Apple

Updated at 1:55 p.m. PT with additional details, and at 3:20 p.m. with further details from the conference call.

Apple blew away expectations for its second fiscal quarter, reporting revenue and net income far beyond what the Wall Street community was expecting amid a poor economy.

For the period ended March 28, Apple recorded $8.16 billion in revenue, up from $7.5 billion in revenue during the same period last year. Net profit was $1.21 billion, or earnings per share of $1.33. Analysts had been expecting revenue of $7.96 billion and earnings per share of $1.09.

Apple sold 2.22 million Macs, 11 million iPods, and 3.79 million iPhones during the quarter, meeting or exceeding expectations from financial analysts. CFO Peter Oppenheimer called it "the best nonholiday quarter revenue and earnings in our history," in a statement announcing the results.

As usual, Oppenheimer provided third-quarter guidance below what analysts were seeking. The consensus Wall Street estimate for Apple's June quarter was $8.28 billion in revenue and earnings per share of $1.12, while Oppenheimer said Apple expects to record between $7.7 billion and $7.9 billion in revenue and earnings per share between 95 cents and a dollar during the current quarter.

During Apple's earnings conference call, Oppenheimer attributed that lower guidance to, among other things, the fact that Apple has stopped recognizing revenue from iPhone sales after the March 17th iPhone OS 3.0 event, and does not plan to recognize iPhone revenue again until the company ships that software sometime this summer. Apple accounts for iPhone sales on a subscription basis, meaning the company defers the initial revenue from the sale of an iPhone over a 24-month period in order to satisfy an obscure accounting rule.

Mac shipments fell 3 percent compared to last year. It's the first time Mac shipments have fallen year over year, but some had expected worse. Desktop shipments fell 4 percent, and portable shipments fell 2 percent, but revenue was way off: 22 percent in desktops, and 12 percent in portables. Still, as with last quarter, international Mac sales were stronger than U.S. Mac sales.

Apple COO Tim Cook said during the company's conference call that shipments to educational customers are weak right now, given the budget crunch that many U.S. states are facing. He also said that shipments of Apple's most expensive Macs--the Mac Pro and MacBook Pro--were off during the quarter, but that the less-expensive consumer-oriented Macs held up reasonably well.

The iPod lineup appeared to get a clear boost from the launch of the new iPod Shuffle, with Apple selling about 1 million more iPods than analysts had expected. iPod shipments were up 3 percent compared to last year, as revenue fell 16 percent, suggesting that sales of the $79 iPod Shuffle made up a greater amount of Apple's iPod mix than usual.

iPod Touch sales doubled compared to last year, Cook said, and Apple has now sold 37 million iPhones and iPod Touches combined. In March, Apple said it had sold 30 million of those two devices since their introduction.

And as had been foreshadowed earlier on Tuesday, Apple sold 3.79 million iPhones, which Piper Jaffray's Gene Munster predicted based on AT&T's activation numbers for the quarter. iPhone shipments were up sharply compared to last year, but they fell coming off the holiday quarter.

When asked to comment on whether there was any update concerning CEO Steve Jobs' return to the company, Oppenheimer reiterated the company's usual statement: "We look forward to Steve returning to Apple at the end of June."

Correction: This post initially misstated Apple's revenue guidance for the quarter. The midpoint of the range was $7.8 billion.

Does Apple have one more earnings surprise up its sleeve?

This week will supply a telling sign of the tech industry's economic health. Intel hinted last week that the worst was over, while Google was more cautious. Now, all eyes will be on reports from a parade of tech bellwethers--including Microsoft, Yahoo, Amazon, and IBM--for signs that the tech economy is indeed on the road to recovery.

But Apple's earnings announcement Wednesday may be the most closely watched of the tech reports. So far, the company has shown a remarkable ability to navigate through the storms that have dinged virtually everyone else in this industry. Apple's stock is up 24 percent over the last month as investors anticipate another strong quarter from the company. Now the question is what's next.

Financial analysts are expecting Apple to record $7.9 billion in revenue for the period that ended in March, its second fiscal quarter, and earnings per share of $1.09. That compares with the company's own guidance for the quarter of $7.8 billion in revenue and earnings per share between 90 cents and $1.

If Apple matches the analyst estimates, it will have recorded a 6 percent increase in revenue and a 6 percent decline in earnings per share, proving that no one is recession proof. But as anyone who follows Apple's financial performance knows, the company is notorious for providing guidance way below the mainstream estimates, and then dramatically surpassing that guidance 90 days later.

