Just three days were enough to push computer sales for the week up 40%

Click to enlarge. Source: Morgan Stanley, NPD

The sharp spike in the chart at right is the Windows 7 effect PC makers have been waiting for.

In a note to clients issued Monday afternoon, Morgan Stanley's Kathryn Huberty reports that NPD data for the week ending Oct. 24 — which included three days of Windows 7 sales — show PC sales jumping 40% year over year.

This was particularly encouraging, she writes, because sales in the early part of the week likely reflected the same pre-Windows 7 declines as the previous two weeks. PC buying for the weeks of Oct. 17 and Oct. 10 was down 29% and 2%, respectively, as consumers waited for Microsoft's (MSFT) new operating system to launch.

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Source: Morgan Stanley

One of the biggest drivers of Apple's (AAPL) growth — and the company's share price — over the next two years will be the expiration of the exclusivity deals Steve Jobs cut with carriers during the iPhone's first two years.

That's the conclusion of a surprisingly bullish report issued Friday by Morgan Stanley's Kathryn Huberty, long considered a leading Apple bear.

"We expect Apple to broaden iPhone carrier distribution over the next two years and believe this opportunity is under-appreciated by the investment community," she wrote. "This total opportunity is substantial — it adds up to an incremental 20.3M iPhone units and $3.76 in adjusted EPS, 100% and 41% of iPhone units and adjusted EPS respectively."

Her "case study" is France, where the iPhone's market share grew 136% after the government ended Apple's exclusive deal with Orange. She expects similar — if not quite as dramatic — increases as Apple, in addition to opening new markets in China and Korea, switches to multi-carrier agreements in its largest markets. (The U.K. has already gone multi-carrier.)

The U.S. is the biggest prize in this respect, but she doesn't expect Apple to cut a deal with Verizon before that carrier's so-called 4G rollout is complete, some time in 2011.

Huberty offers three scenarios for investors — bullish, base and bearish — represented in the chart above. Using her base scenario she expects Apple to sell 41.7 million iPhones in calendar year 2010. She has raised her revenue estimate for 2010 to $45.3 billion from $38.2 billion and her estimated EPS to $10.50 — 13% above the Street's consensus.

According to Morgan Stanley's Kathryn Huberty, Apple (AAPL) is the computer maker with the "most upside" as the PC market begins to stabilize after the dismal first quarter of 2009.

There's some good news for Hewlett Packard (HPQ) and Dell (DELL) in the report to clients Huberty issued overnight Wednesday, but it's mostly attributed to enterprise cycles and inventory restocking.

Apple, however, is a different story.

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Money gets tight. Buyers get picky. Price-sensitive consumers — the kind Steve Jobs  and Apple famously "choose not to serve" — start shopping for bargain basement PCs and Taiwanese netbooks. Mac sales plummet.

That's the conventional wisdom. Or at least that's the line Morgan Stanley's Kathryn Huberty pitched in September — when she lowered Apple's (AAPL) rating twice in two weeks — and reiterated last week, when she earned the distinction of being the first and only mainstream Apple analyst to set a 2009 price target below $100 a share. (see here)

“PC unit growth is decelerating," she wrote in September, "and the remaining source of growth is increasingly in the sub-$1000 market where Apple does not play.”

The only trouble with this argument, as Turley Muller of Financial Alchemist points out, is that it flies in the face of Macintosh unit sales for the first 12 months of the recession.

"Huberty claims Apple is at risk because it’s highly exposed to the premium-end, where demand has been falling," Muller writes in an analysis posted Friday. "However, Mac unit sales grew nearly 40% for 2008, and its share in the premium segment almost doubled. Mac sales have been growing roughly 3x the market."

Huberty, whose Mac and iPhone estimates are among the worst in the industry, has become a favorite target for Apple enthusiasts. (See Why Apple shares took a nosedive.)

But Muller may be the first to put his finger on precisely what she's doing wrong.

"I understand why consumers aren’t paying-up for Windows PCs," he writes. "How are HP, Dell, Acer, Toshiba, etc different from each other if they all use Intel chips, run Windows, and have many other of the same components?"

And because the PC industry is so dominated by Windows PCs, the dynamics that drive demand for Microsoft (MSFT) Windows machines are going to determine what demand for the entire industry looks like.

But, as Muller points out,

"Macs and Windows PCs are not similar product offerings. Some analysts, notably Huberty, appear to conflate the two. Macs are Windows machines, for one can install Windows OS on Mac hardware and use it just as if it were a Dell or HP. But, PCs such as Dell and HP can’t run Mac OS."

"Therefore," he writes, "it’s Windows PC demand that is shifting to the lower-end" (emphasis his).

Muller's analysis suggests that Apple was right not to offer sharp Black Friday discounts and to stay out of the business of making $500 computers — the kind of "junk" Steve Jobs says Apple's DNA won't allow it to ship.

Even Muller concedes, however, that no company is immune to the effects of an economic downturn of this magnitude. He argues — as others have before — that once you've tasted the benefits of the Mac OS, it's hard to switch back. But with money tight, buyers may be less likely to explore the high-price offerings in the Apple Store.

"The recession won’t cause cheap Windows PCs to take sales away from Macs," he concludes. "Instead it will slow the rate that Macs take share from PCs."

Click here to read the rest of Muller's piece.