An iPhone Nano?

Since Apple scored a success with its stripped-down Nano version of the iPod music player, many have been expecting a similar move with the iPhone.
Apple may meet their expectations with a phone based on the slim iPod Nano itself.

Combing through filings with the U.S. Patent and Trademark Office, JP Morgan analyst Kevin Chen found a new product suspiciously tantamount to an iPhone Nano in a patent that was filed by Apple on Nov. 1, but only published by the patent office July 5.

“Invention pertains to a user interface for controlling an electronic device, particularly a multifunctional electronic device that is capable of operating in multiple modes as for example a phone mode for communications and a media player mode for playing audio files, video files, and the like,” Chen wrote in a report released Monday, quoting from the filing verbatim.

That patent also suggests the use of a scroll wheel, similar to the iPod.

After sounding out suppliers, Chen concluded that Apple is planning an iPhone Nano, a cheaper version of the iPhone with limited functionality, and lacking the iPhone's distinctive capacitive touch screen. The launch date: the fourth quarter of this year, Chen believes.

At the end of the day, Chen believes this strategy is most likely to evolve into a wholesale conversion of the iPod Nano into a cheap iPhone to avoid cannibalizing the two low-priced products and boost sales, likely to the range of around 30 million and 40 million units, assuming no bottleneck supply problem.

That sale volume estimate would be slightly lower than the 50 million units of iPods that Apple sells in a year and the number of the wildly popular Razr phones that Motorola sold in 2006.

Its Taiwanese metal casings supplier for the iPod Nano, Catcher, is positioned to become its major supplier for casings for the iPhone Nano, he said.

It could translate into a revenue stream of between 6 billion New Taiwan dollars ($183 million) and 8 billion New Taiwan dollars ($245 million) for Catcher, up from projected yearly revenue in fiscal 2007 of between 18 billion New Taiwan dollars ($550 million) and 19 billion New Taiwan dollars ($581 million).

Catcher shares soared on the news in morning trading Monday in Taipei, rising 22 New Taiwan dollars (67 cents), or 6.9%, to 339.5 New Taiwan dollars ($10.40). Catcher shares have risen steadily since last August from 275 New Taiwan dollars amid a concerted rally of Taiwanese iPod suppliers.

iPhone's casings are mainly supplied by Foxconn Technology, the Hong Kong-listed unit of Taiwanese electronics conglomerate Hong Hai Precision Industry.

An iPhone Nano most likely would retail for around $300 and could go lower — between $99 and $149 — if cellular service providers were to subsidize it, Chen wrote. Mobile phone services providers often discount phones as a lure to lock subscribers into long-term contracts.

That would create a clear price segmentation with the current iPhone, whose high-storage 8-gigabyte model sells for $599. The 4-gig model goes for $499. (See: “ Will iPhone’s Momentum Last?”)

The high price of the iPhone could prevent it from reaching a mass market, but a cheaper Nano model would help bridge that gap.

Apple refused to accept subsidies on the iPhone from its cellular partner AT&T in order to maintain flexibility in retail pricing and avoid cannibalizing iPod sales. In return, AT&T has been rewarded with an unusually lengthy exclusive contract on the phone of five years.