By Katie Marsal

Published: 11:00 AM EST (08:00 AM PST)

Following a series of checks with sources in the Far East, researchers for Banc of America have put out a call indicating that Apple has commissioned a significant increase in production of Macs for the current quarter while simultaneously reducing iPod production.

"We continue to believe that desktops and notebooks are the key driver of the Apple story," analyst Scott Craig wrote in a report to clients Friday. "Both desktop and notebook production numbers have moved up by 20%+ from expectations in early January, indicating potentially solid demand thus far in the March quarter, as well as some inventory replenishment."

He added that his checks suggest Mac production numbers will continue to rise throughout the quarter, and that MacBook Air production has also increased slightly since mid-January.

At the same time, however, the analyst noted that iPod production numbers for the March quarter "appear to have been significantly reduced, down 10–20% from early January and down 30%+ from early December."

The magnitude of those cuts, coupled with only modest iPod unit growth reported in the December quarter, indicate that Apple's digital media player business may struggle to show meaningful unit growth during the 2008 calendar year.

"Current production expectations for March imply a 5–10% year-over-year unit decline, versus our expectation for 5% year-over-year unit sales growth during the March quarter, likely implying a continuing inventory rightsizing and sales sluggishness," he wrote.

As a result, Craig reduced his iPod unit assumptions for the quarter while raising average selling price (ASP) assumptions to account for robust sales of the higher-priced iPod touch models. That said, the analyst advised clients that he believes Apple cannot risk maintaining its current ASPs for much longer and will inevitably be forced to cut iPod pricing across the board.

Meanwhile, the Banc of America analysts also used his not to add corroboration to on-again off-again reports of severe iPhone cuts, which reportedly took place in both December and March. Those cuts, however, have since reportedly "bounced" back.

"[Still], we remain concerned that iPhone production and demand are lackluster," he explained. "After several data-points in December and early January indicated large production cuts of 50%+ to iPhone production for the March quarter, our recent checks reveal that production levels are 40–55% higher for [the first calendar quarter of 2008], than the recent cuts originally suggested, although still down significantly from two months ago."

Therefore, Craig said, the introduction of a 3G handset in the second half of the year and further price reductions on the first generation iPhone are critical to achieving the company’s 10 million unit expectation for calendar year 2008.

In general, the analyst summarizes the current state of Apple's shares as 'oversold and undervalued.'

"We would be buyers of the stock at these levels, given our Asian checks on Mac production, and especially given we believe the main driver for the company and its stock near-term is notebooks and desktops," he wrote. "With the stock currently trading at 21 times our “cash” earnings-per-share estimate for fiscal 200, relative to a 4-year median multiple of 32 times (and typically 25+), we view the risk-return profile as more compelling following the sell-off post December quarter earnings."