American Technology Research analyst Shaw Wu on Tuesday issued a report in which he said that not only does he believe that Apple is working on a music-playing cell phone, but it "will be a major player and competitor set to disrupt yet another industry." As a result, he bumped his revenue and EPS estimates for FY07 to US$22.2 billion and $2.60, respectively, and set a new target price of $91. His previous target price was $75.

Mr. Wu wrote: "The cell space is a tricky and competitive business, but an enormous opportunity for AAPL. We believe there will be plenty of skeptics again, but AAPL should not be discounted due to its strong brand name, loyal customer base, and obsession with quality. We have learned that the kinks have been worked out of the new phone and that it is set for production."

He added: "While we do not yet know the exact timing or igo-to-marketi strategy, we are confident that AAPL will time its launch opportunistically, and that the cell phones will be positioned to gain significant traction. We believe this new market could easily represent an incremental $2 billion annual revenue run-rate opportunity."

While the analyst previously expected Apple was planning a mid-2007 roll-out for the fabled "iPhone," with a 2008 or even 2009 release also likely, he now believes that the company has accelerated its efforts. "The technical hurdles are significant and competing with global powerhouses like Nokia, Motorola, Samsung, LG, and Sony-Ericsson is no simple task," he wrote. "However, we now have high conviction that calendar 2007 is very likely (potentially as early as 1H). With a history of revolutionizing the PC industry, the music industry, and the movie industry, we encourage investors to get aggressive in purchasing shares of AAPL prior to the potential revolution of the handset industry."

Mr. Wu didnit cite his sources, but he said that he believes the device is now close to going into production after a development cycle that exceeded 12 months. "We believe that Steve Jobs is finally satisfied with the end product AAPL engineers have produced in terms of quality and the right blend of cell phone and portable media player," he said.

The deviceis design "will be an iPod nano-like candy bar form factor and come in three colors (we are not certain of the exact colors but we suspect black, white, and platinum, similar to AAPLis current color scheme on iPods and Macs)," the analyst write. He also expects a "stealth launch," in which Apple announces the cell phone very close to its ship date, or possibly even files for FCC approval under an OEM manufacturer, "similar to Microsoft Zune," which went into FCC approval as a Toshiba device.

He added: "We believe the go-to-market strategy is likely the gating factor in AAPL shipping its cell phone imminently. It could participate the traditional way by partnering with carriers like Cingular, Sprint-Nextel, T-Mobile, and Verizon or it could also go with an MVNO (mobile virtual network operator) model where it would have tighter control over the user experience."

He thinks the new device could easily bring in $2 billion in annual revenue, "assuming around 10 million units at a $200 ASP (similar to its current iPod), but not including potential services and accessories revenue." However, his revenue and EPS increases for FY07 were modest: a $200 million revenue bump and another $0.15 in EPS. He was conservative in his estimates because he sees it as "an incremental new opportunity" that will ramp up as Apple uses its retail store chain to lure in cell phone customers.

At 1:44 PM EST on Tuesday, Appleis stock was selling for $70.31, up 2.82% for the day amid a broader Nasdaq rally.

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