Apple Research Report

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January 28th, 2013
Apple Inc. Ticker: AAPLExchange: NASDAQ

Great Buy at Current Valuation
Jeremy Lin, Investment Analyst
(647) 967-6311;

Investment Highlights
• Fear of supply chain noise overdone: Reduced 1Q2013 gross margin of 38.6% vs. 1Q2012 gross margin of 44.7% due to supply constraints with iPhone 4, iPhone 5, and iMac. Refresh of product portfolio typically warrants lower margins and management has guided supply demand balance for its iPhone lines in upcoming quarter. • Upcoming infrastructure upgrades in Europe for 4G compatibility: Europeans operators expected to spend $15.25 billion over next 3 years to construct 4G networks. Consolidation of existing fragmented LTE networks should boost adoption of iPhone 5 in Europe as 4G capability is deemed iPhone 5’s biggest selling point. Apple may begin to capture market share in the European region where smaller competitors have an edge in targeting regional operators. • Potential deal with China Mobile: The world’s largest mobile carrier has begun testing its 4G mobile standard and is expected to expand to over 100 cities covering 35% of China’s population. Talks are in place for Apple to leverage China Mobile’s 4G capabilities which would substantially increase its market share in China. TD-LTE technology developed by China Mobile allows for cheaper base stations and faster downloads for smartphone users compared to traditional FD-LTE. • Attractive valuation and cash balance: Current P/E of 10.4x and ex-cash P/E of ~7x is much lower than 14-16x average high quality tech peers. Sales in iPhones and iPads are still increasing at a healthy rate yoy. Apple is likely to boost future dividends and share buybacks.

• Slower than expected adoption of 4G technology in Europe and China: Operators in Europe may delay their upcoming 4G network expansions given the challenging backdrop of the Eurozone crisis and potential less sale of high-end tech phones in this...
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