Apple

ANALYSIS for NASDAQ : AAPL DECEMBER 22, 2011

IPHONE

$

503

$

399
Market Price

iPhone Pricing 5 iPhone's Market Share in Mobile Phones 6 Global Mobile Phones Sold 8 iPhone Gross Profit Margin 9
IPAD

$471.9 B MKT CAP
Trefis Estimate

$370.5 B MKT CAP

iPad Pricing 11 iPad Units Sales 12 iPad Gross Profit Margin 13
NOTEBOOKS

— CORPORATE SNAPSHOT —

Apple makes money primarily by selling mobile phones, computers, and portable media players to consumers worldwide. Apple's well known consumer products include the iPhone, Macintosh ("Mac") computers, iPad and the iPod media player. In addition to selling hardware, Apple makes money by brokering the sale of music, films, TV shows, games, and iPhone software applications through its iTunes platform. It also makes money by selling ads on the free apps through the iAd platform. 1. iPhone constitutes 53% of the Trefis price estimate for Apple's stock. 2. iPad constitutes 12% of the Trefis price estimate for Apple's stock. 3. Macintosh (Desktops, Notebooks, Software & Services, Peripherals) constitutes 12% of the Trefis price estimate for Apple's stock.

Mac Notebook Pricing 15 Mac Notebooks Market Share 16 Global Notebook & Netbook Units Sold 17 Mac Notebooks Gross Profit Margin 18
SOFTWARE & SERVICES Revenue Per Mac 20

Global Notebook & Netbook Units Sold 21 Software and Services Gross Profit Margin 22
ITUNES

Songs Pricing 24 Unit Sales of Songs 25 iTunes Gross Profit Margin 25
APPS FOR IPHONE, IPOD & IPAD

Average Paid iPhone & iPad App Pricing 28 Number of iPhone & iPad Apps Downloaded 29 Paid App % 30 iPhone, iPod Touch & iPad Apps Gross Profit Margin 30

Our share price estimate and the overall company value is derived by summing-up the values of individual divisions/businesses in a sum-of-theparts analysis. The value of each division is calculated using a discounted cash flow (DCF) methodology. We forecast fundamental drivers like pricing, market share, and profit margins for different businesses in estimating the division’s value within the DCF framework. The analysis below primarily focuses on those important forecasts that drive our share price and value estimate. Our complete analysis, including sources of historical data, underlying equations and additional discussion are available on www.trefis.com.
— POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE —

DESKTOPS

Mac Desktop Pricing 33 Mac Desktops Market Share 34 Global Desktop Units Sold 35 Mac Desktops Gross Profit Margin 35
IPOD

iPod Pricing 38 iPod Market Share 39 Portable Media Players Units 40 iPod Gross Profit Margin 41
PERIPHERALS Revenue Per Mac 43

Below are key drivers of Apple's value that present opportunities for upside or

Global Notebook & Netbook Units Sold 44

downside to the current Trefis price estimate for Apple: iPhone • iPhone Market Share: Apple's iPhone market share has increased at a fast rate from around 0.3% in 2007 to around 3% in 2010, and we expect it to continue to increase to around 15% by the end of Trefis forecast period. The iPhone’s unique touch screen interface, and the intuitive and user friendly features are some of the factors behind its success. Also, the new iOS 5 boasts of over 200 new features including the much touted iCloud and the iMessage which is supposed to be Apple's answer to BlackBerry's popular BBM service. Apple launched the iPhone 4S recently and if the first weekend sales of over 4 million is anything to go by, it seems very likely that the latest in the iPhone series will turn out to be Apple's best-selling iPhone yet. In case one out of 5 mobile phones is an iPhone in the long term, or in other words, iPhone's market share increases to 20% by the end of Trefis forecast period, there could be an upside of 25% to our estimate for Apple stock. On the other hand, if Apple iPhone market share increases slowly to 10% by the end of Trefis forecast period, there could be a downside of around 15% to the Trefis price estimate for Apple stock. • iPhone Gross Margins: Apple's iPhone gross margins have declined in the past from 62% in 2007 to around 51% in 2010. However, we expect Apple to protect or even slightly improve on its margins this year before continuing to decline gradually to 37% by the end of Trefis forecast period. Fierce competition with Android-based smartphones from Samsung, Motorola and HTC, as well as RIM, Nokia, etc, may have led to a price drop in Apple's smartphones but component costs have also moved sharply in its favor recently. Reduced manufacturing costs will help Apple stem the decline in the near term. However, there could a downside of around 15% to our estimate for Apple stock if iPhone margins declines to around 30% by the end of Trefis forecast period. On the other hand, there could be an upside of around 15% to our estimate for Apple stock if iPhone margins remains constant at around 51% over the Trefis forecast period, instead of the decline that we forecast. For additional details, select a driver above or select a division from the interactive Trefis split for Apple at the top of the page.
— SOURCES OF VALUE —

Peripherals Gross Profit Margin 45
APPLE TV

Apple TV Pricing 47 Unit Sales of Apple TV 48 Apple TV Gross Profit Margin 48
APPENDICES

Summary P&L for Apple 50 Detailed iPhone P&L 52 Detailed iPad P&L 53 Detailed Notebooks P&L 54 Detailed Software & Services P&L 55 Detailed iTunes P&L 57 Detailed Apps for iPhone, iPod & iPad P&L 59 Detailed Desktops P&L 61 Detailed iPod P&L 62 Detailed Peripherals P&L 63 Detailed Apple TV P&L 64

We believe the iPhone segment is more valuable than the Macintosh and iPod segments for two primary reasons: Large Mobile Phone Market We believe 1.60 billion mobile phones will be sold worldwide in 2011 compared to 259 million notebooks, 140 million desktops, and 207 million portable media players (like iPod, Zune and Sansa). Although Apple's iPhone market share within the mobile phone market is smaller than its

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market shares within the PC and portable media player markets, the underlying market opportunity over the forecast period is much larger. High iPhone Profit Margins We believe Apple will have around 53% gross margins on iPhones in 2011 compared to less than 30% for Macintosh.
— KEY TRENDS —

Tablets growth not cannibalizing Apple product sales Apple already has a substantial share in the high end of the PC market with its Mac line of products, and the iPad now allows the company to tap the lower price range. Although tablets are believed to have cannibalized a good chunk of PC sales, Apple’s Mac sales have actually maintained a solid growth pace. Rather than cannibalizing Apple’s own product sales, the iPad appears to be creating a halo effect and lifting sales for the company’s other products. Supply chain management a major risk for mobile phone companies Companies like Apple are more concerned about the component supply related issues rather than demand issues. The earthquake in Japan has now spurred new issues with regards to component supplies, as many Apple suppliers are Japanese companies. Mobile phone software features playing major role in its sales Slowly the mobile phone software is becoming more important than its hardware. The mobile phone apps' selection is also an area of growth for mobile phone companies. Features like integration with social networks and multi-tasking ability are some of the features that mobile phone companies have come forward with over the last few years. Apple, Android, RIM and Nokia have been coming up with new versions of their OSes to keep adding new features. Another example is Samsung, which realized that they have a good hardware, but not so good software, hence they came with their own new Bada OS to compete in the smartphone market. Touch screen smartphones gaining popularity After Apple iPhone’s success, every mobile phone vendor is bringing this feature to the market. For example, RIM is planning to have this feature with improvements to touch screen interface. Nokia has recently come up with a few touch screen smartphones. Samsung also did the same thing. Browser improvements to a smartphone Mobile Phone companies are looking to improve browsers so as to have faster browser access along with less bandwidth consumption. Nokia acquired Novarra in this regard. Processor speeds increases

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films. games. the A4. Motorola Mobility. Samsung. Apple acquired Quattro. and video conferencing are potential points of differentiation among smartphone competitors. Qualcomm’s Snapdragon has come up with an even higher processor speed of around 1. Apple then came up with the iAd platform. The availability of mobile TV shows. Shift from Desktops to Notebooks (and Netbooks) We believe that the recent shift of consumer preferences from desktops to notebooks will continue as the performance and pricing gap between desktops and notebooks narrows. Apple iPhone. and the company claims that it's twice as fast as its predecessor. Gray market proliferation hurting mobile phone companies These are unlicensed and illegal mobile phone vendors in emerging markets. Increasing Wi-Fi and Mobile Broadband Availability The increasing availability of mobile high-speed Internet access creates opportunities for smartphones to move beyond e-mail and basic Internet surfing to new competitive fields. Apps advertising business increasing popularity Google acquired Admob in this regard.COM + 1 617 394 8763 •4 . photo sharing. HP and Dell entering into the tablet market. This has started to hurt the established players. Nokia and Motorola smartphones. Nokia and RIM entered in this segment before Apple. the demand for e-readers and tablet PCs have increased at a rapid rate. Increasing Smartphone Demand and Competition In June 2007. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. and capable of running at up to 1GHz. Demand for e-readers and tablet PCs With Amazon Kindle and Apple iPad. including the RIM BlackBerry.2 GHz. However. software applications. they are able to sell phones at a much cheaper price. Apple entered the smartphone market with iPhone. Consumers now have an array of smartphone choices. We believe that this trend will continue as PC manufacturers like RIM. Since these are unlicensed.Apple's new A5 processor is a dual-core affair.

For consumers in the US. the average revenue per iPhone that Apple captured over time for iPhones sold in 2007 is substantially higher than the sticker prices of the phones. Sprint offer their subscribers in return for a two year contract. Forecast Rationale Apple is expected to lower iPhone prices over time to stimulate market share gains.5% of our $503 price estimate for this stock. iPhone 4S is priced at $199 for the 16 GB. We believe there is uncertainty around the size of the price reductions and the impact of a potential low-end iPhone.S. In addition to the purchase price of the iPhone paid by consumers.The most important drivers for the iPhone business are: • iPhone Pricing • iPhone's Market Share in Mobile Phones • Global Mobile Phones Sold • iPhone Gross Profit Margin — IPHONE PRICING — iPhone Pricing represents the amount that Apple receives for every iPhone sold. We estimate that iPhone Pricing declined from $868 in 2007 to $611 in 2010. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. based on our sum of the parts analysis. $299 for the 32 GB and $399 for the 64 GB version.iPhone The iPhone division constitutes 52. for a much higher amount to the carriers that then discount it for their customers. Verizon and now. So. Apple initially earned subsequent revenues through a revenue share agreement with AT&T. iPhone Pricing ($) 750 500 250 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Two initial versions of the iPhone were launched in June of 2007 in the US with price points of $499 and $599. Apple actually sells the phones in the U. As a result. These prices are arrived at after a huge subsidy of about $450 that carriers such as AT&T.COM + 1 617 394 8763 •5 . which would reduce the iPhone Average Price.

We understand this is a strategy by Apple to woo the mid-market buyers to ward off competition from the Android smartphones. 1. as it has started to expand its reach. • Internet access.0 7.com website (link) — IPHONE'S MARKET SHARE IN MOBILE PHONES — iPhone's Market Share in Mobile Phones represents the number of iPhones sold as a percentage of global mobile phones sold annually. • The ability to read business documents.0 2. Apple's primary competitors in mobile phones are Nokia. Apple receives even higher competition from Google's Android operating system smartphones. • Photo-browsing and video clip-viewing capabilities iPhone's Market Share in Mobile Phones (%) 15. Apple will be compelled to lower prices or introduce new phone features to maintain premium pricing.COM + 1 617 394 8763 •6 .Among all this uncertainty. PRICING PRESSURE FROM COMPETITORS – RIM. we still believe iPhone pricing will decline at faster rate initially for a couple of years and then undergo a slow decline as the smartphone market matures. where the smartphone market is still in nascent stage. When competitors start slashing prices. This hypothesis is especially true for emerging markets.5 10.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 TREFIS ANALYSIS for APPLE CONTENT@TREFIS. such as: • E-mail.5 5. • A media player. The iPhone is a smartphone having computer like features. SLASHING PRICES OF THE OLDER IPHONES IN A BID TO ENTER MID AND LOW-END MARKETS – The iPhone 3GS is now being offered for free with a two-year contract.0 12. The average price of all the iPhones sold is bound to fall with this strategy. Nokia and Motorola Mobility are Apple's biggest competitors in the smartphone space. there will be a tendency for smartphone companies to lower the smartphone prices as the lower prices will be compensated by higher subscriber growth. INCREASING COMMODITIZATION OF SMARTPHONES WILL BRING DOWN PRICES – As smartphones become more and more commoditized. 3. Motorola and HTC. 2.5 0. RIM (which makes BlackBerry phones). Sources for historical data and explanations can be found on the Trefis.

