Good day, everyone, and welcome to the Apple Incorporated Second Quarter Fiscal Year 2014 Earnings Release Conference Call. Today’s call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead, ma’am.

Thank you. Good afternoon, and thanks to everyone for joining us today. Speaking first today are Apple CEO, Tim Cook, and Vice President and Corporate Controller, Luca Maestri, and they will be joined by CFO, Peter Oppenheimer for the Q&A session with the analysts. Please note that some of the information you’ll hear during our discussion today will consists of forward-looking statements, including without limitation, those regarding revenue, gross margins, operating expenses, other income and expense, stock-based compensation expense, taxes, future products and capital allocation plans. Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple’s Form 10-K for 2013, the Form 10-Q for the first quarter of fiscal 2014, and the Form 8-K filed with the SEC today, along with the associated press release. Apple assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates. I’d now like to turn the call over to Tim for introductory remarks.

Thanks, Nancy. Good afternoon, everyone. We have a lot to share with you over the next hour, and I’d like to start right away with the very strong results we’re reporting for the March quarter. We generated $45.6 billion in revenue, which was ahead of our expectations and represents a new March quarter record, and is our strongest non-holiday quarter ever. Our underlying business performance was even stronger than our reported results imply. When you take into account changes in channel inventory this year versus last year and foreign exchange had wins that we faced in several of our international markets. Setting foreign exchange and inventory changes aside, our underlying growth rate would have been close to double digits. These strong revenue results combined with our best gross margin percentage since September of 2012 resulted in earnings per share growth of 15%, which is our highest earnings growth rate in the last six quarters. iPhone was key in driving our stronger-than-expected results. We sold almost 44 million iPhones, setting a new March quarter record. These stronger results were broad-based both from a product point of view with demand for each of our three iPhone stronger than its predecessor and from a geographic standpoint. We gained smartphone share in many developed and emerging markets including the U.S., the UK, Japan, Canada, Germany, France, Vietnam and Greater China, just to mention a few. In fact, we established a new all-time record for total iPhone sales in the BRIC countries. iTunes software and services revenue continue to grow at a double-digit rate, thanks to an incredible ecosystem and our very large, loyal and engaged customer base. With its strong momentum in growing profitability, iTunes is a very important driver of our business not only here in the United States, but around the world.…

Thank you Tim and good afternoon everyone. As Tim said revenue for the March quarter was $45.6 billion, up $2 billion or 5% from a year ago and above our guidance range. Sales in each of our major product categories were at the high end of our expectations or better and the vast majority of the revenue upside came from strong sales of iPhone. Gross margin was 39.3%, also above our guidance range and operating margin was $15.6 billion, representing 29.8% of revenue. Net income was $10.2 billion translating to diluted earnings per share of $11.62. For details by product, I’d like to start with iPhone. We sold 43.7 million iPhones which was a March quarter record. That’s an increase of 6.3 million iPhones over last year that represents 17% growth. The addition of China Mobile coupled with great response to our more affordably priced iPhone 4S led to an all time quarterly record for iPhone sales in Greater China. We look forward to broadening our relationship with China Mobile as they expand points of sale and continue to build out their 4G network. In Japan, iPhone sales were up over 50% year-over-year resulting in significant market share gains, as Tim mentioned we’ll try strong growth and share gains in many other major developed markets based on IDCs latest estimates for the March quarter. iPhone also continued to perform exceptionally well in many developing markets. In Greater China, Brazil, Indonesia, Poland and Turkey. iPhone sales grew by strong double-digits year-over-year, and in India and Vietnam sales more than doubled. We exited the quarter with 15.4 million total iPhones in channel inventory, which represents a sequential increase of about 100,000 from the December quarter and left us within our target range of four to six weeks. In the enterprise market progressive…

Finally, before we start the Q&A, I would like to take a minute to talk about my dear friend and colleague Peter Oppenheimer. As you know, Peter will be transitioning from the CFO role in June. Peter has been Apple’s CFO for 10 years and the list of his accomplishments is immense. Apple is now more than 20 times the size it was when Peter became our CFO and his expertise, leadership and incredibly hard work had been instrumental to the company’s success. I’d like to thank him very publicly for his contributions to Apple, from the very bottom of my heart and wish him all the best in his approaching retirement at the end of September. And I’d also like to recognize him that he has never missed guidance in the 10 years as CFO which must be an all-time record for CFOs. We’re really happy and fortunate to have someone with Luca’s talent on Board to replace Peter. He has over 25 years of experience, building and leading finance teams in global companies and has an exceptionally broad international background, which you might be able to detect from his accent. He’s been managing most of Apple’s financial functions since coming on Board last year and has done an outstanding job. I’m looking forward to working with Luca even closer as Apple’s next CFO. With that, I’d like to open the call for questions.

