EFTA00796512.pdf

Apple Inc. Bank of America "sic * Merrill Lynch More controversies than expected, but reiterate Buy ahead of iPhone 8 cycle Reiterate Rating: BUY I P0: 155.00 USD 1 Price: 147.51 USD Equity 03 May 01/ Qualcomm royalty questions; Services, China growth Key Changes Shares of Apple could be temporarily under pressure given the following concerns: (1) gross margins likely benefited q/q from lower accrual of QCOM royalties by our estimate (155) Previous Curran (Fig 1), (2) services growth deceleration from 20%+ to 18% although some adjustments 2017ERet (n) 240938.1 233.295.7 (Fig 2) alleviate these concerns, (3) China growth weak despite easy comps as sales of 2018ERet (n) 2724713 270.9573 GIGS more challenged given no form factor update and market turning more 2019ERet (n) 3045672 303368.7 competitive, and (4) a slower rate of switching when adjusted for the China slowdown. 2017EEPS 9.47 922 However, despite these concerns, we continue to like: (1) the increased capital return (up 2018EEPS 10.93 10.94 by $50bn) and the expected return of another $89bn over 2 years or 12% of market cap. 2019EEPS 1201 12.08 (2) potential for significant cash repatriation and associated optionality for incremental capital return and M&A, (3) iPhone 8 super long cycle with higher ASPS, and (4) Wamsi Mohan increased traction in services including App Store, content, Music. Apple Pay, etc. Research Analyst Reiterate Buy. IALPF8/5 • 1 646 855 3854 vramsimohan@banlcorn Gross margins and ASP puts and takes Ruplu Shattatharya In our opinion Apple could be accruing for QCOM royalties at a lower rate vs history, Research Analyst MLPF&S which Apple deems appropriate and we estimate a -100bps q/q tailwind although there .1 6468550315 are many moving pieces (see Fig 1 for details). We expect Dec to March bridge of GM ruplubhartachasyrittemlcom as FX (-100bps q/q), volume leverage (-50bps), commodity pricing (-50bps) vs warranty Pram Singh. CFA Research Analyst accrual (+50bps), positive mix (+100bps) as the remaining moving pieces. The ASP q/q MLPF&S decline of $40 can be explained by $14 for FX and $26 for seasonally lower memory • 1 646 855 4256 [email protected] capacity of iPhones. Apple Watch (est $4.7bn LTM revs)+ beats (est $500mn) + airpods Jennifer F. Lang (-200mn although supply constrained) are as large as a fortune 500 company ($5bn). Research Analyst IALPF&S Main risk remains FX and commodities into (Phone 8 cycle .1 646 855 2590 Jemifer(lang@baml co n We model GM in 2H17 to remain robust given our expectation of ASP increases on 'Phone 8. however potentially large swing factors include: (1) FX (particularly relative to China which faced a 5% headwind and weaker demand), (2) tight commodity pricing (memory), where management noted a continued tight market (positive for WDC). Stock Data Price 14751 USD Adjusting estimates, PO stays at $155 Rice Otjeciive 155.00 