and calendars. 4. 2. such as the ability to copy and paste. 8. such as the BlackBerry and iPhone. . COULD APPLE CREATE THE SAME SUCCESS STORY WITH IPHONES AS IT DID WITH IPODS? – iPod share of the portable media player market share grew from 0% at launch in October 2001 to around 30% in 7 years. iPhone's Market Share in Mobile Phones increased from 0. THE SMARTPHONE SPACE HAS A LOT OF POTENTIAL IN EMERGING MARKETS – Apple announced a deal with China Unicom. notes. China Unicom has over 140 million subscribers TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Trefis forecasts that iPhone's Market Share in Mobile Phones will increase at a faster than historical rate. Through this app users can chat and exchange files through Wi-fi and 3G. 6. as the consumers desire easy sync across multiple platforms. the ability to send photos.The iPhone was launched in June 2007. China's #2 mobile phone provider. In spite of not so rave reviews. and audio files as well as the ability to read and compose email have made it a feature-rich smartphone. IPHONE ON VERIZON AND SPRINT NETWORK WILL HELP EXPAND ITS ADDRESSABLE MARKET – Apple's iPhone 4 was launched on Verizon network in February 2011. EXTRAORDINARY CONSUMER-FRIENDLY INTERFACE AND FEATURES RICH PHONE – Apple products often score high on usability and interface quality. Additionally.COM + 1 617 394 8763 •7 . Apple's competitors are still working to catch up with the quality of Apple's touch screen interface. a service that replaces the user's music with iTunes compatible format. Fast wireless networks create an opportunity for instant messaging through devices like the BlackBerry and media rich applications (TV on a BlackBerry). Notable among these are the iCloud and iMessage service as well as Siri voice assistant 5. Forecast Rationale iPhone's Market Share in Mobile Phones is driven by (1) The level of penetration of smartphones within the mobile phone market and (2) iPhone's market share within the smartphone segment. The iPhone has seen continuous upgrades to its features. Supporting: 1. INCREASING AVAILABILITY OF HIGH-SPEED WIRELESS NETWORKS DRIVING SMARTPHONE ADOPTION – The increasing availability of high-speed wireless networks allowed for the delivery of voice and data to 'convergence' devices. with a market share of more than 30% while Sprint has a market share of around 16%. If the iPhone were to capture comparable share (30%). which is an improved operating system for Apple with over 200 new features. 3. IMESSAGE SERVICE TO CHALLENGE RIM'S BBM SERVICE – Apple announced the iOS version 5 in which one of the main feature was the iMessage service. 9. contacts.3% in 2007 to about 3% in 2010. such as the BlackBerry and iPhone. The ease-of-portability with the iPod and Mac for data transfer has also helped it increase market share. GROWING DEMAND FOR CONTINUOUS E-MAIL ACCESS DRIVING SMARTPHONE ADOPTION – Increasing use of email by both enterprise and consumer customers as a primary means of communication is driving demand for smartphones like the iPhone. Verizon has more than 90 million subscribers in the U. This could help Apple drive iPhone and iPad sales. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. it could mean an upside of 85% to our price estimate. the 4S managed to rack up impressive sales of over 4 million on its debut weekend. Through iTunes Match.S. better battery life and an improved camera with 1. 7. which has been a unique selling point for them.080 pixels resolution for high definition video. it could influence demand for all Apple devices in a meaningful way. If iCloud becomes the new model for media consumption. Both these developments will help Apple expand its addressable market. as substitutes for PDAs containing address books. and scores well over other smartphones now. ICLOUD SERVICE WILL INCREASE THE POPULARITY OF IPHONES – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. Functionality improvements. The iPhone 4S is running on the new iOS 5. to distribute iPhones. one will not be required to upload a song even if a song is not purchased through iTunes. The iPhone 4S was also launched on the Sprint network recently. There is a growing reliance on smartphones. one can consume music through different Apple devices. a voice recognition system. SUCCESS OF THE IPHONE 4S – The iPhone 4S carries a faster A5 dual core processor. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service. iPad or Mac. the inclusion of productivity and entertainment software on smartphones will further the attractiveness of such devices to businesses and consumers. In addition. These features will give much more convenience to the user in managing music files.

within the 700 million subscriber Chinese mobile phone market. iPhone revenues have grown at a fast rate in China in the last few quarters. According to FY Q2 2010 earnings transcript, the iPhone revenues from China alone was $1.3 billion out of the total of $11.18 billion revenues for iPhone worldwide for the first six months of FY 2010. This revenues growth in China was a 200% growth year over year. People are becoming more fashion-conscious and smartphones are considered a status symbol in emerging markets. Growing technological savviness amongst consumers means they will demand more features and better interfaces which favors smartphones. Mitigating: 10. THREAT FROM RIM'S BLACKBERRY AND GOOGLE ANDROID-BASED SMARTPHONES – Apple's biggest smartphone threats are from Android-based smartphones and RIM's BlackBerry. According to NPD, Android surpassed Apple iPhone market share in the US in the first quarter of 2010. 11.SUPPLY CHAIN MANAGEMENT A MAJOR RISK FOR MOBILE PHONE COMPANIES – Companies like Apple are more concerned about the component supply related issues rather than demand issues. The earthquake in Japan has now spurred new issues with regards to component supplies, as many Apple suppliers are Japanese companies. Sources for historical data and explanations can be found on the Trefis.com website (link)
— GLOBAL MOBILE PHONES SOLD —

Global Mobile Phones Sold represents the number of mobile phone units sold each year globally.

Global Mobile Phones Sold (Bil)

2.0 1.5 1.0 0.5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18

Historically, unit sales of mobile phones have increased from about 990 million units in 2006 to 1.6 billion units in 2010. Mobile Intelligence, a market research firm, estimated that the number of mobile phones in use was equivalent to about 50% of the world population in early 2008, a year in which about 1.2 billion mobile phones were sold. Wireless Intelligence, another market research firm, indicated that more than 5 billion mobile phones were in use in 2010, suggesting the equivalent of about 70% worldwide mobile penetration in 2010. During 2010, we estimate that about 1.6 billion mobile phones were sold. These figures suggest that a 20 percentage point increment in penetration corresponds to a 0.4 billion increment in mobile phone unit sales. If mobile penetration were to reach 90% of the world population of

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about 7 billion, this suggests that there would be another 0.4 billion increase in unit sales suggesting around 2 billion mobile phones sold annually at that point. We estimate slightly higher unit sales of 2.2 billion annually by the end of the Trefis forecast period based on rising upgrade frequency as mobile phone prices decline further and demand for secondary phones. Forecast Rationale 1. INCREASING RELIANCE ON MOBILE PHONES AS PRIMARY MEANS OF COMMUNICATION – The consumer's need for mobile phones has been increasing day-by-day as people want to be reachable and want to be able reach others all the time. As people are travelling more out of business or personal needs, mobile phones are the best means for them to be reachable. 2. DECLINING HANDSET PRICING AS WELL AS MORE FLEXIBLE PRICING PLANS – The handset pricing has been on a continuous decline due to decreasing input costs associated with making a mobile phone. On top of that, wireless carriers are giving highly subsidized phones--along with a 1-2 year contract--to the customers. These factors have contributed to an increase in sales across the world. 3. EMERGING MARKETS (INDIA, CHINA, BRAZIL) TO DRIVE THE GROWTH – The cellular penetration rate in emerging markets like China and India is still low. We expect more and more people to buy handsets, as wireless providers foray into rural areas, where the penetration is at very low levels. Handset companies will be the direct beneficiaries of high growth rates of new subscriptions expected for telecom providers. 4. DEMAND FOR SECONDARY MOBILE PHONES – We expect that there will be a rise in penetration beyond 100% in certain countries as the prevalence of secondary phones exceeds the number of people without any phones. Some countries already have penetration levels that exceed 100%, including Germany, Italy and the UK. Sources for historical data and explanations can be found on the Trefis.com website (link)
— IPHONE GROSS PROFIT MARGIN —

Gross Margin represents Gross Profit as a percentage of Revenue. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold.

iPhone Gross Profit Margin (%)

60 50 40 30 20 10 0 2007 0 8 09 10 11 12 13 14 15 16 17 18

TREFIS ANALYSIS for APPLE

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We estimate that iPhone Gross Profit Margin decreased from 62% in 2007 to 51% in 2010. Although the margins have decreased, the iPhone is still one of Apple's most profitable products. We believe the hit that Apple had taken in 2010 on the iPhone 4's margins is a thing of the past with the release of the new iPhone 4S. We estimate iPhone's gross margins will improve slightly to around 53% on back of the last quarter iPhone 4S sales. Moving forward, Trefis forecasts that iPhone Gross Profit Margin will decline at a moderate rate till the end of the forecast period. Forecast Rationale Supporting: 1. DECLINING AVERAGE PRICES – Apple's average pricing is expected to decline in the future, which will decrease its margins. Furthermore, increasing smartphone competition from RIM, Nokia and HTC will put additional pressure on prices. We expect that price competition and lower- end iPhone versions will reduce Apple's overall iPhone Gross Profit Margin. Mitigating: 2. FALLING INPUT OR MANUFACTURING COSTS – The input and manufacturing costs for smartphones are expected to decrease due to technological improvements and standardization across the segment. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) iPhones (% of total) iPhone Accessories (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 3.27 98.5 1.53 1.24 0.94 2.03 N/A CY08 9.69 98.2 1.75 4.07 3.90 5.62 N/A CY09 15.7 97.6 2.44 6.19 2.04 9.48 N/A CY10 30.1 96.4 3.56 14.6 8.75 15.4 N/A CY11 53.0 96.4 3.57 24.9 16.5 28.1 11.6 CY12 64.3 96.1 3.94 31.5 19.3 32.8 13.5 CY13 75.7 95.8 4.23 38.6 21.3 37.1 15.8 CY14 88.5 95.5 4.48 46.9 22.9 41.6 18.7 CY15 103 95.3 4.70 56.8 25.2 46.5 21.3 CY16 116 95.1 4.94 66.6 28.1 50.2 22.2 CY17 131 94.8 5.18 77.4 30.5 53.8 23.3 CY18 144 94.6 5.44 88.4 32.6 56.5 23.9

Note that Apple reports financial information for fiscal year ended September 30th. We have calendarized Apple's reported financial data for year ended December 31st.

In addition, you can see the detailed P&L for the iPhone business in the Appendix (link)

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$729 with WiFi and 3G • 64 GB – $699 with WiFi. and Apple launched iPad 2 in March 2011.COM + 1 617 394 8763 •11 . Kindle is much more mower priced than iPad.iPad The most important drivers for the iPad business are: • iPad Pricing • iPad Units Sales • iPad Gross Profit Margin — IPAD PRICING — iPad Pricing represents the average price of an iPad. $629 with WiFi and 3G • 32 GB – $599 with WiFi . $829 with WiFi and 3G iPad Pricing ($) 600 500 400 300 200 100 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 iPad was launched in April of 2010. listen to music as well as access to the wide variety of apps available for the iPhone. or $25 for 2 GB of data per motnh. Forecast Rationale 1. the ability to play video games.99 for up to 250 MB of data per month. iPad pricing is distinguished by two features: (i) memory (ii) 3G capability: • 16 GB – $499 with WiFi . PRICING TO DECLINE AS APPLE SLASHES PRICES OF OLDER IPAD VERSIONS – After Apple released iPad 2 in March 2011. but also because of the monthly fees to AT&T for use of its 3G network. We believe that Apple will reduce iPad Pricing over time. This raises the total ownership cost for an iPad with 3G by $180 to $360 in the first year of ownership alone. it reduced the pricing of the lowest version of iPad from $499 to $399. Compared to the Kindle. the iPad offers more capabilities like a color touch-screen. However. iPad's pricing is based on the amount of memory included and whether the device is 3G capable. An AT&T data plan is necessary (in the US) for transferring data over 3G networks and AT&T charges $14. The cost of TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Buyers may be deterred from purchasing an iPad with 3G not only because of the higher price tag for the device.

DECLINING NETBOOK PRICES COULD FORCE APPLE TO REDUCE IPAD'S PRICING – Apple has deliberately not forayed into the low priced netbook market as it is a highly competitive market with vendors living on razor thin margins. The main difference between the non-3G iPad and iPod Touch is the screen size. The iPad allows you to browse the web. we believe there is room for Apple to slash iPad prices in the future.com website (link) — IPAD UNITS SALES — iPad Units Sales represents the number iPads sold by Apple. The basic version of the iPod Touch is priced at $200 or $299 less than the basic iPad model. iPad Units Sales (Mil) 100 75 50 25 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Apple sold around 14. the iPad could cannibalize the netbook sales of competitors since the iPad does have comparable capabilities to some netbooks. IPOD TOUCH HAS SIMILAR FEATURES TO AN IPAD WITH A LOWER PRICE POINT – iPad is considered to be a bigger iPod Touch with many of the same functionality available on the iPod Touch. or $25 for 2GB of data per month. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. the Kindle and Nook come with free wireless service. download apps and play games on an iPod Touch. 3. Sources for historical data and explanations can be found on the Trefis. one can read books and magazines.8 million iPads in 2010. The iPad competes with RIM PlayBook. . In comparison. Dell and LG tablets. Apple sold about 3. Motorola Mobility's Xoom. and download apps from the iTunes App Store.ownership for the 3G iPads can be even higher than the purchase price since an AT&T data plan is necessary (in the US) for transferring data over 3G networks. read email.COM + 1 617 394 8763 •12 .7 inch screen. AT&T is charging $14.7 million iPhones in the 2007 after the launch of the device in June of that year.99 for up to 250 MB of data per month. Samsung. The iPad has a 9. Apple released the next version of iPad named iPad 2 in March 2011. However. Most of the netbooks are priced below $400 compared to the $499 price for the basic iPad model. In comparison. Pricing will play an important role as some consumers opt for cheaper devices in a weak economy. watch videos. 2. view photos. which is considered ideal for reading books and magazines. Given the significant price gap between the iPad and iPod Touch. play video games. The iPad is a tablet PC that is larger than a smartphone but smaller than a notebook PC. For example.

which includes the faster A5 processor. Additionally. Sources for historical data and explanations can be found on the Trefis. it is an ultra thin and light device. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. 2. Through this app users can chat and exchange files through Wi-fi and 3G. front and rear facing cameras. 4. ICLOUD SERVICE WILL INCREASE THE POPULARITY OF IPADS – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service. 5. it could influence demand for all Apple devices in a meaningful way. In addition to that. listen to music. watch videos and read email. These features will give much more convenience to the user in managing music files. one can consume music through different Apple devices. IMESSAGE SERVICE TO CHALLENGE RIM'S BBM SERVICE – Apple announced the iOS version 5 in which one of the main feature was the iMessage service. If iCloud becomes the new model for media consumption. iPad or Mac. a service that replaces the user's music with iTunes compatible format. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. We expect iPad pricing to decline further in the future. IPAD 2 COULD BOOST APPLE – Apple released iPad 2 in March 2011 and has a few superior features over iPad. Apple announced that a basic iPad model would be available for $499. Forecast Rationale Supporting: 1. Through iTunes Match. 3.com website (link) — IPAD GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. which could leverage its dominant position in the enterprise segment to penetrate the tablet market. one will not be required to upload a song even if a song is not purchased through iTunes. IPAD IS MUCH MORE THAN A NORMAL E-READER – iPad is not only an e-reader. which will benefit its unit sales even more. This could help Apple drive iPhone and iPad sales. view photos.We forecast that iPad sales will continue to increase at a rapid rate. which is specifically designed for tablets.000. INCREASED COMPETITION COULD CHALLENGE APPLE – Google released Android's new version named Honeycomb. LOWER THAN EXPECTED PRICE POINT TO BENEFIT SALES – Many initially speculated that Apple's iPad would come at a price point between $600 and $1. RIM is expected to release PlayBook tablet. and is designed thinner and lighter. extensive multi-tasking and multiple home screens among other features. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. Mitigating: 6. It includes support for big screens (7 to 9 inch). a totally revamped user interface. but also a useful device to surf the web. use apps.COM + 1 617 394 8763 •13 .

