Apple

ANALYSIS for NASDAQ : AAPL DECEMBER 22, 2011

IPHONE

$

503

$

399
Market Price

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

$471.9 B MKT CAP
Trefis Estimate

$370.5 B MKT CAP

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

— CORPORATE SNAPSHOT —

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

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

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

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

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

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

DESKTOPS

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

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

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

Global Notebook & Netbook Units Sold 44

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

Peripherals Gross Profit Margin 45
APPLE TV

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

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

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

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

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

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

We believe there is uncertainty around the size of the price reductions and the impact of a potential low-end iPhone.5% of our $503 price estimate for this stock. 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. As a result. We estimate that iPhone Pricing declined from $868 in 2007 to $611 in 2010. These prices are arrived at after a huge subsidy of about $450 that carriers such as AT&T.COM + 1 617 394 8763 •5 . For consumers in the US. Forecast Rationale Apple is expected to lower iPhone prices over time to stimulate market share gains. $299 for the 32 GB and $399 for the 64 GB version. Apple initially earned subsequent revenues through a revenue share agreement with AT&T. for a much higher amount to the carriers that then discount it for their customers. Verizon and now.S.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. based on our sum of the parts analysis. So. which would reduce the iPhone Average Price. In addition to the purchase price of the iPhone paid by consumers. iPhone 4S is priced at $199 for the 16 GB. Sprint offer their subscribers in return for a two year contract. Apple actually sells the phones in the U.iPhone The iPhone division constitutes 52. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. iPhone Pricing ($) 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.

such as: • E-mail. The iPhone is a smartphone having computer like features. INCREASING COMMODITIZATION OF SMARTPHONES WILL BRING DOWN PRICES – As smartphones become more and more commoditized. Nokia and Motorola Mobility are Apple's biggest competitors in the smartphone space.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 TREFIS ANALYSIS for APPLE CONTENT@TREFIS. • Photo-browsing and video clip-viewing capabilities iPhone's Market Share in Mobile Phones (%) 15.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.COM + 1 617 394 8763 •6 . 3. When competitors start slashing prices.5 5. The average price of all the iPhones sold is bound to fall with this strategy.5 0. • A media player. there will be a tendency for smartphone companies to lower the smartphone prices as the lower prices will be compensated by higher subscriber growth. Sources for historical data and explanations can be found on the Trefis. • The ability to read business documents.0 7.Among all this uncertainty. 2. Apple receives even higher competition from Google's Android operating system smartphones. we still believe iPhone pricing will decline at faster rate initially for a couple of years and then undergo a slow decline as the smartphone market matures. where the smartphone market is still in nascent stage. Apple will be compelled to lower prices or introduce new phone features to maintain premium pricing. as it has started to expand its reach. We understand this is a strategy by Apple to woo the mid-market buyers to ward off competition from the Android smartphones. Apple's primary competitors in mobile phones are Nokia. RIM (which makes BlackBerry phones). Motorola and HTC.5 10. This hypothesis is especially true for emerging markets. PRICING PRESSURE FROM COMPETITORS – RIM. • Internet access. 1.0 12. SLASHING PRICES OF THE OLDER IPHONES IN A BID TO ENTER MID AND LOW-END MARKETS – The iPhone 3GS is now being offered for free with a two-year contract.0 2.

In addition. Verizon has more than 90 million subscribers in the U. 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 is running on the new iOS 5. notes. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service.The iPhone was launched in June 2007.3% in 2007 to about 3% in 2010. and calendars. Functionality improvements. the 4S managed to rack up impressive sales of over 4 million on its debut weekend. which has been a unique selling point for them. the ability to send photos.080 pixels resolution for high definition video. 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. Through iTunes Match. Apple's competitors are still working to catch up with the quality of Apple's touch screen interface. with a market share of more than 30% while Sprint has a market share of around 16%. EXTRAORDINARY CONSUMER-FRIENDLY INTERFACE AND FEATURES RICH PHONE – Apple products often score high on usability and interface quality. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. IMESSAGE SERVICE TO CHALLENGE RIM'S BBM SERVICE – Apple announced the iOS version 5 in which one of the main feature was the iMessage service. The iPhone has seen continuous upgrades to its features. . and scores well over other smartphones now. Notable among these are the iCloud and iMessage service as well as Siri voice assistant 5. to distribute iPhones. Supporting: 1. If iCloud becomes the new model for media consumption. such as the BlackBerry and iPhone. it could influence demand for all Apple devices in a meaningful way. 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. one will not be required to upload a song even if a song is not purchased through iTunes. 4. Through this app users can chat and exchange files through Wi-fi and 3G. Both these developments will help Apple expand its addressable market. better battery life and an improved camera with 1. which is an improved operating system for Apple with over 200 new features. If the iPhone were to capture comparable share (30%). 6. and audio files as well as the ability to read and compose email have made it a feature-rich smartphone. The iPhone 4S was also launched on the Sprint network recently. China's #2 mobile phone provider. There is a growing reliance on smartphones. 9. contacts. THE SMARTPHONE SPACE HAS A LOT OF POTENTIAL IN EMERGING MARKETS – Apple announced a deal with China Unicom. 3. China Unicom has over 140 million subscribers TREFIS ANALYSIS for APPLE CONTENT@TREFIS. such as the ability to copy and paste. 2. 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. In spite of not so rave reviews. 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. Trefis forecasts that iPhone's Market Share in Mobile Phones will increase at a faster than historical rate. Additionally. a service that replaces the user's music with iTunes compatible format. Fast wireless networks create an opportunity for instant messaging through devices like the BlackBerry and media rich applications (TV on a BlackBerry). The ease-of-portability with the iPod and Mac for data transfer has also helped it increase market share. one can consume music through different Apple devices. iPad or Mac. as substitutes for PDAs containing address books. iPhone's Market Share in Mobile Phones increased from 0. a voice recognition system. it could mean an upside of 85% to our price estimate. These features will give much more convenience to the user in managing music files. 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.COM + 1 617 394 8763 •7 . 7. SUCCESS OF THE IPHONE 4S – The iPhone 4S carries a faster A5 dual core processor.S. as the consumers desire easy sync across multiple platforms. the inclusion of productivity and entertainment software on smartphones will further the attractiveness of such devices to businesses and consumers. 8. This could help Apple drive iPhone and iPad sales.

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

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

Global Mobile Phones Sold (Bil)

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

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

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

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

iPhone Gross Profit Margin (%)

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

TREFIS ANALYSIS for APPLE

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

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

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

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

play video games. Apple released the next version of iPad named iPad 2 in March 2011. AT&T is charging $14. or $25 for 2GB of data per month. . In comparison. view photos. The basic version of the iPod Touch is priced at $200 or $299 less than the basic iPad model.8 million iPads in 2010. download apps and play games on an iPod Touch.99 for up to 250 MB of data per month. In comparison. However. and download apps from the iTunes App Store. 3. Dell and LG tablets.COM + 1 617 394 8763 •12 . Given the significant price gap between the iPad and iPod Touch. 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. Apple sold about 3. read email. Most of the netbooks are priced below $400 compared to the $499 price for the basic iPad model. the Kindle and Nook come with free wireless service. 2. The iPad allows you to browse the web. The iPad is a tablet PC that is larger than a smartphone but smaller than a notebook PC. 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. iPad Units Sales (Mil) 100 75 50 25 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Apple sold around 14.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.7 inch screen. Pricing will play an important role as some consumers opt for cheaper devices in a weak economy. Motorola Mobility's Xoom. which is considered ideal for reading books and magazines. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. The iPad competes with RIM PlayBook. watch videos.com website (link) — IPAD UNITS SALES — iPad Units Sales represents the number iPads sold by Apple. For example. Samsung.7 million iPhones in the 2007 after the launch of the device in June of that year. 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. The main difference between the non-3G iPad and iPod Touch is the screen size. the iPad could cannibalize the netbook sales of competitors since the iPad does have comparable capabilities to some netbooks. The iPad has a 9. one can read books and magazines.

RIM is expected to release PlayBook tablet. extensive multi-tasking and multiple home screens among other features. It includes support for big screens (7 to 9 inch). iPad or Mac. 4. one can consume music through different Apple devices.We forecast that iPad sales will continue to increase at a rapid rate. and is designed thinner and lighter. INCREASED COMPETITION COULD CHALLENGE APPLE – Google released Android's new version named Honeycomb. 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.COM + 1 617 394 8763 •13 . This could help Apple drive iPhone and iPad sales. Forecast Rationale Supporting: 1.000. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Through iTunes Match. a service that replaces the user's music with iTunes compatible format. Apple announced that a basic iPad model would be available for $499. listen to music. If iCloud becomes the new model for media consumption. Through this app users can chat and exchange files through Wi-fi and 3G. iMessage is an app and is a free service similar to RIM's popular BlackBerry Messenger (BBM) service. IPAD IS MUCH MORE THAN A NORMAL E-READER – iPad is not only an e-reader. view photos. which includes the faster A5 processor.com website (link) — IPAD GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. 3. front and rear facing cameras. We expect iPad pricing to decline further in the future. 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. a totally revamped user interface. Sources for historical data and explanations can be found on the Trefis. In addition to that. it is an ultra thin and light device. Mitigating: 6. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. These features will give much more convenience to the user in managing music files. which is specifically designed for tablets. it could influence demand for all Apple devices in a meaningful way. watch videos and read email. which will benefit its unit sales even more. iMessage can make Apple devices more attractive to potential customers that have many friends and family that are already using iOS devices. but also a useful device to surf the web. 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. 2. use apps. which could leverage its dominant position in the enterprise segment to penetrate the tablet market. one will not be required to upload a song even if a song is not purchased through iTunes. 5. Additionally. IPAD 2 COULD BOOST APPLE – Apple released iPad 2 in March 2011 and has a few superior features over iPad.