Will it pull off that trick one more time on Wednesday? Judging by what we've seen from its three major divisions over the last three months, Apple is likely to announce another quarter of solid results, combined with the fact that in January Apple Chief Operating Officer Tim Cook expressed a greater degree of confidence in the company's ability to see the future than he did in October. However, it might not be enough to satisfy a loud cabal of bloggers and day traders accustomed to watching Apple soar past estimates.

A breakdown of Apple's performance, sorted by product:

Mac
Apple is expected to have sold around 2.2 million Macs during the quarter, according to Piper Jaffray, which would be a slight decline compared to last year. It seems the March iMac refresh came too late in the quarter to offset poor Mac sales in January and February, and that combined with the weakness of the U.S. economy ensured that Apple lost market share in its best market for the first time in quite awhile.

Still, the numbers quoted by Piper Jaffray and IDC do not take into account online sales (Piper) or international sales (IDC). The Mac grew faster outside the U.S. during Apple's first fiscal quarter than it did inside the U.S., so it's possible that trend continued this quarter. And the market has also been flooded with low-cost Netbooks, a category Apple has declined to enter thus far.

iPod
The first quarter of the calendar year is usually a downer for the iPod group, coming off the holiday shopping season. Apple did launch a new iPod Shuffle model, and the overall iPod numbers (including average selling price) could provide some hint of whether consumers had any interest in the redesigned iPod Shuffle.

At March's iPhone OS 3.0 event, Apple broke out iPod Touch sales for what appeared to be the first time, revealing that 13 million iPod Touches have been sold since that device was first introduced in September 2007. Apple has spent a ton of time and money evangelizing the iPod Touch as a gaming and entertainment platform, and investors will be watching for more signs that the company's attempts to move iPod users onto more profitable devices is working.

iPhone
The iPhone is an important barometer of Apple's profitability. Most of the talk around the iPhone over the past three months has centered on future models, with anticipation that Apple will launch a new piece of hardware alongside the debut of the iPhone 3.0 software later this summer. That's because other than the continued growth of the App Store, there wasn't really an event this past quarter that might have given iPhone sales a kick.

Piper Jaffray expects anywhere from 3.7 million to 4.4 million iPhones to have made their way to customers during the past quarter. That's down from the holiday season quarter, but that's not entirely unexpected as the iPhone settles into seasonal patterns.

The rest
Expect analysts to pepper Tim Cook and Chief Financial Officer Peter Oppenheimer with questions about the state of the economy, Apple's pricing strategy in the computer market, and Steve Jobs' return to day-to-day leadership of the company.

If all went well for Apple during the past quarter, it might also be time for analysts and investors to start wondering what Apple is going to do with all that cash: $25 billion at the end of its 2008 fiscal year. While Apple can point to the poor economy as reason for its thrift, if the company continues to perform well investors are going to expect Apple to invest that cash in something: be it another company, another product line, or investors themselves.

With all the economic doom and gloom in the world these days, Apple executives must be wondering what all the fuss is about.

Apple's Tim Cook and Peter Oppenheimer acknowledged Wednesday that these are uncertain times to be in the retail consumer electronics business. But put aside any doubts about Apple's ability to sustain the first wave of recession. Posting record revenue and profit during its fiscal first quarter, the company shattered analyst predictions on the strength of solid Mac sales and stronger-than-expected iPod sales.

Can it last? Tough to say, given that few can predict how quickly or strongly the economy might rebound in 2009. But Apple actually improved its financial standing during what many considered to be one of the worst holiday shopping periods in generations. And that's likely to impress upon investors that Apple can hold its own even if the economy gets worse; they sent Apple's stock up 9 percent in after-hours trading following the results.

Apple's playbook for the quarter went something like this: Customers responded well to the company's new notebooks, pushing sales up 33 percent compared to last year. Favorable prices from chipmakers and display vendors slashing inventories meant Apple made a little more money on each one, as well.

One problem was that Mac growth inside the U.S. was just 2 percent, while overall desktop sales fell 25 percent. But 16 percent growth internationally made up the difference for Apple. What's more, expected refreshes to an aging iMac design could help lift desktop sales this year.

The other major factor was that the iPod continues to be a consumer electronics phenomenon, with 22 million units flying off the shelves and propelling Apple to a company record for shipments. Most analysts were expecting Apple to record only around 18.5 million shipments, making for a notable discrepancy.

The conventional wisdom was that a slowing economy would take its toll on iPod sales, but there seems to be some truth to a prevailing theory presented by some Apple executives and fans that shoppers recognize the value of the iPod when it comes to gift-giving: the basic iPods are still a hit with the kids and the iPod Touch is turning into a mini-gaming platform in its own right.

Apple knows it can't afford to coast coming off results like these.

