Needham & Co analyst Charles Wolf thinks stock market volatility around Apple shares is an over-reaction, but sees the presently reduced stock price as a "buying opportunity".

In a note to clients, he describes Apple's fourth quarter results "terrific", and "easily exceeding our estimates". 

Windows switchers drive Mac market growth

"The most impressive metric was the growth in Mac shipments - up 48 per cent year-over-year.  Windows users are switching to the Mac in larger numbers than we previously estimated," he writes.

Wolf rejoiced at Apple's Mac market growth - a growth he sees as primarily driven by Windows switchers.

"Since sales into the traditional Mac installed base were most likely flat, all of the increase came from Windows users switching to the Mac," he said.

He also describes estimates that drove some to see iPod sales as "weak" as "illusion". Needham & Co has raised estimates for 2006, maintains a "Buy" rating on the stock at a $57 target price.

Wolf catches over-enthusiastic analysts

Apple's 6.45 million iPod sales were up 5 per cent sequentially and 220 per cent year-over-year. Some analysts had issued wildly optimistic forecasts, some speculating 8 million sales. The notion that Apple somehow missed these targets - which Wolf considers to be "totally unrealistic" - sliced ten per cent off Apple's shares and caused world markets to shudder slightly.

Wolf simply believes that iPod shuffle sales declined, and is sanguine about that, saying: "We view the decline as one of insufficient distribution of the product.  The major market for flash-based music players is the Far East; and the shuffle appears to be under-distributed in this region. In our opinion, the shortfall in shuffle shipments is inconsequential, because the product is the least strategic member of the iPod family."
Apple's exceptional quarter

Wolf described other Apple successes as "exceptional".

"Most notably, revenues in the Apple Stores reached $663 million, up 55 per cent year-over-year. Same store sales increased an eye popping 23 per cent; and the rate at which visitors purchased Macs rose significantly. Music sales, consisting of sales at the iTunes Music Store and iPod accessories, reached $265 million, up 170 per cent year-over-year.
"In our opinion, the sharp drop in Apple's share price in after-hours trading is because of the perceived shortfall in iPod sales (for reasons we regard as trivial), along with the dismissal of the superb performance of the most important metric (namely Mac shipments), represents a unique buying opportunity," Wolf concluded.
"We do anticipate a deceleration of Mac shipment growth in 2006 because it can't continue at the rate of recent quarters," he said, warning investors to avoid being "unrealistic" about iPod sales, which he isn't worried about.

Apple shares currently stand at $49.25