by Andy M. Zaky, contributor

In the four years I’ve followed Apple (AAPL) as it’s grown from a mere mid-sized tech stock to becoming the second largest corporation in the United States in terms of market capitalization, I never imagined that it or any other company of its size would be able to consistently grow its earnings by well over 50% a year.

While Apple is now larger than Microsoft (MSFT), Google (GOOG), Cisco (CSCO), and Intel (INTC), it still enjoys the growth rate of small cap tech stocks. A few weeks ago I wrote an article entitled
Apple’s $63.5 Billion Revenue Year
where I offer comprehensive revenue estimates for Apple’s fiscal Q3 and Q4 of 2010. Picking up where that report left off, I’ll take a look at Apple’s potential 2010 earnings.

To get an idea of how deeply Apple continues to penetrate the market, Apple will likely produce 50% more in sales and 71% more in earnings in 2010 than it did last year. If this growth continues into 2011, Apple will surpass Exxon (XOM) to become the largest corporation in America. Not to mention that it already has more cash than any other company in the United States: $41 billion.

That is absolutely stunning when one considers that Apple recorded a whopping $43 billion in revenue during the 2009 reporting period – almost double the $24 billion it recorded in 2007. While the market continues to generally slobber over the financial prospects of the iPhone and Apple’s business, it’s important to step back and examine exactly where Apple’s business stands. We often hear about the strength of Apple’s stock in very general terms. Yet we rarely get a broad picture of Apple’s past, present and future growth rates.

Not only is Apple accelerating its revenue, the growth in the cost to run the entire Apple operation is barely climbing. This means Apple is becoming increasingly efficient at printing money as it makes more revenue per dollar spent to run the operation. This is something that every company, big or small, could only wish to achieve. It is very difficult to accelerate sales as a large cap tech stock while tempering costs. There will be a day within the next few years when investors will be insulted at even the slightest insinuation that Apple should only be worth $350 a share.

To get an idea of just how efficient Apple’s management has become at generating revenue while containing operational expenses, consider this:

In 2008, while revenue grew by 52.5%, Apple’s operating expenses only grew by 30%. This means that each dollar spent to run the company generated nearly 60% more revenue in 2008 than it did in 2007. In 2009, though the financial crisis had a sizable impact on Apple’s revenue and earnings, Apple still managed to grow its revenue by 14.5% — operating expenses only grew 12.6%.

Yet in 2010, though Apple’s business is almost double what it was in 2007, Apple has been able to maintain its old ways. In 2010, while Apple looks to grow its revenue by 47.8%, even aggressive estimates for operating expenses put it in the rage of only 31% growth. This ability to manage expenses is a major contributing factor leading to the projected 75% growth in net income for 2010.

And what’s more, Apple is not only doing a bang-up job managing its operational expenses, but it is also achieving the far more difficult task of increasing its gross margin. Gross margin is the amount of money Apple makes on each of its products less the cost it takes to make those products. Operating expenses asks the question: How much money did Apple spend hiring employees, renting property for its retail chain, paying upper management, research & development, and all other costs to run the company? Gross margin asks the question: How much did it cost to make an iPhone, an iPod, or a Macintosh Computer?

Apple has clearly demonstrated an ability to generate massive amounts of revenue while containing its operational expenses, and it has more impressively figured out a way to make more money on each product it sells. Apple’s quarterly gross margin has been on a consistent, stable and explosive up-trend. For example, in the first quarter of 2006, Apple reported an overall gross margin of 27.2%. By the second quarter of 2010, Apple’s gross margin had climbed to 41.67%. That means Apple is making almost double the amount of profit on each of the products it sold in 2010 than it did in 2006. It is precisely Apple’s ability to accelerate sales while managing expenses that has led to this new Golden Age in earnings. There isn’t a single identifiable blemish in Apple’s income statement.

Based on a more comprehensive and detailed analysis I’ve published at Bullish Cross, I’m expecting Apple to report $15.51 in earnings per share on an explosive $63.409 billion in revenue in fiscal 2010. That compares with $9.08 in EPS on $42.9 billion in revenue in the fiscal year ended 2009. For those who would like to see my track record on Apple, you can find that record at Philip Elmer-DeWitt’s quarterly analyst review published in his Fortune column, Apple 2.0.  The two charts to the right outline Apple’s revenue and EPS growth from 2006 to 2010. Please note that Q3 and Q4 of 2010 are merely estimates, and that actual results may vary.

Andy Zaky is a graduate from the UCLA School of Law, and editor of Bullish Cross. His main area of emphasis is in global macro-economics, fundamental analysis and technical analysis. Andy also regularly follows and conducts financial statement analysis and quarterly earnings projections for Apple, Inc. and other high-profile tech stocks.