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Analyst: Apple cutting iPhone production

One analyst thinks Apple is reducing iPhone production by up to 40 percent as it works through inventory and prepares for an economic slump.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
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Tom Krazit
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Apple could be cutting iPhone production as demand eases due to the economy. CNET

Fresh off a blowout quarter for the iPhone, Apple may be cutting back on production of the device heading into what could be a slow holiday season.

Craig Berger of FBR Capital Markets said in a research note Monday that his research indicates Apple has cut back on orders for the iPhone 3G by as much as 40 percent during the fourth calendar quarter of the year, compared with Apple's order for the third quarter. Apple sold 6.9 million iPhone 3Gs during the third quarter, but it's not exactly clear how many it ordered, so there are a couple of possibilities raised by this report.

One is that Apple is naturally decreasing production after stocking the channel ahead of the iPhone 3G launch, which saw Apple expanding its distribution into far more countries with far more carrier partners than accompanied the original iPhone launch. If Apple felt initial demand would be hard to forecast, it might have decided to overbuild rather than face extended shortages, and is now paring back production to what it thinks will be normal, ongoing volumes.

Apple COO Tim Cook said on the company's last earnings conference call that as of the end of September, the worldwide iPhone channel contained about 2 million iPhones spread out across the 51 countries selling the iPhone at that time, or less than six weeks worth of inventory.

The other possibility is that iPhone demand is suffering in the face of a worldwide economic slump, or the release of pent-up demand for the iPhone 3G coming off a six-week stockout in June and early July. The recent stock market plunge that shattered many a consumer's confidence didn't take place until the very end of the third calendar quarter, which means the ripple effects could be felt more strongly during the current quarter.

So Apple may be trying to work through some of its existing iPhone inventory, especially as the state of the economy makes everyone running a business nervous heading into the holiday quarter. That's usually the best quarter for consumer electronic sales by far, but this year the boost may not be as large as in past years.