Kevin Chang, Taiwan-based analyst for JP Morgan, has issued a report saying that he expects Apple to release a cheaper version of the iPhone in the fourth quarter, a device that a recently unearthed patent application suggests may be based on the iPod nano. Citing the patent application — which describes a multifunctional handheld device, controlled via a Click Wheel — and unnamed supply channel sources, Chang said, “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 also noted that the new phone could have “rather limited functionality.”
Update: JP Morgan has now retracted the statement, saying that a near-term release of an “iPhone nano” would be “unusual and highly risky.”