8 31.7 35.2 5.0 4.5 6.6 5.8 6. In addition.1 4.38 CY16 47.31 3.COM + 1 617 394 8763 •14 .4 17. after it launched iPad 2 in March 2011 Mitigating: 2.76 N/A CY11 24.37 11.2 41.06 12.2 33.97 4.87 12.3 6. Forecast Rationale Supporting: 1.9 5. We have calendarized Apple's reported financial data for year ended December 31st.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 2010.66 11.23 CY18 53.8 5.36 11. PRICING DECLINE TO AFFECT MARGINS – We estimate Apple's average iPad pricing to decline going forward. you can see the detailed P&L for the iPad business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.1 5. Trefis forecasts that iPad Gross Profit Margin will decline. Future technology improvements could enable the iPad to decrease its manufacturing cost and help offset some declines in margins associated with lower pricing.18 Note that Apple reports financial information for fiscal year ended September 30th.2 6.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY10 9.0 7. FALLING INPUT OR MANUFACTURING COSTS – The iPad uses NAND flash memory for most of its models and NAND memory prices are are constantly falling. Sources for historical data and explanations can be found on the Trefis.27 CY17 50.68 CY14 42. Apple has already slashed the pricing of lowest version of iPad from $499 to $399.29 7.4 38.29 11.20 6.87 9.4 24.4 5.2 28.44 1.56 2. as Apple slash prices for older versions of iPad.10 CY13 39.20 CY15 45.3 6.02 CY12 34.

APPLE PRICING DECLINES HAVE BEEN LESS SEVERE THAN THAT OF COMPETITION – Surprisingly. Acer.250 in 2010. 2. and constitutes 5. Apple has been able to maintain its Mac Notebook Pricing.Notebooks The Notebooks division is part of the Macintosh business.50 0. Trefis forecasts that Mac Notebook Pricing will decrease. whereas its competitors like Dell.25 1.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.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 The average Mac Notebook Pricing increased from $1. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base. based on our sum of the parts analysis. Apple has always had a niche market and differentiated product in the crowded personal computer market.399 in 2005 to $1.426.460 in 2007. and HP have seen a lot of price erosion each year. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. This is evident from the fact that Q3 08 was the first quarter that saw notebook shipments overtake desktop shipments.75 0. The declining trend in pricing started from 2008. 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.25 0. It declined further to around $1. when the average Mac Notebook Pricing decreased for the first time to $1.65% of our $503 price estimate for the stock.00 0. Forecast Rationale 1. Mac Notebook Pricing (K $) 1.COM + 1 617 394 8763 •15 .50 1.

Sources for historical data and explanations can be found on the Trefis.COM + 1 617 394 8763 •16 . Mac has consistently come up with new products. a service that replaces the user's music with iTunes compatible format. 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. The Mac Mini is a small sized desktop.0 2.5% in 2005 to 5% in 2010. and business users.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Mac Notebooks Market Share increased from 3. SWITCHING FROM PC TO MAC HAS BECOME EASIER – Switching to a Mac is becoming increasingly appealing to existing PC-Windows users due to Apple's Mac OS and TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Through iTunes Match. The Mac Pro is specifically designed for professionals and business users. Trefis forecasts that Mac Notebooks Market Share will continue to increase at a moderate rate. 3. 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. like . and Acer. one will not be required to upload a song even if a song is not purchased through iTunes. 4. which is priced lower and starts at $699. Forecast Rationale Supporting: 1. Additionally.5 0. iPad or Mac. one can consume music through different Apple devices. Its unique touch screen interface is what attracts the high-end users.com website (link) — MAC NOTEBOOKS MARKET SHARE — Mac Notebooks Market Share represents the percentage share of notebook units sold by Apple. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS – Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface. Its primary competitors are HP. Mac Notebooks Market Share (%) 7. These features will give much more convenience to the user in managing music files. users who intend to use it for educational purposes. If iCloud becomes the new model for media consumption. 2. Dell.5 5. it could influence demand for all Apple devices in a meaningful way. The iMac is targeted at general consumers.

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

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. Forecast Rationale 1. iPad or Mac.COM + 1 617 394 8763 •18 .com website (link) — MAC NOTEBOOKS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. 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. 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. 2. 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.2. 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. and this should further spur the growth in shipments post 2009. a tablet computing device. As the companies around the world strive hard to capture a share in the potentially huge tablet market. we believe. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. 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. Mac Notebooks Gross Profit Margin (%) 30 25 20 15 10 5 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 TREFIS ANALYSIS for APPLE CONTENT@TREFIS. iCloud has the potential to replace the traditional usage of the PC as a music. thereby limiting PC's usage. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad. photo and document library.

DECLINING NOTEBOOK PRICES AND POTENTIAL MIX SHIFT IF APPLE INTRODUCES A NETBOOK – We believe notebook prices will continue to decline.54 1. there is an overall industry decline in average notebook prices.83 0.85 0.8 3.4 15. Mitigating: 2.96 5.90 4.0 2. Sources for historical data and explanations can be found on the Trefis.07 N/A CY08 9.78 6.1 2. Nevertheless.54 CY16 20.1 8.37 2.21 5.03 3.56 2. we would expect further average margin declines.8 15.67 4.2 3.5 3. which is encouraging.21 CY14 19.96 2.4 10.62 2. In addition. which will put pressure on margins.1 15.88 CY12 17.54 2.18 5.92 2.6 3.76 N/A CY09 9. Trefis forecasts that Mac Notebooks Gross Profit Margin will decline at a moderate rate.44 1.35 Note that Apple reports financial information for fiscal year ended September 30th. technology improvements has enabled Mac to decrease its manufacturing cost.93 N/A CY10 12.2 14. We have calendarized Apple's reported financial data for year ended December 31st.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 6.60 2.14 5.17 2.42 CY15 20.96 5. Forecast Rationale Supporting: 1.9 2.8 2.2 13.63 2.58 N/A CY11 15.21 6.03 CY13 18.42 CY18 21.1 13. Also.We estimate that Mac Notebooks Gross Profit Margin has been around 30% historically.91 2. FALLING INPUT OR MANUFACTURING COSTS – Mac Notebooks use the Intel microprocessors in most of its models for which the prices are constantly falling. you can see the detailed P&L for the Notebooks business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Apple's notebook prices have not declined as fast the competition's prices.56 2.0 12.COM + 1 617 394 8763 •19 . If Apple introduces a netbook to compete in the nascent netbook market.01 5.48 CY17 21.90 4.

MobileMe helps to keep email. This could be substituted for by TREFIS ANALYSIS for APPLE CONTENT@TREFIS. iWork helps users to organize software. and constitutes 3. which is called the AppleCare. iPhone. and carry out other related tasks. contacts. and iPod. Trefis forecasts that Apple will see continuous decline in Revenue Per Mac at a slower rate.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. which could be a substitute for high cost Apple Mac software. 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. 3. and calender-related data in sync with the Mac. such as: 1. Aperture is Apple's photo editing software. LOW COST OR FREE SOFTWARE ALTERNATIVES COULD NEGATIVELY IMPACT APPLE – Increasingly.Software & Services The Software & Services division is part of the Macintosh business. based on our sum of the parts analysis.90% of our $503 price estimate for the stock. Users can access it for an extra charge. Forecast Rationale 1. iLife is used to organize photos and enhance movie quality. 2. For example. 5. spreadsheets and presentations. 4.COM + 1 617 394 8763 •20 . iLife helps users to organize photos. OS X Lion is the Mac operating system. there are a number of cheaper and better quality software options on the market. The services part of Mac is the extended warranty service. enhance the movie quality.

2.com website (link) — GLOBAL NOTEBOOK & NETBOOK UNITS SOLD — Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally. 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. The growth in notebook shipments has been driven by: 1. 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.Google's Picasa software. 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. 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. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Global Notebook & Netbook Units Sold (Mil) 250 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Global Notebook & Netbook Units Sold have increased more than three folds during 2005-10 reaching 203 million in 2010.COM + 1 617 394 8763 •21 . Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipments heralding the advent of notebooks in a big way . 2. which is freely downloadable. and this should further spur the growth in shipments post 2009. Sources for historical data and explanations can be found on the Trefis. 3. 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. . INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years.

Trefis forecasts that Software and Services Gross Profit Margin will increase at a moderate rate. Apple unveiled Mac OS X Lion version. thereby limiting PC's usage. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. 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. 2. 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. iPad or Mac. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. 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. Forecast Rationale 1. Those customers may choose to just have the iPhone and iPad (which now automatically sync with each other via iCloud) and not own a PC altogether. As the companies around the world strive hard to capture a share in the potentially huge tablet market. MAC OS X PRICE DECLINE TO BE SOMEWHAT OFFSET BY REDUCED COST – During the WWDC event held on June 6th 2011. The OS can be downloaded online TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Forecast Rationale 1.com website (link) — SOFTWARE AND SERVICES GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. a tablet computing device.COM + 1 617 394 8763 •22 . 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. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad. photo and document library.Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate. and was attractively priced at $30. we believe. iCloud has the potential to replace the traditional usage of the PC as a music.

NEGLIGIBLE INPUT OR MANUFACTURING COSTS – Since Software & Services segment manufactures software and provides warranty services.03 1.82 3.from the Mac App store.67 2.84 1.07 1.08 1. 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.67 2.15 N/A CY11 3.77 3.10 3.56 2.63 CY16 5. As we expect healthy Mac unit growth.31 1.COM + 1 617 394 8763 •23 .66 CY17 5.61 2.53 N/A CY09 2.48 1.71 N/A CY10 3. 3.55 1.53 1.49 CY15 5.20 1.79 0.74 1.58 1.35 4.66 1.75 1.39 1.57 1.31 CY14 4.73 0.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) CY07 1.04 1.37 1.92 1. Hence the gross margins may not be affected through this change.25 N/A CY08 2.22 3.17 CY13 4. it should directly benefit Software & Services segment of Apple. We have calendarized Apple's reported financial data for year ended December 31st. The previous versions require installation through physical optical disc available in the retail stores. you can see the detailed P&L for the Software & Services business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.06 1.66 1.44 0.54 0. 2.07 0.51 2.38 1.22 2. we believe the online availability of software would have reduced input cost for Apple.92 3. Sources for historical data and explanations can be found on the Trefis.72 Note that Apple reports financial information for fiscal year ended September 30th.70 1. Although this price cut was a drastic cut from previous OS prices.19 0.30 1.06 CY12 4. In addition.69 CY18 5.09 1. we believe that these mostly involve the manpower costs and negligible manufacturing or input costs.32 1.91 1.

