Apple has scaled down its plans for iPhone production, according to Wall Street analysts. The news led to a sharp sell-off in the company’s shares overnight on mounting concerns that the device will fail to live up to the hype surrounding it.

Shares in the group fell nearly 7 per cent on the Nasdaq market in after hours trade, but made up that ground in early deals today to stand about 3 per cent up at the London close.

The stock had gained nearly 60 per cent since Apple unveiled the iPhone in early January.

David C Bailey, the Goldman Sachs analyst, said in a note: “Our supply chain checks suggest that Apple has pulled down its build plan for iPhone.”

Last week, Apple admitted that the iPhone had fallen well short of initial sales forecasts, although the company made amends by reporting a 73 per cent jump in third-quarter profits.

Apple said that it had sold just 270,000 iPhones and product accessories, such as headphones and carrying cases, in its first two days on sale, which were the last two days of its third quarter.

The initial iPhone sales were well below the 500,000 to 700,000 range that some analysts had forecast, while Apple’s decision to lump the device's sales in with its accessories appeared to be an attempt to mask an even bigger shortfall in demand.

However, Goldman Sachs added today that it believes Apple could still beat the bank's estimate for sales of 2.8 million iPhones in 2007.

“[What is] important to bear in mind is that what is going on with the supply chain now follows a well-established pattern for Apple that we have seen play out several times already with iPod, in each instance not a good indicator of actual demand,” Mr Bailey added.

Apple confirmed last week that it expects to sell more than 700,000 iPhones in its current quarter and ten million next year.

Citi analyst Richard Gardner said the stock’s dip presented an opportunity to buy and upgraded shares to “buy” from “hold”.

The company needs to clear inventory ahead of new product launches, he argued, which are likely in the next two months.

Separately, the publisher of the music of Eminem filed a federal lawsuit against Apple in the US for selling downloads of the rapper's tracks without permission.

Apple has an agreement with Universal Music Group, the record company that owns the recordings, but doesn’t deal directly with publishers, who own the rights to scores and lyrics.

In the suit filed in the US District Court in Detroit, Eminem’s music publisher, Eight Mile Style, and copyright manager, Martin Affiliated, seek more than $75,000 (£37,000) for copyright infringement, unfair competition and a violation of the Michigan consumer protection act.

The suit also asks for damages of up to $150,000 per infringement – or each time a song is downloaded.

Eight Mile Style also sued Apple in 2004 for copyright infringement. That lawsuit alleged that Apple used Eminem’s Lose Yourself in commercial TV ads for its iTunes music store. The case was settled out of court.

Last week, Apple reported net income of $818 million for the third quarter as strong computer sales pushed group revenues up by 24 per cent to $5.14 billion.

Times Recommends

• US stocks fall below 9,000 mark
• House price fall smallest in seven months
• Wary investors opt to keep cash in safes