Deutsche Bank

Research

Rating Company Date

30 July 2020
Buy Apple
Forecast Change
North America
United States Reuters Bloomberg Exchange Ticker Price at 30 Jul 2020 (USD) 384.76
AAPL.OQ AAPL US NSM AAPL
Price target 440.00
TMT
393.43 -
IT Hardware and Supply 52-week range 193.34
Chain

Strength in times of crisis

Valuation & Risks

Jeriel Ong
The DB IT Hardware takeaway Research Analyst
AAPL reported Jun-qtr rev/EPS that significantly beat Street estimates by +1-415-617-2923
~14%/25% on the top/bottom line, though they elected not to provide a forward Ross Seymore
quarter guidance once again. While such a decision could be interpreted as a sign Research Analyst
of uncertainty, AAPL did provide more segment commentary and guided to select +1-415-617-3268
line items moreso within their control (tax, opex, OI&E) perhaps signaling they are
on a path toward a normalized guidance practice next quarter. Overall, the positives Key changes
outweigh the (minor) negatives in the quarter, and we suspect that AAPL's 400.00 to
TP ↑ 10.0%
confidence that such trends simply continue into the Sept-qtr could understate the 440.00
reality that they could in fact strengthen, driven in our view by Mac, iPad, global EPS (USD) 11.89 to 12.91 ↑ 8.6%
normalization of demand aiding all segments. Long-term, we continue to believe 257,536.5 to
Revenue (USDm) ↑ 5.7%
that AAPL is the best name to own in the IT Hardware landscape, outweighing our 272,191.4
worries regarding the large intra-quarter move and subsequent valuation Source: Deutsche Bank

expansion. We raise our P/T to $440 ($400 prior) on raised CY21 estimates.
Stock option liquidity data
Shares outstanding (m) 4,339.3
Positives and negatives
37,002,2
Positives: 1) iPhones, Macs, and iPad upsided expectations, driving the overall Option volume (und. shrs., 1M avg.)
57
~14% revenue upside vs. Street, and generating leverage with EPS ~25% above
1,669,58
Street; 2) Services GM% achieved an all-time high of 67.2%, rising ~900bps from Market Cap (USDm)
5.3
58.3% reported back in Dec-17 (only 11 quarters ago); 3) Every geography observed
4,848,27
y/y revenue growth, a feat not observed since Sept-18 and particularly impressive Volume (30 Jul 2020)
7
in our view given the present macro environment. Negatives: 1) AAPL's repurchase Free float (%) 100
incrementally slowed q/q (though this was more algorithmic in nature); 2) Product Source: Deutsche Bank
GM% came in below 30% for the first time since AAPL began to disclose the metric,
a dynamic that could worry investors; 3) AAPL once again did not provide revenue/
GM guidance, which could signal uncertainty (an interesting dynamic since
upstream component companies continue to provide guidance).

Jun-20 report
AAPL reported Jun-20 results significantly above expectations with revenues/EPS
of $59.7b/$2.58 vs. Street at $52.3b/$2.07 and DBe at $51.9b/$1.97. Gross margin
came in at 38.0% vs. Street/DBe at 38.0%/38.5%. Product GM was 29.7% (DBe
29.3%), while Services GM was 67.2% (DBe 65.5%). Operating margin came in at
21.9% vs. Street/DBe at 19.4%/19.6%, and opex came in at $9.6b. By segment,
iPhone came in at $26.4b (-9% q/q, +2% y/y), iPad came in at $6.6b (+51% q/q,
+31% y/y), Mac came in at $7.1b (+32% q/q, +22% y/y), Services came in at $13.2b

Deutsche Bank Securities Inc.

Distributed on: 31/07/2020 02:49:05 GMT
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware
that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED
IN APPENDIX 1. MCI (P) 064/04/2020.

7T2se3r0Ot6kwoPa
30 July 2020
IT Hardware and Supply Chain
Apple

(-1% q/q, +15% y/y), and Wearables came in at $6.5b (+3% q/q, +17% y/y).

Sept-20 guidance
For the Sept-20 quarter, AAPL did not provide typical guidance. We note that prior
Street/DBe revenues stood at $55.5b/$61.7b, Street/DBe GM% at 38.2%/38.5%,
Street/DBe OpEx at $9.4b/$9.8b, Street/DBe OM% at 23.0%/21.5% and Street/DBe
EPS at $2.78/$2.33 prior. AAPL provided some segment commentary and guided
several line items: 1) iPhone's strong performance should continue in Sept-qr,
though new iPhones will not impact September as in years past; 2) Services is
expected to see similar trends observed in Jun-qtr, except Apple Care; 3) iPad/Mac/
Wearables "strong y/y performance"; 4) OpEx $9.8-$9.9b; 5) tax rate 16.5%; 6) OI&E
$50m. By segment, we adjust our iPhone assumptions to $26.9b ($23.1b prior),
iPad assumptions to $6.6b ($4.3b prior), Mac assumptions to $7.4b ($6.9b prior),
Services assumptions to $14.4b ($14.4b prior), and Wearables assumptions to
$7.1b ($6.9b prior).

Our revised estimates

As a result of the quarter and guide, we revise our Sept-20 quarter revenue/EPS
estimates to $62.3b/$2.74 vs. $55.5b/$2.33 DBe prior and Street at $61.7b/$2.78.
While we had expected flatter q/q trends into the Sept-qtr in anticipation of a push-
out of new iPhone launches (which do have a material impact on the last week of
sales for AAPL in September), AAPL's upside to the Jun-qtr meant that our Sept-qtr
estimates also require a higher base. Our relatively flat q/q logic continues to apply
(DBe +4.5% q/q). As a result of our changes and looking over a longer time frame,
our CY20E revenue/EPS estimates move to $270b/$12.72 vs. our prior estimates at
$251b/$11.28 and Street at $269b/$12.35. Looking another year out, our CY21E
revenue/EPS estimates move to $323b/$17.17 vs. our prior estimates at $313b/
$16.39 and Street at $304b/$15.76.

Valuation and P/T

Our new $440 P/T remains based upon a 25x CY21E P/E multiple, which stands in-
line with large-cap technology peers. We see such a valuation as elevated vs.
AAPL's past but fair vs. peers when we compare AAPL's total growth potential and
earnings power with the growth expectations of the peer group. With steady gross
and operating margins and a solid balance sheet, we see the potential reward from
stock outperformance as skewed positively when compared to the company's risk
profile.

Forecasts and ratios

Year End Sep 30 2019A 2020E 2021E 2022E
1Q EPS 4.18 4.99A 4.88 6.03
2Q EPS 2.46 2.55A 4.44 3.96
3Q EPS 2.18 2.58A 3.00 3.52
4Q EPS 3.03 2.74 3.71 4.48
FY EPS (USD) 11.89 12.91 16.06 18.01
OLD FY EPS (USD) 11.89 11.89 15.06 17.25
% Change 0.0% 8.6% 6.6% 4.4%
Revenue (USDm) 260,174.0 272,191.4 309,493.1 327,469.4
Source: Deutsche Bank estimates, company data

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Quarterly report and guidance

Reported quarter recap
AAPL reported Jun-20 results significantly above expectations with revenues/EPS
of $59.7b/$2.58 vs. Street at $52.3b/$2.07 and DBe at $51.9b/$1.97. Gross margin
came in at 38.0% vs. Street/DBe at 38.0%/38.5%. Product GM was 29.7% (DBe
29.3%), while Services GM was 67.2% (DBe 65.5%). Operating margin came in at
21.9% vs. Street/DBe at 19.4%/19.6%, and opex came in at $9.6b. By segment,
iPhone came in at $26.4b (-9% q/q, +2% y/y), iPad came in at $6.6b (+51% q/q,
+31% y/y), Mac came in at $7.1b (+32% q/q, +22% y/y), Services came in at $13.2b
(-1% q/q, +15% y/y), and Wearables came in at $6.5b (+3% q/q, +17% y/y).

