Apple on track to sell 6.8 million iPhones in Q4 – analyst

In a note to clients issued Wednesday morning, Kaufman Bros.'s Shaw Wu reported on some interesting trends from his latest iPhone supply chain checks:

  • Expensive iPhones -- especially the $299 3GS -- are doing better than expected in a tough macroeconomic climate. "Customers," he writes, "have surprisingly opted for higher-end models where they are willing to pay a premium for a faster processor, video recording, more storage, voice control, and other features."
  • Apple, expecting a rush on its $99 3G iPhones, underestimated demand for the $199 and $299 models. As a result, there were widespread shortages of nearly all 3GS iPhones through the first weeks of July.
  • "This is an interesting and arguably counter-economic trend," he writes, one that should lead to much higher profitability  -- perhaps as high as 1,000 basis points.
  • Apple has adjusted its production mix and supplies are improving. Wu is currently modeling 6.8 million iPhones for Q4 -- nearly equal to Apple's runaway fourth quarter last year (6.89 million iPhones) and up 31% from Q3 (5.21 million). It's a forecast,  he says, that could prove to be conservative.
  • He is picking up signs that Apple's suppliers could be gearing up to build 9 million to 10 million units.

Wu recently raised his price target to $184 a share -- from $176 -- based on 15 times his estimate of Apple's 2010 free cash flow plus net cash holdings worth $34 billion.

Apple shares were down a fraction of point to $159.73 in midday trading Wednesday.

All products and services featured are based solely on editorial selection. FORTUNE may receive compensation for some links to products and services on this website.

Quotes delayed at least 15 minutes. Market data provided by Interactive Data. ETF and Mutual Fund data provided by Morningstar, Inc. Dow Jones Terms & Conditions: http://www.djindexes.com/mdsidx/html/tandc/indexestandcs.html. S&P Index data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Terms & Conditions. Powered and implemented by Interactive Data Managed Solutions