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Wednesday, September 27, 2006, 08:45 am PT (11:45 am ET)

Apple shares may reflect too much cell phone optimism

American Technology Research this week said it has removed Apple Computer from its "Focus List" out of concern that investors may have baked too much cell phone optimism into the company's current share price.

"Since we added Apple about three weeks ago in conjunction with our proprietary analysis of Apple's significant technical progress in its cell phone efforts, shares have appreciated 15 percent versus 3 percent in the NASDAQ," analyst Shaw Wu told clients on Wednesday. 

"While we remain long-term positive, we believe Apple shares may reflect too much near-term cell phone optimism."

In a research note, Wu said he would not be surprised to see a near-term pullback in the iPod maker's share price but said he would be an aggressive buyer at levels high-$60 to low-$70 range. 

The analyst also offered an update on Microsoft's digital media player strategy, saying his checks indicate the software maker is likely to employ a new proprietary DRM with its forthcoming Zune players, one which is incompatible with its PlaysForSure DRM used by its OEM partners such as Creative, SanDisk, Sony, Samsung, iRiver, and Archos.

"It appears that Microsoft is willing to risk supporting two competing standards in an effort to replicate Apple's successful vertically integrated iPod+ iTunes model," he said. "However, we believe the unexpected side effect will be further fragmentation in the Windows Media market, creating more confusion to consumers."

Wu said he remains "underwhelmed" with the much-hyped Zune, which he calls a "repackaged Toshiba Gigabeat" player.

Despite the removal of Apple shares from the AmTech Focus List, Wu maintains a "Buy" rating on Apple stock with a price target of $91.