Figure 1: Reported quarter recap ($ in b, except per share data)

$ in b, except per share Jun-20 Jun-20 DB Jun-20 Delta vs. Delta vs.
data actual old Street DB old Street Comments
Revenue $59.69 $51.88 $52.30 15.1% 14.1% Beat DB/Street driven predominantly
Q/Q Change 2.4% (11.0%) (10.3%) by iPhone but Mac/iPad also
Y/Y Change 10.9% (3.6%) (2.8%) contributed
Product Gross Profits $13.84 $11.36 -- 21.8% --
Product GM% 29.7% 29.3% -- 39bps --
Services Gross Profits $8.84 $8.62 -- 2.5% --
Services GM% 67.2% 65.5% -- 175bps --
Gross Profit $22.68 $19.98 $19.89 13.5% 14.0% Largely in-line with Street, slightly
GM% 38.0% 38.5% 38.0% -52bps -4bps below DB on lower product GM%
R&D $4.76 $4.89 -- (2.7%) --
% of Sales 8.0% 9.4% -- -146bps --
SG&A $4.83 $4.92 -- (1.9%) --
% of Sales 8.1% 9.5% -- -140bps --
Total OpEx $9.59 $9.82 $9.72 (2.3%) (1.4%)
% of Sales 16.1% 18.9% 18.6% -285bps -252bps Below DB/Street
Operating Income $13.09 $10.17 $10.17 28.8% 28.7%
OM% 21.9% 19.6% 19.4% 234bps 248bps
Other Income $0.05 $0.10 -- (54.1%) --
Pre-tax Income $13.14 $10.27 -- 28.0% --
Pre-tax Margin % 22.0% 19.8% -- 222bps --
Income Taxes $1.88 $1.69 -- 11.2% --
Tax Rate 14.3% 16.5% -- -216bps -- Lower than typical 16.5% rate
Net Income $11.25 $8.57 31.3%
Net Income Margin 18.9% 16.5% 233bps
Diluted Shares 4.35 4.36 -- (0.0%) --
Diluted EPS $2.58 $1.97 $2.07 31.3% 24.7% $0.51/$0.62 above Street/DB
Source : Bloomberg, Company reports, Deutsche Bank estimates

Out quarter review

For the Sept-20 quarter, AAPL did not provide typical guidance. We note that prior
Street/DBe revenues stood at $55.5b/$61.7b, Street/DBe GM% at 38.2%/38.5%,
Street/DBe OpEx at $9.4b/$9.8b, Street/DBe OM% at 23.0%/21.5% and Street/DBe
EPS at $2.78/$2.33 prior. AAPL provided some segment commentary and guided
several line items: 1) iPhone's strong performance should continue in Sept-qr,
though new iPhones will not impact September as in years past; 2) Services is
expected to see similar trends observed in Jun-qtr, except Apple Care; 3) iPad/Mac/
Wearables "strong y/y performance"; 4) OpEx $9.8-$9.9b; 5) tax rate 16.5%; 6) OI&E

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$50m. By segment, we adjust our iPhone assumptions to $26.9b ($23.1b prior),

iPad assumptions to $6.6b ($4.3b prior), Mac assumptions to $7.4b ($6.9b prior),
Services assumptions to $14.4b ($14.4b prior), and Wearables assumptions to
$7.1b ($6.9b prior).

Figure 2: Out quarter review ($ in b, except per share data)

$ in b, except per share Sept-20E Sept-20E Sept-20E Sept-20E Delta vs. Delta vs.
data guide new DB old Street DB old Street Comments
Revenue - $62.37 $55.53 $61.68 12.3% 1.1%
Q/Q Change 4.5% 7.0% 17.9% Closer to Street despite next-gen
Y/Y Change (2.6%) (13.3%) (3.7%) iPhone delay
Product Gross Profits -- $14.27 $12.28 -- 16.2% --
Product GM% -- 29.7% 29.8% -- -11bps --
Services Gross Profits -- $9.67 $9.45 -- 2.4% --
Services GM% -- 67.2% 65.7% -- 155bps --
Gross Profit $23.94 $21.73 $23.55 10.2% 1.6%
GM% - 38.5% 38.5% 38.2% 0bps 29bps Estimate improved GM q/q
R&D -- $4.85 $4.68 -- 3.6% --
% of Sales -- 7.8% 8.4% -- -66bps --
SG&A -- $5.01 $5.10 -- (1.9%) --
% of Sales -- 8.0% 9.2% -- -117bps --
Total OpEx $9.8-9.9 $9.85 $9.78 $9.39 0.7% 4.9% OpEx guidance roughly in-line with
% of Sales 15.8% 17.6% 15.2% -182bps 56bps DBe
Operating Income - $14.09 $11.94 $14.16 18.0% (0.5%)
OM% - 22.6% 21.5% 23.0% 108bps -37bps Slightly below Street and above DBe
Other Income $0.05 $0.05 $0.07 -- (26.9%) --
Pre-tax Income -- $14.14 $12.01 -- 17.7% --
Pre-tax Margin % -- 22.7% 21.6% -- 104bps --
Income Taxes -- $2.33 $1.98 -- 17.7% --
Tax Rate 16.5% 16.5% 16.5% -- 0bps --
Net Income $11.81 $10.03 17.7%
Net Income Margin 18.9% 18.1% 87bps
Diluted Shares -- 4.31 4.31 -- (0.0%) --
Diluted EPS $2.74 $2.33 $2.78 17.7% (1.6%) Forecast EPS close to Street
Source : Bloomberg, Company reports, Deutsche Bank estimates

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Revenues, segment review, and guidance

Revenues
AAPL reported revenues of $59.7b (+2% q/q, +11% y/y) vs. DB/Street of $51.9b/
$52.3b. AAPL did not provide a revenue guidance for the next quarter, though we
note that the Street stood at $61.7b, and DBe at $55.5b.

Figure 3: Total revenues ($ in b)

$100 $91.8 25%

$88.3
$90 $84.3
20%
$80
$70 $62.9 $64.0 15%
$61.1 $58.3 $59.7
$58.0
$60 $52.6 $53.3 $53.8
10%
$50
$40 5%

$30 0%
$20
-5%
$10
$0 -10%

Revenue Y/Y Change

Source : Company reports, Deutsche Bank

Reported quarter and forward quarter segment view

The table and charts below show AAPL's actual results vs. DB and Street segment
estimates for the reported quarter, and show how we changed our estimates for the
out quarter and how that compares to Street estimates.

By segment in the quarter:

iPhone came in at $26.4b (-9% q/q, +2% y/y), +22% above Street and +21% above
DBe;

iPad came in at $6.6b (+51% q/q, +31% y/y), +33% above Street and +33% above
DBe;

Mac came in at $7.1b (+32% q/q, +22% y/y), +20% above Street and +22% above
DBe;

Services came in at $13.2b (-1% q/q, +15% y/y), in-line with Street/DBe;

Other came in at $6.5b (+3% q/q, +17% y/y), +6% above Street and +4% above DBe.

Looking at the forward quarter:

Our iPhone estimates move to $26.9b (+2% q/q, -19% y/y), -8% below Street and
+17% above DBe prior;

Our iPad estimates move to $6.6b (0% q/q, +41% y/y), +49% above Street and +52%
above DBe prior;

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Our Mac estimates move to $7.4b (+5% q/q, +6% y/y), +7% above Street and +8%
above DBe prior;

Our Services estimates move to $14.4b (+9% q/q, +15% y/y), in-line with Street/DBe
prior;

Our Other estimates move to $7.1b (+10% q/q, +9% y/y), -3% below Street and +3%
above DBe prior.

