From: Richard Kahn

From: Richard Kahn To: "jeffrey E." <jeevacationggmail.com> Subject: Fwd: Apple, Inc.: China Key to Supercycle; Raising Estimates and PT Date: Tue, 21 Feb 2017 16:25:42 +0000 Attachments: MSNA20170206210204.pdf Richard Kahn HBRK Associates Inc. 575 Lexington Avenue 4th Floor New York, NY 10022 tel l fa ce Begin forwarded message: From: "Morgan Stanley' Subject: Apple, Inc.: China Key to Supercycle; Raising Estimates and PT Date: February 21, 2017 at 5:16:48 AM EST To: czl Reply-To: < > le;',Morgan Stanley Wealth Management Subscription Notification February 21, 2017 EFTA01053593 Download Report Apple, Inc.: China Key to Supercycle; Raising Estimates and PT Katy L. Huberty, CFA - Morgan Stanley February 21, 2017 9:00 AM GMT Apple revenue in China declined 24% over the past year, raising concerns the company lost its edge in China. We disagree. Our analysis of upgraders and switchers suggests China could contribute outsized growth in FY18. We raise our FY18 iPhone estimates by 3%, driving PT to $154. Introduction of a high-end iPhone in September 2017 is likely to drive accelerating upgrades and share gains, especially in China. In addition to more modest updates to current iPhone SKUs, we expect Apple to launch a higher priced device with AMOLED display that allows for a curved form factor and longer battery life, wireless charging technology, 3D sensors, and more advanced Al software capabilities. While we see accelerated upgrades for Apple's highest end users in all regions, our work suggests China users are especially sensitive to new technology and form factor changes. A larger base of aged iPhones and accelerating switchers are key drivers of our bullish thesis on China growth. Our detailed analysis of aged iPhones, loyalty rates, and purchase intention share for different smartphone brands in China leads us to believe there are two key drivers to growth in FY18. First, a much larger base of aged iPhones sets up for significant upgrades. 2015 was a blockbuster year for iPhone adoption in China. It was the first year that a revolutionary iPhone was available on the China Mobile network, the largest in China. As a result, the upgradeable base of iPhone users, which we measure as iPhones purchased two years ago more than doubles from the last supercycle (iPhone 6). Even after applying Apple's 74% retention rate, as measured in our most recent AlphaWise smartphone survey, expected upgrades of 43M double from 2016. Second, counter to market belief our analysis suggests Apple is positioned to take net users from local Chinese smartphone brands. In fact, our survey work suggests one in five local Chinese branded smartphone users will switch to iPhone upon their next pur This alert is sent from: Andrew Atlas. You received this because you asked to be alerted to: APPLE INC. Please contact your FA if you want to unsubscribe from the alerts. Disclosures: 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 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 EFTA01053594 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. C) 2017 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA01053595