Iphone X - the Start of a Super Cycle Or the End of an Era of Growth?

October 16, 2017

Daniel Ives, Head of Technology Research | 917.210.3220 | [email protected]

iPhone X - The Start of a Super Cycle or the End of an Era of Growth?

In this research piece we take a deeper dive into Apple through industry analysis, survey work compiled by the GBH team, and a closer look into the potential impact the iPhone X launch will have for Apple and the smartphone industry moving ahead. In a nutshell, we believe iPhone X demand will be strong in the US and especially China as overall our survey feedback indicates that 40% to 45% of iPhone upgrades in FY18 will be iPhone X devices with iPhone 8/8+ tailwinds helping set up a “super cycle” upgrade over the next year. We note in past upgrade cycles for Apple the current iPhone accounts for 50%-60% of overall iPhone sales, while based on our work in the field we believe this time around roughly 65% to 70% of sales will be either iPhone X or iPhone 8 (likely 8+ stronger) which should support a higher ASP and growth thesis for the course of FY18 and 1HFY19 for Apple. While supply chain issues will elongate the iPhone X upgrade cycle well into FY18, we believe seeing the “forest through the trees” will translate into this super cycle upgrade being a major growth catalyst for Apple (and its investors) over the coming year. We rate Apple a Highly Attractive on our GBH Value Matrix.

• Pent up demand a key ingredient to Apple’s success. In addition to a more robust upgrade in terms of form/function on iPhone X, we believe iPhone units will benefit from a massive iPhone installed base that is ~2 years old (or older). Our analysis suggests that there is an installed base of 350M+ users on an iPhone that's at least 2 years old and potentially gearing up for an upgrade during FY18. Ultimately, we believe our above the Street iPhone unit shipment forecast of 265 million in FY18 materializes as Cook & Co. benefit from the trifecta of a 1) transformational form factor release for the first time in three years, 2) massive pent up installed base demand globally, and 3) strong China growth returning back to the Apple story in what we believe is a $200 billion linchpin opportunity in this all-important region over the next three years.

October 16, 2017

iPhone X-The Start of a Super Cycle or the End of an Era of Growth?

Unless you have been living under a rock, one of the biggest and most debatable technology product launches in the last few decades has been Apple’s highly anticipated iPhone X launch announced in September. With Apple selling over 1.2 billion iPhones since its iconic launch in 2007, the big question on the minds of technologists, investors, and the smartphone industry is “Will iPhone X be a major super cycle for Apple or signify the end of this unprecedented decade of growth for Cook & Co?”. To this point, in this research piece we take a closer look into this key question through industry analysis, survey work compiled by the GBH team, and a deeper dive into the potential impact the iPhone X launch will have for Apple (and its investors) moving ahead. iPhone X and its vital importance to Apple’s growth. We believe Apple’s product announcements in September kicked off a “major prove me” time for Cupertino to show the industry and the Street that there is much fuel left in the tank on the smartphone upgrade cycle. Many skeptics believe the $999 price for the iPhone X, near-term production issues out of Asia (OLED, facial technology hiccups), a more crowded smartphone market, and slowing Chinese consumer demand could translate into disappointment around this iPhone X product cycle. Is this going to be a “super cycle” or just a traditional iPhone cycle, that is the key focus and debatable topic for investors heading into the seminal November 3 official launch in a few weeks. In addition, this product cycle has far reaching implications for Apple to further catalyze its services and other device growth (e.g. Apple Watch) over the next few years within its all-important installed base.

