Saturday, June 7, 2008

Barrons: 3G iPhone delay

PSST. DID YOU HEAR THE WORST-KEPT SECRET in silicon Valley? Apple Chief Executive Steve Jobs is expected to unveil the next-generation iPhone this week at the company's Worldwide Developer Conference in San Francisco.

The Apple "fanboys" -- enthusiasts who clog the Internet with unbridled praise for everything the company says and does -- have been chattering for months about this day, as if it were the Second Coming. In fact, anticipation of the third-generation, or 3G, iPhone has driven up Apple shares (ticker: AAPL), which have been trading in the high 180s, nearly 60% since February.

Having 3G capability would allow Apple's innovative smartphone to do many of the nifty things it is designed to do because it will take advantage of the upgraded networks of its carriers, such as AT&T (T) in the U.S. Third-generation networks have more bandwidth, and are faster and more robust. I'm sure the phone will be hugely popular, especially as software developers start to roll out enticing applications, such as games and location-driven services.

But what the fanboys won't tell you -- as won't many unabashed boosters in the press -- is that the iPhone's production rollout is behind schedule. That's what a number of tech hedge-fund managers are saying, attributing their information to investigative research outfits that talk with engineers and supply-chain managers at the contract manufacturer and component suppliers in Asia. These sources say that Apple has slashed its internal expectations for iPhone unit sales by up to 16%. They report that Apple had planned to ship 12 million 3G units by the end of the third quarter, but now expects to ship about 10 million to 10.5 million by the fourth quarter, owing to production delays.

IN A RESPONSE TYPICAL AMID SUCH rumors, people have been stating that Apple has shipped hundreds of thousands of 3G iPhones, which are supposedly sitting on warehouse shelves. But hedge-fund sources say that Foxconn International Holdings (2038.Hong Kong), the contract manufacturer that assembles the devices, has shipped only several thousand. The blogosphere and Wall Street have been running with the widely disseminated rumor that production began in May. Apple hasn't publicly commented on this. (It declined to discuss the reports with Barron's.)

Foxconn and component makers won't crank up mass production until the middle of this month, although researchers say that they had been pressured by Apple to start doing so a few weeks ago. The reasons for the delays are unclear, but the most logical presumption is that Apple was too optimistic about how fast supplier Infineon Technologies (IFX) would introduce a new chipset for the phone. Infineon reduced its forecast for shipments this year, and analysts suspect that it's Apple-related.

For the record, Apple has said only that it expects to ship 10 million phone units -- period -- in 2008. It will be interesting to hear how many of the highly coveted 3G phones will be available and how soon. I'm sure Jobs will have an answer for everything. He usually does.

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