Trefix Apple - 2011-12-22

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 divisions 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 iPhones 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
TREFIS ANALYSIS for APPLE
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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, Apples Mac sales have actually maintained a solid growth pace. Rather than cannibalizing Apples own product sales, the iPad appears to be creating a halo effect and lifting sales for the companys 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 iPhones 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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Apple's new A5 processor is a dual-core affair, and the company claims that it's twice as fast as its predecessor, the A4, and capable of running at up to 1GHz. However, Qualcomms Snapdragon has come up with an even higher processor speed of around 1.2 GHz. Apps advertising business increasing popularity Google acquired Admob in this regard. Apple acquired Quattro. Apple then came up with the iAd platform. Gray market proliferation hurting mobile phone companies These are unlicensed and illegal mobile phone vendors in emerging markets. Since these are unlicensed, they are able to sell phones at a much cheaper price. This has started to hurt the established players. Increasing Smartphone Demand and Competition In June 2007, Apple entered the smartphone market with iPhone. Nokia and RIM entered in this segment before Apple. Consumers now have an array of smartphone choices, including the RIM BlackBerry, Apple iPhone, Nokia and Motorola smartphones. 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. The availability of mobile TV shows, films, games, photo sharing, software applications, and video conferencing are potential points of differentiation among smartphone competitors. 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. Demand for e-readers and tablet PCs With Amazon Kindle and Apple iPad, the demand for e-readers and tablet PCs have increased at a rapid rate. We believe that this trend will continue as PC manufacturers like RIM, Motorola Mobility, Samsung, HP and Dell entering into the tablet market.
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iPhone
The iPhone division constitutes 52.5% of our $503 price estimate for this stock, based on our sum of the parts analysis.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. For consumers in the US, iPhone 4S is priced at $199 for the 16 GB, $299 for the 32 GB and $399 for the 64 GB version. These prices are arrived at after a huge subsidy of about $450 that carriers such as AT&T, Verizon and now, Sprint offer their subscribers in return for a two year contract. So, Apple actually sells the phones in the U.S. for a much higher amount to the carriers that then discount it for their customers.
iPhone Pricing ($)
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. In addition to the purchase price of the iPhone paid by consumers, Apple initially earned subsequent revenues through a revenue share agreement with AT&T. As a result, 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. We estimate that iPhone Pricing declined from $868 in 2007 to $611 in 2010. Forecast Rationale Apple is expected to lower iPhone prices over time to stimulate market share gains. We believe there is uncertainty around the size of the price reductions and the impact of a potential low-end iPhone, which would reduce the iPhone Average Price.
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Among all this uncertainty, 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. 1. PRICING PRESSURE FROM COMPETITORS RIM, Nokia and Motorola Mobility are Apple's biggest competitors in the smartphone space. When competitors start slashing prices, Apple will be compelled to lower prices or introduce new phone features to maintain premium pricing. Apple receives even higher competition from Google's Android operating system smartphones, as it has started to expand its reach. 2. INCREASING COMMODITIZATION OF SMARTPHONES WILL BRING DOWN PRICES As smartphones become more and more commoditized, there will be a tendency for smartphone companies to lower the smartphone prices as the lower prices will be compensated by higher subscriber growth. This hypothesis is especially true for emerging markets, where the smartphone market is still in nascent stage. 3. 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. We understand this is a strategy by Apple to woo the mid-market buyers to ward off competition from the Android smartphones. The average price of all the iPhones sold is bound to fall with this strategy. Sources for historical data and explanations can be found on the Trefis.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. Apple's primary competitors in mobile phones are Nokia, RIM (which makes BlackBerry phones), Motorola and HTC. The iPhone is a smartphone having computer like features, such as: E-mail, Internet access, The ability to read business documents, A media player, Photo-browsing and video clip-viewing capabilities
iPhone's Market Share in Mobile Phones (%)
15.0 12.5 10.0 7.5 5.0 2.5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18
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The iPhone was launched in June 2007. iPhone's Market Share in Mobile Phones increased from 0.3% in 2007 to about 3% in 2010. Trefis forecasts that iPhone's Market Share in Mobile Phones will increase at a faster than historical rate. 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. Supporting: 1. 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, iPad or Mac. Additionally, one will not be required to upload a song even if a song is not purchased through iTunes. Through iTunes Match, a service that replaces the user's music with iTunes compatible format, one can consume music through different Apple devices. These features will give much more convenience to the user in managing music files. If iCloud becomes the new model for media consumption, it could influence demand for all Apple devices in a meaningful way. 2. 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. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service. Through this app users can chat and exchange files through Wi-fi and 3G. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. This could help Apple drive iPhone and iPad sales. 3. IPHONE ON VERIZON AND SPRINT NETWORK WILL HELP EXPAND ITS ADDRESSABLE MARKET Apple's iPhone 4 was launched on Verizon network in February 2011. The iPhone 4S was also launched on the Sprint network recently. Both these developments will help Apple expand its addressable market. Verizon has more than 90 million subscribers in the U.S. with a market share of more than 30% while Sprint has a market share of around 16%. 4. SUCCESS OF THE IPHONE 4S The iPhone 4S carries a faster A5 dual core processor, a voice recognition system, better battery life and an improved camera with 1,080 pixels resolution for high definition video. In spite of not so rave reviews, the 4S managed to rack up impressive sales of over 4 million on its debut weekend. . The iPhone 4S is running on the new iOS 5, which is an improved operating system for Apple with over 200 new features. Notable among these are the iCloud and iMessage service as well as Siri voice assistant 5. EXTRAORDINARY CONSUMER-FRIENDLY INTERFACE AND FEATURES RICH PHONE Apple products often score high on usability and interface quality, which has been a unique selling point for them. Apple's competitors are still working to catch up with the quality of Apple's touch screen interface. The iPhone has seen continuous upgrades to its features; and scores well over other smartphones now. Functionality improvements, such as the ability to copy and paste; the ability to send photos, contacts, and audio files as well as the ability to read and compose email have made it a feature-rich smartphone. The ease-of-portability with the iPod and Mac for data transfer has also helped it increase market share, as the consumers desire easy sync across multiple platforms. 6. 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. In addition, the inclusion of productivity and entertainment software on smartphones will further the attractiveness of such devices to businesses and consumers. 7. 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, such as the BlackBerry and iPhone. There is a growing reliance on smartphones, such as the BlackBerry and iPhone, as substitutes for PDAs containing address books, notes, and calendars. Fast wireless networks create an opportunity for instant messaging through devices like the BlackBerry and media rich applications (TV on a BlackBerry). 8. 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. If the iPhone were to capture comparable share (30%), it could mean an upside of 85% to our price estimate. 9. THE SMARTPHONE SPACE HAS A LOT OF POTENTIAL IN EMERGING MARKETS Apple announced a deal with China Unicom, China's #2 mobile phone provider, to distribute iPhones. China Unicom has over 140 million subscribers
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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
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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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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. iPad pricing is distinguished by two features: (i) memory (ii) 3G capability: 16 GB $499 with WiFi . $629 with WiFi and 3G 32 GB $599 with WiFi . $729 with WiFi and 3G 64 GB $699 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, and Apple launched iPad 2 in March 2011. iPad's pricing is based on the amount of memory included and whether the device is 3G capable. Buyers may be deterred from purchasing an iPad with 3G not only because of the higher price tag for the device, but also because of the monthly fees to AT&T for use of its 3G network. An AT&T data plan is necessary (in the US) for transferring data over 3G networks and AT&T charges $14.99 for up to 250 MB of data per month, or $25 for 2 GB of data per motnh. This raises the total ownership cost for an iPad with 3G by $180 to $360 in the first year of ownership alone. We believe that Apple will reduce iPad Pricing over time. Forecast Rationale 1. PRICING TO DECLINE AS APPLE SLASHES PRICES OF OLDER IPAD VERSIONS After Apple released iPad 2 in March 2011, 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, the ability to play video games, listen to music as well as access to the wide variety of apps available for the iPhone. However, Kindle is much more mower priced than iPad. The cost of
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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. In comparison, the Kindle and Nook come with free wireless service. AT&T is charging $14.99 for up to 250 MB of data per month, or $25 for 2GB of data per month. 2. 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. However, the iPad could cannibalize the netbook sales of competitors since the iPad does have comparable capabilities to some netbooks. Pricing will play an important role as some consumers opt for cheaper devices in a weak economy. Most of the netbooks are priced below $400 compared to the $499 price for the basic iPad model. 3. 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. For example, one can read books and magazines, download apps and play games on an iPod Touch. The basic version of the iPod Touch is priced at $200 or $299 less than the basic iPad model. The main difference between the non-3G iPad and iPod Touch is the screen size. The iPad has a 9.7 inch screen, which is considered ideal for reading books and magazines. . Given the significant price gap between the iPad and iPod Touch, we believe there is room for Apple to slash iPad prices in the future. Sources for historical data and explanations can be found on the Trefis.com website (link)
IPAD UNITS SALES
iPad Units Sales represents the number iPads sold by Apple. The iPad is a tablet PC that is larger than a smartphone but smaller than a notebook PC. The iPad allows you to browse the web, play video games, view photos, watch videos, read email, and download apps from the iTunes App Store. Apple released the next version of iPad named iPad 2 in March 2011. The iPad competes with RIM PlayBook, Samsung, Motorola Mobility's Xoom, Dell and LG tablets.
iPad Units Sales (Mil)
100 75 50 25 0 2010 2011 2012 2013 2014 2015 2016 2017 2018
Apple sold around 14.8 million iPads in 2010. In comparison, Apple sold about 3.7 million iPhones in the 2007 after the launch of the device in June of that year.
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We forecast that iPad sales will continue to increase at a rapid rate. Forecast Rationale Supporting: 1. 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, iPad or Mac. Additionally, one will not be required to upload a song even if a song is not purchased through iTunes. Through iTunes Match, a service that replaces the user's music with iTunes compatible format, one can consume music through different Apple devices. These features will give much more convenience to the user in managing music files. If iCloud becomes the new model for media consumption, it could influence demand for all Apple devices in a meaningful way. 2. 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. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service. Through this app users can chat and exchange files through Wi-fi and 3G. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. This could help Apple drive iPhone and iPad sales. 3. IPAD 2 COULD BOOST APPLE Apple released iPad 2 in March 2011 and has a few superior features over iPad, which includes the faster A5 processor, front and rear facing cameras, and is designed thinner and lighter. 4. LOWER THAN EXPECTED PRICE POINT TO BENEFIT SALES Many initially speculated that Apple's iPad would come at a price point between $600 and $1,000. Apple announced that a basic iPad model would be available for $499. We expect iPad pricing to decline further in the future, which will benefit its unit sales even more. 5. IPAD IS MUCH MORE THAN A NORMAL E-READER iPad is not only an e-reader, but also a useful device to surf the web, listen to music, use apps, view photos, watch videos and read email. In addition to that, it is an ultra thin and light device. Mitigating: 6. INCREASED COMPETITION COULD CHALLENGE APPLE Google released Android's new version named Honeycomb, which is specifically designed for tablets. It includes support for big screens (7 to 9 inch), a totally revamped user interface, extensive multi-tasking and multiple home screens among other features. RIM is expected to release PlayBook tablet, which could leverage its dominant position in the enterprise segment to penetrate the tablet market. Sources for historical data and explanations can be found on the Trefis.com website (link)
IPAD GROSS PROFIT MARGIN
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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. Trefis forecasts that iPad Gross Profit Margin will decline. Forecast Rationale Supporting: 1. PRICING DECLINE TO AFFECT MARGINS We estimate Apple's average iPad pricing to decline going forward, as Apple slash prices for older versions of iPad. Apple has already slashed the pricing of lowest version of iPad from $499 to $399, after it launched iPad 2 in March 2011 Mitigating: 2. FALLING INPUT OR MANUFACTURING COSTS The iPad uses NAND flash memory for most of its models and NAND memory prices are are constantly falling. Future technology improvements could enable the iPad to decrease its manufacturing cost and help offset some declines in margins associated with lower pricing. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY10 9.20 6.44 1.56 2.76 N/A CY11 24.4 17.1 4.29 7.31 3.02 CY12 34.4 24.4 5.87 9.97 4.10 CY13 39.2 28.2 6.29 11.0 4.68 CY14 42.8 31.3 6.36 11.6 5.20 CY15 45.2 33.5 6.37 11.8 5.38 CY16 47.7 35.8 6.66 11.9 5.27 CY17 50.4 38.3 6.87 12.1 5.23 CY18 53.2 41.0 7.06 12.2 5.18
In addition, you can see the detailed P&L for the iPad business in the Appendix (link)
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Notebooks
The Notebooks division is part of the Macintosh business, and constitutes 5.65% of our $503 price estimate for the stock, based on our sum of the parts analysis.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.
Mac Notebook Pricing (K $)
1.50 1.25 1.00 0.75 0.50 0.25 0.00 2007 0 8 09 10 11 12 13 14 15 16 17 18
The average Mac Notebook Pricing increased from $1,399 in 2005 to $1,460 in 2007. The declining trend in pricing started from 2008, when the average Mac Notebook Pricing decreased for the first time to $1,426. It declined further to around $1,250 in 2010. Trefis forecasts that Mac Notebook Pricing will decrease. Forecast Rationale 1. APPLE PRICING DECLINES HAVE BEEN LESS SEVERE THAN THAT OF COMPETITION Surprisingly, Apple has been able to maintain its Mac Notebook Pricing; whereas its competitors like Dell, Acer, and HP have seen a lot of price erosion each year. Apple has always had a niche market and differentiated product in the crowded personal computer market. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base. 2. 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. This is evident from the fact that Q3 08 was the first quarter that saw notebook shipments overtake desktop shipments.
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Sources for historical data and explanations can be found on the Trefis.com website (link)
MAC NOTEBOOKS MARKET SHARE
Mac Notebooks Market Share represents the percentage share of notebook units sold by Apple. Its primary competitors are HP, Dell, and Acer.
Mac Notebooks Market Share (%)
7.5
5.0
2.5
0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18
The Mac Notebooks Market Share increased from 3.5% in 2005 to 5% in 2010. Trefis forecasts that Mac Notebooks Market Share will continue to increase at a moderate rate. Forecast Rationale Supporting: 1. 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, iPad or Mac. Additionally, one will not be required to upload a song even if a song is not purchased through iTunes. Through iTunes Match, a service that replaces the user's music with iTunes compatible format, one can consume music through different Apple devices. These features will give much more convenience to the user in managing music files. If iCloud becomes the new model for media consumption, it could influence demand for all Apple devices in a meaningful way. 2. 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. 3. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface. Its unique touch screen interface is what attracts the high-end users. Mac has consistently come up with new products, like . The Mac Pro is specifically designed for professionals and business users. The iMac is targeted at general consumers, users who intend to use it for educational purposes, and business users. The Mac Mini is a small sized desktop, which is priced lower and starts at $699. 4. 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
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Windows' dual-boot system (Bootcamp). Additionally, low-cost virtualization software, such as Parallels has made it easier to retain Windows features on a Macintosh. Key Microsoft productivity tools, such as Microsoft Office can also be run natively in Mac OS. 5. HALO EFFECT OF IPOD AND IPHONES Mac has been able to increase its market share due to the halo effect, whereby satisfied iPod and iPhone users purchase more Apple products. The market share increase has been in effect after Apple re-branded its Mac. Mitigating: 6. 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, Dell, and Acer. This could be a disadvantage for Apple, as consumers look to cut costs, especially in the recessionary environment. Sources for historical data and explanations can be found on the Trefis.com website (link)
GLOBAL NOTEBOOK & NETBOOK UNITS SOLD
Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally.
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. The growth in notebook shipments has been driven by: 1. 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 shipments heralding the advent of notebooks in a big way . Apple updated MacBook Air With Next Generation Processors, Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months. . Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period.
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2. 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. 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, 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. Forecast Rationale 1. 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, iPad or Mac. iCloud has the potential to replace the traditional usage of the PC as a music, photo and document library, thereby limiting PC's usage. 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. 2. RISING POPULARITY OF TABLET DEVICES With the launch of Apple's iPad, a tablet computing device, in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. As the companies around the world strive hard to capture a share in the potentially huge tablet market, we believe, 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. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally, 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.com website (link)
MAC NOTEBOOKS GROSS PROFIT MARGIN
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
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We estimate that Mac Notebooks Gross Profit Margin has been around 30% historically. Trefis forecasts that Mac Notebooks Gross Profit Margin will decline at a moderate rate. Forecast Rationale Supporting: 1. DECLINING NOTEBOOK PRICES AND POTENTIAL MIX SHIFT IF APPLE INTRODUCES A NETBOOK We believe notebook prices will continue to decline, which will put pressure on margins. Apple's notebook prices have not declined as fast the competition's prices, which is encouraging. Nevertheless, there is an overall industry decline in average notebook prices. If Apple introduces a netbook to compete in the nascent netbook market, we would expect further average margin declines. Mitigating: 2. FALLING INPUT OR MANUFACTURING COSTS Mac Notebooks use the Intel microprocessors in most of its models for which the prices are constantly falling. Also, technology improvements has enabled Mac to decrease its manufacturing cost. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 6.90 4.83 0.96 2.07 N/A CY08 9.21 6.44 1.91 2.76 N/A CY09 9.78 6.85 0.63 2.93 N/A CY10 12.1 8.56 2.03 3.58 N/A CY11 15.4 10.9 2.67 4.54 1.88 CY12 17.0 12.1 2.90 4.92 2.03 CY13 18.1 13.0 2.96 5.17 2.21 CY14 19.2 13.8 2.96 5.37 2.42 CY15 20.2 14.6 3.01 5.54 2.54 CY16 20.8 15.2 3.14 5.62 2.48 CY17 21.1 15.5 3.18 5.60 2.42 CY18 21.4 15.8 3.21 5.56 2.35
In addition, you can see the detailed P&L for the Notebooks business in the Appendix (link)
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Software & Services