It will need to sustain iPhone momentum, even with no new units expected for at least a few months, given the iPhone's importance to Apple's bottom line these days. Cook and Oppenheimer hinted that with 39 out of 50 states projected to run budget shortfalls in the coming year, Mac sales to educational customers--always an important segment for Apple--could be affected. And count on iPod shipment totals to fall dramatically next quarter, as they have in past years coming off the holiday quarter.

But Cook made an interesting comment midway through the conference call when discussing Apple's guidance for the upcoming quarter, which followed the company's traditional conservative pattern. In October, when Apple last reported earnings, the company spoke of the very uncertain economic environment that was hurting its "visibility" into the upcoming year.

That seemed like "a period of time where banks were going down seemingly every other day," Cook said. But now, "it is not as unpredictable as it was in October, perhaps."

Could Apple have already turned the corner on the recession? That's going way too far: Apple's increased confidence in its ability to predict 2009 resulted in guidance that would deliver a 4 percent increase in revenue and a decrease in earnings per share. But given Apple's notorious record of underpromising and overdelivering when it comes to financial guidance, the company could have far more aggressive internal targets for its business in 2009.

And having deposited another $4 billion in cash into a now-enormous war chest of $28 billion probably increases one's confidence as well.

Updated throughout at 3:30 p.m. PST with details from conference call.

Apple reported on Wednesday first-quarter earnings significantly higher than analysts had expected coming off a disappointing holiday season for most tech companies, but provided its usual conservative guidance.

For the three-month period ended December 27, Apple recorded $10.2 billion in revenue, as compared with $9.6 billion a year ago, and net income of $1.6 billion, as compared with $1.58 billion a year ago. That translates into earnings per share of $1.78, far more than the $1.39 in earnings per share that analysts surveyed by Thomson Financial had expected. Expected revenue was $9.75 billion.

On a conference call following the release of the numbers, Apple CFO Peter Oppenheimer noted that Apple passed $10 billion in quarterly revenue for the first time and recorded its highest net income ever. Gross margins also increased thanks to favorable prices for commodities like DRAM, flash memory, and LCD displays, he said.

Analysts wasted little time inquiring about the health of CEO Steve Jobs, who is on medical leave until the end of June to recuperate from what he described as health-related issues "more complex than I originally thought." Without replying directly to the question, COO Tim Cook, who is running the company in Jobs' absence, plunged into a monologue on Apple's culture doesn't "(settle) for anything less than excellence" and that "regardless of who is in what role, those values are so embedded in the culture of this company that Apple will do extremely well."

Investigators with the Securities and Exchange Commission are reviewing how Apple handled the disclosure of information surrounding Jobs' health, according to a report Wednesday by Bloomberg, citing a person familiar with the matter.

Apple sold 2.5 million Macs during the quarter, 22 million iPods, and 4.3 million iPhones. The Mac shipments were about in line with expectations, the iPod shipments were significantly higher, and iPhone shipments were slightly less than estimates that ran all over the map.

With regards to the Mac, Apple saw a strong uptick in sales of notebooks following the launch of new systems in October, Cook said. Portables now account for 71 percent of Apple's Mac lineup, an all-time high, and notebook sales increased by 33 percent compared to last year's first quarter. Desktop sales fell, which Cook attributed to a tough comparison with December 2007, when Apple had just refreshed the iMac, and a general disenchantment with desktop computers in general.

Cook declined to comment on any launch plans for Mac OS X Snow Leopard, the next version of the company's operating system that is expected to make an appearance around or before Apple's Worldwide Developers Conference in June.

Apple continues to check out what's happening with the Netbook market, Cook said, but at the moment isn't interested in a product that is "principally based on hardware that's less powerful than customers want, software that's not good, cramped keyboards, and small displays. We don't think people are going to be pleased with those types of products, but we'll see, we're watching that space."

The iPod shipment totals were surprising to the financial analyst community, which was expecting something around 18.5 million units for the quarter. Perhaps that was because much of the growth took place overseas; iPod units actually decreased in the U.S. compared to last year's first quarter. Overall iPod revenue fell slightly compared to last year, suggesting that the growth came from lower-priced iPods.

On the music front, the iTunes Store had a record quarter for music sales, Oppenheimer said. Music sales especially peaked on Christmas Day and that following week, he said, suggesting that more than a few people received iTunes gift cards this holiday.

iPhone sales, at 4.4 million units, were a little less than expectations of around 4.5 million units. But virtually everyone agrees that with just two holiday quarters under Apple's belt selling the iPhone, it's difficult to predict how the iPhone will fare in a given quarter. For example, about 2 million of the 6.9 million iPhones Apple sold during its fourth fiscal quarter were designated for channel inventory, and there was clearly pent-up demand in that quarter.

