Apple to Offer 3G iPhone From This Year

Reports that Apple is cutting production orders on current iPhone models support rumors that a 3G version of the cutting-edge device is in the works for midyear, analysts say.

Last week, Craig Berger of FBR Research reported to clients that Apple has been accelerating production cuts for the iPhone and iPod Touch. "For both iPods and iPhones, we believe Apple was previously targeting a roughly 50 percent quarter-over-quarter decline for first-quarter units, whereas we now think the firm is targeting a 60 percent quarter-over-quarter unit decline for first-quarter units," Berger said.

In a research note Monday, analyst Richard Gardner of Citigroup cited the falling production numbers as an indicator that Apple is gearing up for a new model, The Washington Post reported. In Europe, iPhone sales have been underwhelming. "We believe that lack of 3G has been a significant headwind for iPhone in Europe, where 3G is already pervasive," Gardner said.

Not If, But When

Apple told Citigroup analysts that it plans to enter Asia and more European countries by the end of the year. Apple and AT&T, the exclusive U.S. carrier, have separately indicated that a 3G iPhone will be released this year.

"You'll have it next year," AT&T CEO Randall Stephenson told an audience in November when asked about a 3G iPhone. That comment suggested AT&T would be building out a 3G network this year, and the company recently made good on that promise, announcing plans to roll out 3G in 350 U.S. markets, including all of the largest 100 cities.

Tim Bajarin, principal analyst with Creative Strategies, said that while 3G is definitely in Apple's future, "the timing of this is still in question." Whenever it happens, the development will "help Apple get even more attention for the iPhone in the U.S. and abroad in markets where it is legal."

Apple has yet to officially roll out the iPhone in Asia, where "3G networks are the norm," Bajarin said. If a 3G iPhone is close to completion, Asian consumers might see carriers offer the new version this year. Such a move would "help them sell a lot of these phones through telecom partnerships in key Asian markets," Bajarin said.

The lack of a 3G iPhone hasn't stopped Asians -- and people in about 100 countries where the iPhone isn't officially sold -- from snapping up Apple's trendy phone. A Business Week investigation reported this week that between 800,000 and 1 million iPhones are illegally unlocked for use with carriers other than Apple's official partners.

Thriving Gray Market

The Business Week article described a worldwide pattern of visitors to the U.S. buying as many iPhones as they can -- the limit is five from Apple and three from AT&T. Research from Gene Munster, an Apple analyst with Piper Jaffray, described busloads of Asian tourists descending on Apple Stores, with each person buying the maximum.

It's not just individuals buying up phones and unlocking them, though. Gray-market entrepreneurs are developing a entire economy around buying iPhones, unlocking them and reselling them.

Business Week reported that workers in Chinese factories may be providing iPhones to resellers. One distributor said its supplier recently gave him an internal Apple document -- likely stolen -- showing the schematics and repair instructions for the original iPhone, pure gold for the iPhone-unlocking businessman.

With all the hunger for iPhones around the world, carriers not blessed by Apple are not exactly trying to stop customers with unlocked phones from using them on their networks, according to one aftermarket reseller. Nathan Walberg, who sells an altered SIM card for the iPhone for $44, says he gets calls not only from customers around the world but also from carriers.

"I don't know if [these carriers] can legally encourage unlocking, but they're not going to discourage it," Walberg told Business Week. "This market will go on forever, because I don't think there's a way for Apple to stop us."