Apple (NASDAQ:AAPL) became the largest smartphone vendor last quarter selling more than 20 million iPhones and recording its best ever quarter with 142% year-over-year growth. Earlier this week it passed Exxon briefly as the world’s largest company by market cap. 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 an 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 (NASDAQ:RIMM) and Nokia (NASDAQ:NOK). Both beleaguered smartphone vendors are desperate to get their smartphone strategies righted in 2012. ^[1] In addition Google’s (NASDAQ:GOOG) Android phones are flooding the market as handset manufacturers like HTC and Samsung are soaking up market share with Droid phones. This implies pricing pressure down the road 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.

Emerging Markets – A Huge Opportunity for Apple

While Apple is leader in smartphones, its market share in the global mobile phone market is paltry at around 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.

If iPhone 5 is a Flop

Apple is expected to launch the coveted iPhone 5 this fall and the demand has already spiked. According to a survey conducted online by Experian’s PriceGrabber shopping Website, nearly 35% of 3,000 U.S. consumers surveyed would purchase the iPhone 5 after its release.^[2] In another survey by investment bank Piper Jaffray, 29% of 216 mobile phone users surveyed said they currently own an iPhone while 64% of respondents plan to buy the iPhone as their next phone. (See Survey Says iPhone 5 Demand is Sizzling)

However if the iPhone 5 fails to live up the hype and if the flood of new smartphones from Nokia, Motorola Mobility, Samsung and RIM start to erode the iPhone’s smartphone prowess, we could see gross margin pressures that would weigh on Apple’s stock considering how important it is.

Our complete analysis for Apple’s stock is here.

Notes: