This summary is based on the first quarter fiscal 2007 earnings call conducted by Apple Inc. (AAPL: chart) on January 17, 2007.

Management:

- Senior Director, Investor Relations and Corporate Finance: Nancy Paxton
- Chief Financial Officer, Senior Vice President: Peter Oppenheimer
- Chief Operating Officer: Tim Cook
- Treasurer: Gary Wipfler

Key Investors Issues

- Revenue was $7.12 billion, up 23.8% from $5.75 billion in 2006.
- Net income of $1 billion or $1.14 a share, was up 78%.
- Apple shipped 1,606,000 Macintosh® computers and 21,066,000 iPods, up 28% and 50%, respectively.

First Quarter Highlights

Revenue was $7.12 billion, up 23.8% from $5.75 billion in the prior year driven by very strong iPod sales during the holiday season and continued robust demand for Macs.

- Operating margin was high at 18.6%, resulting from the revenue growth and effective cost management.
- Net income of $1 billion or $1.14 a share, was up 78% from $565 million or 68 cents a share in the prior year on sales growth.
- The firm shipped a total of 1.61 million Macs, consistent with the record-setting shipment in September back-to-school quarter, and representing 28% growth over the 14-week year-ago quarter.
- Ending channel inventory of Macs was essentially unchanged from the prior quarter, and was just below the target range of four to five weeks.
- The firm refreshed both the MacBook and MacBook Pro with Intel Core 2 Dual processors, and customer demand for the portable Macs remained strong.

Portable Mac shipments grew 65% year over year and accounted for 60% of total Macs sold.

- Music products and services accounted for 57% of total revenue versus 59% in the year-ago quarter as the firm sold 21.1 million iPods, representing 50% growth over the year-ago quarter.
- The new iPod Shuffle began shipping at the end of October.
- Channel inventory of iPods increased by about 200,000 units, all related to channel fill for the iPod Shuffle.
- iPod maintained its leadership position in the U.S. in the face of increased competition and share of the U.S. market for MP3 players was 72% in the month of December.

Other music revenue grew 29% year over year, fueled by very strong sales through the iTunes store.

- The store’s growing content offering now includes over 4 million songs, 350 television shows, and 250 movies.
- The firm has now sold over 2 billion songs and have added feature films from Paramount Pictures to the movie library.
- iTunes continues to lead the market for songs purchased and downloaded, accounting for over 85% of the U.S. market based on the latest data from Nielsen Soundscan.
- iTunes gift cards were immensely popular during the holiday quarter and doubled year over year.
- Sales from Apple retail stores were over $1.1 billion, generating $89 million of segment margin, not including $232 million of associated manufacturing profit.

Apple opened five new stores to end with 170 stores and with an average of 169 stores open, average revenue per store was $6.7 million.

- The stores sold 308,000 Macs, representing 60% year-over-year growth.
- Almost 28 million people visited the stores, representing 13,000 customers per store per week.
- Gross margin was 31.2%, almost 300 basis points higher than guidance, primarily due to the favorable commodity pricing environment, better product mix, and greater leverage of fixed costs due to the higher-than-expected revenue.
- Operating expenses were $898 million, including $40 million in expense related to stock-based compensation.
- The firm had very strong cash generation, increasing the cash balance by over $1.75 billion to end with $11.9 billion primarily as a function of strong earnings and working capital management.
- The firm recently introduced the revolutionary iPhone and Apple TV.

Key questions and answers from the first quarter earnings call conducted by Apple Inc. (AAPL: chart) on January 17, 2007.

Benjamin Reitzes (UBS): In your guidance, are you factoring for any pause in demand ahead of the iPhone, perhaps in the iPod markets or anything?

Peter Oppenheimer: We have factored our view of customer demand and supply into our guidance. As we have said, we just announced the iPhone last week and it is really too soon to tell, but we believe we have a great iPod product offering today, with a range of prices, capacities and form factors to meet many customers needs and uses.

For iPods, in terms of assessing the MP3 market seasonality, we have learned over the last few years that what really drives the MP3 market to new levels is innovative product launches and the holiday season buying in the December quarter. iPod demand this quarter was extraordinary.

We were able to ship over 21 million units. Unlike the previous year, iPod supply and demand were largely in balance. Given this, we would expect a higher seasonal decline from the December quarter to the March quarter this year than we saw last.

For Macs, Apple does a significant percentage of its December quarter in the consumer segment and sequentially, we would expect to see the holiday buying season drop off and the education buying to begin to ramp up in the spring.

Benjamin Reitzes (UBS): With regard to your stock option investigation, have you received any commentary from the SEC or Justice Department?

Peter Oppenheimer: We from the beginning have voluntarily and proactively provided all details of our internal review and the independent investigation to the SEC and the U.S. Attorney for the Northern District of California.