Barclay analyst Ben Reitzes has lowered estimates for iPhone shipments by Apple Inc. during the December quarter to five million units, down from his previous estimate of six million units. Mr. Reitzes cited the number of iPhones already in inventory at the end of the September quarter coupled with the current economic climate as the reasons for his change.

Apple had some two million iPhone already in inventory at the end of its fiscal 4th quarter, and Mr. Reitzes suggests that Apple will be busily moving some of that existing inventory in a market that many expect to be slow this holiday season.

Mr. Reitzes does leave some room for an upside surprise if Apple is able to enter the Chinese market in the last 6 weeks of the year, or if the company inexplicably starts selling iPhones at Wal-mart stores [Editor’s Note: We ask our readers to envision the nightmare of going through the phone activation at a Wal-mart.]

Other prediction included in the research note to clients obtained by iPodObserver.com include a possible entry level (i.e. cheap) iPhone in Q3 of 2009 and possible price cuts of the current iPhone models to stimulate sales in the first quarter of 2009.

Mr. Reitzes met with Apple execs, and reported that they were, "optimistic regarding Apple’s position, but realistic that we are faced with a very challenging environment."

Mr. Reitzes maintained his price estimates of $121 per share since we last covered one of his research notes.

In contrast, Piper Jaffray analyst Gene Munster maintained his estimates for 6.4 million iPhones for the December quarter. According to Mr. Jaffray, Apple is seeing lower unit sales in Apple Stores currently, but will benefit from having entered more international markets in recent months.

Shares in Apple closed at $88.14, down $2.10 (-2.33%) in moderate volume.

*In the interest of full disclosure, the author holds a small share in AAPL stock that was not an influence in the creation of this article.  

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