Figure 4: Segment recap and guidance revisions

Delta Sept- Sept- Delta

Jun-20 Jun-20 Jun-20 vs. Delta vs. Sept-20E 20E DB 20E vs. Delta vs.
$ in b actual DB old Street DB old Street new old Street DB old Street Comments
iPhone $26.4 $21.8 $21.7 21.4% 21.7% $26.9 $23.1 $29.4 16.6% (8.4%) Above DB/Street for the quarter
Q/Q Change (8.8%) (24.9%) -- -- -- 1.9% 6.1% -- -- -- driven by strong iPhone SE and
Y/Y Change 1.7% (16.3%) -- -- -- (19.3%) (30.8%) -- -- -- stronger May/June months
% of Sales 44.3% 41.9% -- -- -- 43.1% 41.6% -- -- --
iPad $6.6 $5.0 $5.0 32.9% 32.7% $6.6 $4.3 $4.4 52.1% 48.8% Above DB/Street, double-digit
Q/Q Change 50.7% 13.4% -- -- -- (0.1%) (12.7%) -- -- -- growth in all geos, Jun-qtr record in
Y/Y Change 31.0% (1.4%) -- -- -- 41.2% (7.1%) -- -- -- Greater China, iPad Pro well received
% of Sales 11.0% 9.5% -- -- -- 10.5% 7.8% -- -- --
Mac $7.1 $5.8 $5.9 21.8% 19.6% $7.4 $6.9 $7.0 8.0% 6.8% Above DB/Street, up double-digits in
Q/Q Change 32.3% 8.6% -- -- -- 5.0% 18.3% -- -- -- all geos, response to MacBook Air
Y/Y Change 21.6% (0.1%) -- -- -- 6.3% (1.6%) -- -- -- and Pro have been extremely strong
% of Sales 11.9% 11.2% -- -- -- 11.9% 12.4% -- -- --
Services $13.2 $13.2 $13.1 (0.1%) 0.3% $14.4 $14.4 $14.1 0.0% 2.2% Strong double-digit growth in App
Q/Q Change (1.4%) (1.3%) -- -- -- 9.4% 9.2% -- -- -- Store, Apple Music, video, and cloud
Y/Y Change 14.8% 15.0% -- -- -- 15.0% 15.0% -- -- -- services. Paid accts grew double
% of Sales 22.0% 25.4% -- -- -- 23.1% 25.9% -- -- -- digits in each geo
Wearables $6.5 $6.2 $6.1 4.4% 5.9% $7.1 $6.9 $7.3 3.0% (3.0%) New June record, not much upside
Q/Q Change 2.6% (1.6%) -- -- -- 9.6% 11.1% -- -- -- vs. DB/Street overall. Jun-qtr records
Y/Y Change 16.7% 11.9% -- -- -- 8.5% 5.3% -- -- -- in the majority of markets tracked
% of Sales 10.8% 11.9% -- -- -- 11.3% 12.4% -- -- --
Source : Bloomberg, Company reports, Deutsche Bank estimates

Figure 5: iPhone revenue ($ in b) Figure 6: iPad revenue ($ in b)

$70 30% $8 40%

$61.1
25% $6.7 $6.6
$60 $56.0 $7
$52.0 $6.0 30%
20% $5.8
$6
$50 15%
$4.8 $4.9 $5.0 $4.7 20%
$5 $4.6
$37.6 $36.8 10% $4.4
$40 $4.0 $4.0
$33.4
$29.5 $31.1 5% $4 10%
$28.8 $29.0
$30 $26.0 $26.4
0%
$3
-5% 0%
$20
$2
-10%
$10 -10%
-15% $1
$0 -20% $0 -20%

iPhone Y/Y Change iPad Y/Y Change

Source : Company reports, Deutsche Bank Source : Company reports, Deutsche Bank

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Figure 7: Mac revenue ($ in b) Figure 8: Services revenue ($ in b)

$8 $7.3 $7.4 30% $16 45%

$7.2 $7.0 $7.2 $7.1
$6.8
$7 25% $14 $13.3 $13.2 40%
$12.5 $12.7
$5.8 $5.8
$6 $5.5 $5.4 20% $11.5 $11.5 35%
$5.3 $12
$10.6 $10.9
$5 15% $9.9 $10.2 30%
$10 $9.1
$8.5
$4 10% 25%
$8
$3 5% 20%
$6
$2 0% 15%
$4
$1 -5% 10%
$2 5%
$0 -10%
$0 0%

Mac Y/Y Change

Services Y/Y Change

Source : Company reports, Deutsche Bank Source : Company reports, Deutsche Bank

Figure 9: Wearables, Home, and Accessories revenue ($ in

b)

$12 60%

$10.0
$10 50%

$8 $7.3 40%
$6.5 $6.3 $6.5
$6 $5.5 $5.5 30%
$5.1
$3.9 $3.7 $4.2
$4 $3.2 20%

$2 10%

$0 0%

Wearables, Home, and Accessories Y/Y Change

Source : Company reports, Deutsche Bank

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Margins and operating expenses

In the quarter, AAPL reported gross margins of 38.0%, which was -50bps below
DBe of 38.5% and in-line with Street of 38.0%. Product gross margins came in at
29.7% (DBe 29.3%), while services gross margins came in at 67.2% (DBe 65.5%).
Operating margins in the quarter came in at 21.9%, which was 230bps above DBe
of 19.6% and 250bps above Street of 19.4%.

Figure 10: Gross margin and operating margin trends

45%

40% 37.9% 38.4% 38.3% 38.3% 38.5% 38.0% 37.6% 37.6% 38.0% 38.4% 38.4% 38.0%

35%
29.8%
30% 27.7% 27.8%
25.0% 26.0% 25.6%
23.7% 24.4%
25% 23.1% 22.0%
21.5% 21.9%
20%

15%

10%

5%

0%
Sept-17 Dec-17 Mar-18 Jun-18 Sept-18 Dec-18 Mar-19 Jun-19 Sept-19 Dec-19 Mar-20 Jun-20

Gross Margins Operating Margins

Source : Company reports, Deutsche Bank

R&D, SG&A, and total operating expense trends

In the quarter, AAPL reported R&D of $4.76b (+4% q/q, +12% y/y, 8.0% of sales) vs.
DBe of $4.89b (+7% q/q, +15% y/y, 9.4% of sales). AAPL reported SG&A of $4.83b
(-2% q/q, +9% y/y, 8.1% of sales) vs. DBe of $4.92b (-1% q/q, +11% y/y, 9.5% of
sales). As a result of R&D and SG&A trends, AAPL reported total operating
expenses of $9.59b (+1% q/q, +10% y/y, 16.1% of sales) vs. DBe of $9.82b (+3% q/q,
+13% y/y, 18.9% of sales). For the next quarter, we note that operating expenses
were guided to $9.8-9.9b ($9.85b midpoint), above DBe of $9.78b and above Street
of $9.39b.

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Figure 11: Total operating expenses ($ in b)

0% $12 18%

0% $9.6 $9.6 16%

$10 $9.5
$8.7 $8.4 $8.7 $8.7 14%
0% $7.6 $7.8 $8.0
$8 $7.5 12%
$6.8
0% 10%
$6
0% 8%
$4 6%
0%
4%
$2
2%
$0 0%

Operating Expenses % of Sales

Source : Company reports, Deutsche Bank

Figure 12: R&D expense ($ in b) Figure 13: SG&A expense ($ in b)

$5 $4.8 9% $6 9%
$4.5 $4.6 $5.2
$5 $4.3 $4.1 8%
$4.8 $5.0 $4.8 8%
$3.9 $3.9 $5
$4 $3.7 $3.8 7% $4.5 $4.4 $4.6 7%
$3.4 $3.4 $4.2 $4.2 $4.1 $4.2
$4 $3.8
$3.0 6% $4 6%
$3
5% 5%
$3 $3
4% 4%
$2
3% $2 3%
$2
$1 2% 2%
1% $1
$1 1%
$0 0%
$0 0%

R&D % of Sales
SG&A % of Sales

Source : Company reports, Deutsche Bank Source : Company reports, Deutsche Bank

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Balance sheet analysis

Net cash view
AAPL reported net cash of $81b (split total cash of $194b and total debt of $113b)
with a net cash/share of $18.58. As shown in the chart, we see that net cash has
been on a declining trend due to increased share repurchases in the recent past.

