Apple is scheduled to release its next earnings report in the second half of January, and of course holiday sales are going to be the big story in that report. The quarter will be the first full quarter of sales for the iPhone 6 and iPhone 6 Plus, so investors and analysts will be looking closely at the number of iPhone units Apple reports.

Smartphone growth slows

In a report dated Dec. 30, 2014, BGC analyst Colin Gillis advises investors to look behind the December quarter earnings results coming next month. For example, he notes that smartphone growth is slowing down dramatically, with the smartphone market turning into the phone market.

He notes that in 2012, smartphone unit growth was higher than 40%, and then it peaked at 52% in the second quarter of last year. The growth has decelerated, however, falling to around 25% year over year. In the U.S., smartphone penetration was 68.8% as of the end of the first quarter of this year. Gillis expects smartphone growth to come down to the broader mobile phone marker growth rate, which he estimates to be at around 5% to 10%.

Apple Inc. AAPL

A warning about iPhone dependence

As smartphone growth decelerates, the BGC analyst also points out that Apple is very dependent on the iPhone, as he estimates that more than 65% of Apple’s December revenue is from iPhone sales. Additionally, he notes that almost other handset maker has struggled because of problem adapting to the changing tastes of consumers and also the highly competitive landscape.

Being overly dependent on the iPhone could pose a big problem for Apple going forward.\

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Estimates for Apple’s next earnings report

Gillis also provided his estimates for Apple’s December quarter. He believes Apple will have sold 65.8 million iPhones at an average selling price of $675 during the quarter. That represents a growth rate of 28.9% year over year and 67.4% quarter over quarter.

The analyst estimates 21.2 million iPad units at an average selling price of $450 and 3.7 million iPod units at an average selling price of $160. For Mac computers, he estimates 5.1 million units at an average selling price of $1,300.

He believes Apple’s gross margin will come in at 38.6%. Gills expects management to guide for first fiscal quarter revenue of between $63.5 million and $66.5 million, gross margin of between 37.5% and 38.5% and a tax rate of 26.5%.

Where will Apple shares go in 2015?

Gillis points out that Apple shares have performed very well this year, marking up a total return of more than 44%, counting the reinvestment of dividends. In addition, Apple stock has been trading in line with the SPX index since the company’s last earnings report in October. Since that earnings report, shares have returned 14% compared to the index’s 15.6%.

The analyst also notes that Apple’s market capitalization is around $663 billion, which is the biggest market cap on any U.S.-listed exchange. It’s also 1.7 times more valuable than the second place company. He thinks there’s “ample room” for a pullback in Apple shares because the company’s business model lacks recurring revenue.

Gillis suggests the pullback could come after the January earnings report, noting that investors expected record results last year in January. Apple did indeed deliver record results, but shares fell 8%. Two years ago, Apple also posted record results, but shares fell by more than 12%.

Beyond December: the Apple Watch and Apple Pay

The Apple Watch is expected to be launched in the first calendar quarter of next year, but analysts are working unit estimates into their fiscal 2015 projections. Gillis expects 30 million watches to be sold in the first four quarters the smartwatch is available. That compares to the 19.4 million iPads and 11.6 million iPhones that sold in the first four quarters they were available. He this it will be difficult for the Apple Watch to bring upside to his estimates because the prices are unsubsidized.

For Apple Pay, he notes that there have been reports suggesting Apple is seeing 15 cents of revenue for each $100 in transactions. If the service makes up 10% of his fiscal 2015 revenue estimate, he estimates the amount of total transactions would have to be about $14.2 trillion. However, he doesn’t think Apple Pay will be a “material revenue stream on its own anytime soon.”

The analyst continues to rate Apple at Hold with a $103 per share price target.