iPod sales surged while Mac shipments hit a five-year high in Apple's best-ever third financial quarter, the company confirmed last night.

The news defied market expectations, and analysts reactions included optimism, surprise and some puzzlement, as Apple described fairly level expectations for its coming quarter.

''They've blown away the expectations," IDC analyst Robert O'Donnell told Bloomberg News, ''It's great news for Apple," he added.

Mac sales up 35 per cent

Piper Jaffray analyst Gene Munster expressed surprise, telling the LA Times: "My confidence in the quarter had been mediocre, and they ended up knocking the cover off the ball."

While Mac sales climbed 35 per cent (year-on-year), with 1,182,000 million Macs shipped, analysts remained focused on the iPod's importance to the company's results.

FTN Midwest Securities computer hardware analyst William Fearnley Jr. told Business World: "The iPod continued to dominate (the results)". He observed Apple's transformation from a niche computer seller to digital music gorilla.

Apple chief financial officer Peter Oppenheimer claimed that iTunes Music Store controls 80 per cent of the growing legal music download market.

"We've been making a big investment in the iPod and the iTunes Music Store," he added.

"No one can compete with Apple"

Speaking to the Washington Post, Piper Jaffray analyst Gene Munster described the iPod market as, "more resilient" than it was thought to be.

A Bloomberg report carried by multiple sources repeat statements from Booz Allen Hamilton analyst Barry Jaruzelski: "Anyone who has bet against them (Apple) in the past few years is on a fool's errand."

He called the iPod the "de facto" standard for music players, to the extent that any other product is only "second best".

"No one can figure out a way to compete with them," Munster told the Washington Post. "It really is an amazing franchise that they've built here."

Concerns that consumer interest in the music player were dismissed by Jupiter Research analyst, Michael Gartenberg, speaking to the LA Times: "There's a lot of headroom for Apple, and opportunities to grow are continuing to evolve with the devices' form factor and functionality, so owners will want to upgrade."

Analysts puzzled at prudent Q4 goals

Analysts were surprised by Apple's fourth quarter guidance. Apple chief financial officer Peter Oppenheimer said: "Looking ahead to the fourth quarter of fiscal 2005, we expect revenue of about $3.5 billion and earnings per diluted share of about $.32."

Analysts were concerned at Oppenheimer's conservatism.

"It's been a long time since they guided down," Shaw Wu, an analyst with American Technology Research told Associated Press. "It's kind of bizarre considering the September quarter is usually a strong back-to-school quarter for Apple."

During last night's financial call, Oppenheimer called the guidance "prudent", explaining the company had only "limited data" through which to assess any potential damaging impact on Mac hardware sales as a result of the company's announced move to adopt Intel processors in Macs.

Analysts have warned that Apple may see Mac sales slow down as users decide to wait for its first Intel products to ship in 2006. Apple has a plan for the transition that allows users to run applications written for either the PowerPC processors the company currently uses or the forthcoming Intel chips, but some users may be wary, they have said.

Despite such concerns, some analysts expect more from Apple in its traditionally strong fourth quarter. Speaking to to The Financial Times, Munster dismissed the stated reasons for such concerns, saying: "It assumes nobody is going back to college and that the educational market is going to fall flat on its face. I don't buy it."

Apple closed at $38.35 last night