Make no mistake, that surge has been massive. Says AT&T (T): “Since 2008 AT&T’s network in the San Francisco area has experienced a 3G data traffic increase of 2,000 percent.”

Wow. No wonder my calls kept dropping at that last Apple (AAPL) event in San Francisco (yes, an iPhone 3G repeatedly dropping calls at Apple’s Sept. invitation-only music gathering). In any event, the upgrade, which includes the bolstering of backbone infrastructure, should result in better coverage, 3G performance and in-building penetration.

“More than ever before, customers look to wireless communications to stay in touch with family, friends and business colleagues,” said Terry Stenzel, AT&T vice president and general manager for Northern California/Reno. “The additional spectrum helps to enhance the 3G network so that our customers have the best experience when they make a call, check an e-mail, download a video or song, access applications or surf the Internet on their AT&T device.”

In any event, those higher prices and the device’s lack of built-in Wi-Fi don’t seem to be as much of a barrier as you might think. And if those issues do end up tempering sales a bit, well, perhaps China Unicom can make them up by poaching iPhone users from rival China Mobile. As iPhonAsia’s Dan Butterfield reported earlier this week, China Unicom is offering an amnesty to users of gray-market iPhones.

“This amnesty program is designed to entice some 1.5 million grey-market iPhone owners in China to sign a contract and pop in a Unicom 3G sim card to take advantage of WCDMA 3G speeds and a variety of new ‘Wo’ 3G services,” Butterfield writes. “The ‘upgrade to 3G’ program is no doubt aimed squarely at the approximate 1,000,000+ iPhones now running on China Mobile’s EDGE 2G network.”

[Image credit: CCID]

“This exclusive partnership offers you the ability to instantly stream movies and TV episodes from Netflix to the television via Xbox 360. Xbox 360 will be the only game console to offer this movie-watching experience, available to Xbox LIVE Gold members who are also Netflix unlimited plan subscribers…at no additional cost.”

– Microsoft on its Xbox 360/Netflix partnership, Aug. 2009

So much for Xbox 360’s game console exclusivity on Netflix streaming. This morning, the DVD-by-mail pioneer said that beginning sometime next month, owners of Sony’s PlayStation 3 game consoles will be able to stream movies and TV shows from Netflix.

The feature, which brings an unlimited amount of online viewing with any subscription worth $9 or more, will initially require an “instant streaming Blu-ray disc” to enable it. Not the most elegant of implementations, but presumably a firmware upgrade will likely follow and bake the feature into the PS3.

For Netflix (NFLX), the deal provides a chance to broaden its subscriber base. About nine million PlayStation 3 systems have been sold in U.S., and more than 25 million worldwide. So the potential for new customers here is substantial. For Sony (SNE), which already offers movies and TV shows to PS 3 users for a $3 to $4 fee, it’s a way of removing an Xbox 360 marketing advantage Microsoft (MSFT) has been lording over it since this past August.

No wonder it was a blowout quarter.

After market close Monday, Apple reported a fiscal fourth-quarter profit of $1.67 billion, or $1.82 a share, on revenue of $9.87 billion. That topped the estimates of analysts surveyed by Thomson Reuters, who’d expected the company to earn $1.42 a share on revenue of $9.2 billion.

The company sold 3.05 million Macs during the quarter, a 17 percent increase over last year. It sold 10.2 million iPods, an eight percent decline from the year-ago quarter.

And iPhones? Apple (AAPL) sold 7.4 million of those–seven percent more than during the same period last year. So much for those supply-chain issues that some analysts warned might undermine iPhone sales.

“We are thrilled to have sold more Macs and iPhones than in any previous quarter,” said CEO Jobs. “We’ve got a very strong lineup for the holiday season and some really great new products in the pipeline for 2010.” [Editor's Note: "...really great new products"--is that code for a tablet?]

Apple shares, which closed at $189.86 today, are spiking as I write this. At $203.90, they’re up more than seven percent in extended trading.

Looking ahead to its fiscal first quarter, Apple estimates it will earn between $1.70 and $1.78 a share on revenue in a range of $11.3 billion to $11.6 billion. That’s comically lower than the $1.91 a share on $11.45 billion in sales that analysts are forecasting. But as today’s results clearly demonstrate, Apple subscribes to the underpromise-and-over-deliver school of guidance theory, so there’s likely little cause for concern.

