Goldman weighs in on Macworld, says 1.8m Macs sold in Dec Q

On Apple's first fiscal quarter of '07

In a research note released to clients just before this past holiday weekend, analyst David Bailey said he expects Apple to see at least a few pennies of upside versus Street consensus for its December quarter. His forecast calls for better-than-expected profit margins to drive earnings of for $0.79 per share on sales of $6.38 billion, compared to the Street's estimates of $0.78 cents on $6.38 billion.

"Across the Mac line, Apple seems to have had a exceptional Thanksgiving weekend," he wrote. "[Fourth quarter] demand for MacBook and MacBook Pro are running better than Apple’s already aggressive targets."

Bailey said his proprietary retail checks point to strong Apple store results both on the Mac and the iPod side. Combined with a higher mix of Macs, he said higher retail sales should drive upside to his gross margin forecast of 28.6 percent and Apple’s 28.25 percent target.

"Based on strong demand, at least one key supplier is allocating even more capacity to Apple and taking it away from other areas," he wrote. "Despite what has been described as a very 'healthy' video iPod forecast entering 4Q, video iPod shipments seem very much on track, and should be up more than 40 percent sequentially."

Bailey added that iPod shuffle demand also "looks strong."

Predicting new video iPod at Macworld

Looking ahead to Apple's immediate future, the analyst predicts the Cupertino-based company is heading towards a "Macworld introduction and a [first quarter] release for the full-screen video iPod which," according to his checks, "is noticeably more innovative than the current generation and should not be considered as a simple refresh."

Also at Macworld, Bailey expects Apple to formally launch its iTV digital media hub, which he believes will create a new revenue stream for the company and help it sell more video iPods.

Meanwhile, the analyst doesn't expected Apple's much rumored iPhone to be released to manufacturing until April 2007 for a "schedule [second quarter] launch."

"Indeed, Apple is already in early discussion with multiple suppliers regarding next generation models of cell phones with no decisions made yet as to which direction they’re going in," he wrote.

Reflecting strong demand and the expected Macworld announcements, Bailey reiterated his Buy rating on shares of Apple and raised his fiscal 2007 estimates for the company to $2.85 in per share earnings versus the Street consensus of $2.76.

"We are more confident that expectations have come down to more realistic levels for Macworld and earnings, creating an environment where fundamental strength should move the stock higher near term," he wrote. "We think that investors should increase their exposure to Apple shares before these events.