Apple is seeing stronger than expected Mac hardware sales, an analyst said last night.

American Technology Research analyst Shaw Wu believes: "Apple is benefiting from a strong back-to-school period where students need a personal computer today, and Macs remain the preferred PC platform for managing documents, music, photos, and videos."

He now expects Apple to sell 1.38 million Macs for $3.7 billion in revenue. He had previously anticipated 1.32 million Mac sales for $3.6 billion in revenue.

As a result of his observations in a note to clients obtained by Macworld, Wu told investors to hang on to their shares, but did warn that concerns remain on the stock as a result of its current high valuation, the transition to Intel processors, concerns of slowing growth and "high investor expectations".

"We believe Mac sales are coming in ahead of expectations," Wu wrote.

"While we believe the transition to Intel remains a risk, so far the impact has been negligible. We believe Mac momentum will likely carry into the December quarter."

Wu also predicts 7.1 million iPods will sell in the current quarter.

"Black iPod nanos are selling well, while white iPod nanos continue to lag", he said.

"We are hearing that Apple grossly underestimated demand for the $249 black 4GB iPod nano and is realigning its supply chain to meet this demand dynamic. In the meantime, we believe some customers looking for a black 4GB iPod nano end up buying a black 2GB nano or white 4GB nano as a compromise. We continue to believe that iPod nano may need a storage upgrade and/or price cut to spur sales beyond black 4GB iPod nanos. There is no change to our fundamental view."

He concludes: " We believe Apple is well-positioned in both the PC and MP3 markets, but we find the risk-reward at current valuation levels uncompelling."

In related news Deutsche Bank Securities analyst Chris Whitmore today initiated coverage of Apple with a "buy" rating at a $60 target price. Whitmore anticipates demand for its products will increase Apple's PC market share.