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Thursday, April 20, 2006, 06:50 am PT (09:50 am ET)

Apple Mac sales could surge post transition, Needham says

Apple Computer effectively dodged the Intel transition bullet in its second fiscal quarter of this year and its progress in the personal computer market could lead to a sharp rise in Mac sales once the transition has completed, analyst for Needham & Co said this week.

Still, the company faces at least two more quarters where demand could be time shifted to subsequent quarters, analyst Charles Wolf told his clients. "However, once the transition is complete by the first quarter of fiscal 2007, we believe Mac shipments have the potential to surge on the strength of the Mac’s newfound ability to run Windows applications along side Mac applications," he wrote in a research note released Thursday.

"Our initial survey of college students indicated a material percentage of Windows users would purchase a Mac if it could run Windows applications natively," he said. "However, the higher education market is one of the Mac’s strongholds."

As a result, the analyst believes the switch rate among the entire population of Windows users in the home and education markets could be lower. Wolf said, "We are preparing a second survey that targets this audience. What’s noteworthy, however, is that the switch rate could be far lower among this group and still generate significant market share gains for Apple."

Echoing the sentiments of the Mac web, the analyst said he expect Apple to introduce a new iBook (MacBook) with an Intel processor in time for the K-12 school-buying season, which begins in June. "Without the new model, the season could be quite short," he wrote. "Peter Oppenheimer, Apple’s CFO, effectively signaled the introduction of this model on the company’s conference call in his gross margin guidance."

Oppenheimer modeled down gross margin about 1.5 percent from March, largely attributing the change to the beginning of the K-12 buying season — also the first full quarter where its lower iPod selling prices on the shuffle and 1GB nano will be in full effect.

In his note to clients, Wolf also said that the MacBook Pro and forthcoming PowerMac "could experience postponements" that extend into 2007 due to a lack of Intel-native software such as Adobe Photoshop and the entire Creative Suite. "Apple’s professional audiences, which are heavy users of these products, are likely to postpone their upgrades until they arrive," he wrote.

Nevertheless, Needham & Co. is very optimistic about Apple's future and raised its fiscal 2006 earnings per share estimate from $2.04 to $2.05 and its 2007 estimate from $2.49 to $2.58.

The firm maintains a Hold rating on Apple shares without a set price target.