Apple stock fell yesterday on strength of a downgrade from the analysts at American Technology Research and lack of hard iPhone sales numbers from AT&T.

Analyst Shaw Wu downgraded Apple to neutral from buy, citing concerns at Apple's current valuation, high expectations surrounding the company and "a potential product vacuum before CY 3Q08.”

Wu wrote: "We are downgrading our rating on Apple shares to Neutral from Buy for four key reasons. This was a very tough decision as we have been bullish on Apple for the past several years, watching the stock more than triple."

The analyst pointed out that at current levels, Apple shares seemed expensive; Wu also warned that the company's results (to be announced tonight) will be strong, but may not be strong enough for investors to maintain the stocks current price level.

"We continue to be upbeat on the potential for a strong second half product roll-out; however, we are concerned there could be a vacuum before then. Our supply chain checks indicate 3G iPhones will not likely ship in volume until July and new Macs until the Sept. quarter, likely putting stress on the June quarter."

"While we maintain our longer-term fundamental positive view on Apple, from a stock perspective, we find it difficult to recommend purchasing at current levels. The reality is that Apple shares are very volatile and trading action suggests investor focus on near-term results. Arguably, shares should not have hit as low as $115 and as high as $168 in such a short period of seven weeks, but it has," he added.

The analyst expressed current Wall Street consensus on what Apple will reveal in its financial results announcement today. Revenue of $6.97 billion for EPS of $1.07. The Street expects 2.1 million Mac sales, 8.5-10 million iPod sales, 1-2 million iPhone sales.

Wu predicts better performance than this, saying his analyst firm predicts: Revenue of $7.1-7.2 billion for EPS of $1.25-1.30. Am Tech expects 2.2-2.3 million Mac sales, around 10 million iPod sales and somewhere between 1.7 million and two million iPhone sales.

Looking to the June quarter, the analyst predicts revenue of $7-7.2 billion.

Wu also voiced some concern at the impact of iPhone on mobile networks, writing: "We are concerned with network bandwidth usage of iPhone vs. others and the economics to carriers. Our sources indicate that the success of iPhone with its Safari web browser is putting strain on AT&T's EDGE network in areas with higher user density. We have been told that iPhone users are consuming "well over" 100MB per month (compared to Blackberry around 10MB). The relative economic to the carrier is unfavourable with actually lower net revenue while using considerably more network resources," he warned.

"While iPhone represents only 2-3 per cent of Apple's business, we believe a significant part of its current market capitalization reflects expectations the iPhone will become another major product line and future source of growth. If short-term numbers disappoint, we believe investors may discount their future expectations of iPhone potential and its shares could see additional pressure."

Wu thinks the new model iPhone will appear in June/July, around WWDC 2008. In addition to a 3G version, our sources indicate that the 2.5G model could see a minor casing change and lower price point closer to $299-349 vs. its $399 price today, the analyst says, expressing his confidence Apple will sell at least ten million iPhones by the end of 2008.