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From: Richard Kahn < Sent: Thursday, July 21, 2016 5:20 PM To: Jeffrey E. Subject: Fwd: Apple, Inc.: June Marks the Trough april reports earnings June 26th after the close Richard Kahn HBRK Associates Inc. 575 Lexington =venue 4th Floor New York, NY 10022 tel =12-971-1306 fax 646-350.0954 cell =17-414-7584 Begin forwarded message: From: =/b>"Morgan Stanley" <[email protected]> Subject: =/b>Apple, Inc.: June =arks the Trough Date: July 21, 2016 at 12:41:44 AM EDT To: qb><[email protected]> Reply-To: 4b><[email protected]> Wealth management Subscription Notification: July 21 EFTA_R1_00109351 EFTA01786500 Apple, =nc.: June Marks the Trough Katy L. Huberty, CFA — =organ Stanley July 21, 2016 4:01 AM GMT We expect Apple to report in-line June =uarter results, and guide September quarter slightly below consensus =stimates. We like the set-up as iPhone growth likely troughed in June =nd we expect a more revolutionary iPhone cycle next year. We expect June quarter results in-line with expectations. Consensus =stimates revenue of $42.08, gross margin of 38.0%, and EPS of $1.38, =hich are very close to our model of $41.98, 38.0% and $1.39. Since =pple adopted its current guidance methodology 13 quarters ago, it has =ot missed its revenue or gross margin guidance ranges. The company came =n at the low-end of the revenue range in each of the last two quarters, =hough it still achieved the high-end of the gross margin range. Apple =uided revenue and gross margin to $41-438 and 37.5-38.0% for the June =uarter. We estimate 39M iPhone shipments for the June quarter, and =hink consensus is close at about 40M. Our Asia Tech team led by Jasmine =u estimates 40M iPhone builds. Our AlphaWise iPhone Tracker, which =ompiles sell-through data using web search analysis, indicates 41M end =emand for the quarter or 1M higher than our read at the end of May =Exhibit 1). However, Apple plans to lower channel inventory by $2B or =bout 3M units so reported units should be lower than end demand. We =elieve iPads could be slightly weaker than our estimate of 9.5M based =n build data, while Macs could be 2% better than our estimate, based on =DC 2Q16 market data. We expect Apple Music and Pay to continue to drive =igh Services growth, and estimate 18% Y/Y for the June quarter. Apple =ould guide gross margin slightly lower than consensus for the September =uarter. Consensus models C3Q16 revenue of $46.0B, gross margin of =8.5%, and EPS of $1.61. While we are not far off at $45.68, 38.2% and =1.60, the big difference is gross margin, the key metric this quarter. =imilarly in the last two quarters, consensus gross margin estimates =eading into earnings were 50bps and 100bps higher than the high- Click here =o see the full report. This alert is sent =rom: Andrew Atlas, [email protected] You received this because you asked =o be alerted to: APPLE INC. Please contact your FA if you want to unsubscribe from the =lerts. Disclosures: Please see the full report for risks, disclosures and =ther important information. Important disclosures regarding the relationship between the companies =hat are referenced in Morgan Stanley research and Morgan Stanley Wealth =anagement research are available on the Morgan Stanley Wealth =anagement disclosure website at https://www.morganstanley.com/online/researchdisclosures. 2 EFTA_R1_00109352 EFTA01786501 Morgan Stanley Wealth Management Not Acting as Municipal =dvisor Morgan Stanley Wealth Management is not acting as a =unicipal advisor to any municipal entity or obligated person within the =eaning of Section 15B of the Securities Exchange Act (the "Municipal =dvisor Rule") and the opinions or views contained herein are not =ntended to be, and do not constitute, advice within the meaning of the =unicipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is =wned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management =s the trade name of Morgan Stanley Smith Barney LLC, a registered =roker-dealer in the United States. © 2016 Morgan Stanley Smith =arney LIC. Member SIPC. .z. 3 EFTA_R1_00109353 EFTA01786502