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Talk Of iPhone Cutback Sinks Apple Stock

July 31, 2007


CNNMoney.com

Apple shares took a bruising Tuesday on an unconfirmed rumor that the company is cutting production of its ballyhooed iPhone handheld.

The stock fell 6.8% to 131.76 after New York trading firm Miller Tabak & Co. reported that Apple (AAPL) was reducing its production run of iPhones from 9 million to 4.5 million units. The firm also speculated that cuts might be coming to Apple's iPod production as well.

It marked the biggest one-day percentage drop in Apple's stock since April 2005.

Apple spokeswoman Natalie Kerris said the company doesn't comment on "rumors and speculation."

Several analysts who track Apple discounted the report.

"I don't think it's true," said Trip Chowdhry, an analyst with Global Equities Research.

Apple is a lightning rod for rumors because it's so secretive, says Shiv Bakhshi, an IDC analyst. "I don't believe there's any credibility" to the latest rumor, he said.

It is possible, Bakhshi says, that Apple is slowing production of a current model iPod music player that's going to be replaced by a newer model. That information could have been misinterpreted, he says.

Still, the appeal of the iPhone beyond early adopters and tech-savvy consumers is an open question. Apple shares have been roiled by other talk of less-than-stellar demand for the pricey combination smart phone, portable media player and Web browser. The iPhone costs $499 or $599.

Also, the New York State Consumer Protection Board on Monday wrote to Apple to complain about the iPhone's battery policy. It must be replaced by Apple when it no longer holds a charge, at a cost of $79 plus shipping. Users have complained about this online.

Apple shares fell 3% last week after AT&T (SBT) (T), the exclusive carrier of the iPhone in the U.S., said it activated 146,000 iPhones in the first two days of availability. That was well below analyst forecasts.

Shares rebounded a day later when Apple posted greater-than-expected sales and profit for its last quarter and said it sold 270,000 iPhones during its first 30 hours on sale. Apple and AT&T ended their quarters on June 30, and iPhone sales began late June 29.

In statements and comments by Apple executives when it released results, Apple said it expected to sell its one millionth iPhone this quarter. It reiterated its forecast to sell 10 million iPhones in 2008.

Meanwhile, a report from ChangeWave Research slated to be released Wednesday shows Apple having a big impact.

Apple is now the most in-demand cell phone maker among tech-savvy buyers, says the July 18-20 ChangeWave survey.

Of those planning to buy a cell phone in the next six months, 16% said they were likely to buy Apple's iPhone, up from 13% in April.

Motorola (MOT) seems to have taken the biggest hit from the iPhone. It was the No. 2 choice among expected cell phone buyers in July, but its popularity has been falling.

"The iPhone is changing the game in the telecom industry," said Paul Carton, director of research at ChangeWave Research. "No company is bearing the brunt of this more than Motorola. (MEU) (MOT)"

Research In Motion (RIMM) has been largely unaffected by the iPhone. According to the survey, 13% of likely buyers plan to get a RIM BlackBerry in the next six months, up from 10% in April.

ChangeWave polled about 3,000 members of its alliance of tech-savvy consumers.

The iPhone is also boosting AT&T, ChangeWave says. Among those people likely to switch wireless carriers, AT&T was the top new-carrier choice of 30% of respondents.

The research firm later interviewed additional iPhone owners in the group for a customer satisfaction survey. It found that an extraordinary 77% of iPhone users were "very satisfied" with their phone.



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