MacRumors

CNBC reports that Apple is in the process of settling a class-action lawsuit against the company filed in 2005. The lawsuit charged that the first generation iPod nano's screen scratched "excessively during normal usage".

According to CNBC, the settlement calls for Apple to set aside $22 million to refund eligible iPod nano users who apply:

According to a notice sent out to nano owners this week, "Apple has agreed to provide a cash settlement fund of $22.5 million," and for those consumers who did not receive a "slip case from Apple when you purchased your iPod nano, you may be entitled to a cash payment of $25. If you received a slip case, you may be entitled to a cash payment of $15."

While Apple has agreed to these terms, a judge still needs to sign off on the terms on April 28th. More details are available at iPodNanoSettlement.com and eligible customers include owners of "uncoated First Generation iPod nanos".

In the Q&A section of yesterday's earnings conference call, the first question unsurprisingly addressed Steve Jobs' leave of absence and how that would affect the way Apple is being run. Chief Financial Officer Peter Oppenheimer noted that Jobs remains CEO and that he will continue to be involved in strategic decisions. Chief Operating Officer Tim Cook, who is overseeing Apple's day-to-day operations during Jobs' absence, then took the opportunity to share his perspective on Apple's company philosophy.

There is an extraordinary breadth and depth and tenure among the Apple executive team, and these executives lead over 35,000 employees that I would call "all wicked smart". And that's in all areas of the company, from engineering to marketing to operations and sales and all the rest. And the values of our company are extremely well entrenched.

We believe that we're on the face of the Earth to make great products, and that's not changing. We're constantly focusing on innovating. We believe in the simple, not the complex. We believe that we need to own and control the primary technologies behind the products we make, and participate only in markets where we can make a significant contribution.

We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups, which allow us to innovate in a way that others cannot.

And frankly, we don't settle for anything less than excellence in every group in the company, and we have the self-honesty to admit when we're wrong and the courage to change. And I think, regardless of who is in what job, those values are so embedded in this company that Apple will do extremely well.

Fortune's Adam Lashinsky examines what he is calling the "Cook Doctrine" as a unique look into the mind of Tim Cook, who was previously profiled by Lashinsky as "intensely private" and "demanding and unemotional."

This is fascinating at a number of levels. Some of it is stuff you'd expect from anyone in Apple's senior management. Some ideas have been articulated at Apple for years. But this shows an executive who has given tons of thought to what it means to lead Apple. He couldn't have been clearer that he's in charge, at least for now. It also was a show of strength, as when Cook later threatened Palm (PALM) with patent litigation.

It raised so many questions too. Other than the company's proprietary operating systems, what technologies was Cook referring to? What are some projects Apple has considered and rejected? When has the company been wrong -- and been "self-honest" about it? What's an example of the culture being so embedded that things work, even when Jobs isn't involved?

Lashinsky notes that much of Apple's talent has been overshadowed by Steve Jobs over the years, and it is only now in Jobs' absence that some of these executives will be able to receive significant media exposure, attention that is revealing Cook to be "eloquent, forceful and passionate about Apple."

Gary Hustwit posts a rare photo of Apple's Jonathan Ive inside Apple's design studio.

We did a follow-up interview with Jony Ive at Apple in California last week, and enjoyed the opportunity of filming inside Apples design facilities. I felt like Charlie in Willy Wonka and the Chocolate Factory, except everything was made of shiny aluminum instead of candy. And there were no oompa loompas.

The movie called Objectified is an independent documentary about industrial design that will debut in March at South by Southwest:

It's a look at the creativity at work behind everything from toothbrushes to tech gadgets. It's about the people who re-examine, re-evaluate and re-invent our manufactured environment on a daily basis. It's about personal expression, identity, consumerism, and sustainability. It's about our relationship to mass-produced objects and, by extension, the people who design them.

Apple, of course, is amongst the companies featured.

A security alert posted this morning by antivirus vendor Intego reveals that the company has discovered a new Trojan horse that is being carried by pirated copies of iWork '09 circulating on a number of torrent sites.

The Trojan, which Intego has classified as a "serious" risk and named OSX.Trojan.iServices.A, allows a malicious user to connect to an infected machine and perform various functions, as well as download additional software to the machine.

