Apple (AAPL) is sailing into choppy waters that will put an end to the sky-high iPhone margins the company has enjoyed for more than half a decade, according to a recent analysis. Following up his report suggesting Apple is in for a rude awakening as rivals gain ground on its market leading mobile devices, Sector & Sovereign Research analyst Paul Sagawa again suggests Apple is in need of a major shift in strategy as the smartphone market evolves and applies increased pressure on Apple’s iPhone margins.

In a research note published on Sunday, Sagawa offers an unsettling look at Apple’s iPhone business, which is largely responsible for making Apple the most successful consumer electronics company on the planet.

Apple’s record profits have been driven by unprecedented margins on its popular iPhone lineup, but Sagawa believes that as the smartphone market continues to change, so too must Apple’s strategy if it hopes to stave off rivals like Samsung (005930). Even then, Apple’s record growth is seen slowing as the company is forced to price the iPhone more aggressively.

“Seeing smartphone competitors achieving similar market scale to Apple’s flagship iPhone model and platform rivals willing to subsidize device sales to build their installed base for lucrative web applications, leaves me skeptical that the high margin status quo approach can be sustained for more than a few more years, and even then, I see inherent margin pressures that are not reflected in consensus estimates,” Sagawa wrote.

He continued, “The more aggressive strategy seems the better one from a long term perspective, but will entail substantial cultural change, a significant re-investment of capital, and a more certain and certainly more painful hit to profitability.”

Even though Apple’s stock has taken a huge hit over the past few months, Sagawa doesn’t think investors fully appreciate the seriousness of Apple’s current predicament.

“I don’t believe that this Sophie’s choice of a strategic dilemma is well appreciated by investors nor do I expect them to react well to future negative surprises, disappointing guidance, or downward estimate revisions,” the analyst noted. “Apple may not be expensive, but it is hardly cheap with that potential overhang.”