Consumer technology giant Apple could release two models of iPhone - namely iPhone 5 and iPhone 4S - this September, according to an analyst at Deutsche Bank.

We expect Apple to refresh the iPhone in September with two SKUs (stock keeping units); namely the iPhone 5 and a lower-end iPhone 4S handset, analyst Chris Whitmore wrote in a note to clients.

iPhone 5 will be the normal refresh of iPhone 4 and iPhone 4S is expected to be targeted at emerging markets or mid-range markets.

Analyst Ben Reitzes of Barclays Capital said the potential 4S model in 2011 will be 3G and feature a faster processor, an upgraded 8MP camera and be optimized for use with the new iOS5.

One of the major benefits of this new product could be expanded carrier relationships in the US and abroad, given the Qualcomm baseband, Reitzes said.

With Nokia and Research In Motion struggling, the time is right for Apple to aggressively penetrate the mid range smart-phone market (i.e. $300-500 category) to dramatically expand its total addressable market and market share.

Research firm Gartner sizes the mobile handset market at 1.8 billion units in 2011 with feature phones/smartphones (priced $150 and above) representing 20 percent of the market or 362 million units.

Within the smartphone category, mid-range smartphones at an average selling price, or ASP of about $150 to $300 accounted for about 40 percent of smartphone shipments, while premium smartphones with more than $300 ASP accounted for about 60 percent.

The mid-range smartphone category is expected to grow at compounded annual growth rate of 32 percent to 2015, while the premium category is expected to grow 12 percent year-over-year.

We expect Apple to move down market and target the emerging mid-range smarthphone market. We also believe Apple can standardize the design and components (iPhone 4 and iPod Touch) and leverage its scale to address this market profitably, Whitmore noted.

The analyst expects Apple to ship 74 million iPhones in 2011 and 90 million iPhone units in 2012.

In addition, a cheaper iPhone could also benefit Apple on margin front.

We estimate an iPhone 4S model priced at $349 would likely be incremental to Apple's corporate gross margin suggesting it can push down-market without negatively impacting profitability, Whitmore said.

The analyst estimates the bill of materials (BOM) cost for a refreshed 16GB iPhone is about $170. These estimates exclude packaging, logistics and distribution costs, but does gives a sense of Apple's manufacturing margin across the handheld product portfolio.

A bill of materials (BOM) is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, parts, quantities and cost of each needed to manufacture an end product.

Looking forward, the analyst expects Apple to standardize the design and components of the iPhone and iPod Touch platforms to the extent possible with the primary cost difference between the iPhone and iTouch captured in the Radio frequency module (baseband, transceiver, RF components etc) totaling about $20 per device.

Using an unlocked iPhone ASP of $649, Whitmore believes the manufacturing margin to Apple is about 70 percent for the existing iPhone 4 while the iPod Touch has about 38 percent margins ($229 ASP for the 8GB version).

Following table shows the estimated BOM cost for iPhone and margin analysis of iPhone 4S.

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Share Gains

Meanwhile, Apple has made significant share gains in the smartphone market and currently has 17 percent share in the first quarter of 2011, placing it 2nd behind Nokia which continues to lose share. Currently, Nokia has a market share of about 25 percent.

Apple's share gains have been particularly impressive given that the company had entered the market only in 2007, and this position accurately reflects the quality of the iPhone hardware and iOS ecosystem. No wonder, Apple shipped about 17 million iPhones in the March quarter.

In addition, Apple's share gains coincide with severe challenges at Nokia and BlackBerry who have experienced steady declines in market share over the last 2 years.

Specifically, in the first quarter Nokia and BlackBerry accounted for 25 percent and 13 percent market share, respectively versus 41 percent and 21 percent share in the first quarter of 2009. On the other hand, Samsung and HTC currently have 12 percent and 9 percent share, respectively due to growing adoption of the Android platform.

Looking forward, Whitmore expects a near term iPhone refresh will support further share gains for Apple and believes the smartphone OS market to primarily be a 2-horse race between Android and iOS.

We expect the upcoming iPhone / iOS upgrade and channel/carrier expansion to support strong iPhone demand over multiple quarters, said Whitmore who has a buy rating and $450 price target on Apple stock.