All eyes will be on Apple's iPhone when the company reports first-quarter earnings. iPhone 6s pictured. Image Source: Flickr user Kārlis Dambrāns

Apple (NASDAQ:AAPL) is set to announce first-quarter results on Jan. 26. Analysts are focused on the company's iPhone sales, which have become so essential to its success that Apple went so far recently to amend its risk disclosures:

[T]he Company generates a majority of its net sales from a single product and a decline in demand for that product could significantly impact quarterly net sales.

Unfortunately, Wall Street analysts and others fear that time may have arrived.

Morgan Stanley analyst Katy Huberty believes the company shipped 6% fewer iPhone units in fiscal year 2016 than the year before. Chip-fabricator Taiwan Semiconductor Manufacturing announced that its first quarter revenue will fall 11% compared to the year-ago period due to slowing demand for high-end smartphones. And even USB is jumping on the bandwagon despite its usual optimism toward iPhone sales. While it expects Apple to set records in its latest quarter, based on data from Consumer Intelligence Research Partners, USB's report shows that there's reason for concern.

Units versus revenue
Apple sold 75 million units in the final three months of last year, says UBS analyst Steven Milunovich. This is a slight increase over the 74.5 million units sold in the same quarter of 2014. This is a much smaller increase than Apple is accustomed to. The prior year's figure, for example, represented a year-on-year increase of 46%.

UBS nevertheless expects Apple's revenue to fall by 3% on a year-over-year basis. What gives? Milunovich believes that only 67% of iPhone sales last quarter consisted of the newest and most expensive iPhone 6s and iPhone 6s Plus models. That figure was 75% in the same quarter in 2014, pushing the average-selling price up to $687.

As a result of an older-gen product mix, presumably because fewer consumers were enamored with Apple's new 3D Touch feature, Milunovich estimates the average selling price of iPhone units to have decreased by 3.7% to $662. Using Milunovich's estimates, and simple multiplication, it projects Apple to report $49.7 billion in iPhone revenue versus the $51.2 billion the company reported in the year-ago quarter.

Simply put, UBS believes the decrease in the average sales price will more than offset the small increase in units sold.

While better than other analysts, UBS's estimates are nevertheless bearish for Apple. With shares now trading at a P/E ratio nearly half the greater S&P 500, as a result of negative sentiment, investors should be handsomely rewarded if the company is able to prove naysayers wrong.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.