By Philip Elmer-DeWitt
May 10, 2013

FORTUNE — So confident are analysts that Apple (AAPL) is getting ready to launch a lower-cost iPhone that some have started building the new device — which none have ever seen — into spreadsheets like the one at right issued Thursday by Piper Jaffray’s Gene Munster.

What these analysts are not so sure about is what kind of damage a cheaper (and presumably lower-margin) iPhone would do to the product’s enviably high gross margin — currently about 55%. The fear on the Street, according to Munster, is that Apple’s overall gross margin could fall from its record high of 47.4% in March 2012 to 30% by 2015.

That fear, he says, is “overblown.” If he tries really hard he can imagine a scenario where profit margins come down to 32% by 2015. But that, he writes, “would require a nuclear meltdown in Apple’s model including 50% cannibalization of the regular iPhone from the cheaper iPhone, a 15% margin on the cheaper phone, and a 10% margin on the TV.”

That last item — the TV — is another product no analyst has ever seen, and Munster shows enough forbearance not to include it in his financial model for the company.

But his new spreadsheet does include the first two “nuclear meltdown” assumptions — a 50% drop in regular iPhone sales and a 15% margin on the cheaper ones — and when he crunches the numbers it spits out the two sets of highlighted results in the chart at right: GM and EPS of 35.8% and $46.77, respectively, in fiscal 2014, going to 33.9% and $54.48 in 2015.

Sticking with his assumption that Apple should trade with a P/E of 14, Munster is forced to reduce his 12-month price target to $655 from $688.

Apple closed Thursday at $456.77 with a forward P/E of 10.36.

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