http://www.cbc.ca/canada/british-columbia/story/2007/07/10/iphone-nano.html?ref=rss

Apple will launch a cheaper iPhone this fall, based on the ultra-thin iPod Nano music player, a JPMorgan analyst said Monday.

Kevin Chang sent a note to clients saying a new iPhone is on the way. The analyst based his prediction on unnamed sources in the supply chain and an Apple patent filing published July 5.

The application to the U.S. Patent Office, cited in Chang's report, was filed for a multifunctional device with the ability to be used as a phone, transfer data, and play audio and video files, all controlled by a circular touch pad, similar to the iPod scroll wheel.

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 current iPhone retails between $499 US and $599 US, 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," Chang told Reuters. He also said the new phone could be fairly limited in its functions.

The analyst predicts shipments of 30 million to 40 million for the new phones in the 2008 fiscal year.

Chang's report is not the first prediction for a second-generation iPhone. In May, Taiwanese media reported a new iPhone was in the works and would use a different design from the current model. 

The European iPhone, set for release later this year, is expected to differ from the American version by running on the faster 3G wireless network.

Also on Monday, investment bank Piper Jaffray predicted that Apple will release a new widescreen iPod similar to the iPhone, but without the data connections.

Apple has declined to comment on both reports.