This summary is based on the second quarter fiscal 2006 earnings call conducted by Apple Inc. (AAPL: chart) on April 19, 2006.

Management:

- CFO: Peter Oppenheimer
- COO: Tim Cook
- Treasurer: Gary Whistler
- Senior Director, Investor Relations and Corporate Finance: Nancy Paxton

Key Investors Issues

- Revenue increased 34% to $4.36 billion from $3.24 billion in the prior year.
- Net income was $410 million, or 47 cents a share, up 41.4% from $290 million or 35 cents a share in 2005.
- The music store''s U.S. content has continued to expand and now includes over 2.9 million songs, 60,000 pod casts and 9,000 music videos.

Half Year Highlights:

- Net sales rose 50.1% to $10.1 billion from $6.7 billion in the prior year.
- Net income increased 66.7% to $975 million or $1.17 a share, from $585 million or 73 cents a share.

Second Quarter Highlights

The firm reported revenue of $4.36 billion, up 34% year over year driven by continued strong growth in the music business and solid performance in the Mac business during the transition to Intel.

- Net income was $410 million, or 47 cents a share, up 41.4% from $290 million or 35 cents a share in the prior year on revenue growth and operating margin of 12.1%
- The Mac business represented 50% of total quarterly revenue, an increase 7% year over year as Mac units were up 4% year over year to 1.11 million, and ending channel inventory was within the target range of four to five weeks.
- The firm introduced the MacBook Pro, new iMac, and new Mac-Mini with Intel processors, and is solidly on track to have the entire Mac product line transitioned by the end of this calendar year.
- In January, the firm indicated that it had seen a pause in customer demand in the December quarter as customers began to anticipate the introduction of the Intel Mac.

The firm announced the MacBook Pro at MacWorld and began to ship in late February, which limited the number of shipping weeks in the quarter.

- It observed purchasing delays as some customers are waiting for the remainder of the product announcements and while developer progress on universal applications has been excellent, some customers are delaying purchasing until certain universal applications are available.
- Customer and industry analyst feedback on the new Intel-based products has been very positive, and the firm is very enthusiastic about the additional Intel-based Macs will be introducing this year.
- It has released universal versions of Apple software, including iLife, iWork, QuickTime, Final Cut Studio, Aperture, and Logic.
- Third-party developers are making progress with transitions as well, with over 1,500 universal applications currently available, and commitments from key developers such as Adobe and Microsoft.

The Music business, representing 50% of company revenue and increasing 79% year over year, as iPod shipments grew 61% to over 50 million.

- Other music product revenue was $485 million, up 125% year over year, and about flat sequentially with 14-week holiday quarter.
- These results were a function of continued strong sales from the iTunes music store, the introduction of the iPod hi-fi, and very solid demand for other iPod accessory products.
- The iTunes music store sold its one-billionth song and according to the most recent data from Nielsen Soundscan, the iTunes Music Store counts for 87% share of the market for legally purchased and downloaded music in the United States.
- The music store''s U.S. content has continued to expand, and now includes over 2.9 million songs, 60,000 pod casts, 9,000 music videos, and over 70 television programs from ABC, NBC, CBS, HBO, ESPN and Showtime.

Despite a large field of competitors, the most recently published data from NPD Tech World shows that Apple''s share of the U.S. market for MP3 players has increased in March to 78% from 71% in December.

- The iPod Ecosystem continues to thrive, with over 2,000 iPod accessories currently available.
- Looking outside the U.S., the iPod is also the top selling MP3 player by a wide margin in the United Kingdom, Japan, Australia, and Canada based on the latest data from GFK and BCN.
- The firm is optimistic about further market penetration potential globally and its ability to grow international market share.
- Considering penetration rates of other consumer electronic products, the MP3 player market has a lot of room for growth.

In the Apple''s retail segment, revenue from the Apple retail stores totaled $636 million, reflecting the transition to Intel and broader indirect iPod distribution.

- The new-to-Mac percentage increased to 50% of Macs sold in the store''s most recent survey.
- The firm opened six new stores, exiting with 141 and with an average of 138 stores opened, average quarterly revenue per store was $4.6 million.
- Retail segment profit was $29 million, compared to $42 million in the year ago quarter.
- Traffic through retail stores continued to be strong, growing from 13 million visitors to 18.1 million visitors year over year, and translating to over 10,000 visitors per store per week.
Customer interest in the new Creative Studios was high, and the firm staffed up to deliver over 50,000 one-to-one personal training sessions and will continue to add new stores at a measured pace and expect to open a total of 40 new stores during fiscal 2006.

- In terms of geographic results, including sales from retail stores, quarterly revenue in the Americas, Europe, and Japan was up 38%, 37%, and 8% respectively.
- Gross margin was 29.8%, about 200 basis points higher than guidance, primarily due to a favorable component pricing environment, higher-than-expected software sales, and lower-than-expected costs associated with the Intel transition.
- Operating expenses were $768 million, including $37 million in expense related to stock-based compensation.

The firm made the remaining $500 million prepayments relating to the agreements for future supply of NAND Flash memory components that were announced in the December quarter.

- The firm spent about $120 million to acquire a new data center in the first of several properties to form a second Cupertino campus and made other capital expenditures of $73 million, including $42 million for the retail initiative.
- Despite these significant investments, cash declined by just $481 million to $8.23 billion due to strong earnings, excellent working capital management and stock option exercises.