By Philip Elmer-DeWitt
July 22, 2009

Apple (AAPL) blew past expectations — its own and Wall Street’s — to report record third-quarter earnings Tuesday.

Buoyed by strong sales of its new iPhone, an explosion of iPhone applications and price cuts on its flagship MacBook line, the company earned $1.35 per share on revenue of $8.34 billion — up nearly 12% year over year.

Analysts were expecting earnings of $1.17 on revenue of $8.2 billion, according to Thomson Financial.

Apple’s shares, which had closed at $151.51, down 0.91% for the day, rose sharply in after-hours trading. By 5:49 p.m. its shares had climbed 4.3% to $158.03.

The stock has been one of the market’s best performers of 2009, having risen nearly 80% against the Nasdaq’s 21%.

The strong results in the face of a global economic slump could be viewed as vindication of the company’s decision to stay out of the market for low-cost netbooks — which now dominate the consumer PC business and are squeezing the profit margins of Apple’s competitors.

Apple did cut prices a bit in June. It knocked $100 off the retail price of the older iPhone 3G and trimmed prices on most of its MacBooks by 10%.

But basically, Apple stuck to its long-term strategy: selling high-margin machines that offer better support and superior end-user experience.

It’s a strategy that seems to have paid off in spades this quarter.

“We’re making our most innovative products ever and our customers are responding,” said Steve Jobs, Apple’s CEO, in a prepared statement. “We’re thrilled to have sold over 5.2 million iPhones during the quarter and users have downloaded more than 1.5 billion applications from our App Store in its first year.”

Although it was rumored that Jobs might participate in the earnings call Tuesday afternoon, he was not among the listed speakers.

Highlights from Apple’s earnings report include:

  • Mac sales: 2.6 million units, up 4% year over year
  • iPhone sales: 5.24 million units, up 626%
  • iPod sales: 10.2 million units, down 7%
  • Gross margin: 36.3%, up from 34.8% last year
  • Cash holdings: $31.1 billion, up $2.2 billion for the quarter.
  • Guidance for the September quarter: revenue between $8.7 and $8.9 billion, EPS between $1.18 and $1.23, and gross margins of 34% — considerably higher than expected.

COO Tim Cook, who ran Apple while Steve Jobs was on medical leave, was asked repeatedly during a conference call with analysts how he plans to compete with netbooks that cost $399 to $499.

Cook stuck to his mantra: that Apple’s goal is not to build the most computers, but to build the best computers.

“The Mac,” he pointed out, “has now outgrown the market a staggering 18 out of the last 19 quarters.”

Apple’s press release is available here.

A replay of the conference call will be available for the next two weeks, starting at 5 p.m. PDT. The instructions are here.

For our analysts of how the analysts did, click here.

See also:

You May Like