American Technology Research analyst Shaw Wu on Friday issued a research report in which he looked at iPod demand, which he believes "is coming in ahead of our previous expectations." Based on his checks with industry and retail channel sources, he sees the price-reduced iPod shuffle, as well as the new 1GB iPod nano, "generating incremental demand, particularly in non-AAPL channels."

"In addition," he wrote, "our checks indicate that the new iPod Hi-Fi speaker system is seeing strong initial sales and vPod demand continues to be strong, well above seasonal trends and down modestly from very high December quarter levels."

As a result, Mr. Wu increased his March quarter revenue estimate to US$4.43 billion, with $0.43 in EPS and 8.8 million iPods sold. He added 1.1 million iPods to his previous estimate, but he noted that he is still below the consensus analyst estimate of 9.5 million iPods sold.

The analyst also said that his primary concern with the company's stock is "the disconnect between AAPL stock ratings and consensus estimates; this has helped create artificially high estimates, leaving little room for upside surprises, if not hope for a downside surprise ... We believe estimates may need to reset closer to AAPL's guidance, not to mention more realistic levels."

Mr. Wu retained his "Buy" rating on Apple's stock. At 12:26 PM EST on Friday, shares were selling for $63.22, down 1.11% for the day. The stock started the week at almost $68 per share but has been on an overall downward trend.

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