USD Our PO of $155 is unchanged. based on 14x Cl SE EPS of $11.14. Date Established 16-Mr2017 Investmen Opinion B1-7 Estimates (Sep) 52-Week Rance 89.4711519 - 148.09 USD S (USS) 2015A 2016A 2017E 2018E 2019E Uhl Val Imo)/ Shares Ou 854.536 USD 15.793.1 S EPS 922 8.31 9.22 10.94 12.06 p GAAP EPS 922 8.36 9.18 10.94 12.06 Intel EPS Change (YoY) 429% .9.9% 11.0% 18.7% 10.2% Average Daly Value (mn) 3379.95 USD Consensus EPS (Bloomberg) 8.96 10.24 10.75 Bol/118. Ticker !Exchange AAPL/ RAS I DPS 1.98 2.19 2.39 2.64 2.90 Boomterg Reuters AAPL LIS/ MPLOO ROE (2017E) 33.1% Valuation (Sep) Net Dbt to Ecry (549.2016A) 51.9% 2015A 2016A 2017E 2018E 2019E a PIE 16.0x 17.8x 16.Ca 13.5x 12.2x GAAP PiE 16.0x Ink 16.Ix 13.5x 12.2x 6 Dividend Yield L3% 1.5% 1.6% 1.8% 2.0% ti EV/ EBITDA' 11.0x 12.6x 12.lx 10h 9.9x i Free Cash Row Yield 82% 6.2% 7.5% 7.2% 7.6% • For full &looms of emrtior measures, see page II. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 12 to 14. Analyst Certification on page 10. Price Objective Basis/Risk on page 10. 11740541 Timestamp: 03 May 2017 01:0SAM EDT EFTA00796512 iQproMew Apple Inc. Company Sector IT Hardware /Qmethod'i— Bus Peitormanee• CUSS Millions) 2015A 2016A 2017E 2018E 2019E Return on Capital Employed 28.7% 20.7% 18.9% 17.8% 15.7% Company Description Return on Equity 46.2% 36.9% 33.1% 27.9% 22.1% Apple Inc. (AAPL) designs, manufactures, and Operating Margin 32.0% 29.8% 29.0% 28.6% 27.8% Free Cash Fbw 70,019 53,090 63,707 61,820 64,865 markets consumer electronics and computers, and has developed its own proprietary iOS and Mac OS X operating systems and related software temethod "r —Quality of Earnings• platform/ecosystem. Revenues are principally (USS Millions) 2015A 2016A 2017E 2018E 2019E derived from the iPhone line of smartphones, Cash Realization Ratio 1.5x 1.4x 1.6x 1.4x 1.4x hardware sales of the Macintosh family of Asset Repboement Ratio 1.0x 1.2x 1.4x 1.7x 1.7x Tax Rate 26.4% 25.6% 25.7% 26.0% 26.0% notebook and desktop computers. iPad tablets, and Net Debt-to-Equity Ratio 36.3% 51.9% 29.0% 4.5% .26.1% iPod portable digital music players. The company interest Cover NM NM NM NM NM also realizes revenue from software, peripherals, digital media, and services. Income Statement Data (Sep) CUSS Millions) 2015A 2016A 2017E 2018E 2019E Investment Rationale Sales 233,715 215,639 233,296 270,957 303,969 % Change 27.9% .7.7% 8.2% 16.1% 12.2% We rate Apple a Buy on potential upside from 1) Gross Profit 94,201 85,032 90,741 104,646 114,912 Continued long-term opportunity in China, 2) % Change 32.7% .9.7% 6.7% 15.3% 9.8% potential share gains from the release of a lower- EBITDA 86,073 74,739 77,809 87,097 95,569 end iPhone. 