So, to recap: Apple sold more Macs and more iPhones than in any previous quarter in the company’s history. Before the holiday quarter. And in midst of the worst economy we’ve seen in 50 years.

Notes From the Earnings Call:

• Apple COO Tim Cook and CFO Peter Oppenheimer are handling the earnings call. CEO Steve Jobs will not be attending.
• Oppenheimer says this was Apple’s second-highest quarterly revenue ever. Highest-ever operating margin. “We are thrilled with these record-breaking results, particularly given the economic environment around us.” Obviously.
• Macs are showing “fantastic momentum,” says Oppenheimer. Sales have outpaced the market in 19 of the past 20 quarters. Quarterly sales were up 17 percent; portable sales, 35 percent. Interesting: 42 percent growth in Asia.
• Moving on to iPods: Sales were down to 10.2 million from 11 million a year ago. But iPod touch sales doubled. MP3 market share in the U.S. is now more than 70 percent (according to NPD, I think).
• iPhone sales were up seven percent. Apple will begin selling iPhones in China later this month. More than 85,000 apps in App Store. Two billion downloads.
• Apple opened 15 new stores during the quarter. Now has 273. Will soon open first two stores in France, including one at the Louvre.
• Moving on to the Q&A. Asked about those iPhone 3GS supply issues I mentioned earlier, Cook acknowledges that demand did outstrip supply in a number of countries. But the situation improved “markedly” in September. How are things looking for China? Cook: “I would have liked to have had more, honestly, because we were still short in some countries at the end of the quarter.”
• Apple is obviously very excited about the iPhone’s impending debut in China. “There’s a good opportunity, and we’re really excited to get started,” says Cook. “It’s the largest market in the world in terms of total phones.”
• No comment on the broader economy. “We just spend our time projecting our business and leave the economy to the economists.”
• Does Apple worry about iPhone rivals? Android? Not really, says Cook. “We feel very good about suiting up and competing against anyone.” Our competitors are still trying to catch up with the first iPhone, he adds.
• Snow Leopard? Cook says the company’s been “pleasantly surprised” by sales of Apple’s latest OS.
• How does Apple benefit from carrier-exclusivity iPhone deals? Cook says carriers with exclusivity deals are willing to invest more in the platform and that means greater innovation. Visual voicemail is an example of that. That said, he adds, “We’ve found no lack of people wanting to sell iPhones, frankly.”
• International store revenue up more than 20 percent, on average.
• More on iPhone supply issues. Cook insists this is not a component issue, though he notes that silicon can sometimes be hard to get. “We feel good about our position now.”
• And still more on iPhone supply issues: How many iPhones would Apple have sold if it had an adequate supply? Impossible to say, really, Cook says, adding that 3GS units were in short supply virtually everywhere in September.
• Enterprise demand for the iPhone is very strong. It’s either being deployed or already in use at some 50 percent of Fortune 100 companies. Same with Europe and the FT 100. Widely used in higher ed and government as well.
• But perhaps not widely enough. Asked about institutional sales, Cook says Apple isn’t seeing much stimulus funding. The company’s worried about state spending. Says Cook, “We may see more this quarter, but it’s too early to tell.”

“Regrettably, based on Microsoft/Danger’s latest recovery assessment of their systems, we must now inform you that personal information stored on your device–such as contacts, calendar entries, to-do lists or photos–that is no longer on your Sidekick almost certainly has been lost as a result of a server failure at Microsoft/Danger. That said, our teams continue to work around-the-clock in hopes of discovering some way to recover this information. However, the likelihood of a successful outcome is extremely low.”

Microsoft (MSFT) hasn’t yet said what caused the failure, though some speculate it was a bungled storage area network upgrade performed without backup. Nor has the company said why it doesn’t have a copy of Sidekick user data (I’ve asked Microsoft for comment and will update here if and when one is offered).

There’s likely a reasonable explanation for the service disruption and server failure, but it’s hard to imagine one for unrecoverable data loss. Danger should have had a redundant backups of user data. Clearly, it didn’t, or if it did, they were abysmally unreliable. Either way, this is an ugly embarrassment for Danger and Microsoft and one that will probably cost them the trust of Sidekick users.

Sadly, Danger seems to have lived up to its name.

