So much for expectations. Apple (AAPL) blew past them all — its own and those of a crowd of increasingly bullish analysts — by reporting its most profitable quarter ever, earning $1.82 a share on revenue of $9.87 billion for the fourth fiscal quarter of 2009.

The Street was expecting quarterly earnings of $1.42 on revenue of $9.2 billion, according to Thomson Financial.

Apple's shares exploded in after-hours trading. Having closed at $189.86, shares leaped more than 13 points in the next hour and 40 minutes to $202.87 — one thin dime away from the all-time high of $202.97 set in intraday trading on Dec. 27, 2007.

Sales for the year were a record $36.5 billion, up 12.5% from 2008. Earnings per share for the year topped $6.29, up more than 17% from the year before.

Strong sale of iPhones — following price cuts and the introduction of a new model — helped boost Apple's earnings.

But the big surprise was the Macintosh. Apple sold 3.05 million Macs for in Q4 — a 17% increase from same quarter last year — thanks to its new Snow Leopard operating system, re-energized back-to-school sales and a big order from the state of Maine.

"We are thrilled to have sold more Macs and iPhones than in any previous quarter," said Steve Jobs in a prepared statement."

Highlights from Apple's earnings report include:

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Apple passed an important milestone last quarter that nobody on Wall Street seems to have noticed: the iPod, once Apple's (AAPL) No. 1 source of revenue, fell into third place after the Mac (No. 1) and the iPhone (No. 2).

Think of Apple's business model — as Steve Jobs often does — as a three-legged stool: Mac, iPod, iPhone. As recently as 2006, the iPod leg accounted for 55.5% of Apple's revenue. By last quarter, its share had shrunk to less than 18%.

But this is a good thing, argues Bullish Cross' Andy Zaky, a day trader and occasional blogger whose estimates of Apple's earnings regularly beat — by a long shot — the estimates published by professional analysts.

"Many Apple critics have argued that Apple would essentially fall off the earth because at some point in time the iPod's growth would collapse," says Zaky. "The second part is true.  The iPod growth rate has in fact fallen off a cliff as Apple posted its first yearly drop in iPod sales ever in Q3."

"However," he adds, "Apple is still firing on all cylinders thanks to the explosive growth of the iPhone."

To make his point, Zaky has prepared three charts that pretty much say it all.

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Apple (AAPL) on Wednesday posted sharply higher revenue and earnings in its second fiscal quarter of 2009, beating both its guidance and analysts estimates.

iPhone sales were particularly strong — up 123% year to year — and seem to have offset a 3% decline in the Mac division.

The headlines from the company's press release:

• Revenue: $8.16 billion, up 8.16% from $7.94 billion in Q2 2008
• Profit: $1.21 billion, up 15.8% year to year from $1.045 billion
• EPS: $1.33 per diluted share up 14.6% from $1.16
• iPods: 11.01 million up 3.3% from 10.644 million
• iPhones: 3.8 million, up 123% from 1.7 million
• Macs: 2.22 million down 3% from 2.289 million
• Gross margin: 36.4%, up from 34.7% in Q1
• non-GAAP revenue: $9.06 billion, including deferred revenue from 7 quarters of iPhone sales
• Guidance for Q3: Earnings of $.95 to $1 on revenue of $7.7 to 7.9 billion

CFO Peter Oppenheimer's canned quote: “We are extremely pleased to report the best non-holiday quarter revenue and earnings in our history."

That 36.4% gross margin is actually quite impressive, particularly in this economy. It must make the PC makers fighting over the razor thin profits in the netbook market crazy.

The conference call:

5:03 p.m. ET: Were in.

5:04: Peter Oppenheimer is going over the numbers summarized above.

5:05: Talking about how difficult it was to compare Mac sales, given the 50% growth last year. "Very positive about Mac performance."

5:06: Touts iLife and iWork.

5:07: iPod sales. "Strong sales" of iPod touch, but no numbers. Share of MP3 market over 70%, according to NPD. iPod sales growth in Europe, Australia and China.

5:08: iTunes sold developments. App store. Over 35,000 applications. This is a new stat. Close to 1 billion downloads (but no cigar today).