3) strength in the upcoming iPhone 8 % Change 36.0% .13.2% 4.1% 11.9% 9.7% cycle, 4) optionality in cash balance, revenue Net interest 8 Other Income 1.285 1.348 2.048 2.170 32 Net Income (Adjusted) 53,394 45,687 48,317 55,120 58,318 sources like Apple Pay. Apple Watch, home/health % Change 35.1% •14.4% 5.8% 14.1% 5.8% kit, etc., that will take time to mature. Free Cash Flow Data (Sep) CUSS Millions) 2015A 2016A 2017E 2018E 2019E Net Income from Cont Operations (GAAP) 58,034 49,114 51,762 59,033 62,542 Stock Data Depreciation & Amortization 11,257 10,505 10,155 9.492 11,085 Change in Working Capital 11,647 484 9.096 2.858 2.702 Asap Clay Wane 22.913.330 Deterred Taxation Change 1.382 4.938 5.562 5.480 5.480 Other Adjustments. Net 946 783 1,252 1,375 1.484 Quarterly Earnings Estimates Capital EXpeildiVO (11,247) (12,734) (14.122) (16.418) (18,429) Free Cash Flow 70,019 53,090 63,707 61,820 64,865 2016 2017 % Change 39.6% 44.2% 20.0% 4.0% 4.9% 01 32M 3.36A 02 1.90A 2.10A 03 1.42A 1.61E Balance Sheet Data (Sep) 04 1.67A 2.13E (USS Millions) 2015A 2016A 2017E 2018E 2019E Cash 8 Equivalents 21,120 20,484 47.025 109.458 172,188 Trade Receivables 16,849 15,754 18,930 20,646 22,639 Other Current Assets 51,409 70,631 74.678 75.150 75,630 Property. Plant 8, Equipment 22,471 27,010 30,160 35,493 40,975 Other Non-Current Assets 178,630 187.807 205.281 206.947 208.881 Total Assets 290,479 321,686 376,075 447,693 520,313 Sbon-Term Debt 10,999 11,605 10,000 10,000 10,000 Other Current LiaWities 69.611 67.401 74,970 80,035 85,232 Long-Term Debt 53,463 75,427 84,531 84,531 84,531 Other Non-Current Liabiibes 37.051 39.004 42.499 42.552 42.604 Total Liabilities 171,124 193,437 212,000 217,118 222,367 Total Equity 119,355 128,249 164,075 230,575 297,946 Total Equity & Liabilities 290,479 321,686 376,075 447,693 520,313 • For ha defritoons of tantiod" measures. :cc page II 2 Apple Inc. 103 May 2017 Bankof America' Merrill Lynch EFTA00796513 Key points to focus on post the quarter Apple is accruing for Samsung royalty payments at a rate at which management believes it will actually pay. However, this rate could be different from the rate accrued at in the past. Apple reported F2Q17 gross margin at the high end of the guidance range 38.0-39.0%. We estimate a 50-10Obps q/q benefit, between F1Q17 and F2Q17. because of change in the accrual rate related to royalty payments to Qualcomm. Figure 1: Estimating qiq benefit from Qualcomm payments withholding Gm Margin F1017 313.50% ileacmines Negethe levCrO00 torn love when. 4.50% Hcochmnd from Fit Comport:et cost mycoses 450% Toln4r03 11/Sorenly MONS 0.50% Beta nix 17 Plus) 1.00% 01/0016100 P2017 Ores AlSnin 313.00% 000040:1F2017 Goss Alan* 313.90% IExpected bonnie born Ouatomm wshholirg 0.90%1 Source Corpany reports. Born Merrill Lynch Global Research estimates 2. Services rev grew 17.5% y/y which is consistent with the growth rate seen in Fl Q17 (after adjusting for one-time items, as shown in Figure 2). Figure 2: Services growth adjusted for one-tine items F1O16 F2O16 F1O17 F2O17 Services Rev (Smn. reported) $6.056 $5.991 $7.172 $7.041 Adjustments: Patent infringement payment ($rnn) ($548) Additional week (14th week) ($700) Adjusted Services Rev ($mn) $5.508 $5.991 $6.472 $7,041 reported services rev Mr 18.4% 17.5% adjusted servcies rev yty 17.5% 17.5% Source Corrpany repormeofh WWI Lynch Global Research estimates 3. 