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Apple (NASDAQ:AAPL) reported fiscal second quarter results yesterday crushing estimates of both Wall Street analysts and as well as industry research groups like IDC. Apple reported their highest quarterly iPhone sales ever with 8.75 million units sold worldwide, leading Kaufman Bros analyst Shaw Wu to remark,

The iPhone numbers nearly match the Christmas sales numbers. You have to ask whether Christmas has come again for Apple in March.

Apple reported net income of $3.1 billion, up 90% from Q2 2009 and revenue increased 49% year-over-year to $13.5 billion. Earnings per share came in at $3.33. Gross margin was 41.7%, 270 basis points above Apple’s guidance. Gross margin for the current quarter is however expected to fall to 36% with 25% of the drop attributed to the introduction of the iPad.

Consensus analyst expectations for the quarter were earnings of $2.43 per share and these expectations had already been revised higher multiple times over the last three months. IDC had expected Mac sales to increase 24% when compared to Apple’s 33% year-over-year increase to 2.96 million units. Industry research firm Gartner was on the money expecting Mac sales to increase 34% year-over-year. Based on Gartner estimates, Apple is the fifth largest PC vendor in the United States with 8% market share.

Going into this quarter Apple has strong tailwinds in the form of the iPad, a new line of MacBook Pro laptops that was released just this week (it sucks that my four month old MacBook Pro is already outdated) and a new version of the iPhone that is widely expected to launch in June. In the words of Apple COO Timothy Cook regarding the iPad, “We will see where this thing goes but it has shocked us the level of demand at least initially”. Considering their experience with iPhone demand over the last three years, one would hardly expect Apple to be caught off guard by the demand for iPad, which we discussed in the article The iPad Revolution: Naysayers are Missing the Big Picture last week. The comment by Mr. Cook combined with Apple’s decision to delay the international launch of the iPad clearly indicates strong sales of the product.

A breakdown of the results by product line is given below. Once I compiled this information from their conference call transcripts, it was interesting to see that the average selling price of the iPhone dropped to $600 from $620 in the first quarter but is up from $579 in Q2 2009. Also worth noting is that while iPod units have dropped year-over-year, revenue was up 12% due to a higher mix of the more expensive iPod Touch. iPhone revenue mentioned below does not include revenue from accessories and carrier payments.

Product Segment Q2 2010

(3/27/2010)

Q1 2010

(12/26/2009)

Q2 2009

(3/28/2009)

Y-o-Y Growth
Mac (Units) 2.94 million 3.36 million 2.22 million 33%
iPods (Units) 10.9 million 21 million 11 million -0.91%
iTunes (Revenue) $1.1 billion NA NA NA
iPhone (Units) 8.75 million 8.7 million 3.8 million 131%
iPhone (Revenue) $5.3 billion $5.4 billion $2.2 billion 141%

Apple earned $7/share in the first half of fiscal 2010. Analyst expectations for the year were $12.06/share based on Q2 coming in at $2.45. Using the higher Q2 actual EPS of $3.33 and leaving the consensus analyst expectations unchanged for the second half of the year, we still get an EPS of $12.94 for fiscal 2010. Based on yesterday’s closing price of $244.59, we get a forward P/E of 18.89.

The company has nearly $23.155 billion in cash and short-term investments on its balance sheet, which works out to about $25 per share. Given the strength of its balance sheet, high growth and a slate of new products, the stock probably still has a lot of room to run.

Voluntary Disclosure: No position in Apple.

Source: Christmas Comes Early to Apple Investors