Charles Wolf - Needham & Company

Well, keep it up, Steve.

Steven P. Jobs

We’ll try.

Charles Wolf - Needham & Company

Okay, thanks.

Nancy Paxton

Thank you, Charlie. Could we have the next question, please?

Operator

Your next question will come from Toni Sacconaghi with Sanford Bernstein.

Toni Sacconaghi - Sanford Bernstein

Thank you. I have a question or two for Peter and Tim, and clarifications for Steve. For Peter and Tim, can you talk about the forces at work in terms of iPhone volumes for Q4? Typically, I mean, last year we saw iPhone volumes double in the calendar fourth quarter. You are also expanding distribution. Both of those are obviously forces that would suggest that the iPhone number could be considerably higher. Obviously on the flip side of that, you did have a stocking of your channel, which won’t be as significant in Q4, and we have economic uncertainty, should investors be thinking about strong seasonal growth in the iPhone for calendar Q4, and if not, why?

Timothy D. Cook

Toni, it is Tim. You know, we don’t predict unit sales at a product level but what I would point out is that we did begin shipping in many more countries last quarter, from 6 to 51, as I had said, and we just launched the phone on July 11th. So we did have a channel build. That channel build was about 2 million units, as I had mentioned previously, and so that’s something you would have to take into account in predicting our fiscal Q1 sales. We will expand into more countries. We are on target to be in over 70 by the end of the year. However, the countries that we are expanding in are clearly have -- there’s less opportunity in those than the 50 that we have rolled out so far, and so you’d have to take that into consideration. We are confident that year over year that sales will be up significantly. What they do sequentially, our crystal ball is not working at the moment and so we would leave that for you to predict.

Toni Sacconaghi - Sanford Bernstein

And then on the gross margin side, you are guiding for 30% to 31% for Q1 and you said that you expect to be able to ride down the cost curve as volumes ramp going forward. How should we think about your previously stated guidance of 30% gross margin for fiscal year 2009 in light of those two statements?

Peter Oppenheimer

In last quarter’s call, I said that we anticipated gross margin being about 30% in fiscal 2009 and our guidance for the December quarter is consistent with that at 30% to 31%. As we look forward, we continue to anticipate gross margins of about 30% in 2009. We are delivering state-of-the-art products at price points that our competitors can’t match and that’s resulting in market share gains in each of our product areas. We are going to continue with this strategy of delivering great products and making a reasonable margin but as Steve said, we are not going to leave an umbrella for competitors.

Timothy D. Cook

Toni, I would point out, just to show the breadth of what we’ve done, when we took Touch price down, we took it from $299 to $229 for the entry price and the units above it were moved $399 to $299 and $499 to $399, so significant price cuts on Touch. We also doubled the memory at the same price on Nano while providing an incredibly new design. Also on the notebooks, as you know from last week, the entry price went from $1099 to $999, and in addition, we brought MacBook Pro features down to the MacBook price range, which is essentially at $700 less than what we were offering before. And so we’ve made an enormous round of cuts to provide more value to our customers.