EFTA02343435.pdf

From: Richard Kahn Sent: Tuesday, August 1, 2017 9:45 PM To: jeffrey E. Subject: Fwd: AAPL US: Apple Inc. - Quick take: qtr beats, better than feared guide could imply usual product cadence - BUY - United States stock at 159.22 in aftermarket.. Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 fa ce Begin forwarded message: From: =/b>"Ens, Amanda" Subject: =/b>AAPL US: Apple =nc. - Quick take: qtr beats, better than feared guide could imply usual =roduct cadence - BUY - United States Date: =/b>August 1, 2017 at 5:42:56 PM =DT To: =/b>"Rich Kahn Reply-To: =/b>"Ens, Amanda" Global =esearch Apple Inc. Quick take: qtr beats, better than feared guide =ould imply usual product cadence Maintain Rating: BUY EFTA_R1_01311509 EFTA02343435 PO: 180.00 =SD I Price: 150.05 =SD Equity I 01 August 2017 Key takeaways Apple =eported F3Q17 rev/EPS $45.4bn/$1.67 vs. our estimate of $45.8bn/$1.64 =nd Street $44.95bn/$1.57 • iPhone =nits were 41mn in F3Q slightly, higher than our est of 40mn. iPad units =ere limn compared to our/Street est of 9mn Rev =rom Greater China declined 10% y/y, which was slightly better than the =eclines in F1Q/F2Q class="MsoNormal" style="margin: 0in 0in 0.0001pt; padding: 0px; =ine-height: normal; font-size: 12pt; font-family: 'Times New Roman', =erif;"> FULL REPORT Rev =uide implies shipments of new iPhone in =ep Apple =eported F3Q17 iPhone unit sales of 41mn, which came in line with =ur/Street estimate of 40mn/41mn, and vs. 40.4mn units sold in the =ear-ago quarter. The guidance suggests that there will be shipments of =ew iPhones (7S, 7S+ and 8) in the Sep qtr vs. worries of a delayed =aunch. We expect to get more color only at the launch event, but given =hat the technology around the fingerprint sensor was the potential =ource of delays, we note that Apple could have elected to move to a =ifferent (facial recognition) authentication system. There will be some =ebate around the GM guide of 37.5-38% (down q/q), but it could be for =sually higher warranty accruals into a new product launch and commodity =eadwinds. Net net, this was a better-than-feared guide and we =xpect the stock to trade higher into the launch of the iPhone =. Commentary on call key for rev/margin =rajectory F4O guide for rev and its =mplied EPS ($50.5mn/$1.85, at mid-pt) are =ell above our prior estimate of $46.8bn/$1.74. We would look for color =n the call to see if there is any indication of a delayed iPhone 8 =aunch, which looks unlikely with the guidance (but product features =ould be different than expected). Looking further out to the Dec qtr, =e view the Sep guide as bullish for Dec, as gross margins will likely =ove higher as volumes, FX will be favorable, although warranty accruals =ould be a modest headwind. Gross margins in line, Services rev continues to =row Apple =eported F3Q GM of 38.5%, in line with our estimate, and down 40bps q/q. =4Q GM guide is 37.5%-38.0% (37.75% mid-point), which is slightly =35bps) lower than our prior estimates and may indicate slightly worse =ix from 2 EFTA_R1_01311510 EFTA02343436 lower iPhone 8 sales. Services rev (digital content, AppleCare, =pple Pay, licensing, other services) grew 22% y/y to $7.3bn. This =ompares to double-digit (DD, 18%) growth in FlQ and F2Q. Greater China rev declines y/y for the 6th qtr =n a row Apple reported F3Q rev from =reater China (China, Hong Kong, Taiwan) of $8.0bn, which declined 10% =/y and 25% q/q. The y/y decline was slightly better than the declines =n FlO/F2Q (-12% y/y/-14% y/y, respectively), especially given that we =xpected a pause as consumers hold off purchases before launch of the =LED iPhone 8. In our opinion, the y/y decline was not materially =nfluenced by the number of Apple retail stores in China, which were -40 =n both quarters. The decline was less than in the prior-year quarter =June 2016) when rev from Greater China were $8.84bn and declined 29% =/q (-33% y/y). In our opinion, high end features of iPhone 8 including =ireless charging, 3D sensing and possibly Augmented Reality =nhancements could further help spur sales in that region. Other takeaways...iPads, =acs iPad =nits came in at 11.4mn vs. our/Street estimate of 9mn. Revenue from =Pads came in at $5bn and grew 2% y/y, probably helped by sales of iPad =ro. This is the first quarter of iPad revenue increase since F3O16. =pple reported Mac unit sales of 4.3mn, in line with our =stimate. Wamsi Mohan <=span> Research =nalyst MLPF&S This report is intended for amanda.ens@baml.com <mailto Click here <http://researchlibrary.bankofamerica.com/> to access the Research Library Read the research report, available =hrough the link above, for complete information including important =isclosures and analyst certification(s). The research report and the link to such =eport are for the use of Bank of America Merrill Lynch customers only =nd all copying, redistribution, retransmission, publication, and any =ther dissemination or use of the contents thereof are prohibited. There =ay be more recent information available. Please visit one of the =lectronic venues that carry BofA Merrill Lynch Global =esearch reports or contact your Bank of America Merrill Lynch =epresentative for further information. "Bank of America Merrill Lynch" =s the marketing name for the global banking and global markets =usinesses of Bank of America Corporation. Click here to stop or modify the delivery of Research via =mails. Publication: 61448878-11773332.pdf 3 EFTA_R1_01311511 EFTA02343437 Recipient: http://rsch.baml.com/r?q=zYtjhdr421!gvUFzbeAlFA&e=richa=dkahn12%40gmail.com&h=VWcobQ This message, =nd any attachments, is for the intended recipient(s) only, may contain =nformation that is privileged, confidential and/or proprietary and =ubject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. If you are =ot the intended recipient, please delete this message. 2395940 4 EFTA_R1_01311512 EFTA02343438