UBS says iPhone sales ahead of estimates, new iPods on the way

"Our checks and discussions with Apple and AT&T store representatives continue to indicate relatively solid demand for the iPhone despite a significant moderation in excitement and hype from the June 29th launch," analyst Ben Reitzes told clients in a research note Tuesday.

In addition to visiting and calling several Apple retail stores as part of his latest study, the analyst also surveyed 70 AT&T stores across the country to get a feel for iPhone demand, availability and problems customers may be having. He explained that polling AT&T stores is an essential measure in gauging the iPhone story since Apple stores could conceivably have more motivation to promote a pro-Apple bias.

"AT&T stores we spoke with indicated that sales of the iPhone remain relatively solid through mid-August," he wrote. "While demand has slowed from the initial launch as expected, the weighted average of iPhones sold per store per day in our survey was about 5."

Based on his findings, Reitzes said it's appropriate to assume that each of AT&T's 1800 nationwide retail stores are selling at least 3 iPhone handsets per day, which alone would equate to approximately 500,000 units over the course of the quarter or about 60 percent of his fiscal fourth quarter estimate of 800,000 units.

"Factoring in hundreds of thousands of iPhones sold through Apple stores and online via Apple.com, we still believe that our unit estimate is conservative," he told clients. "While Apple has not provided any information into expanded distribution of the iPhone beyond Apple and AT&T stores, we continue to believe Apple may expand distribution to include other retailers over time (Best Buy would make sense)."

In the coming weeks, the analyst also expects Apple to announce its European iPhone strategy, which will initially include just three European countries — the UK, France and Germany. iPhone shipments for those countries should begin in the December quarter, he said, and expanded to other nations and parts of Asia in 2008.

"We believe that there is no technical barrier that prohibits Apple to sell the iPhone in China despite there being no iTunes store in the region (a user can use iTunes and activate the phone with an internet connection)," he wrote. "We believe new models for the iPhone will emerge next year, which could help sales incorporating a sleeker design at more attractive price points."

In his note to clients, the UBS analyst also said he expects Apple to refresh its iPod video and iPod nano lines sometime next month. Among the expected introductions are higher capacity iPod nanos at aggressive price points, as well as a flash based widescreen video iPod likely using multi-touch technology for less than $300.

"We believe this is an important launch in that it should re-stimulate iPod sales into the holiday season," he wrote. "In addition, we believe many consumers have been waiting for this upgrade to take place, especially in the video iPod products, as it has been about two years since that line has had a major upgrade."

Reitzes reiterated his Buy rating and $175 price target on shares of the Cupertino-based electronics maker but made no changes to his current estimates.

Apple investors reacted favorably to the comments, sending shares of the company up nearly 5 percent to $128.70 in early afternoon trading on the Nasdaq stock market.