'Phone ASP change: iPhone ASP in F2Q17 was $655, which was $40 lower sequentially than the $695 reported in F1Q17, but $13 higher than the 5642 reported in the March 2016 quarter. In Figure 3, we split out the contribution of mix and FX to the total dollar ASP change. Figure 3: Parsing 'Phone ASP q/q and y/y change into Mix and FX F2016 F1017 Mix FX F2017 Change cyq $695 ($26) ($14) $655 ($40) y/y $642 $26 ($13) $655 $13 Source Company reports. BofA Moroni:inch610U Research estimates 4. Apple could be facing some challenges at the lower end of its iPhone portfolio in China: Revenue growth y/y in Greater China for the first two quarters of F17 improved significantly over the F2H16. For Fl H17. revenue declined 13% y/y vs. the 32% y/y decline seen in F2H16. However, in our opinion, Apple is experiencing more challenges at the lower end of its iPhone portfolio in China. iPhone 7/7 Plus demand remains strong. However. Apple referred to a "pause" in iPhone demand, which we assume refers to sales of iPhone 6/6S. (We don't view iPhone SE as a big contender in China anyway given a general preference for larger screen size phones.) S. Apple mentioned that revenue from wearable products (including Apple Watch, AirPods and Beats headphones) over the last four quarters was the size of a Fortune 500 company. Over the last four quarters, we estimate $4.7bn Bankof America "I) . Apple Inc 103 May 2017 3 Merrill Lynch EFTA00796514  revenue from Apple Watch, 50.5bn revenue from Beats and Si SOmn from AirPods. iPhones mostly inline in 2Q, guidance slightly lower Apple reported F2Q17 revenue of SS2.9bn, which came in lower than our/Street estimates of $54.7bn/$53.1bn, but EPS of $2.10 was above our/Street estimate of $2.08/$2.02, respectively. Gross margin (including stock based comp) came in at 38.9% (at high end of guidance) and compared to our/Street prior estimates of 38.6%/38.7%. iPhone unit sales were 50.8mn vs. our expectation of Slmn. Apple guided June quarter revenues lower than expected to $43.5bn - $45.5bn, which at the mid-point ($44.5bn) compares to our/Street prior $50.4bn/$45.7bn. Gross margin (incl. stock comp) guidance was in line with expectations (37.5% - 38.5%. 