Apple Reports Third Quarter Results

CUPERTINO, California—July 19, 2006—Apple® today announced financial results for its fiscal 2006 third quarter ended July 1, 2006. The Company posted revenue of $4.37 billion and a net quarterly profit of $472 million, or $.54 per diluted share. These results compare to revenue of $3.52 billion and a net profit of $320 million, or $.37 per diluted share, in the year-ago quarter. Gross margin was 30.3 percent, up from 29.7 percent in the year-ago quarter. International sales accounted for 39 percent of the quarter’s revenue.

Apple shipped 1,327,000 Macintosh® computers and 8,111,000 iPods during the quarter, representing 12 percent growth in Macs and 32 percent growth in iPods over the year-ago quarter.

“We’re thrilled with the growth of our Mac business, and especially that over 75 percent of the Macs sold during the quarter used Intel processors. This is the smoothest and most successful transition that any of us have ever experienced, “ said Steve Jobs, Apple’s CEO. “In addition, iPod continued to earn a US market share of over 75 percent and we are extremely excited about future iPod products in our pipeline.”

“We’re very pleased to report the second highest quarterly sales and earnings in Apple’s history, resulting in year-over-year revenue growth of 24 percent and earnings growth of 48 percent,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead to the fourth quarter of fiscal 2006, we expect revenue of about $4.5 to $4.6 billion. We expect GAAP earnings per diluted share of about $.46 to $.48, including an estimated $.03 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.49 to $.51.”

As previously announced, an internal investigation discovered irregularities related to the issuance of certain stock option grants made between 1997 and 2001. A special committee of Apple’s outside directors has hired independent counsel to perform an investigation and the Company has informed the SEC. At this time, based upon the irregularities identified to date, management does not anticipate any material adjustment to the financial results included in this earnings release. However, if additional irregularities are identified by the independent investigation, a material adjustment to the financial information could be required.

Apple will provide live streaming of its Q3 2006 financial results conference call utilizing QuickTime®, Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on Wednesday, July19, 2006 at https://www.apple.com/quicktime/qtv/earningsq306/ and will also be available for replay. The QuickTime player is available free for Macintosh and Windows users at www.apple.com/quicktime.

This press release contains forward-looking statements about the Company’s estimated revenue and earnings per share, the estimated expense impact of non-cash stock-based compensation, and the potential for adjustments to the financial results included in this earnings release based upon irregularities related to the issuance of certain stock option grants made between 1997 and 2001. These statements involve risks and uncertainties and actual results may differ. Risks and uncertainties include the outcome of the recently-announced investigation into the Company’s historical stock option grants and any potential resulting impact on the Company’s financial statements or results; the effect competitive and economic factors and the Company’s reaction to them may have on consumer and business buying decisions with respect to the Company’s products; possible disruption in commercial activities caused by terrorist activity and armed conflict, such as changes in logistics and security arrangements, and reduced end-user purchases relative to expectations; possible disruption in commercial activity as a result of natural disasters or major health concerns including epidemics; continued competitive pressures in the marketplace; the ability of the Company to successfully evolve its operating system; the potential negative ramifications of the transition of all Macs to Intel microprocessors by the end of calendar 2006, or the announcement of such planned transition, for sales of current or future Mac products with Power PC processors; the ability of the Company to make timely delivery of new products with Intel microprocessors and related hardware and software technological changes and innovations to support Intel microprocessors; the development and availability on acceptable terms of components and services essential to enable the Company to deliver products based on Intel microprocessors in a timely manner; the continued availability on acceptable terms of certain components and services essential to the Company’s business currently obtained by the Company from sole or limited sources; the ability of the Company to make timely delivery of new programs, products and successful technological innovations to the marketplace; the effect that product quality problems could have on the Company’s sales and operating profits; the inventory risk associated with the Company’s need to order or commit to order product components in advance of customer orders; the effect that the Company’s dependency on manufacturing and logistics services provided by third parties may have on the quality, quantity or cost of products manufactured or services rendered; the Company’s dependency on the performance of distributors and other resellers of the Company’s products; the Company’s reliance on the availability of third-party digital content; the Company’s dependency on third-party software developers to timely develop future applications that support Intel microprocessors and Power PC microprocessors; the potential impact of a finding that the Company has infringed on the intellectual property rights of others; and risks associated with the Company’s retail initiative including significant investment cost, uncertain consumer acceptance and potential impact on existing reseller relationships. More information on potential factors that could affect the Company’s financial results is included from time to time in the Company’s public reports filed with the SEC, including the Company’s Form 10-K for the fiscal year ended September 24, 2005, the Company’s Form 10-Q for the quarters ended December 31, 2005 and April 1, 2006, and the Company’s Form 10-Q for the quarter ended July 1, 2006 to be filed with the SEC. The Company assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.