Overall, I believe Snow Leopard will help keep the Mac an appealing choice for computer buyers, and I can recommend it to existing Mac owners seeking more speed and disk space, or wanting to more easily use Exchange. But I don’t consider Snow Leopard a must-have upgrade for average consumers. It’s more of a nice-to-have upgrade. If you’re happy with Leopard, there’s no reason to rush out and get Snow Leopard.

– Walt Mossberg, The Wall Street Journal

The changes here are modest, and the performance gains look promising but beyond the built in apps, just a promise. If you’re looking for more bells and whistles, you can hold off on this upgrade for at least awhile. But my thought is that Snow Leopard’s biggest feature is that it doesn’t have any new features, but that what is already there has been refined, one step closer to perfection. They just better roll out some new features next time, because the invisible refinement upgrade only works once every few decades.

– Brian Lam, Gizmodo

Here’s the thing about Snow Leopard, the single inescapable fact that hung over our heads as we ran our tests and took our screenshots and made our graphs: it’s $30. $30! If you’re a Leopard user you have virtually no reason to skip over 10.6, unless you’ve somehow built a mission-critical production workflow around an InputManager hack (in which case, well, have fun with 10.5 for the rest of your life). Sure, maybe wait a few weeks for things like Growl and MenuMeters to be updated, and if your livelihood depends on QuickTime you might want to hold off, but for everyone else the sheer amount of little tweaks and added functionality in 10.6 more than justifies skipping that last round of drinks at the bar–hell, we’re guessing Exchange support alone has made the sale for a lot of people.

– Joshua Topolsky, Engadget

Snow Leopard is Apple’s lowest-priced OS update in eight years. Granted, it’s a collection of feature tweaks and upgrades, as well as under-the-hood modifications that might not pay off for users immediately. But the price of upgrading is so low that I’ve really got to recommend it for all but the most casual, low-impact Mac users. If you’ve got a 32-bit Intel Mac (that is, one powered by a Core Solo or Core Duo processor), the benefit of this upgrade will be a little less. But for most Mac users, especially the kind of person who reads a Web site devoted to the subject, the assorted benefits of Snow Leopard outweigh the price tag. I’d pay $30 just for the improved volume ejection, the ability to create services with Automator, and the improvements to the Dock and Exposé–though I admit I’d pay slightly more to not have the misguided QuickTime Player X as a part of the package. If you’re a user who connects to an Exchange server every day, upgrading to Snow Leopard really is a no-brainer. For everyone else, maybe it’s not quite a no-brainer-but it’s awfully close. Snow Leopard is a great value, and any serious Mac user should upgrade now.

– Jason Snell, Macworld

Impressive and important, it’s an update that will revitalize your existing Mac even though you’ll be stumped for a quick five-minute demo that convinces the people around you that much of anything has changed at all.

– Andy Ihnatko, Chicago Sun Times

In my experience, Mac OS X was already a superior operating system to Windows. With Exchange and other technologies, Snow Leopard adds bite, especially for business. But as upgrades go, this one is relatively tame.

– Ed Baig, USA Today

If you’re already running Leopard, paying the $30 for Snow Leopard is a no-brainer. You’ll feel the leap forward in speed polish, and you’ll keep experiencing those ‘oh, that’s nice’ moments for weeks to come. If you’re running something earlier, the decision isn’t as clear cut; you’ll have to pay $170 and get Snow Leopard with Apple’s creative-software suites–whether you want them or not. Either way, the big story here isn’t really Snow Leopard. It’s the radical concept of a software update that’s smaller, faster and better–instead of bigger, slower and more bloated. May the rest of the industry take the hint.

– David Pogue, New York Times

So says Piper Jaffray analyst Gene Munster, who, in a research note issued this week, suggests that there’s more value in Snow Leopard than just the minor bump it will give to Apple’s (AAPL) bottom line.

“We believe Apple is using a minor upgrade to its operating system as an opportunity to sell it at a lower price ($29 vs. $129 previously) and market the new OS as a selling point for the Mac platform over the Windows platform,” Munster writes. “In other words, Apple is promoting the Mac platform as a superior alternative to Windows in terms of newer technology, more frequently, for less money. The release of Snow Leopard is not about new features; rather, it is about keeping Mac users up to date with the latest technology vs. Windows XP and Vista users on antiquated technology.”

