Apple plans to launch a cheaper version of the iPhone in the fourth quarter that could be based on the ultra-slim iPod Nano music player, according to a JP Morgan report.
Kevin Chang, a JP Morgan analyst based in Taiwan, cited people in the supply channel that he did not name and an application with the U.S Patent and Trademark office for his report dated July 8.
Apple filed a patent application document dated July 5 that refers to a multifunctional handheld device with a circular touch pad control, similar to the Nano's scroll wheel.
Apple did not respond to requests for comment.
Long lines of people turned out on June 29 when U.S. sales began for the iPhone, a mobile phone with a music player and Web browser. Analysts have estimated that sales in the first weekend were as high as 700,000 units.
Chang said a way to follow up the iPhone with a cheaper version would be to convert the Nano into a phone and price it at $300 or lower. The iPhone sells for $500 and $600, depending on storage space.
"We believe that iPod Nano will be converted into a phone because it's probably the only way for Apple to launch a lower end phone without severely cannibalizing iPod Nano," he said, noting that the new phone could have "rather limited functionality."
Because of the anticipated lower price, 2008 sales of 30 million to 40 million units "is achievable," according to Chang.
This would be a much larger volume than is expected of the first iPhone, Apple has targeted sales of 10 million units in 2008, which would give it a 1% share of the global market.
Sales of the iPhone are expected to be limited to a small percentage of the market due to its high price tag, particularly in the United States where 85% of consumers tend to spend $100 or less on cell phones.
But analysts predict that a cheaper phone from Apple, which leads the digital music player market, could pose a much bigger threat to long-established phone makers such as Nokia, Motorola, Samsung Electronics and Sony Ericsson, owned by Sony and Ericsson.