Trefis forecasts that Songs Pricing will decline at a moderate rate.04% of our $503 price estimate for the stock. Sources for historical data and explanations can be found on the Trefis.99 in 2006 to $0. 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.69. based on our sum of the parts analysis. 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. Apple has discontinued selling all individual songs for $0. Another competitor NexTune offers much the same functionality as iTunes.75 0. But Apple is facing increasing competition from Pandora and Samsung's Media Store. to counter-attack. So.25 0.00 0. Songs Pricing ($) 1. 2. Forecast Rationale 1.99.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.99 and $1. $0.29 in 2009.COM + 1 617 394 8763 •24 .93 in 2010.iTunes The iTunes division is part of the iTunes & iOS Apps business. ONLINE MUSIC HAS CHEAP AVAILABLE SUBSTITUTES – What users find the best about iTunes is the voice quality when listened through a iPod or iPhone. which sells individual tracks for a lower price to iTunes.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 Songs Pricing declined slightly from around $0. and started offering three tiers: $0.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. and constitutes 2.50 0.

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

05 5.24 1.8 81.93 852 CY17 6.22 2.3 0.80 0.67 710 CY14 5.14 2.51 10.16 N/A CY11 4.44 10.0 0.07 6.49 10.37 1.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 1.8 82.78 0. as major share of profits is taken up by production companies and iPhone Apps developers as they are the content providers.85 846 CY16 6. Sources for historical data and explanations can be found on the Trefis.80 1.02 0.37 0.08 1.13 0.12 4.15 3.56 0.16 0.0 83.43 0.00 1.13 0.12 4.66 1.03 0.52 0.COM + 1 617 394 8763 •26 .72 0.8 0.36 562 CY12 5.44 N/A CY08 2.46 0.89 0.06 5.70 1.77 795 CY15 6.06 5.18 0.31 1.96 1.72 0.07 10.17 0.0 83.97 1.08 7.91 1.14 3.47 N/A 87.6 0.39 11.83 N/A CY10 3.20 0.46 0.9 82.9 82.09 9.88 0.55 0.23 0.54 0.13 4.90 0.08 8.17 3.57 644 CY13 5.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 2009.9 0.06 5.08 9.13 0.66 0.50 1.92 1.90 81.11 4.8 0.28 1. 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.2 0.13 4.14 0. Online downloading has always been a low margin business.3 0.46 10.7 0.0 0.9 82.7 80.07 6.22 0.11 891 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.2 1.69 0.87 0.85 N/A 89.58 10.1 0.82 0.79 N/A 89.95 0.61 0.02 0.63 9.40 11.7 0.67 N/A CY09 2.18 2.42 10.02 872 CY18 7.06 6.

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

INCREASING COMPETITION AMONGST APPS – As the number of available download-able applications increases. Average Paid iPhone & iPad App Pricing ($) 2. iPod Touch and iPad Application.03 in 2010 which consisted solely of iPhone and iPod Touch apps.5 0. Forecast Rationale Supporting: 1. and constitutes 1. Trefis forecasts that Average Paid iPhone & iPad App Pricing will decrease at a moderate rate.5 1.The most important drivers for the Apps for iPhone.000 as of 2010.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Average Paid iPhone & iPad App Pricing was $2. The number of available apps are in excess of 350. MORE IPHONE AND IPAD USERS WILL ALLOW APPS TO BE PROFITABLE AT LOWER PRICE POINT AND HIGHER SALES VOLUME – Developers will have an incentive to reduce pricing so as to benefit from the increased number of downloads TREFIS ANALYSIS for APPLE CONTENT@TREFIS. iPod & iPad division is part of the iTunes & iOS Apps business. 2.COM + 1 617 394 8763 •28 .Apps for iPhone.99% of our $503 price estimate for the stock. competition amongst apps for user attention will lead to decreasing apps average pricing. iPod & iPad The Apps for 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 & iPad business are: • Average Paid iPhone & iPad App Pricing • Number of iPhone & iPad Apps Downloaded • Paid App % • iPhone.0 0.0 1. based on our sum of the parts analysis.

surged up to 5 billion by June 2010 and has now exceeded 18 billion as of September 2011. For example. Forecast Rationale 1.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 2008.2 billion by the end of 2009 and has shown continued strong growth in 2010. Sources for historical data and explanations can be found on the Trefis. IPAD APP PRICING LIKELY TO REMAIN HIGHER THAN IPHONE APP PRICING – iPad Apps will be optimized for the larger screen. 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. This could require more effort and cost on the developer’s part. Trefis forecasts that Number of iPhone & iPad Apps Downloaded will continue growing as more people purchase iPhones. The iPhone app download number touched the 1 billion mark in April 2009. The figures prior to the launch of the iPad in April 2010 refer solely to iPhone apps.COM + 1 617 394 8763 •29 . For every additional sale of an iPhone. Most of the iPhone Apps are re-developed by developers so as to optimize it for the larger resolution screen of iPad. 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. There will be better features and graphics on iPad Apps. the Number of iPhone & iPad Apps Downloaded increases multi-fold. iPad’s larger screen compared to the iPhone gives developers an opportunity to provide more features and improve the graphics of an application. For example.Mitigating: 3. The number of iPhones sold has increased at a fast rate. The Number of iPhone & iPad Apps Downloaded was around 7.2 billion in 2010. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. The larger screen also encourages apps for the iPad that wouldn’t otherwise be available for the iPhone. OmniGraffle is a new $50 iPad app that allows for touch-based diagramming and brainstorming and is not available for the iPhone. Number of iPhone & iPad Apps Downloaded (Bil) 70 60 50 40 30 20 10 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The Number of iPhone & iPad Apps Downloaded was around 2.

Trefis forecasts that Paid App % will increase at a slow rate. but may not necessarily be a good thing for app users. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.com website (link) — PAID APP % — Paid App % represents the percentage of downloaded iPhone applications that are paid. EXCESSIVE ADS ON A FREE APP COULD COMPEL USERS TO DOWNLOAD A PAID APP – Since the majority of paid apps are low priced ($1 to $2 only).COM + 1 617 394 8763 •30 . The only source of revenue for a developer for free apps is advertisements.2. 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. and applications like Skype for free. The iAd platform will help developers monetize free apps. users can download popular games like Tiger Woods for as low as $10. Sources for historical data and explanations can be found on the Trefis. if excessive advertising on a free app becomes a nuisance for them. For example. IPOD TOUCH & IPAD APPS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue.com website (link) — IPHONE. Forecast Rationale 1. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. 3. Sources for historical data and explanations can be found on the Trefis. 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. users will not shy away from buying paid apps. 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.

19 0.47 0.32 11.02 94. we expect iPhone. The remaining 70% goes to the app developer.15 2.com website (link) Total Revenue (Bil $) iAd App Advertising Revenue (% of N/A N/A 5.53 23. With the introduction of the iAd platform in 2010.65 1.98 0.20 N/A TREFIS ANALYSIS for APPLE CONTENT@TREFIS.99 13. Sources for historical data and explanations can be found on the Trefis.01 0.02 0.27 35.96 1. the increase in average app gross margins will be small.40 1.77 16.38 2.36 0.11 0. Apple will get a cut of 40% of iAd gross revenues while the rest goes to the app developer.8 86.2 64.4 76.04 0.9 69. 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.06 N/A CY08 CY09 CY10 CY11 0. we expect the mix of paid apps to increase slightly over the forecast period.26 CY13 2. iPod Touch & iPad Apps Gross Profit Margin will decline only slightly due to a change in mix of paid apps. As a result.0 3.63 0.44 0.67 CY16 CY17 5.85 total) Paid Apps (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Bil $) 100 0.0 89.89 0.72 0.61 4.80 1.8 1.10 1. 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. Through iAd.1 2.89 0. Since we expect Apple's revenues earned through the iAd platform to be less than through paid apps.12 27.45 18.2 0.65 1.0 0.76 30.37 0.24 0.01 N/A 100 0.iPhone. iPod Touch & iPad Apps Gross Profit Margin to jump up to nearly 38%.8 4.2 83. we forecast that iPhone.87 1.2 1.48 0.17 CY12 1.91 0.1 4.COM + 1 617 394 8763 •31 .0 73.9 81.87 CY18 7.01 0. As shown in our Paid App % forecast.17 0. iPod Touch & iPad Apps Gross Profit Margin has been 30% from 2008 to 2009 since Apple only gets 30% of the Paid Apps revenues.51 0.13 0.41 0.45 0.20 6.38 CY14 CY15 3.03 0.6 2.

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

and constitutes 1.25 1.305 in 2005 to $1.00 2007 0 8 09 10 11 12 13 14 15 16 17 18 The average Mac Desktop Pricing increased from $1. Forecast Rationale Supporting: 1.50 0.75 0.340 in 2010.62% of our $503 price estimate for the stock. Acer and HP. The declining trend in pricing started from 2008. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Mitigating: 2. Apple's strong brand recognition and the success of its OS X Leopard Operating system has contributed to its growing user base.25 0. Apple has always had a niche market and differentiated product in the crowded personal computer market. GROWING USER BASE OF ITS UNIQUE PC PLATFORM – Surprisingly. Trefis forecasts that Mac Desktop Pricing will decrease. Mac Desktop Pricing (K $) 1. based on our sum of the parts analysis.50 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.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.488.COM + 1 617 394 8763 •33 .500 in 2007.Desktops The Desktops division is part of the Macintosh business. when the average Mac Desktop Pricing decreased for the first time to $1. Apple's Mac Desktop Pricing has not seen the same level of price erosion experienced by competing desktops from Dell.00 0. It then reached around $1.