5:09. iPhone. Now in 81 countries. Rev recognition $1.52 billion, up more than 300% from last year. Repeating what's new in iPhone 3.0. Deferring rev. on all iPhones sold after March 17.

5:11: Stores. Now 252 stores, one new this quarter. Rev. 1.47 billion, up from 1.42 billion, but average sales per store was down: $5.9 million down from %7.1 million.

5:13: Gross margin discussion. Why up? Commodity costs. Higher-rev products. Etc. He's losing me.

5:13: Cash discussion.

5:14: Guidance: Forecasting is "challenging." Rev: 7.7 billion to $7.9 billion. GM: 33%. OpEx $1.35 billion. Tax rate: 31%. EPS": 95 cents to a dollar.

Confident. Pleased. Etc.

5:16 Q&A below the fold.

See also: Five key quotes from Tim Cook.

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When Apple (AAPL) reported its fiscal 2009 first-quarter earnings, exactly three months ago, the stock opened the day at $78.20, its lowest point since October 2006.

On Wednesday, when Apple is scheduled to report its second-quarter results, the same shares opened at $122.27 — a 56% increase.

While that's still below the price targets set by most analysts — many of whom revised their targets upward in just the past week — some think Apple's share price has got ahead of itself.

RBC Capital's Mike Abramsky (an Apple bear) said as much in a note to clients Tuesday. "Valuation has risen faster than peers … and while we expect near term upside around the refreshed iPhone, we continue to see elevated challenges ahead to valuation."

Still, Apple is not in the same kind of trouble as its competitors — like Dell (DELL) for example. Apple still has rich cash holdings ($25 billion, or $29 per share), enviable profit margins (34.7% last quarter) and the deferred revenue from seven quarters of iPhone sales (which could add 30 or 40 cents to its earnings per share).

But the company has a basic problem with its fundamentals: two of its three primary engines of growth have stalled.

As Silicon Alley's Dan Frommer points out, the Street is expecting Apple to report that it shipped 2.1 to 2.2 million Macs in the second quarter — a year-over-year decline of 4% to 9%. That would represent the first time in five years that Mac sales have shrunk. Moreover, it's being compared with a quarter (2008 Q2) in which Mac sales grew by more than 50%. (See chart below.)

Chart: Andy Zaky

Meanwhile, iPod shipments are also expected to shrink — a 6% decline, to about 10 million units.

The iPhone — which was supposed to fill the gap — is still on its growth curve. The Street expects Apple to report that it shipped 3.3 million units in the quarter, nearly doubling last year's Q2 shipments of 1.7 million.

But that may not be enough to make up the difference. The consensus, according to Thomson Financial, is that Apple will report earnings of $1.09 a share on revenues of $7.94 billion — a 5.7% year-to-year increase in revenue and a 6% decline in earnings.

"How can the market justify giving Apple a 22 P/E," asks Andy Zaky of Bullish Cross, "when it's not growing at all?"

Zaky, a blogger-analyst who has taken his Apple profits and turned "agnostic" on the stock, acknowledges that he could be wrong. One could argue, he says, that the market has already adjusted for the current state of affairs by taking Apple's stock price from $200 to $120. Or that Apple's growth drivers have stalled because of weakness in the economy and not because there's anything inherently wrong with the company.

And there are several things that could kick-start Apple's growth. Like if the rumors are true that Apple is about to cut an iPhone deal in China, or that it's set to unveil a new family of iPhones, or that it's working on a new device that will be its answer to all those $400 netbooks — or that the global economy has turned a corner and started to recover.

Meanwhile, the pressure is on COO Tim Cook (standing in for Steve Jobs) and CFO Peter Oppenheimer to report Q2 results that surprise the skeptics, chart a path for growth and offer guidance for Q3 that, while dutifully conservative, reflects a little more confidence in Apple's future.

Apple will report its earnings on Wednesday after the markets close. A conference call with reporters and analysts is scheduled for 5 p.m. ET (2 p.m. PT). Tune in here for live coverage and analysis.

See also:

• Bearish grunts from a pair of Apple bulls
• Why Apple’s shares rose as its market share shrank
• Kaufman’s Wu changes tune, ups Apple target 26%
• Barclays raises its Apple target 26%

Below the fold: more Zaky charts, including operating expenses by quarter and Mac sales by region.

