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iPod Hi-Fi and low-end iPods selling well, says analyst

Apple Computer\'s new iPod Hi-Fi audio system as well as its lower-end iPod digital music players are selling well enough for one analyst to increase his estimates for the company\'s current fiscal quarter, which ends in March.

\"Recently, there has been renewed speculation regarding iPod production and demand,\" Shaw Wu, an analyst for American Technology Research wrote in a research note to clients on Friday. \"We wanted to offer insight from our proprietary checks with industry and channel sources, but also some perspective on high consensus estimates that remain well above Apple\'s guidance.\"

The analyst says demand for iPods is coming in ahead of his firm\'s previous expectations, with iPod shuffles and 1GB nanos generating incremental demand, particularly in non-Apple channels. Additionally, Wu said checks indicate that the new iPod Hi-Fi audio system is seeing strong initial sales and fifth-generation video iPods also continue to sell well above seasonal trends, down only modestly from the December holiday quarter.

\"As a result, we are raising both our March quarter estimates and iPod unit forecast (though we remain below consensus),\" the analyst wrote. He now predicts Apple will generate $4.43 billion in revenue on 43 cents earnings-per-share (EPS) and sell 8.8 million iPods. These figures are up from $4.3 billion, 38 cents and 7.7 million iPods.

Wu notes that his new estimates are well above Apple\'s guidance of $4.3 billion and 38 cents, but below consensus estimates of $4.6 billion, 44 cents and 9.5 million iPods.

\"At this point, our main concern with Apple is note its fundamentals but rather the disconnect between Apple stock ratings and consensus estimates; this has helped create artificially high estimates, leaving little room for upside surprises, if not hope for a downside surprise,\" the analyst wrote. \"Despite all the negative commentary on Apple (literally over the past two and a half years) and Apple\'s attempts to reset expectations, consensus estimates remain well above Apple\'s guidance (which ironically should spur more bullish commentary).\"

Nevertheless, AmTech research sees the risk-reward on Apple shares attractive now trading at 25 times the firm\'s 2007 calendar year EPS of $2.60.

\"We remain firm believers that the move to digital entertainment is a multi-year trend and that Apple is the best-positioned company to capitalize with its unique and defendable iPod + iTunes and Mac franchises,\" the firm said.