[absherwin]

The key risk for Apple is what its future earnings will be. Given that its current earnings dwarf anyone else, one must believe they will be able to be maintained which is equivalent to a bet that the iPhone will continue to be sold in high quantities with high margins.

In the last year Apple generated $55B in pre-tax earnings. They had $80B in revenue from the iPhone at a margin of >60% or $48B. They sell the iPhone for an average of $642 while the Nexus 4 retails at $299. If the iPhone dropped to a wholesale price of $399 ($100 pricing advantage), it would reduce pre-tax earnings by $30B (55%). If iPhone sales double that would offset about 60% of that decline.

Another way to ask this question is what total mobile phone profits will be in mature market. If there are 7B phones replaced every 4 years, that implies 1.75B phones sold. Cost will likely fall so revenue could be 437.5B. If Apple can capture 30% of that with margins more similar to the Mac (~30%), this suggests even if Apple continues to make better products and can maintain significant market share, they'll earn 20% less from the iPhone than they do today.

Of course Apple has an extraordinarily successful iPad business but its margins are much lower than the iPhone and as an unsubsidized device will likely face greater pressure.

The questions to ask is evaluating Apple are: When will their earnings peak and by how much do will they fall before they reach an equilibrium. While this may be anathema to some and I admire what Apple has achieved, large economic profits cannot exist in the long run in a competitive market. Why is a longer discussion but I challenge the reader to pose a counterexample.

[snowwrestler]

The Nexus 4 sells so cheaply because Google subsidizes its price heavily. Google is losing money on every single one that is sold, which is why it sells in such low volumes. It is a competitor to the iPhone in concept only.

A better comparison would be a recent 4G smartphone like the Samsung Galaxy Note 2. It lists for $699 and is available with a 2-year contract for $299 from Verizon--$100 more than the iPhone 5. Or the HTC Droid DNA, which lists for $599, available on contract for $199. Like Apple, Samsung and HTC are actual competitors in the market and need to make money on each phone they sell.

The flaw I see in your analysis is that it presupposes that competitors to Apple are going to be able to significantly undercut Apple on price. Apart from subsidized Nexus phones, I don't see much evidence that is true.