The Software & Services division is part of the Macintosh business, and constitutes 3.90% of our $503 price estimate for the stock, based on our sum of the parts analysis.The most important drivers for the Software & Services business are: Revenue Per Mac Global Notebook & Netbook Units Sold Software and Services Gross Profit Margin
REVENUE PER MAC
The software subdivision of Mac consists of software, such as: 1. OS X Lion is the Mac operating system. 2. iLife helps users to organize photos, enhance the movie quality, and carry out other related tasks. 3. iWork helps users to organize software, spreadsheets and presentations. 4. MobileMe helps to keep email, contacts, and calender-related data in sync with the Mac, iPhone, and iPod. 5. Aperture is Apple's photo editing software. The services part of Mac is the extended warranty service, which is called the AppleCare. Users can access it for an extra charge.
Revenue Per Mac ($ 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. Trefis forecasts that Apple will see continuous decline in Revenue Per Mac at a slower rate. Forecast Rationale 1. LOW COST OR FREE SOFTWARE ALTERNATIVES COULD NEGATIVELY IMPACT APPLE Increasingly, there are a number of cheaper and better quality software options on the market, which could be a substitute for high cost Apple Mac software. For example, iLife is used to organize photos and enhance movie quality. This could be substituted for by
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Google's Picasa software, which is freely downloadable. 2. 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. 3. 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. Sources for historical data and explanations can be found on the Trefis.com website (link)
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. The growth in notebook shipments has been driven by: 1. 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 shipments heralding the advent of notebooks in a big way . Apple updated MacBook Air With Next Generation Processors, Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months. . Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. 2. 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. 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, and this should further spur the growth in shipments post 2009.
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Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate. Forecast Rationale 1. 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, iPad or Mac. iCloud has the potential to replace the traditional usage of the PC as a music, photo and document library, thereby limiting PC's usage. 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. 2. RISING POPULARITY OF TABLET DEVICES With the launch of Apple's iPad, a tablet computing device, in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. As the companies around the world strive hard to capture a share in the potentially huge tablet market, we believe, 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. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally, 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.com website (link)
SOFTWARE AND SERVICES GROSS PROFIT MARGIN
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. Trefis forecasts that Software and Services Gross Profit Margin will increase at a moderate rate. Forecast Rationale 1. MAC OS X PRICE DECLINE TO BE SOMEWHAT OFFSET BY REDUCED COST During the WWDC event held on June 6th 2011, Apple unveiled Mac OS X Lion version, and was attractively priced at $30. The OS can be downloaded online
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from the Mac App store. The previous versions require installation through physical optical disc available in the retail stores. Although this price cut was a drastic cut from previous OS prices, we believe the online availability of software would have reduced input cost for Apple. Hence the gross margins may not be affected through this change. 2. 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. As we expect healthy Mac unit growth, it should directly benefit Software & Services segment of Apple. 3. NEGLIGIBLE INPUT OR MANUFACTURING COSTS Since Software & Services segment manufactures software and provides warranty services, we believe that these mostly involve the manpower costs and negligible manufacturing or input costs. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 1.79 0.54 0.58 1.25 N/A CY08 2.19 0.66 1.06 1.53 N/A CY09 2.44 0.73 0.37 1.71 N/A CY10 3.07 0.92 1.22 2.15 N/A CY11 3.66 1.09 1.51 2.57 1.06 CY12 4.04 1.20 1.67 2.84 1.17 CY13 4.38 1.30 1.77 3.08 1.31 CY14 4.70 1.39 1.82 3.32 1.49 CY15 5.03 1.48 1.92 3.55 1.63 CY16 5.31 1.56 2.10 3.75 1.66 CY17 5.53 1.61 2.22 3.91 1.69 CY18 5.74 1.67 2.35 4.07 1.72
In addition, you can see the detailed P&L for the Software & Services business in the Appendix (link)
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iTunes
The iTunes division is part of the iTunes & iOS Apps business, and constitutes 2.04% of our $503 price estimate for the stock, based on our sum of the parts analysis.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. Apple has discontinued selling all individual songs for $0.99; and started offering three tiers: $0.69, $0.99 and $1.29 in 2009.
Songs Pricing ($)
1.00 0.75 0.50 0.25 0.00 2007 0 8 09 10 11 12 13 14 15 16 17 18
Songs Pricing declined slightly from around $0.99 in 2006 to $0.93 in 2010. Trefis forecasts that Songs Pricing will decline at a moderate rate. Forecast Rationale 1. 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. So, to counter-attack, the industry has started reducing the prices of legal music available online. We expect iTunes to lead the industry trend for lower pricing over time. 2. ONLINE MUSIC HAS CHEAP AVAILABLE SUBSTITUTES What users find the best about iTunes is the voice quality when listened through a iPod or iPhone. But Apple is facing increasing competition from Pandora and Samsung's Media Store, which sells individual tracks for a lower price to iTunes. Another competitor NexTune offers much the same functionality as iTunes. Sources for historical data and explanations can be found on the Trefis.com website (link)
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UNIT SALES OF SONGS
Unit Sales of Songs represents the number of units of Songs sold by Apple.
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 1.2 billion units in 2006 to 3.4 billion units in 2010 as per our estimates. Trefis forecasts that Unit Sales of Songs will increase at a fast rate over the next few years before stabilizing. Forecast Rationale 1. RECESSIONARY ENVIRONMENT A BOON FOR ONLINE CONTENT Due to the prevailing recessionary environment, where users are looking to cut costs wherever possible, we expect the online usage for content to increase as it provides low cost substitutes. For example, users like to download iTunes Music rather than buy a music CD or DVD, which costs much more. 2. 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. We foresee that this is indeed the case that should happen going forward although illegal music downloads have reached record highs. iTunes provides low cost legal music downloads and hence should see increased usage. Sources for historical data and explanations can be found on the Trefis.com website (link)
ITUNES 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. These margins include the margins for iTunes as well as iPhone Applications segment.
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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. Online downloading has always been a low margin business, as major share of profits is taken up by production companies and iPhone Apps developers as they are the content providers. 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. Sources for historical data and explanations can be found on the Trefis.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 1.46 0.07 10.2 1.47 N/A 87.9 0.37 1.02 0.20 0.44 N/A CY08 2.23 0.08 9.82 0.85 N/A 89.0 0.28 1.56 0.46 0.67 N/A CY09 2.78 0.09 9.14 0.79 N/A 89.7 0.24 1.95 0.18 0.83 N/A CY10 3.88 0.08 8.03 0.63 9.90 81.2 0.18 2.72 0.66 1.16 N/A CY11 4.54 0.08 7.69 0.58 10.7 80.8 0.17 3.17 0.80 1.36 562 CY12 5.22 0.07 6.80 0.51 10.8 81.7 0.15 3.66 0.92 1.57 644 CY13 5.55 0.07 6.52 0.49 10.8 82.0 0.14 3.89 0.96 1.67 710 CY14 5.90 0.06 6.13 0.46 10.9 82.3 0.13 4.13 0.97 1.77 795 CY15 6.16 0.06 5.87 0.44 10.9 82.6 0.13 4.31 1.00 1.85 846 CY16 6.43 0.06 5.61 0.42 10.9 82.8 0.12 4.50 1.08 1.93 852 CY17 6.72 0.06 5.37 0.40 11.0 83.1 0.12 4.70 1.14 2.02 872 CY18 7.02 0.05 5.13 0.39 11.0 83.3 0.11 4.91 1.22 2.11 891
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In addition, you can see the detailed P&L for the iTunes business in the Appendix (link)
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Apps for iPhone, iPod & iPad

