Apple is already working on follow-up products to its recently released iPhone, including a smaller and cheaper iPhone nano, a leading analyst claimed last night.

JP Morgan analyst Kevin Chang believes Apple will launch the predicated iPhone nano, based on the iPod nano, in the fourth quarter of 2007.

Chang cited sources within Apple's Far East supply chain and a recent application with the US Patent and Trademark office as evidence for his belief. The patent describes a multifunction device with circular touch pad control.

Chang expects the new model to retail at $300 and said that sales of up to 20 million of the new devices could be possible next year, Reuters reports.