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Are iMac sales flattening out?

Apple may have corrected the supply shortage that plagued its iMac launch, but it's not clear if consumer demand has kept up.

Apple Computer has apparently corrected the supply shortage that plagued the launch of its flat-panel iMac, but it's not clear if consumer demand has kept up with the increase in production.

In a research note Friday, Morgan Stanley cautioned that some Wall Street estimates for iMac sales may be too high. Analyst Rebecca Runkle said that Apple may not ship that many more iMacs this quarter than the 220,000 it sold last quarter.

"We think Apple flat-panel iMac units in (the June quarter) will be flat to slightly up," Runkle said in the note.

Salomon Smith Barney followed with a report Monday that said its estimate of 265,000 units might also be too optimistic, but said sales of the older iMac model, as well as the eMac, should still allow Apple to meet sales and earnings targets.

Asked about flat-panel iMac sales in an interview Tuesday, Apple CEO Steve Jobs said, "They're doing just fine."

An Apple representative declined to comment further on iMac sales, noting that the company is in a quiet period as Apple nears the end of the June quarter.

Morgan Stanley said the number of flat-panel iMacs in the hands of retailers and distributors is growing. "Contacts suggest that flat-panel iMac inventory is in the one- to 1.3-month range--which, while not alarmingly high, supports our thesis that demand has slowed from earlier levels."

However, the fact that more iMacs are available may not in itself be a cause for concern. Runkle and other analysts said that some build-up is to be expected and could alleviate the need for Apple to fly in the machines from Taiwan.

"A lot of investors seem to be concerned that inventories are building, when in fact that's their plan," said Needham analyst Charles Wolf. "As far as I can see the quarter is tracking OK. I know there is a lot of concern about consumer spending."

Announced in January, the iMac was in short supply in its first months, even as Apple decided to up its price tag amid rising memory and display prices.

The supply has become more steady since April, with the machines more prevalent in stores such as CompUSA and also readily available from Apple's online store. While customers once had to wait weeks to have an online order ship, Apple now lists a one- to two-day shipping time.

Some of the concern stems from overall worries about the impact of a weak economy on consumer PC sales.

"April and May are typically extremely slow consumer months, so people could expect to see iMac sales decline based on typical seasonal patterns," said financial analyst David Bailey of Gerard Klauer Mattison. Bailey said those seasonal patterns could be more severe this year, given the economy.

Typically the slow consumer sales in the June quarter are offset some as schools start to make their purchases for the year. However, it is unclear to what extent declining tax revenue may slow education purchases.

"June remains the key month--and question mark--for the second calendar quarter in terms of PC sales as the seasonal uptick due to educational sales begins," Runkle said.