By Aidan Malley

Published: 08:00 PM EST

Opening its coverage of Apple for the first time, Bernstein Research has warned that the company may have to opt for marketshare instead of profit if it wants the iPhone to gain acceptance beyond a handful of countries.

The wealth management firm warned investors that Apple's current revenue sharing agreements with AT&T, O2, and T-Mobile were likely to provide the iPhone maker with substantial profits, but could hurt the company's long-term success in countries where the exclusive deals were with carriers that only hold a small (albeit significant) portion of the market in their respective countries. Many of these countries have alternate carriers which could technically support the iPhone but have been locked out as a result, said Bernstein senior analyst Toni Sacconaghi, Jr.

"This could... limit the iPhone's addressable market, since each of its carrier partners typically have 25-40% share in their respective markets," he said.

Sacconaghi also cautioned his firms client's by noting that these deals, which bind customers to long-term contracts to collect revenue, would not always be effective in certain countries. In Italy and Russia, cellphone customers typically opt for prepaid phones and so would have to pay the full cost of the phone up front. This would negate much of the profit or else increase the initial cost of the phone to maintain the same profit level.

Future introductions are most likely to address key markets where postpaid (contract) customers dominate, according to the report. Issuing a relatively detailed prediction, Sacconaghi said he expected Apple to release its cellphone in Australia, Spain, and Taiwan within half a year and for Japan and Korea sometime later. Apple would have access to as many as 515 million subscribers in these regions if it supported every carrier but would face a much tougher prospect persuading customers outside of these areas to accept similar agreements and pricing.

"If Apple decides to launch the iPhone in additional markets, it will likely have to settle for much lower revenue sharing, or abandon revenue sharing altogether," the analyst reported.

In turn, these choices could ultimately affect Apple's ability to reach its stated goal of 10 million iPhones sold by the end of 2008, he added. Estimates by Bernstein would have Apple selling just 4-5 million iPhones during the 2008 calendar year within the US, making the Cupertino, Calif.-based firm dependent on foreign sales to reach its target.

Within the safety of its confirmed markets, though, Apple was predicted to reap a significant reward. While the iPhone's recent price drop put it at the same price as a typical BlackBerry smartphone in the US, the revenues Apple would collect from AT&T were estimated at $14 -- roughly double what the BlackBerry's creator, Research in Motion, already received from providers for its own phones and mail services. Apple might collect as much as $360 from each iPhone customer in the US over two years; Britain's O2 would supply even more at $500.

Still, Sacconaghi argued that Apple would need to really move units, not just skim from a small user base, to avoid disappointing shareholders in the future. Bernstein raised its share targets to $175 but would start covering Apple only as an average "Market-perform" company, as any perceived shortcoming in sales could damage the company's stock value.

"We believe an investor buying Apple's stock at its current price must believe that the company can sell 10 [million] iPhones in 2008 without sacrificing the high profitability of the business -- a scenario we view as unlikely," the analyst said.