Figure 14: Net cash and net cash/share ($ in b)

$180 $35
$161
$160 $152
$145 $30
$140 $129 $130
$123
$113 $25
$120
$102 $98 $99
$100 $20
$83 $81
$80 $15
$60
$10
$40
$5
$20
$0 $0

Net Cash (Left) Net Cash/Share (Right)

Source : Company reports, Deutsche Bank

Cash conversion cycle view

AAPL has long operated at a negative cash conversion cycle. Accounts receivable
was $17.9b in the quarter. Days sales outstanding were 27 days. Inventories were
$4.0b in the quarter. Days inventory outstanding were 10 days. Accounts payable
was $35.3b in the quarter. Days payable outstanding were 86 days. As a result,
AAPL’s cash conversion cycle was -49 days.

Figure 15: Cash conversion cycle, DIOs, DSOs, and DPOs

125
100
75
50
25
0
-25
-50
-75
-100

Days Sales Outstanding Days Inventory Outstanding

Days Payable Outstanding Cash Conversion Cycle

Source : Company reports, Deutsche Bank

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Cash flow analysis

Free cash flow analysis
AAPL generated $14.7b in FCF, driven by cash flow from operations of $16.3b,
while capital expenditures were $1.6b. FCF of $14.7b represented 24.6% of sales
(+28% q/q, +53% y/y).

Figure 16: Quarterly FCF ($ in b)

$30 $28.4 35%

$25.5
$25 $23.3 30%

25%
$20
$16.5 $17.1
$14.7 20%
$15
$11.9 $11.5
$10.9 $11.2 15%
$9.6
$10 $8.8
10%

$5 5%

$0 0%

Free Cash Flow Free Cash Flow % of Sales

Source : Company reports, Deutsche Bank

Capital return analysis

AAPL returned $15.9b through share repurchases in the quarter, while they
returned $3.7b through dividends through their $0.82/share dividend. Share
repurchases accounted for 108% of FCF, while dividends accounted for 25% of FCF.
Due to AAPL’s revenue and profit seasonality, quarterly capital returns may
sometimes exceed quarterly FCF. AAPL does not have an annual shareholder return
target but generally targets achieving a net cash neutral position over time. AAPL
has historically returned ~80% of FCF on a multi-year average basis with the last few
years ~140%.

Deutsche Bank Securities Inc. Page 11

30 July 2020
IT Hardware and Supply Chain
Apple

Figure 17: Dividend dollars and share repurchase dollars vs. shareholder return
% of FCF ($ in b)

$30 350% $

$25 300%
$
250%
$20
200%
$15
150%
$10
100%

$5 50%

$0 0%

Share Repurchases Dividends Shareholder Return as a % of FCF

Source : Company reports, Deutsche Bank

Page 12 Deutsche Bank Securities Inc.

Deutsche Bank Securities Inc.

Apple
IT Hardware and Supply Chain
30 July 2020
Figure 18: Apple income statement ($ in m, except per share data)
Year End September FY2020E FY2021E FY2022E Fiscal Year
$ in millions Dec-19 Mar-20 Jun-20 Sept-20E Dec-20E Mar-21E Jun-21E Sept-21E Dec-21E Mar-22E Jun-22E Sept-22E FY19 FY20E FY21E FY22E CY19 CY20E CY21E
Income Statement
Products Revenues $79,104 $44,965 $46,529 $47,987 $75,423 $67,412 $48,889 $56,658 $87,515 $58,453 $51,509 $61,251 $213,883 $218,585 $248,382 $258,727 $219,552 $214,903 $260,474
Q/Q Change 53.5% (43.2%) 3.5% 3.1% 57.2% (10.6%) (27.5%) 15.9% 54.5% (33.2%) (11.9%) 18.9% - - - - - - -
Y/Y Change 7.7% (3.4%) 9.9% (6.9%) (4.7%) 49.9% 5.1% 18.1% 16.0% (13.3%) 5.4% 8.1% (5.3%) 2.2% 13.6% 4.2% (0.3%) (2.1%) 21.2%
% of Sales 86.2% 77.1% 78.0% 76.9% 83.9% 81.6% 76.5% 77.6% 84.2% 77.3% 75.4% 76.9% 82.2% 80.3% 80.3% 79.0% 82.0% 79.5% 80.5%
Services Revenues $12,715 $13,348 $13,156 $14,388 $14,495 $15,217 $14,998 $16,402 $16,379 $17,195 $16,798 $18,370 $46,291 $53,607 $61,112 $68,742 $48,131 $55,387 $62,996
Q/Q Change 1.6% 5.0% (1.4%) 9.4% 0.7% 5.0% (1.4%) 9.4% (0.1%) 5.0% (2.3%) 9.4% - - - - - - -
Y/Y Change 16.9% 16.6% 14.8% 15.0% 14.0% 14.0% 14.0% 14.0% 13.0% 13.0% 12.0% 12.0% 16.5% 15.8% 14.0% 12.5% 16.0% 15.1% 13.7%
% of Sales 13.8% 22.9% 22.0% 23.1% 16.1% 18.4% 23.5% 22.4% 15.8% 22.7% 24.6% 23.1% 17.8% 19.7% 19.7% 21.0% 18.0% 20.5% 19.5%
Revenues $91,819 $58,313 $59,685 $62,374 $89,918 $82,629 $63,887 $73,060 $103,894 $75,648 $68,307 $79,621 $260,174 $272,191 $309,493 $327,469 $267,683 $270,290 $323,470
Q/Q Change 43.4% (36.5%) 2.4% 4.5% 44.2% (8.1%) (22.7%) 14.4% 42.2% (27.2%) (9.7%) 16.6% - - - - - - -
Y/Y Change 8.9% 0.5% 10.9% (2.6%) (2.1%) 41.7% 7.0% 17.1% 15.5% (8.4%) 6.9% 9.0% (2.0%) 4.6% 13.7% 5.8% 2.3% 1.0% 19.7%

COGS 56,602 35,943 37,005 38,433 54,758 50,009 38,511 44,004 63,151 45,404 40,257 47,190 161,782 167,983 187,282 196,001 166,105 166,139 195,675

Products Gross Profits 27,029 13,644 13,836 14,269 25,445 22,405 15,271 17,981 29,699 18,668 16,708 19,990 68,887 68,778 81,102 85,064 70,719 67,194 85,357
Products Gross Margin % 34.2% 30.3% 29.7% 29.7% 33.7% 33.2% 31.2% 31.7% 33.9% 31.9% 32.4% 32.6% 32.2% 31.5% 32.7% 32.9% 32.2% 31.3% 32.8%
Services Gross Profits 8,188 8,726 8,844 9,672 9,715 10,214 10,105 11,075 11,044 11,576 11,342 12,441 29,505 35,430 41,109 46,403 30,859 36,957 42,438
Services Gross Margin % 64.4% 65.4% 67.2% 67.2% 67.0% 67.1% 67.4% 67.5% 67.4% 67.3% 67.5% 67.7% 63.7% 66.1% 67.3% 67.5% 64.1% 66.7% 67.4%
Gross Profit 35,217 22,370 22,680 23,941 35,160 32,619 25,376 29,056 40,743 30,244 28,050 32,431 98,392 104,208 122,211 131,468 101,578 104,151 127,794
Gross Margin % 38.4% 38.4% 38.0% 38.5% 39.1% 39.5% 39.7% 38.5% 38.5% 40.0% 41.1% 38.5% 37.8% 38.3% 39.5% 40.1% 37.9% 38.5% 39.5%

