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BofA upgrades Apple to Buy on notebook outlook

Bank of America Securities on Monday upgraded shares of Apple Computer to "Buy" from "Hold" to reflect higher sales expectations for the company's Intel notebook lines over the next several fiscal quarters.

"Based on our channel checks, we are increasing our estimates for Apple based on increased expectations for [Mac], and in particular MacBook sales," analyst Keith Bachman told clients in a research note.

For the six-month period ending December, Bachman now sees Apple selling approximately 300,000 more MacBook units than he had previously forecast. Similarly, he increased his fiscal year 2007 notebook estimates by 270,000 units.

Bachman said Apple's MacBooks are now priced in the "sweet spot" of the personal computer market, which he believes will help drive the company's notebook sales at a rate greater than the overall market.

"We note that we are projecting that Apple will grow [Mac shipments] by 16 percent in fiscal 2007 compared to industry growth rates of between 9 - 10 percent," the analyst told clients. "Hence, we are forecasting Apple to grow at 2x the market, led by notebook sales of 25 - 30 percent, compared to our market growth forecast of approximately 20 percent."

By contrast, Bachman expects Apple's desktop sales to remain relatively flat compared to industry growth forecasts of about 2- 3 percent. "Our contention is that the notebook trend and price points will be the key driver of new customers to the brand," he said.

While the analyst emphasized that increased notebook sales are expected to be the primary driver behind his revised estimates, he also made slight modifications to his iPod estimates. For fiscal 2007, he increased iPod shipment estimates by 4 percent to reflect 21 percent yearly growth. "This is consistent with our MP3 market forecast of 20 percent," he said.

For the six-month period ending December 2006, Bachman is forecasting combined sales of 24 million iPods. However, he said there could be potential upside to those estimates of 15 percent.

"We see the same product introduction schedule as we have mentioned previously - a new Nano late in the Sept quarter and modestly upgraded Video in [the December quarter], in time for a holiday demand," he said.

Along with his upgrade of Apple shares and increased estimates, Bachman also raised his 12-month price target on shares of the company to $79 from $69.

"We have not included any impact from Apple’s phone, which we believe will come in the June 07 quarter," the analyst added.