Are there any updates with regard to the Best Buy relationship? They are thre any more distribution partners you would like to talk about or any progress you’d like to update on?

The company started with Best Buy with half a dozen of the stores, it then took it to over 50 and the company has just announced taking it over to 200, which will take place by the fall. In terms of overall Mac point of sales, the comp-any has been working on this worldwide and the Mac point of sales had moved from 5,800 to 8,000 on a year-over-year basis.

Have you seen any up tick in the creative professional segment yet from Adobe CS3 or is that still coming?

The company believes that its pro customers have been stalling and delaying purchase and one key reason is the Creative Suite. With the Creative Suite shipping and the announcements that were made at NAB with Final Cut Studio and the announcements made with the 8-core Mac Pro, the company believes that it has got line-up for its pro customers.

Typically your revenues from Q2 to Q3 are flat to up. You are guiding for them to be down despite enthusiasm for the phone for your Mac line-up and your confidence in the iPod line. Could you talk about some of the puts and takes for revenue on your revenue guidance for next quarter?

The company is guiding revenue down, sequentially as a result of a couple of factors. First, last year, iPod sales declined sequentially from the March to June quarters despite supply being constrained at the beginning of the March quarter. This year the company is not in good supply and demand balance in the March quarter. The company sees this as a market seasonality issue and not an iPod specific issue. Second, with the beginning of the education buying season, the company sees higher purchases, in the June quarter and at lower ASPs.

Is there any difference from normal seasonality though in the sense that you don’t always see that and accordingly for comparing this quarter versus previous quarters. Why would that be any notably different?

That is true. What you are seeing is that the June quarter is not as strong from the consumer perspective. The company had a strong March quarter. There is more pronounced effect this year going from March to June in part upon what seen from the consumer sales and March and heading into the education buying season.

You have qualitatively discussed about margins between relative categories in your business. Specifically on a qualitative basis, could you help understand if the hardware portion iPod was higher than your Mac hardware margins this quarter?

The company has a long-standing practice of not releasing specific gross margins, however the corporate gross margin was over 35%, which exceeded guidance. iPod was key in achieving that result.

Historically you have given a gross margins range, which it was much lower than it is now, and you have made relative comments. Could you provide any further details on a relative basis?

Both Mac and iPod hardware margins were strong in the quarter. They both benefited from a favorable commodity environment and the company had better service costs and leverage from the revenue and a good mix.

Your revenues have been growing at about 20% a quarter. Your R&D expense has been flat for the last 6 quarters. Is there an inflection point or a bend where particularly with some of the ostensible increasing functionality that you are going to hope to bring in the form of software to both your Apple TV platform and your phone offerings? Do you expect an inflection point in R&D and why hasn’t it gone up commensurately with sales especially given all the new the product initiatives that you have?

The company is confident in not only what it plans to do with iPhone and Apple TV, but also OS10 and applications. In the last quarter, the company has capitalized software development. The R&D as a percent of revenue was about 3% this quarter. It had been running at four and without the capitalization, you would have seen a trend that was a similar to the past.

It has been your long-standing practice to pass favorable component prices through to customers when you introduce new products. Why wouldn’t you make an exception in an environment like the one in the first quarter where you had dramatic declines in prices? Is it because you don’t believe that there would be enough elasticity there to justify it or is it because of the intricacies of managing price protection and channel inventories and so for. What is your strategy there?

The company believes its products are competitively priced. If you look at the Mac, the company grew at 36% year-over-year. This is over three times the industry growth. The IDC was projecting a 4% growth rate for the US. The company grew in the Americas at 36%, so 9 to 10 times. IDC was projecting 5% Europe, the company grew 38%. This is the 9th quarter out of the past 10 that the Mac has grown over the market. The Mac seems to have momentum. If you look at iPod and look at the share that the company has over 70% in the US, over 60% in Australia and Canada, over 50% in Japan and Hong Kong and growing on a year-over-year basis in most of Western Europe.

Were there any changes in the mix between HDD flash based iPods this quarter versus last?

The company doesn’t get into reporting that level of product detail, but if you look at the ASPs from the December to the March quarter, you will see that they are relatively flat.

On the new EMI deal you announced this quarter, assuming the other labels or some of the other labels follow suit and you reach the target for the end of the year for DRM-Free Music. Will the economics of iTunes change in any way from margin perspective given the increased price for the higher quality tracks?