Daniel H. Ives 917.210.3220 [email protected]

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October 16, 2017

Live and die by the iPhone launch sword. Over the last few years we have seen the ups and downs of Apple’s iPhone cycles. The iPhone 6 cycle far exceeded Street expectations and was a major launching pad for Apple’s stock and its smartphone growth prospects in what we would characterize as the best pure technology product cycle we have ever witnessed selling 231 million peak iPhone units. With a muted iPhone 6s and 7 upgrade cycle over the last few years, the industry and the Street experienced the disappointment coming off this unprecedented product cycle with now all eyes are focused on iPhone 8/8+ and especially the iPhone X official launch in November. With no major product cycle, iPhone product demand has been under pressure since the flagship iPhone 6 release with all bets from Cupertino now on the iPhone X product cycle being the long awaited “silver bullet of growth” to unleash Apple’s next phase of consumer growth. iPhone X is a potential “game changer”. At its annual launch event in early September Apple announced the flagship iPhone X device (available for pre-order Oct. 27, ships Nov. 3) along with the iPhone 8/8+, Apple Watch Series 3 (cellular- enabled), and TV 4K in addition to software updates (iOS11, WatchOS, 4 and tvOS). From a retail price perspective, a base 64 GB iPhone X model will be priced at $999, with a 256GB model at $1,149. The new iPhone X is Apple’s first major form factor change in three years and will feature: 1) edge-to-edge 5.8" Super Retina OLED display; 2) upgraded A11 bionic neural engine processor; AI capabilities; 3) wireless/inductive charging capability on Air Pad and/or third party pads; 4) Face ID (replacement for Touch ID) that enables facial recognition technology; 5) AR- enabled rear-facing vertical dual-lens camera; 6) glass front and back with stainless steel edges; 7) dust/water resistance; 8) longer battery life lasting 2 hour longer than iPhone 7; and 9) 64GB and 256GB storage tiers. OLED display, facial recognition, and no home button (bigger screen) are the major changes to this form factor as has been rumored for many months. This is the

Daniel H. Ives 917.210.3220 [email protected]

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first true form factor change in three years (since the iPhone 6 launch) out of Apple and in our opinion, will be a “game changing” release for Cupertino as well as the broader smartphone industry. iPhone 8/8+ out now; all eyes on X: Along with the iPhone X excitement, Apple also unveiled iPhone 8/8+ into the market last month which are two new LCD iPhones (4.7" and 5.5"), with: 1) glass bodies/aluminum frames; 2) A11 bionic processors; 3) wireless charging; 4) Touch ID; 5) dual-lens camera for the Plus model, 6) AR capabilities; and 7) 64GB and 256GB storage tiers. The iPhone 8 (4.7") and iPhone 8+ (5.5") base model will start at $699 and $799, respectively. Both models shipped in September and have been slow out of the gates based on our and initial industry data, not surprising in our opinion as we view this release as the “appetizer” to the main event being the iPhone X launch and product cycle. With more complex production issues with this next generation OLED device, Apple needed to release these new phones back to back in our opinion even though it has naturally tempered demand for the iPhone 8 product family in the near-term as consumers await for the next generation iPhone X release to hit the stores.

10-year anniversary-iPhone remains the driver of Apple. Since the release of the original iPhone in 2007, sales have grown to represent more than 60% of Apple’s total revenue (18% in FY08 to 63% in FY16). With stellar gross margins relative to other product categories and competitors, Apple should help the company maintain a nearly 40% gross margin profile if sales continue to represent 60%+ of Apple’s total revenue which we are modeling for the foreseeable future. While the software/services segment for Apple is a major growth (represents roughly between 12% to 15% of overall revenue) and margin opportunity over the coming years and will help drive the Apple ecosystem, the success of the iPhone remains the bedrock of the Apple story. Wearables, services/software, multimedia

Daniel H. Ives 917.210.3220 [email protected]

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content, self-driving cars (e.g. Project Titan), potentially Apple augmented reality glasses, and any other organic or acquisitive product initiatives all builds on the unparalleled iPhone franchise with iPhone X being a pivotal and historical launch period for Apple. This speaks to why there is so much focus on the demand/supply trajectory of iPhone X as key questions industry experts and investors are searching for revolve around 5 key areas : 1) will consumers pay roughly $1,000 for this new smartphone, 2) what does this upgrade cycle mean for the iPhone installed base, 3) how big will China growth be in this product cycle, 4) will this cause a major ripple effect across the Apple services/device ecosystem, and 5) what does this mean for investors/stock. Based on our research and survey work conducted at GBH, we look to dive deeper into each of these key debatable points.

Will consumers pay roughly $1,000 for the iPhone X?

