EFTA02494662.pdf

From: Richard Kahn < Sent: Thursday, March 22, 2018 1:30 PM To: Jeffrey Epstein Subject: Fwd: Apple, Inc.: The Emerging Power of Apple Services Rich=rd Kahn HBRK Associates Inc. 575 Lexington Avenue, 4th Floor<=div> New York, NY 10022 Tel Fax Cell Begin forwarded m=ssage: From: "Morgan Sta=ley" <ms-wmir@morganstanley=com <mailto:ms-wmir@morganstanley.com» Date: March 21, 2018 at 6:24:36 PM HST To: &=t;richardkahnl2@gmail.com <mailto:richardkahn12@gmail.com»= Subject: Apple, Inc.: The Emerging Power of Apple Services Reply-To: <mswmir-cie-feedback@morganstanley.com <mailto:mswmir-cie-feedback@morganstanle=.com» <=td> <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> &nb=p; Katy L. Huberty= CFA — Morgan Stanley March 22, 2018 4:01 AM =GMT As Apple's p=ospects for generating outsized iPhone growth fade as the handset market ma=ures, some investors fear Apple's best days are behind it. We disagree and s=e increasing value in the Apple platform, particularly through Services mo=etization. Sum of the parts supports our $203 PT. The devices are already out there. Now investors should look to Apple Servi=es. Over the last five years, the vast majority (86%) of Apple's 8% annual r=venue growth was driven by iPhone sales. But as replacement cycles extend f=rther and device installed base growth slows to single digits (from 14% ov=r the last two years), it is through EFTA_R1_01618323 EFTA02494662 monetization of Apple's Services busin=ss that we see the company still generating mid single digit revenue growt=. In fact, Services (- 60% of growth) and Other Products/Wearables (30%) wil= drive almost all of Apple's growth over the next five years in our updated=base case model (1). Mix shift to services should also put upward pressure o= gross margin, an important driver of stock performance (23). Net, next fiv= year revenue CAGR slows (6% vs. 8% last 5 year CAGR) but EPS CAGR acceler=tes (16% vs. 8% last 5 year CAGR) on the back of services mix and higher sh=re repurchases. With close to $200 billion in excess cash and FCF availabl= over the next 12 months, Apple can support the stock as the investment th=sis evolves from one of product cycle- to services-led growth.lntroducing o=r interactive Apple Platform Model: Base case = 5% next-five-year revenue=CAGR; Bull = 11%; Bear (2)%. We have created an interactive model that al=ows clients to make multi-year assumptions behind Apple device replacement c=cles, installed base growth, ASP trends, and services spend per device. We a=e modestly more negative on hardware replacement cycles in our new base ca=e estimates (7 and 8), to reflect weaker market demand in China and US car=ier comments at our TMT conference earlier this month. Our new base case d=monstrates the stability of the m This alert i= sent from: And=ew Atlas, Andrew.Atlas@morganstanley.com=/a> =You received this because you requested that you receive content and report= from: APPLE INC. =Please contact your FA if you want to unsubscribe from the alerts. <http://www.=organstanley.com/img/cs/spacer.gif> <http://www.=organstanley.com/img/cs/spacer.gif> chttp://www.=organstanley.com/img/cs/spacer.gif> <http://www.=organstanley.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.morganstan=ey.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 the full report for risks, dis=losures and other important information. Important disclo=ures regarding the relationship between the companies that are r=ferenced in Morgan Stanley research and Morgan Stanley Wealth Manage=ent research are available on the Morgan Stanley Wealth Managem=nt disclosure website at https://www.morganstanley.com/online/researchdisclosures <https://www.morganstanley.com/online/researchdis=losures> . Morgan Stanley Wealth Management Not Acting as Municipal Ad=isor Morgan Stanley Wealth Management is not acting as a municip=l advisor to any municipal entity or obligated person within the mean=ng of Section 15B of the Securities Exchange Act (the "Municipal A=visor Rule") and the opinions or views contained herein are not i=tended to be, and do not constitute, advice within the meaning of the=Municipal Advisor Rule. 2 EFTA_R1_01618324 EFTA02494663 Copyright The copyright in materials provided by Morgan Stanley is owned by Morgan Sta=ley & Co. LLC. Morgan Stanley Wealth Management is the trade name of M=rgan Stanley Smith Barney LLC, a registered broker-dealer in the=United States. &=bsp; © 2018 Morgan Stanley Smith Barney LL=. 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