Company’s philosophy has been to run the music store over break-even because the company thinks that selling music and videos, helps to sell iPods and accessories.

Could you give an update on direct sales versus indirect mix and then did the mix of direct versus indirect help margin in the quarter?

The direct sales, which the company defined as sales for the retail stores, online, direct to education and enterprise customers and through the music store rose 50% in the quarter and that was close to expectations.

You have been thinking about revenue by geography and the opportunity for iPod outside the United States. Could you give some additional color on how the iPod did outside the U.S. and how it did versus your expectations and sort of the same thing for the Mac as well. And I see that the, I see the revenue and things like that by geography, but if you give that additional color on the product side, or even directionally that would be helpful.

On sort of the Mac point of view, the company is growing at a multiple of the market in the U.S. and Europe and in Asia Pacific, Asia Pacific is fastest growing region. It grew at 89% year-over-year. The IDC projection for Asia Pac was only 14%. That is over 6 times the market. As the company has gotten out of the Intel transition infact it has been over 3 times the market growth for the last three quarters. September was 30%, December with 28%, March with 36%. On the iPod, like the Mac, the company is doing well outside the U.S. The company is now over 60% in Australia and Canada in share. The companies continue to be over 50% in Japan, the company has now gone over 50% in Hong Kong. Apple is in the 40% to 50% range in the U.K. in Switzerland, in Singapore, in Denmark. The company hit a high in Germany of 28%.

Over the last couple quarters, you have given seasonality on both the iPod and Macs. Could you help understand was it better for the June quarter in terms of what the normal declines or increases would be? Is the Leopard push out any part of the reason why you might be more conscious on the Mac side of things?

For Mac, sales have typically increased from the March to June quarters but at lower ASPs as a result of the education buying season beginning. The June quarter typically seize higher K to 12 sales while the September quarter tends to see stronger higher education sales. But the June and September quarters are really bigger education selling seasons. For the iPod, the June quarter is usually seasonally the weakest from a customer perspective. Last year the company saw iPod sales decline sequentially from the March to June quarters despite there being some constraints in the beginning of the March quarter. This year the company was in good supply and demand balance throughout the March quarter.

Is it safe to say gross margins are consistent with the 35% level?

For the June quarter, the company has guided gross margins to 32%. The company continues to target gross margin in the 27% to 28% range on a longer-term basis despite recent results which have benefited from a number of factors including a favorable commodity environment. Now looking forward, the company is likely to see other factors which will drive gross margin down, such as different commodity environment or product mix. The company does not see the current gross margin level that is sustainable and doesn’t want to count on them.

You are guiding expense is up sequentially, you talked about iPhone related expenses. What types of programs and promotions do you plan to do there?

The depreciation and amortization in the March quarter was about $69.5 million. In terms of OpEx, the company remains confident in its business and products. The company is continuing to invest in long-term growth, including in this quarter the launching iPhone in late June and Apple TV this past quarter. Apple is increasing spending in its engineering areas, retail stores and also increasing other marketing and advertising programs. The company is seeing some increased expenses related to higher revenue and stock-based compensation.