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In response to lower-than-expected sales of its flagship smartphone product, Apple today has cut back on its iPhone production. The news is being reported by the Nikkei newswire.

The move to scale back iPhone production orders didn’t sit well with Apple investors this morning, as the company’s stock fell below $500 for the first time since February 16, 2012. At the time of this article’s publishing, the stock is sitting at $504.24, which is still a long way from Friday’s close of $520.30 per share.

According to a source at an unnamed vendor, Apple had originally planned to order 65 million displays for the iPhone, but has since cut that order in half due to tempered sales of the device. An analyst interviewed by The Washington Post pinned blame for poor sales on the over-saturated smartphone market, which doesn’t have much room left for growth now that three out of every four phones sold are smartphones. Underdeveloped markets are the areas where such companies need to focus for growth, but Apple’s footprint in those markets is small when compared with other phone manufacturers.

The need to serve developing countries may be the motivation behind a rumor that Apple is working on a low-cost iPhone model. By placing a cheaper iPhone in competition with Android devices, Apple can potentially capture back some of that lost market share and create a new avenue for growth. As a company that is famously obsessed with its margins, however, playing the “low-cost” game could be more trouble than it’s worth. It’s an interesting dilemma: does Apple cede the market in developing countries to dirt-cheap Android phones, or does it put its margins aside and release a cheaper iPhone to compete? It’s something to keep an eye on.

We’ll keep you updated on any new developments with this story.

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