What have we learned from Apple's 3rd Quarter?

Yesterday Apple released its earning for the third Quarter, The Cupertino-based company said third quarter profits surged 73 percent to $818 million, or $0.92 per diluted share, on sales of $5.41 billion.
After the bell Apple shares have risen to an all time high of $150.

Its the Mac!
Overall shipped 1.764 million Macs during the quarter, representing 33 percent yearly growth. This included 1,130,000 notebooks and 634,000 desktop systems. Another great mile stone is that Notebook sales grew 42 percent year-over-year and accounted for 64 percent of Macs sold during the quarter. The sales generated $1.577 billion in revenue. We can clearly see that the Macbooks are selling like hot cakes.

Desktop sales accounted for just 36 percent of the Macs sold during the quarter, rising significantly from the year-ago quarter in which Apple sold 529,000 units. Desktops accounted for $956 million of quarterly revenue. In total, Macs and related services represented 60 percent of Apple's third quarter revenues. What's even more interesting is that Macs grew at 2.5 times IDC’s estimated industry growth rate for CPU sales during the quarter. So Macs are growing now at 2.5 times as the rate the for rest of the industry.
So in the quarter the growth catalyst was no doubt the Mac, and with all the buzz the iPods have received during the past few years its quite amazing, Apple once again proved its a solid company which builds upon a very strong foundation, its not just a "one product company" (referees to the iPod of course) as some previously dubbed it. "The quarter was really strong," said Shaw Wu, an analyst with American Technology Research. "Mac sales, in particular, were better than expected, and the iPod also had a strong quarter." Wu holds a buy rating and $165 share-price target on Apple.

Music Business
iPod sales and those of music-related services accounted for 40 percent of Apple's third quarter revenues.
Apple shipped 9,815,000 iPods during the quarter, representing 21 percent growth year-over-year, and accounting for $1.57 billion in revenue.
Apple's "Other Music Related Products and Services," which include iTunes and iPod accessories, boosted revenue to $608 million, an increase of 33 percent year-over-year.


iPhone
Apple sold 270,000 iPhones during the final 30 hours of the quarter. The company expects to sell its 1 millionth iPhone by the end of the current quarter, which ends September 29th. By comparison, it took Apple nearly seven quarters to sell its first million iPods.
Apple remains on track to launch iPhone in a few major European countries in the fourth calendar quarter of the year, expanding to other European countries in 2008. The company will make public its European iPhone launch plans a bit later in the current quarter, management said. Phone sales were skewed towards the 8GB model during the final 30 hours of the June quarter.

Apple wouldn't say anything about iPhone gross margin. Management even stopped short of saying whether gross margins from the handset were above or below its corporate average. Apple wouldn't talk about the potential for cheaper iPhones or a broadening of the iPhone line to additional models.
There is "no evidence" of iPod cannibalization from iPhone thus far, management said.

The Apple-AT&T affair is over
At its own quarterly results AT&T reported it had activated 146,000 iPhones by quarter's end, in the first 30 hours the product was on sale.
Apple claimed they sold 270,000 iPhones. What's going on?

Well there are some explanations, first Apple's 270,000 iPhones included sales of iPhones through Apple's online store, which obviously couldn't have been activated the first weekend since Apple is quoting two- to four-week lead times for iPhones ordered online.
The second reason offered by AT&T for the gap between sales and activations was procrastination. "One of the reasons for the gap is that many, many people chose to activate their phones a day later. That seems pretty straight forward," Mark Siegel, an AT&T spokesman said.

This is quite possible, but extremely difficult to quantify. Given the zeal of those who waited in line for an iPhone on Friday or bought one the following day, however, it's hard to imagine 100,000 or more of those customers waiting a day to activate their new toy.

Still the disparity remains a bit of mystery, and its now clear that Apple and AT&T have their issues.

"They deserved a lot to put up with AT&T. But Apple's not a big enough part of their business to get them to fix their problems."

--Gene Munster,
Piper Jaffray analyst

The secrete sauce
According to Business Week Apple actually has a recipe for its magic;
There's also something more fundamental and more sustainable in Apple's profit growth than chip prices or product mix. The latest quarter shows that Apple is gaining leverage from its unique cupboard of technologies. While many large rivals have scores of products with little in common with each other, Apple increasingly is creating its products from the same set of ingredients. The iPhone illustrates the point: It runs the same Mac operating system software, the Safari browser, and the same iTunes music software as all of the company's computers. It also utilizes many of the same chips as the iPod. "Apple's ability to develop, launch, and support new products, using the same R&D and sales and marketing investments, creates [earnings] leverage that is substantially greater than people thought even six or twelve months ago," said Goldman Sachs (GS) analyst David Bailey in a recent interview.

What's more, the company is expert at outsourcing the rudimentary work to suppliers and manufacturing partners. "They're mainly in the business of defining architectures," says Kathleen Eisenhardt, an engineering professor at Stanford University. "We're talking about a small number of people—maybe ten—that think about how all the pieces go together. [Apple is] more the thinker bees than the worker bees, and that scales a lot better than trying to do everything yourself."

There were two things that were particularly possitive this quarter, First Apple reassured investors that its Mac business is growing at a tremendous phase, a fact which accounted for most of the quarter revenue (about 60%),
Second everyone is expecting and building upon future iPhone growth as it will spread abrod, particularly to Europe by next quarter. I really think it really was a great quarter for Apple and Steve Jobs who challenges Apple to continue to innovate like crazy, and always come up with what's next.