From: Richard Kahn

From: Richard Kahn To: Jeffrey Epstein <[email protected]> Subject: Fwd: Apple, Inc.: A Low Bar Into Earnings with Shares Pricing in Unlikely Long-term iPhone Scenarios Date: Fri, 25 Jan 2019 02:28:54 +0000 Richard Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor New York, NY 10022 Tel Cel Begin forwarded message: From: "Morgan Stanley" Date: January 24, 2019 at 8:30:50 PM EST To: <I Subject: Apple, Inc.: A Low Bar Into Earnings with Shares Pricing in Unlikely Long-term iPhone Scenarios Reply-To: < ,,Morgan Stanley Wealth Management Apple. Inc.: A Low Bar Into Earnings with Shares Pricing in Unlikely Long-term iPhone Scenarios Download Report EFTA01027818 Katy L. Huberty, CFA— Morgan Stanley January 25, 2019 1:24 AM GMT iPhones are weak, Services growth decelerated and investors are asking what will drive AAPL higher from here. We believe the recent pullback is an attractive entry point given upcoming Services launches and shares already pricing in extremely cautious iPhone replacement cycle and ASP headwinds. Expectations for Dec 0 already set following negative pre; all eyes on March Q guidance. Apple negatively pre-announced December quarter results on January 2nd (see our full write-up here), lowering revenue guidance by $78 or 8%, blaming iPhone weakness in China as the primary driver of the miss. As such, street (and buyside) expectations are largely aligned for December, and we forecast total revenue of $846, iPhone revenue of $52.28 (units of 62.3M, ASP of $842), Services revenue of $10.86, a gross margin of 38.0% and EPS of $4.17 (1). While clarity on the Services growth deceleration in December will also be a key focus for investors (see next paragraph), March quarter guidance will provide a base for forecasts during the remainder of the year, and with the stock close to where it was ahead of the pre-announcement, Apple likely needs to deliver a "better than feared" revenue outlook for shares to recover further in the very near-term. We model March quarter total revenue of $62.06, iPhone revenue of $34.96 (units of 43M, down 18% WY), Services revenue of $11.76 (+19% Y/Y), gross margin of 38.4% and EPS of $2.84 vs. consensus of $59.36 in total revenue, $33.96 in iPhone revenue (on 45.0M units), Services revenue of $11.36, a gross margin of 38.4% and EPS of $2.65. Based on investor conversations, we believe the stock could trade up on revenue and gross margin guidance range of $586 and 38% at the mid-point, respectively, while guidance meaningfully below these levels would fuel the bear case.Services decel the biggest question mark from December pre-announcement. Following Apple's Dec Q pre- announcement, the most common question we have fielded from investors is wha This alert is sent from: Andrew Atlas. You received this because you requested that you receive content and reports from: APPLE INC. Please contact your FA if you want to unsubscribe from the alerts. Pisclosures: II Please see the full report for risks, disclosures and other important information. Important disclosures regarding the relationship between the companies that are referenced in Morgan Stanley research and Morgan Stanley Wealth Management research are available on the Morgan Stanley Wealth Management disclosure website at https://www.morganstanley.comfonlineiresearchdisclosures. Morgan Stanley Wealth Management Not Acting as Municipal Advisor Morgan Stanley Wealth Management is not acting as a municipal advisor to any municipal entity or obligated person within the meaning of Section 15B of the Securities Exchange Act (the "Municipal Advisor Rule") and the opinions or views contained herein are not intended to be. and do not constitute, advice within the meaning of the Municipal Advisor Rule. Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Stanley & Co. LLC. Morgan Stanley Wealth Management is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. EFTA01027819 C) 2019 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA01027820