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Despite a very strong quarter for the Apple iPhone, nervousness is mounting around the smartphone's prospects in the current quarter and the start of 2009. This was sparked last week by analyst reports that production could be cut by as much as 40% in calendar Q4, and by deliberately downbeat comments by Apple executives at their results announcement. Now the UK's O2 - exclusive iPhone carrier and, after AT&T, the most important bellwether for the device - is said to be experiencing dwindling demand.

Sources close to O2 - in some cases, insiders who believe the cellco has over-committed to a single product - have been telling various channels that iPhone sales are now around 18,000 to 20,000 per week, well down on the 30,000 average after the 3G launch this fall. This is blamed less on consumer belt tightening, and more on the aggressive marketing of some new devices by rival carriers, which has hit the iPhone as its own novelty starts to wear off. In particular, Vodafone's high profile launch campaign for its exclusive BlackBerry Storm - RIM's first touchscreen, which the carrier helped to design - and T-Mobile's shipment of the Android-based G1, are cited. The success of these top end devices from relatively niche vendors will also worry Nokia, showing the willingness of the cellcos to put their marketing budgets behind products and suppliers that they feel they can control. As Motorola and Sony Ericsson have already acknowledged, a few knock-out models, rather than a huge portfolio range, will be the secret to success in 2009, amid recession and over-competition.

O2, however, denied rumors that it would reinvigorate the iPhone with a price cut of £50, bringing the 3G product to £199. Meanwhile, even as Apple prepares to launch the phone into about 15 new markets, many in emerging economies, reports from FBR Capital Markets suggest the vendor will cut production by up to 40% during the current quarter. While FBR's analyst Craig Berger interpreted this as a sign of global consumer downturn, affecting even top ticket items, others were more bullish (a month earlier, Berger had forecast production cuts of 10%).

Apple itself had sounded a cautious note while announcing its last quarter figures, saying in a statement: "Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter." Apple sold 6.89m iPhones in its fourth fiscal quarter, helping boost its profit by 26% year-on-year.

Philip Elmer-deWitt, an Apple watcher at Fortune, and others, took up the optimistic case, arguing that the cuts could be a sign that Apple had ramped up production dramatically in the middle of the year, to prepare for launches into new markets, but had now filled that supply chain, and now just needs to meet continuing demand. This might be tapering off, but not as sharply as Berger had feared, especially as new markets come into play. With the smartphone's sales still heavily geared to the US, and 2m units in inventory at the end of the last quarter, sales of 8m worldwide in this quarter are not unattainable.

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