TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Apple’s December quarter results weren’t bad; revenue grew by 18 percent, but net income was flat, due to a 30 percent rise in cost of sales. They didn’t blow the doors off like in past years, but it wasn’t a bad quarter by any stretch of the imagination. It’s easy to explain their increased cost of sales because they turned over a very large amount of their product lineup, resulting in higher costs—just as Apple’s executives did.

What’s concerning, though, is their guidance for next quarter. Apple said revenue should fall between $41-43 billion for the March quarter; year-over-year, that would only be 4.6-9.7 percent growth. Compared to Apple’s past five years, that’s positively anemic.

But should that be a surprise? With such explosive growth since 2007, and already dominating the markets they’re in, it’s difficult to continue it:

A big part of Apple’s challenge is that it is now so large that it seems unrealistic, mathematically, for the company to continue finding new pots of gold big enough to maintain its growth. In a recent research report, A. M. Sacconaghi, an analyst at Bernstein Research, calculated that were Apple to grow for the next five years at the same rate as the last five years, its revenue would be $1.2 trillion, or about the size of Australia’s gross domestic product.

Apple could enter TV and content more forcefully, and China is an incredible opportunity—but even then, it wouldn’t sustain the blistering growth rate they’ve been on indefinitely. I think we need to abandon the idea that Apple can (or should) sustain such high rates of growth in the future. Lower rates of growth should not be the concern—what should be is if Apple’s iPhone business begins to decline.1

The iPhone is a huge, huge business. In the December quarter (first quarter of fiscal-year 2013), the iPhone generated $30.6 billion of revenue for Apple. $30.6 billion—more than 56 percent of Apple’s total revenue. Apple’s incredible success is on the back of the iPhone, full-stop. They can generate so much revenue because not only are they selling a ton of them, but they have an incredibly large margin on them. That’s why Apple’s share of the mobile phone industry’s profit is so high.

That’s good, but it’s also very dangerous. If the mobile phone market begins to decline, or worse, Apple’s ability to create fantastic products and sell people on them declines, Apple’s revenues will deflate like a popped balloon. As the iPhone goes, Apple goes, too.

So that’s what people should be focused on. There’s no reason to be worried right now; Apple’s products are quite good and they continue to do well. But Apple should do what it can to diversify its revenue stream away from the iPhone. Reducing the iPhone’s proportional contribution to revenue (and net income) will decrease risk for the company. As of now, most of Apple’s eggs are in that basket.

That means that continuing to create new brilliant products, and brutally cannibalize their own existing products, is the most integral part of Apple’s future. The typical response to the situation Apple finds itself in would be to milk as much money out of the iPhone cash-cow as possible and to sustain the business as long as possible, but that is exactly the wrong path for Apple to take. Going forward, Apple has to build such great new versions of the iPhone, or new devices that obviate its need for existing, that people have little choice but to purchase them. That’s the only way they’ll be able to stay out in front of the industry and to avoid the risk associated with one product accounting for more than half of revenue.

In other words, Apple has to continue being Apple—a company that’s all too willing to kill its own best-selling products, and is laser-focused on meeting people’s desires and needs. Apple made it look easy over the last decade, but it’s an incredibly hard thing to sustain.

1. This, of course, is problematic for Apple’s stock; tepid business growth means little stock growth, so its value should decline. That’s terrible for Apple’s investors and it’s not good for Apple’s employees or for its ability to hire new talent and retain existing talent at the company. It also would put more pressure on management, which could lead to rash decisions that harm the company. Steve Jobs may have been able to largely ignore unhappiness among investors and/or the board, but that is an exception. Tim Cook may not be able to do the same. [↩]