R&D 4,451 4,565 4,758 4,848 4,920 4,934 5,285 5,167 5,373 5,425 5,514 5,312 16,217 18,622 20,306 21,624 16,766 19,091 20,759
Q/Q Change 8.3% 2.6% 4.2% 1.9% 1.5% 0.3% 7.1% (2.2%) 4.0% 1.0% 1.6% (3.7%) - - - - - - -
Y/Y Change 14.1% 15.6% 11.8% 17.9% 10.5% 8.1% 11.1% 6.6% 9.2% 9.9% 4.3% 2.8% 13.9% 14.8% 9.0% 6.5% 13.8% 13.9% 8.7%
% of Sales 4.8% 7.8% 8.0% 7.8% 5.5% 6.0% 8.3% 7.1% 5.2% 7.2% 8.1% 6.7% 6.2% 6.8% 6.6% 6.6% 6.3% 7.1% 6.4%
SG&A 5,197 4,952 4,831 5,005 5,417 5,226 5,126 5,424 5,635 5,465 5,481 5,513 18,245 19,985 21,193 22,094 18,659 20,205 21,411
Q/Q Change 13.5% (4.7%) (2.4%) 3.6% 8.2% (3.5%) (1.9%) 5.8% 3.9% (3.0%) 0.3% 0.6% - - - - - - -
Y/Y Change 8.7% 11.1% 9.2% 9.3% 4.2% 5.5% 6.1% 8.4% 4.0% 4.6% 6.9% 1.6% 9.2% 9.5% 6.0% 4.3% 8.1% 8.3% 6.0%
% of Sales 5.7% 8.5% 8.1% 8.0% 6.0% 6.3% 8.0% 7.4% 5.4% 7.2% 8.0% 6.9% 7.0% 7.3% 6.8% 6.7% 7.0% 7.5% 6.6%
Operating Expenses 9,648 9,517 9,589 9,853 10,337 10,160 10,411 10,591 11,009 10,890 10,995 10,825 34,462 38,607 41,499 43,719 35,425 39,296 42,170
Q/Q Change 11.0% (1.4%) 0.8% 2.7% 4.9% (1.7%) 2.5% 1.7% 3.9% (1.1%) 1.0% (1.5%) - - - - - - -
Y/Y Change 11.1% 13.2% 10.4% 13.4% 7.1% 6.8% 8.6% 7.5% 6.5% 7.2% 5.6% 2.2% 11.4% 12.0% 7.5% 5.3% 10.7% 10.9% 7.3%
% of Sales 10.5% 16.3% 16.1% 15.8% 11.5% 12.3% 16.3% 14.5% 10.6% 14.4% 16.1% 13.6% 13.2% 14.2% 13.4% 13.4% 13.2% 14.5% 13.0%

Operating Income 25,569 12,853 13,091 14,089 24,823 22,459 14,965 18,466 29,734 19,354 17,055 21,606 63,930 65,602 80,713 87,749 66,153 64,856 85,624
Operating Margin % 27.8% 22.0% 21.9% 22.6% 27.6% 27.2% 23.4% 25.3% 28.6% 25.6% 25.0% 27.1% 24.6% 24.1% 26.1% 26.8% 24.7% 24.0% 26.5%

EBITDA 28,734 15,921 15,889 17,881 27,980 25,657 17,693 22,150 32,892 22,604 19,849 25,515 78,284 78,425 93,480 100,860 79,717 77,672 98,391
EBITDA Margin % 31.3% 27.3% 26.6% 28.7% 31.1% 31.1% 27.7% 30.3% 31.7% 29.9% 29.1% 32.0% 30.1% 28.8% 30.2% 30.8% 29.8% 28.7% 30.4%

Interest & Other, net 349 282 46 50 130 76 102 31 41 (3) (14) (72) 1,807 727 339 (48) 1,596 508 249

Pre-tax Income 25,918 13,135 13,137 14,139 24,953 22,535 15,066 18,497 29,775 19,351 17,041 21,534 65,737 66,329 81,051 87,701 67,749 65,364 85,873
Pre-tax Margin % 28.2% 22.5% 22.0% 22.7% 27.8% 27.3% 23.6% 25.3% 28.7% 25.6% 24.9% 27.0% 25.3% 24.4% 26.2% 26.8% 25.3% 24.2% 26.5%

Income Taxes 3,682 1,886 1,884 2,333 4,117 3,718 2,486 3,052 4,913 3,193 2,812 3,553 10,481 9,785 13,373 14,471 10,222 10,220 14,169
Tax Rate 14.2% 14.4% 14.3% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 16.5% 15.9% 14.8% 16.5% 16.5% 15.1% 15.6% 16.5%

Net Income (GAAP) 22,236 11,249 11,253 11,806 20,836 18,817 12,580 15,445 24,862 16,158 14,230 17,981 55,256 56,544 67,678 73,230 57,527 55,144 71,704
Net Margin % 24.2% 19.3% 18.9% 18.9% 23.2% 22.8% 19.7% 21.1% 23.9% 21.4% 20.8% 22.6% 21.2% 20.8% 21.9% 22.4% 21.5% 20.4% 22.2%

GAAP Basic EPS $5.04 $2.58 $2.61 $2.77 $4.92 $4.49 $3.03 $3.75 $6.09 $4.00 $3.55 $4.53 $11.97 $13.03 $16.21 $18.19 $12.68 $12.84 $17.33
GAAP Diluted EPS $4.99 $2.55 $2.58 $2.74 $4.88 $4.44 $3.00 $3.71 $6.03 $3.96 $3.52 $4.48 $11.89 $12.91 $16.06 $18.01 $12.59 $12.72 $17.17

Average Shares Outstanding (Basic) 4,415 4,360 4,313 4,269 4,231 4,193 4,155 4,118 4,081 4,044 4,008 3,972 4,618 4,339 4,174 4,026 4,538 4,293 4,137
Average Shares Outstanding (Diluted) 4,455 4,405 4,355 4,311 4,272 4,234 4,196 4,158 4,121 4,084 4,047 4,010 4,649 4,381 4,215 4,065 4,569 4,336 4,177

Dividend/Share $0.77 $0.77 $0.82 $0.82 $0.82 $0.82 $0.91 $0.91 $0.91 $0.91 $1.00 $1.00 $3.00 $3.18 $3.46 $3.82 $3.04 $3.23 $3.55