Unlike its predecessors, Snow Leopard was developed with a focus on performance enhancements rather than new features. It runs all major applications in 64-bit mode and has been optimized for multicore processors with a new technology dubbed Grand Central.

Snow Leopard also includes a new media platform called QuickTime X that boasts a new UI with disappearing controls, in-video timelines and the ability to perform basic edits and shares to iTunes, Google’s (GOOG) YouTube, etc.

Also included: A new version of Safari that Apple (AAPL) claims will include the fastest implementation of JavaScript ever. Finally, Snow Leopard offers out-of-the-box support for Microsoft Exchange 2007.

The official press release, below:

Apple to Ship Mac OS X Snow Leopard on August 28
CUPERTINO, Calif., Aug. 24 — Apple® (AAPL) today announced that Mac OS® X v10.6 Snow Leopard(TM) will go on sale Friday, August 28 at Apple’s retail stores and Apple Authorized Resellers, and that Apple’s online store is now accepting pre-orders. Snow Leopard builds on a decade of OS X innovation and success with hundreds of refinements, new core technologies and out of the box support for Microsoft Exchange. Snow Leopard will be available as an upgrade for Mac OS X Leopard® users for $29.

“Snow Leopard builds on our most successful operating system ever and we’re happy to get it to users earlier than expected,” said Bertrand Serlet, Apple’s senior vice president of Software Engineering. “For just $29, Leopard users get a smooth upgrade to the world’s most advanced operating system and the only system with built in Exchange support.”

To create Snow Leopard, Apple engineers refined 90 percent of the more than 1,000 projects that make up Mac OS X. Users will notice refinements including a more responsive Finder(TM); Mail that loads messages up to twice as fast;* Time Machine® with an up to 80 percent faster initial backup;* a Dock with Expose® integration; QuickTime® X with a redesigned player that allows users to easily view, record, trim and share video; and a 64-bit version of Safari® 4 that is up to 50 percent** faster and resistant to crashes caused by plug-ins. Snow Leopard is half the size of the previous version and frees up to 7GB of drive space once installed.

For the first time, system applications including Finder, Mail, iCal®, iChat® and Safari are 64-bit and Snow Leopard’s support for 64-bit processors makes use of large amounts of RAM, increases performance and improves security while remaining compatible with 32-bit applications. Grand Central Dispatch (GCD) provides a revolutionary new way for software developers to write applications that take advantage of multicore processors. OpenCL, a C-based open standard, allows developers to tap the incredible power of the graphics processing unit for tasks that go beyond graphics.

Snow Leopard is the only desktop operating system with built in support for Microsoft Exchange Server 2007, and it allows you to use Mac OS X Mail, Address Book and iCal to send and receive email, create and respond to meeting invitations, and search and manage contacts with global address lists. Exchange information works seamlessly within Snow Leopard so users can also take advantage of OS X only features such as fast Spotlight® searches and Quick Look previews.

Mac OS X Server Snow Leopard, the next major release of the world’s easiest to use server operating system, will also go on sale Friday, August 28. Snow Leopard Server includes innovative new features such as Podcast Producer 2 and Mobile Access Server and is priced more affordably than ever at $499 with unlimited client licenses. More information and full system requirements for Snow Leopard Server can be found at www.apple.com/server/macosx/.

Pricing & Availability

Mac OS X version 10.6 Snow Leopard will be available as an upgrade to Mac OS X version 10.5 Leopard on August 28 at Apple’s retail stores and through Apple Authorized Resellers, and online pre-orders can be made through Apple’s online store (www.apple.com) starting today. The Snow Leopard single user license will be available for a suggested retail price of $29 (US) and the Snow Leopard Family Pack, a single household, five-user license, will be available for a suggested price of $49 (US). For Tiger® users with an Intel-based Mac®, the Mac Box Set includes Mac OS X Snow Leopard, iLife® ‘09 and iWork® ‘09 and will be available for a suggested price of $169 (US) and a Family Pack is available for a suggested price of $229 (US).