This software is installed as a startup item (in /System/Library/StartupItems/iWorkServices, a location reserved normally for Apple startup items), where it has read-write-execute permissions for root. The malicious software connects to a remote server over the Internet; this means that a malicious user will be alerted that this Trojan horse is installed on different Macs, and will have the ability to connect to them and perform various actions remotely. The Trojan horse may also download additional components to an infected Mac.

Intego reports that over 20,000 users had downloaded the package as of 6:00 AM Eastern time this morning, and an update to an entry posted on Intego's Mac Security Blog notes that the Trojan now appears to be actively downloading new code to infected machines and using them to carry out denial-of-service attacks on certain websites.

Update: Despite significant publicity surrounding this incident today, the infected iWork package remains active in the torrent community. In light of this continued activity, we have moved this report from Page 2 to our front page and are providing instructions for deactivating and removing the Trojan from infected systems.

1) (open Terminal.app)
2) sudo su (enter password)
3) rm -r /System/Library/StartupItems/iWorkServices
4) rm /private/tmp/.iWorkServices
5) rm /usr/bin/iWorkServices
6) rm -r /Library/Receipts/iWorkServices.pkg
7) killall -9 iWorkServices

OSX.Trojan.iServices.A appears to be the first significant OS X Trojan to advance beyond the proof-of-concept or pranking stage to engage in truly malicious behavior.

Update 2: MacScan has released a free utility to remove the Trojan from infected systems.

A new patent application published today reveals that Apple is researching the use of ambient sound sensors to automatically adjust speaker and mobile phone ringer volume based on the device's environment.

For instance, a user who adjusts the volume of a mobile phone ring tone for a loud environment may later move to a quieter environment, where the loud ring will be disruptive. Similarly, powering up a laptop computer in a quiet lecture hall or home may result in an inappropriately loud and disruptive boot sound. Alternatively, a volume level which is optimized for a quiet environment may not be detectable if the associated device is moved to a louder environment, which can result in a missed audio signal.

The July 2007 patent application, credited to illumination specialist Peter Mahowald, describes a number of different measurements, including maximum, minimum, or average sound level and frequency or type of sound, that could be used as a basis for automatic audio output adjustments. The application also describes an adaptive learning component in which the system would monitor whether a user overrides the system's automatic settings in a given environment and would incorporate the user's preferred settings into its future actions.

While Apple has given no indication that they plan to incorporate this technology into their products, the company already makes extensive use of similar ambient light sensors in the iPhone, iPod touch, and many of their computers.

One item of particular interest from Apple's earnings conference call yesterday was Chief Operating Officer Tim Cook's comments regarding Apple's intellectual property related to the iPhone. Cook's forceful comments made clear that Apple will vigorously defend the intellectual property that has enabled the iPhone to revolutionize the smartphone industry.

We approach this business as a software platform business. And so I think we approach it fundamentally different than people that are approaching it only from a hardware point of view. And, so, as I've said before, we're very, very confident with where we are competitively. We are watching the landscape. We like competition, as long as they don't rip off our IP. And if they do, were going to go after anybody that does.

When pressed as to whether these comments were directed towards the new Palm Pre, which utilizes swiping and pinching multi-touch gestures very similar to those on the iPhone, Cook declined to specifically name any companies they thought were infringing on Apple's patents.

Well, I don't want to talk about any specific company. I'm just making a general statement that we think competition is good. It makes us all better. And we are ready to suit up and go against anyone. However, we will not stand for having our IP ripped off, and we'll use whatever weapons that we have at our disposal. I don't know that I could be more clear than that.

Palm's product development efforts are led by executive chairman Jon Rubinstein, a longtime Apple executive. Rubinstein's relationship with Apple dates to 1990, when Steve Jobs recruited Rubinstein to lead hardware engineering at NeXT. He later joined Apple upon their February 1997 acquisition of NeXT and became head of hardware engineering, overseeing development of the original iMac. Rubinstein also played an integral role in the development of the iPod, and became the first head of Apple's iPod division in 2004. Rubinstein resigned from Apple in 2006.

During Apple's financial results conference call today, the company responded to questions about both a low end iPhone as well as the possibility of an Apple "netbook". Both topics have been the subject of speculations and rumor over the past few months.