The Apps for iPhone, iPod & iPad division is part of the iTunes & iOS Apps business, and constitutes 1.99% of our $503 price estimate for the stock, based on our sum of the parts analysis.The most important drivers for the Apps for iPhone, iPod & iPad business are: Average Paid iPhone & iPad App Pricing Number of iPhone & iPad Apps Downloaded Paid App % iPhone, iPod Touch & iPad Apps Gross Profit Margin
AVERAGE PAID IPHONE & IPAD APP PRICING
Average Paid iPhone & iPad App Pricing represents the average price of a paid iPhone, iPod Touch and iPad Application.
Average Paid iPhone & iPad App Pricing ($)
2.0 1.5 1.0 0.5 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The Average Paid iPhone & iPad App Pricing was $2.03 in 2010 which consisted solely of iPhone and iPod Touch apps. Trefis forecasts that Average Paid iPhone & iPad App Pricing will decrease at a moderate rate. Forecast Rationale Supporting: 1. INCREASING COMPETITION AMONGST APPS As the number of available download-able applications increases, competition amongst apps for user attention will lead to decreasing apps average pricing. The number of available apps are in excess of 350,000 as of 2010. 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
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Mitigating: 3. IPAD APP PRICING LIKELY TO REMAIN HIGHER THAN IPHONE APP PRICING iPad Apps will be optimized for the larger screen. Most of the iPhone Apps are re-developed by developers so as to optimize it for the larger resolution screen of iPad. This could require more effort and cost on the developers part. For example, 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. There will be better features and graphics on iPad Apps. iPads larger screen compared to the iPhone gives developers an opportunity to provide more features and improve the graphics of an application. The larger screen also encourages apps for the iPad that wouldnt otherwise be available for the iPhone. For example, OmniGraffle is a new $50 iPad app that allows for touch-based diagramming and brainstorming and is not available for the iPhone. 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.
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 2.2 billion by the end of 2009 and has shown continued strong growth in 2010. The figures prior to the launch of the iPad in April 2010 refer solely to iPhone apps. The iPhone app download number touched the 1 billion mark in April 2009, surged up to 5 billion by June 2010 and has now exceeded 18 billion as of September 2011. The Number of iPhone & iPad Apps Downloaded was around 7.2 billion in 2010. Trefis forecasts that Number of iPhone & iPad Apps Downloaded will continue growing as more people purchase iPhones. Forecast Rationale 1. 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. The number of iPhones sold has increased at a fast rate. For every additional sale of an iPhone, the Number of iPhone & iPad Apps Downloaded increases multi-fold.
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2. 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. For example, users can download popular games like Tiger Woods for as low as $10, and applications like Skype for free. 3. 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. Sources for historical data and explanations can be found on the Trefis.com website (link)
PAID APP %
Paid App % represents the percentage of downloaded iPhone applications that are paid. The only source of revenue for a developer for free apps is advertisements.
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. Trefis forecasts that Paid App % will increase at a slow rate. Forecast Rationale 1. 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), users will not shy away from buying paid apps, if excessive advertising on a free app becomes a nuisance for them. The iAd platform will help developers monetize free apps, but may not necessarily be a good thing for app users. Sources for historical data and explanations can be found on the Trefis.com website (link)
IPHONE, IPOD TOUCH & IPAD APPS GROSS PROFIT MARGIN
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iPhone, 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, iPod Touch & iPad Apps Gross Profit Margin has been 30% from 2008 to 2009 since Apple only gets 30% of the Paid Apps revenues. The remaining 70% goes to the app developer. With the introduction of the iAd platform in 2010, we expect iPhone, iPod Touch & iPad Apps Gross Profit Margin to jump up to nearly 38%. Through iAd, Apple will get a cut of 40% of iAd gross revenues while the rest goes to the app developer. Since we expect Apple's revenues earned through the iAd platform to be less than through paid apps, the increase in average app gross margins will be small. 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. As a result, we forecast that iPhone, iPod Touch & iPad Apps Gross Profit Margin will decline only slightly due to a change in mix of paid apps. As shown in our Paid App % forecast, we expect the mix of paid apps to increase slightly over the forecast period. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) iAd App Advertising Revenue (% of N/A N/A 5.85 total) Paid Apps (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) 100 0.03 0.01 0.01 N/A 100 0.13 0.01 0.06 N/A CY08 CY09 CY10 CY11 0.04 0.19 0.65 1.32 11.0 89.0 0.91 0.24 0.41 0.17 CY12 1.99 13.8 86.2 1.36 0.37 0.63 0.26 CY13 2.77 16.2 83.8 1.89 0.51 0.89 0.38 CY14 CY15 3.61 4.45 18.9 81.1 2.44 0.65 1.17 0.53 23.4 76.6 2.98 0.80 1.47 0.67 CY16 CY17 5.20 6.12 27.0 73.0 3.48 0.96 1.72 0.76 30.9 69.1 4.10 1.15 2.02 0.87 CY18 7.27 35.2 64.8 4.87 1.38 2.40 1.02
94.2 0.45 0.11 0.20 N/A
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In addition, you can see the detailed P&L for the Apps for iPhone, iPod & iPad business in the Appendix (link)
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Desktops
The Desktops division is part of the Macintosh business, and constitutes 1.62% of our $503 price estimate for the stock, based on our sum of the parts analysis.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.
Mac Desktop Pricing (K $)
1.50 1.25 1.00 0.75 0.50 0.25 0.00 2007 0 8 09 10 11 12 13 14 15 16 17 18
The average Mac Desktop Pricing increased from $1,305 in 2005 to $1,500 in 2007. The declining trend in pricing started from 2008, when the average Mac Desktop Pricing decreased for the first time to $1,488. It then reached around $1,340 in 2010. Trefis forecasts that Mac Desktop Pricing will decrease. Forecast Rationale Supporting: 1. 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. Mitigating: 2. GROWING USER BASE OF ITS UNIQUE PC PLATFORM Surprisingly, Apple's Mac Desktop Pricing has not seen the same level of price erosion experienced by competing desktops from Dell, Acer and HP. Apple has always had a niche market and differentiated product in the crowded personal computer market. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base.
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3. INCREASE IN PRICING AS DESKTOPS BECOME MORE POWERFUL Demand for desktops may ultimately be limited to very powerful computers, in which case the average pricing for such computers may be higher than historical averages. Sources for historical data and explanations can be found on the Trefis.com website (link)
MAC DESKTOPS MARKET SHARE
Mac Desktops Market Share represents the percentage share of Desktop Units sold by Apple. Its primary competitors are HP, Dell, and Acer.
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 1.8% in 2005 to 3.4% in 2010. Trefis forecasts that Mac Desktops Market Share will continue to increase at a moderate rate. Forecast Rationale Supporting: 1. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface. Its unique touch screen interface is what attracts the high-end users. Mac has consistently come up with new products, such as. The Mac Pro is specifically designed for professionals and business users. The iMac is targeted at general consumers, users who intend to use it for educational purposes, and business users. The Mac Mini is a small sized desktop, which is priced lower and starts at $699. Apple announced updates to the Mac Mini to include the Lion OS and high speed processors in July 2011. 2. 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). Additionally, lowcost virtualization software, such as Parallels has made it easier to retain Windows features on a Macintosh. Key Microsoft productivity tools, such as Microsoft Office can also be run natively in Mac OS. 3. HALO EFFECT OF IPOD AND IPHONES Mac has been able to increase its market share due to the halo effect, whereby satisfied iPod and iPhone users purchase more Apple products. The market share increase has been in effect after Apple re-branded its Mac.
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Mitigating: 4. RECESSIONARY ENVIRONMENT TO PREVENT USERS FROM SWITCHING TO MAC All Mac desktops are in the higher price range when compared to competitors like HP, Dell, and Acer. This could be a disadvantage to Apple, as consumers look to cut costs, especially in the recessionary environment. Sources for historical data and explanations can be found on the Trefis.com website (link)
GLOBAL DESKTOP UNITS SOLD
Global Desktop Units Sold represents the number of desktop units sold each year globally.
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, desktop units sales have decreased from 143 million units in 2005 to 140 million units in 2010. We expect the Global Desktop Units Sold to increase at a slower rate. Forecast Rationale 1. 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. 2. 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. 3. 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. Demand for netbooks will have a positive impact on sales growth. Sources for historical data and explanations can be found on the Trefis.com website (link)
MAC DESKTOPS GROSS PROFIT MARGIN
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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. Trefis forecasts that Mac Desktops Gross Profit Margin will decline at a moderate rate. Forecast Rationale Supporting: 1. 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; and their prices have formed an upper bound for desktop pricing. As notebook prices continue to fall to unprecedented lows--and pricing between desktops and notebooks remains narrow--Apple, along with other PC makers, may be forced to sacrifice margins to continue selling desktops. Mitigating: 2. FALLING INPUT OR MANUFACTURING COSTS Most Mac desktop models use Intel microprocessors, which are constantly declining in price. . Technology improvements have enabled Mac to decrease its manufacturing cost. 3. 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, Apple may choose to focus solely on high-end desktops, which have superior performance to notebooks. High end desktops would likely be priced at a premium and afford Apple better margins. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 4.58 3.44 0.53 1.15 N/A CY08 5.15 3.86 0.89 1.29 N/A CY09 4.97 3.73 0.27 1.24 N/A CY10 6.32 4.78 0.88 1.55 N/A CY11 7.30 5.51 1.05 1.79 739 CY12 7.33 5.57 1.03 1.76 723 CY13 7.34 5.61 0.99 1.72 735 CY14 7.33 5.65 0.93 1.69 758 CY15 7.31 5.67 0.89 1.65 753 CY16 7.28 5.68 0.89 1.60 707 CY17 7.24 5.68 0.88 1.56 673 CY18 7.18 5.67 0.87 1.51 638
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In addition, you can see the detailed P&L for the Desktops business in the Appendix (link)
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iPod
The most important drivers for the iPod business are: iPod Pricing iPod Market Share Portable Media Players Units iPod Gross Profit Margin
IPOD PRICING
iPod Pricing represents the average price of the iPod.
iPod Pricing ($)
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. Forecast Rationale 1. PRICE COMPETITION FROM MICROSOFT AND SANDISK Microsoft's Zune HD directly competes with iPod Touch and is priced lower compared to iPod. Though iPod has always enjoyed a greater market share since its inception, better and cheaper products from Creative and Sandisk should serve as a warning to iPod's near monopoly. For example, the Sanza Fuze from Sandisk has many features which compete directly with iPod and is priced cheaply as well. 2. TECHNOLOGY IMPROVEMENTS AND REDUCED INPUT COSTS iPod uses NAND flash memory for most of its models, for which costs are constantly falling. Also, technology improvements have enabled iPod to decrease its manufacturing cost; and hence, Apple has been reducing the price for each new product it launches in the market. Sources for historical data and explanations can be found on the Trefis.com website (link)
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IPOD MARKET SHARE
iPod Market Share represents the percentage of worldwide media player units sold by Apple. Its primary competitors are Sandisk, 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. iPod Market Share has been in the range 24% to 31% for the last few years. Trefis forecasts that iPod will continue to gain market share in the long term. Forecast Rationale Supporting: 1. MICROSOFT WILL STOP INTRODUCING NEW VERSIONS OF ZUNE According to a March 2011 Bloomberg report, Microsoft will stop introducing new versions of the Zune music and video player because of the tepid demand. Microsoft's only chance of maintaining market share was to keep coming out with the compelling new versions of Zune. However, now Microsoft will only be selling the existing versions of Zune. This means that its market share could continue to decline to almost zero levels in a few years from now. 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. 2. INTRODUCTION OF NEW INNOVATIVE PRODUCTS Apple continues to innovate and improve its iPod product. The introduction of the iPod Shuffle, the iPod Touch, and the video and touch-screen iPod Nano will help to keep demand high. 3. SEAMLESS INTEGRATION BETWEEN IPOD AND ITUNES The expansion of content--including Digital Rights Management (DRM) free content--on Apple's iTunes Store, as well as the designed synchronization of iPods and iTunes, makes Apple's products more appealing to many consumers. 4. HALO EFFECT FROM IPHONE AND OTHER APPLE PRODUCTS iPod sales benefits from the brand and marketing awareness of other popular Apple products. Mitigating:
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5. INCREASED COMPETITION FROM MICROSOFT AND SANDISK Microsoft's Zune directly competes with iPod Touch and is priced significant lower. Alhough the iPod has always enjoyed a bigger chunk of market share since its inception, better and cheap products from Creative and Sandisk should serve a warning to iPod near monopoly. For example, the Sanza Fuze from Sandisk has many features which compete directly with the iPod and is priced cheaply as well. 6. CANNIBALIZATION FROM IPHONE We expect that higher-end iPod versions will experience sales cannibalization from customers opting for iPhones with similar functionality. Sources for historical data and explanations can be found on the Trefis.com website (link)
PORTABLE MEDIA PLAYERS UNITS
Portable Media Players Units represents the number of media players sold each year globally.
Portable Media Players Units (Mil)
200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18
Historically, media player units sales have increased from 120 million units in 2005 to 200 million units in 2010. We expect the global media players market to increase. Forecast Rationale Supporting: 1. FALLING DIGITAL MEDIA PLAYER PRICES COULD STIMULATE DEMAND Digital media players are undergoing reduced prices due to technology improvement and increased competition. For example, Apple, Sandisk, and Creative are vying to take the share of Media players. We believe the decreased average selling price of media players could help slow a decline in demand. 2. 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, which makes them arrange playlists according to a user's voice commands. These innovative additions to the features could prevent declines.
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Mitigating: 3. SMARTPHONES ACTING AS SUBSTITUTES FOR PORTABLE MEDIA PLAYERS As smartphone demand grows, smartphones become an easy substitute for Media Players, as most of the features present in Portable Media Players are also available in today's generation of smartphones. In fact, there could be a case where, once iPhone prices fall even more, the iPhone could become a substitute for iPods. Sources for historical data and explanations can be found on the Trefis.com website (link)
IPOD GROSS PROFIT MARGIN
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. Trefis forecasts that iPod Gross Profit Margin will decline at a moderate rate. Forecast Rationale Supporting: 1. MIX SHIFT TO LOW END IPODS We expect iPod to experience a mix shift toward lower end, lower margin iPods, as the high-end iPod segment is cannibalized by iPhone sales. Apple has aggressively reduced pricing of each iPod model, which will also contribute to reducing gross margins. Mitigating: 2. FALLING INPUT OR MANUFACTURING COSTS Since the iPod uses NAND flash memory for most of its models, for which the cost are constantly falling. Also, technology improvements have enabled the iPod to decrease its manufacturing cost. Sources for historical data and explanations can be found on the Trefis.com website (link)
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Total Revenue (Bil $) iPods (% of total) iPod Accessories (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $)
CY07 10.1 88.0 12.0 7.46 1.22 2.62 N/A
CY08 9.80 87.0 13.0 7.25 1.77 2.55 N/A
CY09 9.33 86.9 13.1 6.95 0.51 2.38 N/A
CY10 9.11 87.1 12.9 6.97 1.21 2.14 N/A
CY11 7.29 85.8 14.2 5.61 0.98 1.68 693
CY12 7.28 84.8 15.2 5.64 0.96 1.64 673
CY13 7.40 84.0 16.0 5.77 0.93 1.63 694
CY14 7.53 83.2 16.8 5.91 0.89 1.62 727
CY15 7.66 82.3 17.7 6.05 0.87 1.61 736
CY16 7.72 81.4 18.6 6.14 0.88 1.58 698
CY17 7.79 80.5 19.5 6.23 0.88 1.56 673
CY18 7.86 79.6 20.4 6.32 0.88 1.53 648
In addition, you can see the detailed P&L for the iPod business in the Appendix (link)
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Peripherals
The Peripherals division is part of the Macintosh business, and constitutes 0.80% of our $503 price estimate for the stock, based on our sum of the parts analysis.The most important drivers for the Peripherals business are: Revenue Per Mac Global Notebook & Netbook Units Sold Peripherals Gross Profit Margin
REVENUE PER MAC
The Peripherals subdivision of Mac desktops and notebooks consists of the peripherals or the accessories that can be connected to a Mac to enhance its features and quality. These include: 1. AirportExpress and AirportExtreme These devices can be connected to speakers or work wirelessly. 2. Time Capsule This device allows users to backup data wirelessly. 3. Keyboard 4. Wireless Mouse 5. LED Cinema Display This is a display screen for desktops and notebooks
Revenue Per Mac ($ 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. Trefis forecasts that Peripherals will see continuous declines in Revenue Per Mac at a slower rate. Forecast Rationale 1. 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. DECREASING NOTEBOOKS AND DESKTOPS PRICES MAY ALSO HAVE A MAJOR IMPACT Since the world is seeing decreasing notebook and desktops price, people may shun away from buying expensive peripherals and instead buy a
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new Mac. This is because buying a Mac could become cost effective than buying peripherals, as Mac's pricing declines. Apple will have to lower the peripherals pricing in line with Mac desktop and notebook pricing, which also could impact Revenue Per Mac. Sources for historical data and explanations can be found on the Trefis.com website (link)
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. The growth in notebook shipments has been driven by: 1. 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 shipments heralding the advent of notebooks in a big way . Apple updated MacBook Air With Next Generation Processors, Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months. . Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. 2. 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. 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, 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.
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Forecast Rationale 1. 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, iPad or Mac. iCloud has the potential to replace the traditional usage of the PC as a music, photo and document library, thereby limiting PC's usage. 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. 2. RISING POPULARITY OF TABLET DEVICES With the launch of Apple's iPad, a tablet computing device, in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. As the companies around the world strive hard to capture a share in the potentially huge tablet market, we believe, 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. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally, 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.com website (link)
PERIPHERALS GROSS PROFIT MARGIN
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. Trefis forecasts that Peripherals Gross Profit Margin will decline at a moderate rate. Forecast Rationale Supporting: 1. REDUCED TOPLINE GROWTH FOR PERIPHERALS DIVISION As Mac undergoes a reduction in the number of units sold, along with decreasing peripheral average revenue per Mac, it will have a direct impact on the topline and gross profit margins.
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Mitigating: 2. REDUCED INPUT OR MANUFACTURING COSTS Since the Mac peripherals subdivision manufactures Mac accessories like LED Cinema displays, keyboards, wireless mice, and other accessories, the input costs for these are constantly falling due to technological improvement and increasing commoditization. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 1.09 0.70 180 387 N/A CY08 1.33 0.86 328 473 N/A CY09 1.13 0.74 85.5 397 N/A CY10 1.43 0.93 279 493 N/A CY11 1.70 1.12 340 580 239 CY12 1.88 1.25 372 632 260 CY13 2.04 1.36 386 673 287 CY14 2.19 1.47 392 713 320 CY15 2.34 1.59 407 751 343 CY16 2.47 1.69 435 780 344 CY17 2.57 1.77 453 799 345 CY18 2.67 1.85 471 817 346
In addition, you can see the detailed P&L for the Peripherals business in the Appendix (link)
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Apple TV
The most important drivers for the Apple TV business are: Apple TV Pricing Unit Sales of Apple TV Apple TV Gross Profit Margin
APPLE TV PRICING
Apple TV Pricing represents the average price of Apple TV.
Apple TV Pricing ($)
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. Trefis forecasts that Apple TV Pricing will decrease. Forecast Rationale 1. NEW APPLE TV PRICED AT $99 Apple unveiled the $99 Apple TV that is a fourth of the size of the original. It has no local storage and streams the content from the Internet to the TV. Content can be streamed from sites like Netflix, YouTube as well as from PCs. 2. 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. 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. 3. INTRODUCTION OF GAMING CONSOLE The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future, as Apple integrates value-added features, such as the gaming console. These additional features will help arrest the price declines at a fast rate. Sources for historical data and explanations can be found on the Trefis.com website (link)
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UNIT SALES OF APPLE TV
Unit Sales of Apple TV represents the number of units of Apple TV sold by Apple.
Unit Sales of Apple TV (Mil)
17.5 15.0 12.5 10.0 7.5 5.0 2.5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18
Unit Sales of Apple TV has increased from 1.0 million units in 2007 to around 3.5 million units in 2009 according to our estimates. Trefis forecasts that Unit Sales of Apple TV will increase at a fast rate for the next few years before stabilizing. Forecast Rationale 1. NEW APPLE TV PRICED AT $99 Apple unveiled the $99 Apple TV that is a fourth of the size of the original. It has no local storage and streams the content from the Internet to the TV. Content can be streamed from sites like Netflix, YouTube as well as from PCs. We believe this lower priced Apple TV will help boost its sales. 2. 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, films and music, 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. 3. INTRODUCTION OF GAMING CONSOLE The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future, as Apple integrates value-added features, such as the gaming console. These additional features will help arrest the price declines at a fast rate. 4. BROADBAND PENETRATION INCREASE TO BENEFIT APPLE TV As high-speed broadband technology improves and becomes cheaper, 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.com website (link)
APPLE TV GROSS PROFIT MARGIN
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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. However, according to iSuppli report, the $99 Apple TV, BOM is $64. Hence we have raised our estimate for Gross margins to 25% in 2010 and then to 30% from 2011 onwards. Trefis forecasts that Apple TV Gross Profit Margin will decrease. Forecast Rationale 1. 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; and hence, reducing the price makes it an attractive bet. We expect Apple to increase its sales, but severe price reductions will not help its gross profit margins. Sources for historical data and explanations can be found on the Trefis.com website (link) Total Revenue (Bil $) Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 0.30 237 28.8 61.9 N/A CY08 0.37 292 53.0 76.4 N/A CY09 0.42 338 18.4 85.6 N/A CY10 0.42 316 60.5 106 N/A CY11 0.63 436 110 188 78.1 CY12 0.81 566 140 239 98.4 CY13 0.92 650 153 268 114 CY14 1.00 715 158 287 129 CY15 1.06 760 161 298 136 CY16 1.12 808 173 309 136 CY17 1.18 859 182 321 138 CY18 1.25 914 192 333 140
In addition, you can see the detailed P&L for the Apple TV business in the Appendix (link)
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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, iPod & iPad (% of N/A 0.09 0.41 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, iPod & iPad (% of
total)
CY07 29.5 11.1 N/A 23.4 6.07 4.97
CY08 40.0 24.2 N/A 23.0 5.47 5.56
CY09 46.7 33.5 N/A 20.9 5.21 5.96
CY10 76.3 39.4 12.1 15.9 4.02 5.08 0.85 8.29 11.9 1.87 0.56 46.7 52.2 9.33 12.1 7.27 3.94 0.67 5.24 7.24 1.67 0.36 29.6 52.2 9.33 12.1 7.27 3.94 0.67 5.24 7.24 1.67
CY11 119 44.4 20.5 12.9 3.07 3.81 1.11 6.12 6.12 1.43 0.52 70.7 57.9 15.1 9.37 5.29 2.81 0.85 3.69 3.46 1.20 0.39 48.5 57.9 15.1 9.37 5.29 2.81 0.85 3.69 3.46 1.20
CY12 144 44.6 23.8 11.8 2.81 3.62 1.38 5.08 5.05 1.31 0.56 87.2 57.5 17.5 8.64 4.99 2.75 1.10 3.09 2.87 1.11 0.42 57.0 57.5 17.5 8.64 4.99 2.75 1.10 3.09 2.87 1.11
CY13 163 46.3 24.0 11.1 2.68 3.40 1.70 4.49 4.53 1.25 0.56 100 58.7 17.4 8.19 4.88 2.64 1.41 2.73 2.58 1.07 0.42 63.1 58.7 17.4 8.19 4.88 2.64 1.41 2.73 2.58 1.07
CY14 182 48.4 23.4 10.5 2.57 3.23 1.98 4.01 4.12 1.20 0.55 113 60.2 16.7 7.78 4.80 2.56 1.70 2.44 2.34 1.03 0.42 69.1 60.2 16.7 7.78 4.80 2.56 1.70 2.44 2.34 1.03
CY15 202 51.0 22.3 9.95 2.48 3.04 2.19 3.61 3.78 1.15 0.52 127 62.0 15.7 7.40 4.74 2.47 1.96 2.20 2.15 1.00 0.40 74.9 62.0 15.7 7.40 4.74 2.47 1.96 2.20 2.15 1.00
CY16 220 52.9 21.6 9.43 2.40 2.91 2.35 3.30 3.49 1.12 0.51 141 63.2 15.0 7.08 4.72 2.43 2.16 2.02 1.99 0.98 0.39 79.5 63.2 15.0 7.08 4.72 2.43 2.16 2.02 1.99 0.98
CY17 239 54.7 21.0 8.80 2.30 2.80 2.55 3.02 3.25 1.07 0.49 156 64.3 14.5 6.69 4.67 2.41 2.41 1.86 1.86 0.96 0.38 83.7 64.3 14.5 6.69 4.67 2.41 2.41
CY18 258 56.1 20.6 8.27 2.22 2.72 2.81 2.78 3.04 1.03 0.48 171 64.9 14.1 6.38 4.67 2.42 2.75 1.73 1.76 0.94 0.38 87.1 64.9 14.1 6.38 4.67 2.42 2.75
15.6 34.2 3.70 1.01 19.5 20.2 N/A 20.7 12.5 4.39
12.9 24.5 3.32 0.92 25.0 37.5 N/A 18.4 10.2 4.46
10.6 20.0 2.43 0.91 27.6 49.6 N/A 15.3 8.92 4.37 0.30 6.50 12.4 2.08 0.45 19.1 49.6 N/A 15.3 8.92 4.37 0.30 6.50 12.4 2.08
N/A 0.07 11.5 26.2 3.88 0.62 10.0 20.2 N/A 20.7 12.5 4.39 8.60 17.0 3.16 0.51 15.0 37.5 N/A 18.4 10.2 4.46
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, iPod & iPad (% of
total)
N/A 0.07 11.5 26.2 3.88 8.60 17.0 3.16
Desktops (% of total) iPod (% of total) Peripherals (% of total)
1.86 1.73 1.86 1.76 0.96 0.94
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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, iPod & iPad (% of N/A 0.07 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, iPod & iPad (% of
total)
CY07 0.62 4.66 20.2 N/A 20.7 12.5 4.39
CY08 0.51 10.4 37.5 N/A 18.4 10.2 4.46
CY09 0.45 4.11 49.6 N/A 15.3 8.92 4.37 0.30 6.50 12.4 2.08 0.45 N/A N/A N/A N/A N/A N/A
CY10 0.36 16.8 52.2 9.33 12.1 7.27 3.94 0.67 5.24 7.24 1.67 0.36 N/A N/A N/A N/A N/A N/A
CY11 0.39 28.4 57.9 15.1 9.37 5.29 2.81 0.85 3.69 3.46 1.20 0.39 20.1 57.9 15.1 9.37 5.29 2.81
CY12 0.42 33.5 57.5 17.5 8.64 4.99 2.75 1.10 3.09 2.87 1.11 0.42 23.4 57.5 17.5 8.64 4.99 2.75 1.10 3.09 2.87 1.11 0.42
CY13 0.42 36.2 58.7 17.4 8.19 4.88 2.64 1.41 2.73 2.58 1.07 0.42 26.9 58.7 17.4 8.19 4.88 2.64 1.41 2.73 2.58 1.07 0.42
CY14 0.42 38.0 60.2 16.7 7.78 4.80 2.56 1.70 2.44 2.34 1.03 0.42 31.1 60.2 16.7 7.78 4.80 2.56 1.70 2.44 2.34 1.03 0.42
CY15 0.40 40.6 62.0 15.7 7.40 4.74 2.47 1.96 2.20 2.15 1.00 0.40 34.3 62.0 15.7 7.40 4.74 2.47 1.96 2.20 2.15 1.00 0.40
CY16 0.39 44.4 63.2 15.0 7.08 4.72 2.43 2.16 2.02 1.99 0.98 0.39 35.1 63.2 15.0 7.08 4.72 2.43 2.16 2.02 1.99 0.98 0.39
CY17 0.38 47.5 64.3 14.5 6.69 4.67 2.41 2.41 1.86 1.86 0.96 0.38 36.2 64.3 14.5 6.69 4.67 2.41 2.41 1.86 1.86 0.96 0.38
CY18 0.38 50.3 64.9 14.1 6.38 4.67 2.42 2.75 1.73 1.76 0.94 0.38 36.9 64.9 14.1 6.38 4.67 2.42 2.75 1.73 1.76 0.94 0.38
11.5 26.2 3.88 0.62 N/A N/A N/A N/A N/A N/A
8.60 17.0 3.16 0.51 N/A N/A N/A N/A N/A N/A
N/A N/A N/A N/A 0.85 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 3.69 3.46 1.20 0.39
Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total)
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Detailed P&L for the iPhone business

