When Apple Inc. (NASDAQ:AAPL) first unveiled the iPhone SE and even in the months leading up to the unveiling when there were rumors about it, it sounded like the company wasn’t expecting much. Wall Street wasn’t expecting much either, but iPhone SE sales have seemingly surprised everyone. This is a doubled-edged sword, however, as sales of the handset boost unit numbers but take a bite out of the company’s margins.

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But it looks like the iPhone SE isn’t the only thing affecting Apple’s margins, however, according to one analyst.

AAPL’s margins at risk

In a report dated July 19, UBS analyst Steven Milunovich said he continues to expect a weak iPhone as Apple Inc. (NASDAQ:AAPL) is in its usual time of seasonal slowness. He’s projecting $41.6 billion in sales, which is a little lower than Wall Street’s estimate of $42.2 billion but within the iPhone maker’s guidance range of $41 billion to $43 billion.

His earnings estimate is in line with consensus at $1.40 per share, while his average selling price for the iPhone is lower than consensus at $637 because of how well the iPhone SE has done. A recent CIRP survey indicated that 16% of the iPhones sold in the U.S. during the June quarter were iPhone SEs. Additionally, the model buyers were replacing was skewed more toward the iPhone 4s compared to previous quarters, which the analyst also attributes to the SE.

However, the iPhone SE isn’t the only ingredient that could cause the iPhone’s average selling price to be weak. Milunovich added that the average storage per phone sold was actually down 10% year over year. Of course models with less storage don’t cost as much as those with more storage.

Milunovich explains that the SE could cause Apple Inc. (NASDAQ:AAPL) to beat in iPhone units. He is at 38 million iPhones for the June quarter, which is lower than consensus. He doesn’t expect many positives when Apple releases its next earnings report on July 26. However, he still thinks the company’s ecosystem is strong and maintains his $115 price target and Buy rating.

Is the iPhone SE cannibalizing the iPhone 6s?

Bernstein analyst Toni Sacconaghi, Jr. said if Apple Inc. (NASDAQ:AAPL) shipped at least 42 million iPhones during the June quarter, it would be “encouraging.” However, he added that any number 39 million or lower would indicate that either the iPhone SE is cannibalizing the iPhone 6 and 6s or that demand elasticity is limited. His average selling price is actually lower than Milunovich’s, at $600.

Sacconaghi has an Outperform rating on Apple Inc. (NASDAQ:AAPL) stock and actually lowered his price target by $10 to $125 per share going into next week’s print.

Apple Inc. (NASDAQ:AAPL) shares closed up 0.04% at $99.87 on Tuesday.