The Mac OS X Snow Leopard Up-to-Date upgrade package is available to all customers who purchased a qualifying new Mac system from Apple or an Apple Authorized Reseller between June 8, 2009 and the end of the program on December 26, 2009, for a product plus shipping and handling fee of $9.95 (US). Users must request their Up-to-Date upgrade within 90 days of purchase or by December 26, 2009, whichever comes first. For more information please visit www.apple.com/macosx/uptodate. Snow Leopard requires a minimum of 1GB of RAM and is designed to run on any Mac computer with an Intel processor. Full system requirements can be found at www.apple.com/macosx/specs.html.

In a message to clients Tuesday, Piper Jaffray analyst Gene Munster noted that Apple’s online store is currently showing 7 to 10 day lead times for its new lower-priced 13-inch MacBook Pros, and a number of the company’s retail stores are reporting dwindling supplies. “Our records show that Apple has never had a 7-10 day delay on its most popular 13-inch model, with the most recent significant delay being 5-7 days over 2 years ago,” Munster wrote. “We see this as a sign that demand is outpacing the company’s build expectations, and it may take several weeks to reach supply-demand equilibrium. In addition to delays at its online store, Apple retail stores are experiencing shortages in some 13-inch MacBook Pro models. Of the 10 Apple stores we contacted, 7 are short of at least one 13-inch MacBook Pro model.”

That being the case, Munster said he’s increasingly confident Apple (AAPL) will report sales of 2.2 million Macs for the June quarter. Not quite as high as the nearly 2.5 million Macs the company sold during the same period a year ago, but impressive nonetheless. We are still, after all, in a deep recession. Who said Macs are too pricey?

And so the company today said that beginning Friday, “select markets” can preorder Windows 7 at a more than 50 percent discount. In the U.S., that means Windows 7 Home Premium will set you back about $50, or Windows 7 Professional about $100. A “screaming deal,” Microsoft calls it.

The promotion runs until July 11 in the U.S. and Canada and until July 5 in Japan, or “while supplies last.” If you choose not to preorder an upgrade copy, you’ll obviously pay a bit more for Windows 7 when it finally ships on Oct. 22. Existing XP and Vista customers in the U.S. will be able to purchase Home Premium for $119.99, Professional for $199.99 and Ultimate for $219.99. New customers will pay $199.99 for Home Premium, $299.99 for Professional and $319.99 for Ultimate.

Pricey, but about 8 to 17 percent less than Vista. Said Brandon LeBlanc, Microsoft’s in-house Windows blogger, “Overall, customers will be paying less and getting more with Windows 7.”

For their sake, let’s hope so. Especially if they paid retail for Vista.

In an investment note issued this morning, Munster estimated that the company sold 750,000 iPhones over the weekend–25 percent fewer than the one million units of the iPhone 3G model Apple sold during the launch of that device last July, but 50 percent more than the 500,000 he originally predicted.

“The only true benchmark for judging the launch of the iPhone 3G S will be the time it takes Apple to sell 1 million units. Apple sold 1 million 1st generation iPhones in 74 days and 1 million iPhone 3G units in 3 days. We are uncertain whether or not Apple will announce the 1 millionth iPhone 3G S; regardless, we are increasingly confident in our 5 million iPhone unit estimate for the June 09 quarter following the price drop of the iPhone 3G from $199 to $99 in early June and the launch for the iPhone 3G S, where interest in the device surpassed our expectations.”

A few other points worth noting from Munster’s note. The analyst surveyed 256 customers at Apple (AAPL) stores in New York and Minneapolis over the weekend about their preferred OS, the size of the iPhone they were purchasing and the phones from which they were upgrading, among other things (see table below; click to enlarge). In the 256, he found a mix of 66 percent Mac users and 34 percent PC, similar to what he found last year (61 percent Mac, 39 percent PC).

Of those surveyed, 43 percent purchased the high-end 32-gigabyte iPhone 3GS, less than the 66 percent of buyers who purchased the 16GB iPhone 3G last year. And 56 percent were upgrading from an old iPhone–up from 38 percent last year. “We believe this shows Apple is developing brand loyalty not enjoyed by other mobile phone makers,” Munster notes.

“At the outset of the company’s iPhone initiative, one of Apple’s goals was to develop the kind of brand loyalty it has developed among Mac and iPod customers, and we believe they are succeeding thus far. As the footprint expands, and loyalty expands as well, Apple will increasingly enjoy a base of customers who regularly upgrade to the newest version of the mobile phones the company releases in what appears to be an annual cycle.”

