EFTA02530706

From: Richard Kahn Sent: Monday, February 5, 2018 1:48 PM To: jeffrey E. Subject: Fwd: Apple, Inc.: 10-Q Highlights Elevated Component Inventory Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel= fa cel Begin forwarded message: From: =/b>"Morgan Stanley" < => Subject: =/b>Apple, Inc.: 10-Q =ighlights Elevated Component Inventory Date: =/b>February 5, 2018 at 12:37:13 AM =ST To: =/b>< Reply-To: =/b <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Wealth =anagement <http://www.morganstanley.com/img/cs/spacer.gif> Apple, Inc.: 10-O=ighlights Elevated Component Inventory <http://www.morganstanley.com/> EFTA_R1_01673733 EFTA02530706 Katy L. Huberty, CFA =E2 Morgan Stanley February =, 2018 5:01 AM GMT Off-balance sheet =ommitments, vendor non-trade receivables & inventory are at record =evels, possibly leading to more supply chain noise as levels are worked =ower. Normalized gross margin of 38.3% is just below reported margin of =8.4% with currency & other hedges largely offsetting each other. On and off balance sheet component inventory hit new highs. =he combination of reported balance sheet inventory and vendor non-trade =eceivables (component inventory transferred to manufacturing partners) =ncreased 41% Q/Q in December 2017, the highest sequential increase =ince 2013, and above 12% average seasonality over the prior three years =2). As a result, total non-vendor trade receivables and inventory on =he balance sheet is up $15.2B Y/Y (3). The bulk of the increase was =riven by vendor non-trade receivables (+$13.58 Y/Y) that are =istorically correlated to revenue growth (5). However, we believe the =rimary driver of the acceleration is associated with the company =urchasing more of its components directly rather than through =anufacturing partners potentially making this metric less predictive of =uture Apple revenue growth. Inventory dynamics provide mixed signals =or suppliers. From a supply chain perspective, the higher levels of =nventory at Apple and at suppliers could translate to slower unit =rowth relative to sell-out for Apple devices in the near-term, which =ur US Semiconductor team led by Joe Moore published on today. =nterestingly, off-balance sheet purchase commitments for outsourcing =nd components at the end of December 2017 - essentially Apple's =ommitment to manufacture product and purchase components in the near =uture • grew 40% Y/Y and fell only 11% Q/Q, less than the 3-year =istorical seasonal decline of 19% (4). This would suggest a robust =rowth outlook or that the company revised its view of demand after the =nd of the quarter. Any meaningful revision or lack thereof to this line =tem at the end of March will be an importan This alert is sent from: Andrew Atlas, You received this because you requested =hat you receive content and reports from: APPLE =NC. Please contact your FA if you want to unsubscribe from the =lerts. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> Disclosures: 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. 2 EFTA_R1_01673734 EFTA02530707 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. Copyright The =opyright in materials provided by Morgan Stanley is owned by Morgan =tanley & Co. LLC. Morgan Stanley Wealth Management is the trade =ame of Morgan Stanley Smith Barney LLC, a registered broker-dealer in =he United States. © 2018 Morgan Stanley Smith Barney LLC. Member =lPC. <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> <http://www.morganstanley.com/img/cs/spacer.gif> 3 EFTA_R1_01673735 EFTA02530708