Apple Inc. (NASDAQ:AAPL)’s gross margins have been a major concern for investors and analysts alike, but Piper Jaffray analyst Gene Munster says even the worst case scenario isn’t as bad as some seem to believe. In a report issued to investors this week, Munster called concern that Apple’s margins will fall below 30 percent in the next few years “overblown.”

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What Would Apple Inc. (AAPL)’s Worst-Case Scenario Look Like?

In his estimations, the worse-case scenario for Apple Inc. (NASDAQ:AAPL) in terms of gross margins is 32 percent in 2015, although Wall Street is actually predicting 37 percent that that time. According to Munster, “it would require a nuclear meltdown in Apple’s model” in order to hit his worst-case scenario.

Munster says such a meltdown would require 50 percent cannibalization of the regular iPhone from a cheaper model, a 15 percent margin on the low-end iPhone and a 10 percent margin on the iTV. He created a revised model showing two of the three negative possibilities and still came out with a 34 percent estimated gross margin in 2015. He left the iTV out of his model but still believes it will be announced late this year and shipped next year.

Apple Inc. (AAPL)’s iPhone Margins

Munster believes that gross margins on the regular iPhone are stable and will stay around 55 percent. He said the iPad Mini and warranty accruals from China are responsible for most of the negative change in Apple Inc. (NASDAQ:AAPL)’s gross margins. As others have pointed out, when the $414 million in warranty accruals is taken out of the gross margin for Apple’s March quarter, the reported 37.5 percent margin increases to 38.4 percent.

Munster also calculated what Apple Inc. (NASDAQ:AAPL)’s margins would look like if it didn’t sell any iPad Minis in its December or March quarters. His calculations indicate that the company’s overall margin would have risen to 40.2 percent in the March quarter, an increase from 39.7 percent in the December quarter.

He also looked at just how low we can expect Apple Inc. (NASDAQ:AAPL)’s margins to go if it does introduce a less expensive iPhone. He said taking his worst-case scenario of a 50 percent cannibalization rate of the regular iPhone and assuming a 7 percent market share of the low-end phone market, the result is a net 40 basis point reduction to the company’s gross margins next year and a 140 basis point reduction in 2015.

In light of Munster’s new estimations, he maintained his overweight rating on shares of Apple Inc. (NASDAQ:AAPL) but lowered his price target to $655 per share from $688 per share.