Source : Company reports, Deutsche Bank estimates

Page 13
Page 14

Apple
IT Hardware and Supply Chain
30 July 2020
Figure 19: Apple segment revenue model ($ in m)
$ in millions Dec-19 Mar-20 Jun-20 Sept-20E Dec-20E Mar-21E Jun-21E Sept-21E Dec-21E Mar-22E Jun-22E Sept-22E FY19 FY20E FY21E FY22E CY19 CY20E CY21E
Segment Revenues
iPhone Revenues $55,957 $28,962 $26,418 $26,907 $51,056 $48,533 $28,707 $34,595 $61,078 $37,710 $31,193 $40,052 $142,381 $138,244 $162,892 $170,034 $146,356 $133,342 $172,914
Q/Q Change 68% (48%) (9%) 2% 90% (5%) (41%) 21% 77% (38%) (17%) 28% - - - - - - -
Y/Y Change 8% (7%) 2% (19%) (9%) 68% 9% 29% 20% (22%) 9% 16% (14%) (3%) 18% 4% (6%) (9%) 30%
% of Sales 61% 50% 44% 43% 57% 59% 45% 47% 59% 50% 46% 50% 55% 51% 53% 52% 55% 49% 53%
iPad Revenues $5,977 $4,368 $6,582 $6,576 $6,491 $4,722 $5,702 $6,047 $7,093 $5,390 $5,608 $5,267 $21,280 $23,503 $22,961 $23,358 $20,528 $24,017 $23,563
Q/Q Change 28% (27%) 51% (0%) (1%) (27%) 21% 6% 17% (24%) 4% (6%) - - - - - - -
Y/Y Change (11%) (10%) 31% 41% 9% 8% (13%) (8%) 9% 14% (2%) (13%) 16% 10% (2%) 2% 6% 17% (2%)
% of Sales 7% 7% 11% 11% 7% 6% 9% 8% 7% 7% 8% 7% 8% 9% 7% 7% 8% 9% 7%
Mac Revenues $7,160 $5,351 $7,079 $7,433 $7,657 $6,310 $6,691 $7,949 $8,188 $6,960 $6,546 $7,452 $25,740 $27,023 $28,608 $29,146 $25,484 $27,520 $29,139
Q/Q Change 2% (25%) 32% 5% 3% (18%) 6% 19% 3% (15%) (6%) 14% - - - - - - -
Y/Y Change (3%) (3%) 22% 6% 7% 18% (5%) 7% 7% 10% (2%) (6%) 2% 5% 6% 2% (1%) 8% 6%
% of Sales 8% 9% 12% 12% 9% 8% 10% 11% 8% 9% 10% 9% 10% 10% 9% 9% 10% 10% 9%
Services Revenues $12,715 $13,348 $13,156 $14,388 $14,495 $15,217 $14,998 $16,402 $16,379 $17,195 $16,798 $18,370 $46,291 $53,607 $61,112 $68,742 $48,131 $55,387 $62,996
Q/Q Change 2% 5% (1%) 9% 1% 5% (1%) 9% (0%) 5% (2%) 9% - - - - - - -
Y/Y Change 17% 17% 15% 16% 16% 14% 12% 16% 15% 14%
% of Sales 14% 23% 22% 23% 16% 18% 23% 22% 16% 23% 25% 23% 18% 20% 20% 21% 18% 20% 19%
Wearables, Home and Accessories $10,010 $6,284 $6,450 $7,071 $10,219 $7,847 $7,788 $8,067 $11,156 $8,393 $8,162 $8,479 $24,482 $29,815 $33,921 $36,190 $27,184 $30,024 $34,858
Q/Q Change 54% (37%) 3% 10% 45% (23%) (1%) 4% 38% (25%) (3%) 4% - - - - - - -
Y/Y Change 37% 23% 17% 8% 2% 25% 21% 14% 9% 7% 5% 5% 41% 22% 14% 7% 42% 10% 16%
% of Sales 11% 11% 11% 11% 11% 9% 12% 11% 11% 11% 12% 11% 9% 11% 11% 11% 10% 11% 11%
Total Revenues $91,819 $58,313 $59,685 $62,374 $89,918 $82,629 $63,887 $73,060 $103,894 $75,648 $68,307 $79,621 $260,174 $272,191 $309,493 $327,469 $267,683 $270,290 $323,470
Q/Q Change (36%) (8%) (23%) (27%) (10%) - - - - - - -
Y/Y Change (3%) (2%) (8%) (2%)

Source : Company reports, Deutsche Bank estimates

Deutsche Bank Securities Inc.
Deutsche Bank Securities Inc.

Apple
IT Hardware and Supply Chain
30 July 2020
Figure 20: Apple balance sheet ($ in m, except per share data)
$ in millions Dec-19 Mar-20 Jun-20 Sept-20E Dec-20E Mar-21E Jun-21E Sept-21E Dec-21E Mar-22E Jun-22E Sept-22E FY19 FY20E FY21E FY22E CY19 CY20E CY21E
Balance Sheet
Cash and Cash Equivalents $39,771 $40,174 $33,383 $39,844 $34,017 $44,169 $35,099 $41,958 $38,239 $41,069 $34,500 $43,769 $48,844 $39,844 $41,958 $43,769 $39,771 $34,017 $38,239
ST Marketable Securities 67,391 53,877 59,642 54,642 49,642 44,642 39,642 34,642 29,642 24,642 19,642 14,642 51,713 54,642 34,642 14,642 67,391 49,642 29,642
Accounts Receivable 20,970 15,722 17,882 20,791 27,974 22,278 19,141 24,353 32,323 20,396 20,465 26,540 22,926 20,791 24,353 26,540 20,970 27,974 32,323
Inventories 4,097 3,334 3,978 4,270 5,476 4,639 4,140 4,889 6,315 4,212 4,328 5,243 4,106 4,270 4,889 5,243 4,097 5,476 6,315
Vendor non-trade receivables 18,976 14,955 14,193 14,193 14,193 14,193 14,193 14,193 14,193 14,193 14,193 14,193 22,878 14,193 14,193 14,193 18,976 14,193 14,193
Other Current Assets 12,026 15,691 10,987 10,987 10,987 10,987 10,987 10,987 10,987 10,987 10,987 10,987 12,352 10,987 10,987 10,987 12,026 10,987 10,987
Total Current Assets 163,231 143,753 140,065 144,728 142,289 140,908 123,202 131,022 131,699 115,499 104,115 115,375 162,819 144,728 131,022 115,375 163,231 142,289 131,699
LT Marketable Securities 99,899 98,793 100,592 100,592 100,592 100,592 100,592 100,592 100,592 100,592 100,592 100,592 105,341 100,592 100,592 100,592 99,899 100,592 100,592
PP&E 37,031 35,889 35,687 34,649 33,955 32,881 31,738 30,888 30,051 29,051 27,829 26,903 37,378 34,649 30,888 26,903 37,031 33,955 30,051
Other Assets 40,457 41,965 41,000 41,000 41,000 41,000 41,000 41,000 41,000 41,000 41,000 41,000 32,978 41,000 41,000 41,000 40,457 41,000 41,000
Total Assets 340,618 320,400 317,344 320,969 317,836 315,381 296,532 303,502 303,342 286,142 273,536 283,869 338,516 320,969 303,502 283,869 340,618 317,836 303,342

Accounts Payable 45,111 32,421 35,325 44,838 43,641 45,109 36,763 51,338 50,331 40,955 38,429 55,055 46,236 44,838 51,338 55,055 45,111 43,641 50,331
Accrued Expenses 36,263 37,324 35,005 35,005 35,005 35,005 35,005 35,005 35,005 35,005 35,005 35,005 37,720 35,005 35,005 35,005 36,263 35,005 35,005
Current Debt / Commerical paper 15,214 20,421 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 18,675 16,240 18,675 18,675 18,675 15,214 18,675 18,675
Current Deferred Revenue 5,573 5,928 6,313 6,313 6,313 6,313 6,313 6,313 6,313 6,313 6,313 6,313 5,522 6,313 6,313 6,313 5,573 6,313 6,313
Total Current Liabilities 102,161 96,094 95,318 104,831 103,634 105,102 96,756 111,331 110,324 100,948 98,422 115,048 105,718 104,831 111,331 115,048 102,161 103,634 110,324
LT Debt 93,078 89,086 94,048 94,048 94,048 94,048 94,048 94,048 94,048 94,048 94,048 94,048 91,807 94,048 94,048 94,048 93,078 94,048 94,048
Other LT Liabilities 55,848 56,795 55,696 55,696 55,696 55,696 55,696 55,696 55,696 55,696 55,696 55,696 50,503 55,696 55,696 55,696 55,848 55,696 55,696
Total Liabilities 251,087 241,975 245,062 254,575 253,378 254,846 246,500 261,075 260,068 250,692 248,166 264,792 248,028 254,575 261,075 264,792 251,087 253,378 260,068
Common Stock and Additional PIC 45,972 48,032 48,696 48,696 48,696 48,696 48,696 48,696 48,696 48,696 48,696 48,696 45,174 48,696 48,696 48,696 45,972 48,696 48,696
Retained Earnings 43,977 33,182 24,136 18,248 16,312 12,389 1,886 (5,718) (4,872) (12,696) (22,776) (29,069) 45,898 18,248 (5,718) (29,069) 43,977 16,312 (4,872)
Accumulated Other Comprehensive Inco (418) (2,789) (550) (550) (550) (550) (550) (550) (550) (550) (550) (550) (584) (550) (550) (550) (418) (550) (550)
Total Stockholders' Equity 89,531 78,425 72,282 66,394 64,458 60,535 50,032 42,428 43,274 35,450 25,370 19,077 90,488 66,394 42,428 19,077 89,531 64,458 43,274
Total Liabilities & Equity 340,618 320,400 317,344 320,969 317,836 315,381 296,532 303,502 303,342 286,142 273,536 283,869 338,516 320,969 303,502 283,869 340,618 317,836 303,342