Cook noted that Apple is willing to tinker with the price of the iPhone in certain countries, like India, where phones are not subsidized like AT&T does with the U.S. iPhone. But he also declared "we're not going to play in the low-end voice subsidized business. Our objective is not to be the market share leader in the phone industry, it's to build the world's best phones."

Looking ahead to the March quarter, the company followed a pattern familiar to Apple watchers in providing second-quarter guidance well below analyst expectations of $8.2 billion in revenue and earnings per share of $1.13. The company said it expects revenue between $7.6 billion and $8 billion, and earnings per share between 90 cents and $1.

It didn't seem to matter as much as in past quarters, however, as Apple's stock surged 10 percent in after-hours trading. Perhaps investors were actually expecting worse guidance based on the health of the economy, or were simply cheered that Apple appeared to skate past any worries over poor retail sales this holiday season.

After a week spent worrying about the health of CEO Steve Jobs, Apple will look forward to getting back to business Wednesday when it reports its fiscal first-quarter earnings.

The last three months were not kind to computer and consumer electronics companies, but Apple is expected to have weathered the storm better than others. Analysts are predicting the company will report revenue and earnings per share at the high end of the guidance it provided in October, with expectations of $9.76 billion in revenue and earnings per share of $1.38.

The three-month period between October and December is usually one of Apple's best quarters of the calendar year, but this was anything but a typical holiday season. Overall retail sales fell 2.7 percent in December as compared with November, as the full emotional impact of the late-2008 stock market swoon took hold.

We got a bit of an earnings preview last week, when IDC and Gartner reported their PC market share estimates for the fourth calendar quarter. Apple's Mac shipment growth slowed from the strong pace it set throughout 2008, but the company is still growing faster than the market itself.

Measured against a U.S. PC market that fell 3.5 percent compared with last year, Apple's shipments grew 7.5 percent. That suggests that Apple is still enjoying momentum in its Mac division, which no doubt got a boost from the introduction of new notebooks in October.

Still, the economic climate is having some sort of impact on the Mac, which is almost exactly what analysts felt would happen going into this quarter. Most analysts seem to be expecting Apple to have sold around 2.6 million Macs during the quarter, representing decent year-over-year growth at around 13 percent but slower than Apple had been reporting over the last several quarters.

When it comes to the other two legs of Apple's business, however, the prognosis is less clear. iPod shipments, usually the crown jewel of Apple's first fiscal quarter, are expected to decline from last year's 22 million shipments to around 19 million. But there could be a silver lining for Apple if the momentum toward higher-priced iPods like the iPod Touch continues, allowing the company to offset a volume decline in sales with an increase in revenue obtained per iPod.

Predicting the iPhone shipment totals is even less of a science, since Apple's history in this market is too short to have established seasonal patterns. The company sold way more iPhones last quarter than anyone had expected, shipping 6.9 million units. That has dampened expectations for the current quarter, since many of those sales were used by Apple's carrier partners to build inventory ahead of the pent-up demand for the July iPhone 3G launch.

Financial analysts seem to expect around 5 million iPhones to have been sold during the quarter, which would be a steep decline from the company's fourth quarter but a 116 percent increase over last year's first-fiscal quarter iPhone sales.

And going forward into an uncertain economic climate, Apple is expected to provide its usual conservative guidance. In past quarters, the guidance number has been one of the most anticipated aspects of the earnings reports, but this year it seems investors and analysts are more interested in Apple's performance during a holiday season that has caused no small degree of problems for its competition.

With lots of cash in the bank and strong profit margins, Apple is in excellent shape to weather a couple of disappointing quarters that could cause far more problems for the rest of the industry. But after the numbers are revealed, expect the financial community to ask Apple executives Tim Cook and Peter Oppenheimer--the usual conference call participants--to comment on Jobs' health and the company's long-term plans around succession.

Apple's first official response to rumors about Jobs' health came on an earnings call in July, when the company declared his health was a private matter. Things have changed quite a bit since then, with Apple revealing last week that its CEO is taking a six-month medical leave of absence to recuperate from health problems that have caused him to lose a great deal of weight.

Cook, who is running the company during Jobs' absence, is unlikely to say too much more about Jobs than the company did in last week's media advisory. But analysts could use this opportunity to focus on calling for Apple to make its long-term succession plan clear to the public, something the company has resisted doing until this point.

Updated throughout at 3:15 p.m. PT after Apple's conference call.

Apple's fourth-quarter profit soared past expectations on extremely strong sales of the iPhone, but revenue was a little light, and the company left itself a lot of wiggle room heading into what it called a "challenging" environment.

