FORTUNE — The chart at right represents the worst case scenario for Apple’s (AAPL) share of the global smartphone market, as forecast Monday by Sanford Bernstein’s Toni Sacconaghi.
Using Apple’s own numbers for fiscal Q2, Sacconaghi calculates that iPhone sales grew 7% year over year in a sell-in basis (12% in a sell-through basis) while the overall smartphone market grew by about 36%. The net result is that Apple’s share of the global smartphone market fell from 23% last year to 17% share this year — the largest year-over-year decline in the iPhone’s history, according to Sacconaghi.
The situation won’t get any better by June, he figures. Based on Apple’s fiscal Q3 revenue guidance, he estimates Apple will sell about 25 million iPhones in the current quarter (down 4% year over year). If the overall market grows 30%, Apple’s share will fall to 12.3%. If it grows 36%, Apple’s share falls to 11.7%.
“Perhaps most startlingly,” he writes, “if Apple does not introduce a new iPhone or lower-priced phone in CQ3 [Apple’s fiscal Q4], it is quite possible that iPhone’s smartphone market share could drop into the single digits.”
Given this dire prospect, how can Sacconaghi maintain a $600 price target for Apple and an Outperform rating? He offers several “perspectives.” Quoting from his note to clients:
- Apple’s market share typically troughs before new offerings… Apple’s share could increase dramatically with the introduction of a lower priced device, and meaningfully with the addition of new carriers. We estimate that adding China Mobile would boost Apple’s global smartphone market share by over 100 bps [basis points] in the first year, and that a successful low end iPhone could boost share by 500 bps or more.
- iPhone is still growing healthily. As gloomy as these market share forecasts appear, we model iPhone unit sales growing 15% in FY 2013, and 10% in FY14, and our model does not include the introduction of a lower-priced device. Yes, Apple is growing at a fraction of the market – because it is not participating in the fastest growing, low end segment – but we still expect it to grow.
- The size of the total iOS ecosystem remains staggering on both an absolute and relative basis – and Apple’s customer base remains intensely loyal. In short, iOS is in no risk of going away… Moreover, our consumer surveys point to iPhone repurchase intentions of over 90%, notably ahead of competing ecosystems, including Android.
- Market share does not necessarily correlate with profitability. Currently, Apple’s iPhone positioning is increasingly mirroring the Mac, which commands just 5% PC market share, but is highly profitable, accounting for an estimated 40% of total PC industry profits.