Apple's Saucy Quarter

An apple a day keeps the doctor away. But laughter is the best medicine, and last night's earnings report from Apple (NASDAQ:AAPL) gave the company's shareholders plenty of reasons to smile.

The company shipped 1.6 million Macs in the quarter, most of them notebooks sold during the back-to-school season, compared with 1.2 million in the year-ago period. iPod shipments reached 8.7 million, up from 8.1 million, though the average selling price there declined by $7 to $178 per unit and the resulting iPod revenue was rather flat. The iTunes service saw the biggest boost of all with a 71% rise in revenue, and iTunes is set to overtake the desktop computer segment in revenues by next year at these rates.

Thanks to the iPod/iTunes combo and the boutique flavor of its computer systems, Apple runs at wider margins than competitors like Dell (NASDAQ:DELL) and Hewlett-Packard (NYSE:HPQ). It's also growing revenues and profits faster than either of those rivals. On the downside, Apple stock is priced at nosebleed levels; it is certainly more expensive than that of the iPod's biggest threat, SanDisk (NASDAQ:SNDK), which sports even better margins across the board than Apple.

It's also worth noting that last night's report covered preliminary financial results, because the company is still busy calculating the financial impact of stock options shenanigans from years past. Apple is still technically delinquent in its SEC filings until the final adjustments are made and proper 10-Q and 10-K statements are filed for the past three quarters.

The stock is very unlikely to get delisted from the Nasdaq over these infractions, thanks to the lengthy appeals process and demonstrated efforts to correct the problems, just as CEO Steve Jobs probably won't lose his grip on the company over financial issues that never benefited him personally. Still, it's all part of the scenery and worth keeping in mind when evaluating the company.

Macs with Intel (NASDAQ:INTC) inside have proven much more popular than the old systems based on Freescale (NYSE:FSL) Power processors. The ability to load Microsoft (NASDAQ:MSFT) Windows on the new systems through the Boot Camp software probably helped, and the systems are riding the coattails of the iPod's popularity, too. Now all the cool kids at school have an iPod and a MacBook Pro, and your kid needs to keep up with the trends. It's a powerful mishmash of overlapping halo effects, and Apple's management says it's extremely excited about the product pipeline stretching into 2007. As long as it can keep the Apple sauce coming, investors should be very happy.

A final word of warning, though: Should the company dare to stumble along the way, you're looking at very steep drop-off, as this company is nothing without a steady stream of home-run products.

Further Foolishness:

• Apple: Rotten at the Core
• Apple's Movie Store Is Open
• Apple Prepares to Bite Back
• Dueling Fools: iPod

Intel, Dell, and Microsoft are Motley Fool Inside Value picks. Take a 30-day free trial to see what else Philip Durell and his merry Fools have found in the market's bargain basement. Dell is also a Stock Advisor selection.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdingsif you like, and Foolishdisclosureis humming along just fine.