The most important drivers for the iPhone business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 61.7 570 5.98 1.81 2.54 23.4 5.98 1.81 64.3
CY13 72.5 536 7.18 1.88 3.20 23.7 7.18 1.88 75.7
CY14 CY15 84.6 509 8.48 1.96 3.97 23.9 8.48 1.96 88.5 98.4 489 9.88 2.04 4.86 24.2 9.88 2.04 103
CY16 CY17 111 469 11.3 2.10 5.77 24.4 11.3 2.10 116 124 450 12.8 2.16 6.80 24.6 12.8 2.16 131
CY18 137 432 14.4 2.20 7.88 24.9 14.4 2.20 144
3.22 868 0.32 1.15 0.05 13.5 0.32 1.15 3.27
9.52 696 1.12 1.22 0.17 12.4 1.12 1.22 9.69
15.3 608 2.07 1.21 0.38 15.2 2.07 1.21 15.7
29.0 610 2.98 1.60 1.07 22.5 2.98 1.60 30.1
51.1 620 4.78 1.72 1.89 23.0 4.78 1.72 53.0
1.24 62.0 0.94 8.44 32.1 3.06 29.4 8.17
4.07 58.0 3.90 7.86 26.0 3.85 22.9 8.05
6.19 60.5 2.04 7.41 22.7 3.90 19.6 6.18
14.6 51.3 8.75 6.63 20.7 3.28 23.5 9.47
24.9 53.0 16.5 6.63 20.7 3.28 27.5 9.47
31.5 51.0 19.3 6.83 22.4 3.48 29.5 9.47
38.6 49.0 21.3 7.03 23.9 3.68 29.5 9.47
46.9 47.0 22.9 7.23 24.4 3.88 29.5 9.47
56.8 45.0 25.2 7.43 24.9 4.08 29.5 9.47
66.6 43.0 28.1 7.63 25.4 4.28 29.5 9.47
77.4 41.0 30.5 7.83 25.9 4.48 29.5 9.47
88.4 39.0 32.6 8.03 26.4 4.68 29.5 9.47
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 $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 41.4 2.74 50.8 32.8 13.5 1.74 59.8 37.1 15.8 0.74 69.8 41.6 18.7 0.24 82.0 46.5 21.3 0.24 94.6 50.2 22.2 0.24 107 53.8 23.3 0.24 121 56.5 23.9
-1.60 -2.01 -4.75 4.74 2.18 7.97 8.23 23.4
2.03 5.62 9.48 15.4 28.1 N/A N/A N/A N/A 11.6
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Detailed P&L for the iPad business

