EFTA02627814.pdf

From: Richard Kahn Sent: Thursday, January 31, 2019 10:53 PM To: Jeffrey Epstein Subject: Fwd: Apple, Inc.: 10-Q Highlights Lower Capex and Hedge Gains Boosting Gross Margin 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-O =ighlights Lower Capex and Hedge Gains Boosting Gross Margin Date: =/b>January 31, 2019 at 12:52:43 PM =ST To: =/b>[email protected]> Reply-To 1 EFTA_R1_01843540 EFTA02627814 Katy L. Huberty, CFA— Morgan Stanley January 31, 2019 5:49 PM GMT Apple's 10-Q shows reduced capex =uidance in FY19 and normalized F1Q gross margin decline of 140bps Y/Y =hen backing out the benefit from hedges & slightly lower warranty =ccruals, lower than the 40bps gross margin decline on a reported =asis. FY19 capex reduced by $2B. Apple expects to incur =128 capex in FY19, down from $14B guided 3 months ago and $17B reported =n FY18. Apple initially highlighted lower capex Y/Y was partially =ttributable to 1) completing the multi-year build out of Apple's new =eadquarters and 2) further leverage of past tooling investments. The =ncrementally lower capex most likely is a function of lower tooling =nvestments in order to align with demand in the longer replacement =ycle environment, in our view. December quarter gross margin =ompression was greater Y/Y than reported after normalizing for hedge =ains and warranty accruals. Normalized gross margin shows a 140bps =ecline Y/Y compared to a 40bps decline in reported gross margin after =acking out Y/Y tailwinds in (1) benefits from FX hedges and =on- designated derivatives and (2) lower warranty accruals. Normalized =ross margin of 37.1% is below reported gross margin of 38.0%. First, FX =edges were a 40bps benefit to reported gross margin, greater than the =0bps headwind in the year ago reported gross margin. Second, =on-designated derivatives were a 40bps benefit to reported gross =argin, greater than the 10bps benefit a year ago. Lastly, lower =arranty accruals was a 10bps benefit to reported gross margin, versus =o impact a year ago. We calculate the impact of warranty expenses by =omparing reported warranty expense to normalized expense based on three =ear average ratios to hardware revenue (1). Non-vendor trade =eceivables plus inventory declined Y/Y for the first time in nearly two =nd half years. Inventory grew 13% Y/Y in the December quarter and =ncreased from down 19% Y/Y in the prior quarter. Sequentially inventory =ncreased 26% Q/Q, greater than historical seasonali 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> chttp://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. 2 EFTA_R1_01843541 EFTA02627815 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. 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. © =019 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_01843542 EFTA02627816