Apple reported most profitable Q3 and highest Mac sales ever, Earnings beat Analysts' Estimate by 28 percent

Apple had an outstanding third quarter of their 2007 fiscal year (Q3 2007) posting a $818 million net profit, its highest third quarter profit ever. Earnings per share (EPS) came in at 92 cents on revenue of $5.41 billion, blowing away the Thomson Financial analysts' consensus estimate of 72 cents by nearly 28 percent (see chart at right). Gross margin was up to a very remarkable 36.9 percent and cash on hand and short term investments now total $13.8 billion, up from $12.6 billion last quarter.

Compared with last year's third quarter (Q3 2006), Q3 2007 is up 73 per cent in net profit, up 24 per cent in revenue, up 70 percent in earnings per share and up 22 per cent in gross margin.

This terrific financial performance was driven largely by increased sales of Macs by 33 percent and increased sales of iPods by 21 percent over Q3 2006. The growth rate in Macs sales continued to exceed the industry average resulting in an increase in market share. The sales of Macs reached 1,764,000, the highest of any quarter on record by over 150,000 units.

Sales of Apple notebooks, the MacBook and MacBook Pro, were 1,130,000 or some 64 percent of total Mac sales. The notebook sales were up 42 percent from Q3 2006.

Desktop (iMac, Mac mini, Mac Pro and Xserve) sales at 634,000 were up a healthy 20 percent from Q3 2006. Apple executives also reported a positive "uptick" Intel-based Mac Pro sales due to the release of Adobe's Intel-native Creative Studio CS3 and updated Apple pro applications.

iPod sales reached 9,815,000, up 21 percent from Q3 2006.

Apple TV sales are lumped in the "Other music" category which showed a 33 percent increase over Q3 2006.

iPhone sales for the 30 hours in Q3 2007 were 270,000.

Sales revenue was up over Q3 2006 in two geographical areas (Americas and Europe) by 21 and 29 percent but stable in Japan.

The Apple retail stores are still doing well. Sales revenue increased 33 percent over Q3 2006. New-to-Mac sales continue to be over 50 percent of their sales according to Apple executives. They also mentioned that they planned to open 12 more stores by the end of the year for a total of 197.

A few other interesting tidbits from Apple's late afternoon analysts' conference call (replay it here) with Apple CFO Peter Oppenheimer and COO Tim Cook answering questions, focused mainly on the iPhone.

Apple reported sales of 270,000 iPhones, nearly twice the number of AT&T activations (149,000) just as we projected yesterday morning. However, the financial impact on Q3 (i.e. 30 hours worth) was very small, only $5M due mainly to accessory sales. Early iPhone sales leaned towards the 8GB model rather than the less expensive 4GB model.

Apple is on track to meet their goal to sell 1 million iPhones by end of Q4 2007 and 10 million by end of 2008. In contrast, it took seven quarters to sell 1 million iPods. Apple executives stated that there is "absolutely no evidence" so far (i.e. 30 hours of the third quarter) that the iPhone is cannibalizing iPod sales.

The education market channel had strongest quarter ever in Q3 2007 with gross margins around 37%.

Finally, Apple is expanding it relationship with Best Buy. This effort may finally put some Apple products in stores in the most Mac-centric state in the U.S.--Maine.

The fourth quarter is typically good for the back to school market segment and that segment is coming off a record Q3.

"Looking ahead to the fourth fiscal quarter of 2007, we expect revenue of about $5.7 billion and earnings per diluted share of about $.65," Peter Oppenheimer, Apple's CFO.

According to Oppenheimer, the forecast of a reduced earnings per share is due to expected higher component prices, the cost of educational promotions and a "product transition."

The latter comment may portend that some new or significantly upgraded hardware is due to surface along with Mac OS X 10.5 "Leopard" in the fourth quarter.

Here is Apple's press release. [Bill Fox]