Apple has set itself apart from the pack as a premium, differentiated brand that commands higher price points. Going back to the iPhone 6 launch in 2015, the unit price of the iPhone has more than doubled while Apple has gone through one of its most successful periods of growth selling 200 million iPhones+ over the last few years despite competitor pressures and major structural changes to carrier upgrade plans in the US and around the world. As the smartphone market matures, Apple brand loyalty and attachment rates are rising and peaking heading into the iPhone X launch. According to our October 2017 GBH US Smartphone survey of consumers, 93% percent of iPhone users we surveyed that plan to upgrade their phone in the next year plan will repurchase an iPhone, up from 85% in the year ago period around iPhone 7 and 83% around the iPhone 6s with 90% on the iPhone 6 launch. We believe this very high attach and upgrade feedback is due to a combination of a pent up installed base ripe for renewal (over 50% of the installed base due for an upgrade over the next 12 months based on our analysis) and a major iPhone design and form factor change for the first time in three years

Daniel H. Ives 917.210.3220 [email protected]

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with OLED and facial recognition features front and center. Geographically speaking, Apple also should see higher repurchase rates and upgrade opportunities in international markets with our forecasts that the majority of iPhone consumers in Europe and especially China will likely repurchase either an iPhone X or iPhone 8/8+ over the next 12 to 18 months. In particular, we believe iPhone X demand will be strong in the US and especially China as overall our survey indicates that 40% to 45% of iPhone upgrades in FY18 will be iPhone X devices with the rest mostly related to iPhone 8/8+ upgrades, thus setting up for a super cycle upgrade cycle over the next year in our opinion. The last time we saw pent up installed base demand and consumer feedback mirroring (or close to) this was around the iPhone 6, which ultimately became a critical and unprecedented successful launch period for Apple.

Super cycle is positive for the industry. We believe Apple's growing software ecosystem, augmented reality, and broader halo effect will only push customer loyalty and retention rates higher in the coming years and is a crux of our positive thesis on the smartphone upgrade cycle for Apple in 2018. We also believe the iPhone X launch will have a ripple impact for technology stalwarts such as Samsung and Google (Pixel) among others by catalyzing Android consumers to be faced with the decisions to either upgrade their existing device or switch back/to Apple by purchasing an iPhone X. This potential “switchover” concept is something that could give further legs to this iPhone upgrade cycle in FY18 with a growth tailwind into FY19 for Apple. While overall smartphone demand has seen tempered growth over the last few years (low single digit growth), we believe the combination of an iPhone X product cycle and new competitive OLED driven releases from Samsung and Google among others (e.g. LG, Huawei) will translate into a modest industry rebound for 2018 and into the first half of 2019.

Daniel H. Ives 917.210.3220 [email protected]

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Pent up iPhone demand around an upgrade cycle. In addition to a more robust upgrade in terms of form/function, we believe iPhone units will benefit from a massive iPhone installed base that is ~2 years old (or older). Our analysis suggests that there is an installed base of 350M+ users on an iPhone that's at least 2 years old with an average iPhone user upgrading between every 29 to 31 months. We believe a sizable portion of these users, in addition to users with newer devices and potential Android switchers, will look to upgrade with iPhone X due to the age of their device and the more significant changes/enhancements to the iPhone X device. In turn, this gives Apple its “most fertile upgrade opportunity to date” in terms of users ready to upgrade with an iPhone X/iPhone 8 product cycle launching in the market over the coming month. While with iPhone 8/8+, we are expecting modest success from and to represent roughly 25% of upgrades over the next 18 months, the major form factor changes on iPhone X with OLED display, larger screens, extended battery life, and next generation facial recognition technology will be a major catalyst for the lion’s share of upgrades (and higher ASPs) to take place in our opinion.