“Upgrade eligibility varies with each customer, but in general you will become upgrade-eligible the further you are into your service agreement. Customers can find out at att.com or in one of our stores if they are upgrade-eligible. If you are not currently eligible for an upgrade but still want iPhone 3G S, we can offer you an early upgrade price of $399 (16 GB) and $499 (32 GB).”

– AT&T’s explanation of the iPhone 3G S’s early upgrade pricing

The outcry over the $200 premium some existing iPhone 3G users must pay to upgrade to the iPhone 3G S has caused AT&T to think better of the move. The carrier this morning extended the 3G S’s so-called “standard upgrade” prices of $199 [16GB] and $299 [32GB] to existing subscribers who would have otherwise qualified for those lower prices on or before the end of September.

From Walt Mossberg’s just published review of the 3G S:

“If you already own an older iPhone, you could pay $200 more to upgrade, depending on how far along you are in your two-year service contract and how much you spend monthly. But AT&T, stung by criticism in recent days, has just decided to offer the lower, new-customer prices at launch to iPhone 3G owners eligible for upgrades at any time up to Sept. 30 of this year, even if they were originally told they’d have to pay the $200 premium.”

A savvy move from AT&T (T). Though the company won’t please anyone with an upgrade-eligibility date of October and beyond, it will certainly silence the early adopters who’ve been so vocal in their criticism of the Apple (AAPL) 3G S Upgrade Tax. And those folks are likely the most lucrative, data-heavy users anyway.

UPDATE: Here’s AT&T’s statement on the change:

An Update for our Customers

Some customers have had questions about our plans and policies for iPhone 3G S, and we’d like to provide you with answers. We’d also like to announce a change to the date when some iPhone customers are eligible for our best upgrade pricing to iPhone 3G S.

PRICING

Importantly, we want our customers to better understand our wireless device upgrade program. Like most U.S. carriers, we offer a variety of phones that we sell below our actual cost when customers agree to sign service agreements. In general, the more a customer spends with us, the quicker they become eligible for a price break on a new device. For example, iPhone customers who spend more than $99 a month per line with us generally are eligible for an upgrade between 12 and 18 months into their contract.

We also currently offer early upgrade pricing only for iPhone 3G S and iPhone 3G.

All of that said, we’ve been listening to our customers. And since many of our iPhone 3G customers are early adopters and literally weeks shy of being upgrade eligible due to iPhone 3G S launching 11 months after iPhone 3G, we’re extending the window of upgrade eligibility for a limited time.

We’re now pleased to offer our iPhone 3G customers who are upgrade eligible in July, August or September 2009 our best upgrade pricing, beginning Thursday, June 18.

If you’re one of the many customers who will benefit from this change, please note that our upgrade eligibility tools will reflect this change on Thursday, June 18.

We invite you to come to our stores beginning Friday during normal store hours, although please be aware that customer demand may exceed supply in some of our stores. You may also preorder online on June 18 at www.att.com/iPhone, and your iPhone 3G S will arrive in 7-14 days. Or you can purchase iPhone 3G S at Apple’s retail and online stores, as well as at other popular retailers.

If you’re one of the customers who benefits from this change, and you’ve already preordered from an AT&T store, we’ll adjust the price of the device when you pick it up. If you benefit from the change and you pre-ordered from AT&T online, we’ll send you an e-mail and issue you a credit.

If you pre-ordered an iPhone 3G S through Apple’s online store, your upgrade eligibility will be reassessed based on AT&T’s new upgrade policy for iPhone 3G owners. If you are eligible for the lower price, Apple will issue you a credit for the difference as applicable.

As a valued AT&T customer, AT&T can offer you an early iPhone upgrade with a new 2-yr commitment and an $18 upgrade fee. You may qualify for a standard iPhone upgrade on 12/29/2009.

$299.00*–8GB iPhone 3G (black)
$399.00*–16GB iPhone 3G S (black or white)
$499.00*–32GB iPhone 3G S (black or white)

…For non-qualified customers, including existing AT&T customers who want to upgrade from another phone or replace an iPhone 3G, the price with a new two-year agreement is $499 (8GB), $599 (16GB), or $699 (32GB).

– The ugly fine print for some existing AT&T (T) subscribers planning to purchase an Apple (AAPL) iPhone 3G S.