According to the latest data from NPD, iPod’s share of the U.S. market for MP3 players in the December quarter was consistent with the year-ago quarter and in international markets, according to GFK, the company continued to gain market share year over year in virtually all European and Asian countries.

The company was pleased with the iPhone momentum and customers continued to rave about their iPhones.

- The company sold over 2.3 million iPhones and executed successful launches in the U.K., Germany, and France.
- Total revenue recognized from sales of iPhone, iPhone accessories, and payments from carriers was $241 million.
- Total deferred revenue from iPhone and Apple TV was $1.44 billion at the end of the December quarter compared to $636 million at the end of the September quarter.

Apple retail stores revenue was $1.7 billion, representing 53% year-over-year growth.

- The stores generated $405 million in segment margins compared to $259 million in the year-ago quarter.
- The company opened third store in Manhattan on West 14th street, which is off to a great start and devotes an entire floor to the Genius Bar, personal training, and pro lab.

- The company opened six other new stores, ending with 204 stores. With an average of 201 stores open, average revenue per store was $8.5 million compared to $6.6 million in the year-ago quarter.
- The stores sold a record 504,000 Macs, representing 64% year-over-year growth. Once again, over 50% of the customers buying Macs in stores were new to Mac.

- Store traffic hit a new record with 38.4 million visitors, representing 14,700 visitors per store per week, an increase of over 10 million visitors from the prior December quarter.
- Stores continued to innovate and provide outstanding customer service. The new concierge teams that were added to all stores were well-received by customers and helped direct traffic to the store’s personal shoppers, express bays, genius bars, and studios for training and other services.
- The stores delivered over 300,000 personal training sessions, a new all-time high.

Total company gross margin was 34.7%, which was stronger than expected due to a more favorable commodity environment, stronger software sales, higher overall revenue, and a weaker U.S. dollar.

- Operating expenses were $1.2 billion, including $92 million in stock-based compensation expense.
- The company capitalized only $1 million of software development expense related to Leopard compared to $22 million in the September quarter.
- OI&E was $200 million and the tax rate was 32%.

- The company had strong cash generation, increasing cash balance by over $3 billion to end with over $18.4 billion.
- Cash flow from operations was $2.76 billion.

Second Quarter 2008 Outlook

- The company is targeting revenue of about $6.8 billion or approximately 29% growth over the prior March quarter.
- The company expects the total quarterly cost of non-cash stock-based compensation expense to be approximately $135 million.

- The company expects gross margin to be about 32%, reflecting approximately $20 million related to stock-based compensation expense.
- The company is guiding gross margin down sequentially primarily as a result of two factors.
- First, the company expects a sequential decline in software sales as Leopard enters its second quarter and iLife and iWork enter their third quarters.
- Second, the company expects sequentially lower revenue due to seasonality as seen in past years.

- The company expects OpEx to be about $1.12 billion, including about $115 million related to stock-based compensation.
- The company expects OI&E to be about $190 million and expects the tax rate to be about 32%.
- The company expects to generate EPS of about 94 cents per share.

Key questions from the first quarter earnings call conducted by Apple Inc. on January 22, 2008.

Katy Huberty (Morgan Stanley): Why your outlook is suggesting worse seasonality than what you have seen over the last few years?

Peter Oppenheimer: The guidance that we have projected of $6.8 billion is up 29% year over year. We provide you guidance that we have reasonable confidence in achieving. We remain confident in our business and our products and our strategy. Macs just had a terrific quarter. We were up 44% year over year. We have had some great announcements at MacWorld, so as I look forward, we remain confident in the business and the guidance that we have provided at 29% which is up from what we did in the year-ago quarter in March where we grew 21%.

Katy Huberty (Morgan Stanley): Where Mac channel inventory stands today?

Timothy D. Cook: We ended the quarter below our target range and we started the quarter below our target range.

Bill Fearnley (FTN Midwest): Now you have Creative Suite, larger monitors, and more powerful Macs. What did that do to the Macintosh business if anything for the quarter and does that color your outlook for the upcoming quarter at all?