According to Bailey, Apple will release a "smaller" upgrade in the first half of 2008 which would basically be the existing iPhone with upgraded storage. Given the existence of the 16GB iPod Touch, it's not much of a stretch to imagine Apple releasing a 16GB iPhone a couple months after the holiday season closes. By doing such, Apple could potentially squeeze a few more buyers unwilling to wait for the next generation iPhone but yet to be tempted by the 8GB storage limitation.

Then, in the "second half of 2008", Bailey expects we'll see the second generation iPhone hit store shelves. This new version will likely offer 3G capabilities, a prediction which Bailey bases largely on AT&T CEO Randall Stephenson's recent statement that "you'll have [a 3G iPhone] next year".

The arrival of a 3G iPhone at this point seems to be a certainty. Stevenson has spoke about it, so has Jobs, and info from component suppliers has helped confirm the likelihood of a 3G iPhone come 2008. Though we'll see many analyst predictions coming down the pike over the next few months, the main question regarding the next generation iPhone remains when in 2008 we'll see it, rather than if.

[via MacNN]