Rumors from the Supply Chain suggest that Apple is lowering iPhone 4 production to get ready to switch to new model.
Apple is expected to launch the new iPhone 5 aka iPhone 4S in Q4 of 2011. The announcement is expected to be made in September. A launch of a new iPhone needs months and months of production to have millions of units ready for the launch. According to a new report on Digitimes, Apple is getting ready for the production of the new 2011 iPhone.
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Apple has lowered shipping targets for the iPhone 4 in Q2 from 20 million to about 17.5 million. This does not sound too much though. I would expect a bigger drop to free up capacities to start manufacture the iPhone 4S in volume. Digitimes claims that Apple would begin production of the iPhone 4S in August. This would make the rumored November sales launch of the iPhone 4S more likely.
The most recent iPhone 5 rumors suggest that the new model will be just a performance upgrade and maintain its current design. That is why the 2011 iPhone is referenced right now as iPhone 4S in rumors. Current expectations are A5 CPU, 8MP camera, dual mode communication chip (GSM and CDMA) and maybe a larger edge-to-edge screen.