Apple dismissed the possibility of a "low-end" iPhone which has discussed extensively. In some reports, the low-end iPhone has been one-in-the-same as the rumored iPhone Nano. In response (via AlleyInsider) to a question about iPhone pricing, however, Tim Cook revealed that a low-end iPhone seems unlikely:

We're not going to play in the low-end voice phone business. That's not who we are, that's not why we're here. Goal is not to lead unit sales, but to build the world's best phone.

Cook also continued to downplay Apple's interest in the "netbook" market:

We're watching that space, but from our [point of view] the products are based on hardware that's much less powerful, software technology that's not good, cramped displays. We don't think that people are going to be pleased with those type of products. It's a category we watch, we have some ideas here, but we think the products there now are inferior and won't provide the kind of experience people want.

This wait-and-see attitude mirrors comments by Steve Jobs from the last financial results conference call in October.

Apple today announced financial results for the first quarter of fiscal 2009. Apple posted record revenue of $10.17 billion and net quarterly profit of $1.61 billion, or $1.78 per diluted share, compared to revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, equal to the year-ago quarter, and international sales accounted for 46 percent of the quarter's revenue. Apple also generated $3.6 billion in cash during the quarter. The results constitute the best quarterly revenue and earnings in Apple's history.

Using non-GAAP data, which eliminates subscription-based accounting for the iPhone and Apple TV, Apple would have had $11.8 billion revenue and $2.3 billion of net income.

Apple shipped 2,524,000 Macintosh computers during the quarter, representing 9 percent unit growth over the year-ago quarter. The company also sold 22,727,000 iPods during the quarter, representing 3 percent unit growth over the year-ago quarter and a company record. Quarterly iPhone unit sales reached 4,363,000 up 88 percent from the year-ago-quarter.

"Even in these economically challenging times, we are incredibly pleased to report our best quarterly revenue and earnings in Apple history - surpassing $10 billion in quarterly revenue for the first time ever," said Steve Jobs, Apple's CEO.

Apple's guidance for the second quarter of fiscal 2009 includes expected revenue of $7.6 billion to $8.0 billion and earnings per diluted share of $0.90 to $1.00.

Apple will provide live streaming of its Q1 2009 financial results conference call at 2:00 PM Pacific, and MacRumors will update this story with coverage of the conference call highlights.

Conference Call Notes of Interest:

- Extremely pleased with record results: first time surpassing $10 billion revenue, new iPod sales record
- Very proud of how quickly iPhone has gained traction
- Very proud of performance and very excited about product pipeline
- Snow Leopard: We're very excited about it, but we are not prepared to announce a launch date at this time.
- iPhone competitors: We view iPhone as primarily a software platform, which is different from our competitors. We don't mind competition, but if others rip off our intellectual property, we will go after them.

More Highlights...- Extremely pleased with record results: first time surpassing $10 billion revenue, new iPod sales record
- Operating margin higher than expected
- 2.5 million+ Macs, representing 9% growth over year-ago quarter
- 34% growth in portables, 25% decline in desktops
- Mix of portables/desktops affected by huge sales in the year-ago quarter due to iMac release; also a general shift in consumer buying habits
- Record 22.7 million iPods sold
- >70% share of MP3 players in December in the US, UK, Australia, >60% in Japan, and >50% in Canada
- Biggest iTunes sales quarter ever
- Over 15,000 App Store applications available and over 500 million downloads
- iPhone sales reached 13.7 million total for the year, surpassing goal of 10 million
- Very proud of how quickly iPhone has gained traction
- Apple retail stores - revenue of $1.74 billion up 2% year-over-year
- Difficult economic conditions led to decline in average sales per store, but pleased with how well they are holding up
- 251 stores in 10 countries
- Cash and short-term securities rose to $28.1 billion - a reclassification in how securities are classified resulted in an adjustment to numbers, and previous results have been update to reflect new classification
- Economic situation is uncertain, so providing broad guidance for next quarter
- Very proud of performance and very excited about product pipeline

Q&A:

Q: How is Steve? How will things be different under Tim? Would Tim remain in charge if Steve does not return?
A: Steve remains CEO and will be involved in strategic decisions going forward. Tim is COO and will be overseeing day-to-day operations. We are pleased with the depth of talent in our team, and that isn't changing. We don't settle for less than excellence in all departments, so regardless of who is in charge, our values will allow us to succeed.