Forecast Rationale Supporting: 1. in which case the average pricing for such computers may be higher than historical averages. such as. 3. 2. Apple announced updates to the Mac Mini to include the Lion OS and high speed processors in July 2011. whereby satisfied iPod and iPhone users purchase more Apple products. 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). The Mac Pro is specifically designed for professionals and business users. lowcost virtualization software. UNIQUE GRAPHICAL USER INTERFACE AND NEW PRODUCTS – Macintosh scores over other competitors in terms of the unique and user friendly graphical user interface.8% in 2005 to 3. Trefis forecasts that Mac Desktops Market Share will continue to increase at a moderate rate. Its primary competitors are HP. Additionally. such as Microsoft Office can also be run natively in Mac OS. Dell.COM + 1 617 394 8763 •34 . Sources for historical data and explanations can be found on the Trefis.3. such as Parallels has made it easier to retain Windows features on a Macintosh. The iMac is targeted at general consumers. Key Microsoft productivity tools. Its unique touch screen interface is what attracts the high-end users. users who intend to use it for educational purposes.com website (link) — MAC DESKTOPS MARKET SHARE — Mac Desktops Market Share represents the percentage share of Desktop Units sold by Apple. Mac has consistently come up with new products. The market share increase has been in effect after Apple re-branded its Mac. Mac Desktops Market Share (%) 5 4 3 2 1 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 The Mac Desktops Market Share increased from 1. INCREASE IN PRICING AS DESKTOPS BECOME MORE POWERFUL – Demand for desktops may ultimately be limited to very powerful computers. HALO EFFECT OF IPOD AND IPHONES – Mac has been able to increase its market share due to the halo effect. which is priced lower and starts at $699.4% in 2010. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. and business users. and Acer. The Mac Mini is a small sized desktop.

Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. Demand for netbooks will have a positive impact on sales growth. as consumers look to cut costs. 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.com website (link) — GLOBAL DESKTOP UNITS SOLD — Global Desktop Units Sold represents the number of desktop units sold each year globally. RECESSIONARY ENVIRONMENT TO PREVENT USERS FROM SWITCHING TO MAC – All Mac desktops are in the higher price range when compared to competitors like HP. 2. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Sources for historical data and explanations can be found on the Trefis. Forecast Rationale 1.Mitigating: 4. especially in the recessionary environment. desktop units sales have decreased from 143 million units in 2005 to 140 million units in 2010. Dell.com website (link) — MAC DESKTOPS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. Sources for historical data and explanations can be found on the Trefis. This could be a disadvantage to Apple. and Acer. 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. 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. 3.COM + 1 617 394 8763 •35 . 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. We expect the Global Desktop Units Sold to increase at a slower rate.

which are constantly declining in price.55 N/A CY11 7. Forecast Rationale Supporting: 1.58 3.30 5.51 1. Mitigating: 2. Apple may choose to focus solely on high-end desktops.88 1.88 1.72 735 CY14 7.31 5.44 0.24 N/A CY10 6.15 3. Sources for historical data and explanations can be found on the Trefis. Trefis forecasts that Mac Desktops Gross Profit Margin will decline at a moderate rate. 3.51 638 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.56 673 CY18 7.61 0.89 1.65 0. along with other PC makers.29 N/A CY09 4.18 5. As notebook prices continue to fall to unprecedented lows--and pricing between desktops and notebooks remains narrow--Apple.27 1.57 1. which have superior performance to notebooks. .03 1.73 0.15 N/A CY08 5.24 5.33 5.34 5.86 0.93 1.33 5.53 1. High end desktops would likely be priced at a premium and afford Apple better margins.67 0.99 1.79 739 CY12 7. APPLE MAY FOCUS EXCLUSIVELY ON HIGH END DESKTOPS – Rather than attempt to compete in the low-end desktop segment and to make desktop pricing as attractive as notebook pricing. may be forced to sacrifice margins to continue selling desktops.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. FALLING INPUT OR MANUFACTURING COSTS – Most Mac desktop models use Intel microprocessors.87 1.89 1.69 758 CY15 7. and their prices have formed an upper bound for desktop pricing.78 0.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 4. 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.65 753 CY16 7.76 723 CY13 7.68 0.60 707 CY17 7.97 3.28 5.05 1.68 0.89 1.COM + 1 617 394 8763 •36 .32 4.67 0. Technology improvements have enabled Mac to decrease its manufacturing cost.

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

COM + 1 617 394 8763 •38 . the Sanza Fuze from Sandisk has many features which compete directly with iPod and is priced cheaply as well. Trefis forecasts that Apple will continue to reduce iPod Pricing at a moderate rate. PRICE COMPETITION FROM MICROSOFT AND SANDISK – Microsoft's Zune HD directly competes with iPod Touch and is priced lower compared to iPod. TECHNOLOGY IMPROVEMENTS AND REDUCED INPUT COSTS – iPod uses NAND flash memory for most of its models. 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.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. Sources for historical data and explanations can be found on the Trefis. Though iPod has always enjoyed a greater market share since its inception. and hence. better and cheaper products from Creative and Sandisk should serve as a warning to iPod's near monopoly. For example. Forecast Rationale 1. Apple has been reducing the price for each new product it launches in the market. technology improvements have enabled iPod to decrease its manufacturing cost.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Also. 2. for which costs are constantly falling.

as well as the designed synchronization of iPods and iTunes. iPod Market Share has been in the range 24% to 31% for the last few years. 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. and the video and touch-screen iPod Nano will help to keep demand high. SEAMLESS INTEGRATION BETWEEN IPOD AND ITUNES – The expansion of content--including Digital Rights Management (DRM) free content--on Apple's iTunes Store.— IPOD MARKET SHARE — iPod Market Share represents the percentage of worldwide media player units sold by Apple.COM + 1 617 394 8763 •39 . now Microsoft will only be selling the existing versions of Zune. The introduction of the iPod Shuffle. INTRODUCTION OF NEW INNOVATIVE PRODUCTS – Apple continues to innovate and improve its iPod product. Mitigating: TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Creative and Microsoft. 4. Trefis forecasts that iPod will continue to gain market share in the long term. HALO EFFECT FROM IPHONE AND OTHER APPLE PRODUCTS – iPod sales benefits from the brand and marketing awareness of other popular Apple products. MICROSOFT WILL STOP INTRODUCING NEW VERSIONS OF ZUNE – According to a March 2011 Bloomberg report. Microsoft's only chance of maintaining market share was to keep coming out with the compelling new versions of Zune. Its primary competitors are Sandisk. the iPod Touch. 3. This means that its market share could continue to decline to almost zero levels in a few years from now. However. Microsoft will stop introducing new versions of the Zune music and video player because of the tepid demand. 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. Forecast Rationale Supporting: 1. makes Apple's products more appealing to many consumers.

For example. For example. Apple. 2.5. Forecast Rationale Supporting: 1. 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. CANNIBALIZATION FROM IPHONE – We expect that higher-end iPod versions will experience sales cannibalization from customers opting for iPhones with similar functionality. Portable Media Players Units (Mil) 200 150 100 50 0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Historically. the Sanza Fuze from Sandisk has many features which compete directly with the iPod and is priced cheaply as well. 6. FALLING DIGITAL MEDIA PLAYER PRICES COULD STIMULATE DEMAND – Digital media players are undergoing reduced prices due to technology improvement and increased competition. better and cheap products from Creative and Sandisk should serve a warning to iPod near monopoly. INCREASED COMPETITION FROM MICROSOFT AND SANDISK – Microsoft's Zune directly competes with iPod Touch and is priced significant lower. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. We believe the decreased average selling price of media players could help slow a decline in demand. Sandisk.COM + 1 617 394 8763 •40 .com website (link) — PORTABLE MEDIA PLAYERS UNITS — Portable Media Players Units represents the number of media players sold each year globally. These innovative additions to the features could prevent declines. which makes them arrange playlists according to a user's voice commands. Sources for historical data and explanations can be found on the Trefis. and Creative are vying to take the share of Media players. Alhough the iPod has always enjoyed a bigger chunk of market share since its inception. 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.

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

14 N/A CY11 7.95 0.05 0.61 736 CY16 7.8 5.0 12. you can see the detailed P&L for the iPod business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.14 0.0 7.33 86.6 6.5 19.61 0.3 17.56 673 CY18 7.28 84.29 85.0 7.93 1.68 693 CY12 7.4 18.98 1.1 88.63 694 CY14 7.11 87.8 14.0 16.25 1.88 1.38 N/A CY10 9.66 82.0 13.0 5.80 87.9 13.77 2.1 6.58 698 CY17 7.77 0.7 6.23 0.64 0.40 84.2 5.9 6.96 1.86 79. In addition.88 1.72 81.55 N/A CY09 9.Total Revenue (Bil $) iPods (% of total) iPod Accessories (% of total) Direct Expense (Bil $) Indirect Expense (Bil $) Gross Profit (Bil $) Free Cash Flow (Mil $) CY07 10.32 0.53 83.62 N/A CY08 9.91 0.88 1.53 648 Note that Apple reports financial information for fiscal year ended September 30th.79 80.1 12.21 2.51 2.22 2.2 16.4 6.62 727 CY15 7.COM + 1 617 394 8763 •42 .46 1.97 1.2 5.6 20.89 1.5 6.8 15.64 673 CY13 7.87 1. We have calendarized Apple's reported financial data for year ended December 31st.

Trefis forecasts that Peripherals will see continuous declines in Revenue Per Mac at a slower rate.Peripherals The Peripherals division is part of the Macintosh business. 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. 3.COM + 1 617 394 8763 •43 . DECREASING NOTEBOOKS AND DESKTOPS PRICES MAY ALSO HAVE A MAJOR IMPACT – Since the world is seeing decreasing notebook and desktops price. Keyboard 4. people may shun away from buying expensive peripherals and instead buy a TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Forecast Rationale 1.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. and constitutes 0. Time Capsule – This device allows users to backup data wirelessly. 2. 2. based on our sum of the parts analysis. These include: 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.80% of our $503 price estimate for the stock. Wireless Mouse 5. AirportExpress and AirportExtreme – These devices can be connected to speakers or work wirelessly.

as Mac's pricing declines. 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.new Mac. Apple will have to lower the peripherals pricing in line with Mac desktop and notebook pricing. with Q3 08 seen as the inflection point when notebook shipments outpaced desktop shipments heralding the advent of notebooks in a big way . TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Going forward we expect Global Notebook & Netbook Units Sold to increase though at much slower than historical rate. which also could impact Revenue Per Mac. Thunderbolt I/O & Backlit Keyboard in July 2011 after which Mac sales went up 22% in the next two months. The growth in notebook shipments has been driven by: 1. Desktop shipments increased only by 15% in the last 5 years while notebooks witnessed about 150% in the same period. Sources for historical data and explanations can be found on the Trefis.COM + 1 617 394 8763 •44 . INCREASING SHIFT FROM DESKTOPS TO NOTEBOOKS – There has been a significant shift from desktops to notebooks in the last few years. 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.com website (link) — GLOBAL NOTEBOOK & NETBOOK UNITS SOLD — Global Notebook & Netbook Units Sold represents the number of notebooks units sold each year globally. 2. This is because buying a Mac could become cost effective than buying peripherals. and this should further spur the growth in shipments post 2009. . Apple updated MacBook Air With Next Generation Processors. 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.

thereby limiting PC's usage. 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. RISING POPULARITY OF TABLET DEVICES – With the launch of Apple's iPad.com website (link) — PERIPHERALS GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. it will have a direct impact on the topline and gross profit margins. 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. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. 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. iPad or Mac.Forecast Rationale 1. 2. Thus while we estimate Global Notebook & Netbook Units Sold to grow going forward as PC penetration increases globally. we believe. As the companies around the world strive hard to capture a share in the potentially huge tablet market.COM + 1 617 394 8763 •45 . photo and document library. a tablet computing device. Forecast Rationale Supporting: 1. in April 2010 a number of firms around the world have come up with their own tablet device with increased features and functionality. 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. along with decreasing peripheral average revenue per Mac. Trefis forecasts that Peripherals Gross Profit Margin will decline at a moderate rate. iCloud has the potential to replace the traditional usage of the PC as a music. REDUCED TOPLINE GROWTH FOR PERIPHERALS DIVISION – As Mac undergoes a reduction in the number of units sold. 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.

