By Aidan Malley

Published: 06:40 PM EST

Apple's very strong real-world revenues and its high iPhone gross margins are now thought to give the company substantial headroom for a price cut that could lead to huge strides forward in market share.

In a Monday investment note from Needham Research, analyst Charlie Wolf reiterates the belief that Apple's doubled revenue in the past year has been 'hidden' by accounting rules but adds that this leaves the company "considerable flexibility" to institute price cuts on iPhones if economic concerns or a simple desire to expand its sales necessitated a drop below today's $199 entry price.

While about two million of Apple's nearly 6.9 million iPhones are counted as worldwide inventory and so hint at a possible decline in iPhone sales in the fall, Wolf explains that iPhone sales are likely to keep increasing and so make a price slash that much more feasible.

More important is Apple's own built-in breathing space for a cut, he says. If Apple TV sales aren't directly included in the equation, Needham estimates an average selling price of about $666 for each iPhone -- an approximately 50 percent gross margin over the actual cost of producing and selling the device. That would leave Apple significant room to cut prices by itself without impacting AT&T's subsidies and could result in a $99 iPhone 3G while still carrying a well-padded 42.3 percent margin.

To the analyst, this could potentially lead to "double or triple" his institution's projected sales for iPhones, which at last check anticipated 15.7 million units in 2009; as a result, it would significantly skew worldwide market share in Apple's favor.

"In short, the iPhone... could figuratively take over the smartphone market leaving only niche players like BlackBerry," Wolf argues.

While it remains to be seen whether Apple aggressively trims prices instead of adding features, the iPhone maker is already known to be outshadowing competitors in some areas: its second-generation touchscreen phone has already outsold the BlackBerry line during the summer quarter and was one of the US' top handsets of any type in the same period.

Wolf is keen to note that Apple is unlikely to stop deferring its revenue per iPhone in the near future and thus won't automatically give a better sense of its potential to lower iPhone prices, even if the company will now make it a habit to report its true revenues with each quarter. However, it's this deferred approach that the researcher believes is key to Apple offering free major updates for each iPhone and thus to guarantee an even greater source of revenue as every iPhone owner gains the option of browsing the App Store and in turn spurs more hardware sales.

"With over 5,000 applications and growing, the App Store has the potential to generate a material revenue stream for Apple," he says. "More importantly, the App Store represents a significant and durable competitive advantage over competing smartphones... In the App Store, Apple has reinvented the PC maxim that software drives hardware, in this case iPhone sales."