Apple shares slumped today as Wall Street reacted to a refreshed set of warnings about downside risks to the company’s March quarter – particularly in the area of iPhone units. Analysts have been debating for some time just how many iPhones Apple can sell this year as it’s an “s” cycle year, and it’s starting to look like demand for the iPhone 6s lineup has peaked earlier than demand for the iPhone 6 lineup peaked last year.

Of course many analysts add that this isn’t much of a concern because last year was the first year Apple introduced a phone with a bigger display.

iPhone unit estimates cut

In a report dated Dec. 13, Morgan Stanley analyst Katy Huberty and her team said they trimmed their iPhone unit estimate for fiscal 2016 12%, resulting in a 6% decrease in their earnings per share estimate for the full year. They made the cuts to account for the weak data points from Apple’s supply chain.

Huberty now expects iPhone units to fall 6% year over year in fiscal 2016. The reason she gives for the decline is because of the higher prices outside the U.S., excluding China. Also the smartphone market is becoming more and more penetrated in developed markets, which she said is weighing on both iPhone upgrades and user growth. The Morgan Stanley team now expects Apple to ship 75 million iPhone units during the December quarter, compared to her previous estimate of 79 million. She said her AlphaWise Smartphone Tracker, which takes into account web searches, suggested sell-through of 74 million iPhones during the quarter.

Apple iPhone

She added that her colleagues in Asia estimate iPhone builds of around 75 million units.

For the March quarter, the Morgan Stanley analyst slashed her iPhone unit estimate from 61 million to 52 million, which is higher than the expected build number of about 45 million. She noted that in the past, Apple moved more iPhones than what its supply chain built during the March quarters. Further, she believes the company shipped fewer units than were built thus far in 2015, which is why she thinks Apple can again ship more iPhones than it builds during the March quarter.

Higher average selling price for the iPhone

The Morgan Stanley team is also factoring in a higher average selling price (now $693 for fiscal 2016, up from $655 previously) and margins (up from 39.7% to 40.3%) for the iPhone. They report that the 5.5-inch iPhone models make up approximately 40% of purchase intentions in the U.S. in October, compared to only 23% in December 2014.

Apple iPhone

They also believe consumers are shifting more toward iPhone models with greater amounts of storage as iPhone models with 64 gigabytes of NAND storage made up more than half of purchase intentions in the U.S. in October, compared to the December 2014 level of 18%.

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Also they believe there’s a mix shift among buyers toward older iPhone models, which have a higher average selling price than discounted models did a year ago and also probably a higher gross margin.

Apple doing well in China

One area in which Huberty sees strength for Apple is China, as sales there accelerated even though they decelerated in all other regions. She added that online search trends for the iPhone fell, on average, by the high teens in all of the other countries. The main reason is because Apple faces tough year over year comparisons.

Another problem the company faces is higher iPhone prices in countries that have currencies which are much weaker than the U.S. dollar. Because of this, she upped her average selling price estimate for the iPhone.

iPhone 7 cycle to help Apple return to growth

The analyst doesn’t expect Apple to see its iPhone units start growing again until September of next year because many iPhone 6 owners will upgrade then after waiting two years to do so. She sees the possibility of upside to next year’s estimates, however, if the rumored 4-inch iPhone 6c does materialize. Apple is believed to be working on a refreshed version of its less expensive iPhone, which was dubbed the iPhone 5c and released with the iPhone 5s in 2013.

While Piper Jaffray analyst Gene Munster argued recently that it doesn’t matter if Apple does launch a new 4-inch iPhone, Huberty thinks a new less expensive iPhone will attract smartphone buyers who are more price-conscious, especially those in India and other emerging markets.

Even though Apple isn’t expected to see its iPhone units start growing again until late next year, Huberty and her team believe that the company is still gaining share of the smartphone market. They add that this year is different from the 2012 to 2013 iPhone cycle because now the iPhone has added 2.4 share points, while in 2013, it lost 3.6 share points. According to Huberty, their survey suggests that Apple will rack up record share gains in 2016.

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iPhone 6s production peaks earlier

In another report also dated De. 13, JPMorgan analyst Narci Chang and team report that early November sales estimates suggest that demand for the iPhone 6s lineup has already begun to weaken. Most of Apple’s suppliers reported large month over month declines in November sales, although some competitors did see month over month increases as a result of the iPad Pro going on sale and gains in market share.

The JPMorgan team now estimates that Apple will sell between 75 million and 77 million in the December quarter. They note that while Wall Street in general has cut its estimates, they still see downside risk, particularly to the March quarter. Consensus estimates suggest that Apple will ship between 50 million and 55 million units during the quarter.

The analysts note that TSMC reported that orders were cut by 10% last month, and they believe this is because of Apple and impacts from the end of the first quarter or early in the second quarter. They believe a “more reasonable target” for the quarter is between 45 million and 50 million.

JPMorgan and Morgan Stanley analysts both continue to rate Apple as Overweight, with Morgan Stanley’s price target at $143 per share. Shares of Apple fell by as much as 1.43% to $111.56 per share during regular trading hours today.