47 1.70 180 387 N/A CY08 1.com website (link) Total Revenue (Bil $) Direct Expense (Bil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 1. We have calendarized Apple's reported financial data for year ended December 31st.88 1.70 1.57 1.59 407 751 343 CY16 2.67 1.12 340 580 239 CY12 1.74 85. wireless mice.77 453 799 345 CY18 2.43 0.COM + 1 617 394 8763 •46 . REDUCED INPUT OR MANUFACTURING COSTS – Since the Mac peripherals subdivision manufactures Mac accessories like LED Cinema displays.47 392 713 320 CY15 2. Sources for historical data and explanations can be found on the Trefis. the input costs for these are constantly falling due to technological improvement and increasing commoditization.86 328 473 N/A CY09 1.Mitigating: 2.93 279 493 N/A CY11 1.25 372 632 260 CY13 2.09 0. keyboards.34 1.19 1.69 435 780 344 CY17 2. In addition.04 1. you can see the detailed P&L for the Peripherals business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.33 0.5 397 N/A CY10 1.36 386 673 287 CY14 2.85 471 817 346 Note that Apple reports financial information for fiscal year ended September 30th.13 0. and other accessories.

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. Trefis forecasts that Apple TV Pricing will decrease. 3. 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. YouTube as well as from PCs.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. 2.com website (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS. as Apple integrates value-added features. 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. Sources for historical data and explanations can be found on the Trefis. It has no local storage and streams the content from the Internet to the TV. such as the gaming console.COM + 1 617 394 8763 •47 . Content can be streamed from sites like Netflix. NEW APPLE TV PRICED AT $99 – Apple unveiled the $99 Apple TV that is a fourth of the size of the original. INTRODUCTION OF GAMING CONSOLE – The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future. Forecast Rationale 1. These additional features will help arrest the price declines at a fast rate.

5 15. as Apple integrates value-added features. Trefis forecasts that Unit Sales of Apple TV will increase at a fast rate for the next few years before stabilizing.0 2007 0 8 09 10 11 12 13 14 15 16 17 18 Unit Sales of Apple TV has increased from 1. Forecast Rationale 1.5 0.5 5.0 million units in 2007 to around 3. increased broadband penetration among consumers will increase the market for Apple TV users.— UNIT SALES OF APPLE TV — Unit Sales of Apple TV represents the number of units of Apple TV sold by Apple. These additional features will help arrest the price declines at a fast rate. 3. Unit Sales of Apple TV (Mil) 17. 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. 2. It has no local storage and streams the content from the Internet to the TV.0 7.COM + 1 617 394 8763 •48 . films and music.com website (link) — APPLE TV GROSS PROFIT MARGIN — Gross Margin represents Gross Profit as a percentage of Revenue. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. Content can be streamed from sites like Netflix.5 10.0 12. INTRODUCTION OF GAMING CONSOLE – The Average Selling Price (ASP) declines of Apple TV may not continue at a fast rate in the future. Sources for historical data and explanations can be found on the Trefis. 4. NEW APPLE TV PRICED AT $99 – Apple unveiled the $99 Apple TV that is a fourth of the size of the original.5 million units in 2009 according to our estimates. YouTube as well as from PCs. 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. We believe this lower priced Apple TV will help boost its sales. such as the gaming console. Gross Profit is determined as Revenue minus Cost of Goods and Services Sold. BROADBAND PENETRATION INCREASE TO BENEFIT APPLE TV – As high-speed broadband technology improves and becomes cheaper.0 2.

This is also because Apple TV has setup its footprint quite late.12 808 173 309 136 CY17 1.37 292 53. Trefis forecasts that Apple TV Gross Profit Margin will decrease.18 859 182 321 138 CY18 1.0 76. We expect Apple to increase its sales.4 CY13 0.42 316 60.8 61.30 237 28.00 715 158 287 129 CY15 1.81 566 140 239 98. and hence. However. We have calendarized Apple's reported financial data for year ended December 31st. Sources for historical data and explanations can be found on the Trefis. but severe price reductions will not help its gross profit margins.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. BOM is $64. reducing the price makes it an attractive bet.6 N/A CY10 0.63 436 110 188 78.25 914 192 333 140 Note that Apple reports financial information for fiscal year ended September 30th. Forecast Rationale 1.5 106 N/A CY11 0.1 CY12 0. the $99 Apple TV. according to iSuppli report. you can see the detailed P&L for the Apple TV business in the Appendix (link) TREFIS ANALYSIS for APPLE CONTENT@TREFIS.com website (link) Total Revenue (Bil $) Direct Expense (Mil $) Indirect Expense (Mil $) Gross Profit (Mil $) Free Cash Flow (Mil $) CY07 0.06 760 161 298 136 CY16 1. In addition.4 85.42 338 18. Hence we have raised our estimate for Gross margins to 25% in 2010 and then to 30% from 2011 onwards.COM + 1 617 394 8763 •49 .4 N/A CY09 0.9 N/A CY08 0.92 650 153 268 114 CY14 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.

11 0.73 2.46 Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Gross Profit (Bil $) iPhone (% of total) iPad (% of total) Notebooks (% of total) Software & Services (% of total) iTunes (% of total) Apps for iPhone.05 1.40 4.6 N/A 15.86 0.58 1.94 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.75 1.78 3.74 2.96 2.2 9.3 8.2 15.67 0.2 9.2 3.92 25.94 0.43 2.9 14.5 17.76 0.0 7.COM + 1 617 394 8763 •50 .98 0.15 1.96 2.45 19.48 3.94 0.47 1.49 4.20 CY12 144 44.9 5.85 3.91 2.21 5.10 3.33 12.56 100 58.85 8.6 34.10 3.81 1.5 8.67 CY11 119 44.42 63.6 49.27 3.60 17.03 0.27 3.43 2.61 3.4 12.6 20.81 2.37 0.69 4.43 2.81 0.5 57.6 N/A 15.52 70.95 2.16 0.41 2.46 1.01 4.73 1.38 5.38 87.41 2.56 87.29 11.19 4.2 57.25 0.7 17.24 7.1 64.2 N/A 20.12 1.47 1.0 15.81 3.67 2.07 3.70 4.4 23.97 CY08 40.6 23.32 0.48 171 64.67 5.5 8.16 2.96 CY10 76.99 2.50 12.50 12.1 58.35 3.98 4.2 4.92 4.0 3.0 11.9 24.87 0.64 1.7 57.37 0.7 33.0 37.29 2.86 1.12 0.42 69.99 0.3 9.99 0.0 2.20 0.4 8.72 2.37 5.9 3.40 2.67 2.3 24.81 0.2 15.04 2.55 3.38 4.49 156 64.12 1.69 3.25 1.08 4.00 CY16 220 52.7 7.4 6.36 29.38 83.60 17.73 2.5 11.2 16.75 1.44 2.11 6.85 3.49 1.96 0.7 64.0 3.67 5.42 57.4 20.57 3.70 2.08 0.67 2.40 74.7 12.2 N/A 20.3 39.43 0. iPod & iPad (% of total) CY07 29.3 14.9 15.5 2.76 0.41 2.30 2.0 24.1 7.07 0.02 1.11 CY13 163 46.96 0.08 N/A 0.9 21.8 11.78 1.56 1.1 2.03 0.8 2.87 1.46 1.51 15.1 N/A 23.20 2.75 1.53 1.20 0.01 19.04 1.51 141 63.94 0.08 5.64 4.0 15.02 3. iPod & iPad (% of total) N/A 0.1 9.74 2.5 3.4 10.47 5.72 2.1 20.7 7.38 4.42 2.02 1.56 1.88 2.23 1.7 52.64 4.64 1.07 11.16 Desktops (% of total) iPod (% of total) Peripherals (% of total) 1.31 0.15 0.0 5.2 4.1 7.98 CY17 239 54.7 21.43 0.5 20.39 79.80 2.2 3.08 4.78 4.70 1.24 7.5 N/A 20.7 17.09 0.99 2.1 9.22 2.91 27.58 1.41 1.5 6.0 8.7 7.72 2.1 6.9 15.07 CY14 182 48.9 14.5 17.41 2.24 1.07 0.86 1.4 2.0 22.62 10.0 7.30 3.80 2.4 2.56 46.0 57.2 16.27 2.5 N/A 18.80 2.5 N/A 18.9 62.5 26.52 127 62.69 3.1 15.44 2.4 8.5 12.80 2.2 3.3 14.75 15.41 CY18 258 56.1 49.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.5 26.5 63.1 60.02 5.1 6.4 10.0 37.19 3.07 4.09 2.40 4.34 1.46 10.42 2.2 N/A 23.9 1.20 2.87 1.39 48.7 12. iPod & iPad (% of N/A 0.5 4.3 8.40 1.56 CY09 46.6 9.86 1.07 11.55 113 60.37 5.00 0.4 10.68 3.7 7.29 2.30 6.88 2.08 0.62 1.33 12.03 CY15 202 51.92 4.78 4.5 4.39 8.6 8.30 6.9 4.12 6.88 8.88 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.69 4.16 2.0 20.19 4.15 1.70 2.34 1.6 52.67 2.5 6.09 2.39 12.73 1.24 1.