Q: Are you scaling back retail expansion?
A: Plan to open about 25 stores in fiscal 2009, half international. Continuing to be very selective with sites. We're confident in our stores and happy with how they are performing in a difficult environment.

Q: Is iPhone segment elastic and would price reductions make sense in the future?
A: You've seen us reduce prices over time. In the US, $599 down to $399 down to $199 saw big jumps at each level. But we believe that $199 is a solid price point, with nothing able to offer a comparable experience at that level.

Q: Will gross margins be around 30% for fiscal 2009 as guided previously?
A: We are benefiting from some factors that are giving us slightly better margins in the first half of 2009, but expect closer to 30% in second half.

Q: Your guidance for March quarter is a bit narrower than for this past quarter. Is this due to stability from subscription-based accounting?
A: We consider a $400 million range pretty wide for us. Last quarter's guidance was given around the time when banks were failing left and right and there was a lot of uncertainty. While the economy is still bad, many things that affect us appear to have stabilized a bit.

Q: How is the market for component pricing?
A: We expect a favorable market in aggregate for NAND, DRAM, LCDs. Not huge prices decreases, but favorable.

Q: Are there iPhone markets where your pricing is too high? Will you address that?
A: Yes, there are markets, such as India, that don't have subsidized prices. We recognize the low penetration in these markets and their potential and will respond accordingly going forward. We will not do low-end though; we'll leave that to others.

Q: What about the netbook (<$500) segment?
A: We're watching it, but we don't feel that they offer good products...underpowered, poor software, cramped keyboards, etc. We've got some ideas, but we will not provide the inferior experience that we believe other companies are providing.

Q: What about Apple TV?
A: Still a hobby for us, but movie rentals are increasing popularity. We will continue to invest in it, because we believe there is something there.

Q: How are the pro and education segments?
A: Businesses are cutting back. Education down 6% year-over-year in total, K-12 down 10%. Very significant funding uncertainty due to state budget shortfalls. We don't see this picking up very quickly.

Q: Any comments on Snow Leopard?
A: No comment. We're very excited about it, but we are not prepared to announce a launch date at this time.

Q: Anything to say about inventories for iPhone?
A: Difficult to say due to number of countries we're in and uncertain seasonal variations at this point.

Q: Where is iPod growth coming from?
A: US sales actually declined, so growth is coming from international markets. Huge spike in the final week of the quarter accounted for all of our growth.

Q: How did product mix affect gross margins?
A: We don't talk a lot about year-over-year changes in margins due to a number of complicating factors contributing to the data. All we can say that it was flat compared to the year-ago quarter.

Q: Thoughts on operating expenses?
A: We're confident in our business and we're going to invest our way through this downturn. We're investing in engineering, marketing, customer service.

Q: Any plans for your cash?
A: We have no new updates on this.

Q: Can you speak to details of guidance for March quarter?
A: We can't go into that. We're shipping great products and our customers are responding.

Q: Can you talk about adding Wal-Mart as iPhone distribution point?
A: We just started with them at the very end of December, so we don't have enough data to draw any conclusions on performance. Wal-Mart gives us a much broader reach beyond what we and AT&T can provide. They were already selling iPods, and we were pleased with that relationship.

Q: Can you talk about linearity in Mac and iPhone sales?
A: Mac sales second-highest in history. New portable announcement drove huge sales and resulted in the stunning 34% growth in that segment given the overall market. Overall, international performance better than US. iPhone doesn't have much history, so hard to say, but we're pleased with the performance.

Q: Is there a different retail store philosophy for international vs. domestic?
A: International retail performance was a bit stronger than in US. We think the retail stores help us in each of our locations. We just want to be sure that the Macs and iPhones have a great place for customers to experience them.

Q: How have dynamics of discounting to third-party retailers like Best Buy and Wal-Mart affected you?
A: Retailers are free to do what they want. Around the holidays we saw some attaching promos like gift cards to purchases, and that's fine with us.