For the company's fourth fiscal quarter, or the period ended September 27, Apple reported revenue of $7.9 billion, compared with revenue of $6.2 billion in the same quarter last year. Net income was $1.14 billion, or earnings per share of $1.26. Analysts had been expecting revenue of $8 billion and earnings per share of $1.11.

iPhone sales were astonishing during the quarter: Apple sold 6.9 million iPhone 3Gs during the quarter, which was far more than analysts had been anticipating and more than the total number of original iPhones sold in a year. Apple lifted the kimono a bit on just how much revenue the iPhone is contributing to the company's future prospects, explaining just how much revenue the iPhone would have contributed to Apple's results if the company didn't use subscription-based accounting methods for that product.

In a rare appearance on the conference call, Apple CEO Steve Jobs noted that Apple outshipped Research In Motion during the quarter and called the iPhone results "stunning." "Some remarkable things are happening at Apple," he said.

But the most eagerly awaited number was Apple's guidance for its first fiscal quarter, which coincides with the all-important holiday shopping season. Apple said it expects to record revenue between $9 billion and $10 billion and earnings per share between $1.06 and $1.35.

Analysts had been expecting more, of course, as Apple seems to always provide guidance under what the analysts had sought. The Wall Street group had expected revenue of $10.6 billion and earnings per share of $1.65.

Executives were cautious about predicting the future in the company's press release and on the conference call. "We don't yet know how this economic downturn will affect Apple. But we're armed with the strongest product line in our history, the most talented employees, and the best customers in our industry. And $25 billion of cash safely in the bank with zero debt," Jobs said in the press release.

One slight worry could be Mac shipments, which came in at 2.6 million units for the quarter, which was a little below the consensus estimates of 2.7 million units. Apple COO Tim Cook explained the results by noting that the K-12 education market for computers fell 7 percent during the quarter compared to last year--28 percent in budget-strapped California--and also opined that "speculation" concerning the new MacBooks introduced earlier this month could have caused potential customers to delay their purchases in late September. He cautioned that it was difficult to tell whether the delays in September were due to the economic conditions as the stock market crashed in late September or by hesitant customers, but noted that notebook sales took off in the first week since the new models were introduced.

iPod units were about as expected at 11 million units during the quarter. This was the best non-holiday quarter for iPod sales in Apple's history, said CFO Peter Oppenheimer. Apple generally sells about twice as many iPods each holiday shopping season, with the bulk of those purchases coming in December, Cook said.

The fourth quarter marked the first time Apple began breaking out the sizable amounts of deferred revenue from the sales of the iPhone and Apple TV, which are being treated with subscription-based accounting methods. Apple is using a non-GAAP (generally accepted accounting principles) reporting method to outline the deferred revenue amounts, which are meant to provide a picture of what iPhone sales would look like if Apple recognized all the revenue from the sale of an iPhone at the time the purchase was recorded--like it does with the Mac--rather than recognizing that revenue over a 24-month period.

Apple recorded $3.5 billion in current deferred revenue related to the iPhone and Apple TV during the quarter, compared with $1.4 billion in deferred revenue during the third quarter of this year. It recorded $2.3 billion in noncurrent deferred revenue related to those two products. Those numbers pushed Apple's non-GAAP revenue for the quarter to $11.7 billion and its net income to $2.4 billion.

I'll examine the impact of those numbers more closely in a follow-up post, but they basically show that the iPhone has turned into a huge money-maker for Apple. If Apple had used standard accounting treatment for the iPhone, it would have accounted for 39 percent of Apple's business during the quarter, Jobs said.

Apple's fourth quarter should have survived the economic chaos currently rounding the globe, but what Wall Street will care about Tuesday afternoon is its outlook on the future.

Despite a few more product glitches than usual, it's been business as usual at Apple during the past three months: strong Mac growth and steady iPod sales, with the added bonus of soaring iPhone sales this time around. But the company finds itself in a much different economic environment than last time Apple held an earnings conference call in July.

Will consumers who just watched the value of their retirement savings plunge by 30 percent or more still want to load up on high-end consumer electronics equipment this holiday season? Analysts seem to believe the company's hot streak is likely to continue so long as Apple products remain in the good graces of the public, but no company is immune from the effects of a prolonged recession.

Wall Street analysts expect Apple to have recorded $8 billion in revenue and earnings per share of $1.11 for its fourth fiscal quarter, which would represent increases of 29 percent and 10 percent, respectively. As we did last quarter, let's take a look at Apple's three main businesses and their performance during the July to September quarter, then examine what might lie in store for Apple as 2008 comes to a close.

Apples for the students
The fourth quarter of Apple's fiscal calendar is almost always one of its strongest for Mac sales, as it takes advantage of the back-to-school shopping season. The Mac brand is extremely strong among the collegiate set, as Apple COO Tim Cook outlined last week at the company's notebook event.

