Apple shipped over 21 million iPod during the quarter, well ahead of analysts' estimates of 16.5 million based on NPD data. iPod sales during the quarter represented 50 percent growth from the year-ago quarter. Calling the demand "staggering", Apple told investors that a favorable product mix of iPod sales and better-than-expected iPod margins (due to a favorable component pricing) helped push the company's gross margins above 31 percent. During the quarter, the iPod maintained its leadership in the market despite increased competition. In the US, Apple's share of the MP3 market was 72 percent during December, according to NPD Techworld data. In addition, Apple grew iPod sales faster outside the US, resulting in share gains for every country for which it had data.

Five non-US countries now show iPod market share at over 50 percent, including the UK, Switzerland, Canada, Australia, and Japan. In addition, the company said it focused on other countries from an advertising and channel development perspective to gain between 10 and 20 points of market share. The countries included France, Germany, Italy, Spain, Belgium, Sweden, Austria, and Denmark.

Channel inventory increased by about 200,000 units--all of which related to channel fill for the iPod shuffle--and the company ended the quarter with 4-6 weeks of inventory (on a look-forward basis).

iTunes gift cards drive surging music revenues

Apple's iTunes store also saw significant gains, as its "Other Music" revenues grew 29 percent fueled by digital purchases from its online store. Last week, the company announced that it has sold 2 billion songs via the Apple iTunes store and that it has added movies from Paramount Pictures. Apple announced that iTunes has more than 85 percent of the US market, based on the latest data from Nielsen-Soundscan.

"iTunes gift cards were immensely popular during the holiday quarter and doubled year-over-year," the company told investors.