Today, Apple delivered one of its most interesting earnings reports in a while.



Just when the world was ready to bury Apple, the company delivered a strong beat on revenue, earnings per share, and, perhaps most important, iPhone sales.

Let's get right to the big numbers everyone cares about:

Revenue : $45.6 billion, up 4% year over year, versus $43.6 billion expected by analysts.

: $45.6 billion, up 4% year over year, versus $43.6 billion expected by analysts. EPS : $11.62, up 15% year over year, versus $10.16 expected by analysts.

: $11.62, up 15% year over year, versus $10.16 expected by analysts. iPhones: 43.7 million, up 17% year over year, versus 37.7 million expected by analysts.

43.7 million, up 17% year over year, versus 37.7 million expected by analysts. iPhone ASP: $596 versus $610 expected by analysts.

$596 versus $610 expected by analysts. iPads: 16.35 million, down 16% year over year, versus 19.7 million units expected by analysts.

16.35 million, down 16% year over year, versus 19.7 million units expected by analysts. iPad ASP: $465 versus $430 expected by analysts.

$465 versus $430 expected by analysts. Macs: 4.1 million versus 4.03 million expected by analysts.

4.1 million versus 4.03 million expected by analysts. iPods: 2.76 million versus 2.99 million expected by analysts.

2.76 million versus 2.99 million expected by analysts. Gross Margin: 39.3% versus 37.7% expected by analysts.

39.3% versus 37.7% expected by analysts. Q3 Revenue: $36 billion to $38 billion versus $38.1 billion expected by analysts.

Apple also announced a 7-for-1 stock split, and an increase in its buyback program and dividend.

On the earnings call, CEO Tim Cook explained the buyback by saying that he thinks Apple is massively undervalued. He believes it has a bright future ahead and that the share repurchases are a sign of the board's faith in Apple's future.

He also said the company was splitting the stock to "make it more accessible to a larger number of shareholders." That sounds as if Cook wants the share price to be more affordable for average mom-and-pop investors.

Right now, the shares are about $524, which puts them out of range for most people.

So, now that we've gotten the hard numbers out of the way, let's talk about the most interesting things from this report and the earnings call.

The iPhone was way ahead of expectations. Cook said each category of the iPhone outsold the previous year in that category. In other words, the 5S outsold last year's 5, the 5C outsold last year's 4S, and the 4S outsold the 4 from last year.

Cook didn't get into product mix, but it seems as if the iPhone 4S was the real star for Apple. The average selling price of the iPhone was down $41 sequentially, the biggest-ever drop in the company's history. On the call, Cook said the 4S was selling well in greater China.

Cook ripped through a bunch of numbers regarding the iPhone business around the world.

Through the first half of fiscal 2014, Cook said, iPhone sales in Brazil were up 61%, in Russia up 97%, in Turkey up 56%, in India up 55%, and in Vietnam they were up 262%. Cook pointed out that these are not "historic strongholds" for Apple.

He said Apple had record iPhone sales to the BRICs (Brazil, Russia, India, and China) for the quarter.

Digging into greater China, Cook said Apple had record revenue over $9.8 billion in the region. He said iPhone sales were up 28% in the area. And he said that 85% of the people who bought iPhone 4Ss were new to the iPhone. Of the people who bought the 4S or the 5C in China, over 60% were coming from Android.

Cook was asked about upgrade policies in the U.S. and whether they were hurting Apple. He said there was "some pressure" from strict upgrade policies in the U.S. He said that those policies are changing and could benefit Apple in the future.

But then Cook went another direction and said there are 1 billion smartphones out there right now. Eventually, all mobile phones will be smartphones. And he said the big opportunity for Apple remains in winning new customers. His comments on Android users in China suggest there is also an opportunity to take Android users.

Analysts had been saying that the future of the iPhone was all about upgrades. Growth from new customers would be nil. Cook's comments dispute their theory. He clearly thinks Apple can grab new users.

However, it's the iPhone 4S that's driving the growth, which suggests that Apple might want to lower prices on the iPhone in the future.

Moving away from the iPhone, the iPad was the other standout in the quarter — but not in a good way.

Apple's iPad business was down 16% on a year-over-year basis. On the call, Cook said it was above Apple's internal expectations, but he realizes that it missed most analysts' expectations. He blamed part of the miss on analysts not understanding the difference in channel inventory this year versus last year.

So, what does channel inventory mean? Apple sells products into stores, but that doesn't mean they go into consumers' hands. There was a difference between how many were in stores last year versus this year. Cook attributed some of the decline to that.

It wasn't exactly a great answer, and analysts wanted to know more.

So Cook gave a big-picture answer on the iPad. He said it's the fastest-growing product in Apple's history. Apple has sold 210 million iPads since launch, which is almost double the iPhone at the same point in its life. He also said that it's seven times what the iPod was at this point in its life. He said customer satisfaction was 98, which is unheard of. He said it's 95% of the U.S. education market. It's in virtually all of the Fortune 500 companies. He says engagement is off the charts and well ahead of Android.

And so, if you look at the iPad from that perspective, it's still a strong, healthy business and it has a bright future, says Cook. He still thinks the tablet will surpass the PC in the coming years, and he thinks Apple is positioned to benefit.

It's not the most convincing answer, but really, the iPhone is what matters for Apple. It should roll out a lower-cost model, a higher-cost model, and a model with a giant screen this fall, to take advantage of what is clearly very strong global demand.

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