<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:</td><td>Tuesday, August 1, 2017 9:45 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: AAPL US: Apple Inc. - Quick take: qtr beats, better than feared guide could imply
usual product cadence - BUY - United States</td></tr></table>

stock at 159.22 in aftermarket..

Richard Kahn
HBRK Associates Inc.
575 =exington Avenue 4th Floor
New York, NY 10022
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Begin forwarded message:

From: =/b>"Ens, Amanda" <██████████

Subject: =/b>AAPL US: Apple =nc. - Quick take: qtr beats, better than feared guide could imply usual =roduct cadence - BUY - United States

Date: =/b>August 1, 2017 at 5:42:56 PM =DT

To: =/b>"Rich Kahn

Reply-To: =/b>"Ens, Amanda"

Global =research

Apple Inc.

Quick take: qtr beats, better than feared guide =ould imply usual product cadence

Maintain Rating: BUY

Key takeaways

Apple =eported F3Q17 rev/EPS $45.4bn/$1.67 vs. our estimate of $45.8bn/$1.64 =nd Street $44.95bn/$1.57

• iPhone =nits were 41mn in F3Q slightly, higher than our est of 40mn. iPad units =ere limn compared to our/Street est of 9mn

.

Rev =rom Greater China declined 10% y/y, which was slightly better than the =eclines in F1Q/F2Q

class="MsoNormal" style="margin: 0in 0in 0.0001pt; padding: 0px; =ine-height: normal; font-size: 12pt; font-family: 'Times New Roman', =erif;">

FULL REPORT

Rev =uide implies shipments of new iPhone in =ep

Apple =eported F3Q17 iPhone unit sales of 41mn, which came in line with =ur/Street estimate of 40mn/41mn, and vs. 40.4mn units sold in the =ear-ago quarter. The guidance suggests that there will be shipments of =ew iPhones (7S, 7S+ and 8) in the Sep qtr vs. worries of a delayed =aunch. We expect to get more color only at the launch event, but given =hat the technology around the fingerprint sensor was the potential =ource of delays, we note that Apple could have elected to move to a =ifferent (facial recognition) authentication system. There will be some =ebate around the GM guide of 37.5-38% (down q/q), but it could be for =sually higher warranty accruals into a new product launch and commodity =eadwinds. Net net, this was a better-than-feared guide and we =xpect the stock to trade higher into the launch of the iPhone =.

Commentary on call key for rev/margin =rajectory

F4O guide for rev and its =mplied EPS ($50.5mn/$1.85, at mid-pt) are =ell above our prior estimate of $46.8bn/$1.74. We would look for color =n the call to see if there is any indication of a delayed iPhone 8 =aunch, which looks unlikely with the guidance (but product features =ould be different than expected). Looking further out to the Dec qtr, =e view the Sep guide as bullish for Dec, as gross margins will likely =ove higher as volumes, FX will be favorable, although warranty accruals =ould be a modest headwind.

## Gross margins in line, Services rev continues to =row

Apple =eported F3Q GM of 38.5%, in line with our estimate, and down 40bps q/q. =4Q GM guide is 37.5%-38.0% (37.75% mid-point), which is slightly =35bps) lower than our prior estimates and may indicate slightly worse =ix from

## Gross margins in line, Services rev continues to =row (cont.)

lower iPhone 8 sales. Services rev (digital content, AppleCare, =pple Pay, licensing, other services) grew 22% y/y to $7.3bn. This =ompares to double-digit (DD, 18%) growth in FlQ and F2Q.

Greater China rev declines y/y for the 6th qtr =n a row

Apple reported F3Q rev from =reater China (China, Hong Kong, Taiwan) of $8.0bn, which declined 10% =/y and 25% q/q. The y/y decline was slightly better than the declines =n FlO/F2Q (-12% y/y/-14% y/y, respectively), especially given that we =xpected a pause as consumers hold off purchases before launch of the =LED iPhone 8. In our opinion, the y/y decline was not materially =nfluenced by the number of Apple retail stores in China, which were -40 =n both quarters. The decline was less than in the prior-year quarter =June 2016) when rev from Greater China were $8.84bn and declined 29% =/q (-33% y/y). In our opinion, high end features of iPhone 8 including =ireless charging, 3D sensing and possibly Augmented Reality =nhancements could further help spur sales in that region.

Other takeaways...i Pads, =acs

iPad =nits came in at 11.4mn vs. our/Street estimate of 9mn. Revenue from =Pads came in at $5bn and grew 2% y/y, probably helped by sales of iPad =ro. This is the first quarter of iPad revenue increase since F3O16. =pple reported Mac unit sales of 4.3mn, in line with our =stimate.

Wamsi Mohan <=span>
Research =nalyst
MLPF&S

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## Gross margins in line, Services rev continues to =row (cont.)

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