The most important drivers for the iPad business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 34.4 584 58.8 34.4
CY13 39.2 555 70.5 39.2
CY14 CY15 42.8 527 81.1 42.8 45.2 506 89.2 45.2
CY16 CY17 47.7 486 98.2 47.7 50.4 466 107 50.4
CY18 53.2 448 118 53.2
9.20 622 14.8 9.20
24.4 622 39.2 24.4
6.44 30.0 1.56 6.63 20.7 3.28 23.5 9.47
17.1 30.0 4.29 6.63 20.7 3.28 27.5 9.47
24.4 29.0 5.87 6.83 22.4 3.48 29.5 9.47
28.2 28.0 6.29 7.03 23.9 3.68 29.5 9.47
31.3 27.0 6.36 7.23 24.4 3.88 29.5 9.47
33.5 26.0 6.37 7.43 24.9 4.08 29.5 9.47
35.8 25.0 6.66 7.63 25.4 4.28 29.5 9.47
38.3 24.0 6.87 7.83 25.9 4.48 29.5 9.47
41.0 23.0 7.06 8.03 26.4 4.68 29.5 9.47
-2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 4.74 3.74 2.74 30.3 9.97 4.10 1.74 34.5 11.0 4.68 0.74 37.6 11.6 5.20 0.24 39.8 11.8 5.38 0.24 42.5 11.9 5.27 0.24 45.2 12.1 5.23 0.24 48.1 12.2 5.18
8.00 21.4 2.76 7.31 N/A 3.02
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Detailed P&L for the Notebooks business