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This was a live blog from Apple's (AAPL) third quarter 2008 earnings call, posted in reverse order with the newest entries on top. The call is scheduled to be replayed starting at about 8 p.m. ET Monday at the following numbers: (888) 203-1112 (toll free) or (719) 457-0820. Confirmation code: 4120259. A transcript is available here.

6:00 p.m. We're done. The headline: Led by record Mac sales, earnings were up 31% to $1.19 a share for the quarter on revenue of $7.46 billion, handily beating both guidance and the average of analysts' expectations. The quote that will catch the eyes of investors in the Q&A was the answer to the question about Steve Jobs' health.

"Steve loves Apple," CFO Peter Oppenheimer replied. "He serves as the CEO at the pleasure of Apple's board and has no plans to leave Apple. Steve's health is a private matter."

5:15 p.m. Q&A starts. First question is about future product transition and its effect on revenue growth.

A: Reiterates revenue expectations. Hints again about that product transition he can't talk about. (Revamped MacBook line?) Q: Asks for additional color (jargon alert!) on overseas sales. Tim Cook points to faster growth in Japan, in Asia Pacific – 53% for Mac in Asia, for example, two-to-three times the market average. European growth was more like five times industry average. France, Germany and Australia grew more than 50%  (this is all Mac sales, I believe).

Q: More store opening in '09? Peter Oppenheimer ducks question.

Q: Richard Gardner: How many Best Buy stores? Below target range for Mac inventory? Tim: We added 170 Best Buy stores across the quarter. Plan to be at 670 end of summer. On inventory, still trying to hit target.

Q: Ben Reitzes: Gross margins? Effect of commodity prices or back to school sales? Peter: In June, 180 basis points better than guidance. Primarily driven by better commodity market. In September 31.5 GM because of 1) School promotions 2) Future product can't discuss (again) 3) Something about how a complicated deal with suppliers was good for Apple last quarter but won't repeat in this quarter. Tim: DRAM entering stronger demand and we believe prices will go up. Hard drives etc. are in balance.

Peter: For future gross margins: we're not looking for a margin so high that it creates an "umbrella" for competitors to sneak in and steal market from Apple. Beyond September, expect gross margins about 30% in 2009.

Q: What about Steve's health? Sorry to ask, but would you address? Peter: Steve loves Apple. He serves as the CEO at the pleasure of Apple's board and has no plans to leave Apple. Steve's health is a private matter. (That's not an answer that will reassure investors.)

Q: Apple TV: Number of video rentals? Tim: Pleased with sales, but remains a hobby because business not nearly as large as those others. (Ducks question).

Q: Charles Wolf: iPod sales in the U.S. vs. International? Peter: iPod sales grew 10% in U.S. and 15% outside. (i.e. You do the math.)

Q: Gene Munster: iPhone good launch. Out of product.  When will channel refill? Tim: Pleased with production ramp. Shipping as fast as we can. Confident enough that we will be launching 20 additional countries on Aug. 22. Still expect to sell in more than 70 countries before the end of the year. Not going to predict when supply will meet demand. Clarifies accounting on iPod touch, which is different than the iPhone.

Q: David Bailey of Goldman Sachs. Drop in gross margin? Why? Peter: Delivering product at price points that our competitors can't match. What's the change? A: We have changes in products – new products – and so gross margin will be about 30%.

Q: Guidance again. In past usually guide earnings per share down in this quarter, but it always goes up. So what's different this quarter? Peter: "We give you guidance that we have reasonable confidence of achieving." I have guided revenues up 5%, but we see gross margin down, and I've given you the three reasons. Q: Is price one of the reasons gross margin is down? No new answer.

Q: A question asked from an iPhone, so questioner has to make sure they can hear her. Q: What are you going to with all that iPhone cash. A: No change in what we do with our cash.

Q: JPMorgan: More focus on margins. More flexible pricing coming along? Maybe not such a high price leader in future? A: Ducked. Q: Buzz about corporate IT houses using iPhone in business? A: Ticks off enterprises writing custom apps. No hard evidence supplied of companies allowing employees to replace BlackBerries with iPhones.