Even without the new MacBook and MacBook Pros, Apple enjoyed an excellent quarter for Mac sales, according to recent market share results. Piper Jaffray's Gene Munster thinks a repeat of the free-iPod-for-students promotion of past years probably helped, and he expects Apple to have sold 2.8 million Macs during the quarter, as compared with Wall Street expectations of 2.5 million units. Last year during this period, Apple sold 2.1 million Macs.

None of the new notebooks will contribute to Apple's fourth quarter, which ended a few weeks earlier. But the decision to adopt the unibody chassis on all new MacBooks and MacBook Pros could prove to be a more expensive proposition at first, until the process becomes old hat. The research and development costs to get that production process up and running took place in the past quarter, which might have dinged Apple's margins by the point or two that CFO Peter Oppenheimer warned was coming last July.

No static at all
Well, given the reception problems experienced by many iPhone 3G owners, perhaps that's not the best title for this section. But despite the bugs that required an all-hands-on-deck approach to the 2.1 software update, iPhone sales took off during the past quarter, with analysts expecting Apple to have sold as many as 5 million units.

The lower acquisition price of the new iPhone as well as the global reach appear to have Apple well on its way to hitting its 10 million shipment goal for 2008. In fact, some bloggers believe the company has already reached that milestone. Whatever the number, it's clear the iPhone is becoming a huge part of Apple's fortunes more than a year after it was introduced, and while rivals like Research In Motion are preparing an offensive for later this year, the iPhone is now well-established in the market.

The song remains the same
The "funnest ever" iPods were probably unveiled too late in the quarter to make much of a difference to Apple's iPod sales during the quarter, although the tag line made copy editors around the world cringe in horror. Expect mostly the same iPod story as the last several quarters have shown: modest unit growth, modest revenue growth, as iPod saturation mixes with a switch from lower-priced iPods to higher-priced units like the iPod Touch.

In a future age
In July, Apple itself said it expected revenue of $7.8 billion and earnings per share of $1, but like death and taxes, an underpromise-overdeliver approach to guidance from Apple is a given. The worst effects of the stock market crash came in the last few weeks of Apple's quarter, so the economic environment is unlikely to have too big an impact on the current quarter, especially given the health of the Mac and the iPhone during the period.

Analysts are likely to pepper Oppenheimer--with little success--regarding his expectations for the current quarter. Apple's guidance will be a key driver behind those questions; everyone knows the company's guidance will likely come in below the $10.6 billion in revenue and $1.66 in earnings per share that analysts are expecting for the company's first fiscal quarter, because Apple has done that almost every quarter for the past several years.

But how far below those expectations is Oppenheimer willing to go? That number will either be spun as an indication that Apple thinks it can weather the storm better than the Web 2.0 crowd--which is probably a given anyway--or that Apple is in trouble as consumers keep the wallets wedged in their pockets.

As I said earlier, no company that depends on consumer spending is immune to the effects of a prolonged recession. Some will do better than others, however, and Apple appears to be in better shape than some of its competitors.

Business spending on IT is quick to plunge during a recession, and Apple depends on that sector for very little of its revenue. The Mac and the iPhone are perhaps the two most profitable segments of the company's business and both are growing faster than the market itself as they take market share from the competition. Apple has the headroom to sustain its recent growth for at least a quarter or two even if the economy slows, because it's still drawing from a huge pile of potential switchers for growth.

That is, of course, assuming the economy doesn't get even worse.

If you've ever wondered what a corporate earnings call is like, but can't get away with listening to one for an hour at work, come back here for live coverage of Apple's third-quarter earnings call starting at 2 p.m. PDT. Here's a post with the basic numbers--they were good--and here's a link to Apple's Webcast if you want to listen along.

1:57 p.m. - The pre-call music on an earnings call is not as much fun as at Macworld or WWDC. The financial analysts must need soothing classical music to calm their nerves.

2:08 p.m. - The prepared remarks are beginning, preceded by the usual disclaimers that effectively say, "Everything we're about to tell you could change." Peter Oppenheimer, chief financial officer, and Tim Cook, chief operating officer, are on the call.

After going through the basic numbers, Oppenheimer goes into a prepared speech on the company's performance. Revenue growth this year was much better than last year. Retail store sales grew 58 percent compared with last year, and traffic in the stores was up as well.

The Mac accounted for 61 percent of Apple's total revenue, and it was the best Mac quarter in Apple's history, Oppenheimer said. Desktops were up 49 percent, while notebooks were up 37 percent compared with last year. The education business, the main catalyst during the company's third quarter, was also strong.

iPod Shuffle growth led iPod shipments, which of course was prompted by the price cut in February. Oppenheimer said Apple is gaining share internationally with the iPod, and holding serve in the countries that have been selling iPods for a long time. On the iTunes front, more than 5 billion songs have been sold.