Thank you, Tim. We’d like to ask that you limit yourself to one question and one follow-up please. Operator, may we have the first question.

(Operator Instructions) Your first question will come from Katy Huberty with Morgan Stanley. Katy Huberty – Morgan Stanley & Co. LLC: Thanks. Congrats on the great quarter. Tim, if I heard you right that $800 million account is a staggering jump from the last time you reported that number and yet iTunes, software and services growth decelerated again this quarter. Can you just talk a little bit about your view on the importance of better monetizing the installed base in the future? And then I have a follow-up.

Keep in mind, in that category there’s several things, not just the App Store kind of revenues and so if you looked at App Store only, it would look a little different than what you’re seeing. But in terms of your question about monetization, I do believe that we can monetize more than we owe from a services point of view in existing areas and in new areas. And I’m particularly encouraged that when I look at the App Store and how it’s doing the strength was broad based. And in fact in China the growth was in the triple digits. Katy Huberty – Morgan Stanley & Co. LLC: Okay. And then question the around iPhone ASPs, just looking at the trend iPhone 5s, demand has surprised to the upside over this cycle. Does that give you any confidence that Apple could actually charge more for highly innovative products in the future or does the strategy remain to add innovation at the same price as previous versions of a product?

We price things that we think – are priced in such a way that we think it’s a fair price for the value that we’re delivering and we make those on each thing as it gets closer time to come to market. Katy Huberty – Morgan Stanley & Co. LLC: Okay. Thank you. Peter, much luck to you.

Thanks, Katy.

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

From Goldman Sachs we’ll hear from Bill Shope. Bill C. Shope – Goldman Sachs & Co.: Okay, great. Thanks. Can you walk through the key drivers of the June quarter gross margin guidance off of what was admittedly very sharp upside for the March quarter.

Sure. Bill, I’ll take that. So March quarter was very good as you said. There were three seasons for it. We had obviously better volume as you’ve seen from our revenue results. We had better cost than anticipated, and we had some favorable mix of both products and services. As we get into Q3, obviously as you’ve seen from our revenue guidance we are expecting some loss of leverage, which would come from the sequential decline in revenue. It’s about 19% at the midpoint of the range, and we’re also expecting less favorable mix. This is something very typical that happens to us as we move farther away from the quarter when we launched the new products. To offset that, it's only going to be a partial offset. We will have some cost improvements. Bill C. Shope – Goldman Sachs & Co.: Then looking at the iPhone upside for the March quarter, obviously, it looks like China was a key driver here, but within the U.S., did you see as much pressure from the changes in U.S. carrier upgrade policy that you had discussed last quarter, and was demand I guess just strong enough to completely counter that? And then is this headwind behind us now, and potentially a tailwind in the U.S. as we head into the June quarter?

We saw some pressure in the quarter because of the stricter enforcement of upgrade policies. So this was primarily in the U.S. as I mentioned last time. But if you really look at iPhone, the strength of iPhone was very broad-based and as I've mentioned, we gained share in a whole host of markets, from developing markets like the U.S., U.K., France, Germany to more of the emerging markets like China, Vietnam, and had the largest total sales of iPhone in the BRIC countries that we've ever seen in our history. And so we feel very good about that the strength was broad-based. Bill C. Shope – Goldman Sachs & Co.: Great thank you.

Thanks Bill. Could we have the next question please.

