EFTA01950057

To: Jeffrey [email protected]] From: Tazia Smith Sent Tue 10/29/2013 11:24:22 AM Disclaimer.txt Classification: Public Good Morning Jeffrey - As you likely saw, AAPL recouped immediate losses in the aftennarket yday (trading back up to —527) after ingint comments on the conference call suggesting that lower gross margins were a result of deferrals. Will watch for any follow-through (the sell side has been broadly positive in response to earnings) and opportunity to sell OTM calls today. Fyi only, DB's summary of AAPL's earnings report and commentary below (reit 575 tgt). Tazia Source: bloomberg, streetaccount.com, db global markets research, 10/28/13 Tazia Smith Director Markets Coverage Group Deutsche Bank Securities, Inc. Deutsche Asset & Wealth Management 345 Park Avenue - 26th Floor From: EVS EquityFocus Sent: 10/29/2013 10:01 AM GDT Subject: DB: AAPL.OQ - Chris Whitmore Classification: Public Apple Inc (Buy, CP: $529.38, TP: 5575.00, AAPL.OQ, Chris Whitmore) Product cycles kicking into gear AAPL reported revs of $37.56 and EPS of $8.26 which beat expectation (vs. DB at $36.9B/$8.02; Street at $36.86/$7.93). Apple beat on iPhone units (33.8M vs. DB at 32.5M) and iPads (14.1M vs. DB at 12M) and Mac results were light (4.6M vs. DB at 4.8M). iPhone mix and operating leverage translated into OM (26.8% vs. DB at 26.1%) and EPS upside. AAPL will defer -$900M in the Dec Q related to SW deferrals which impacts cash EPS but not cash flow. Consequently, we trim EPS est's but at —8x CY14 EV/FCF we believe AAPL represents an attractive value; maintain Buy and $575 PT. Margin guidance was solid after adjusting for software deferrals Apple guided Dec 0 revs to $55-58B which beat expectation (vs. Street at $55.56). GM's guidance of 36.5- 37.5% includes $900M of incremental software deferrals Q/Q related to including Mavericks, iLife and Work for EFTA_R1_00415880 EFTA01950057 free. We estimate —$500M of this total is related to a change in accounting accrual per device ($5 incremental per iPhone, iPad & iPod touch unit; $20 incremental per Mac). The remaining —$400M is related to higher volume of unit shipments in the December quarter. When comparing guidance on a like for like basis (i.e. ex the accounting change) Apple guided 4O GM's to -38% which was in line with Consensus on revenues of $578 +1- $1.5B which is above Consensus, suggesting improving iPhone 5S supply. Several catalysts ahead We expect strong holiday demand for Apple's new product lineup and suspect its guidance will prove conservative. Furthermore, Apple remains very confident in its product pipeline heading into CY14. Specifically, we see multiple catalysts to support growth over the next 12-18 months including iPhone 6, expansion with China Mobile and further geographic expansion. In addition, Apple pointed to expanding into new product areas (Apple TV and/or wearables) which should alleviate innovation concerns. Cutting estimates to reflect accounting changes; maintain Buy and $575 PT We adjust CY14 est's to $18081 $43.90 (vs. prior to 51848/ $46.00) and introduce CY15 of $188B/ $48.35. Our $575 PT is unchanged and is based on -9x CY14E EV/FCF; the lower end of its historical 7-29x range. We view the multiple as appropriate given AAPL's growth/profit profile. Risks include product execution. ASP declines & phone / tablet comp'n. Please click on below link for full report: http://pull.db-omresearch.com/p/558-2231/11731481/0900b8c0877292a9.pdf Regards, EVS Equity Focus Telephone: +91-124-4622312 - 19 Please ensure al mails are also sent to our shared inbox [email protected] to avoid getting overlooked. This email is sent to you by Evalueserve on behalf of Deutsche Bank Diese email wurde Ihnen von Evalueserve im Auftrag der Deutschen Bank gesendet For additional Deutsche Bank research, visit our web site: http://qm.db.com/equities Please refer to the disclaimer that applies to the research attached in this email. This e-mail may contain confidential and/or privileged information. If you are not the intended recipient (or have received this e-mail in error) please notify the sender immediately and delete this e-mail. Any unauthorized copying, disclosure or distribution of the material in this e-mail is strictly forbidden. Please refer to http://vnvw.db.com/en!content/eu disclosures.htm for additional EU corporate and regulatory disclosures. This communication may contain confidential and/or privileged information. If you are not the intended recipient (or have received this communication in error) please notify the sender immediately and destroy this communication. Any unauthorized copying, disclosure or distribution of the material in this communication is strictly forbidden. EFTA_R1_00415881 EFTA01950058 Deutsche Bank does not render legal or tax advice, and the information contained in this communication should not be regarded as such. EFTA_R1_00415882 EFTA01950059