Peter Oppenheimer: In the December quarter, the retail stores had a quarter for the record books. Our Mac sales were 504,000 in the stores. That was up 64% year over year and over half the Macs we were selling, we sold to people that had never owned a Mac before, so that trend makes us feel good.

Andrew Neff (Bear Stearns): Could you give a sense about store opening plans for this year, what you see in domestic and international split?

Peter Oppenheimer: We expect to open about 35 to 40 stores in fiscal 2008. About 25 of our 204 stores are outside the United States and we will open more stores internationally in 2008 than we did in 2007, including our first stores in China.

Toni Sacconaghi (Sanford Bernstein): You saw different curve in demand in the U.S. in the last month of the quarter. Was that a statement that was only applicable to iPods or did the linearity curve in the U.S. regarding the Mac business look any different than it did last year?

Timothy D. Cook: Mac was strong throughout the quarter. The statement that I made was about iPod and it was a statement that when you got into the gift-buying season, the shape of the curve was somewhat different at the U.S. level, but at the worldwide level it was similar to the previous year.

Toni Sacconaghi (Sanford Bernstein): Can you comment on the number of unlocked phones that you believe were sold in the quarter?

Timothy D. Cook: We believe that the number of phones bought with the intention of unlocking was significant in the quarter but we are unsure how to reliably estimate the number. In the December quarter particularly, we saw sales increase across the quarter similar to what you would expect with the holiday gift-buying pattern. As we are new in the business, we are unsure when all the recipients will activate. Some people wait until their existing contracts expire, some may initially use the non-phone features only, others activate in the future, and so at this point we do not have a precise estimate for you. We see this phenomenon as being an expression of strong interest in iPhone globally and in that way, it is a good problem to have.

Toni Sacconaghi (Sanford Bernstein): Qualitatively, do you believe the percentage would be higher or lower this quarter, or is it too early to tell based on your experience?

Timothy D. Cook: It is too early to tell.

Toni Sacconaghi (Sanford Bernstein): You had mentioned initially at the end of the first quarter of iPhone sales that you did not want to talk about iPhone channel inventory, that it was still a relatively small and insignificant product. Given that it has over $1 billion in deferred revenue, why are you choosing not to disclose that number?

Peter Oppenheimer: That is not the reason we gave. We said that since we only have one channel partner in each of our first four countries, we are not going to report the inventory but we are going to employ our proven systems and processes to manage the iPhone differently, or effectively.

Mike Abramsky (RBC Capital Markets): Could you reconcile the 2.3 million iPhones shipped in December versus over the 4 million announced at MacWorld?

Peter Oppenheimer: At MacWorld, the 4 million iPhones were to date as of the keynote and the 3.7 million iPhones that we had sold cumulatively through the December quarter were part of that.

Mike Abramsky (RBC Capital Markets): Would you say that suggests a significant increase in run-rate since December?

Peter Oppenheimer: Our customers are raving about their iPhones and we remain confident in our goal for 10 million for calendar 2008.

Mike Abramsky (RBC Capital Markets): How European iPhone uptake is faring versus your U.S. experience?

Timothy D. Cook: We just launched in France at the end of November. We launched in the U.K. and Germany in November and earlier November, and so we had limited experience but we are happy with all of the launches so far.

Mike Abramsky (RBC Capital Markets): Are 3G and Bluetooth important to that 10 million iPhone outlook, as well as to your plans for the European market?

Timothy D. Cook: We do not talk about new products but we are confident in meeting the 10 million for the year of 2008.

Mike Abramsky (RBC Capital Markets): Do you have any plans to talk about next regions or countries at all?