Q: Morgan Stanley: Inventories up? A: Increase related primarily to "buy head" we did with launch of 3G. Q: Profits reinvested into stores to support higher traffic? A: Praises Ron Johnson for the 32 million people who visited Apple Stores this quarter, up 10%. Redesigning some early stores.

Q: Merrill Lynch: Operating expenses: What can and can't be deferred? A: This is pretty obscure stuff. They lost me.

Q: Will new countries getting iPhone be generally added in blocks of 20. Yes, mostly in blocks. Q: Profits from App Store? A: He compares App Store to iTunes Store. No new info in his answer.

Q: Toni Sacconaghi: How much of your guidance has to do with overall consumer market? A: We're going to leave economic commentary to others, but we didn't see any impact on our sales. (i.e. so far, Apple seems to be recession proof). Q: In terms of iPhone ramp, can you confirm that there have been no component problems. If not, why not delay launch so you could avoid frustrating customers? A: Demand has been staggering. Manufacturing is right on schedule. Gives us confidence to launch in 20 more countries in August. Q: Gross margin (again): iPhone is a signficantly higher gross maring product than your others. Shouldn't gross margin improve in future? A: iPhone is currently a small part of gross margin because of subscription accounting. We're very happy with the margins.

Q: Cap Markets' Abromsky: iPhone knockoffs proliferating. Could be crowded fall. What sustainable advantages do you think you have? A: Tim: Software is the key ingredient for a great mobile experience. We believe we are many years ahead of the competition as long as it doesn't step on our IP (intellectual property). Peter: Cutomers have already downloaded over 25 million applications. (!)

Q: Evidence that you can sustain this kind of growth you had out of the gate? A: Tim: We're making no prediction. We believe we are growing the market. And that many people didn't have an idea what a phone could do before we introduced the iPhone. (That's a good answer.)

Q: Oppenheimer: School sales effect on average sales price? A: Lays out the term of the sale (rebate for iPod). Account for rebate as reduction of revenue. Q: Average sales price clearly lower for iPod due to high number of shuffles. A: Doesn't answer. There was some cannibalization from the iPhone, but repeats what Steve Jobs said: if there's going to be cannibalization, we'd rather it be by the iPhone.

Q: Shaw Wu: Looks like Japan business regressed after the last two quarters, why? And why is iPod sales price down? A: Pleased with Japan subsidiary. Grew at 40% this quarter, better than the rest of the quarter. In the PC industry, Mac was up four to five times higher than industry. As for iPod, ASP, it was down becaue of Shuffle price decrease. The school sales will have its impact later in the summer.

End of Q&A

Start of official remarks

5:02 p.m. Oppenheimer. Highest June quarter revenue and earning in the company's history. Points to 38% growth in revenue. and record Mac sales. Operating margin 18.6%, which he describes as higher than expected. Sales in stores up 32% (I think). Traffic numbers in the millions. Mac product. Extremely pleased to have shipped 2.5 million Macs. Desktop sales up 49%, sales of portables up 37%. year for year. Thrilled with the momentum of the Mac business. Now all time highs in college and K-12. 3 to 4 weeks inventory.

Music: iPod sales grew 10% domestic, higher abroad. Led by shuffle. Gained share internationally-  70% in U.S., over 50% in U.K. Double digit share in the rest. What else are they buying?

More than 5 billion songs sold. No numbers of TV or movie sales.

Shipped 717,000 iPhones. $419 million in rev. but none of that is post March 6 hardware revenue. Off to great start with iPhone 3G. Selling in 22 countries (France on board now?). App Store currently offers more than 900 apps, more than 20% free.

Apple Stores. More than half of Mac sold to customers who hadn't owned a Mac before. Opened eight stores in the quarter. 216 stores at tend of quarter. Increased revenues of 33% per store. On track to end the year with 242 stores.

Gross margins. 34.8%, I believe. (Better check that; confirmed). Operating expenses's $1.21 billion. Tax rate lower than guidance. Huge pile of cash that hasn't been recorded from iPhone sale.

Expects Gross margin down to 31% in September quarter, in part because of new product introduction he can't talk about yet. (Planting the seeds of a million rumors there.)

