iPhone Production Rumors Swirl

| About: Apple Inc. (AAPL)

Apple’s (NASDAQ:AAPL) iPhone is on sale in 23 countries. In the first 72 hours, more than one million units sold. August 22, around twenty more countries are expected to come online.   
So the question is: how many units does Apple need to manufacture to keep ahead of demand and to satisfy a three to six week channel inventory need?

The initial reports, and early analyst expectations, seemed to set the answer at about 25 million units. A report from tech blog Tech Crunch speculated Monday the number could be much higher.

Citing a person “close to Apple” who has “direct knowledge of the numbers,” Tech Crunch reported that Foxconn, the Taiwanese manufacturer assembling the phones, has ramped up production to 800k units of the 3G phone per week.

Annualized, that level of production would amount to more than 40 million phones… though that presumes the report’s sources are i. accurate and then, that ii. the production rate stays above that level consistently and is not merely a short term production burst.

Odds this Applevine rumor is accurate? Probably 50-50 on this one.

With a wider global roll out of the phone expected this month and throughout the year, the prospect of a production ramp-up is not unrealistic. That’s especially true if the production increase is a short term move aimed at shoring up supply.  Where things get shaky are the precise number and also, ancillary rumors that have popped up around the Tech Crunch report; specifically, speculation the production rate would remain at or above that level. The biggest reason for the uncertainty is production capacity. While confirmed numbers are not available, some sources (including the Tech Crunch report itself) say 800k units a week exceed Foxconn’s peak production capacity. (And that capacity was expanded already. In June of 2007, Foxconn (Han Hai) Chairman Samuel Chin announced plans to spend significantly to double production capacity.)

Speaking of suspect iPhone rumors – another one is floating around that goes well into the improbable zone: The UK’s Daily Mail is reporting Apple is “about to launch” a Nano version of the iPhone and that it could be in shops in time for the holidays.

Anything is possible on the Applevine but the odds of an iPhone Nano seem especially slim. Apple is still rolling out the iPhone 3G and carriers around the world are subsidizing the prices to make the phone affordable. A Nano iPhone would risk undercutting those offerings and create a clear channel conflict. It’s difficult to see carriers, or Apple, rushing to do that anytime soon.

Rumors of a Nano-phone or even a clam shell iPhone have persisted for months and even been fueled by patent filings for two-sided devices. Every few months the rumors seem to reappear. At some point, possibly in 2009, the nano-phone could well become a reality. Now just doesn’t seem like the time.

The big product changes in Apple’s near future are much more likely to be the recently rumored upgrades to the Macbook notebooks.

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