38.0% mid- point, which compares to our/Street prior estimates of 38.5%138.3%, respectively). The guidance implies an EPS range of $1.45 —1.61 ($1.53 at the mid-point), which is lower than the prior Street estimate of $1.62 and our prior estimate of $1.79. OpEx was guided to $6.6bn-6.7bn. which is higher than our prior estimate. We expect FX to have a negative $1bn impact on F3Q17 revenues. Gross margin impact q/q from FX is about -10bps. We reiterate our Buy rating on Apple given 1) strong capital return program with annual increases, 2) optionality from a large cash balance, and 3) an expected strong upgrade cycle for iPhone 8. Figure 4 shows our old vs. new unit estimates. Havre 4: BofAIAL - New vs. old estimates Old Estimates New Estimates Unita (K) F16 F17 F18 F19 F16 F17 F18 F19 Phone 211.884 223.290 240.000 266.000 211.884 219.053 240.000 266.000 Pad 45.590 38.577 37.420 37.420 45.590 39.490 38.306 38.306 Mac 18.484 18.941 19.509 20.095 18,484 18.894 19.461 20.044 Pod 6.372 5.098 4.078 3.263 6.372 5.098 4.078 3.263 Apple Watch 10.500 14.000 23.600 33.040 10.500 14.000 23.600 33.040 Source Company repons,8ofA Memll Lynch Global Research estimates Capital return program gets a $50bn boost Apple's balance sheet remains strong with $256.8bn in cash and short and long-term investments (93% or $240bn of which is located outside of the US). In the quarter, Apple returned $10bn to shareholders, including $3bn in dividends and $4bn on repurchases of 31.1mn shares through open market transactions. In addition. Apple launched a new $3bn Accelerated Share Repurchase (ASR) program resulting in initial delivery and retirement of 17.5mn shares. Apple has completed a total of $211.2bn of its capital return program, which was increased to $300bn from $250bn ($50bn increase). The program now expires in March 2019. Apple raised its share repurchase authorization from $17Sbn to $210bn, and raised its quarterly dividend by 10.5% to $0.63 from $0.57. 4 Apple Inc 103 May 2017 Bankof America 40' Merrill Lynch EFTA00796515 Figure 5: Apple capital return history apr-jun jut-sep oct-dec jan-mar apr-jun itd-sep oct-dec jan-mar F3015 F4015 F1Q16 P2016 F3016 F4016 F1017 F2017 Total Total Cape& return program (Snit,. begUning) $150,000 $200.000 5250.000 New Authorization (Smn) $50.000 $50.000 $50.000 $240.000 Total Capital return program ($mn. ending) $200,000 $250.000 $300.000 Share buyback authorization (Smn. be:Jiving) $90,000 $140.000 $175.000 New authorization (Smn) 360.000 $35.000 $35.000 Total share buyback authorization (Sam) $140.000 3175.000 $210.000 Accelerated buyback program (Sam) ($6,000) ($3.000) (16.000) ($3,000) (56.000) ($3.000) (561.950) Open market buybacks ($mn) ($4.000) ($14,027) ($3.000) (17.000) ($4.000) ($3,000) ($5,000) (14.000) ($89.026) Total Buybacks (Sbn) ($10,000) ($14,027) ($6.000) ($7,000) ($10,000) ($6,000) ($11.000) ($7.000) ($150,977) Share buyback authorization ($eon. remaining) $50,000 $35,973 $29,973 $22,973 $47,973 $41,973 $30,973 Buyback authorization utilized ($mn) $90,000 $104,027 $110,027 $117,027 $127,027 $133,027 $144,027 Accelerated program shares repurchased (K) 48293 29.122 60.452 22.468 49.200 Accelerated program repurchase share price $12424 $103.02 $99.25 Open market shares repurchased (K) 31231 121,802 25.984 41.238 28.579 44.333 Open market repurchase