2:12 p.m. - The iPhone, of course, didn't have the greatest quarter, but that was expected. iPhone revenue wasn't recognized during the quarter for any iPhone sold after March 6 because the company announced the iPhone 2.0 software that day. The iPhone 3G is off to a good start, Oppenheimer said. More than 25 million applications have been downloaded from the App Store already.

Apple's retail stores sold 476,000 Macs and, as has been the case for the past several quarters, half of those were sold to people who had never owned a Mac before. The average revenue per store was $6.8 million during the quarter, with well over 200 stores open during the quarter. The Beijing store opened last weekend, and Switzerland and Germany are coming soon.

Gross margins were improved; that was a big topic last quarter. Some of that was from a one-time benefit related to a contractor manufacturer that I didn't quite catch, but component prices were also better during the quarter than Apple had expected, Oppenheimer said.

2:15 p.m. - Apple expects record iPhone shipments this coming quarter, as the iPhone 3G gets going. Margins will go down, however, because of the impact of the free iPod promotion for students, and a mysterious "new product introduction" that Oppenheimer said he couldn't get into today.

"We just reported the strongest quarterly Mac sales in Apple's history," Oppenheimer said in wrapping up his prepared remarks. The question-and-answer session is about to start, that's open only to the financial analyst community, and should run until about 3 p.m. PDT.

2:20 p.m. - The first question is, of course, about the mysterious new product introduction. An analyst wants to know if the margin hit related to that product also will affect revenue, since Apple's revenue guidance is below expectations as usual. Oppenheimer dodges the question, which is his job. Another question about emerging market sales gets a bit more of a response from Cook, who says Europe and Japan grew higher than the overall figure during the quarter.

Citigroup wonders about the Best Buy store relationship, as well as Mac inventories, which the analyst thinks are a little light. Cook says 170 Best Buy stores were added during the quarter, around 570 in total, with 600 Best Buys expected to carry the Mac by the end of the quarter.

The margins usually get a fair amount of scrutiny, and the next question tackles that issue. This quarter was a little better than Apple had guided driven by what Apple is calling a "one-time true-up" with a contract manufacturer. I have no idea what a true-up is. Most commodities were soft during the quarter as well, Cook says, and they expect that to get back to a more normal pattern in the current quarter.

Everyone so far wants to know if the new product introduction will involve price cuts, and Oppenheimer is being careful to dance around the issue to avoid giving away the nature of the new product. One likely candidate is the iPod Touch.

2:26 p.m. - The question comes up about CEO Steve Jobs' health. "Steve loves Apple. He serves at the pleasure of the Apple board, and he has no plans to leave Apple. His health is a private matter." That won't do anything do dampen the speculation about Jobs' health, for sure.

2:30 p.m. - A question comes up about Apple TV, which Cook once again refers to as a "hobby," downplaying expectations for huge volumes but saying the company is pleased with the shipments so far.

iPod sales grew 10 percent in the U.S., and 15 percent outside the U.S., according to Oppenheimer.

iPhone 3G supply comes up. Cook says that response has been "stunning," repeating much of the opening statement about the iPhone 3G. There are "stockouts," Cook acknowledges, but says he's pleased with the production ramp and says Apple is "shipping units as fast as we can." Cook says that on August 22 the iPhone 3G will launch in 20 additional countries, and another 30 or so will follow by the end of the year.

Gene Munster asks why the iPod Touch gets a different accounting treatment than the iPhone, which I've never understood. Oppenheimer says that iPhone users get free software upgrades, while iPods and Macs don't. Well, OK then.

2:38 p.m. - It sounds like pricing moves are going to happen in one way or another during the upcoming quarter, but Oppenheimer keeps fending off questions from analysts trying to get a better picture: "We are going to be delivering state-of-the-art new products that our competitors are not going to be able to match."

One analyst asks about the guidance. Apple almost always guides conservatively. "We give you guidance we have reasonable confidence in achieving," Oppenheimer said. "I have guided revenue up 5 percent this quarter from where we ended the June quarter. We are confident in our business." The issue is the gross margin going down from the current levels, which were better than expected, and now the analysts seem to be trying to figure out why it's going down again.

2:45 p.m. - More margin questions again. This analyst wants to know if Apple will have a more flexible pricing structure. Oppenheimer likes Apple's pricing, and discusses the range of pricing with the iPod, saying they are as competitive today with the Mac as Apple has ever been in Oppenheimer's 12 years with the company.