The most important drivers for the Notebooks business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 17.0 1.21 6.62 212 17.0
CY13 18.1 1.15 7.09 223 18.1
CY14 CY15 19.2 1.09 7.52 234 19.2 20.2 1.03 7.92 246 20.2
CY16 CY17 20.8 0.98 8.28 256 20.8 21.1 0.93 8.58 263 21.1
CY18 21.4 0.89 8.88 271 21.4
6.90 9.21 1.46 1.43 4.24 4.87 111 132
9.78 1.30 4.69 160 9.78
12.1 1.25 4.79 202 12.1
15.4 1.27 5.99 202 15.4
6.90 9.21
4.83 30.0
6.44 30.0
6.85 30.0 0.63 7.41 22.7 3.90 19.6 6.18
8.56 29.5 2.03 6.63 20.7 3.28 23.5 9.47
10.9 29.5 2.67 6.63 20.7 3.28 27.5 9.47
12.1 29.0 2.90 6.83 22.4 3.48 29.5 9.47
13.0 28.5 2.96 7.03 23.9 3.68 29.5 9.47
13.8 28.0 2.96 7.23 24.4 3.88 29.5 9.47
14.6 27.5 3.01 7.43 24.9 4.08 29.5 9.47
15.2 27.0 3.14 7.63 25.4 4.28 29.5 9.47
15.5 26.5 3.18 7.83 25.9 4.48 29.5 9.47
15.8 26.0 3.21 8.03 26.4 4.68 29.5 9.47
0.96 1.91 8.44 7.86 32.1 26.0 3.06 29.4 8.17 3.85 22.9 8.05
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 13.5 2.74 15.0 4.92 2.03 1.74 15.9 5.17 2.21 0.74 16.8 5.37 2.42 0.24 17.6 5.54 2.54 0.24 18.3 5.62 2.48 0.24 18.7 5.60 2.42 0.24 19.0 5.56 2.35
-1.60 -2.01 -4.75 4.74 5.79 8.36 7.48 10.6
2.07 2.76 2.93 3.58 4.54 N/A N/A N/A N/A 1.88
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Detailed P&L for the Software & Services business

