iPhone Sales Success to Get Smaller With New Version?

July 10, 2007 — -- Could the iPhone already be multiplying?

Rumors that Apple would be introducing a tiny Nano version of its endlessly hyped, blockbuster iPhone began swirling this morning, when JPMorgan analyst Kevin Chang sent out a fairly provocative note.

"Our channel check suggests Apple is coming out with a second phone, a much cheaper one, in 4Q07," wrote Chang, who is based in Taiwan.

Apple declined to comment on the report.

Chang said he has identified a supplier that would provide the Nano phone casings for Apple as early as this year. He said he believes the device would retail for around $300 and that Apple could sell as many as 40 million units in 2008.

"Based on a patent Apple filed with the U.S. Patent and Trademark office, we believe the phone is likely to be controlled by a scroll wheel, similar to those on the iPod, and might have rather limited functionality," wrote Chang. "The patent filing also has many figures that demonstrated how to dial a phone number with a scroll wheel. We believe it's a strong sign that Apple could potentially convert every iPod Nano into a Nano phone."

Chang said this all-or-nothing approach to a mini-iPhone would be necessary, as the imagined device has the potential to completely cannibalize sales of the existing Nano product line.

Analysts at various firms said they believe consumers have snapped up more than 700,000 iPhones, making it one of the most successful product launches in Apple's history. More than 100,000,000 iPods have been sold since the product launched in 2001.

But Chang's prediction of a new mobile from Apple this year is being met with skepticism, even at his own firm.

JPMorgan's New York-based Apple analyst, Bill Swope, issued a note this morning as well.

"A lower-end iPhone is inevitable, in our view, but we believe a near term launch would be unusual and highly risky," wrote Swope. "It took Apple over two years to launch its first low-end iPod."

Swope pointed out that Apple's patent filings -- one of the main sources for Chang's report -- are often completely unrelated to actual product launches. Swope believes Apple's next move is most likely an upgrade of the iPhone line to AT&T's faster 3G data network early next year, not a lower-priced, smaller version of the product.