5 6.27 CY17 50.31 3.3 6.6 5.20 6. In addition.66 11.2 6. you can see the detailed P&L for the iPad business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.38 CY16 47.3 6.36 11. PRICING DECLINE TO AFFECT MARGINS – We estimate Apple's average iPad pricing to decline going forward.COM + 1 617 394 8763 •14 .56 2.29 7.2 33.37 11.23 CY18 53.4 38.97 4.06 12.1 5.76 N/A CY11 24.02 CY12 34. as Apple slash prices for older versions of iPad.29 11.9 5.8 31.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY10 9.0 7.20 CY15 45.2 28. Sources for historical data and explanations can be found on the Trefis. Trefis forecasts that iPad Gross Profit Margin will decline.8 6.4 5.87 12.44 1.1 4.87 9.68 CY14 42.18 Note that Apple reports financial information for fiscal year ended September 30th. Forecast Rationale Supporting: 1.2 5.8 5.4 24. after it launched iPad 2 in March 2011 Mitigating: 2.7 35.iPad Gross Profit Margin (%) 30 25 20 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 The iPad Gross Profit Margin was around 30% for 2010.0 4.4 17. We have calendarized Apple's reported financial data for year ended December 31st.10 CY13 39.2 41. Apple has already slashed the pricing of lowest version of iPad from $499 to $399. Future technology improvements could enable the iPad to decrease its manufacturing cost and help offset some declines in margins associated with lower pricing. FALLING INPUT OR MANUFACTURING COSTS – The iPad uses NAND flash memory for most of its models and NAND memory prices are are constantly falling.

250 in 2010. This is evident from the fact that Q3 08 was the first quarter that saw notebook shipments overtake desktop shipments. Trefis forecasts that Mac Notebook Pricing will decrease. Acer. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.50 0.426. APPLE PRICING DECLINES HAVE BEEN LESS SEVERE THAN THAT OF COMPETITION – Surprisingly. and HP have seen a lot of price erosion each year. INCREASING ADOPTION OF NOTEBOOKS COMPARED TO DESKTOPS – There has been a global increase in demand for notebooks compared to desktops and hence we believe the prices should not decline at as fast a pace as desktops.65% of our $503 price estimate for the stock. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base.The most important drivers for the Notebooks business are: • Mac Notebook Pricing • Mac Notebooks Market Share • Global Notebook & Netbook Units Sold • Mac Notebooks Gross Profit Margin — MAC NOTEBOOK PRICING — Mac Notebook Pricing represents the average price of a Mac Notebook.Notebooks The Notebooks division is part of the Macintosh business.25 0. 2.25 1.460 in 2007. based on our sum of the parts analysis. whereas its competitors like Dell.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 The average Mac Notebook Pricing increased from $1.00 0.399 in 2005 to $1. and constitutes 5.COM + 1 617 394 8763 •15 . The declining trend in pricing started from 2008. Mac Notebook Pricing (K $) 1. It declined further to around $1. Forecast Rationale 1. Apple has always had a niche market and differentiated product in the crowded personal computer market. when the average Mac Notebook Pricing decreased for the first time to $1.50 1. Apple has been able to maintain its Mac Notebook Pricing.75 0.

Additionally. users who intend to use it for educational purposes. The Mac Mini is a small sized desktop. The iMac is targeted at general consumers. it could influence demand for all Apple devices in a meaningful way. and Acer. 3. iPad or Mac. 4. ICLOUD SERVICE WILL INCREASE THE POPULARITY OF MACS – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. SWITCHING FROM PC TO MAC HAS BECOME EASIER – Switching to a Mac is becoming increasingly appealing to existing PC-Windows users due to Apple's Mac OS and TREFIS ANALYSIS for APPLE CONTENT@TREFIS. AGGRESSIVE PRICING CUTS COULD BENEFIT MARKET SHARE – Apple has been reducing the prices of all its MacBook products in the past and we expect this will benefit Apple's market share. The Mac Pro is specifically designed for professionals and business users. Trefis forecasts that Mac Notebooks Market Share will continue to increase at a moderate rate. Its unique touch screen interface is what attracts the high-end users. one can consume music through different Apple devices. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS – Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface.5 5. a service that replaces the user's music with iTunes compatible format. Through iTunes Match. and business users. Forecast Rationale Supporting: 1. 2.Sources for historical data and explanations can be found on the Trefis.0 2.COM + 1 617 394 8763 •16 . Its primary competitors are HP.com website (link) — MAC NOTEBOOKS MARKET SHARE — Mac Notebooks Market Share represents the percentage share of notebook units sold by Apple. one will not be required to upload a song even if a song is not purchased through iTunes.5% in 2005 to 5% in 2010. which is priced lower and starts at $699. Mac has consistently come up with new products. These features will give much more convenience to the user in managing music files. Dell. If iCloud becomes the new model for media consumption. like .5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Mac Notebooks Market Share increased from 3. Mac Notebooks Market Share (%) 7.

with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipments heralding the advent of notebooks in a big way . and Acer. such as Microsoft Office can also be run natively in Mac OS.COM + 1 617 394 8763 •17 . whereby satisfied iPod and iPhone users purchase more Apple products. INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years.com website (link) — GLOBAL NOTEBOOK & NETBOOK UNITS SOLD — Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally. This could be a disadvantage for Apple. Global Notebook & Netbook Units Sold (Mil) 250 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Global Notebook & Netbook Units Sold have increased more than three folds during 2005-10 reaching 203 million in 2010. Sources for historical data and explanations can be found on the Trefis. Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months.Windows' dual-boot system (Bootcamp). HALO EFFECT OF IPOD AND IPHONES – Mac has been able to increase its market share due to the halo effect. Additionally. Mitigating: 6. The market share increase has been in effect after Apple re-branded its Mac. . Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. 5. as consumers look to cut costs. Key Microsoft productivity tools. Apple updated MacBook Air With Next Generation Processors. Dell. especially in the recessionary environment. RECESSIONARY ENVIRONMENT TO PREVENT USERS FROM SWITCHING TO MAC – All Mac desktops are in the higher price range when compared to competing PCS by HP. such as Parallels has made it easier to retain Windows features on a Macintosh. low-cost virtualization software. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. The growth in notebook shipments has been driven by: 1.

Those customers may choose to just have the iPhone and iPad (which now automatically sync with each other via iCloud) and not own a PC altogether. As the companies around the world strive hard to capture a share in the potentially huge tablet market. iCloud has the potential to replace the traditional usage of the PC as a music. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad. Mac Notebooks Gross Profit Margin (%) 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Forecast Rationale 1. increasing competition from tablet devices will severely slow down the grow in Global Notebook & Netbook Units Sold Sources for historical data and explanations can be found on the Trefis. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. a tablet computing device.COM + 1 617 394 8763 •18 . 2. photo and document library.2. and this should further spur the growth in shipments post 2009. ICLOUD COULD BE A THREAT TO PC MARKET GROWTH – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate.com website (link) — MAC NOTEBOOKS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. the tablet devices will soon be competing with notebooks & netbooks in functionality and given their ultra portable nature giving notebooks & netbooks a run for their money. thereby limiting PC's usage. we believe. ADVENT OF NETBOOKS – THE NEXT GENERATION OF NOTEBOOKS – The advent of netbooks and mini notebooks at prices starting at $200 is giving consumers a very economical and convenient option. NOTEBOOKS – SMALLER AND MORE CONVENIENT – One of the reasons notebooks are gaining increasing popularity over desktops is because of their size which allows consumers the convenience and flexibility to have a moving computer with them as against a desktop 3. iPad or Mac.

67 4.42 CY18 21.92 2.0 2.8 2.35 Note that Apple reports financial information for fiscal year ended September 30th. If Apple introduces a netbook to compete in the nascent netbook market. Nevertheless. Sources for historical data and explanations can be found on the Trefis. Trefis forecasts that Mac Notebooks Gross Profit Margin will decline at a moderate rate. there is an overall industry decline in average notebook prices.58 N/A CY11 15. which will put pressure on margins. Apple's notebook prices have not declined as fast the competition's prices.1 13.03 3.96 5.1 2.21 5.96 5.01 5.37 2.1 8.63 2.2 14.96 2.60 2.4 15.07 N/A CY08 9.1 15.2 13.We estimate that Mac Notebooks Gross Profit Margin has been around 30% historically.62 2.2 3.93 N/A CY10 12.54 1.21 CY14 19.44 1.48 CY17 21.21 6.90 4.56 2.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 6.6 3. We have calendarized Apple's reported financial data for year ended December 31st.54 2.76 N/A CY09 9. Forecast Rationale Supporting: 1. you can see the detailed P&L for the Notebooks business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. which is encouraging.88 CY12 17. DECLINING NOTEBOOK PRICES AND POTENTIAL MIX SHIFT IF APPLE INTRODUCES A NETBOOK – We believe notebook prices will continue to decline. In addition.78 6.4 10.14 5.COM + 1 617 394 8763 •19 .8 3.90 4.9 2. FALLING INPUT OR MANUFACTURING COSTS – Mac Notebooks use the Intel microprocessors in most of its models for which the prices are constantly falling.17 2.56 2.42 CY15 20.54 CY16 20.91 2. technology improvements has enabled Mac to decrease its manufacturing cost. Also.18 5.85 0. we would expect further average margin declines.8 15.0 12. Mitigating: 2.5 3.03 CY13 18.83 0.

based on our sum of the parts analysis. Revenue Per Mac ($ per unit) 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Revenue Per Mac for Software & Services has decreased from approximately $245 in 2005 to $212 in 2010 according to our estimates. MobileMe helps to keep email. 5. This could be substituted for by TREFIS ANALYSIS for APPLE CONTENT@TREFIS. which could be a substitute for high cost Apple Mac software. spreadsheets and presentations.COM + 1 617 394 8763 •20 . LOW COST OR FREE SOFTWARE ALTERNATIVES COULD NEGATIVELY IMPACT APPLE – Increasingly. iLife helps users to organize photos.The most important drivers for the Software & Services business are: • Revenue Per Mac • Global Notebook & Netbook Units Sold • Software and Services Gross Profit Margin — REVENUE PER MAC — The software subdivision of Mac consists of software. such as: 1. and carry out other related tasks. and iPod. 3. OS X Lion is the Mac operating system. and constitutes 3. Users can access it for an extra charge. 4. iLife is used to organize photos and enhance movie quality. The services part of Mac is the extended warranty service. there are a number of cheaper and better quality software options on the market. Aperture is Apple's photo editing software.Software & Services The Software & Services division is part of the Macintosh business. iPhone. and calender-related data in sync with the Mac.90% of our $503 price estimate for the stock. iWork helps users to organize software. Trefis forecasts that Apple will see continuous decline in Revenue Per Mac at a slower rate. For example. contacts. enhance the movie quality. which is called the AppleCare. Forecast Rationale 1. 2.

Google's Picasa software. Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months. NOTEBOOKS – SMALLER AND MORE CONVENIENT – One of the reasons notebooks are gaining increasing popularity over desktops is because of their size which allows consumers the convenience and flexibility to have a moving computer with them as against a desktop 3. Sources for historical data and explanations can be found on the Trefis. with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipments heralding the advent of notebooks in a big way . The growth in notebook shipments has been driven by: 1. RECESSIONARY ENVIRONMENT FORCING CONSUMERS TO CUT COST ON DISCRETIONARY ITEMS – We believe the above mentioned software and services are discretionary in nature and consumers will look to cut these types of costs during the recession. ADVENT OF NETBOOKS – THE NEXT GENERATION OF NOTEBOOKS – The advent of netbooks and mini notebooks at prices starting at $200 is giving consumers a very economical and convenient option. Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. Apple updated MacBook Air With Next Generation Processors. INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years. 2. . 3. 2. REDUCING COSTS OF ITS NEW SOFTWARE RELEASES WILL HELP APPLE – Apple released the latest version of its Mac operating system named OS X Lion and slashed its price to $30 resulting in sales of over a million licenses on the very first day of the launch. which is freely downloadable. and this should further spur the growth in shipments post 2009. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Global Notebook & Netbook Units Sold (Mil) 250 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Global Notebook & Netbook Units Sold have increased more than three folds during 2005-10 reaching 203 million in 2010.com website (link) — GLOBAL NOTEBOOK & NETBOOK UNITS SOLD — Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally.COM + 1 617 394 8763 •21 .

COM + 1 617 394 8763 •22 . Forecast Rationale 1. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad. increasing competition from tablet devices will severely slow down the grow in Global Notebook & Netbook Units Sold Sources for historical data and explanations can be found on the Trefis. The OS can be downloaded online TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. Apple unveiled Mac OS X Lion version. Software and Services Gross Profit Margin (%) 70 60 50 40 30 20 10 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Software and Services Gross Profit Margin has been around 70% as per our estimates. iPad or Mac. Forecast Rationale 1. the tablet devices will soon be competing with notebooks & netbooks in functionality and given their ultra portable nature giving notebooks & netbooks a run for their money. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. thereby limiting PC's usage. and was attractively priced at $30.Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate.com website (link) — SOFTWARE AND SERVICES GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. Trefis forecasts that Software and Services Gross Profit Margin will increase at a moderate rate. As the companies around the world strive hard to capture a share in the potentially huge tablet market. we believe. photo and document library. iCloud has the potential to replace the traditional usage of the PC as a music. a tablet computing device. 2. MAC OS X PRICE DECLINE TO BE SOMEWHAT OFFSET BY REDUCED COST – During the WWDC event held on June 6th 2011. Those customers may choose to just have the iPhone and iPad (which now automatically sync with each other via iCloud) and not own a PC altogether. ICLOUD COULD BE A THREAT TO PC MARKET GROWTH – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality.

74 1.57 1.17 CY13 4.06 1. We have calendarized Apple's reported financial data for year ended December 31st.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 1.32 1.53 1.20 1.09 1.03 1.75 1. Although this price cut was a drastic cut from previous OS prices.30 1.67 2.73 0. INCREASED MAC UNITS SALES TO BENEFIT SOFTWARE & SERVICES SEGMENT – The Software and Services segment's revenues are directly correlated with the number of Mac desktops and notebooks unit sales.38 1.07 1. 3. The previous versions require installation through physical optical disc available in the retail stores.67 2.70 1.56 2.63 CY16 5.08 1.49 CY15 5.53 N/A CY09 2.48 1.31 1.66 1.44 0. Sources for historical data and explanations can be found on the Trefis.91 1.84 1.19 0.31 CY14 4.06 CY12 4.51 2.07 0.72 Note that Apple reports financial information for fiscal year ended September 30th.25 N/A CY08 2. it should directly benefit Software & Services segment of Apple.77 3.from the Mac App store.22 3. NEGLIGIBLE INPUT OR MANUFACTURING COSTS – Since Software & Services segment manufactures software and provides warranty services.35 4. 2.69 CY18 5.37 1.04 1.92 1.66 1. we believe that these mostly involve the manpower costs and negligible manufacturing or input costs.61 2.39 1.92 3. we believe the online availability of software would have reduced input cost for Apple.82 3. Hence the gross margins may not be affected through this change.58 1.22 2. As we expect healthy Mac unit growth.10 3.54 0.66 CY17 5.15 N/A CY11 3.55 1. you can see the detailed P&L for the Software & Services business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.79 0.71 N/A CY10 3.COM + 1 617 394 8763 •23 . In addition.

