Apple Inc. (NASDAQ:AAPL) appears to be riding high on iPhone 5S sales, but Sanford Bernstein analysts believe the company is about to see the number of new iPhone buyers fall. It’s important to understand exactly what they’re saying. It isn’t that they believe the iPhone will be less popular. It’s that most of Apple’s sales going forward could be to those upgrading to the new model rather than buying an iPhone for the first time.

Apple iPhone 5s

Apple’s net new iPhone customers to shrink

Analyst Toni Saccanoghi believes that Apple Inc. (NASDAQ:AAPL) will see its percentage of net new customers buying the iPhone fall about 13 percent between last year and this year. He believes the number of new iPhone buyers will fall from 62 percent last year to about 54 percent this year.

He thinks it will continue to shrink next year as well, possibly falling to 37 percent then and then 28 percent in 2015. By 2015, he predicts that upgrades or replacement iPhone purchases will climbe to almost 75 percent of all of Apple’s sales.

Apple needs a deal with China Mobile or a truly low-cost phone

The analyst echoes the thoughts of many others, saying that the company either needs a contract with China Mobile Ltd. (NYSE:CHL) (HKG:941) or else a phone it can actually sell to customers in developing markets. He says it is “imperative” that Apple Inc. (NASDAQ:AAPL) address the low-end of the smartphone market. The iPhone 5C just isn’t priced low enough for customers in developing countries like India to be able to afford it.

According to Saccanoghi, there will be five times as many first-time smartphone buyers in the low-end of the smartphone market than there will be at the high end over the next two years. He said even though annually we will see 100 million to 150 million new high-end smartphone buyers in the next two years, the low end of the market will see approximately 500 million new users. He estimates that this is about four times “the new user total addressable market.”