5:00 p.m. We're starting. Nancy Paxton introduces Peter Oppenheimer and Tim Cook. The usual warning.

4:58 p.m. CNNMoney: "Apple beats estimates but guides lower" (link)

4:55 p.m. Silicon Valley/San Jose Business journal describes Mac sales as a new record and points out that $1.19 EPS beat the $1.07 analysts on average expected.

4:52 p.m. Reuters is lumping Apple with American Express and Sandisk as companies whose results "disappointed investor." Seems a bit early to make that call.

4:48 p.m. Apple shares are down more than seven points in after hours trading.

4:46 p.m. Macs sold in the quarter: 2,496,000. That's a chunk of hardware, and it's probably where the bulk of that revenue came from.

4:40 p.m. For the quarter, Apple sold 11 million iPods and 717,000 iPhones. The company expect Q4 earnings per share of $1 on revenue of $7.8 billion. (Looking for Mac numbers.) Those iPod numbers are a tad higher than expected. The iPhone numbers are lower. The expectations seem to be unusually conservative, given all the iPhones they're selling and all the Macs they will sell in back-to-school specials.

4:37 p.m. The numbers are coming over the wires. Earning of $1.07 billion, or $1.19 a share on revenue of $7.46 billion. Revenue rose 38% year to year.

4:36. p.m. The 8-K has been filed. Result shortly.

4:34 p.m. After a few hiccups, we're patched into the conference call. The background music sounds like Mozart to me. We put it to Shazam, a free program from the App Store that correctly identified a couple Beatles songs and an Elton John. Shazam tells me it's Jelly Roll Morton's London Blues. Hmm.

4:23 p.m. While we wait, here are the Street's expectations for sales of Apple's main product lines, from Munster's latest report.

• Mac: 2.2 million
• iPod: 10.3 million
• iPhone: 730,000

4:19 p.m. Still waiting. Reviewing the guidance numbers for this quarter that Apple issued three month ago: Earnings per share of $1 even on revenue of $7.2 billion. At the time this was considered less conservative than the guidance issued in January.

4:09 p.m. Nothing from Apple or on the wires yet.

3:59 p.m. Apple shares rebounding at the close and have just passed into green territory. Go figure.

3:54 p.m. Piper Jaffray's Gene Munster and Bernstein's Toni Sacconaghi both issued reports to their respective clients this afternoon. Munster predicted that strong Mac and iPod sales "may drive upside to June quarter results" and reminded readers that Apple's guidance is conservative. Sacconaghi also expects Apple to beat earnings on strong sales, but thinks gross margin is "unlikely to show significant upside." (Do these guys ever see downside?)

3:35 p.m. For the record, Apple is expected to report net income of $972.6 million, or $1.08 per share, on sales of $7.4 billion, according to Thomson Financial's survey of analysts. In the same period last year the company earned $818 million, or 92 cents a share, on sales of $5.4 billion.

3:30 p.m. The company should issue a press release with its quarterly earnings when the market closes at 4 p.m. — and not a moment too soon. A New York Post piece revisiting question about Steve Jobs' health this morning (blind sources "worried," no real news) set the theme for today's Apple coverage on the business wires, and the stock has been taking a beating almost since the opening bell. We were expecting a bumpy ride, but we weren't expecting this.

"You know, I think it wouldn't be a party," Steve Jobs told Fortune in February, describing the future of his company if, as he put it, Jobs got hit by a bus. "But there are really capable people at Apple. … My job is to make the whole executive team good enough to be successors."

Life at Apple without Jobs may be more than just a hypothetical. The 53-year-old Silicon Valley pioneer had a malignant tumor removed from his pancreas four years ago. With fresh concerns about his health following his gaunt appearance at the World Wide Developers Conference two weeks ago, it's fair to ask: who's on that executive team — and which ones have a shot at ruling Apple once Jobs leaves (even if he exits years from now and not for health reasons)?

There are 11 men in all — not counting Jobs. A handful are familiar faces to the small community of professional Apple watchers. As far as the general public is concerned, they are invisible, hidden in the long shadow cast by Apple's (AAPL) high-profile CEO.