But Apple is facing increasing competition from Pandora and Samsung's Media Store. Sources for historical data and explanations can be found on the Trefis.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Songs Pricing ($) 1. Another competitor NexTune offers much the same functionality as iTunes. the industry has started reducing the prices of legal music available online.25 0.99 in 2006 to $0.04% of our $503 price estimate for the stock.50 0. based on our sum of the parts analysis. which sells individual tracks for a lower price to iTunes.75 0. We expect iTunes to lead the industry trend for lower pricing over time. So.iTunes The iTunes division is part of the iTunes & iOS Apps business. Apple has discontinued selling all individual songs for $0. 2. Trefis forecasts that Songs Pricing will decline at a moderate rate. and started offering three tiers: $0.99. to counter-attack. ONLINE MUSIC HAS CHEAP AVAILABLE SUBSTITUTES – What users find the best about iTunes is the voice quality when listened through a iPod or iPhone.00 0. and constitutes 2. ILLEGAL MUSIC DOWNLOADS STILL PREVALENT – The music industry has realized that it is almost impossible for them to stop illegal music downloads from the Internet.29 in 2009.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 Songs Pricing declined slightly from around $0.COM + 1 617 394 8763 •24 .99 and $1.The most important drivers for the iTunes business are: • Songs Pricing • Unit Sales of Songs • iTunes Gross Profit Margin — SONGS PRICING — Songs Pricing represents the average price of Songs sold through the iTunes store. Forecast Rationale 1.93 in 2010.69. $0.

For example. RECESSIONARY ENVIRONMENT A BOON FOR ONLINE CONTENT – Due to the prevailing recessionary environment. COPYRIGHT PROTECTION LAWS DISSUADING PEOPLE TO USE ILLEGAL MEANS OF MUSIC DOWNLOAD – iTunes will gain more if copyright protection laws for illegal music download remain strict and enforceable. iTunes provides low cost legal music downloads and hence should see increased usage. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold.com website (link) — ITUNES GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue.COM + 1 617 394 8763 •25 . We foresee that this is indeed the case that should happen going forward although illegal music downloads have reached record highs. 2.— UNIT SALES OF SONGS — Unit Sales of Songs represents the number of units of Songs sold by Apple. Forecast Rationale 1. These margins include the margins for iTunes as well as iPhone Applications segment. which costs much more. Sources for historical data and explanations can be found on the Trefis.2 billion units in 2006 to 3. users like to download iTunes Music rather than buy a music CD or DVD. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. where users are looking to cut costs wherever possible. we expect the online usage for content to increase as it provides low cost substitutes. Unit Sales of Songs (Bil) 8 7 6 5 4 3 2 1 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Unit Sales of Songs has increased from 1. Trefis forecasts that Unit Sales of Songs will increase at a fast rate over the next few years before stabilizing.4 billion units in 2010 as per our estimates.

9 82.13 0.16 N/A CY11 4.50 1.79 N/A 89.0 83.87 0.11 891 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.13 4.28 1.24 1.89 0.47 N/A 87.80 0.com website (link) Total Revenue (Bil $) iPod Games (% of total) TV Shows (% of total) Movies (% of total) eBooks (% of total) Music (% of total) Audiobooks (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 1.51 10.16 0.13 4.9 82.8 0.23 0.85 N/A 89.1 0.85 846 CY16 6.17 0.96 1.57 644 CY13 5.97 1.COM + 1 617 394 8763 •26 .09 9.40 11.9 82. Online downloading has always been a low margin business.06 6. Trefis forecasts that iTunes Gross Profit Margin will remain constant as we don't expect Apple to change its policy of giving 70% cut to production companies and applications developers.95 0.06 5.42 10.02 872 CY18 7.46 0.0 83.13 0.11 4.37 0.12 4.07 10.8 0.00 1.66 1.22 2.08 1.08 9.12 4.31 1.54 0.46 0.08 7.14 2.49 10.6 0.3 0.88 0.37 1.17 3.7 0.15 3.05 5.90 0.18 0.14 3.92 1.67 710 CY14 5.06 5.43 0.8 81.66 0.44 N/A CY08 2.69 0. Sources for historical data and explanations can be found on the Trefis.18 2.44 10.36 562 CY12 5.07 6.39 11.83 N/A CY10 3.02 0.90 81.03 0.06 5. as major share of profits is taken up by production companies and iPhone Apps developers as they are the content providers.02 0.70 1.46 10.72 0.13 0.82 0.7 0.58 10.93 852 CY17 6.07 6.61 0.52 0.72 0.7 80.78 0.91 1.67 N/A CY09 2.80 1.2 0.22 0.8 82.0 0.55 0.3 0.14 0.20 0.iTunes Gross Profit Margin (%) 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 iTunes Gross Profit Margin has been around 30% from 2005 to 2009.77 795 CY15 6.2 1.0 0.08 8.63 9.56 0.9 0.

you can see the detailed P&L for the iTunes business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. In addition.COM + 1 617 394 8763 •27 . We have calendarized Apple's reported financial data for year ended December 31st.Note that Apple reports financial information for fiscal year ended September 30th.

iPod Touch and iPad Application.The most important drivers for the Apps for iPhone.COM + 1 617 394 8763 •28 .03 in 2010 which consisted solely of iPhone and iPod Touch apps. INCREASING COMPETITION AMONGST APPS – As the number of available download-able applications increases.5 0. competition amongst apps for user attention will lead to decreasing apps average pricing. Average Paid iPhone & iPad App Pricing ($) 2. MORE IPHONE AND IPAD USERS WILL ALLOW APPS TO BE PROFITABLE AT LOWER PRICE POINT AND HIGHER SALES VOLUME – Developers will have an incentive to reduce pricing so as to benefit from the increased number of downloads TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Forecast Rationale Supporting: 1. iPod Touch & iPad Apps Gross Profit Margin — AVERAGE PAID IPHONE & IPAD APP PRICING — Average Paid iPhone & iPad App Pricing represents the average price of a paid iPhone. iPod & iPad business are: • Average Paid iPhone & iPad App Pricing • Number of iPhone & iPad Apps Downloaded • Paid App % • iPhone. 2.Apps for iPhone.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Average Paid iPhone & iPad App Pricing was $2. Trefis forecasts that Average Paid iPhone & iPad App Pricing will decrease at a moderate rate. iPod & iPad division is part of the iTunes & iOS Apps business.5 1.0 0. iPod & iPad The Apps for iPhone.0 1. and constitutes 1.99% of our $503 price estimate for the stock. The number of available apps are in excess of 350.000 as of 2010. based on our sum of the parts analysis.

Forecast Rationale 1.2 billion in 2010. The figures prior to the launch of the iPad in April 2010 refer solely to iPhone apps. For every additional sale of an iPhone. Most of the iPhone Apps are re-developed by developers so as to optimize it for the larger resolution screen of iPad. Scrabble App is being sold for $10 on iPad versus $3 on iPhone and Tetris App is being sold for $8 on the iPad versus $5 on the iPhone. For example.Mitigating: 3. the Number of iPhone & iPad Apps Downloaded increases multi-fold. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. The number of iPhones sold has increased at a fast rate. surged up to 5 billion by June 2010 and has now exceeded 18 billion as of September 2011. IPAD APP PRICING LIKELY TO REMAIN HIGHER THAN IPHONE APP PRICING – iPad Apps will be optimized for the larger screen.COM + 1 617 394 8763 •29 . There will be better features and graphics on iPad Apps. The Number of iPhone & iPad Apps Downloaded was around 7. The larger screen also encourages apps for the iPad that wouldn’t otherwise be available for the iPhone. This could require more effort and cost on the developer’s part. Trefis forecasts that Number of iPhone & iPad Apps Downloaded will continue growing as more people purchase iPhones. OmniGraffle is a new $50 iPad app that allows for touch-based diagramming and brainstorming and is not available for the iPhone. Number of iPhone & iPad Apps Downloaded (Bil) 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Number of iPhone & iPad Apps Downloaded was around 2. MORE IPHONE USERS WILL MEAN MORE IPHONE APPS USERS – iPhone mobile phone sales have shown a healthy growth since the launch of the iPhone in July 2007. iPad’s larger screen compared to the iPhone gives developers an opportunity to provide more features and improve the graphics of an application.2 billion by the end of 2009 and has shown continued strong growth in 2010. For example. Sources for historical data and explanations can be found on the Trefis.com website (link) — NUMBER OF IPHONE & IPAD APPS DOWNLOADED — Number of iPhone & iPad Apps Downloaded represents the number of software applications for the iPhone that have been downloaded through Apple's iPhone App store which was launched in July of 2008. The iPhone app download number touched the 1 billion mark in April 2009.

and applications like Skype for free.COM + 1 617 394 8763 •30 . Forecast Rationale 1. For example. Sources for historical data and explanations can be found on the Trefis. IPOD TOUCH & IPAD APPS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue.com website (link) — PAID APP % — Paid App % represents the percentage of downloaded iPhone applications that are paid. The iAd platform will help developers monetize free apps.2. users will not shy away from buying paid apps. APPS DOWNLOADS FROM IPAD ITSELF COULD REACH 11 BILLION – We estimate there could be 11 billion application downloads from iPads alone by the end of the Trefis forecast period. APPLICATIONS ARE A CHEAP SOURCE OF OWNING GAMES AND TOOLS – iPhone Apps have become a popular source of owning games and tools at a low price. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. Paid App % (%) 5 4 3 2 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Paid App % was approximately 4% in 2010. The only source of revenue for a developer for free apps is advertisements. EXCESSIVE ADS ON A FREE APP COULD COMPEL USERS TO DOWNLOAD A PAID APP – Since the majority of paid apps are low priced ($1 to $2 only).com website (link) — IPHONE. but may not necessarily be a good thing for app users. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. if excessive advertising on a free app becomes a nuisance for them. Trefis forecasts that Paid App % will increase at a slow rate. Sources for historical data and explanations can be found on the Trefis. users can download popular games like Tiger Woods for as low as $10. 3.

27 35. The remaining 70% goes to the app developer. As shown in our Paid App % forecast.2 0.0 3. we forecast that iPhone.26 CY13 2.53 23.20 N/A TREFIS ANALYSIS for APPLE CONTENT@TREFIS.45 18.10 1. iPod Touch & iPad Apps Gross Profit Margin has been 30% from 2008 to 2009 since Apple only gets 30% of the Paid Apps revenues.12 27.63 0.2 64.04 0.76 30.03 0.0 89.6 2.98 0.91 0.8 4. As a result.80 1.61 4. With the introduction of the iAd platform in 2010.37 0.1 2.87 CY18 7.com website (link) Total Revenue (Bil $) iAd App Advertising Revenue (% of N/A N/A 5.65 1.36 0. iPod Touch & iPad Apps Gross Profit Margin to jump up to nearly 38%.8 1.02 0.40 1.2 1.2 83.19 0.iPhone.32 11.4 76.96 1.17 CY12 1.8 86.45 0.COM + 1 617 394 8763 •31 .38 CY14 CY15 3.24 0.02 94. the increase in average app gross margins will be small.89 0.06 N/A CY08 CY09 CY10 CY11 0.0 0.11 0.13 0.67 CY16 CY17 5.0 73.85 total) Paid Apps (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) 100 0.01 N/A 100 0. Apple will get a cut of 40% of iAd gross revenues while the rest goes to the app developer.89 0. we expect iPhone.99 13.9 81.01 0. iPod Touch & iPad Apps Gross Profit Margin will decline only slightly due to a change in mix of paid apps. Sources for historical data and explanations can be found on the Trefis.44 0.1 4.01 0.41 0.47 0.65 1. Since we expect Apple's revenues earned through the iAd platform to be less than through paid apps.72 0.20 6. We don't expect Apple to change its policy of giving a 70% cut to developers for paid apps and 60% to developers through the iAd platform.38 2.87 1.48 0. iPod Touch & iPad Apps Gross Profit Margin (%) 30 25 20 15 10 5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The iPhone.17 0.9 69. we expect the mix of paid apps to increase slightly over the forecast period.15 2.51 0. Through iAd.77 16.

you can see the detailed P&L for the Apps for iPhone.Note that Apple reports financial information for fiscal year ended September 30th. iPod & iPad business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.COM + 1 617 394 8763 •32 . In addition. We have calendarized Apple's reported financial data for year ended December 31st.

COM + 1 617 394 8763 •33 . INCREASING ADOPTION OF NOTEBOOKS OVER DESKTOPS – Increasing worldwide preference for notebooks over desktops means that desktop prices should decline at a fast pace to remain attractive to buyers.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 The average Mac Desktop Pricing increased from $1. The declining trend in pricing started from 2008.25 0.340 in 2010. Acer and HP. It then reached around $1. Apple's Mac Desktop Pricing has not seen the same level of price erosion experienced by competing desktops from Dell. Trefis forecasts that Mac Desktop Pricing will decrease.305 in 2005 to $1.75 0.Desktops The Desktops division is part of the Macintosh business. Mitigating: 2. Forecast Rationale Supporting: 1.The most important drivers for the Desktops business are: • Mac Desktop Pricing • Mac Desktops Market Share • Global Desktop Units Sold • Mac Desktops Gross Profit Margin — MAC DESKTOP PRICING — Mac Desktop Pricing represents the average price of a Mac Desktop.62% of our $503 price estimate for the stock.50 0. Mac Desktop Pricing (K $) 1. Apple has always had a niche market and differentiated product in the crowded personal computer market.25 1. based on our sum of the parts analysis. GROWING USER BASE OF ITS UNIQUE PC PLATFORM – Surprisingly. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base. when the average Mac Desktop Pricing decreased for the first time to $1. and constitutes 1.00 0.500 in 2007.50 1.488.