The most important drivers for the Software & Services business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 4.04 204 4.08 140 6.62 212 4.04
CY13 4.38 200 4.28 141 7.09 223 4.38
CY14 CY15 4.70 196 4.48 141 7.52 234 4.70 5.03 192 4.68 142 7.92 246 5.03
CY16 CY17 5.31 188 4.88 143 8.28 256 5.31 5.53 184 5.08 144 8.58 263 5.53
CY18 5.74 180 5.28 144 8.88 271 5.74
1.79 230 2.02 151 4.24 111 1.79
2.19 220 2.33 148 4.87 132 2.19
2.44 216 2.69 136 4.69 160 2.44
3.07 212 3.38 139 4.79 202 3.07
3.66 208 3.88 139 5.99 202 3.66
0.54 70.0 0.58 8.44 32.1 3.06 29.4 8.17
0.66 0.73 70.0 1.06 7.86 26.0 3.85 22.9 8.05 70.0 0.37 7.41 22.7 3.90 19.6 6.18
0.92 70.1 1.22 6.63 20.7 3.28 23.5 9.47
1.09 70.2 1.51 6.63 20.7 3.28 27.5 9.47
1.20 70.3 1.67 6.83 22.4 3.48 29.5 9.47
1.30 70.4 1.77 7.03 23.9 3.68 29.5 9.47
1.39 70.5 1.82 7.23 24.4 3.88 29.5 9.47
1.48 70.6 1.92 7.43 24.9 4.08 29.5 9.47
1.56 70.7 2.10 7.63 25.4 4.28 29.5 9.47
1.61 70.8 2.22 7.83 25.9 4.48 29.5 9.47
1.67 70.9 2.35 8.03 26.4 4.68 29.5 9.47
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 2.60 2.74 2.87 2.84 1.17 1.74 3.06 3.08 1.31 0.74 3.21 3.32 1.49 0.24 3.40 3.55 1.63 0.24 3.65 3.75 1.66 0.24 3.83 3.91 1.69 0.24 4.02 4.07 1.72
-1.60 -2.01 -4.75 4.74 1.12 1.72 1.10 2.14
1.25 1.53 1.71 2.15 2.57 N/A N/A N/A N/A 1.06
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56
Detailed P&L for the iTunes business

The most important drivers for the iTunes business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 3.67 4.42 0.83 355 1.21 293 26.7 7.97 3.35 563 7.53 74.9 4.27 0.88 4.87 7.79 13.3 586 5.22
CY13 3.74 4.29 0.87 361 1.18 307 27.2 7.73 3.51 601 7.30 82.4 4.55 0.85 5.35 7.94 12.9 616 5.55
CY14 CY15 3.73 4.16 0.90 361 1.14 317 27.1 7.50 3.62 641 7.08 90.6 4.86 0.82 5.89 7.93 12.5 634 5.90 3.73 4.03 0.92 361 1.11 326 27.1 7.27 3.73 672 6.87 97.9 5.09 0.80 6.36 7.92 12.1 653 6.16
CY16 CY17 3.73 3.91 0.95 361 1.07 336 27.1 7.05 3.84 704 6.66 105 5.33 0.78 6.87 7.92 11.8 673 6.43 3.72 3.79 0.98 360 1.04 346 27.1 6.84 3.96 737 6.46 114 5.58 0.75 7.42 7.91 11.4 693 6.72
CY18 3.72 3.68 1.01 360 1.01 356 27.0 6.64 4.07 772 6.27 123 5.85 0.73 8.01 7.90 11.1 714 7.02
1.00 4.99 0.20 149 1.99 75.0 21.5 12.7 1.70 N/A N/A N/A 1.29 0.99 1.30 5.40 15.0 360 1.46
1.75 4.99 0.35 218 2.30 95.0 18.9 9.00 2.10 N/A N/A N/A 1.98 0.99 2.00 6.30 15.0 420 2.23
2.54 4.84 0.52 254 2.23 114 22.0 8.73 2.52 N/A N/A N/A 2.50 0.96 2.60 6.72 14.6 462 2.78
3.08 4.70 0.66 311 1.56 199 24.5 8.47 2.90 384 8.00 48.0 3.15 0.93 3.38 7.17 14.1 508 3.88
3.44 4.55 0.75 348 1.25 279 26.2 8.21 3.19 484 7.76 62.4 3.66 0.90 4.06 7.65 13.7 559 4.54
1.02 30.0 0.20 8.44 32.1 3.06 29.4 8.17
1.56 30.0 0.46 7.86 26.0 3.85 22.9 8.05
1.95 30.0 0.18 7.41 22.7 3.90 19.6 6.18
2.72 30.0 0.66 6.63 20.7 3.28 23.5 9.47
3.17 30.0 0.80 6.63 20.7 3.28 27.5 9.47
3.66 30.0 0.92 6.83 22.4 3.48 29.5 9.47
3.89 30.0 0.96 7.03 23.9 3.68 29.5 9.47
4.13 30.0 0.97 7.23 24.4 3.88 29.5 9.47
4.31 30.0 1.00 7.43 24.9 4.08 29.5 9.47
4.50 30.0 1.08 7.63 25.4 4.28 29.5 9.47
4.70 30.0 1.14 7.83 25.9 4.48 29.5 9.47
4.91 30.0 1.22 8.03 26.4 4.68 29.5 9.47
Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 3.97 2.74 4.58 1.74 4.84 0.74 5.10 0.24 5.31 0.24 5.58 0.24 5.85 0.24 6.13
-1.60 -2.01 -4.75 4.74 1.23 2.02 2.13 3.37
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iTunes: Detailed P&L continued Gross Profits (Bil $) Free Cash Flow (Mil $) CY07 CY08 CY09 CY10 CY11 0.44 0.67 0.83 1.16 1.36 N/A N/A N/A N/A 562 CY12 1.57 644 CY13 1.67 710 CY14 CY15 1.77 1.85 795 846 CY16 CY17 1.93 2.02 852 872 CY18 2.11 891
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Detailed P&L for the Apps for iPhone, iPod & iPad business
The most important drivers for the Apps for iPhone, iPod & iPad business are discussed above, here is the detailed P&L. Apps for iPhone, iPod & iPad: Detailed P&L CY08 CY09 Revenues iAd App Advertising Revenue (Bil $) N/A N/A Number of iPhone, iPod Touch 0.03 0.08 & iPad Devices in Use (Bil) Ad Impressions per Device (per N/A N/A
Month)
CY10 CY11 0.04 0.15 0.14 4.50 0.22 6.75
CY12 0.27 0.31 10.1
CY13 0.45 0.41 14.2 6.48 2.33 30.2 4.42 1.74 2.77
CY14 CY15 0.68 0.53 18.4 5.83 2.93 39.3 4.50 1.65 3.61 1.04
CY16 CY17 1.40 1.89 1.08 34.5 4.25 4.23 62.4 4.78 1.42 6.12
CY18 2.56 1.35 41.4 3.83 4.71 71.7 4.88 1.35 7.27
0.69 0.86 24.0 5.25 3.41 47.2 4.59 1.57 4.45 28.7 4.72 3.80 54.3 4.69 1.49 5.20
Revenue per Ad Impression ($ per N/A N/A 10.0 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, iPod Touch & iPad Apps Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp. % of Gross Profit
(%)
8.00 7.20 1.18 14.4 4.24 1.93 1.32 1.71 21.6 4.33 1.83 1.99
0.04 0.19 0.40 2.20 4.00 4.08 2.25 2.14
0.61 7.20 4.16 2.03 0.65
0.04 0.19
0.03 30.0 0.01 7.86 26.0 3.85 22.9 8.05 7.93
0.13 30.0 0.01 7.41 22.7 3.90 19.6 6.18
0.45 30.5 0.11 6.63 20.7 3.28 23.5 9.47
0.91 31.0 0.24 6.63 20.7 3.28 27.5 9.47
1.36 31.5 0.37 6.83 22.4 3.48 29.5 9.47
1.89 32.0 0.51 7.03 23.9 3.68 29.5 9.47
2.44 32.5 0.65 7.23 24.4 3.88 29.5 9.47
2.98 33.0
3.48 33.0
4.10 33.0
4.87 33.0 1.38 8.03 26.4 4.68 29.5 9.47
0.80 0.96 1.15 7.43 7.63 7.83 24.9 25.4 25.9 4.08 29.5 9.47 4.28 29.5 9.47 4.48 29.5 9.47
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 1.15 2.74 1.73 0.63 0.26 1.74 2.40 0.89 0.38 0.74 3.08 1.17 0.53 0.24 3.77 1.47 0.67 0.24 4.44 1.72 0.76 0.24 5.25 2.02 0.87 0.24 6.26 2.40 1.02
-2.01 -4.75 4.74 0.03 0.15 0.56
0.01 0.06 0.20 0.41 N/A N/A N/A 0.17
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60
Detailed P&L for the Desktops business