Golden brand=higher ASPs. Apple is what we would characterize as a “golden brand” offering high quality, innovative premium products at high price points. As a result, the company defies the typical trend of declining prices that drive demand for other devices. In a unique phenomenon contrary to others in the industry and across the consumer technology landscape, demand for the iPhone is directly correlated to the direction of ASPs - higher prices, higher demand and vice versa based on data points from the past decade of launches. To this point, we note that Apple's strongest iPhone unit growth in the past five years was lock step with the largest ASP uplift with iPhone 6+ and ultimately became the silver bullet of growth for penetrating the all-important China market. Diving further into this analysis, anytime Apple went downstream on price over the past few years with cheaper lower end phones or price cuts, based on either perception or quality, demand was

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massively disappointed with declining sales accompanying lower price points. In a nutshell, we believe the changes and form factor changes in iPhone X (vs. previous iPhone models) combined with a pent-up installed base, will be a catalyst to drive many new and existing iPhone users to upgrade an iPhone during 2018 despite the higher price tag, which our GBH Smartphone Survey results supports.

ASPs going higher. Based on our mix shift of iPhone X models slated to be sold, analysis of the customer base, and higher price points we believe ASPs go from roughly ~$650 in FY17 to $746 in FY18 and north of $800 in FY19 hitting $803 as the iPhone X mix shift fully ramps up, especially on the higher end 256GB version. Based on our initial consumer survey work going into the launch, we believe roughly 40%-45% of iPhone sales in FY18 will be iPhone X, with 20%-30% iPhone 8+ and iPhone 8, and the rest iPhone 7/7+ and older models. We note that while in past upgrade cycles the current iPhone accounts for 50%-60% of overall iPhone sales, based on our work in the field we believe this time around roughly 65% to 70% of sales will be either iPhone X or iPhone 8 (likely 8+ stronger) which should support a higher ASP and growth thesis for the course of FY18 and 1HFY19 for Apple.

What should the iPhone X ramp look like in the crystal ball. Our model assumes Apple sells more iPhones in the 12 months following the iPhone X and iPhone 8/8+ launch than the peak iPhone 6 upgrade cycle. This would translate into a seminal launch period for Apple with our projected 265 million iPhone unit shipments for FY18, exceeding its record 231 million-unit iPhone year in FY15. We are modeling the global iPhone replacement rate will increase to 38% in CY2018 from 27% in CY2017, as the new iPhone features drive a stronger upgrade cycle from Apple’s growing installed base. Following our expectations for strong CY2018 upgrade sales, we anticipate a longer tail into an upgrade cycle into CY2019, albeit slowing growth but higher ASPs, as OLED production issues

Daniel H. Ives 917.210.3220 [email protected]

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and other supply chain constraints will translate into what we would characterize as an elongated and healthy iPhone X upgrade cycle. We believe Apple continues to grow its leading market share of the premium-tier smartphone market with iPhone installed base set to exceed 750M exiting CY2018 which for comparison is up significantly (more than 50% higher) from the installed base going into the peak iPhone 6 cycle. We believe this unmatched and growing consumer installed base should drive strong iPhone replacement sales and earnings, and further catalyze the Apple software/services ecosystem. Near-term, given one month less sales for the iPhone X during the FY1Q18 (December) with a November launch and continued supply chain issues, we are modeling 78M units and 72M units in FY2Q (March). We view the upcoming September quarter (43M units estimate) and early November earnings call (day before official iPhone X launch) as the drumroll around guidance for the December quarter with all eyes on tracking consumer/supply chain data points of iPhone X heading into its official launch. To this point, our production checks in Asia continue to confirm the complexity (OLED, 3D sensor, facial recognition) of technologies implemented in iPhone X combined with ramping production of the new product with OLED displays and is contributing to the later than expected production ramp which could persist into April/May 2018.

Extended product cycle on the horizon-have patience. Given the unique features for the iPhone X, we expect an extended period for iPhone X to reach supply/demand balance well into FY18. For the iPhone 7 launch, the Plus model did not achieve supply/demand balance until January 2017 or four months after launch. For the iPhone X, we believe this period could extend well into the March quarter and likely even the June quarter given a cautious OLED production ramp and healthy consumer demand, especially internationally with China front and center and Europe to a lesser extent. We note that the November 3 iPhone X launch date is later than past iPhones, likely a function of a slower manufacturing ramp (OLED, facial recognition, 3D sensor) as the supply chain works to improve

