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Thursday, January 03, 2008, 07:00 am PT (10:00 am ET)

Apple set to ship Macs with Blu-ray support - report

Apple Inc. at this month's Macworld Expo will will outline a high-definition video strategy that will see its weight thrown further behind Sony Corp's Blu-ray DVD format as opposed to Toshiba's HD-DVD, according to one Wall Street analyst.

In a report issued to clients early Thursday morning, American Technology Research analyst Shaw Wu cited sources who say the Cupertino-based Mac maker, which already occupies a seat on the Blu-ray consortium, is set to begin shipping some of its computers with support for the next-generation DVD format.

"We believe this is a key announcement as current Macs ship with the DVD format and Sony gains a strong ally in Blu-ray," the analyst told clients. He added that Disney, for which Apple chief executive Steve Jobs is a Director, is a firm supporter of Blu-ray, while rival Microsoft Corp. has placed most of its eggs in the HD-DVD basket.

However, Wu hedged his bets somewhat, saying there is "a smaller chance Apple may use a combo Blu-ray/HD-DVD drive to ensure full compatibility and not get involved in the format wars."

Apple, which markets a complete line of HD content creation tools for consumers and professionals, announced in March of 2005 that it had joined Blu-ray Disc Association. Since then, however, the company has observed much of the ongoing battle between Blu-ray and HD-DVD from the sidelines, choosing to remain indifferent in the fight for control of the next-generation high def format.

The Mac maker during the first quarter of 2008 is expected to introduce a significant overhaul to its Mac Pro professional workstations, which are expected to be among the first systems from the company to include drives capable of supporting the Blu-ray format, sources close to AppleInsider and other Apple news publications have said.

Meanwhile, in his report to clients Thursday, Wu also cited sources who indicate that an Apple sub-notebook and iTunes rentals will also take center stage at the upcoming Macworld Expo in San Francisco, set to kick-off with a keynote by Jobs on January 15th.

"We believe Apple will re-enter the sub-notebook market, but this time use NAND flash as primary storage to improve battery life, reliability, and reduce weight," he wrote. "Our sources indicate that the possible names of this new product include 'MacBook mini' or 'MacBook slim'."

On the iTunes front, the analyst said his sources also indicate that Apple will look to aggressively grow this business with digital movie rentals.

"Whether these movies expire based on time and/or usage is unclear to us, but we do believe that rentals are a significant change in its philosophy with its current iTunes download business model," he wrote. "The positive implication from this is that Apple enhances its video experience and makes it more compelling to move and/or stick with the iTunes + iPod + Mac + iPhone + Apple TV ecosystem."

Additionally, Wu said he's also picking up hints of potential smaller announcements related to speed bumps to current Macs and the iPhone, including "an external HDD storage/dock/streaming device that can work with MacBook mini as well as Airport Extreme."

Further down the line, the Wall Street analyst expects that Apple will address two major shortcomings of its Apple TV set-top-box product, mainly that it does not allow for a direct internet connection to access movie and web content, and that it also lacks a "TV tuner."

"Our sources indicate that Apple is working on fixing these weaknesses to make Apple TV a much stronger product," he advised clients. "We are unsure of the timing of these enhancements but believe we will likely see these later in 2008 or perhaps 2009."

The analyst maintained his Buy rating on Apple stock with a price target of $210 per share.