Key questions and answers from the fourth quarter fiscal 2007 earnings call conducted by Apple Inc. on October 22, 2007.

Ben Reitzes (UBS): With regard to your guidance, you seem to be more conservative usually. You guided up versus the street by quite a bit to $9.2 billion. What are you seeing that allows you to be so confident in the face of some people being worried about the economy at this time?

Peter Oppenheimer: We’ll leave forecasting the global economy to others. But Apple is shipping the best products that we have ever made in our history. We eclipsed the record that we set for Mac sales last quarter by 400,000. iPod sales accelerated after the transition and we’ll shipping the best iPods that we’ve ever made, and the iPhone is doing well. We’re quite confident in the business and we’ve exited the September quarter with a lot of momentum.

Ben Reitzes (UBS): On the guidance for iPods, did you feel that a lot of iPod sales are pushed into the December quarter and how do we reconcile the sequential for Macs as well?

Peter Oppenheimer: For Macs, in the two most recent quarters, units have been relatively flat from the September quarter to the December quarter, as our education business falls off and is more or less offset by holiday consumer buying. This year, it’s possible that Mac sales could be sequentially a little lower, given the extraordinary success of the back-to-school promotion, which intensified the seasonality of the September quarter.

Timothy D. Cook: In terms of iPod, sales accelerated dramatically after the introduction of the new iPod and based on some early market share data we’ve seen from the U.K., France, and Germany, our share is up significantly in the month of September. The U.K. is up 12 points, Japan is up 12 points, and France is up 6 points. Given these increases, we feel that we are very well positioned going into the holiday quarter.

Gene Munster (Piper Jaffray): Could you talk about the iPhone related products and services? As per my math, the revenue contribution per quarter for the iPhone is 1/8th? Is it by the month or by the quarter? How does it work for the AT&T revenue share and is it also calculated by day, by month or by quarter?

Peter Oppenheimer: In terms of iPhone, we are recognizing revenue from handset sales over a 24-month period of time. We do that on a daily basis. Our revenue from iPhone, which includes amortization of handsets, accessory sales, and payments from AT&T was $118 million in the quarter.

Gene Munster (Piper Jaffray): Is the AT&T a longer term agreement or more near-term?

Peter Oppenheimer: It is a multi-year exclusive agreement.

Gene Munster (Piper Jaffray): How many Best Buy stores were up and running at the end of the quarter? How many do you expect by the end of the December quarter?

Timothy D. Cook: We had 230 operating at the end of the September quarter and we expect more than 270 at the end of the December quarter.

Richard Gardner (Citigroup): It was quite encouraging that your PC channel inventories were below your target range, despite the fact that you did expand the Best Buy agreement in the quarter. Could you comment on that?

Timothy D. Cook: We primarily have low inventories at the end of the quarter because our sales were higher than expected.

Richard Gardner (Citigroup): The higher component prices were one of the reasons that you cited for sequentially lower gross margin in the fourth calendar quarter. But, based on our checks, most components seem to be coming down in price now. Could you reconcile that for us?

Timothy D. Cook: DRAM and NAND Flash markets were favorable last quarter and we believe that will continue during our Q1. Hard drive and LCDs were tight last quarter and they continue to be at the beginning of this quarter, but we do expect these to stabilize as the quarter unfolds. The other commodities are trading near or are declining near historical norms.

Richard Gardner (Citigroup): How your accounting for the iPhone rebate in the quarter?

Peter Oppenheimer: We are accounting for the credits as they are redeemed by customers and will charge the associated product costs to costs of goods sold. We anticipate that most of these redemptions will occur by the end of the December quarter.

David Bailey (Goldman Sachs): Could you help us understand your pricing strategy for iPhone in Europe, where the pricing is higher and effectively going up versus the U.S. price as the dollar weakens?

Peter Oppenheimer: We set our price in Europe when we announced and that price also includes VATs and other related duties.