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Apple Hungry for Big Bite of School Sales

The company is using an iPod promotion to boost back-to-school Mac sales.
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is banking on history repeating itself.

Apple usually cashes in this time of the year starting with a back-to-school sales campaign before moving into the holiday season.

This year, it has launched an aggressive back-to-school sales push with a $299 rebate on an iPod on a purchase of a Mac.

The campaign comes at a time when a stagnant economy is putting limits on discretionary spending.

Still, Mike Abramsky, an analyst for RBC Capital Markets, has gone so far as to predict Mac sales will hit 3.04 million units for the current quarter -- a 41% increase from the year-ago quarter.

All of this is good news for investors, who saw Apple shares plummet after the company came out with a disappointing guidance for the current quarter. CFO Peter Oppenheimer said in a conference call last month that the gross margin for the current quarter would fall below 32% compared to 34.8% in the second quarter.

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Since then, however, Apple shares have rebounded about 9%. The bump has led many analysts to suspect that the company was merely following its past practice of setting a low bar for it to beat. Apple was trading at $173.76 in mid-day trading on Tuesday, up $1.10, or 0.64%.

Gene Munster, an analyst with Piper Jaffray, expects Apple stock will get a 4% bump from the back-to-school promotion and more than a 40% increase between now and the end of the year, if historical trends of the past three years hold true.

Munster expects the iPod rebate will drive sales for both the iPods and Macs. He says the other catalyst will be company's announcement later this month of new iPods and redesigned Mac portables.

Abramsky, who has an outperform rating for Apple and a price target of $200, believes Mac sales will benefit from a halo effect from iPhone sales, high customer satisfaction ratings and a demographic PC buyer shift that favors Apple.

Trip Chowdry, an analyst with Global Equities Research, doesn't see any differences in the dynamics in this year's back-to-school sales and last year's. He said Apple has usually relied on price discounts, free software and free iPods to push sales.

Chowdry said one strong factor for continuing strong Mac sales is a growing student population. "More people are going back to school this year," he said.

Chowdry wasn't as optimistic about other parts of Apple's business. He said the initial enthusiasm for the iPhone will fade and warned that Apple has do a much better job of tackling problems such as battery life and spotty wireless broadband connection issues.

He said Apple has proven itself to be a good industrial designer but needs to acquire companies that will deal with infrastructure problems.

Abramsky, though, was bullish on iPhone sales, citing in his report strong global expansion of sales to 20 additional countries and Apple's partnership with Best Buy. He expects Apple to ship 5.1 million iPhones in the current quarter and 14 million for the calendar year 2008.