This summary is based on the third quarter fiscal 2007 earnings call conducted by Apple Inc. (AAPL: chart) on July 25, 2007.

Executives:
Nancy Paxton – IR
Peter Oppenheimer – CFO
Timothy Cook –COO
Gary Wipfler - Treasurer

Key Investors Issues

- Revenue grew 24% from a year ago to $5.41 billion.
- Net income was up 73% over the prior year to $818 million.
- Earnings per share amounted to 92 cents from 54 cents in June 2006.
- A total of 270,000 iPhones were sold for two days into the market.
- Revenue of $5.7 billion and EPS of 65 cents are expected in the fourth quarter.

Third Quarter Highlights

- Revenue grew 24% from a year ago fueled by strong Mac sales and continued strong demand for iPods.
- - Net income was up 73% from $472 million in June 2006 to $818 million.
- Earnings per share increased 70.4% from a year ago.

Operating margin beat expectations standing 19.2% due to higher revenue and the continued favorable commodity cost environment.

- Gross margin was higher than guidance at 36.9%, reflecting favorable commodity costs.
- Capitalised software development expense amounted to $26 million.
- Cash flow from operations was over $1.2 billion.
- Adopted subscription accounting for the iPhone handset sales and are recognizing the associated revenue and cost of goods sold over 24 months.

Product Performance

Mac products and services represented 60% of revenue.

- A total of 1.76 million Macs were shipped, representing 33% growth from June 2006.
- Growth rate was more than 2.5 times IDC’s most recently published market growth rate for the quarter.
- The company commenced shipment of the new MacBook and MacBook Pro.
- Sales of Mac notebooks grew 42% from a year ago accounting for 64% of total Macs sold.

Music products and services accounted for 40% of revenue.

- iPod sales increased 21% from June 2006 to 9.8 million units were sold.
- iPod enjoyed 71.5 % share of the U.S. market for MP3 players.
- iTunes is now the third largest overall music retailer in the U.S.
- iTunes Plus DRM-free music tracks were also launched.

A total of 270,000 iPhones were sold through AT&T and Apple retail stores with 146,000 iPhones being activated. The management highlighted activation problems during the first week which have been resolved.

Retail Stores

- Opened 8 new stores and remodeled 15 more bring the total to 185 stores.
- Average revenue per store was $5.1 million compared to $4.7 million in June 2006.
- Mac sales through stores were up 50% to 330,000 units.
- One-to-one initiative now has over 270,000 members.
- The management announced that revenue and cost recognition for products sold through retail stores will be over the lives of their respective agreements.

Fourth Quarter 2007 Outlook

- Revenue is targeted at $5.7 billion.
- Earnings per share are expected to be 65 cents including 5 cents per share related to non-cash stock-based compensation expense.
- Non-cash stock-based compensation is expected to amount to $69 million.
- Gross margin is expected at 29.5%, reflecting $10 million related to stock-based compensation expense.
- The company expects iPhone sales of one million, increasing to $10 million in 2008.

Gross margin guidance is lowered due to the back-to-school promotion, higher commodity costs, and product transitions.

- Operating expenses are expected to amount to $990 million.

Key questions and answers from the first quarter earnings call conducted by Apple Inc. (AAPL: chart) on July 25, 2007.

Ben Reitzes (UBS): Can you explain the conservative guidance?