Q: There are other iPhone competitors coming to the market: Android, Palm Pre. How do you think about sustaining leadership in the face of these competitors?
A: It's difficult to compare to products that are not yet in the market. iPhone has seen terrific rating from customers. Software is the key ingredient, and we believe that we are years ahead of our competitors. Having different screen sizes, different input methods, and different hardware makes things difficult for developers. We view iPhone as primarily a software platform, which is different from our competitors. We don't mind competition, but if others rip off our intellectual property, we will go after them.

Q: The Palm device seems to directly emulate the iPhone's innovative interface. Is that what you're referring to?
A: We don't want to refer to any specific companies, so that was a general statement. We like competition because it makes us better, but we will not stand for companies infringing on our IP.

Q: How many One-to-One sessions did you have at retail stores this quarter?
A: We don't have that number here, but we did set a record.

Q: How many of your 500 million App Store downloads were paid and how many were free?
A: That's not something we're prepared to disclose.

Q: Will you eventually separate out App Store sales results from iTunes Store sales?
A: The App Store is part of iTunes, and we have no plans to separate them.

-End of Call-

The U.S. Securities and Exchange Commission (SEC) is planning to review Apple's disclosures about Apple CEO Steve Jobs's health problems, according to Bloomberg.

People familiar with the matter are quick to note a review does not necessarily indicate the SEC has seen evidence of wrongdoing. However, many Apple investors have been frustrated with Apple's limited and contradictory disclosures regarding the issue, specifically regarding statements made on January 5th and January 14th. The SEC will likely be looking into those statements' effect of causing fluctuations in the company's stock price:

To bring any case, the SEC would probably have to show the company tried to benefit by withholding information about an unambiguous diagnosis, said Peter Henning, a former federal prosecutor and SEC lawyer who now teaches at Wayne State University Law School in Detroit.

"It would be difficult, and certainly a new area of the law," Henning said. "You would have to pin down exactly what they knew, and with a health issue -- unlike a merger or a decline in revenue -- it's not subject to definitive answers."

Apple today released QuickTime 7.6, which includes a number of performance, compatibility, and security updates. According to the support document for the release, the update includes the following changes:

Video:
- Improves single-pass H.264 encoding quality
- Increases the playback reliability of Motion JPEG media

Audio:
- Improves AAC encoding fidelity
- Audio tracks from MPEG video files now export consistently

Application Support:
- Improves compatibility with iChat and Photo Booth

The update, which weighs in at 72.3 MB and requires OS X 10.4.10 or later and a 400 MHz G3 processor or later, also includes a number of security fixes.

Engadget reports that Apple has quietly updated the entry-level white MacBook, adopting several of the components used in the base aluminum unibody MacBook model. Engadget speculates that the upgrade serves to prepare the last member of Apple's notebook line for the addition of OpenCL in their upcoming OS X Snow Leopard. Updated specs include:

- Processor moved to 2.0 GHz Core 2 Duo with 1066 MHz frontside bus from 2.1 GHz Core 2 Duo with 866 MHz bus
- Standard RAM increased to 2 GB (two 1 GB sticks) from 1 GB (two 512 MB sticks)
- Graphics switched to NVIDIA 9400M with 256 MB of shared memory from Intel GMA X3100 with 144 MB of shared memory
- Bluetooth version updated to 2.1 from 2.0.
- 320 GB, 5400-rpm hard drive option added

These changes bring the white MacBook much closer in specs to the low-end aluminum MacBook. With the processor and graphics now matching, the $300 premium for the aluminum model primarily offers the new look, faster RAM, a slightly larger standard hard drive, Mini DisplayPort, and no FireWire port.

Pricing remains at $999, with orders currently listed as shipping in 4-6 business days from the US online store. While Apple's Canadian online store is offering the new model, Apple's other international sites and stores have not yet been updated.

Apple will release their earnings for the first quarter of the 2009 fiscal year Wednesday afternoon. A number of reports circulating over the past couple of days lend some insight into what we might be able to expect.

AppleInsider discusses a report from Piper Jaffray analyst Gene Munster, who predicts based on data from research firm NPD that Apple sold between 2.45 million and 2.55 million Macs in the quarter for a gain of 6-10% over the year-ago quarter. Munster specifically points to an approximately 4% gain in year-over-year Mac sales for the month of December, rebounding from flat or slightly negative growth during November, as a positive sign. Munster also predicts iPod sales in the range of 19 million to 20 million units, above Wall Street's expectations of approximately 18.6 million units.

