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Wednesday, November 15, 2006, 07:00 am PT (10:00 am ET)

Foxconn to manufacture Apple's iPhone - report

Foxconn Electronics, the registered trade name of Hon Hai Precision Industry Co Ltd, has secured a contract with Apple Computer to manufacturer its first mobile handset that will also dual as a digital music player, according to an overseas report.

The Chinese-language Commercial Times on Wednesday cited Taiwan-based sources within Apple's iPod component supply chain as saying the phone is due to arrive during the first half of next year.

The paper offered no other details of the phone or contract between the two companies, other than to say the initial build order was for some 12 million units.

According to the same report, Foxconn has also assumed the role of Apple's third notebook manufacturer and will soon begin churning out 15-inch MacBook Pros for delivery by January.

Asustek, which manufacturers Apple's 13-inch MacBooks, will not be affected by the Foxconn win, the report states. It's unclear if the deal will place any burden on Quanta Computer, that Taiwan-based firm that up until now has been Apple's sole supply of 15- and 17-inch MacBook Pro systems.

Analysts on target

Apple's order for 12 million handsets falls in line with predictions presented in a September research report released by investment firm PiperJaffray. In the report, analyst Gene Munster said he expected Apple to release an "iPhone" within the next 4 to 6 months that would sell between 8 million and 12 million during the its first year. He later said the Cupertino, Calif.-based company was likely timing the launch of the device with market precision.

Over the last twelve month, several other Wall Street firms have weighed in with expectations that Apple would soon introduce a cell phone capable of also acting as a digital music player.

UBS Investment Research's Ben Reitzes was one of the first to suggest Apple had much to gain from going after the 800+ million unit per-year handset market. Reitzes was later joined by analysts at several other firms, including American Technology Research, Merrill Lynch, Bank of America, Citigroup, and Prudential.

One analyst high in his convictions over an Apple-branded cell phone is American Technology Research analyst Shaw Wu, who in September said the device had progressed to near completion as a production unit.

"The design will be an iPod nano-like candy bar form factor and come in three colors (we are not certain of the exact colors but we suspect black, white and platinum, similar to Apple's current color scheme of iPods and Macs)," he wrote in a note to clients.

Analysts at Prudential have also weighed in with their findings on the iPod cell phone initiative, stating in an October report that Apple would initially produce two models — one being a smart phone, which would include an integrated keyboard, video and music capability, while the other model would be slimmer with only music functionality.

For Apple, the secrets already out

For its part, Apple in recent months has uncharacteristically relented in its strides to keep the cell phone initiative a secret. After chief executive Steve Jobs was overheard blabbing about the project to his chorines, chief financial officer Peter Oppenheimer all but told a teleconference filled with analysts, "hey, we're working on it."

Of course, there's also the company's numerous filings for an "iPhone" trademark.