3. SWITCHING FROM PC TO MAC HAS BECOME EASIER – Switching to a Mac is becoming increasingly appealing to existing PC-Windows users due to Apple's Mac OS and Windows' dual-boot system (Bootcamp). Sources for historical data and explanations can be found on the Trefis. Mac Desktops Market Share (%) 5 4 3 2 1 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Mac Desktops Market Share increased from 1. INCREASE IN PRICING AS DESKTOPS BECOME MORE POWERFUL – Demand for desktops may ultimately be limited to very powerful computers. 2.COM + 1 617 394 8763 •34 . such as. such as Microsoft Office can also be run natively in Mac OS. The Mac Pro is specifically designed for professionals and business users. Trefis forecasts that Mac Desktops Market Share will continue to increase at a moderate rate. in which case the average pricing for such computers may be higher than historical averages. Its primary competitors are HP. Mac has consistently come up with new products. HALO EFFECT OF IPOD AND IPHONES – Mac has been able to increase its market share due to the halo effect. The market share increase has been in effect after Apple re-branded its Mac.com website (link) — MAC DESKTOPS MARKET SHARE — Mac Desktops Market Share represents the percentage share of Desktop Units sold by Apple. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. whereby satisfied iPod and iPhone users purchase more Apple products. lowcost virtualization software. Additionally. 3. and business users. Key Microsoft productivity tools. such as Parallels has made it easier to retain Windows features on a Macintosh. and Acer. The iMac is targeted at general consumers. Dell. Apple announced updates to the Mac Mini to include the Lion OS and high speed processors in July 2011. users who intend to use it for educational purposes. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS – Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface. Forecast Rationale Supporting: 1. which is priced lower and starts at $699.4% in 2010.8% in 2005 to 3. Its unique touch screen interface is what attracts the high-end users. The Mac Mini is a small sized desktop.

Dell.com website (link) — GLOBAL DESKTOP UNITS SOLD — Global Desktop Units Sold represents the number of desktop units sold each year globally. INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipment. Demand for netbooks will have a positive impact on sales growth. Forecast Rationale 1. 2. 3. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. as consumers look to cut costs. RECESSIONARY ENVIRONMENT TO PREVENT USERS FROM SWITCHING TO MAC – All Mac desktops are in the higher price range when compared to competitors like HP. We expect the Global Desktop Units Sold to increase at a slower rate.COM + 1 617 394 8763 •35 . NOTEBOOKS – SMALLER AND MORE CONVENIENT – One of the reasons notebooks are gaining increasing popularity over desktops is because of their size which allows for greater mobility. Global Desktop Units Sold (Mil) 150 125 100 75 50 25 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Historically.com website (link) — MAC DESKTOPS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. ADVENT OF NETBOOKS – THE NEXT GENERATION OF NOTEBOOKS – The advent of netbooks and mini notebooks at prices starting at $200 is giving consumers more choices when it comes to mobile PCs. especially in the recessionary environment. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Sources for historical data and explanations can be found on the Trefis. Sources for historical data and explanations can be found on the Trefis.Mitigating: 4. and Acer. This could be a disadvantage to Apple. desktop units sales have decreased from 143 million units in 2005 to 140 million units in 2010.

79 739 CY12 7.99 1.15 N/A CY08 5.29 N/A CY09 4. As notebook prices continue to fall to unprecedented lows--and pricing between desktops and notebooks remains narrow--Apple.53 1.58 3. along with other PC makers.89 1. High end desktops would likely be priced at a premium and afford Apple better margins.60 707 CY17 7.87 1.68 0.24 5. Forecast Rationale Supporting: 1.05 1.33 5.27 1.44 0.67 0.51 638 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.28 5.72 735 CY14 7.56 673 CY18 7.88 1.89 1.18 5. and their prices have formed an upper bound for desktop pricing.24 N/A CY10 6.65 753 CY16 7.68 0.51 1.30 5. Sources for historical data and explanations can be found on the Trefis.97 3. PRICE COMPETITION IN DESKTOPS AND FALLING NOTEBOOK PRICES COULD PRESSURE MARGINS – Notebooks are typically priced at a premium when compared to desktops with similar specifications. Technology improvements have enabled Mac to decrease its manufacturing cost.57 1.78 0.89 1. which have superior performance to notebooks.93 1. Mitigating: 2.76 723 CY13 7. APPLE MAY FOCUS EXCLUSIVELY ON HIGH END DESKTOPS – Rather than attempt to compete in the low-end desktop segment and to make desktop pricing as attractive as notebook pricing.69 758 CY15 7.67 0. may be forced to sacrifice margins to continue selling desktops.61 0.55 N/A CY11 7.03 1.88 1.32 4.Mac Desktops Gross Profit Margin (%) 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Mac Desktops Gross Profit Margin has been around 25% historically according to our estimates.86 0.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 4. Apple may choose to focus solely on high-end desktops.33 5.31 5.15 3. which are constantly declining in price. FALLING INPUT OR MANUFACTURING COSTS – Most Mac desktop models use Intel microprocessors. .65 0.73 0.34 5. 3.COM + 1 617 394 8763 •36 . Trefis forecasts that Mac Desktops Gross Profit Margin will decline at a moderate rate.

you can see the detailed P&L for the Desktops business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. In addition.Note that Apple reports financial information for fiscal year ended September 30th.COM + 1 617 394 8763 •37 . We have calendarized Apple's reported financial data for year ended December 31st.

Also.COM + 1 617 394 8763 •38 . Though iPod has always enjoyed a greater market share since its inception. the Sanza Fuze from Sandisk has many features which compete directly with iPod and is priced cheaply as well. 2. and hence. better and cheaper products from Creative and Sandisk should serve as a warning to iPod's near monopoly. PRICE COMPETITION FROM MICROSOFT AND SANDISK – Microsoft's Zune HD directly competes with iPod Touch and is priced lower compared to iPod. for which costs are constantly falling. iPod Pricing ($) 175 150 125 100 75 50 25 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 iPod Pricing decreased from $195 in 2005 to $163 in 2010. Trefis forecasts that Apple will continue to reduce iPod Pricing at a moderate rate. TECHNOLOGY IMPROVEMENTS AND REDUCED INPUT COSTS – iPod uses NAND flash memory for most of its models.iPod The most important drivers for the iPod business are: • iPod Pricing • iPod Market Share • Portable Media Players Units • iPod Gross Profit Margin — IPOD PRICING — iPod Pricing represents the average price of the iPod. Forecast Rationale 1. technology improvements have enabled iPod to decrease its manufacturing cost. Sources for historical data and explanations can be found on the Trefis. Apple has been reducing the price for each new product it launches in the market.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. For example.

MICROSOFT WILL STOP INTRODUCING NEW VERSIONS OF ZUNE – According to a March 2011 Bloomberg report. The introduction of the iPod Shuffle. and the video and touch-screen iPod Nano will help to keep demand high. This means that its market share could continue to decline to almost zero levels in a few years from now. Microsoft's only chance of maintaining market share was to keep coming out with the compelling new versions of Zune. iPod Market Share has been in the range 24% to 31% for the last few years. now Microsoft will only be selling the existing versions of Zune. the iPod Touch. 2. Forecast Rationale Supporting: 1. This development will mean that Apple stands to gain even more as Microsoft will no more be a potent competitor for Apple in this market. Mitigating: TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Trefis forecasts that iPod will continue to gain market share in the long term. SEAMLESS INTEGRATION BETWEEN IPOD AND ITUNES – The expansion of content--including Digital Rights Management (DRM) free content--on Apple's iTunes Store. Microsoft will stop introducing new versions of the Zune music and video player because of the tepid demand. makes Apple's products more appealing to many consumers. Creative and Microsoft. iPod Market Share (%) 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 iPod has always been a market leader and has been able to maintain a large portion of market share primarily due to its marketing strategy and brand name.COM + 1 617 394 8763 •39 . Its primary competitors are Sandisk. 3. HALO EFFECT FROM IPHONE AND OTHER APPLE PRODUCTS – iPod sales benefits from the brand and marketing awareness of other popular Apple products. However.— IPOD MARKET SHARE — iPod Market Share represents the percentage of worldwide media player units sold by Apple. as well as the designed synchronization of iPods and iTunes. INTRODUCTION OF NEW INNOVATIVE PRODUCTS – Apple continues to innovate and improve its iPod product. 4.

VIDEO PLAYING AND VOICEOVER CAPABILITIES PROVIDE MULTIPLE FEATURES – Media players have transitioned from a pure digital audio player to a video-playing device with voice-recognition capabilities. These innovative additions to the features could prevent declines. We believe the decreased average selling price of media players could help slow a decline in demand. Sources for historical data and explanations can be found on the Trefis. 6.COM + 1 617 394 8763 •40 . CANNIBALIZATION FROM IPHONE – We expect that higher-end iPod versions will experience sales cannibalization from customers opting for iPhones with similar functionality. INCREASED COMPETITION FROM MICROSOFT AND SANDISK – Microsoft's Zune directly competes with iPod Touch and is priced significant lower. which makes them arrange playlists according to a user's voice commands. 2. better and cheap products from Creative and Sandisk should serve a warning to iPod near monopoly. Apple. and Creative are vying to take the share of Media players. Forecast Rationale Supporting: 1. Sandisk. We expect the global media players market to increase. the Sanza Fuze from Sandisk has many features which compete directly with the iPod and is priced cheaply as well. media player units sales have increased from 120 million units in 2005 to 200 million units in 2010. FALLING DIGITAL MEDIA PLAYER PRICES COULD STIMULATE DEMAND – Digital media players are undergoing reduced prices due to technology improvement and increased competition. For example. Alhough the iPod has always enjoyed a bigger chunk of market share since its inception.5. For example. Portable Media Players Units (Mil) 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Historically. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.com website (link) — PORTABLE MEDIA PLAYERS UNITS — Portable Media Players Units represents the number of media players sold each year globally.

MIX SHIFT TO LOW END IPODS – We expect iPod to experience a mix shift toward lower end. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. technology improvements have enabled the iPod to decrease its manufacturing cost. Forecast Rationale Supporting: 1. Sources for historical data and explanations can be found on the Trefis. for which the cost are constantly falling. FALLING INPUT OR MANUFACTURING COSTS – Since the iPod uses NAND flash memory for most of its models. the iPhone could become a substitute for iPods. In fact. Mitigating: 2. Sources for historical data and explanations can be found on the Trefis.Mitigating: 3. as most of the features present in Portable Media Players are also available in today's generation of smartphones. iPod Gross Profit Margin (%) 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 We estimate that iPod Gross Profit Margin declined from around 26% in 2006 to 24% in 2010. once iPhone prices fall even more. SMARTPHONES ACTING AS SUBSTITUTES FOR PORTABLE MEDIA PLAYERS – As smartphone demand grows. smartphones become an easy substitute for Media Players. Trefis forecasts that iPod Gross Profit Margin will decline at a moderate rate.COM + 1 617 394 8763 •41 .com website (link) — IPOD GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. as the high-end iPod segment is cannibalized by iPhone sales.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Also. lower margin iPods. which will also contribute to reducing gross margins. Apple has aggressively reduced pricing of each iPod model. there could be a case where.

98 1.80 87.5 19.4 18.33 86.23 0.55 N/A CY09 9.0 7.89 1.6 6. you can see the detailed P&L for the iPod business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.96 1.2 5.4 6. We have calendarized Apple's reported financial data for year ended December 31st.29 85.72 81.88 1.11 87.9 6.93 1.28 84.1 6. In addition.88 1.22 2.32 0.64 673 CY13 7.25 1.14 N/A CY11 7.5 6.58 698 CY17 7.7 6.77 0.51 2.53 83.COM + 1 617 394 8763 •42 .9 13.05 0.88 1.53 648 Note that Apple reports financial information for fiscal year ended September 30th.0 5.14 0.46 1.2 16.87 1.64 0.1 88.61 736 CY16 7.77 2.56 673 CY18 7.3 17.1 12.2 5.62 727 CY15 7.63 694 CY14 7.97 1.61 0.95 0.21 2.0 12.Total Revenue (Bil $) iPods (% of total) iPod Accessories (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 10.8 15.0 13.0 7.8 14.38 N/A CY10 9.0 16.68 693 CY12 7.6 20.66 82.91 0.79 80.86 79.8 5.62 N/A CY08 9.40 84.

Trefis forecasts that Peripherals will see continuous declines in Revenue Per Mac at a slower rate. SLOW ECONOMY FORCING CONSUMERS TO CUT COST ON DISCRETIONARY ITEMS – We believe the above mentioned peripherals are discretionary in nature and consumers will look to cut these types of costs in a slower economy or recessionary environment. 2. These include: 1.Peripherals The Peripherals division is part of the Macintosh business. based on our sum of the parts analysis. 2. DECREASING NOTEBOOKS AND DESKTOPS PRICES MAY ALSO HAVE A MAJOR IMPACT – Since the world is seeing decreasing notebook and desktops price. and constitutes 0. Wireless Mouse 5. Time Capsule – This device allows users to backup data wirelessly. Forecast Rationale 1. Keyboard 4.The most important drivers for the Peripherals business are: • Revenue Per Mac • Global Notebook & Netbook Units Sold • Peripherals Gross Profit Margin — REVENUE PER MAC — The Peripherals subdivision of Mac desktops and notebooks consists of the peripherals or the accessories that can be connected to a Mac to enhance its features and quality. people may shun away from buying expensive peripherals and instead buy a TREFIS ANALYSIS for APPLE CONTENT@TREFIS. LED Cinema Display – This is a display screen for desktops and notebooks Revenue Per Mac ($ per unit) 125 100 75 50 25 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Revenue Per Mac for Peripherals has decreased approximately from $204 in 2005 to $99 in 2010 according to our estimates.80% of our $503 price estimate for the stock. 3.COM + 1 617 394 8763 •43 . AirportExpress and AirportExtreme – These devices can be connected to speakers or work wirelessly.

The growth in notebook shipments has been driven by: 1. Sources for historical data and explanations can be found on the Trefis. This is because buying a Mac could become cost effective than buying peripherals. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. and this should further spur the growth in shipments post 2009. Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate. INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years.new Mac. Global Notebook & Netbook Units Sold (Mil) 250 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Global Notebook & Netbook Units Sold have increased more than three folds during 2005-10 reaching 203 million in 2010.com website (link) — GLOBAL NOTEBOOK & NETBOOK UNITS SOLD — Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally. NOTEBOOKS – SMALLER AND MORE CONVENIENT – One of the reasons notebooks are gaining increasing popularity over desktops is because of their size which allows consumers the convenience and flexibility to have a moving computer with them as against a desktop 3. Apple will have to lower the peripherals pricing in line with Mac desktop and notebook pricing. which also could impact Revenue Per Mac. . 2. Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. Apple updated MacBook Air With Next Generation Processors. with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipments heralding the advent of notebooks in a big way . as Mac's pricing declines.COM + 1 617 394 8763 •44 . ADVENT OF NETBOOKS – THE NEXT GENERATION OF NOTEBOOKS – The advent of netbooks and mini notebooks at prices starting at $200 is giving consumers a very economical and convenient option. Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months.