2 N/A 20.76 0.3 14.08 4.2 9.38 4.86 1.87 1.16 2. iPod & iPad (% of total) CY07 0.42 2.40 40.47 1.0 3.9 15.41 1.5 N/A 18.67 2.19 4.4 57.78 4.69 4.11 0.20 0.5 4.30 6.2 16.73 1.73 2.46 1.4 63.34 1.75 1.78 4.70 2.3 64.1 7.4 8.94 0.69 3.38 47.24 7.6 62.11 49.02 1.39 28.69 4.86 0.1 6.41 2.75 1.8 52.72 2. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.5 8.88 2.2 15.2 58.64 1.98 0.64 1.67 2.98 0.0 7.9 58.81 0.42 CY13 0.42 CY14 0.39 CY17 0.7 17.0 15.85 3.38 CY18 0. We have calendarized Apple's reported financial data for year ended December 31st.37 0.56 1.67 5.1 6.0 15.36 N/A N/A N/A N/A N/A N/A CY11 0.5 8.4 10.96 2.50 12.67 0.5 26.16 2.20 0.39 35.7 7.7 17.46 1.43 2.5 17.2 15.42 38.66 20.39 44.38 11.09 2.76 0.92 4.40 34.88 0.99 0.16 0.38 4.27 3.00 0.39 20.96 0.37 5.1 63.73 1.99 0.80 2.4 8.85 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 3.99 2.69 3.29 2.43 2.67 2.73 2.3 62. iPod & iPad (% of N/A 0.1 60.36 16.70 2.86 1.20 2.64 4.41 2.4 57.94 0.62 4.38 36.96 2.7 7.07 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.9 64.7 7.42 31.41 2.29 2.33 12.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.42 26.51 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.15 1.0 60.2 16.45 4.10 3.88 2.9 14.07 0.46 CY09 0.5 6.4 37.58 1.51 10.42 2.2 4.5 57.42 CY15 0.40 CY16 0.1 9.08 0.09 2.7 12.03 0.41 1.39 CY08 0.40 4.15 1.44 2.44 2.08 4.74 2.COM + 1 617 394 8763 •51 .41 2.42 33.0 7.58 1.5 6.72 2.9 15.7 7.00 0.2 3.4 2.45 N/A N/A N/A N/A N/A N/A CY10 0.07 0.24 1.37 5.62 N/A N/A N/A N/A N/A N/A 8.02 1.60 17.20 2.39 Desktops (% of total) iPod (% of total) Peripherals (% of total) Apple TV (% of total) Note that Apple reports financial information for fiscal year ended September 30th.6 N/A 15.19 4.38 50.34 1.1 57.11 0.75 1.94 0.67 2.87 1.56 1.5 17.64 4.80 2.9 14.81 CY12 0.5 64.99 2.86 0.03 0.3 8.47 1.42 36.38 36.1 9.42 23.74 2.2 64.75 1.10 3.40 4.96 0.3 14.

03 26.48 1.74 59.03 23.32 1.4 3.4 2.2 2.0 22.22 0.16 131 CY18 137 432 14.20 23.60 30.4 489 9.7 570 5.0 21.0 32.7 3.3 8.05 13.26 -1.3 0.60 1.04 103 CY16 CY17 111 469 11.48 29.9 53.98 1.7 29.24 62.3 7.18 14.0 0.28 29.47 56.98 1.0 3.5 7. TREFIS ANALYSIS for APPLE CONTENT@TREFIS. We have calendarized Apple's reported financial data for year ended December 31st.Detailed P&L for the iPhone business The most important drivers for the iPhone business are discussed above.90 7.10 116 124 450 12.88 2.38 15.60 -2.5 9.26 -0.28 27.0 16.20 144 3.83 22.03 5.18 1.48 1.52 696 1.7 0.97 8.72 1.41 -2.05 6.75 6.4 28.6 50.90 19.18 7.74 2.1 N/A N/A N/A N/A 11.86 -0.23 24.5 9.7 3.4 41.7 3.9 14.4 5.5 2.17 4.3 0.81 64.47 46.22 9.8 23.3 608 2.78 1.1 15.1 51.74 41.47 88.7 7.18 1.43 24.63 20.98 1.19 60.23 7.0 610 2.9 47.86 26.97 23.88 3.4 2.47 31.5 9.0 46.86 24.32 1.15 0.07 58.4 1.5 1.0 1.78 1.96 3.47 38.23 23.4 3.8 2. 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.47 24.8 0.07 22.07 1.10 5.9 8.6 43.72 53.68 29.77 24.83 25.8 2.22 868 0.6 Note that Apple reports financial information for fiscal year ended September 30th.8 45.06 29.04 7.5 98.16 6.20 7.06 3.06 -0.96 88.75 4.9 3.3 2.4 11.8 37. here is the detailed P&L.88 2.68 29.88 29.0 25.COM + 1 617 394 8763 •52 . % of Gross Profit (%) CY12 61.01 -4.15 3.6 8.74 69.5 9.1 7.4 2.46 -1.6 509 8.80 24.0 30.6 49.44 32.7 CY14 CY15 84.89 23.48 15.6 12.5 2.5 51.0 4.81 2.08 29.12 1.5 9.48 29.5 9.63 25.24 82.24 121 56.9 8.9 4.88 75.2 9.17 12.1 3.94 8.74 50.93 -5.1 620 4.24 107 53.28 23.4 2.27 9.12 1.41 22.9 7.5 21.46 -0.5 536 7.3 6.69 15.46 -1.0 19.21 15.5 9.3 2.5 9.4 8.21 0.5 0.2 0.5 9.04 4.9 4.8 41.24 94.6 51.54 23.6 18.47 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 $) -4.8 13.07 1.5 6.9 -1.88 24.5 23.85 22.4 4.8 32.62 9.2 7.66 -0.98 1.0 28.4 39.0 3.3 CY13 72.6 6.63 20.47 66.2 22.4 4.47 77.

03 23.48 29.28 23.5 39.29 7.06 4.00 21.0 7.63 20.1 5.9 3.5 9.4 4.46 -1.74 34.4 3.47 35.83 25.03 26.4 4.4 2.2 448 118 53.28 29.06 8.47 24.8 11.6 5.4 622 39.5 9.83 22.20 622 14.24 48.1 12.88 29.7 50.43 24.5 11.24 39.8 34.44 30.2 12.47 17.0 6.63 20.9 4.47 31.24 45.86 -0.97 4.0 4.0 1.2 506 89.28 27.68 0.0 6.24 42.8 5.26 -1.3 27.3 24.8 9.47 38.0 6.6 11.74 2.46 -1.0 6.2 45.74 37. here is the detailed P&L.56 6.5 9.68 29.5 11.5 9.5 9.4 6.5 9.8 45.4 584 58.20 0.76 7.47 41. 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.9 4.87 7.1 42. % of Gross Profit (%) CY12 34.9 5.36 7.2 47.23 24.0 6.0 4.29 6. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.87 6.8 25.5 9.4 466 107 50.20 24.48 29.4 3.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -2.74 3.2 28.08 29.37 7.8 527 81.27 0.COM + 1 617 394 8763 •53 .38 0.74 30.06 -0.7 3.2 555 70.4 29.7 3.2 9.2 24.26 -0.5 9.46 -0.47 33.0 5.1 30.63 25.4 CY18 53.23 0.10 1.31 N/A 3.2 CY16 CY17 47.47 28.5 9.3 9.7 486 98.66 7.4 CY13 39.2 CY14 CY15 42.18 8.02 Note that Apple reports financial information for fiscal year ended September 30th.0 23. We have calendarized Apple's reported financial data for year ended December 31st.2 5.68 29.Detailed P&L for the iPad business The most important drivers for the iPad business are discussed above.5 26.66 -0.

TREFIS ANALYSIS for APPLE CONTENT@TREFIS.62 212 17.0 4.5 26.23 24.4 3.1 15.74 13.99 202 15.47 15.7 3.63 25.9 8.6 5.2 CY16 CY17 20.37 2.21 4.74 16.0 3.41 -2.9 29.67 6.07 2.7 3.2 20.76 2.5 2.08 29.4 4.4 1.5 9.03 23.47 15.0 2.58 263 21.5 2.86 32.6 2.48 29.88 271 21.0 2.96 1.88 Note that Apple reports financial information for fiscal year ended September 30th.28 256 20.06 3.5 9.48 10.48 29.18 7.0 3.06 -0.68 29.3 5.35 -1.46 -1.43 4.90 9.85 30.47 12.78 1.24 17.6 6.27 5.93 -5.5 9.43 24.75 4.41 22.90 19.30 4.18 8.1 1.01 -4.COM + 1 617 394 8763 •54 .2 27.56 29.74 15.62 2. 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.0 6.09 223 18.8 5.58 4.8 26.54 2.2 1.15 7.03 1.1 1.54 N/A N/A N/A N/A 1.5 9.68 29.4 6.96 7.5 2.21 6.26 -0.9 4.92 2.05 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -4.1 CY14 CY15 19.47 13.96 7.24 19.36 7.4 6.54 0.6 27.79 202 12.60 2.14 7.46 1.88 29.4 3.1 0.91 8.8 21.5 9.60 -2.69 160 9.5 9.03 6.01 7.21 1.17 2.5 9.1 CY18 21.83 30.46 -0.0 3.17 3.9 3.24 4.47 13.98 8.5 9.0 5.74 15.Detailed P&L for the Notebooks business The most important drivers for the Notebooks business are discussed above.44 7. here is the detailed P&L.7 5.86 -0. We have calendarized Apple's reported financial data for year ended December 31st.47 15.78 12.26 -1.63 7.1 29.4 0.7 3.90 6.85 22.2 1.63 20.47 10.87 111 132 9.48 0.92 246 20.4 4.21 8.1 26.03 7.93 3.0 CY13 18.93 8.79 8.66 -0.06 29.8 28.90 9.5 3.5 2.09 7.44 30.63 20.74 5.89 8.83 22.25 4.9 4.83 25.0 0.46 -1.42 0.0 1.23 7.5 3.28 23.0 28.28 29.24 18.52 234 19.42 0.5 9.03 26.24 18.56 2.21 0.47 0.28 27.9 5. % of Gross Profit (%) CY12 17.0 6.4 8.8 0.47 14.

