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Segment Operating Performance

The Company manages its business primarily on a geographic basis. The Company’s reportable operating and reporting segments consist of the Americas, Europe, Japan, Asia-Pacific and Retail operations. The Americas, Europe, Japan and Asia-Pacific reportable segment results do not include the results of the Retail segment. The Americas segment includes both North and South America. The Europe segment includes European countries as well as the Middle East and Africa. The Asia-Pacific segment includes Australia and Asia, but does not include Japan. The Retail segment operates Apple retail stores in 11 countries, including the U.S. Each reportable operating segment provides similar hardware and software products and similar services. Further information regarding the Company’s operating segments may be found in Note 7, “Segment Information and Geographic Data” in Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Americas

Net sales in the Americas during the second quarter of 2011 increased $4.3 billion or 87% compared to the same period in 2010. The increase in net sales during the second quarter of 2011 was attributable to increased iPhone revenue driven by expanded U.S. distribution to the Verizon Wireless network beginning in February 2011, the introduction of iPad in the second half of 2010, and strong demand for Macs. Also contributing to the increase were higher sales of third-party digital content and applications from the iTunes Store and App Store. The Americas segment represented 38% and 37% of the Company’s total net sales in the second quarter of 2011 and 2010, respectively.

During the first six months of 2011, net sales in the Americas segment increased $7.5 billion or 67% compared to the same period in 2010. The primary contributors to the growth in net sales during the first six months of 2011 were a significant year-over-year increase in iPhone revenue from carrier expansion, the launch of iPad, and increased sales of Macs. Higher sales of third-party digital content and applications from the iTunes Store and App Store also drove higher sales during the first six months of 2011. The Americas segment represented approximately 36% and 38% of the Company’s total net sales for the first six months of 2011 and 2010, respectively.

Europe

Net sales in Europe increased $2.0 billion or 49% during the second quarter of 2011 compared to the second quarter of 2010. The growth in net sales was mainly due to an increase in iPhone revenue attributable to country and carrier expansion, the launch of iPad, and increased sales of Mac portable systems. The Europe segment represented 24% and 30% of the Company’s total net sales in the second quarter of 2011 and 2010, respectively.

For the first six months of 2011, net sales in Europe increased $4.2 billion or 46%, compared to the same period in 2009. The increase in net sales during the first six months of 2011 was attributable primarily to the continued year-over-year increase in iPhone revenue, the launch of iPad, and strong demand for Mac portable systems, partially offset by the impact of a stronger U.S. dollar. The Europe segment represented 26% and 31% of total net sales for the first six months in 2011 and 2010, respectively.

Japan

Japan’s net sales increased $496 million or 56% during the second quarter of 2011 and increased $1.1 billion or 69% during the first six months of 2011 compared to the same periods in 2010. The key contributors to Japan’s net sales growth for both the second quarter and first six months of 2011 were increased iPhone revenue, the launch of iPad, increased sales of Macs, and strength in the Japanese Yen relative to the U.S. dollar. The Japan segment represented 6% of total net sales in the second quarter of 2011 compared to 7% in the year ago quarter, and 5% of total net sales in the first six months of 2011 compared to 6% in the first six months of 2010.

The recent earthquakes and tsunami that struck the northeast coast of Japan has created uncertainty regarding the effect on general economic and market conditions in Japan. Any significant impact on consumer demand could negatively impact the Company’s net sales in the Japan segment. The Company does not currently believe that such impact will have a material adverse effect on the Company or its results of operations.

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