2. thereby limiting PC's usage. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. photo and document library. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Trefis forecasts that Peripherals Gross Profit Margin will decline at a moderate rate. increasing competition from tablet devices will severely slow down the grow in Global Notebook & Netbook Units Sold Sources for historical data and explanations can be found on the Trefis. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad. ICLOUD COULD BE A THREAT TO PC MARKET GROWTH – iCloud service gives user the ability to listen to music stored in the cloud (remote computers) through iPhone. Those customers may choose to just have the iPhone and iPad (which now automatically sync with each other via iCloud) and not own a PC altogether. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. we believe. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. REDUCED TOPLINE GROWTH FOR PERIPHERALS DIVISION – As Mac undergoes a reduction in the number of units sold.com website (link) — PERIPHERALS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. As the companies around the world strive hard to capture a share in the potentially huge tablet market. a tablet computing device. the tablet devices will soon be competing with notebooks & netbooks in functionality and given their ultra portable nature giving notebooks & netbooks a run for their money. it will have a direct impact on the topline and gross profit margins. Peripherals Gross Profit Margin (%) 35 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Peripherals Gross Profit Margin has been maintained at around 35% as per our estimates. iPad or Mac. iCloud has the potential to replace the traditional usage of the PC as a music.Forecast Rationale 1.COM + 1 617 394 8763 •45 . Forecast Rationale Supporting: 1. along with decreasing peripheral average revenue per Mac.

COM + 1 617 394 8763 •46 .5 397 N/A CY10 1. and other accessories.47 1.74 85.19 1.34 1.88 1.13 0.67 1.47 392 713 320 CY15 2.25 372 632 260 CY13 2.85 471 817 346 Note that Apple reports financial information for fiscal year ended September 30th.33 0.09 0.Mitigating: 2. keyboards. wireless mice.12 340 580 239 CY12 1. We have calendarized Apple's reported financial data for year ended December 31st. In addition.36 386 673 287 CY14 2. REDUCED INPUT OR MANUFACTURING COSTS – Since the Mac peripherals subdivision manufactures Mac accessories like LED Cinema displays.59 407 751 343 CY16 2.70 1. Sources for historical data and explanations can be found on the Trefis. you can see the detailed P&L for the Peripherals business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.69 435 780 344 CY17 2.86 328 473 N/A CY09 1.04 1.93 279 493 N/A CY11 1.43 0.57 1.70 180 387 N/A CY08 1.77 453 799 345 CY18 2. the input costs for these are constantly falling due to technological improvement and increasing commoditization.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 1.

such as the gaming console. APPLE TV PRICE LOWERED TO BOOST SALES AND INCREASE PUBLICITY – We believe Apple TV is currently priced lower than many of Apple's other products on a gross margin basis. 3. These additional features will help arrest the price declines at a fast rate. Trefis forecasts that Apple TV Pricing will decrease. Forecast Rationale 1. It has no local storage and streams the content from the Internet to the TV.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. 2. NEW APPLE TV PRICED AT $99 – Apple unveiled the $99 Apple TV that is a fourth of the size of the original. This is because Apple TV is a late comer to the digital set top box space and reducing the price is a strategy to gain share in this market.Apple TV The most important drivers for the Apple TV business are: • Apple TV Pricing • Unit Sales of Apple TV • Apple TV Gross Profit Margin — APPLE TV PRICING — Apple TV Pricing represents the average price of Apple TV. as Apple integrates value-added features. YouTube as well as from PCs. INTRODUCTION OF GAMING CONSOLE – The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future. Sources for historical data and explanations can be found on the Trefis. Content can be streamed from sites like Netflix.COM + 1 617 394 8763 •47 . Apple TV Pricing ($) 300 250 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Apple TV Pricing decreased from $299 in 2007 to $121 in 2010 as Apple launched the $99 Apple TV.

3.0 7.0 2. YouTube as well as from PCs. Content can be streamed from sites like Netflix. 2. Trefis forecasts that Unit Sales of Apple TV will increase at a fast rate for the next few years before stabilizing. INTRODUCTION OF GAMING CONSOLE – The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future. BROADBAND PENETRATION INCREASE TO BENEFIT APPLE TV – As high-speed broadband technology improves and becomes cheaper. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold.5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Unit Sales of Apple TV has increased from 1. such as the gaming console. It has no local storage and streams the content from the Internet to the TV. 4.5 5. We believe this lower priced Apple TV will help boost its sales.com website (link) — APPLE TV GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. as Apple integrates value-added features. success will be dependent on Apple's ability to provide attractive content for consumers through its iTunes online store by establishing contracts with TV and film producers. These additional features will help arrest the price declines at a fast rate.5 10. Forecast Rationale 1. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.5 15. NEW APPLE TV PRICED AT $99 – Apple unveiled the $99 Apple TV that is a fourth of the size of the original.5 million units in 2009 according to our estimates. increased broadband penetration among consumers will increase the market for Apple TV users. Sources for historical data and explanations can be found on the Trefis. films and music.COM + 1 617 394 8763 •48 .0 million units in 2007 to around 3.— UNIT SALES OF APPLE TV — Unit Sales of Apple TV represents the number of units of Apple TV sold by Apple. ITUNES SUCCESS TO AFFECT ADOPTION OF APPLE TV – As consumers become conditioned to using their TV as a media entertainment center for downloadable TV shows.0 12. Unit Sales of Apple TV (Mil) 17.

06 760 161 298 136 CY16 1.6 N/A CY10 0.42 316 60. APPLE TV PRICE LOWERED TO BOOST SALES AND INCREASE PUBLICITY – Apple TV is currently priced lower than many of Apple's other products on a gross margin basis. This is also because Apple TV has setup its footprint quite late.1 CY12 0.18 859 182 321 138 CY18 1.37 292 53.0 76. BOM is $64. In addition. you can see the detailed P&L for the Apple TV business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. and hence.81 566 140 239 98. Trefis forecasts that Apple TV Gross Profit Margin will decrease. Sources for historical data and explanations can be found on the Trefis.4 CY13 0.9 N/A CY08 0. We have calendarized Apple's reported financial data for year ended December 31st.4 85.5 106 N/A CY11 0. We expect Apple to increase its sales. but severe price reductions will not help its gross profit margins.8 61. Forecast Rationale 1. the $99 Apple TV.Apple TV Gross Profit Margin (%) 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Apple TV Gross Profit Margin for Apple TV has been maintained at around 21% from 2007 till 2009.COM + 1 617 394 8763 •49 .12 808 173 309 136 CY17 1.25 914 192 333 140 Note that Apple reports financial information for fiscal year ended September 30th.42 338 18. However.92 650 153 268 114 CY14 1.4 N/A CY09 0.63 436 110 188 78.com website (link) Total Revenue (Bil $) Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 0. reducing the price makes it an attractive bet.30 237 28.00 715 158 287 129 CY15 1. according to iSuppli report. Hence we have raised our estimate for Gross margins to 25% in 2010 and then to 30% from 2011 onwards.

5 2.43 0.09 0.0 15.2 3.96 0.7 7.COM + 1 617 394 8763 •50 .96 CY10 76.1 9.42 57.1 9.85 8.5 63.96 2.8 11.32 0.78 1.03 CY15 202 51.70 2.40 4.81 1.37 0.5 20.01 19.16 0. iPod & iPad (% of total) CY07 29.38 87.49 1.6 49.01 4.2 16.39 79.34 1.73 2.75 1.2 16.73 2.0 7.39 12.56 1.7 52.7 7.7 7.4 10.04 2.60 17.4 6.75 15.48 171 64.19 4.2 N/A 23.67 2.38 4.07 0.4 10.6 20.88 2.5 N/A 20.56 46.5 4.2 9.7 33.86 1.16 2.56 100 58.7 7.81 0.1 49.69 3.81 3.2 9.0 3.47 1.6 52.9 3.75 1.94 0.30 6.55 113 60.7 21.02 1.24 1.34 1.9 14.50 12.58 1.7 12.6 N/A 15.88 0.76 0.52 127 62.33 12.30 3.67 5.1 6.29 2.69 4.64 1.41 2.37 5.40 4.5 8.78 4.87 1.40 1.4 8.78 4.9 5.47 1.20 CY12 144 44.40 2.61 3. iPod & iPad (% of N/A 0.11 CY13 163 46.41 1.2 15.02 3.70 4.80 2.05 1.20 0.07 4.49 156 64.2 3.4 8.9 21.91 27.69 4.10 3.29 2.85 3.16 Desktops (% of total) iPod (% of total) Peripherals (% of total) 1.99 2.72 2.5 57.09 2.24 7.96 2.0 8.56 87.73 1.07 0.3 8.08 N/A 0.07 11.02 1.5 11.48 3.37 5.67 CY11 119 44.6 8.45 19.43 2.44 2.98 0.08 4.42 2.96 0.04 1.81 0.22 2.88 2.5 N/A 18.4 2.56 1.02 5.24 7.08 5.31 0.20 0.78 3.73 1.43 2.12 0.62 10.72 2.4 20.43 0.5 8.1 6.46 1.40 74.1 2.30 2.00 CY16 220 52.12 6.87 0.92 25.08 0.9 4.9 24.09 2.95 2.5 26.0 24.50 12.41 CY18 258 56.2 15.6 34.80 2.57 3.74 2.7 17.49 4.6 23.25 1.42 63.24 1.Appendix Summary P&L for Apple Summary P&L for Apple Total Revenues (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.67 5.0 7.3 9.9 62.1 64.87 1.0 22.41 2.12 1.0 37.67 2.47 5.9 15.08 4.91 2.41 2.19 4.41 total) Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Direct Expenses (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.68 3.60 17.9 15.5 3.94 0.70 1.21 5.27 3.2 4.72 2.5 26.23 1.92 4.0 57.19 3.38 5.15 1.27 2.43 2.38 83.1 7.0 11.42 69.5 17.1 58.2 N/A 20.2 3.98 4.11 0.38 4.7 64.53 1.64 4.62 1.67 2.0 15.33 12.2 N/A 20.80 2.27 3.5 17.03 0.12 1.52 70.7 17.08 0.69 3.4 12.51 15.20 2.0 37.3 24.64 4.6 9.1 15.2 4.41 2.81 2.67 2.07 CY14 182 48.58 1.35 3.4 23.4 10.10 3.46 1.37 0. iPod & iPad (% of total) N/A 0.30 6.25 0.15 1.7 57.70 2.5 6.2 57.56 CY09 46.64 1.1 60.4 2.46 Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Gross Profit (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.3 14.94 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.07 3.5 4.1 7.03 0.99 0.55 3.86 1.5 6.97 CY08 40.99 2.0 2.76 0.0 5.3 39.88 8.7 12.0 3.86 1.8 2.5 12.86 0.29 11.80 2.99 0.15 0.85 3.98 CY17 239 54.75 1.3 14.46 10.39 8.0 20.74 2.44 2.92 4.3 8.00 0.94 0.1 20.36 29.67 0.16 2.1 N/A 23.42 2.07 11.39 48.6 N/A 15.9 14.20 2.11 6.9 1.51 141 63.5 N/A 18.

08 4.38 11.33 12.86 0.15 1.42 CY14 0.42 2.66 20.39 35.2 15.2 9.08 0.67 2.81 CY12 0.09 2.42 33.41 1.0 60.7 17.19 4.5 26.6 N/A 15.9 64.7 7.38 4.60 17.37 0.Summary P&L for Apple continued Apple TV (% of total) Indirect Expenses (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.67 2.0 15.46 CY09 0.92 4.5 17.40 4.1 9.9 15.87 1.64 4.3 14.56 1.40 34.73 1.73 2.58 1.64 1.9 14.99 0.2 15.08 4.41 2.81 0.69 4.4 8.88 2.94 0.39 20.4 8.80 2.42 38.11 0.62 4.5 17.10 3.16 2.5 4.42 23.72 2.70 2.40 40.86 1.5 N/A 18.98 0.47 1.76 0.29 2.4 57.42 CY13 0.24 1.2 16.87 1.74 2.45 4.56 1.94 0.64 4.20 0.38 36.67 5.75 1.51 10.1 57.58 1.38 36.99 2.1 6.11 0.7 7.78 4.7 7.4 10.1 7.41 2.85 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 3.2 16.00 0.40 4.94 0.39 Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Note that Apple reports financial information for fiscal year ended September 30th.98 0.8 52.5 6.0 7.5 64.74 2. iPod & iPad (% of N/A 0.10 3.3 14.COM + 1 617 394 8763 •51 .2 4.67 2.02 1.1 60.75 1.42 2.5 8.30 6.39 44.7 7.69 4.50 12.11 49.44 2.85 3.62 N/A N/A N/A N/A N/A N/A 8. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.03 0.16 2.80 2. We have calendarized Apple's reported financial data for year ended December 31st.4 57.39 CY08 0.2 58.4 63.37 5.47 1.24 7.02 1.96 0.38 4.99 0.67 2.29 2.07 0.0 15.86 0.96 2.88 0.45 N/A N/A N/A N/A N/A N/A CY10 0.41 1.76 0.4 2.41 2.69 3.42 CY15 0.86 1.2 64.73 1.69 3.1 9.75 1.07 0.78 4.16 0.73 2.7 17.75 1.6 62.20 0.96 2.38 CY18 0.64 1.34 1.15 1.20 2.37 5.3 62.70 2.36 N/A N/A N/A N/A N/A N/A CY11 0.40 CY16 0.67 0.43 2.88 2.42 26.39 CY17 0.51 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.44 2.46 1.09 2.9 58.46 1.07 total) Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Free Cash Flow (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.1 6.2 3.38 47.39 28.72 2.5 8.5 6.20 2.36 16.3 64.03 0.99 2.43 2.96 0.19 4.9 15.1 63.34 1. iPod & iPad (% of total) CY07 0.2 N/A 20.0 3.3 8.0 7.27 3.7 12.5 57.41 2.9 14.42 31.42 36.4 37.38 50.00 0.

