EFTA02615571

From: Richard Kahn Sent: Tuesday, November 6, 2018 4:47 PM To: Jeffrey Epstein Subject: Fwd: Apple, Inc.: 10-K Highlights Lower Capex and Work Down of Inventory Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 Begin forwarded message: From: =/b>"Morgan Stanley" <[email protected]> Subject: =/b>Apple, Inc.: 10-K =ighlights Lower Capex and Work Down of Inventory Date: =/b>November 5, 2018 at 7:08:54 PM =ST To: =/b><[email protected]> Reply-To: =/b><[email protected]> <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/> <http://www.morganstanley.com/img/cs/spacer.gif> Apple, Inc.: 10-K =ighlights Lower Capex and Work Down of =nventory <http://www.morganstanley.com/imecs/spacer.gif> EFTA_R1_01815264 EFTA02615571 Katy L. Huberty, CFA— Morgan Stanley November 6, 2018 12:04 AM =MT Apple's 10-K shows reduced capex guidance in FY19 and =ormalized F4Q gross margin increased 100bps Y/Y when adjusting for FX =amp; warranty, better than the 40bps expansion on a reported basis. =ower inventory allows for lower NAND prices to flow to margin, but FX a =rowing headwind. Guidance for Reduced Capex Y/Y. Apple =xpects to incur $148 capex in FY19, down from $16.78 reported in FY18. =his is the first year Apple provided initial CapEx guidance lower Y/Y =ver the past decade. We attribute lower capex to 1) completing the =ulti-year build out of Apple's new headquarters and 2) further leverage =f past tooling investments as we model overall device units (iOS + =acOS) flat to modestly declining over the next four years. September =uarter gross margin expansion stronger Y/Y than reported after =ormalizing for warranty and derivatives. Normalized gross margin shows = 100bps Y/Y increase compared to 40bps expansion in reported gross =argin after adjusting for Y/Y headwinds in (1) greater warranty =ccruals and (2) one-time benefit in Services in the year ago period =assumed at 100% gross margin), partially offset by a Y/Y benefit from =3) FX hedges and (4) non-designated derivatives. Normalized September =ross margin of 38.0% was slightly below reported gross margin of 38.3% =nd increased 100bps Y/Y relative to +40bps on a reported basis. =arranty expense was a 60bps headwind to reported gross margin, greater =han the +50bps tailwind in the year ago reported gross margin. We =alculate the impact of warranty expenses by comparing reported warranty =xpense to normalized expense based on three year average ratios to =ardware revenue. Offsetting was 60bps of FX hedge gains in September, =ncreasing from a +10bps boost in the prior year quarter. Non-designated =erivates created a +30bps tailwind to reported gross margins and =mproved from a -40bps drag a year ago (1). Higher cost NAND inventory =eing worked down. $46 of inventory on the balance sheet is still =light! This alert is sent from: Andrew Atlas, [email protected] You received this because =ou requested that 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_01815265 EFTA02615572 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. © =018 Morgan Stanley Smith Barney LLC. Member SIPC. <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_01815266 EFTA02615573