Fortune, on the other hand, contrasts Munster's view with that of Bernstein Research analyst Toni Sacconaghi, who views much of the NPD data negatively. The major difference between Munster and Sacconaghi's predictions, however, appears in their iPhone numbers, for which NPD does not provide data. Munster predicts quarterly iPhone sales of 6.4 million, while Sacconaghi predicts sales in the range of 3.5 million to 4 million.

The wild card that may be missed by many investors, as thoroughly described by Andy Zaky at Bullish Cross, is Apple's use of subscription-based accounting for iPhone revenue. The practice, which results in Apple recognizing revenue from a particular iPhone sale over the two-year term of the service contract, resulted in significantly lower revenue numbers for last quarter than would have otherwise been seen.

As Zaky points out (and Fortune summarizes), this discrepancy has resulted in Apple releasing two sets of earnings number, one "official" one calculated according to Generally Accepted Accounting Principles (GAAP) using subscription-based accounting of iPhone sales and one calculated using non-GAAP revenue recognizing each iPhone purchase entirely within the quarter in which the sale was made. Because most analysts base their reports on GAAP numbers, many are ignoring the impact of fractional revenue being carried over from sales made in earlier quarters. Consequently, while Q1 2009 most likely saw a decline in iPhone sales from the previous quarter, the impact of this decline on Apple's revenue numbers should be mitigated by this subscription-based accounting.

Apple recently posted a support document revealing that retail boxes of the new iWork '09 suite do not require users to input serial numbers to activate the product. Users who download the iWork '09 30-day trial from Apple's site, however, will still have to input serial numbers upon purchasing the full version online in order to unlock the applications.

The lack of a serial number is not unique to iWork, as other software offerings from Apple, most notably iLife and Mac OS X itself, have long been free of this requirement. These offerings, however, come standard on all Macs, greatly reducing the market for pirated versions. The reasons for the policy shift for iWork are unclear, although it appears that Apple has decided that convenience for the end-user outweighs concerns about software piracy at this time.

Also announced along with iWork '09 at Macworld was iWork.com, Apple's new site for online collaboration. While the site is launching as a free beta version, Apple ultimately plans to make iWork.com a fee-based service. The addition of this revenue stream may also have swayed Apple to streamline the iWork installation experience as much as possible in order to appeal to a wider potential customer base.

On Monday, Intel dropped prices on existing desktop Quad-Core processors and introduced three new power-efficient Quad-Core desktop processors:

Intel also introduced three power-efficient quad-core chips with the "s" moniker. The Core 2 Quad Q9550s processor includes 12MB of L2 cache, runs at 2.83GHz and draws 65 watts of power. The chips are priced at $369. The chip is power-efficient version of the Core 2 Quad Q9550 chip, which draws 95 watts of power.

Intel also introduced the Core 2 Quad Q9400s processor, which runs at 2.66GHz, and the Core 2 Quad Q8200s, which runs at 2.33GHz. This chips are priced at $320 and $245 respectively.

According to a report from November, Apple was said to be specifically waiting for these Quad-Core processors to launch new machines.

While the overdue iMac still seems the most likely target, such a move would break Apple's tradition of using mobile processors in their iMac line. Despite their "power efficient" designation, the new processors still use significantly more power than their mobile counterparts currently found in the iMac.

While there has been some speculation that Apple may have reworked the cooling module in the new iMac, there is no evidence that this is actually true.

Our affiliate partner MacMall is offering discounts across all of Apple's Macs this week. While this alone is not generally newsworthy, MacMall is also offering MacRumors readers an additional 3% off MacBook Pros in addition to the current sales prices. This discount applies to the just-released unibody 17" MacBook Pro as well as the existing 15" models.

The most significant combined discount brings the price of the entry level 15" MacBook Pro (unibody) down to $1742.99 (from $1999 retail). Meanwhile, the brand-new 17" MacBook Pro (unibody) can be had for $2610.18 (from $2799 retail).

MacRumors discounts are "instant" and are applied after items are added to the shopping cart (screenshot). Use embedded links above to get discounts. Additional discounts are for MacBook Pros only, though many other products may have their own discounts. Most of these offers will expire on Jan 22nd. MacMall is a site affiliate partner and sales benefit MacRumors financially.