<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:</td><td>Thursday, March 22, 2018 1:30 PM</td></tr><tr><td>To:</td><td>Jeffrey Epstein</td></tr><tr><td>Subject:</td><td>Fwd: Apple, Inc.: The Emerging Power of Apple Services</td></tr></table>

Rich=rd Kahn
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Begin forwarded m=ssage:

From: "Morgan Sta=ley" <ms-wmir@morganstanley=com <mailto:ms-wmir@morganstanley.com> >

Date: March 21, 2018 at 6:24:36 PM HST

To: &t;richardkahn12@gmail.com <mailto:richardkahn12@gmail.com> >=

Subject: Apple, Inc.: The Emerging Power of Apple Services

Reply-To: <mswmir-cie-feedback@morganstanley.com <mailto:mswmir-cie-feedback@morganstanle=.com> >

<=td>

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Katy L. Huberty= CFA — Morgan Stanley

March 22, 2018 4:01 AM =GMT

As Apple's p=ospects for generating outsized iPhone growth fade as the handset market ma=ures, some investors fear Apple's best days are behind it. We disagree and s=e increasing value in the Apple platform, particularly through Services mo=etization. Sum of the parts supports our $203 PT.

The devices are already out there. Now investors should look to Apple Servi=es. Over the last five years, the vast majority (86%) of Apple's 8% annual r=venue growth was driven by iPhone sales. But as replacement cycles extend f=rther and device installed base growth slows to single digits (from 14% ov=r the last two years), it is through

monetization of Apple's Services busin=ss that we see the company still generating mid single digit revenue growt=. In fact, Services (- 60% of growth) and Other Products/Wearables (30%) wil= drive almost all of Apple's growth over the next five years in our updated=base case model (1). Mix shift to services should also put upward pressure o= gross margin, an important driver of stock performance (23). Net, next fiv= year revenue CAGR slows (6% vs. 8% last 5 year CAGR) but EPS CAGR acceler=tes (16% vs. 8% last 5 year CAGR) on the back of services mix and higher sh=re repurchases. With close to $200 billion in excess cash and FCF availabl= over the next 12 months, Apple can support the stock as the investment th=sis evolves from one of product cycle- to services-led growth.lntroducing o=r interactive Apple Platform Model: Base case = 5% next-five-year revenue=CAGR; Bull = 11%; Bear (2)%. We have created an interactive model that al=ows clients to make multi-year assumptions behind Apple device replacement c=cles, installed base growth, ASP trends, and services spend per device. We a=e modestly more negative on hardware replacement cycles in our new base ca=e estimates (7 and 8), to reflect weaker market demand in China and US car=ier comments at our TMT conference earlier this month. Our new base case d=monstrates the stability of the m

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Please see the full report for risks, dis=losures and other important information.

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