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iPhone, Mac sales continue to propel Apple forward

Apple has another record quarter thanks to cheaper MacBooks and high demand for the new iPhone 3GS. Traditional iPod sales begin to taper off.

Apple iPhone MacBook
The iPhone and MacBook were a winning combination for Apple during the third quarter. Tom Krazit/CNET

Though iPod sales slipped, Apple rode increased Mac and iPhone sales to a better-than-expected quarter.

Revenue came in at $8.34 billion, resulting in earnings of $1.35 per share. That's a 12 percent increase from a year ago, when Apple reported earnings of $7.46 billion and earnings per share of $1.19.

Analysts were expecting $1.17 in earnings per share and revenues of $8.2 billion. The quarter ended June 27 was the best nonholiday quarter in terms of revenue and earnings for Apple--a bar that had been newly set during the previous quarter.

Apple also beat most analysts' expectations of its unit sales in its core businesses for the quarter. The company sold 2.6 million Macs, up 4 percent from a year ago, and 5.2 million iPhones, a 626 percent leap from a year ago. And even though the company's 10.2 million iPods sold during the quarter was better than expected, it's also Apple's first yearly drop in iPod sales, declining 7 percent.

Mac sales were very impressive for the quarter. Data provided by market research firm IDC showed the entire PC industry down more than 3 percent for April, May, and June, but Apple sold 4 percent more computers this quarter than it did during the same quarter in 2008. The company's laptops were responsible for that surge: MacBook and MacBook Pro shipments were up 13 percent.

Apple confirmed that much of that came late in the quarter after it transitioned to calling all of its unibody laptops MacBook Pros and cut prices across the board.

"Mac sales did accelerate" after WWDC, Chief Operating Officer Tim Cook said on the earnings call Tuesday afternoon. "We feel great about how they're selling."

What he's not enthusiastic about: Netbooks. He took the opportunity during the earnings call to take a few more swipes at the growing category of computing. It's a category that every one of Apple's competitors in the PC industry have embraced, yet Cook picked up where he left off during the previous quarter's earnings call in politely trashing the devices.

"Our goal is not to build the most computers, it's to build the best. Whatever price point we can build the best at, we will play there," he said in response to a question about Netbooks. "At this point, we don't see a way to build a great product for this $399, $499, this kind of price point, unit."

Cook also said most customers are disappointed by their experience with Netbooks.

"Some of these Netbooks, or many of those, are very slow, have software technology that is old, they don't have a robust computing experience. They have small displays and cramped keyboards. I could go on and on, but I won't."

In other words, it doesn't sound like we should expect a cheaper MacBook from Apple for less than $500. (But there was no mention of something between $500 and $999, where the company still has a very wide price gap in its current lineup.)

"We're going to focus on what we've always done," Cook said. "The Mac has outgrown market in 18 of the last 19 quarters. I think that says that we do have the right approach."

iPod Transition
The iPod business is officially in transition however. For the first time, Apple's year-over-year sales of iPods dropped, but Chief Financial Officer Peter Oppenheimer also did something unusual: he broke out sales of each model to provide context for the decline.

During the third quarter, Apple sold 10.2 million iPods, compared with 11 million a year ago. It turns out that the shifting appeal of the Shuffle, Nano, and Classic model iPods are to blame. But Apple apparently saw this coming. Those declining sales are "the reason we developed the iPod Touch," Oppenheimer said. "We expect our traditional MP3 players to decline overtime as we cannibalize ourselves with iPod Touch and iPhone."

Sales of the iPod Touch, on the other hand, grew 130 percent from the year before, he said. It reflects the growing emphasis Apple has been putting on the device that has become practically the same product as the iPhone, sans wireless phone service. It also drives revenue in a way that traditional MP3 model iPods do not: besides having access to the iTunes Store, iPod Touch users can also make purchases in the company's growing App Store.

Despite that positive outlook for the iPod Touch, the iPhone is clearly still the star of the company's lineup. The 5.2 million iPhones sold during the quarter was better than what many analysts were anticipating, although the 626 percent jump from a year ago is misleading--Apple didn't update the iPhone until July last year.

Still, they're having trouble keeping the latest iPhone in stock. "We are currently unable to make enough iPhone 3GSs to meet the robust demand, but are working to address this," Cook said. The phone is currently in 18 countries and in still on track to be in 80 by the end of the summer.

The takeaway from Apple's earnings is that consumers are spending money on technology, which equates to more good news for the tech sector. Though the price cuts on MacBook Pros were a catalyst for much of the growth, iPhone unit sales continue to propel the company above most of its competition.

Looking ahead
As predicted, Apple also put more money into the bank during the quarter, adding $2.2 billion to bring its cash holdings to $31.1 billion total. That's second only to Cisco Systems in the technology industry. But Oppenheimer didn't seem itching to spend it, on a company or on a broad new capital-intensive project, saying, "We continue to focus on the preservation of capital, which has served us well in the current environment," he said.

As usual, Cook did not have too much to add about future products coming from Apple. He did confirm that the updated Snow Leopard operating system is on track to be released later this summer.

Apple again guided conservatively for the fourth quarter of 2009, saying it expects revenue between $8.7 billion and $8.9 billion on earnings per share between $1.18 to $1.23.

Shares were up 4.48 percent to $158.30 in after-hours trading.