By Kasper Jade

Published: 12:00 PM EST (09:00 AM PST)

A second-generation iPod shuffle digital music player from Apple Computer will be noticeably smaller than the existing model and could see an introduction as early as January, says one Wall Street analyst.

"We are hearing of an even smaller form factor (smaller than a pack of gum) and the potential for the re-introduction of multiple colors," said American Technology Research analyst Shaw Wu in a research note obtained by AppleInsider.

Wu believes the new shuffle could come as early as January and said Apple's preparation for the product refresh was likely behind its recent move to add Hynix as a third supplier of NAND flash memory chips.

In order to minimize overlap with the iPod nano, the analyst believes storage capacities and price points will remain similar to Apple's current iPod shuffle offerings at $99 for the 512MB model and $129 for the 1GB.

"We believe [a January introduction] could help offset seasonal weakness in the March quarter similar to last year when the iPod shuffle was introduced," Wu added.

Meanwhile, the analyst acknowledged there may be a minor radio frequency interference problem with Apple's latest iPods where the players will go "crazy" when placed very close to a ringing GSM cell phone.

However, Wu believes concerns over the issue may be overblown:

"From our checks, it appears to impact GSM and not CDMA phones and only on nanos and video Pods," Wu said. "When a ringing GSM phone is directly in front of the clickwheel, the iPod could go 'crazy' and its volume could fluctuate uncontrollably (reminds us of R2D2 when shot by a laser gun)."

The analyst said the issue is likely to be rectified by Apple easily applying better or more foil tape inside the iPod, similar to what is done with cell phones and other devices in shielding interference.

"We do not believe this is a big deal and believe the worst case is Apple takes a minor write-down like it did with its iPod battery issue," Wu added.

American Technology Research continues to rate Apple a 'Buy' with a price target of $66.