Two big catalysts on the horizon for Apple’s iPhone unit include a potentially cheaper version designed for emerging markets like China and India as well as the iPhone 5 announcement that Apple could release as soon as September. While all seems well in Apple land, competition will certainly stiffen as it’s do-or-die time for Research in Motion and Nokia. Both beleaguered smartphone vendors are desperate to get their smartphone strategies righted in 2012. ^[1] In addition Google’s Android phones are flooding the market as handset manufacturers like HTC and Samsung are soaking up market share with Droid phones. Now Google is buying Motorola Mobility to make its own phones.

All of this competition implies pricing pressure down the road that could weigh on Apple’s gross margin.

While we estimate iPhone’s gross profit margin will decrease from 49% in 2012 to 37% by the end of our forecast period, Trefis members indicate a slighter decrease from 52% in 2012 to 46% during the same period. The member estimates imply an upside of 12% to the Trefis price estimate for Apple’s stock. Whether the soon-to-be-launched iPhone 5 will be responsible for some of this upside remains to be seen.

We currently have a Trefis price estimate of $510 for Apple’s stock, about 35% above the current market price.

While Apple is leader in smartphones, its market share in the global mobile phone market is paltry 5%. Given the low smartphone penetration in emerging markets like China and India and the corresponding growth in these economies, Apple is in an ideal situation to introduce a cheaper phone that is affordable to the price conscious consumers.

While such a move will drive volumes for Apple and thereby increase its market share, it can be a drag on its profit margins due to lower pricing. Also there’s a risk of the cheaper iPhone cannibalizing sales of high end iPhones.