Cash and Debt Metrics

Total Cash 207,061 192,844 193,617 195,078 184,251 189,403 175,333 177,192 168,473 166,303 154,734 159,003 205,898 195,078 177,192 159,003 207,061 184,251 168,473
Cash/Share $46.48 $43.78 $44.46 $45.25 $43.13 $44.73 $41.79 $42.61 $40.88 $40.72 $38.24 $39.65 $45.55 $45.25 $42.61 $39.65 $46.48 $43.13 $40.88
Total Debt 108,292 109,507 112,723 112,723 112,723 112,723 112,723 112,723 112,723 112,723 112,723 112,723 108,047 112,723 112,723 112,723 108,292 112,723 112,723
Debt/Share $24.31 $24.86 $25.88 $26.15 $26.38 $26.62 $26.87 $27.11 $27.36 $27.60 $27.85 $28.11 $23.90 $26.15 $27.11 $28.11 $24.31 $26.38 $27.36
Net Cash/(Debt) 98,769 83,337 80,894 82,355 71,528 76,680 62,610 64,469 55,750 53,580 42,011 46,280 97,851 82,355 64,469 46,280 98,769 71,528 55,750
Net Cash/Share $22.17 $18.92 $18.58 $19.10 $16.74 $18.11 $14.92 $15.50 $13.53 $13.12 $10.38 $11.54 $21.65 $19.10 $15.50 $11.54 $22.17 $16.74 $13.53

Velocity
DSO 21 24 27 30 28 24 27 30 28 24 27 30 32 28 29 30 29 38 36
Inventory Days on Hand 7 8 10 10 9 8 10 10 9 8 10 10 9 9 10 10 9 12 12
DPO 72 81 86 105 72 81 86 105 72 81 86 105 104 97 100 103 99 96 94
Cash Conversion Cycle (CCC) (45) (49) (49) (65) (35) (49) (49) (65) (35) (49) (49) (65) (63) (60) (62) (63) (62) (46) (46)

Source : Company reports, Deutsche Bank estimates

Page 15
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Apple
IT Hardware and Supply Chain
30 July 2020
Figure 21: Apple cash flow statement ($ in m, except per share data)
$ in millions Dec-19 Mar-20 Jun-20 Sept-20E Dec-20E Mar-21E Jun-21E Sept-21E Dec-21E Mar-22E Jun-22E Sept-22E FY19 FY20E FY21E FY22E CY19 CY20E CY21E
Cash Flow Statement
Net Income $22,236 $11,249 $11,253 $11,806 $20,836 $18,817 $12,580 $15,445 $24,862 $16,158 $14,230 $17,981 $55,256 $56,544 $67,678 $73,230 $57,527 $55,144 $71,704
D&A 2,816 2,786 2,752 3,742 3,027 3,121 2,626 3,653 3,117 3,253 2,808 3,981 12,547 12,096 12,428 13,159 11,968 12,308 12,518
% of Sales 3.1% 4.8% 4.6% 6.0% 3.4% 3.8% 4.1% 5.0% 3.0% 4.3% 4.1% 5.0% 4.8% 4.4% 4.0% 4.0% 4.5% 4.6% 3.9%
Stock-based Compensation 1,710 1,697 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 1,698 6,068 6,803 6,792 6,792 6,219 6,791 6,792
Deferred Tax Expense/(Benefit) (349) (302) 833 0 0 0 0 0 0 0 0 0 (340) 182 0 0 (742) 531 0
Other (142) (117) 165 0 0 0 0 0 0 0 0 0 (652) (94) 0 0 (740) 48 0
Changes in WC:
Accounts Receivables 2,015 5,269 (2,135) (2,909) (7,183) 5,697 3,137 (5,212) (7,969) 11,927 (69) (6,075) 245 2,240 (3,562) (2,187) (2,870) (6,958) (4,348)
Inventories (28) 727 (689) (292) (1,205) 837 499 (749) (1,426) 2,104 (116) (916) (289) (282) (619) (354) 759 (1,460) (839)
Vendor Non-trade Receivables 3,902 4,021 762 0 0 0 0 0 0 0 0 0 2,931 8,685 0 0 (72) 4,783 0
Other Current & LT Assets (7,054) (1,812) 2,106 0 0 0 0 0 0 0 0 0 873 (6,760) 0 0 (5,295) 294 0
Accounts Payables (1,089) (12,431) 2,733 9,513 (1,197) 1,468 (8,346) 14,575 (1,007) (9,376) (2,526) 16,626 (1,923) (1,274) 6,499 3,717 5,489 (1,382) 6,690
Deferred Revenues 985 238 426 0 0 0 0 0 0 0 0 0 (625) 1,649 0 0 730 664 0
Other Current & LT Liabilities 5,514 1,986 (3,633) 0 0 0 0 0 0 0 0 0 (4,700) 3,867 0 0 244 (1,647) 0
Total Changes in Working Capital 4,245 (2,002) (430) 6,312 (9,586) 8,001 (4,710) 8,613 (10,402) 4,655 (2,711) 9,635 (3,488) 8,125 2,318 1,176 (1,015) (5,706) 1,502
Cash Flow from Operations 30,516 13,311 16,271 23,558 15,975 31,638 12,194 29,409 19,275 25,763 16,025 33,295 69,391 83,656 89,216 94,357 73,217 69,115 92,516

Purchase of PP&E (2,107) (1,853) (1,565) (2,705) (2,333) (2,047) (1,484) (2,803) (2,280) (2,253) (1,586) (3,055) (10,495) (8,230) (8,667) (9,173) (9,247) (8,456) (8,614)
% of Sales 2.3% 3.2% 2.6% 4.3% 2.6% 2.5% 2.3% 3.8% 2.2% 3.0% 2.3% 3.8% 4.0% 3.0% 2.8% 2.8% 3.5% 3.1% 2.7%
Purchase of Marketable Securities (37,416) (29,073) (30,117) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (10,000) (39,630) (106,606) (40,000) (40,000) (69,969) (79,190) (40,000)
Proceeds from Marketable Securities 27,020 40,480 27,125 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 97,090 109,625 60,000 60,000 107,184 97,605 60,000
Acquisitions / Divestitures (958) (176) (339) 0 0 0 0 0 0 0 0 0 (624) (1,473) 0 0 (1,415) (515) 0
Other (207) (365) (269) 0 0 0 0 0 0 0 0 0 (445) (841) 0 0 (169) (634) 0
Cash Flow From Investing (13,668) 9,013 (5,165) 2,295 2,667 2,953 3,516 2,197 2,720 2,747 3,414 1,945 45,896 (7,525) 11,333 10,827 26,384 8,810 11,386

Proceeds from Stock, Net of Tax (1,377) 241 (1,668) 0 0 0 0 0 0 0 0 0 (2,036) (2,804) 0 0 (2,095) (1,427) 0
Repurchase of Common Stock (20,706) (18,574) (15,891) (15,891) (21,000) (21,000) (21,000) (21,000) (22,000) (22,000) (22,000) (22,000) (66,897) (71,062) (84,000) (88,000) (78,807) (71,356) (85,000)
Dividends (3,539) (3,375) (3,656) (3,501) (3,469) (3,438) (3,781) (3,747) (3,713) (3,680) (4,008) (3,972) (14,119) (14,071) (14,436) (15,373) (14,090) (14,001) (14,680)
Payment/Proceeds of LT Debt 231 (1,753) (472) 0 0 0 0 0 0 0 0 0 (7,819) (1,994) 0 0 (7,594) (2,225) 0
Other (16) 2,521 2,571 (1,656) 0 0 0 0 0 0 0 0 (105) 3,420 0 0 (121) 3,436 0
Cash Flow from Financing (25,407) (20,940) (19,116) (21,048) (24,469) (24,438) (24,781) (24,747) (25,713) (25,680) (26,008) (25,972) (90,976) (86,511) (98,436) (103,373) (102,707) (85,573) (99,680)

