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 expanding 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. (continued...)

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