the lower upfront acquisition cost of the 4S compared vs. these Droids."

Despite the iPhone's lower initial cost, Apple will still see healthy profit margins as a result of the huge subsides paid by the carriers.

With two-year contracts, the 16GB, 32GB, and 64GB iPhone 4S will sell to customers for $199, $299, and $399, respectively. Whitmore pegs Apple's costs for manufacturing the iPhone 4S from $170 to $220 depending on the capacity of the phone. But since the carriers kick in around $450 to subsidize each new iPhone, Apple stands to generate a profit margin of around 71 percent to 73 percent. That compares with a profit margin of only around 38 percent for the iPod Touch.

"Looking forward, we expect the refreshed iPhone / iOS upgrade / Siri and channel/carrier expansion to support strong iPhone demand over multiple quarters," Whitmore added.

Calculating the average total cost of ownership over two years among the three U.S. iPhone 4S carriers, the analyst found Sprint to be the cheapest at $88 per month, followed by AT&T at $93 each month, and Verizon Wireless the highest at $98 a month.