price per share ($) 128.08 $115.15 $115.45 $97.00 $104.97 $112.78 Dividends paid (Sam) ($3,053) ($2,964) ($2.969) ($2.902) ($3,187) ($3,092) ($3.130) ($3,004) ($54,023) Total Capital returned to shareholders (Smn) ($13,053) ($16,991) (58.969) ($9,902) ($13,187) ($9,092) ($14,130) ($206.000) Taxes related to Settlement of Equity Awards ($6,200) Total capital returned including taxes: 1.200 *ASR program shares delivered over multiple qtrs Source Conoany reports. BofA Memll Lynch Clad Research Minket Amenca "gra" Merrill Lynch Apple Inc 103 May 2017 5 EFTA00796516 Model Figure 6: Al39k Income Statement F2016E F2017E 12115 3115 6.16 416 12,16I- 917 6.17E (417E F2012 F2016 F2017E F2018E F2019E, 141001146 8190111190 knot* 75372 50587 42258 48852 71351 52896 45732 54247 233716 215630 23006 MOP 30409 ego, my(sue 51635 32267 24048 28160 54378 33248 26197 36%4 155041 136700 149687 179871 334217 IN04404ouo 7084 4113 4875 4255 5533 3850 4206 3673 23227 20628 17300 16393 16042 Mac menu, 8748 5107 5239 5739 7244 5844 5292 5791 25471 22831 2408 24954 25129 No% r Software 43449644 8058 5991 5976 6325 7172 7041 64)2 7337 19309 24348 2%12 31540 34854 OM« Ray 4351 2189 2219 2373 4824 2872 3%6 3425 10067 11132 13388 18503 23716 Con el 0391, Sold lex 0. 54:459344;14444) 45245 30445 26084 eeess 47946 3200 28113 34407 139514 13%07 142354 1%311 189067 Gross Rai 14xcl Sicclubascd~I 3%27 20112 16294 17999 304% 2080 17539 21880 94201 85032 9374! 104346 10912 Total C944aana Epomo loxel.Sockimac61corn) 5378 5077 5135 5208 57% 5491 5546 8258 19335 20798 23088 27041 30428 RI13(c4.9. 5434148mod corm) 1938 2043 2081 2094 2282 2201 2248 2516 6531 8156 9247 10836 12195 MU (excl. 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IVA° 1.7% (128%) (14.8%1 (90%1 33% 46% 80% 202% 279% (7.7%) 8.2% 16.1% 122% 411041Rai 1Y.Y1 25% (155%) (179%1 (13.0141 10.7%1 3.5% 83% 211.54 32.7% (9.7%) 6.7% 15.3% 9" Orex18.81 133% 105% 5,0% 1.0% 7.7% 82% 80% 202% 24.1% 73% 11,0% 17.1% 126% R5(1 ITN) 274% 112% 26,4% 14.4% 1713% 7.7% 80% 202% 354% 244% 13,4% 1726 126% %IA 1Y.Y1 86% 100%) 158%1 16.3%1 2.0% 8.5% 80% 202% 10.1% (1.6%) 4.5% 17.1% 125% Op. hewn> (10(1 05% (21.7%) 55.3141 (12.2%/ 125%) 1.9% 84% 222% 35.1% (141%) 5.3% 14.7% 39% ftaux licon IYiY) 1.4% (221%) %IBM 0 2.314/ 10"i 4.7% 85% 211% 35.1% (13.11%) 6" 14.1% 5.9% Nei hcorn305Y1 1.9% (225%) 07.0%1 (19.0141 12.8%) 4.9% 78% 219% 35.1% (144%) 5.1% 14.1% 58% En(WI 73% (18.4%) (23.0%1 (148%1 23% 10.4% 132% 274% 428% (90%) 11.0% 0.7% 102% Ceded Share fin) (4.9%9 0.0%) 192%1 (91%1 143%1 0.0%1 ( 4") (4.3%) (54%) (5.1%) (4.7%1 13.9%1 (4.0551 novicues 1430 ) 473% (33.4%) (16.214 109% 672% 025%) (135%) 210% Gross Pita 10121 4119% (327%) (144141 107% 682% 133.1%) 1124%) 224% 001.4 101% 4.3% (58%) $.1% LI% 112% (5.1%) 10% 128% 116D(040) 59% 54% 10% 416% 10% l95%) 21% 11.9% as% (11 (1%) 0 1%) 02% 13.4% 5#641001 01% 20% 12.7% (0.444457(043) 625% (415%) (75.8141 