The exhaustive and independent investigation found no misconduct by any member of Apple''s current management team, and the Board has expressed complete confidence in the management team.
Richard Gardner (Citigroup): Could you talk about which commodities in particular were more favorable than expected in the quarter?
Tim Cook: Last quarter, we saw favorable pricing across the board. It was a great time to be a buyer. For this quarter, we see that favorable pricing environment continuing on LCDs and Flash memory, and we believe that DRAM will be relatively supply/demand balanced.
Toni Sacconaghi (Sanford Bernstein): Stores’ revenue was up only 6%, despite CPU growth being up 60% and revenue up 70%, implying a deceleration year over year in iPod unit shipments in the stores. Could you comment on why that happened?
Peter Oppenheimer: The retail store revenue, grew 6% year over year as total Mac sales increased by 60%. This was partially offset by lower iPod revenue, which resulted from the price reductions that we took in September, and also our expanded and well-supplied distribution channel that we had this year.
Richard Farmer (Merrill Lynch): Is the operating margin of 18.6% sustainable?
Peter Oppenheimer: We were thrilled with the operating margin in the quarter at 18.6%, but it was exceptionally high, driven by gross margin of 31%, which is well above where we have been operating and our target range, and was certainly positively influenced by the record revenue of over $7.1 billion, so do not get used to 18% operating margins.
With the guidance provided for the March quarter, we have effectively guided to slightly over a 12% operating margin.
Tim Cook: We realize that right now we are on a very favorable commodity cycle, but we would never project that to continue in the long-term.
Rebecca Runkle (Morgan Stanley): What were the drivers there that caused that sequential drop in Mac units?
Tim Cook: If you look at the Americas as an entity, and you combine the retail result, the Mac units sequentially were down 16%. That is exactly the sequential decline the previous year, and frankly it is the decline about every year.
We have an extremely strong educational business in the fourth quarter period that includes substantial institutional business, and that institutional business corrects significantly as we get into the first quarter.
Keith Bachman (Banc of America Securities): Was a lot of the upside in your iPod driven by sales outside of the U.S.?
Tim Cook: If you look at Europe in particular, the Mac unit growth in Europe was 28%, and that compares to a market growth of 9%, so they were also over three times the market.
We did grow iPod sales faster outside the United States, which was our goal, if you recall. We now have five countries that are above 50%, and this is in addition to the United States, the U.K., Switzerland, Canada, Australia, and Japan.
If you look at some of the other countries that we put significant attention to from an advertising point of view and a channel development point of view, France, Germany, Italy, Spain, Belgium, Sweden, Austria, Denmark, all gains between 10 and 20 points of share.
Bill Shope (J.P. Morgan): Could you give us an update on the Best Buy pilot and how that fared during the quarter?
Tim Cook: Relative to Best Buy and more generally, expansion of the Mac channel, we are continuing to selectively expand the Mac channel. We now have around 7500 storefronts around the world. That increased about 1500 across the year.
Gene Munster (Piper Jaffray): Do you think Apple TV is more of a niche market similar to AirPort Express has been for the music market, or do you see this as a broader platform?
Tim Cook: From how we are positioning the product, we see this as the DVD player of the 21st century so it is clearly not a niche.
Jesse Tortora (Prudential): Can you give us your thoughts in terms of the buybacks and the acquisitions?
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