Some seem more qualified to step into Jobs' shoes than others, but judge for yourself. Here they are, as listed on the company's Executive Profiles web page, in rough order of their chances of succeeding Steve Jobs.

Timothy D. Cook: Chief operating officer. A 12-year veteran of IBM (IBM) and Compaq, Cook, 47, probably has more direct line responsibility that anyone in the company — even Jobs. Not only is he head of the resurgent Mac division, but he's responsible, as his official bio puts it, "for all of the company's worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries." Cook's deep knowledge of Apple's operations and ready command of detail has won him the respect of the board of directors and the investment community. A bachelor with a passion for cycling, he's as steady and low-key as Jobs is temperamental. A Wall Street Journal profile described Cook's dressing down of another man at a meeting as so "professional and surgical" it was only afterward that observers realized the man had just had his head handed to him. Although some wonder whether Cook has enough charisma to run Apple, when the CEO was out of commission, Cook was the executive Jobs put in charge.

Tony Fadell. Senior vice president, iPod division. With his American swagger and his hair bleached white, Fadell, 38, stood out at button-down Philips Electronics (PHG), where he led an in-house pirate operation designing Windows CE-based devices. It was there that he came up with the idea of marrying a Napster-like music store with a hard drive-based MP3 player. He shopped the concept around the Valley before Apple's Jon Rubenstein snapped it up and put Fadell in charge of the engineering team that built the first iPod. Ambitious and charismatic (and no longer a bleached blond), he now runs the hardware division that makes two of Apple's three key product lines: the iPod and the iPhone.

Ron Johnson. Senior vice president, retail. Johnson, 49, was a retailing star at Target (TGT) before he came to Apple in 2000, and he's an even bigger star today, having designed what is arguably the world's most user-friendly chain of retail stores. He shares Jobs' single-minded focus on the customer experience, and when he parts ways with Jobs — the Genius Bar, where customers get hands-on troubleshooting, was a Johnson idea that Jobs resisted — he is often right. Most retailers focus on how you find the right item, he says, how you select it and how you get it out of the store. "We said there's a bigger idea. Let's design it around the customer's life, not the moment when they're in the store." (link) Apple's second-most charismatic public speaker, he is on several outsiders' short list of possible successors.

Philip W. Schiller: Senior vice president, worldwide product marketing. An avuncular, unthreatening presence, Schiller, 47, plays a slightly rotund Sancho Panza to Jobs' Quixote at nearly every Apple event. His deer-in-the-headlight performance — caught on videotape — when ambushed by a British TV reporter at the London unveiling of the iPhone contributed to the sense that Apple would be in trouble if Jobs were ever to leave. But it would be a mistake to underestimate Schiller. He has 24 years of marketing experience — 17 of them at Apple — and his official bio credits him with delivering a long list of "breakthrough" products: iMac, MacBook, Airport, Xserve, Mac OS X, Safari, AppleTV, iPod and iPhone.

Scott Forstall. Senior vice president, iPhone software. A veteran of NeXT, where he helped build the operating system that became OS X, Forstall came to Apple with Jobs in 1997. After proving himself by managing the team that released OS X Leopard, he was put in charge of software for the iPhone. "I actually have a photographer's loupe that I use to make sure every pixel is right," he told Time. "We will argue over literally a single pixel." His profile was raised by public appearances at WWDC 2006 and the March '08 SDK announcement. In an executive shakeup three days before WWDC 2008, he was elevated to senior vice president, reporting directly to Jobs. "Forstall is the man if SJ gets to pick [his successor]," says 9to5Mac's Cleve Nettles.

Jonathan Ive. Senior vice president, industrial design. Although his name is often floated as the next Apple CEO — and despite the fact that he garnered 49% of the votes in a recent online poll that asked "who would you trust to run Apple, without Jobs?" — Ive, 41, is probably the least likely of the leading contenders to take the job. Modest and notoriously shy (when he won the 2005 Design and Art Direction award it was Jobs who made the acceptance speech, although Ive was in the audience), he guards his privacy jealously; even Apple's HR department doesn't know exactly when he was born. Ive is perhaps the most influential industrial designer of our age. Why would he give up a job he clearly loves to take on the responsibilities of a CEO?

Below the fold: The also-rans.

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