19 2.41 22.4 1.88 271 5.07 1.03 23.8 2.74 1.03 CY16 CY17 5.44 216 2.10 2.17 1.9 4.09 70.40 3.43 24.63 25.7 3.28 256 5.74 2.63 20.9 8.04 204 4.85 22.31 0.06 3.88 29.12 1.47 1.74 180 5.49 0.74 3.58 8.44 32.67 70.6 6.35 8.46 -0.01 -4.66 0.03 26.53 184 5.70 196 4.90 19.5 1.65 3.24 4.72 -1.5 9.74 3.39 70.24 111 1.05 70.06 -0.48 70. % of Gross Profit (%) CY12 4.3 1.5 9.9 2.68 29.23 7.5 9.75 1.60 2.1 1.5 9.06 3.52 234 4.83 3.82 7.67 6.66 -0.03 192 4.9 3.4 4.51 6.91 1.47 1.33 148 4.63 20.04 CY13 4.26 -1.0 0.61 70.20 70.08 29.28 27.86 26.69 160 2.4 4.17 0.69 136 4.24 3.23 24.7 2.70 5.46 -1.83 22.1 3.93 -5.28 144 8.75 4.47 1.54 70.79 202 3.7 3.25 1.47 1.24 3.19 220 2.66 208 3.24 3.0 3.47 1.7 3.9 4.22 6.68 142 7.79 2.08 140 6.5 9.48 29.4 3.18 0.06 7.46 -1.92 7.41 -2.38 139 4.87 132 2.21 3.2 1.92 70.28 29. here is the detailed P&L.28 23.66 0.48 29.68 29.5 9.60 -2.62 212 4.4 8.73 70.74 1.47 1.72 1.08 144 8.38 CY14 CY15 4.07 212 3.14 1.0 0.86 -0.07 3.0 1.88 143 8.5 9.Detailed P&L for the Software & Services business The most important drivers for the Software & Services business are discussed above.6 1.48 141 7.09 223 4.47 1.56 70.99 202 3.02 151 4.87 2.08 1.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -4.22 7.4 3.06 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.88 139 5.5 9.31 5.26 -0.10 7.83 25.5 9.77 7.69 0.63 0.06 29.47 1.30 70.84 1.38 200 4.57 N/A N/A N/A N/A 1.15 2.44 3.53 1.37 7.28 141 7.55 1.92 246 5.66 0.31 188 4.02 4.COM + 1 617 394 8763 •55 .32 1.58 263 5.74 2.71 2.79 230 2.53 CY18 5. 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.

TREFIS ANALYSIS for APPLE CONTENT@TREFIS.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.COM + 1 617 394 8763 •56 .

4 4.41 22.09 0.41 -2.88 29.74 1.19 484 7.47 3.23 7.92 6.85 5.78 6.97 7.58 0.96 2.9 4.21 293 26.23 114 22.9 616 5.5 9.93 12.0 0.90 19.98 0.9 9.60 -2.75 348 1.18 2.08 29.16 0.87 7.47 4.18 7.08 7.6 4.73 2.22 8.87 97.55 0.9 4.1 508 3.52 N/A N/A N/A 2.0 6. here is the detailed P&L.30 95.47 4.97 3.75 4.83 25.66 30.44 32.92 12.2 8.9 4.99 2.74 5.83 355 1.03 23.5 9.6 462 2.88 4.72 30.63 20.79 0.08 90.86 -0.54 1.43 3.30 5.02 2.31 0.70 30.99 75.5 12.1 3.48 29.37 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.55 CY14 CY15 3.26 -1.87 361 1.80 6.23 24.5 9.22 CY13 3.11 326 27.0 420 2.64 4.46 -0.02 1.42 7.0 1.84 0.91 30.76 62.4 4.1 7.85 0.20 8.55 0.9 3.50 30.04 346 27.48 29.75 4.50 0.7 1.73 4.10 N/A N/A N/A 1.07 336 27.06 7.88 3.70 N/A N/A N/A 1.92 361 1.47 3.18 307 27.90 4.66 0.92 11.93 -5.24 5.00 2.0 360 1.7 3.84 0.94 12.52 254 2.97 2.Detailed P&L for the iTunes business The most important drivers for the iTunes business are discussed above.72 CY18 3.47 3.06 29.87 7.66 105 5.96 737 6.35 7.4 693 6.13 30.24 6.0 0.68 29.66 -0.05 3.4 3.13 -1.28 27.00 48.56 199 24.00 4.00 7.17 14.72 14.74 4.25 279 26. % of Gross Profit (%) CY12 3.93 3.89 30.84 3.43 24.44 4.30 82.5 9. 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.27 3.72 3.0 1.42 0.68 1.0 0.7 559 4.79 13.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) -4.05 1.23 2.66 311 1.6 6.85 22.36 7.40 15.46 -1.46 1.73 4.28 23.03 26.5 9.COM + 1 617 394 8763 •57 .5 8.74 4.60 6.84 704 6.17 30.8 673 6.14 7.80 6.63 20.51 601 7.2 7.67 4.15 0.7 7.4 3.01 7.27 123 5.0 0.47 4.31 30.73 8.0 21.02 30.00 6.14 317 27.1 714 7.65 13.23 2.47 2.5 9.0 18.1 7.99 0.30 15.96 7.63 25.95 361 1.1 6.58 0.3 586 5.35 563 7.62 641 7.06 3.07 772 6.75 7.01 356 27.90 3.26 -0.99 1.13 3.28 29.50 3.21 3.91 11.46 114 5.17 1.7 3.0 1.90 361 1.01 -4.03 0.0 0.4 8.58 1.5 634 5.24 5.01 360 1.85 0.46 7.20 149 1.98 360 1.5 9.0 1.9 5.72 3.29 0.38 7.9 8.0 0.99 0.0 0.47 4.90 384 8.90 11.4 3.0 8.29 0.82 5.33 0.0 3.1 653 6.86 26.16 CY16 CY17 3.5 9.06 -0.35 218 2.5 9.08 4.56 30.66 6.4 4.10 0.53 74.78 3.68 29.83 22.47 4.73 3.73 3.89 7.46 -1.1 7.91 0.24 5.86 0.27 0.0 3.7 3.70 0.54 4.73 672 6.74 4.74 3.0 0.95 30.

67 0.85 795 846 CY16 CY17 1.44 0.93 2.iTunes: Detailed P&L continued Gross Profits (Bil $) Free Cash Flow (Mil $) CY07 CY08 CY09 CY10 CY11 0.16 1.COM + 1 617 394 8763 •58 . TREFIS ANALYSIS for APPLE CONTENT@TREFIS.57 644 CY13 1.11 891 Note that Apple reports financial information for fiscal year ended September 30th.77 1.67 710 CY14 CY15 1. We have calendarized Apple's reported financial data for year ended December 31st.36 N/A N/A N/A N/A 562 CY12 1.83 1.02 852 872 CY18 2.

53 18.06 3.93 1.0 5.4 25.03 30.4 4.93 39.33 1.41 -2.4 3.13 30.59 1.3 4.20 4.35 41.86 26.38 8.5 9.44 32.9 25.56 1.41 47.42 6.20 0.56 0.0 0.47 4.35 7.00 7.5 9.38 0.4 3.24 1.COM + 1 617 394 8763 •59 .0 1.89 32.5 9.83 2.5 0.24 3.74 2.14 4.88 29.15 7.80 0.71 21.91 31.76 0.9 8.3 4.51 7. iPod & iPad: Detailed P&L CY08 CY09 Revenues iAd App Advertising Revenue (Bil $) N/A N/A Number of iPhone.46 -0.88 1.75 CY12 0.00 4.Detailed P&L for the Apps for iPhone.74 0.36 31.03 0.40 1.98 33.25 4.65 3.67 0.27 0.25 3.5 4.02 0.48 29.19 0.28 23.04 0.42 1. iPod Touch 0.74 1.19 0.01 7.03 0.0 4.0 4.08 1.5 9. here is the detailed P&L.89 1.61 1.5 9.46 -1.33 30.45 0.47 0.9 3.08 & iPad Devices in Use (Bil) Ad Impressions per Device (per N/A N/A Month) CY10 CY11 0.06 -0.25 2.7 3.89 0.0 3.11 6.7 3.26 -1.24 6.45 28.5 9.7 4.5 9.74 2.28 27.08 2.24 4.41 N/A N/A N/A 0.03 26. Apps for iPhone.7 4.4 3.49 5.04 CY16 CY17 1.04 0.16 2.7 3. % of Gross Profit (%) 8.26 2.74 3.15 0.75 4.87 0.0 0.04 0.5 0.47 2.63 0.08 34.20 4.99 0.50 1.17 TREFIS ANALYSIS for APPLE CONTENT@TREFIS.68 0.5 0.40 0.000) 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.47 2.0 3.93 0.48 2.90 19.4 4.6 6.40 1.5 9.40 2.46 -1.57 4. iPod Touch & iPad Apps Gross Profit Margin (%) Indirect Expenses (Bil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.80 54.15 0.05 7.17 0.61 7.26 1.86 24.4 4.4 5.15 2.01 -4.47 4.96 1.53 0.24 6.27 0.31 10.0 0.26 -0.5 9.0 0.77 CY14 CY15 0.03 23.20 Revenue per Ad Impression ($ per N/A N/A 10.23 62.01 0.47 0.63 7.85 22.22 6.68 29.83 22.41 14.65 0.65 7.83 24.83 4.48 33.72 0.71 71.63 20.08 29.03 0.23 24.6 4.9 4.87 33.78 1.37 6.2 4.2 4.50 0.1 CY13 0. iPod & iPad business The most important drivers for the Apps for iPhone.47 1.0 1.63 20.66 -0.12 CY18 2.47 1.18 14.41 22.10 33.20 1.77 1.2 6.74 1.18 0. iPod & iPad business are discussed above.14 0.32 1.43 7.69 1.73 0.48 29.47 0.24 5.28 29.86 -0.06 0.25 2.68 29.72 3.69 0.83 1.45 30.01 7.47 Tax Rate (%) CapEx % of Gross Profit (%) Increase in Net Working Capital % of Revenue (%) Increase in Net Operating Assets % of Revenue (%) Total Expenses (Bil $) Gross Profits (Bil $) Free Cash Flow (Bil $) -5.02 -2.44 1.

