Key questions from the first quarter earnings call conducted by Apple Inc. on January 22, 2008.

Katy Huberty (Morgan Stanley): Why your outlook is suggesting worse seasonality than what you have seen over the last few years?

Peter Oppenheimer: The guidance that we have projected of $6.8 billion is up 29% year over year. We provide you guidance that we have reasonable confidence in achieving. We remain confident in our business and our products and our strategy. Macs just had a terrific quarter. We were up 44% year over year. We have had some great announcements at MacWorld, so as I look forward, we remain confident in the business and the guidance that we have provided at 29% which is up from what we did in the year-ago quarter in March where we grew 21%.

Katy Huberty (Morgan Stanley): Where Mac channel inventory stands today?

Timothy D. Cook: We ended the quarter below our target range and we started the quarter below our target range.

Bill Fearnley (FTN Midwest): Now you have Creative Suite, larger monitors, and more powerful Macs. What did that do to the Macintosh business if anything for the quarter and does that color your outlook for the upcoming quarter at all?

Timothy D. Cook: Generally the Macintosh business is on fire. We have done 44% year over year. The Mac business has incredible momentum. The pro segment itself, the part that we can measure the best, which is around pro audio software, and video, pro audio was up significantly year over year and the video business continued to perform well.

Bill Fearnley (FTN Midwest): What were the effects of the iPhone rebate redemptions during the quarter, if anything?

Peter Oppenheimer: Customers appreciated that we provided the $100 credit. The impact of that at this point is largely behind us and we saw that in both the September and the December quarter.

Bill Fearnley (FTN Midwest): What is the iPhone unit expectation for 2008?

Timothy D. Cook: We remain confident in hitting the 10 million goal for 2008.

David Bailey (Goldman Sachs): What your inventory targets are in the channel in terms of weeks?

Timothy D. Cook: Our target for the Mac is to be between four and five weeks of inventory and we did not end the quarter within that range. We ended it significantly less than the range. We did that because Macintosh sales were much higher than we anticipated for the quarter, had tremendous momentum throughout the quarter and we are trying to remedy that situation now.

David Bailey (Goldman Sachs): Do you think you can get back within the four to five week range by the end of March?

Timothy D. Cook: We do not forecast channel inventory but we have given our guidance and embedded in that is our supply and demand forecast.

David Bailey (Goldman Sachs): The iPods units were up only sort of in the mid-single-digits year over year, yet you gained some share. Are you reaching a saturation point for MP3 players or is there still room to grow there?

Peter Oppenheimer: We view the iPod market as bigger than a market for just simple music players. This is one of the reasons we developed the iPod Touch and we believe that one of the iPod’s future direction is to become the first mainstream WiFi mobile platform. The Touch is off to a great start. We succeeded in the introduction and it played a big role in our growing revenue 17% year over year, and we do not think that revenue growth like this is characteristic of a saturated market.

Bill Shope (J.P. Morgan): Are you seeing any cannibalization going on between the iPod and the iPhone?

Timothy D. Cook: When we look at the U.K., France, and Germany, there is no obvious evidence of cannibalization at all. In the U.S. where iPod unit sales were flat year over year, it could have been one of the factors but other factors played into that as well, so it is difficult to say with any precision whether there was cannibalization or not.

Bill Shope (J.P. Morgan): Can you give color on inventory levels for iPhones exiting the quarter?

Timothy D. Cook: We are not providing specific iPhone inventories. We have one channel partner for each country and we are employing our proven systems and processes with iPhone to manage inventory efficiently, just like we do with Mac and iPod.

Bill Shope (J.P. Morgan): Do you think the ASP trends for iPods can hold in that level going forward?