14" 924% 078%) 1210%) 233% %fad Maros (001 (1.6%) (1.0%) 0.2141 11.5161 112%1 (12%) (10%) (1.0%) %a/ linnua 04:44 4444111E4c1.51:41384400:49Fxpenel 114% 414% are %A% 30.8% 383% 38.6% 38.9% 403% 394% a Cm an 3?" i Gross Roll Owl $14:10346ed Ccep &some) cox 39.4% aLleh ak" 305% 389% 38.1% 3«65k. 403% 311% 315% 303% I 375%I Cc« 7.1% MO% 121% 11.1% 74% 104% 12.1% 11.1% 83% 9.8% 9.9% ILO% 10.0% MD 26% 4.0% 49% 49% 2.9% 42% 49% 45% 28% 38% 40% 4.0% 4.0% 8040. 4,5% 410% 7.2% 6" 4.5% 62% 72% 416% 55% 59% 5.9% 6.0% 41.014 Orex Inc1.6102 Steck %NO 0301 62%. 11.7% 14.2% 129% 07% 123% i 4 3% 129% 0.6% 11.2% 11.15% 113% 11.6% 034111744-64:410146491C0, 17) 333% 297% 263% 27.3% 31.4% 29" 264% 2?" 320% 291,4 290% 206% 27" Sock113$4741C444 &sense (1.1551 (1.5%) 118%1 118%1 II r.,. II NI (20%) (1.6%) (1.1%) (1.5%) 11.4%1 11.4%1 (1.490 EBIT "46 504148.mod Cow> 31.9% 27.7% 229% 221% 26.7% 23" 25.6% 305% 27.8% 229% 26.7% 259% Roux ~II 338% 300% 27.2% 222% 30.1% 273% 235% 325% 30.4% 30014 29.4% 278% Tax Rag 253% MS% 229% 220% 26.9:. 24.9% 255% 220% 254% MS% 3.214 260% 240% Nei 1,0987 IC0~ F14380 242% 20.014 154% 192% 225':, 20 94 04% 195% 228% 21.2% 207% 203% 192% HO 1.4481710:401•0 1061.36e) 253% 223% 203% 20.3% 24v:, 228% 204% 213% 240% 221% 22" 21" 296% Sou«e Company reports. sofA Ihemll LynchGlobal Researchestimates Bankof America e 6 Apple Intl 03 May 2017 Merrill Lynch EFTA00796517 Figure 7: Apple Segment Details ROME 62017E 1215 316 636 916 1316 311? 617E 117( P2015 62010 67017E F2011E 32019E Soles Ety Segment ?mai Rs venue (Wet 875.872 950.557 342.358 346162 $76.351 Man 615.752 956.29? 1333.715 3215.639 32:43.236 9270367 13)).909 Pre.nit i 0.40ta 51.635 32.857 24.018 28.160 54278 33249 26197 36161 1561341 136100 149.867 179171 20121? Dal memo 7.064 4.413 4.676 4255 5539 310 4206 3103 23.221 20123 17,333 16193 16,052 Its men 6,746 5.107 5239 5.739 7244 5144 5292 5.793 26.471 22.031 24.178 24.664 26.129 394 cavorra 392 193 938 ISO 305 150 162 IS) 1.376 986 769 603 473 Tuns 1SIM OM: Sc...,ecc wort.* 6156 1991 5.976 6.325 7.172 7.041 6992 7.337 11909 30.348 21512 31.540 32851 ACCOSSOffd 1.209 1.533 1.316 1.276 %.158 1119 1547 1.486 5.193 5.411 6259 7227 8105 Node 01,01 2.750 413 0141 901 2241 906 1156 1.909 2196 4.733 6134 10670 14.936 %el II:venue Pre.00 i ...noir 68% 65% 57% 60% 69% 63% 57% 68% 68% 83% 64% 66% 67% tPad rationat 9% 9% 12% 9% 7% 7% 9% 7% 10% 10% 7% 6% 5% 3%4 tovorra 9% 10% 12% 12% 9% 11% 12% 10% 11% 11% 10% 9% 8% dint Solter tee t &cords renew rt, 12% 14% 13% 9% 13% 15% 13% int 11% 12% 12% 11% product euamenl Flatonee Growth . Yr( 2% 113%) (1546) 14461 A% 5% 8% 20% 28% ON 9% 16% 12% Mode room* 1% (18%) 123%1 113%1 5% 1% 9% 29% 52% 112%) 10% 20% IM Pad wend (21%1 119%) 7% (0%1 122%1 02%1 (14%) (1150 (23%) 111%) 116%1 (5%) (2%) Its rector,/ 13%) 19%) OM 117%1 7% 14% 1% I% 0% 110%) 6% 2% 2% dint Solt sty t &wad recruit 26% 20% le% 21% 18% 18% 17% 10% 10% 22% 