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Friday, April 14, 2006, 11:00 am PT (02:00 pm ET)

ML: long-term Mac estimates up, short term down

The recent release of Apple Computer's Boot Camp software sent the company's stock soaring over 15 percent in just four days, exciting investors about the prospect that Apple could snatch considerable marketshare from rival PC makers now that its Intel-based Macs can run Microsoft's operating systems.

Merill Lynch, however, believes that many overreacted to the announcement, which was widely publicized last week.

Research analyst Richard Farmer warned clients on Thursday that consumers who show superficial interest may "bail at the cash register" when it comes time to pay for Apple's hardware, coupled with the $200-300 for a Windows license and the requirement to reboot the machine when switching between platforms.

Still, Farmer said that Apple's Boot Camp should increase sales of Macs in the long term, despite slower-than-expected Mac sales in the March quarter. "That said, we do expect some incremental Mac buyers and are raising our fiscal year 2007 estimate of Mac revenue share of the global PC market by 0.25 percent from 3.45 percent to 3.7 percent," the analyst wrote. However, he cut his Mac unit sales estimates for the past March quarter to 1.1 million (from 1.3 million) due to the slow ramp in MacBook Book Pro production.

Farmer also lowered his estimation for iPod sales from $10.1 million to $8.8 million for the March quarter, and dropped his 2006 iPod estimate from 53 million to 47 million. The analyst noted, however, that iPod gross margins could rise when Apple reports results next week due to falling flash memory costs over the last few months.

The new estimates reflect a nine percent sequential drop in quarterly Mac sales from the strong holiday quarter and modest increase of six percent increase in Mac unit sales year-over-year, Merrill Lynch said. On the other hand, higher priced Mac desktops and laptops have caused the firm to increased its estimates for average Mac selling price to $1,370, up about 11 percent from the year-ago quarter.

In his latest research note, Farmer also said he believes his March quarter revenue estimates of $4.338 billion are now below consensus, but still represent 34 percent year-over-year growth. Meanwhile, the firm's earnings-per-share (EPS) estimates of 45 cents are still a penny above consensus Wall Street estimates.

Merrill Lynch maintains a "neutral" rating on shares of Apple Computer.