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?

Timothy D. Cook: We do not forecast ASPs but the iPod ASP did increase sequentially and year over year and that was a result of a successful introduction of the iPod Touch. We just updated the iPod Touch now to include five great mobile applications and the ability to watch movies from the iTunes store and we think that our customers love the product.

Richard Gardner (Citigroup): NPD data suggests a weakening in sell-through for iPod during the month of December this year. Could you comment on the linearity of iPod sales throughout the quarter relative to normal seasonality?

Timothy D. Cook: When you look at the demand curve across the quarter, on a worldwide basis the curve was similar to the curve that we saw last year. In the U.S. the NPD data is that in the gift-buying season, back-loaded in that November and December, we saw a different curve than we did last year but that was made up for in our good growth internationally.

Richard Gardner (Citigroup): Are you concerned that that might be indicative of where the U.S. economy is heading and where consumer demand is heading and have you factored that into your guidance for the March quarter?

Peter Oppenheimer: We give you guidance that we have reasonable confidence in achieving, so no change. In terms of the economy, we will leave the economic forecasting to others and we are focused on managing our business. The business performed well in the December quarter, with revenue in the United States growing 27% year over year. This growth rate was faster than last year’s December quarter, which grew at 21% in the U.S. and for fiscal 2007 in the U.S., it grew at 23%. In the December quarter, our U.S. Mac sales were 43% year over year and the traffic in the retail stores was amazing. Most of the stores are in the U.S. and our traffic grew by over 10 million customers year over year. As we look outside the U.S., we were thrilled with the business, which grew 46% year over year in the December quarter. We remain confident in our strategy and our business and we are going to continue to invest to innovate in hardware and software products that delight customers and continue to improve the buying experience, both in our stores and in the channel.

Richard Gardner (Citigroup): You have $18.5 billion in cash on the balance sheet, no debt, and you are going to generate probably a minimum of $1 billion in free cash flow per quarter this year, and your earnings will rise over time as iPhone produces more of an annuity like profit stream for you. How this factors into the Board’s potential decisions regarding uses of cash and share buy-back?