We’ll hear from Toni Sacconaghi with Sanford Bernstein. Toni Sacconaghi – Sanford Bernstein: Yes. Thank you. Peter best wishes going forward. I have one question for Luca and a follow-up for Tim please. Luca, on the iPhone ASPs this quarter, they were down a little over $40. I think that was the largest sequential decline that we've seen in history. I was wondering if you could help us understand what drove that. Was it entirely mix? You mentioned good growth in each of the three models, but were you seeing particularly strong growth in the 4s? I think you mentioned that in China. And how significant if any was selling older generation for iPhone 4?

Yes, Toni. When you look at the $41 of decline, I would say about half of that was driven by the fact that we have continued to do very well in emerging markets with the 4s. I have mentioned that there is a lot of markets where we've grown very strongly in Latin America, in Asia-Pacific, in Eastern Europe. So, about half of that decline came from the stronger sales of the 4s. And then the rest was primarily the fact that, again as we move away from the quarter where we launched a product, we tend to have lower capacity mix in our numbers. Toni Sacconaghi – Sanford Bernstein: Okay. Tim, I was wondering if you could talk about how you think about replacement cycles generally for the iPhone over the longer term. Clearly U.S. carriers have started introducing plans that may ultimately encourage people to keep their phone longer than two years, because their total price paid is less. And so one could argue and I'd like your opinion on whether you think that could push out replacement cycles. I guess, the other consideration is the imperative for Apple to continue to introduce really great products to want to have people upgrade at the same frequency. And I guess, the dilemma in doing that is as we've seen with the 5 and with the 4 is introducing really great products, typically puts pressure on your BOM and pressures margin. So perhaps you could just tell us how you think conceptually about where you think replacement cycles go over time and why? And then secondly, how do you address this dilemma of well in order to make a great phone it typically costs more to do so and managing their potential margin pressure.

There is a lot there, let me see if I can address it quickly and I want to just add one thing to the point that you asked Luca. Just to be clear on the iPhone 4 question, we sold a very, very low single-digit percentage of those and so it had extremely minimal impact of results on the quarter. In terms of the general upgrade or the installed base, some of the programs that the carriers are running may serve to increase the upgrade cycle because there are some areas where customers can pay a bit more in the beginning and have the ability to essentially upgrade each year. So I think there is some that work that way. I think there is some that work the way that more of the way that you're leaning, and how these balanced are very difficult currently to conclude. But regardless of how those balance, what I see as the bigger opportunity for Apple is that the smartphone market is still only 1 billion or so units and it will eventually take over the entire mobile phone market. We've seen our ability to attract new users to iPhone to be very significant in the emerging markets. We were seeing new to iPhone numbers on the iPhone 4s sales in the 80 percentages in certain large geos. So, this to us give us a great comfort that we can continue to grow and we may not be able to attract some of those buyers to our top phone because of the price point. But if we can get them in on the entry iPhone, it gives them a great product, at a great value and gets them into the ecosystem. And as you know from following us for a while, our ability to…

The most important thing, Toni, that we do is to make great products that really get our users excited to want the next one and that will always be the case. And you can bet that that’s where the vast majority of all of our attention is on doing this thing. In terms of the BOM pressure of any new product, you have seen in the past that exists. I think you’ve also seen that we have a way of working down the cost curve. That was certainly very key in achieving the 39.3% gross margin from this past quarter. And as I said before, we price things at a level that is fair for the value that we are providing, and so we’re certainly not stuck on certain price points. We price that values that are fair for the value that we are delivering. Toni Sacconaghi – Sanford Bernstein: Thank you.

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

And from UBS we’ll hear from Steve Milunovich. Steven M. Milunovich – UBS Securities LLC: Thank you. Tim, I understand that the iPad is not as weak as it appears on a sell-through basis, but still it’s relatively flat over the last year in terms of sell-through. What are your thoughts in terms of why that is and can that accelerate with Office on the iPad going forward?

