EFTA00715204.pdf

From: Richard Kahn To: Jeffrey Epstein <jeevacation@gmail.com> Subject: Fwd: Apple, Inc.: 10-K Highlights Memory Pressure and Anticipation of iPhone Supercycle Date: Mon, 06 Nov 2017 09:07:48 +0000 Richard Kahn HBRK Associates Inc. Begin forwarded message: From: "Morgan Stanley" Date: November 6, 2017 at 12:32:11 AM EST To: <richardkahn Subject: Apple, Inc.: 10-K Highlights Memory Pressure and Anticipation of iPhone Supercycle Reply-To: <mswmir-cie-feedback@morganstanley.com> 2,Morgan Stanley a Wealth Management Apple Inc.: 10-K Highlights Memory Pressure and Anticipation of iPhone Supercycle Download Report Katy L. Huberty, CFA— Morgan Stanley EFTA00715204 November 6, 2017 5:01 AM GMT Record levels of off-balance sheet commitments, vendor non-trade receivables, and inventory highlight tight memory supply and preparation for a strong iPhone cycle. Normalizing gross margin for FX, warranty and Services lx adjustment suggests memory prices had a larger impact than recent quarters. On and off balance sheet component inventory signals bullish iPhone outlook, rising memory costs. Three metrics indicate bullish Apple demand for components, in total growing 64% WO, more than in any other period in Apple's history (2). The prior high was at the start of the last supercycle, iPhone 6, in September 2014 when on and off balance sheet components grew 58% O/O. (1) Off-balance sheet purchase commitments for outsourcing and components grew 31% Y/Y, an acceleration from 11% growth in the prior quarter, and 61% O/O, above the 3-year historical seasonality of 44% (3). Off-balance sheet commitments are roughly 90% correlated to next quarter revenue (4), implying December quarter sales near $86B relative to company guidance of $84-87B, through revenue typically overshoots this metric in the holiday quarter. We believe Apple is planning for strong demand and making purchase commitments to lock in favorable pricing, especially in memory. (2) Vendor non-trade receivables similarly increased 31% WY, however this reflects a modest deceleration from 40% Y/Y growth in the June quarter. This metric represents components purchased by Apple and transferred to manufacturing partners. These receivables have 83% correlati-on to next quarter revenue (5), and similarly support management revenue guidance. (3) Inventory held on Apple's balance sheet grew to $4.96 in the September quarter, up 54% O/O and 128% Y/Y and a record high for the company. We believe the inventory increase is a combination of pre-purchases and the rising value of components, namely memory, where prices increased over 100% and 50% Y/Y for DRAM and NAND, respectively (6). Normalized Septem 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 unsubsaibe 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 https:fiwww.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 j 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. O2017 Morgan Stanley Smith Barney LLC. Member SIPC. EFTA00715205