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

65 23.28 29.56 673 0.68 142 7.41 22.66 -0.0 1.58 1.60 -2.08 29.38 139 6.17 3.60 6.23 7.63 20.56 2.68 22.57 1.53 8.56 1.03 26.Detailed P&L for the Desktops business The most important drivers for the Desktops business are discussed above.65 753 0.5 9.5 9.68 29.55 1.85 22.48 29.34 1.15 4.72 735 1.60 707 0.24 6.76 723 1.46 -1.24 0.88 29.99 0.5 9.26 -0.32 7.47 5.49 2.5 9.23 23.28 7.02 151 4.24 6.83 25.31 1.35 2.46 -0.33 7.93 -5.28 144 7.89 7.60 6.43 24.65 6.86 25.41 -2.51 24.5 9.48 141 7.33 148 5.01 -4.79 N/A N/A N/A N/A 739 Note that Apple reports financial information for fiscal year ended September 30th.33 1.63 25.15 1.89 7.08 140 7.0 5.24 6.30 3.78 24.27 7.7 3.1 3.31 CY16 CY17 7. here is the detailed P&L.88 6.0 0.50 2.74 6.47 3.9 24.97 1.18 0.5 5.86 -0.06 -0.7 3.87 8. 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.63 20.75 4.18 4.28 1.97 4.15 1.93 7.18 4.47 5.4 3.24 6.7 3.28 23.54 1.9 8.0 0.6 6.0 0.88 143 7.44 25.67 21.28 141 7.44 32.74 0.10 4.4 4.74 0.83 22.4 3.74 3.61 23.5 9.5 0.33 1.0 0.88 7.15 4.5 1.5 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 $) -4.03 7.73 25. % of Gross Profit (%) CY12 7.86 26.90 19.00 5.9 4.29 1.35 3.94 5.58 1.47 5.04 4.67 22.47 0.4 8.COM + 1 617 394 8763 •61 .88 139 7.99 5.06 29.34 CY14 CY15 7.4 4.0 3.47 5.57 24. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.74 1.58 5.68 29.33 CY13 7.47 5.26 -1.0 0.51 638 -1.30 1.9 4.05 3.05 6.68 21.89 7. We have calendarized Apple's reported financial data for year ended December 31st.76 4.32 1.06 3.47 5.69 758 1.5 0.34 3.46 -1.5 9.03 6.28 27.24 CY18 7.5 0.28 4.97 6.48 29.22 4.08 144 7.69 136 4.24 1.58 1.5 9.

90 19.30 129 25.5 0.24 7.9 203 7.5 9.26 27.4 218 1.68 9.21 1.5 170 7.41 -2.80 1.5 9.01 -4.3 26.23 24.0 0.47 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 $) -4.77 7.92 1.77 22.1 8.22 23.5 9.97 23.63 20.0 0.28 CY13 6.87 7.70 1.5 24.5 9.4 218 9.60 6.26 -1.72 6.61 30.21 23.11 6.0 29.24 7.17 24.86 -0.11 25.9 4.66 CY16 CY17 6.7 199 7.4 25.17 7.53 6.02 1.5 0.29 125 25.53 648 -1.1 186 1.83 22.7 175 1.7 175 7.88 8.47 5.68 29.47 6.44 32.91 21.47 6.5 170 1.74 2.61 736 0.47 5.18 6.53 153 25.06 3.0 0.4 4.26 -0.27 23.14 20.28 29.7 199 1.9 195 1.5 9.75 4.88 168 29.26 149 24.43 28.88 29. here is the detailed P&L.61 23.89 7.56 673 0.93 -5.6 6.79 CY18 6.74 8.06 -0.24 7.14 1.11 1.5 9.0 25.5 9.9 181 1.5 9. 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.38 2.08 29.22 8.95 25.85 22.60 -2.9 8.74 1.3 192 1.3 192 7.55 2.43 24.5 9.23 20.9 3.06 29.5 0.05 6.Detailed P&L for the iPod business The most important drivers for the iPod business are discussed above.94 162 24.40 CY14 CY15 6.4 3.4 4.7 3.7 3.86 26.9 195 9.47 6.32 19.46 26.63 694 2.05 21.62 727 0.4 8. We have calendarized Apple's reported financial data for year ended December 31st.3 200 9.26 133 25.03 24.0 25.46 8.35 27.28 27.0 1.28 23.62 2.88 7.93 7.1 3.80 8.7 25.88 7.46 -0. % of Gross Profit (%) CY12 6.48 29.5 195 7.21 6.27 122 25.24 6.83 25.03 26.5 0.58 698 0.9 203 1.96 6.18 6.18 26.1 186 7.47 5.29 7.2 24.25 118 25.11 154 26.33 7.0 24.66 -0.5 25.64 22.63 25.5 195 1.41 22.4 3.3 180 1.46 -1.52 29.63 20.22 137 24. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.5 1.98 6.0 3.3 180 10.COM + 1 617 394 8763 •62 .9 181 7.46 -1.74 6.17 142 24.5 0.48 29.74 0.86 8.7 24.03 23.47 6.0 0.64 673 1.47 5.68 29.7 3.0 1.3 200 1.23 7.9 4.51 7.02 7.68 N/A N/A N/A N/A 693 Note that Apple reports financial information for fiscal year ended September 30th.25 26.8 25.60 6.

33 148 4.63 20.43 98.18 0.21 2.44 32.74 1.47 32.4 4.92 246 2.77 31.41 -2.28 256 2.62 632 260 1.43 24.93 -5.85 22.36 33.2 4.70 0.6 392 7.5 9.9 4.05 0.47 1.43 1.9 8.23 799 345 0.02 151 4.5 9. 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 1.69 31.47 1.86 26.24 0.1 386 7.09 223 2.57 85.47 1.12 34.69 160 1.5 9.7 3.83 25.34 89. We have calendarized Apple's reported financial data for year ended December 31st.90 19.9 3.47 1.28 23.19 91.46 -0.09 140 2.47 1.08 144 8.88 271 2.Detailed P&L for the Peripherals business The most important drivers for the Peripherals business are discussed above.88 95.0 3.68 29.47 1.68 29.86 35.00 2.75 673 287 0.79 202 1.5 9.74 1.52 234 2.1 340 6.5 9.1 407 7.99 202 1.4 3. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.46 -1.8 5.7 3.47 2.23 7.1 4.0 4.01 -4.83 22.58 263 2.1 85. % 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 $) -4.67 1.5 9.04 93.47 Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.6 328 7.5 9.9 3.28 29.88 143 8.9 3.5 7.13 1.24 0.09 1.46 2.5 9.47 1.1 453 7.26 -1.48 29.13 751 343 780 344 387 473 397 493 580 N/A N/A N/A N/A 239 Note that Apple reports financial information for fiscal year ended September 30th.47 87.46 -1.87 713 320 0.4 4.28 144 8.24 2.63 25.74 0.88 CY13 2.26 -0.88 1.1 3.06 3.4 3.5 9.82 1.70 35.68 142 7.28 141 7.06 -0.41 22.57 CY18 2.60 -2.08 140 6.19 2.48 141 7.87 132 1.6 180 8.13 100 2.85 30.38 139 4.25 33.67 84.6 4.18 0.33 817 346 -1.86 -0.93 34.24 111 1.70 96.4 8.24 2.1 5.69 136 4.88 29.75 4.33 1.47 1.9 4.04 CY14 CY15 2.08 29.88 139 5.7 3.33 134 2.74 1.03 23.03 26.06 29.74 35.48 29.74 1.17 0.59 32.34 CY16 CY17 2.62 212 1.4 4.23 24.6 279 6.COM + 1 617 394 8763 •63 .63 20.66 -0.6 435 7.6 6.6 471 8.28 27.6 372 6.

68 29.43 24.01 -4.06 78.63 99.74 0.24 1.81 CY13 0.74 0.8 8.7 192 8.5 9.6 0.88 29.00 1.7 14.06 CY16 CY17 1.66 -0.Detailed P&L for the Apple TV business The most important drivers for the Apple TV business are discussed above.47 715 28.24 0.7 16.18 CY18 1.27 0.37 284 1.08 29.7 53.74 0.9 4.2 12.83 22.93 -5.25 69.2 1.0 6.68 29. % 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 $) -4.74 0.COM + 1 617 394 8763 •64 .5 9.4 1.23 24.48 29. We have calendarized Apple's reported financial data for year ended December 31st.80 0.47 760 28.26 -1.12 75.24 0.41 22.11 333 140 -1.92 298 136 0.03 26.47 859 27.30 299 1.86 -0.06 3.7 173 7.5 9.47 914 26.28 27.9 3.92 86.38 0.51 0.2 18.1 3.9 1.2 153 7.85 22.03 23.06 -0.2 182 7.8 17.81 91.7 140 6.5 9.4 1.9 4.9 8.42 241 1.87 268 114 287 129 61.42 0.42 0.6 6.0 7.1 Note that Apple reports financial information for fiscal year ended September 30th.47 808 27.4 4.30 0.7 3.74 0.4 3.17 292 20.98 309 136 0.5 6.47 650 29.00 82.48 29.4 4.41 -2.90 19.2 1.92 CY14 CY15 1.85 0.9 13.4 3.04 321 138 0.63 25. here is the detailed P&L.5 9.76 0. TREFIS ANALYSIS for APPLE CONTENT@TREFIS.32 0.63 237 20.7 28.06 29.44 32.5 9.26 -0.23 7. 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 0.1 8.12 1.05 338 20.60 -2.86 26.55 2.7 158 7.83 25.8 1.63 20.18 316 25.5 10.28 23.2 60.5 9.47 566 29.9 76.46 -1.47 436 30.25 0.46 -1.28 29.47 Indirect Expenses (Mil $) R&D % of Gross Profit (%) SG&A % of Gross Profit (%) Stock Comp.36 0.18 72.46 -0.5 9.24 1.2 161 7.63 20.35 0.7 3.4 7.37 0.7 3.6 106 188 N/A N/A N/A N/A 78.4 8.000 0.42 120 3.2 110 6.0 3.5 9.30 0.4 85.71 239 98.75 4.