By Slash Lane

Published: 12:45 PM EST (09:45 AM PST)

An analyst at UBS Investment Research says solid demand for Macs should help support earnings estimates for Apple Computer's fourth fiscal quarter of 2006, results of which are due next Wednesday, offsetting deceleration in iPod sales that drew concerns earlier in the quarter.

In a research note sent to clients on Thursday, analyst Ben Reitzes said recent checks indicate strong demand for new Mac products, especially for MacBooks, during the back to school season. On the other hand, he said iPod growth was more subdued due partly to a lack of new iPod shuffle players which have yet to begin shipping.

"We believe that strong Mac sales are driving gross margin expansion and will be the story again in [the first fiscal quarter of 2007] with significant sequential improvement, perhaps benefiting in part from the delay of Microsoft Vista," the analyst wrote. " With regard to Apple’s shares near-term, we see strong Mac sales offsetting slowing iPod sales growth, driving margin upside and providing plenty of earnings-per-share (EPS) support."

Reitzes believes the Mac "phenomenon" could bridge the gap between now and Macworld, where he expects the company will initiate a new flow of "very exciting" products for the 2007 calendar year. "We also continue to operate under the assumption that Steve Jobs will remain Apple’s active and effective CEO based on the current facts," he said, referring to the company's ongoing stock options scandal.

Q4 estimates

For Apple's fourth fiscal quarter of 2006, results of which are due next Wednesday, Reitzes is estimating EPS of $0.50, based on 26 percent year-over-year revenue growth to $4.619 billion, versus consensus estimates of $0.50 and $4.67 billion.

"We slightly lowered our revenue estimate primarily due to lower iPod units, which we now estimate to be 8.12 million (was 8.52 million) representing 26 percent [yearly] growth (flat sequentially) given new shuffles introduced at Apple’s September 12th event are not expected to ship until mid-October," he explained.

The analyst is also modeling for Mac unit shipments to come in at 1.48 million, representing 20 percent yearly growth (up 11 percent sequentially), which he says "could be conservative given new products and momentum through back to school season."

Reitzes said his EPS estimate of $0.50 reflects gross margins of 28.5 percdent, which factors in favorable component prices and a positive mix shift toward higher margin Macs (from iPods). "We continue to believe that this estimate could also prove conservative given a mix shift toward Macs and higher margins for the new iPod nanos released in September," he said.

Fiscal 2006 estimates

For the entire 2006 fiscal year -- which concludes with Apple's reporting of fourth quarter results -- the analyst is maintaining his EPS estimate of $2.15 on 37 percent yearly revenue growth to $19.1 billion, including iPod unit sales of 38.8 million (up 73 percent yearly) and Mac unit sales of 5.2 million (up 14 yearly).

Reitzes' outlook for the 2007 fiscal year includes EPS estimates of $2.70 based on 21 percent yearly revenue growth to $23.1 billion, which compares to consensus estimates of $2.65 and $22.9 billion. "Our new estimates factor in slightly lower iPod sales of 50.1 million (was 52.8 million) and slightly lower Mac average selling prices (ASPs) given the mix shift toward MacBooks," he wrote. "Our fiscal year 2007 Mac unit estimate remains 6.9 million units (up 33 percent yearly) which could still prove conservative given recent Mac momentum and the upcoming launch of Mac OSX Leopard in the spring of next year." His gross margin outlook is set at 28.8 percent.

Exciting new products in pipeline

Looking ahead, the analyst believes Apple has "many exciting new products" in the pipeline, with "many set to hit in the first half of calendar year 2007." He expects new iPods with bigger screens and more content deals for films to come in the upcoming months. "However we still do not expect any new video iPods until early 2007 after Macworld," he warned.

"In terms of Macs, we expect Apple to upgrade MacBook Pros with new Core 2 Duo processors for the holidays," he continued. "For calendar 2007, checks also indicate Apple may be working on 'ultra-portable PCs' and even notebooks equipped with NAND flash memory in addition to or in the place of hard disk drives, which can offer users an 'Instant-On' functionality for booting."

Apple cell phone

Of all of Apple’s new product opportunities, Reitzes said he remains particularly excited about cell phones in the long-term, given his view that consumers clearly want content -- but lack true 'plug and play' phones compatible with the PC.

"We expect this product to materialize by the end of [the first half of 2007]," he told clients "Building on success with iTunes, we believe Apple could create a phone that allows for the easy loading of content (music, video, contacts, photos and more) by docking to a PC or Mac."

Leveraging retail

In addition, Reitzes said Apple could take advantage of its retail distribution to sell the product and create a powerful revenue stream of post-sale accessories.

"Like iTV, we think phone associated partners could be announced long before it even ships since it does not really replace an existing product," he said. "Also, that way Steve Jobs can control the message around the new product line before details leak out."