38 15.3 6.0 610 2.05 6.1 7.9 14.27 9.24 82.2 0.98 1.0 28.28 29.69 15.5 9.6 509 8.96 3.4 39.19 60.03 26.1 15.4 2.88 75.46 -1.47 88.5 2.93 -5.Detailed P&L for the iPhone business The most important drivers for the iPhone business are discussed above.08 29.23 7.90 19.7 3.4 2.4 489 9.10 5.3 7.1 51.4 3.98 1.4 4.88 3.48 1.12 1.83 22.78 1.17 4.46 -0.86 -0.4 28.5 98.46 -1.2 2.7 0.63 20.8 41.0 3.4 11.5 23.6 Note that Apple reports financial information for fiscal year ended September 30th.8 32.0 25.0 0.03 5.0 1.8 23.7 3.3 608 2.80 24.54 23.24 94.21 0.5 51.3 CY13 72.88 2.77 24. We have calendarized Apple's reported financial data for year ended December 31st.6 6.9 4.6 18. here is the detailed P&L.32 1.4 5.60 -2.86 26.48 15.72 1.41 -2.47 31.88 2.3 2.01 -4.9 3.2 22.2 9.22 868 0.9 8.18 1.23 23.18 7.20 7.5 9.10 116 124 450 12.86 24.9 53.07 1.94 8.32 1.72 53.88 29.18 14.66 -0.26 -0.6 50.0 16.83 25.8 45.3 0. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.60 30.4 2.04 103 CY16 CY17 111 469 11.8 37.5 536 7.5 2.4 3. % of Gross Profit (%) CY12 61.15 3.6 49.0 32.04 7. iPhone: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues iPhones (Bil $) iPhone Pricing ($) iPhone's Market Share in Mobile Phones (%) Global Mobile Phones Sold (Bil) iPhone Accessories (Bil $) Revenue Per iPhone ($ per unit) iPhone's Market Share in Mobile Phones (%) Global Mobile Phones Sold (Bil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) iPhone Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.9 4.5 9.5 9.COM + 1 617 394 8763 •52 .47 38.8 2.12 1.52 696 1.74 50.4 1.47 46.6 51.0 19.7 3.5 1.03 23.81 2.7 570 5.07 1.60 1.6 8.47 56.48 1.5 0.17 12.16 131 CY18 137 432 14.9 -1.75 6.5 9.68 29.06 3.85 22.74 2.78 1.3 2.4 2.68 29.9 47.5 21.75 4.04 4.0 46.23 24.20 23.07 22.89 23.96 88.4 8.74 41.5 7.26 -1.28 27.8 13.1 620 4.74 59.06 29.2 7.63 25.7 29.88 24.97 8.1 N/A N/A N/A N/A 11.63 20.48 29.1 3.4 41.8 0.9 8.5 9.44 32.8 2.5 9.22 0.5 9.81 64.15 0.98 1.74 69.3 8.24 62.20 144 3.6 43.21 15.47 66.0 30.16 6.0 4.0 22.24 107 53.9 7.47 77.05 13.47 24.0 3.18 1.3 0.4 4.28 23.7 7.7 CY14 CY15 84.07 58.06 -0.48 29.97 23.5 9.24 121 56.62 9.6 12.41 22.98 1.43 24.5 6.0 21.22 9.90 7.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -4.

27 0.9 5.9 3.9 4.0 23.47 38.4 3. % of Gross Profit (%) CY12 34.4 4.1 30.24 45.23 24.44 30.2 448 118 53.8 45.38 0. here is the detailed P&L.24 42.47 35.74 2.28 29.5 39.0 6.28 27.8 9.0 4.66 -0.28 23.2 CY16 CY17 47.7 3.Detailed P&L for the iPad business The most important drivers for the iPad business are discussed above.29 6.31 N/A 3.48 29.COM + 1 617 394 8763 •53 .3 24.5 26.0 6.06 4.3 9.47 28.63 25.4 584 58.8 34.6 11.74 30.47 41.26 -1.2 47.5 9.87 7.20 622 14.74 34.06 -0.83 25.2 9.43 24.46 -1.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -2.02 Note that Apple reports financial information for fiscal year ended September 30th.47 31.97 4.2 24.63 20.5 11.83 22.7 50.00 21.6 5.5 9.4 622 39.8 5.46 -1.1 12.20 24.8 527 81.2 555 70.1 42.4 CY18 53.4 CY13 39. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.48 29.29 7.88 29.8 25.5 9.7 486 98.56 6.26 -0.4 3. iPad: Detailed P&L CY10 CY11 Revenues iPad Revenue (Bil $) iPad Pricing ($) iPad Units Sales (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) iPad Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.20 0.1 5.66 7.2 5.4 466 107 50.10 1.68 29.86 -0.2 12.23 0.03 26. We have calendarized Apple's reported financial data for year ended December 31st.2 45.47 17.5 9.63 20.9 4.46 -0.4 2.4 6.2 506 89.18 8.0 1.2 28.5 9.76 7.24 48.47 33.4 29.68 0.0 7.5 11.0 5.0 6.24 39.68 29.0 6.7 3.08 29.2 CY14 CY15 42.8 11.87 6.0 4.5 9.74 37.3 27.5 9.47 24.4 4.03 23.37 7.0 6.5 9.5 9.36 7.06 8.74 3.

79 202 12.36 7.8 26.4 1.1 CY18 21.0 6.91 8.88 271 21.5 26.47 13.5 9.87 111 132 9.24 17.9 8.85 22.2 1.1 29.62 2.48 29.74 16.68 29.27 5.2 1.15 7.78 1.0 0.24 19. % of Gross Profit (%) CY12 17.4 6.92 2.92 246 20.5 9.5 9.1 1.47 15.01 -4.28 27.41 22.7 5.58 4.5 9.74 15.0 1.56 29.74 15.86 -0.6 27.03 26. We have calendarized Apple's reported financial data for year ended December 31st.Detailed P&L for the Notebooks business The most important drivers for the Notebooks business are discussed above.5 2.88 29.5 2.5 9.17 3.78 12.63 20.60 2.7 3.24 18.3 5.90 9.48 0.46 -1.90 9.5 9.6 5.8 28.96 7.43 24.1 15.75 4.74 5.44 7.03 1.1 1.0 3.6 2.5 9.62 212 17.2 27. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.9 5.06 29.98 8.28 23.24 18.54 0.69 160 9.18 8.5 2.21 6.21 4.03 23.47 13.68 29.2 20.23 7.17 2.8 21.08 29.09 7.46 -0.9 29.4 0.0 4.88 Note that Apple reports financial information for fiscal year ended September 30th.56 2.8 0.58 263 21.5 3.1 0.5 2.09 223 18.93 -5.4 3.05 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -4.83 30.79 8.4 8.0 5.86 32.48 10.1 CY14 CY15 19.03 6.0 2.63 20.42 0.37 2.41 -2.44 30.28 256 20.74 13.25 4.01 7. here is the detailed P&L.0 6.26 -0.76 2.1 26.60 -2.21 1.63 25.47 10.8 5.47 12.93 8.06 3.96 7.54 2.35 -1.96 1.99 202 15.9 4.47 15.85 30.90 6.48 29.43 4.9 3.7 3.5 3.24 4.0 2.28 29.21 8.4 4.0 CY13 18.9 4.66 -0.4 6.67 6.23 24.0 3.21 0. Notebooks: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues Mac Notebooks (Bil $) Mac Notebook Pricing (K $) Mac Notebooks Market Share (%) Global Notebook & Netbook Units Sold (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) Mac Notebooks Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.83 22.14 7.52 234 19.46 1.93 3.30 4.07 2.47 14.54 N/A N/A N/A N/A 1.89 8.42 0.5 9.4 3.COM + 1 617 394 8763 •54 .47 15.0 28.90 19.6 6.0 3.06 -0.63 7.18 7.2 CY16 CY17 20.26 -1.7 3.46 -1.03 7.5 9.83 25.4 4.47 0.

48 29. here is the detailed P&L.22 6.24 3.41 -2.52 234 4.58 263 5.01 -4.02 4.07 1.28 144 8.08 29.03 26.32 1.10 7.08 144 8.09 70.5 9.73 70.47 1.4 1.35 8.4 4.75 1.56 70.47 1.28 29.72 -1.92 70.83 22.5 9.66 0.82 7.49 0.47 1.38 CY14 CY15 4.88 143 8.63 20.79 230 2.19 220 2.87 2.5 9.24 3.5 9.70 196 4.88 139 5.24 111 1.88 271 5.4 4.0 0.1 1.74 180 5.9 4.5 9.86 26.47 1.74 1.22 7.26 -0.28 23.88 29.7 3.43 24.0 0.14 1.74 2.31 188 4.31 0.08 1.06 3.28 256 5.68 29.53 1.55 1.83 25.08 140 6.4 3.0 1.06 3.44 3.9 3.7 3.70 5.60 2.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -4.75 4.06 29.48 70.74 3.92 7.63 0.67 70.31 5.39 70.92 246 5.66 208 3.63 25.5 9.24 4.05 70.21 3.17 1.23 24.03 23.6 1.85 22.04 204 4.69 0.28 141 7.17 0.03 192 4.71 2.10 2.Detailed P&L for the Software & Services business The most important drivers for the Software & Services business are discussed above.2 1.74 1.03 CY16 CY17 5.51 6.26 -1.07 3.38 139 4.COM + 1 617 394 8763 •55 .72 1.7 2.57 N/A N/A N/A N/A 1.65 3.5 1.44 32.74 2.87 132 2.5 9.90 19.1 3.9 4.66 0.5 9.74 3.48 29.47 1.30 70.24 3.47 1.86 -0.9 2.3 1.07 212 3.06 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.25 1.67 6.84 1.9 8.63 20. Software & Services: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues Revenue (Bil $) Revenue Per Mac ($ per unit) Mac Desktops Market Share (%) Global Desktop Units Sold (Mil) Mac Notebooks Market Share (%) Global Notebook & Netbook Units Sold (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) Software and Services Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.66 -0.68 29.46 -1.83 3.91 1.61 70.15 2.5 9.28 27.19 2.23 7.62 212 4.20 70.0 3.68 142 7.66 0.4 8.54 70.69 160 2.33 148 4.48 141 7.93 -5.02 151 4.77 7.38 200 4.44 216 2.46 -1.09 223 4.41 22.06 7.53 184 5.99 202 3.79 2.69 136 4.6 6.04 CY13 4.47 1.47 1.4 3.37 7.40 3.18 0.53 CY18 5.79 202 3.46 -0.7 3.60 -2.12 1.58 8. % of Gross Profit (%) CY12 4.8 2.06 -0.

COM + 1 617 394 8763 •56 . We have calendarized Apple's reported financial data for year ended December 31st. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.Note that Apple reports financial information for fiscal year ended September 30th.

86 0.85 0.79 13.84 0.73 2.08 29.47 4.5 9.0 1.47 3.83 22.56 30.0 1.35 218 2.02 2.80 6.95 361 1.78 6.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) -4.10 0.0 1.5 9.0 21.96 2.4 4.6 462 2.35 563 7.38 7.Detailed P&L for the iTunes business The most important drivers for the iTunes business are discussed above.0 0.51 601 7.17 1.08 7.01 360 1.46 -0.03 26.97 3.50 3.47 3.43 3.73 3.5 12.9 4.83 355 1.91 30.44 4.78 3.30 95.01 356 27.74 1.1 508 3.29 0.08 4.58 1.18 7.26 -0.73 4.41 22.28 27.37 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.72 3.90 361 1.89 7.70 N/A N/A N/A 1.97 2.68 1.14 7.01 -4.52 N/A N/A N/A 2.85 5.26 -1.88 29.84 0.5 9.72 CY18 3.88 4.53 74.00 6.54 4.97 7.43 24.22 8.4 693 6.55 0.04 346 27.0 3.09 0. here is the detailed P&L.72 3.42 0.92 361 1.00 7.40 15.20 149 1.2 8.17 14.5 9.85 0.73 8.13 -1.7 3.05 3.23 2.66 6.65 13.36 7.4 8.06 3.47 2.9 9.0 6.74 5.91 11.17 30.47 4.06 -0.28 29.68 29.92 6.47 4.00 4.18 307 27.89 30.46 114 5.75 7.90 19.0 3.03 23.46 -1.50 30.99 75.0 0.80 6.75 348 1.84 3.56 199 24.72 14.31 30.67 4.21 3.70 0.20 8.5 9.07 336 27.46 1.72 30.0 18.76 62.62 641 7.28 23.93 -5.98 360 1.7 3.47 4.90 4.74 4.2 7.84 704 6.60 -2.46 -1.63 20.75 4.0 8.98 0.02 30.41 -2.9 5.44 32.99 2.90 3.87 361 1.7 7.18 2.24 6.0 0.29 0.0 0.74 4.8 673 6.14 317 27.48 29.87 97.23 2.30 82.5 8.13 30.10 N/A N/A N/A 1.00 48.9 8.25 279 26.88 3.02 1.99 1.47 4.70 30.07 772 6.48 29.96 7.58 0.73 672 6.4 4.7 1.66 30.COM + 1 617 394 8763 •57 .0 0.31 0.0 360 1.15 0.60 6.90 384 8.1 653 6.27 3.1 7.47 3.9 616 5.66 -0.4 3.95 30.63 20.23 114 22.03 0.87 7.24 5.5 9.93 12.4 3.0 0.7 3.82 5.24 5.54 1.75 4.06 7.99 0.5 9.5 9.05 1.74 4.86 26.63 25.66 311 1.30 15.5 9.66 105 5.9 3.85 22.1 3.4 3.66 0. iTunes: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues iPod Games (Mil $) iPod Games Pricing ($) Unit Sales of iPod Games (Mil) TV Shows (Mil $) TV Shows Pricing ($) Unit Sales of TV Shows (Mil) Movies (Mil $) Movies Pricing ($) Unit Sales of Movies (Mil) eBooks (Mil $) eBooks Pricing ($) Unit Sales of eBooks (Mil) Music (Bil $) Songs Pricing ($) Unit Sales of Songs (Bil) Audiobooks (Mil $) Audiobooks Pricing ($) Unit Sales of Audiobooks (K) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) iTunes Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.4 4.52 254 2.0 0.46 7.3 586 5.33 0.99 0.01 7.30 5.08 90.73 4.42 7.0 420 2.16 0.27 123 5.0 1.06 29.92 11.92 12.6 4.21 293 26.86 -0.68 29.6 6.23 7.00 2.79 0.19 484 7.23 24.0 0.50 0.83 25.87 7.55 CY14 CY15 3.16 CY16 CY17 3.94 12.91 0.11 326 27.13 3.74 3.90 11.1 7.1 6.1 7.64 4.5 634 5.27 0.35 7.73 3.24 5.55 0.93 3.7 559 4.96 737 6. % of Gross Profit (%) CY12 3.9 4.9 4.22 CY13 3.1 714 7.58 0.

85 795 846 CY16 CY17 1.11 891 Note that Apple reports financial information for fiscal year ended September 30th.36 N/A N/A N/A N/A 562 CY12 1.83 1.67 0. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.iTunes: Detailed P&L continued Gross Profits (Bil $) Free Cash Flow (Mil $) CY07 CY08 CY09 CY10 CY11 0.93 2.16 1.02 852 872 CY18 2.57 644 CY13 1.COM + 1 617 394 8763 •58 .77 1.44 0. We have calendarized Apple's reported financial data for year ended December 31st.67 710 CY14 CY15 1.

