Apple Stock Zooms Higher

The company sold 9.8 million iPods, toward the high end of analyst estimates.

Gross margins widened to 36.9% from 30.3% a year ago, and 35.1% in the second quarter, further reflecting the company's profitability. Analysts and investors had been expecting this to improve, as prices on components such as memory chips for iPods have fallen, but Apple has held the line on prices.

The magnitude of the margin improvement, however, was beyond what many had forecast and exceeded Apple's guidance.

The ballyhooed iPhone contributed just $5 million to sales during the two days of the quarter that it was available. Apple said it sold 270,000 of the devices, a figure that was disappointing to many expectations. Analysts' forecasts for unit sales were scattershot but had ranged from 200,000 to 700,000.

The low figure may have resulted from the company's policy to book only a portion of iPhone sales during each quarter because it plans to roll out new features at no cost to users. The full sale is recognized over a 24-month period. Apple also didn't include payments from AT&T that it receives for each iPhone user.

"iPhone is off to a great start -- we hope to sell our one-millionth iPhone by the end of its first full quarter of sales -- and our new product pipeline is very strong, " said Apple CEO Steve Jobs in a press release.