Analyst: Apple may cut iPhone 3G production by 40 percent

Sumner Lemon
5 November, 2008
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Apple is likely to cut production of its hot-selling iPhone 3G handset by up to 40 percent during the current quarter, an analyst warned this week, saying the expected change signals weaker demand for consumer electronics. But the prediction drew criticism from Apple observers, who said the situation isn’t so grim.

“That the firm’s iPhone production plans are being revised lower suggests that the global macroeconomic weakness is impacting even high-end consumers, those that are more likely to buy Apple’s expensive gadgets, and that no market segment will be spared in this global downturn,” wrote Craig Berger, an analyst at FBR Capital Markets, an investment bank.

The forecast is significantly more pessimistic than Berger’s earlier prediction, announced last month, that Apple will cut its iPhone production by 10 percent.

As a result of the expected production cut, Berger said key component suppliers, including Broadcom, Marvell, and Infineon, among others, will see lower revenue during the period.

Indeed, several hours after Berger’s report was released, Marvell warned the results of its most recent quarter will be lower than previously expected, saying its customers had moved into a defensive posture, drawing down current inventory levels and putting off purchases. Instead of a sequential increase in revenue of 2 percent to 4 percent, the company now expects revenue to decline by 6 percent to 7 percent.

“We saw a decline in business that started in late September and continued to more rapidly erode during the month of October,” said Clyde Hosein, the company’s CFO and interim chief operating officer, during a conference call.

Marvell will report its full quarterly results on Dec. 2

Berger’s pessimistic forecast drew flak from some Apple watchers, including Fortune’s Philip Elmer-DeWitt, who panned the forecast in a blog post titled, “The Apple analyst who couldn’t shoot straight.”

“Sounds pretty scary. But perhaps best taken with a grain of salt, given Berger’s track record with Apple,” he wrote.

Elmer-DeWitt blasted Berger for previous calls on Apple and said he’s not on a list of analysts who dialed in to hear Apple’s latest conference call with financial analysts.

But the list Elmer-DeWitt cited, contained on a transcript of the call prepared by SeekingAlpha, appears to list the financial analysts who asked questions during the call, and does not appear to be an exhaustive list of analysts listening to the call.

Berger and Apple could not immediately reached for comment.

However, Apple sounded a note of caution last month when it released fiscal fourth-quarter results, citing an uncertain economic environment. Apple said it expects revenue of between $US9 and $US10 billion during the current quarter; the company rang up $US9.6 billion in sales in that same quarter a year ago.

“Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter,” the company said in a press release.

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