10 33.24 1.5 9.33 30.99 0.5 4.36 31.28 23.47 4.48 33.06 3.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -5.15 0.83 24.88 1.80 0.45 30.5 9.0 4.80 54.41 14. Apps for iPhone.45 28.5 9.42 1.2 4.88 29.24 4.00 4.86 26.02 -2.38 8.74 3.75 CY12 0.37 6.5 9.03 30.20 1.28 27.63 0.83 2.5 9.74 1.69 1.65 0.47 1.86 24.25 3.24 6.04 0.5 9.47 2.01 7.74 0.02 0.61 1.59 1.2 6.0 1.5 0.9 3.93 1.23 62.03 26.6 6.4 3.15 0.04 0.25 2.08 1.32 1.COM + 1 617 394 8763 •59 .7 4.76 0.77 CY14 CY15 0.4 4.71 21.22 6. % of Gross Profit (%) 8.83 4.56 1.5 9.91 31.41 -2. iPod Touch & iPad Apps Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.03 23.38 0.47 1.65 3.0 5.15 2.16 2.85 22.18 0.20 0.26 1.47 0.41 N/A N/A N/A 0.83 1.9 4.26 2.40 1.4 25.74 2.1 CY13 0.26 -1.53 18.65 7.23 24.20 4.63 20.74 2.14 0.05 7.44 32.9 25.00 7.3 4.0 0.72 3.47 0.45 0.12 CY18 2.2 4.89 1.43 7.01 -4.47 0.63 20.35 41.46 -1.73 0.08 29.41 47.5 9.03 0.63 7.28 29.18 14.7 3.31 10.78 1.47 2.40 0.20 4.04 CY16 CY17 1.42 6.46 -1.53 0.50 1.93 0.86 -0.87 0. iPod Touch 0.11 6.41 22.71 71.0 1.24 6.01 7.5 9.49 5.48 29.47 4.4 3.50 0.57 4.26 -0.68 29.06 -0.48 2.04 0.56 0. here is the detailed P&L.98 33.7 3.83 22.5 0.40 2.67 0.4 5.89 32.27 0. iPod & iPad business The most important drivers for the Apps for iPhone.4 4.93 39.6 4.08 2.27 0.20 Revenue per Ad Impression ($ per N/A N/A 10.87 33.17 0.9 8.4 4.7 3.0 4.08 & iPad Devices in Use (Bil) Ad Impressions per Device (per N/A N/A Month) CY10 CY11 0.44 1.75 4.25 2.24 5.17 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.01 0.0 0.0 0.74 1.68 29.0 3.19 0.0 3.48 29.08 34.35 7.3 4.15 7.14 4.90 19.03 0. iPod & iPad: Detailed P&L CY08 CY09 Revenues iAd App Advertising Revenue (Bil $) N/A N/A Number of iPhone.40 1.Detailed P&L for the Apps for iPhone.96 1.69 0.24 3.51 7.5 0.7 4.68 0.25 4.03 0. iPod & iPad business are discussed above.13 30.72 0.06 0.19 0.77 1.33 1.000) Paid Apps (Bil $) Number of iPhone & iPad Apps Downloaded (Bil) Paid App % (%) Average Paid iPhone & iPad App Pricing ($) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) iPhone.46 -0.4 3.0 0.61 7.66 -0.89 0.

We have calendarized Apple's reported financial data for year ended December 31st. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.Note that Apple reports financial information for fiscal year ended September 30th.COM + 1 617 394 8763 •60 .

68 29.34 CY14 CY15 7.5 9.15 4.5 1.87 8.97 6.60 707 0.24 1.73 25.4 8.74 3. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.46 -0.68 142 7.63 25.08 29.94 5.0 0.61 23.48 29.51 638 -1.47 0.0 0.08 140 7.90 19.33 1.85 22.60 6.04 4.74 1.93 7. % of Gross Profit (%) CY12 7. We have calendarized Apple's reported financial data for year ended December 31st.68 22.0 1.34 1.88 29.27 7.83 22.78 24.18 0.53 8.0 5.79 N/A N/A N/A N/A 739 Note that Apple reports financial information for fiscal year ended September 30th.24 6.0 0.65 6. here is the detailed P&L.72 735 1.88 6.28 29.15 4.34 3.4 4.47 5.56 2.06 -0.68 21.33 1.69 136 4.88 139 7.88 143 7.23 7.68 29.99 0.47 5.7 3.5 9.06 29.00 5.COM + 1 617 394 8763 •61 .06 3.26 -0.26 -1.33 148 5.05 6.9 4.32 7.15 1.0 0.76 4.60 -2.03 7.44 25.97 1.5 9.1 3.31 CY16 CY17 7.5 0.63 20.56 1.24 0.60 6.56 673 0.47 5.29 1.08 144 7.9 4.28 4.03 6.38 139 6.5 9.5 0.93 -5.4 4.24 CY18 7.46 -1.6 6.51 24.89 7.44 32.48 141 7.24 6.Detailed P&L for the Desktops business The most important drivers for the Desktops business are discussed above.4 3.24 6.33 7.9 24.89 7.63 20.99 5.5 9.54 1.5 9.97 4.46 -1.43 24.30 1.47 5.7 3.35 3.48 29.03 26.67 22.47 3.47 5.4 3.0 0. Desktops: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues Mac Desktops (Bil $) Mac Desktop Pricing (K $) Mac Desktops Market Share (%) Global Desktop Units Sold (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) Mac Desktops Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.9 8.41 22.15 1.69 758 1.86 25.30 3.28 1.32 1.57 1.58 1.02 151 4.23 23.18 4.86 26.0 3.55 1.01 -4.58 1.47 5.5 9.65 753 0.24 6.74 0.50 2.41 -2.35 2.10 4.75 4.65 23.28 23.83 25.22 4.28 27.31 1.17 3.76 723 1.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Mil $) -4.5 5.58 1.33 CY13 7.18 4.57 24.7 3.5 9.89 7.28 141 7.88 7.66 -0.5 0.58 5.67 21.28 144 7.49 2.28 7.74 6.5 9.86 -0.05 3.74 0.

7 199 7.97 23.98 6.21 6.60 6.4 3.56 673 0.18 6.94 162 24.11 25.11 6.0 0.0 0.9 8.61 736 0.0 25.9 181 1.03 24.83 25.86 -0.7 25.4 218 1.3 180 1.0 0.5 9.26 -0.63 694 2.77 7.47 6. % of Gross Profit (%) CY12 6.14 1.5 9.29 125 25.02 7.29 7.53 153 25.5 9.4 25.9 4.28 27. here is the detailed P&L.21 1.43 24.5 9.24 7.47 5.68 29.22 137 24.17 7.9 195 1.83 22.5 0.74 0.46 -1.0 3.5 9.5 0.60 -2.62 2.23 20.11 1.06 29.92 1.47 5.25 26.62 727 0. We have calendarized Apple's reported financial data for year ended December 31st.46 26.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Mil $) -4.66 CY16 CY17 6.28 CY13 6.03 23.55 2.23 7.21 23.9 203 7.4 218 9.5 9.70 1.48 29.88 7.8 25.1 186 1.17 142 24.93 7.1 3.58 698 0.0 29.68 9.47 6.17 24.5 170 1.61 30.22 23.80 1.32 19.23 24.77 22.47 6.3 200 1.80 8.48 29.89 7.85 22.25 118 25.1 8.88 7.88 8.6 6.74 1.33 7.7 3.26 149 24.5 195 7.1 186 7.74 6.9 4.63 20.7 175 1.5 1.51 7.24 7.5 0.46 -0.5 9.72 6.64 22.53 648 -1.43 28.3 180 10.05 6.26 27.Detailed P&L for the iPod business The most important drivers for the iPod business are discussed above.5 170 7.11 154 26.5 9.COM + 1 617 394 8763 •62 .9 195 9.63 25.0 0.7 3.5 25.7 3.5 24.41 22.7 24.14 20.66 -0.79 CY18 6.44 32.9 203 1.30 129 25.86 8.4 3.96 6.06 -0.47 6.86 26.4 8.74 8.26 133 25.87 7.38 2.68 29.74 2.06 3.0 1.90 19.88 168 29.4 4.47 5.0 24.35 27.52 29.05 21.26 -1.40 CY14 CY15 6.5 0.4 4.5 195 1.01 -4.61 23.63 20.08 29.46 8.02 1.60 6.91 21.95 25.7 199 1.24 6.53 6.3 200 9.27 122 25. iPod: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues iPods (Bil $) iPod Pricing ($) iPod Market Share (%) Portable Media Players Units (Mil) iPod Accessories (Bil $) Revenue Per iPod ($ per unit) iPod Market Share (%) Portable Media Players Units (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) iPod Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.47 5.24 7.9 181 7.0 1.3 192 7.18 6.5 0.3 26.03 26.64 673 1.22 8.9 3.0 25.46 -1.75 4. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.2 24.93 -5.41 -2.18 26.5 9.7 175 7.27 23.3 192 1.88 29.28 29.68 N/A N/A N/A N/A 693 Note that Apple reports financial information for fiscal year ended September 30th.28 23.

93 34.47 32.33 148 4.87 132 1.33 817 346 -1.63 25.7 3.24 2.33 1.13 100 2.0 3.79 202 1.4 3.67 1.38 139 4.75 4.70 96.63 20.88 95.1 340 6.1 386 7.70 0.62 632 260 1.93 -5.4 4.28 27.9 8.4 8.69 136 4.1 453 7.57 85.9 4.74 0.6 6.7 3.18 0.5 9.83 22.13 1.47 1.60 -2.48 141 7.33 134 2.5 9.28 256 2.43 98.19 2.8 5.Detailed P&L for the Peripherals business The most important drivers for the Peripherals business are discussed above.44 32.46 -1.47 87.1 5.68 142 7.47 1.24 0.09 223 2.34 89.52 234 2.48 29.88 29.6 180 8.47 Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.06 3.23 24.63 20.59 32.28 23.6 328 7.83 25.88 143 8.5 9.88 CY13 2.9 3.62 212 1.47 1.28 29.41 22.67 84.5 9.46 2.21 2.75 673 287 0.COM + 1 617 394 8763 •63 .06 -0.4 3.13 751 343 780 344 387 473 397 493 580 N/A N/A N/A N/A 239 Note that Apple reports financial information for fiscal year ended September 30th.01 -4.03 26.85 30.68 29.90 19.9 4.74 1.47 1.74 1.5 9.6 372 6.6 471 8.5 9.68 29.26 -0.66 -0.43 1.47 1.05 0.2 4.69 31.77 31.74 1.04 CY14 CY15 2.18 0.19 91.6 392 7.24 0.08 144 8.24 2.70 35.47 1.41 -2.92 246 2.12 34. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.57 CY18 2.34 CY16 CY17 2.88 139 5.46 -1.03 23.23 7.74 1.48 29.17 0.1 4.85 22.74 35.7 3.6 4.08 140 6.9 3.6 435 7.5 9.0 4.09 1.86 26.28 141 7.25 33.88 271 2.36 33.26 -1.86 35.08 29.4 4.5 7.43 24. Peripherals: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues Revenue (Bil $) Revenue Per Mac ($ per unit) Mac Desktops Market Share (%) Global Desktop Units Sold (Mil) Mac Notebooks Market Share (%) Global Notebook & Netbook Units Sold (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Bil $) Peripherals Gross Profit Margin (%) CY12 1.46 -0.99 202 1.86 -0.88 1.1 85.1 3.5 9.6 279 6.24 111 1.00 2. We have calendarized Apple's reported financial data for year ended December 31st.02 151 4.06 29. here is the detailed P&L.69 160 1.9 3.28 144 8.58 263 2.87 713 320 0.23 799 345 0. % of Gross Profit (%) Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Mil $) Free Cash Flow (Mil $) -4.4 4.04 93.47 1.09 140 2.82 1.47 2.47 1.1 407 7.5 9.

86 26.1 Note that Apple reports financial information for fiscal year ended September 30th.2 161 7. We have calendarized Apple's reported financial data for year ended December 31st.9 4.2 153 7.2 18.7 53.27 0.9 8.37 284 1.51 0.41 -2.6 106 188 N/A N/A N/A N/A 78.83 25. Apple TV: Detailed P&L CY07 CY08 CY09 CY10 CY11 Revenues Revenue (Bil $) Apple TV Pricing ($) Unit Sales of Apple TV (Mil) Total Revenues (Bil $) Expenses Direct Expenses (Mil $) Apple TV Gross Profit Margin (%) CY12 0.92 86.12 1.24 1.8 8.5 9.80 0.4 4.5 10.24 0. % of Gross Profit (%) Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Mil $) Free Cash Flow (Mil $) -4.2 1.18 CY18 1.7 3.68 29.83 22.11 333 140 -1.2 12.8 1.4 1.81 91.08 29.5 9.5 9.2 110 6.85 22.4 4.47 715 28.7 192 8.86 -0.87 268 114 287 129 61.47 859 27.03 26.00 82.30 0.7 14.6 0.63 20.4 1.0 7.66 -0.98 309 136 0.81 CY13 0.03 23.COM + 1 617 394 8763 •64 .92 298 136 0.18 316 25.06 78.2 60.7 158 7.48 29.63 25.24 0.92 CY14 CY15 1.25 69.93 -5.42 0.25 0.9 1.41 22.4 8.76 0.1 8.44 32.30 299 1.74 0.000 0.7 16.5 6.90 19. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.32 0.4 3.71 239 98.5 9.47 808 27.30 0.47 566 29.46 -1.9 76.60 -2.36 0.74 0.0 3.24 1.74 0.35 0.85 0.74 0.5 9.47 Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.47 760 28.9 3.28 27.7 173 7.43 24.05 338 20.7 140 6.47 436 30.37 0.4 7.23 24.8 17.17 292 20.46 -0.06 CY16 CY17 1.5 9.63 99.23 7.7 28.63 237 20.6 6.00 1.06 29.74 0.7 3.88 29.18 72.26 -0.2 1.42 0.5 9.0 6.Detailed P&L for the Apple TV business The most important drivers for the Apple TV business are discussed above.9 4.47 650 29.01 -4.4 3. here is the detailed P&L.06 -0.5 9.1 3.26 -1.42 241 1.06 3.12 75.28 23.42 120 3.4 85.68 29.48 29.55 2.7 3.46 -1.38 0.04 321 138 0.75 4.2 182 7.63 20.47 914 26.5 9.9 13.28 29.