The most important drivers for the Desktops business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 7.33 1.28 4.08 140 7.33
CY13 7.34 1.22 4.28 141 7.34
CY14 CY15 7.33 1.15 4.48 141 7.33 7.31 1.10 4.68 142 7.31
CY16 CY17 7.28 1.04 4.88 143 7.28 7.24 0.99 5.08 144 7.24
CY18 7.18 0.94 5.28 144 7.18
4.58 1.50 2.02 151 4.58
5.15 1.49 2.33 148 5.15
4.97 1.35 2.69 136 4.97
6.32 1.34 3.38 139 6.32
7.30 1.35 3.88 139 7.30
3.44 25.0 0.53 8.44 32.1 3.06 29.4 8.17
3.86 25.0 0.89 7.86 26.0 3.85 22.9 8.05
3.73 25.0 0.27 7.41 22.7 3.90 19.6 6.18
4.78 24.5 0.88 6.63 20.7 3.28 23.5 9.47
5.51 24.5 1.05 6.63 20.7 3.28 27.5 9.47
5.57 24.0 1.03 6.83 22.4 3.48 29.5 9.47
5.61 23.5
5.65 23.0
5.67 22.5 0.89 7.43 24.9 4.08 29.5 9.47
5.68 22.0 0.89 7.63 25.4 4.28 29.5 9.47
5.68 21.5 0.88 7.83 25.9 4.48 29.5 9.47
5.67 21.0 0.87 8.03 26.4 4.68 29.5 9.47
0.99 0.93 7.03 7.23 23.9 24.4 3.68 29.5 9.47 3.88 29.5 9.47
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 $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 6.56 2.74 1.74 0.74 0.24 6.56 1.65 753 0.24 6.58 1.60 707 0.24 6.57 1.56 673 0.24 6.54 1.51 638
-1.60 -2.01 -4.75 4.74 3.97 4.76 4.00 5.65
6.60 6.60 6.58 1.76 723 1.72 735 1.69 758
1.15 1.29 1.24 1.55 1.79 N/A N/A N/A N/A 739
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Detailed P&L for the iPod business

The most important drivers for the iPod business are discussed above, here is the detailed P&L. 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. % of Gross Profit
(%)
CY12 6.17 142 24.7 175 1.11 25.5 24.7 175 7.28
CY13 6.22 137 24.9 181 1.18 26.2 24.9 181 7.40
CY14 CY15 6.26 133 25.1 186 1.26 27.0 25.1 186 7.53 6.30 129 25.3 192 1.35 27.8 25.3 192 7.66
CY16 CY17 6.29 125 25.5 195 1.43 28.7 25.5 195 7.72 6.27 122 25.7 199 1.52 29.5 25.7 199 7.79
CY18 6.25 118 25.9 203 1.61 30.4 25.9 203 7.86
8.88 168 29.3 180 1.21 23.0 29.3 180 10.1
8.53 153 25.4 218 1.27 23.0 25.4 218 9.80
8.11 154 26.9 195 1.22 23.3 26.9 195 9.33
7.94 162 24.3 200 1.17 24.0 24.3 200 9.11
6.26 149 24.5 170 1.03 24.7 24.5 170 7.29
7.46 26.0 1.22 8.44 32.1 3.06 29.4 8.17
7.25 26.0 1.77 7.86 26.0 3.85 22.9 8.05
6.95 25.5 0.51 7.41 22.7 3.90 19.6 6.18
6.97 23.5 1.21 6.63 20.7 3.28 23.5 9.47
5.61 23.0 0.98 6.63 20.7 3.28 27.5 9.47
5.64 22.5 0.96 6.83 22.4 3.48 29.5 9.47
5.77 22.0 0.93 7.03 23.9 3.68 29.5 9.47
5.91 21.5 0.89 7.23 24.4 3.88 29.5 9.47
6.05 21.0 0.87 7.43 24.9 4.08 29.5 9.47
6.14 20.5 0.88 7.63 25.4 4.28 29.5 9.47
6.23 20.0 0.88 7.83 25.9 4.48 29.5 9.47
6.32 19.5 0.88 8.03 26.4 4.68 29.5 9.47
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 $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 2.74 1.74 0.74 6.80 1.62 727 0.24 6.92 1.61 736 0.24 7.02 1.58 698 0.24 7.11 1.56 673 0.24 7.21 1.53 648
-1.60 -2.01 -4.75 4.74 8.68 9.02 7.46 8.18
6.60 6.60 6.70 1.64 673 1.63 694
2.62 2.55 2.38 2.14 1.68 N/A N/A N/A N/A 693
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Detailed P&L for the Peripherals business

The most important drivers for the Peripherals business are discussed above, here is the detailed P&L. 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 1.88 95.0 4.08 140 6.62 212 1.88
CY13 2.04 93.1 4.28 141 7.09 223 2.04
CY14 CY15 2.19 91.2 4.48 141 7.52 234 2.19 2.34 89.4 4.68 142 7.92 246 2.34
CY16 CY17 2.47 87.6 4.88 143 8.28 256 2.47 2.57 85.8 5.08 144 8.58 263 2.57
CY18 2.67 84.1 5.28 144 8.88 271 2.67
1.09 140 2.02 151 4.24 111 1.09
1.33 134 2.33 148 4.87 132 1.33
1.13 100 2.69 136 4.69 160 1.13
1.43 98.9 3.38 139 4.79 202 1.43
1.70 96.9 3.88 139 5.99 202 1.70
0.70 35.6 180 8.44 32.1 3.06 29.4 8.17
0.86 35.6 328 7.86 26.0 3.85 22.9 8.05
0.74 35.1 85.5 7.41 22.7 3.90 19.6 6.18
0.93 34.6 279 6.63 20.7 3.28 23.5 9.47
1.12 34.1 340 6.63 20.7 3.28 27.5 9.47
1.25 33.6 372 6.83 22.4 3.48 29.5 9.47
1.36 33.1 386 7.03 23.9 3.68 29.5 9.47
1.47 32.6 392 7.23 24.4 3.88 29.5 9.47
1.59 32.1 407 7.43 24.9 4.08 29.5 9.47
1.69 31.6 435 7.63 25.4 4.28 29.5 9.47
1.77 31.1 453 7.83 25.9 4.48 29.5 9.47
1.85 30.6 471 8.03 26.4 4.68 29.5 9.47
Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp. % 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 $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 1.46 2.74 1.62 632 260 1.74 1.75 673 287 0.74 1.87 713 320 0.24 0.24 0.24 2.23 799 345 0.24 2.33 817 346
-1.60 -2.01 -4.75 4.74 0.88 1.18 0.82 1.21
2.00 2.13 751 343 780 344
387 473 397 493 580 N/A N/A N/A N/A 239
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Detailed P&L for the Apple TV business

The most important drivers for the Apple TV business are discussed above, here is the detailed P&L. 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 0.81 91.1 8.85 0.81
CY13 0.92 86.5 10.6 0.92
CY14 CY15 1.00 82.2 12.2 1.00 1.06 78.9 13.4 1.06
CY16 CY17 1.12 75.7 14.8 1.12 1.18 72.7 16.2 1.18
CY18 1.25 69.8 17.9 1.25
0.30 299 1.000 0.30
0.37 284 1.30 0.37
0.42 241 1.76 0.42
0.42 120 3.51 0.42
0.63 99.0 6.32 0.63
237 20.7 28.8 8.44 32.1 3.06 29.4 8.17
292 20.7 53.0 7.86 26.0 3.85 22.9 8.05
338 20.2 18.4 7.41 22.7 3.90 19.6 6.18
316 25.2 60.5 6.63 20.7 3.28 23.5 9.47
436 30.2 110 6.63 20.7 3.28 27.5 9.47
566 29.7 140 6.83 22.4 3.48 29.5 9.47
650 29.2 153 7.03 23.9 3.68 29.5 9.47
715 28.7 158 7.23 24.4 3.88 29.5 9.47
760 28.2 161 7.43 24.9 4.08 29.5 9.47
808 27.7 173 7.63 25.4 4.28 29.5 9.47
859 27.2 182 7.83 25.9 4.48 29.5 9.47
914 26.7 192 8.03 26.4 4.68 29.5 9.47
Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp. % 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 $)
-4.23 7.93
-5.41 -2.46 -1.46 -1.26 -1.06 -0.86 -0.66 -0.46 -0.26 -0.06 3.74 0.55 2.74 0.71 239 98.4 1.74 0.74 0.24 0.92 298 136 0.24 0.98 309 136 0.24 1.04 321 138 0.24 1.11 333 140
-1.60 -2.01 -4.75 4.74 0.27 0.35 0.36 0.38
0.80 0.87 268 114 287 129
61.9 76.4 85.6 106 188 N/A N/A N/A N/A 78.1
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Apple

ANALYSIS for NASDAQ : AAPL DECEMBER 22, 2011

$471.9 B MKT CAP

$370.5 B MKT CAP

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

Songs Pricing 24 Unit Sales of Songs 25 iTunes Gross Profit Margin 25

Global Notebook & Netbook Units Sold 44

Peripherals Gross Profit Margin 45

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

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPhone Pricing ($)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPhone's Market Share in Mobile Phones (%)

15.0 12.5 10.0 7.5 5.0 2.5 0.0 2007 0 8 09 10 11 12 13 14 15 16 17 18

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

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

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPhone Gross Profit Margin (%)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPad Pricing ($)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPad Units Sales (Mil)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

iPad Gross Profit Margin (%)

30 25 20 15 10 5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

Mac Notebook Pricing represents the average price of a Mac Notebook.

Mac Notebook Pricing (K $)

1.50 1.25 1.00 0.75 0.50 0.25 0.00 2007 0 8 09 10 11 12 13 14 15 16 17 18

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

Mac Notebooks Market Share (%)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

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

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

Mac Notebooks Gross Profit Margin (%)

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763

TREFIS ANALYSIS for APPLE

+ 1 617 394 8763