<table><tr><th>From:</th><th>Richard Kahn a&gt;</th></tr><tr><td>Sent:</td><td>Friday, November 3, 2017 12:57 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: Apple, Inc.: X Marks the Spot</td></tr></table>

Richard Kahn
HBRK Associates Inc.
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Begin forwarded message:

From: =/b>"Morgan Stanley" ████████████████████████>

Subject: =/b>Apple, Inc.: X =arks the Spot

Date: November 2, 2017 at 11:38:35 PM EDT

To: =/b██████████████████████>

Reply-To: =/████████████████████████████████>

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Wealth =anagement

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Apple, Inc.: X Marks =he Spot
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## Katy L. Huberty, CFA =E2 Morgan Stanley

## November =, 2017 3:32 AM GMT

We see iPhone X unlocking =ent-up iPhone upgrades, especially in China, driving 20%+ iPhone unit =rowth and Revenue and EPS 15-16% above consensus in FY18. Accelerating =rowth in China contributed to the clean Sept Q print and Dec Q guidance =hich is supportive of our thesis. Remain OW.

Guidance =etter than feared, above consensus estimates largely unchanged. =nvestors worried that a slower than expected iPhone X production ramp =osed risk to December quarter guidance but the combination of 1) =ccelerating emerging market growth with Greater China returning to =rowth and India revenue doubling, 2) broad strength across categories =hich all grew Y/Y, and 3) recent price increases across many products =hich offsets slower iPhone X production ramp, drove in-line guidance. =ur December quarter revenue is largely unchanged but EPS increases on =etter gross margin, and operating income. Our bottom-up iPhone unit =orecast by region points to 268M iPhone shipments in CY18, ahead of =onsensus forecast of 242M. China is the biggest contributor to 2018 =rowth, with our bottom up forecast pointing to 74M shipments, an 80% =ncrease from 41M shipments in LTM (through June), as the large base of =Phone 6 owners upgrade to the first major form factor change since late =014 and Apple takes share from Android (1). Combined with higher than =onsensus ASPs, we model FY18 Revenue of $307B, 15% above consensus, and =PS of $13.00, 16% above consensus. We see further upside to AAPL shares =n the back of positive earnings revisions as iPhone X shipments ramp. =ur price target increases slightly to $200 (from $199), driven by 15.4x =ur FY18e EPS of $13.00.Most important takeaways from the quarter:Recent =nnovation puts upward pressure on gross margin despite memory, iPhone X =roduction ramp costs. Apple faces a 110bps headwind from higher memory =rices Y/Y in the December quarter, as well as higher iPhone production =amp costs Y/Y as these costs are spread across the Septembe

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Please see =he full report for risks, disclosures and other important =nformation.

Important disclosures regarding the =elationship between the companies that are referenced in Morgan Stanley =esearch and Morgan Stanley Wealth Management research are available on =he Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.com/online/researchdisclosures.

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Morgan Stanley Wealth Management Not Acting as Municipal =dvisor Morgan Stanley Wealth Management is not acting as a municipal =dvisor to any municipal entity or obligated person within the meaning =f Section 158 of the Securities Exchange Act (the "Municipal Advisor =ule") and the opinions or views contained herein are not intended to =e, and do not constitute, advice within the meaning of the Municipal =dvisor Rule.

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