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Thursday, April 26, 2007, 08:00 am PT (11:00 am ET)

Cingular's smartphone sales dip ahead of iPhone

Cingular retail stores are already experiencing a slow down in sales of their high-end handsets ahead of iPhone, according to investment research firm PiperJaffray, which on Thursday raised its price target on shares of Apple to a new high of $140.

"We believe that the iPhone will benefit from this pent-up demand," analyst Gene Munster told Apple investors after conferring with fellow analyst Mike Walkley, who covers the mobile space for PiperJaffray.

Munster's checks reveal a robust market for high-end handsets in the above-$300 range. For instance, he said Nokia's N95 model is selling extremely well in Europe for €450 (over $600 US), where Apple remains on track to launch iPhone later this year.

"Therefore, our checks suggest that demand for the iPhone will be high at launch and will continue to grow as Apple expands the product into international markets," the analyst wrote in a report summarizing Apple's stellar March quarter results, announced Wednesday.

According to his analysis, upside potential to Apple's per-share earnings have not yet peaked given that he believes the company is entering "what will be the 3 strongest quarters" in its history. In his note to clients, Munster said iPhone, mid-year product launches, and continued Mac market share gains will combine as catalysts for the expected growth.

"The more important point is that Apple has the pole position as it capitalizes in a shift in computer buying behavior," he wrote. "It is obvious consumers want computing devices that are focused on entertainment and creativity."

Thus far, Munster says his team of analysts have not run across any credible competitive threats to Apple's core markets. For instance, Microsoft's Zune, which was conceived to steal share from the iPod, "is a flop." Similar, Dell and HP have failed to deliver PCs that rival the Mac," he said.

PiperJaffray remains confident that over the next several quarters Apple will hold its massive lead in portable audio and grow share in the personal computer market.

"We believe Apple's performance is sustainable for 3 reasons," Munster wrote. "1) we expect gross margin to stabilize above 30 percent in [the second half of the year] due to favorable component pricing and level product pricing; 2) Apple is entering three of its strongest product cycles ever with the iPhone, Apple TV and Leopard; 3) Apple continues to innovate and we do not expect the pace of innovation to slow."

For these reasons and others, the analyst raised his price target on shares of the Cupertino-based company to $140, up from $123.