An iPhone-in-the-corporation question leads into a Mac-in-the-corporation question. Cook notes that one-third of the Fortune 500 participated in the iPhone beta program, and says that companies like Oracle, Genentech, and The Southern Co. are deploying iPhones inside their corporations. It sounds like AT&T is going to do the heavy sales lifting in the enterprise for the iPhone.

A marginal margin question comes up about the iPhone 3G, given that the iPhone revenue is recognized over a two-year period, but iPhone expenses are recorded as they happen, for things like marketing or research and development. Oppenheimer says the launch event expenses for the iPhone 3G are within the company's guidance for the upcoming quarter.

Another margin question concerns the App Store, and whether that's profitable. Oppenheimer says the App Store is like the iTunes Store, in that it's not a great profit generator even though it contributes revenue. The idea is like with the iTunes Store that having the store promotes the hardware.

2:50 p.m. - Can the U.S. consumer continue to keep Apple's stores humming if they run out of money? Oppenheimer declines to comment on the overall health of the economy as it unfolds over the rest of the year, but says Apple didn't really see a drop-off related to consumer health. "We're certainly aware of the economic environment, and we've considered it along with other factors in preparing our guidance," he says.

The next question is about the iPhone 3G stockouts, and whether or not they were caused by some sort of component problem, and if not, why Apple didn't wait until it had more units on hand to launch with more supply. Cook says the demand has been "staggering," and that the ramp is right on schedule. He points out that 20 additional countries are coming, but the question comes back that since demand far outstripped supply, why launch now? Cook says they are confident in the supply, without directly answering the question about components.

2:55 p.m. - A question comes up about iPhone competition, and how the rest of the mobile industry is starting to come out with similar phones. Cook says, "We think that software is really the key ingredient for a great mobile experience, and we think we are years ahead of the competition in this area." Oppenheimer also points to the App Store as a way that Apple will be able to fend off competitors.

Cook notes that they don't mind competition so long as companies aren't ripping off Apple's intellectual property, and says that Apple will be "very aggressive" in defending its iPhone patents. He reiterates the 10 million iPhones in 2008 prediction, and thinks that Apple is growing the entire market because the iPhone is making more people want a smartphone as opposed to a generic mobile phone.

The $400 price was a problem for iPhone sales, Cook said. Half the people Apple surveyed said they would have bought an iPhone prior to the iPhone 3G, but they thought the price was too much.

One analyst wants to know how the free iPod promotion for students buying Macs affects the accounting for iPods. That's a rebate, and Oppenheimer says that's accounted for as a reduction in revenue. iPod selling prices were lower during the quarter because of the increase in unit shipments of the $49 iPod Shuffle.

3:00 p.m. - Oppenheimer thinks there was some iPod cannibalization from the iPhone, but repeats what Apple has said in the past: they'd rather cannibalize themselves then have somebody else do it for them.

The Japan business has been a pain in Apple's side for a while now, and one analyst wants to know if that's in line with the company's expectations. Cook says he's happy with their performance so far, since the revenue growth rate has been better than the overall company and the Japanese market has been somewhat flat. Apple picked up Mac share in Japan, and significant iPod share, he said. "It's quite the turnaround from how we were doing in 2006," Cook said.

That will wrap things up for today. Apple's stock is getting hammered in after-hours trading on the low guidance, presumably, but the numbers for the past quarter are hard to argue with.

Updated 2pm PT with more details from the release.

Apple reported record Mac sales and one of its best third quarters ever, but its usual conservative guidance should set off the usual Wall Street craziness.

For the company's third fiscal quarter, which ended June 28, Apple reported $7.46 billion in revenue and net profit of $1.07 billion, equal to $1.19 per share. That far exceeds the company's own guidance for the quarter and also handily beats Wall Street's expectations of $7.37 billion and $1.08 per share.

Mac sales were about in line with expectations, at 2.5 million units shipped during the quarter, and iPod shipments were actually a little higher than expected, at 11 million units. Mac shipments grew 41 percent, while iPod shipments grew 12 percent.

Surprising no one, however, Apple's guidance for the upcoming quarter was well below Wall Street forecasts. The company said to expect $7.8 billion in revenue and earnings per share of $1, while analysts were looking for $8.3 billion in revenue and $1.24 in earnings per share.

I'll update this post in a bit with some more numbers. Stay tuned for live coverage of the company's earnings conference call at 2 p.m. PT.

UPDATE - iPhone sales were 717,000 during the quarter, which was about what we had expected. iPhone sales were much lower due to the supply issues Apple ran into around the middle of May, but things have certainly picked up since then, with 1 million iPhone 3Gs out there already and lines and shortages awaiting those who want one now.