It’s a good question. Let’s talk about iPad a little more than we did in the comments. When I backup from iPad, here’s what I see. It absolutely has been the fastest growing product in Apple’s history and it’s been the only product that we’ve ever made that was instantly a hit in three of our key markets, from consumer to business including the enterprise and education. And so, if you really look at it in just four years after we launched the very first iPad, we’ve sold over 210 million, which is more than we or I think anyone thought was possible at that period of time. And it’s interesting to note that that’s almost twice as many iPhones that we’ve sold in a comparable period of time, and over seven times as many iPods as we’ve sold in the period of time. So, I think it’s important to kind of to put that in perspective. We’ve come a long way very, very quickly. Looking at it by market a bit, which I think is important. I think Luca mentioned a little bit of this in his comments. In the education market in the U.S., we have a 95% share. And so the focus in education is on penetration, is on getting more schools to buy and my belief is the match has been lit, and it’s very clear to the educators that have studied this is that student achievement is higher with iPad in the classroom than without it. And so I’m confident we’ve got a really great start in education far beyond the U.S. now. This is happening in many, many parts of the world. In the enterprise market, we’re seeing virtually all, 98% of the Fortune 500 that using iPad. And we’re seeing, according to Good…

The key thing for us, Steve, is to stay focused on things that we can do best and that we can perform at a really high-level of quality that our customers have come to expect. And so we currently feel comfortable in expanding the number of things we're working on. So we've been doing that in the background and we're not ready yet to pull the string on the curtain. But we've got some great things there. We're working on them. Very, very proud of and very, very excited about. But for us, we care about every detail and when you care about every detail and getting it right, it takes a bit longer to do that and that's always been the case, that's not something that just occur. As you probably know from following us for a long time, we didn't ship the first MP3 player, nor the first smartphone, nor the first tablet. In fact, there were tablets being shipped a decade or so before then, but arguably, we shipped the first successful modern tablet and the first successful modern smartphone and the first successful modern MP3 player. And so it means much more to us to get it right than to be first. I think you can see so many examples out in the marketplace, where it's clear that the objective has been to be first. But customers at the end of the day don't care about that. That's not what they look for from Apple. They want great, insanely great and that's what we want to deliver, and so that's the way we look at it. From an acquisition point of view, we have done 24 in 18 months. That shows that we're on the prowl, I suppose you could say. We look for companies that have great people and great technology and that fit culturally. And we don't have a rule that says we can't spend a lot or whatever. We'll spend what we think is a fair price. What's important to us is that strategically it makes sense and that it winds up adding value to our shareholders over the long haul. We are not in a race to spend the most or acquire the most. We're in a race to make the worlds' best product that really enrich people's lives. So, to the tune that acquisitions can help us do that and they've done that and continue to do that, then we will acquire it. And so you can bet that you will continue to see acquisitions and some of which we'll try to keep quiet and some of which seems to be impossible to keep quiet.

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

From Cross Research, we’ll hear from Shannon Cross. Shannon S. Cross – Cross Research LLC: Thank you. First I just want to tell Peter, thank you very much, we've really enjoyed working with you over the past 10 years. But then secondly, in terms of a question for Tim, can you talk a bit about the competitive landscape for smartphone? If you look at some of your competitors seem to be have cut prices fairly quickly in the most recent product cycle, perhaps faster than before. You've got Microsoft about to close on Nokia. Lenovo is buying Motorola, there is a lot going on from a sort of competitive standpoint. So I'm curious as to how you're seeing the market?

Yes, there is a lot of moving parts, a lot of acquisitions, a lot of people giving up to some degree and deciding to do other things. But at the end of the day we see it much like we've always seen it, as the part of the market that we're interested in is the market of people that really want the best smartphone and that doesn't mean that they're all at the high end of the price stand. I mean, we have smartphones that go down to a very affordable price with the 4S because we're proud to ship that product. I think that this quarter, if you were unsure, hopefully this quarter demonstrates to you that we can do well in a number of geographies from emerging markets to develop markets. Some of the numbers that we've experienced just to quote some of the more historic prepaid market through the first half of 2014; Brazil was up 61%, Russia was up 97%, Turkey was up 56%, India was up 55%, Vietnam was up 262%. I could go on, but the point is that there's a number of markets out there where we are beginning to really catch on to a number of customers, and I am particularly proud of the results in these markets because these have not been historic strong points for Apple. We've been working at China for a while and have learned a lot and I'm very proud of what we've done there. But I think some of these other numbers I just read demonstrates that we're beginning to have really nice success outside of there as well. Shannon S. Cross – Cross Research LLC: Great and then, if you can just, actually as a follow-up on the China side, I think it grew at 13% year-over-year, and you mentioned obviously China Mobile has been the driver of that. But can you talk about some of the other categories as well, and perhaps some of the other carriers in terms of where you're seeing demand out of China?

