A successful price cut has cleared the way for Apple (AAPL) to boost iPhone production, TheStreet.com has learned.

A source familiar with the latest info says Apple is raising its manufacturing target for the quarter ending Dec. 31. The company had planned to make 1.7 million iPhones in the fiscal fourth quarter ending later this month, and to make 1.54 million iPhones in the fiscal first quarter ending Dec. 31.

But now, "That 1.54 million number is going up," says the source.

Apple declined to comment, but the shift comes just weeks after the company stunned Wall Street by hastily unveiling a steep price cut on the heavily promoted iPhone. Apple is expected to announce European telco partners for the iPhone Tuesday. Apple sells the iPhone through AT&T ( T) in the U.S.

(For a video on the subject click here.)

Sales of the iPhone have been strong, but given the red-hot run of Apple's stock, there has been much debate about whether the numbers have been strong enough.

Last week, Apple said it sold its millionth iPhone, hitting the official target earlier than predicted. Still, the milestone came 74 days after the phone's introduction, and sources say the company was prepared to sell a million phones on the iPhone's first weekend back in June.

After an early surge of interest in the phone started to wane and inventory levels began piling up, Apple decided to kill the unpopular 4-gigabyte version of the iPhone and cut the price of the 8-gigabyte phone by 33%.

The $399 price tag seems to have helped revive demand, say observers and analysts.

Of course, the number of phones Apple makes does not determine the number of iPhones sold. But analysts have been adjusting their iPhone sales outlook based on their store checks and consumer surveys.

Last week, UBS analyst Ben Reitzes raised his iPhone sales estimate to about 3 million for the year, up from 2.3 million previously.

"We believe that demand was stimulated almost immediately for the iPhone following the price cut on Sept. 5 and that international partnerships should help sales next year," Reitzes wrote in a research note Friday.

Analysts at market research shop iSuppli are calling for shipments of 4.5 million iPhones this year.

Apple shares, which have doubled over the past year, fell 93 cents in midday trading Monday to $137.88.

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