Net Change in Cash (8,559) 1,384 (8,010) 4,805 (5,827) 10,152 (9,071) 6,859 (3,719) 2,831 (6,569) 9,269 24,311 (10,380) 2,113 1,811 (3,106) (7,648) 4,222
Beginning of Period 50,224 41,665 43,049 35,039 39,844 34,017 44,169 35,099 41,958 38,239 41,069 34,500 25,913 50,224 39,844 41,958 44,771 41,665 34,017
End of Period 41,665 43,049 35,039 39,844 34,017 44,169 35,099 41,958 38,239 41,069 34,500 43,769 50,224 39,844 41,958 43,769 41,665 34,017 38,239
Check

Dividend Payout Ratio (Dividend/FCF) 12.5% 29.5% 24.9% 16.8% 25.4% 11.6% 35.3% 14.1% 21.9% 15.7% 27.8% 13.1% 24.0% 18.7% 17.9% 18.0% 22.0% 23.1% 17.5%
Repurchase Payout Ratio (Repurchase/FC 72.9% 162.1% 108.1% 76.2% 153.9% 71.0% 196.1% 78.9% 129.5% 93.6% 152.4% 72.8% 113.6% 94.2% 104.3% 103.3% 123.2% 117.6% 101.3%
Total Shareholder Return Ratio (Div+Rep/ 85.3% 191.6% 132.9% 93.0% 179.4% 82.6% 231.4% 93.0% 151.3% 109.2% 180.1% 85.9% 137.6% 112.9% 122.2% 121.4% 145.2% 140.7% 118.8%

Free Cash Flow 28,409 11,458 14,706 20,853 13,642 29,590 10,711 26,606 16,995 23,511 14,438 30,240 58,896 75,426 80,550 85,184 63,970 60,660 83,902
Q/Q Change 65.8% (59.7%) 28.3% 41.8% (34.6%) 116.9% (63.8%) 148.4% (36.1%) 38.3% (38.6%) 109.4% - - - - - - -
Y/Y Change 21.7% 30.3% 52.6% 21.7% (52.0%) 158.3% (27.2%) 27.6% 24.6% (20.5%) 34.8% 13.7% (8.1%) 28.1% 6.8% 5.8% 3.2% (5.2%) 38.3%
Free Cash Flow Margin % 30.9% 19.6% 24.6% 33.4% 15.2% 35.8% 16.8% 36.4% 16.4% 31.1% 21.1% 38.0% 22.6% 27.7% 26.0% 26.0% 23.9% 22.4% 25.9%
Free Cash Flow/Share $6.38 $2.60 $3.38 $4.84 $3.19 $6.99 $2.55 $6.40 $4.12 $5.76 $3.57 $7.54 $12.67 $17.22 $19.11 $20.95 $14.00 $13.99 $20.09

Source : Company reports, Deutsche Bank estimates

Deutsche Bank Securities Inc.
30 July 2020
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Appendix 1
Important Disclosures
*Other information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
Apple AAPL.OQ 380.16 (USD) 29 Jul 2020 1, 2, 7, 8, 14, 15
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other
information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary
subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at https://research.db.com/Research/Disclosures/
CompanySearch. Aside from within this report, important risk and conflict disclosures can also be found at https://research.db.com/Research/Topics/Equities?topicId=RB0002. Investors
are strongly encouraged to review this information before investing.

During the period November 2018 to March 2020 Deutsche Bank may have been showing incomplete information regarding Disclosure 1 in some parts of the equity research and debt
research coverage. If you require any further information please contact DVS.Support@db.com .

Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.See
Important Disclosures Required by Non-US Regulators and Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for
this company, for which it received fees.
2. Deutsche Bank and/or its affiliate(s) makes a market in equity securities issued by this company.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking
services from this company in the next three months.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company
within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received
non-investment banking securities-related services.

Important Disclosures Required by Non-U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.See
Important Disclosures Required by Non-US Regulators and Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for
this company, for which it received fees.
2. Deutsche Bank and/or its affiliate(s) makes a market in equity securities issued by this company.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
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at https://research.db.com/Research/Disclosures/CompanySearch

Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject
issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any
compensation for providing a specific recommendation or view in this report. Jeriel Ong.

Deutsche Bank Securities Inc. Page 17

30 July 2020
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Historical recommendations and target price: Apple (AAPL.OQ)

(as of 07/30/2020)
500.00 Current Recommendations
Buy
Hold
400.00 Sell
1516 Not Rated
14
Suspended Rating
78 13
Security price

6 9
300.00 11 12
** Analyst is no longer at
45 10 Deutsche Bank
1 3
2
200.00

100.00

0.00
Sep '18 Jan '19 May '19 Sep '19 Jan '20 May '20
Date

1. 09/12/2018 Hold, Target Price Change USD 205.00 Sherri 9. 03/05/2020 Hold, Target Price Change USD 295.00 Jeriel Ong
Scribner**
2. 06/20/2019 Hold, Target Price Change USD 205.00 Jeriel Ong 10. 03/24/2020 Upgraded to Buy, Target Price Change USD 270.00
Jeriel Ong
3. 07/31/2019 Hold, Target Price Change USD 210.00 Jeriel Ong 11. 04/15/2020 Buy, Target Price Change USD 285.00 Jeriel Ong
4. 10/21/2019 Hold, Target Price Change USD 230.00 Jeriel Ong 12. 05/01/2020 Buy, Target Price Change USD 305.00 Jeriel Ong
5. 10/31/2019 Hold, Target Price Change USD 235.00 Jeriel Ong 13. 05/26/2020 Buy, Target Price Change USD 320.00 Jeriel Ong
6. 01/06/2020 Hold, Target Price Change USD 280.00 Jeriel Ong 14. 06/09/2020 Buy, Target Price Change USD 350.00 Jeriel Ong
7. 01/26/2020 Hold, Target Price Change USD 290.00 Jeriel Ong 15. 06/23/2020 Buy, Target Price Change USD 380.00 Jeriel Ong
8. 01/29/2020 Hold, Target Price Change USD 305.00 Jeriel Ong 16. 07/07/2020 Buy, Target Price Change USD 400.00 Jeriel Ong
§§§§$$$$$§§§§§

Equity Rating Key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder

return (TSR = percentage change in share price from current
price to projected target price plus pro-jected dividend yield ) ,
we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder
return, we recommend that investors sell the stock.
Hold: We take a neutral view on the stock 12-months out and,
based on this time horizon, do not recommend either a Buy or
Sell.

Newly issued research recommendations and target prices

supersede previously published research.

Page 18 Deutsche Bank Securities Inc.

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Deutsche Bank Securities Inc. Page 21

30 July 2020
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Backtested, hypothetical or simulated performance results have inherent limitations. Unlike an actual performance record
based on trading actual client portfolios, simulated results are achieved by means of the retroactive application of a backtested
model itself designed with the benefit of hindsight. Taking into account historical events the backtesting of performance also
differs from actual account performance because an actual investment strategy may be adjusted any time, for any reason,
including a response to material, economic or market factors. The backtested performance includes hypothetical results that
do not reflect the reinvestment of dividends and other earnings or the deduction of advisory fees, brokerage or other
commissions, and any other expenses that a client would have paid or actually paid. No representation is made that any trading
strategy or account will or is likely to achieve profits or losses similar to those shown. Alternative modeling techniques or
assumptions might produce significantly different results and prove to be more appropriate. Past hypothetical backtest results
are neither an indicator nor guarantee of future returns. Actual results will vary, perhaps materially, from the analysis.

Copyright © 2020 Deutsche Bank AG

Page 22 Deutsche Bank Securities Inc.

 David Folkerts-Landau
Group Chief Economist and Global Head of Research

Pam Finelli Anthony Klarman Michael Spencer Steve Pollard

Global Chief Operating Officer Global Head of Head of APAC Research Head of Americas Research
Research Debt Research Global Head of Company
Research

Gerry Gallagher Andreas Neubauer Peter Milliken

Head of European Head of Germany Research Head of APAC
Company Research Company Research

Jim Reid Francis Yared George Saravelos Peter Hooper

Global Head of Global Head of Rates Research Global Head of FX Research Global Head of
Thematic Research Economic Research

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