Morgan Stanley analysts Rebecca Runkel and Kathryn Huberty on Wednesday issued their latest research report on Apple Computer, which characterized yesterday's concerns about an inventory build-up of iPods as "overblown," saying they don't believe Apple has a major inventory problem.

"While we don't believe Apple iPod availability at Wal-Mart is completely new news, we do think the partnership is broader than people think, in transition and set to expand in the near-term," asserted Ms. Runkle in a note to clients obtained by The Mac Observer. "We view the growing Wal-Mart relationship as a positive - a way to expand the brand to the mainstream and additive to the bottom-line," she commented.

The analysts surveyed inventory at three Best Buy, five Target and 26 Wal-Mart stores across the country and discovered that "while some inventory figures at non-Wal-Mart stores look high on an absolute basis, no retail store we spoke with currently carries more than one week of inventory based on recent sell-out trends." In the online realm, they noted that seven of the top 25 electronics products on Amazon are iPod models, and "you have to go to #96 to find any other MP3 player.

The analysts wrote that "much of the iPod inventory build earlier this quarter was for retail sell-in ahead of new product launches this summer as well as expanded retail distribution at Wal-Mart."

"In fact, we do not believe Apple has a major inventory problem," she said. "We think much of the inventory chatter resulted from inventory increases ahead of broadening retail partnerships and sell-in ahead of new product launches."

Wal-Mart was in a test phase with regard to the iPod, and Ms. Runkel and Ms. Huberty reported that approximately 25% of the company's stores are now in "a full adoption phase." Looking at the potential sales conservatively, they believe the retail giant could add 100,000 units and US$20 million revenue per quarter once it fully rolls out its iPod sales plan. That's another penny or two toward Apple's annual earnings per share, the analysts said.

As a result, Ms. Runkel and Ms. Huberty said that they are "buyers on recent weakness" of Apple's stock. "Recent inventory chatter is overdone," they wrote, "and strong Tiger/Mac sales can offset any volatility in iPod results over the near-term. Hardware demand continues to improve, albeit at a slow rate. Choppiness prevails in many markets and we believe market share leaders are best positioned to outperform."

Ms. Runkle expects more product announcements from Apple over the summer and said she's a buyer of the shares on weakness. The analysts maintain their 'Overweight' rating on the stock and set a 52-week target price of $60, much higher than other analysts are currently looking at. Apple's stock ended Wednesday at $37.13, up over 3% for the day.

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