Yes, really great question. We did have an all-time revenue record in Greater China, just under $10 billion at $9.8 billion. iPhone sales were up 28%, that's versus the IDCs market forecast of 20% growth. So we gained share. Mac units were up double-digit, in particular they were up 13%, and that's far outpacing IDCs PC market forecast of a negative 8%. So we gained share there as well. If you look at the iTunes software and services revenue in China, we more than doubled it. Year-over-year, we were in the triple digits percentages. And if you look at iPad and you take out the channel inventories, ins and outs and look at demand instead of sell in, we grew by 6% and that compares to IDC’s forecast of a flat tablet market in China for last quarter. And so we literally did well in every single area in China. It wasn’t just because we were able to come to an agreement with the world’s largest carrier. That was certainly key, but as you can tell from the rest of these numbers there are other things going on. Also, I’d mentioned this briefly with Steve, but I think it’s important to point out that if you look at some of the numbers we’re seeing on first-time iPhone buyers, people that bought the iPhone 4s, 85% were first-time iPhone buyers, and the 5c, 69% first-time iPhone buyers. So these are extraordinary, and as you would expect, these are also heavily Android switchers. 62% of the people that bought the 4s switched from Android. 60% of the people that bought the 5c switched from Android. And so we’re incredibly pleased with this. For the first half, including our retail stores, Greater China revenue topped $19 billion. So this is a 21% year-over-year, and is our fastest growing region. So, we’re looking at this data and deciding to continue investing in a big way. We plan to triple the number of Apple Retail Stores over the next two years. We’re continuing to expand in online. We’re continuing to build out channels. We’re up to 40,000 points of sales now in iPhone, but we’re not nearly where we need to be on the rest of our product line and even the 40,000 is a low number in considering the broad landmass and the number of folks in China. And so, I feel like there’s still loads of opportunity there, and feel really, really good about how we’re doing. Shannon S. Cross – Cross Research LLC: Thank you.

Thanks, Shannon. Could we have the next question please?

And from Piper Jaffray we got Gene Munster. Gene Munster – Piper Jaffray: Hey, good afternoon and I’ll add congratulations to Peter on itinerary for the record there. And Tim, I want to talk a little bit about some of your comments at the recent shareholder meeting. You mentioned that Apple TV is no longer a hobby. Wanted to hear a little bit about why you made that distinction? And separately, it would be interesting to hear your feedback on the HBO Amazon announcement today and what you think that means, if anything, in terms of some content partners being a little more – work with some more players like yourself? Thanks.

Good questions, Gene. The reason that I stripped off the hobby label is that when you look at the sales of the Apple TV box itself, and you look at a content that was bought directly off of Apple TV for 2013, that number was over $1 billion. And so, it didn’t feel right to me to refer to something that’s over $1 billion as a hobby. Also from an investment point of view, we continue to make the product better and better. And so it doesn’t feel right from that point of view either. We had HBO GO already on Apple TV and you have to authenticate in order to use it, but you have to do that with Amazon service as well from my brief read of their announcement. I think they in addition to that got some older content from HBO to put on there. I haven't had a chance to evaluate exactly what it is and don't have a personal point of view on that yet. But if I look broadly at the content on Apple TV, I think it compares extremely favorable to the content that is on the Amazon box. We've sold now, Gene, about 20 million of the Apple TV, and so we've got a pretty large installed base there. And I'm feeling quite good about that business and where it can go. Gene Munster – Piper Jaffray: Excellent, thank you.

You bet.

Thank you, Gene. A replay of today's call will be available for two weeks as a podcast on the iTunes Store, as a webcast on apple.com/investor and via telephone and numbers for the telephone replay are 888-203-1112 or 719-457-0820 and please enter confirmation code 5206019. And these replays will be available by approximately 5.00 PM Pacific Time today. Members of the press with additional questions can contact Steve Dowling at 408-974-1896 and financial analysts can contact Joan Hoover or me with additional questions. Joan is at 408-974-4570, and I'm at 408-974-5420. Thanks again for joining us.

And with that ladies and gentlemen, that does conclude today’s presentation. We do thank everyone for your participation.