17% 11% II% protract 84 aslord Flituitfute Growth • Cirt 47% (33%) (16%) 11% 67% (32%) 114%) 21% -RCM. i (n<nte0 60% (36%) 127%1 17% 93% (39%1 121%) 38% Pad eavna 66% 138%) 10% 113%1 BO% (30%1 9% (13%) Woo Mena 12%) 124%) 3% 10% 3% (19%) 19%) 10% ins/ Soho ere t &was rector", 10% 11%) 10%1 6% 11% (241 11%) 5% las Warne 10441Oats IN) Dome 71.779 6/.160 40.910 45313 76.110 60.763 40100 50.000 231216 211.611 219.053 240000 2641000 Pad 16,122 10.251 1(60 0.267 13(61 8122 9155 8,433 54156 45.590 39.490 38106 31306 Vac 6312 4.031 4.262 42136 5.314 4199 4137 4.984 20167 15.461 11894 19.461 20044 fed 2541 1.160 1.401 1.268 2.602 928 1.121 1111 11626 6172 5.098 4078 3263 Antb Mien 6100 1130 1.560 200 2.000 1000 1.000 7.000 10,500 14.0643 23100 33040 Product Seernent Unit Growth- ref dome 0% 119%) (15%1 (5%1 5% (1%1 0%) 10% 37% (8%) 3% 10% 11% Pad (25%) 119%) 19%1 (0461 110%) (13%1 1910 19%) (19%) 11713) 113%1 (3%) 0% Itto OM) (12%) (11%1 111%1 1% 4% 2% 2% 9% 00%) 2% 3% 3% Product Stormont Unit Growl% - 0 42 Aso, 56% 132%) 121%1 13% 72% (35%1 .21%) 25% 330 03% 134%) 13141 (7141 41% (32'I 1% IN? we 17%) 124%) 5% 199E 10% 122%l 3% 15% Product 114osont ASPS 4?coe 691 642 566 019 905 655 655 721 671 645 CM 749 766 Pe? 439 430 KO 460 423 404 433 403 423 652 996 428 419 Mu: 1.251 1.211 1.201 1154 1120 1,147 116 1.142 1.231 1.235 1210 1267 1.251 Prone 0% 13%) 110%1 (0%1 1% 2% 10% 17% 11% M%) 0% 10% 2% Pal 6% 0% 10% 0% (4%) (tml 02%) (12%) 15%) 7% (3141 (2%) (2%) My: 1% 3% 12%1 (3141 es In 0%) (1%) 13%) 10%) 4% (1%) (1%) Product fkgreent ASP Or owth • an Irmo 3% 17%) 17%1 4% I.2.t. (694 (0%) 10% Dad 2% 12%) 14% (0%1 15%1 7% (7%) thsc 6% 11%) 131% (Slit I5'4 3% (13%) (6%) SoLoce Carpany ripons.8ofA Memll Lynch Global Research estimates Minket Amenca ea* Apple Inc 103 May 2017 7 Merrill Lynch EFTA00796518 Figure 8: Apple Balance Sheet 94016E 62013E 12'15 316 6.16 1116 1206 3.17 1112E 6.12E 92015 62016 82013E F20ItE 92019E Mono ghat 784•18444Is $21.1261 $101277 MAN 031486 1331.141 5334,532 3141.39$ $371075 $2113A79 MAN WINO $447483 1632313 VS DonnMiles 76219 67.592 93.761 106360 102232 101.990 115260 140.623 09376 103169 140.633 205253 270.457 Cialltonkels 16.619 21.514 10.237 20.484 16271 15157 21696 47.026 21.120 21461 47.025 109,458 172.166 571w418nan% 21.395 31769 43.519 46.671 44081 51.944 51.944 51.944 20.481 41671 51.914 51.944 51.944 Acco..nu Ramat.> 12953 12.239 11.714 15.754 I.4 C57 11379 12153 18930 161319 18754 18.930 20146 22,639 Doratad Tax Atte% 0 0 0 0 0 0 0 0 5546 0 0 0 0 1..89004y 2.451 2.251 1.831 2.132 2.112 2910 1,975 2.542 2349 2.132 2.512 2116 3.101 Out. 044.48 Assets 22741 17.799 10.480 21.820 26.III 20400 19,992 21192 23133 21.16 20.192 20348 21565 FPLE 22303 21203 653 27,010 36510 27.163 27.818 30160 22471 27.010 30.160 35.493 44975 /21.4.461rtorts 177.665 177.115 4.102 170.430 185.636 189.740 1(9.730 188719 164.065 170.430 148.719 191.313 191173 0:06.4