By Prince McLean

Published: 01:45 PM EST

In a roller-coaster of a research report issued Tuesday, analysts for CIBC World Markets said they are picking up a significant decline in demand for Apple Inc.'s iPhone this month, but added that a second-generation of the handset could arrive much sooner than expected.

"Based on our store checks, we believe that demand for the iPhone has seen a significant decline in the past 10 days," analyst Ittai Kidron told clients. "We have noticed decent inventories at stores, and thin demand at best. In fact, most Apple store visitors were not looking at the device and only a very small subset bought it."

Kidron's comments, combined with disappointing first weekend iPhone activation numbers, were credited Tuesday with sending shares of Apple on an early morning skid.

Given the weakness in demand, the analyst said he wouldn't be surprised to see AT&T and Apple step up their marketing efforts around iPhone in the near future. He added that "checks suggest Apple is actually looking to introduce a 3G version of the iPhone for the U.S. market in November, ahead of the holiday season and earlier than currently expected."

Kidron cited a recent in-house survey of iPhone buyers that suggested the key shortcoming of the current iPhone model is its poor data connectivity through AT&T's yesteryear EDGE network. "This isn't a surprise," he explained, "and Apple's CEO Steve Jobs admitted the iPhone's cellular connectivity can use an improvement. We now believe the 'improvement' could come soon."

Offering one last data point to his clients, the CIBC analyst said while many in the industry had expected iPhone to hit BlackBerry maker RIM in the ribs, the emergence of the Apple handset appears to be having the opposite effect.

"Based on our checks, it seems that the iPhone has significantly increased awareness for email devices," he wrote. "A positive mainly for RIM -- the brand of choice for email devices."

CIBC World Markets, which does not hold a rating on Apple shares, notes in a disclaimer that it "does and seeks to do business with companies covered in its research reports."

As a result, the firm says, investors should be aware that CIBC may have a conflict of interest that could affect the objectivity of its reports.