Daniel H. Ives 917.210.3220 [email protected]

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yields on new components. Based on our GBH survey results, store checks, and deep dive analysis of the Apple installed base upgrade path/maturity, we are modeling FY18 iPhone shipments of 265M, comfortably above the current consensus estimate. The main upside area we are more bullish in modeling vs. our peers and our data supports is around the pent-up demand for an iPhone X device and its next generation form factor/technology enhancements with roughly 50% of the core installed base now either past or due for an upgrade over the next 12 to 15 months (into late CY18). Based on our survey work, we believe that a period of accelerated growth as smartphone users upgrade/switch to the first new iPhone form factor in three years will spur an elongated upgrade cycle well into FY18 and 1HFY19 that will surprise many of the naysayers on the name. While the “super cycle” will take some time to develop and will require patience from investors as production and supply issues are resolved, we ultimately believe this bullish thesis will play out in FY18 and be a major catalyst for Apple’s growth and stock going forward despite some near-term bumps. iPhone X breadcrumbs of growth all lead to China

A key part of the Apple growth story will be Cupertino’s ability to further penetrate the holy grail of the Chinese consumer market. Cook & Co. have invested billions in this region over the past few years, softened political barriers for the company, and heavily invested in both the retail channel and distribution strategy. With the company’s move in July to appoint well regarded Isabel Ge Mahe to the newly created role of vice president and managing director of Greater China it is clear Apple is looking to combat growth, competitive, and regulatory headwinds in this key region. With the launch of the iPhone X and a significant pent up demand of what we estimate is roughly 60 million to 70 million Chinese consumers ripe for an iPhone upgrade over the next year, we believe China will be a major ingredient in the recipe for success in Apple’s potential “super cycle” on this latest form factor.

Daniel H. Ives 917.210.3220 [email protected]

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Ultimately the difference between a traditional iPhone product cycle and a super cycle will rest on the shoulders of Apple’s success in China in our opinion.

China is a linchpin for Apple in FY18 and beyond. One of the keys to Apple’s success over the last few years has been cracking the nut and unlocking growth out of the fertile China consumer market. With a massive population of a one billion+ and growing middle class, China represents a fertile potential growth market for Apple in 2018 and beyond. To this point, while Apple has been very successful in China over the last few years representing roughly 20% (down from a height of ~30% in early FY15) of the company’s revenues, growth has waned over the past few years coming off the unprecedented success of iPhone 6/6+ in 2015. Samsung and especially domestic competitors such as Huawei, Xiaomi, and Vivo has created increased competition for Apple as Cupertino now ranks fifth among smartphone market share in China according to recent industry data after rocketing to a leader in the Chinese smartphone industry a few years ago off the success of iPhone 6/6+. With a newly announced Chinese data center, major R&D centers, building out retail stores throughout the country, and its $1 billion investment in Chinese based Didi, it is clear that Apple is betting that China is still in its early days of growth and opportunity. While many have already written off major China growth for Apple, to the contrary we believe a “renaissance of iPhone growth” is around the corner and will be a major growth catalyst for the next 12 to 18 months.

60 million+ iPhones ready for upgrade in China. With what we estimate is over a 100 million iPhone installed base in China, we believe over half of these consumers are due for an upgrade during the course of FY18/1HFY19. In particular, we believe between 60 million and 70 million Chinese iPhones will be due for an upgrade over the next 12 to 18 months with iPhone X as a major potential product catalyst. Customer loyalty, iOS ecosystem (Macs, iPad sales

Daniel H. Ives 917.210.3220 [email protected]

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have remained strong in China over the past few years despite lagging iPhone sales), high end fashion statement, and most importantly the technology enhancements around the iPhone X form factor could be the catalyst missing since the days of the iPhone 6/6+ product cycle. We believe penetrating the mobile market in China has been a game changer for Apple, with China revenue growing to a high point of over $60 billion in 2015 to roughly $45 billion in 2016 and relative sluggishness so far in 2017. China’s growth (and profitability) for Apple is key going forward as we view the next year as a critical time for Apple to show this will be a major growth region for the coming years.

China growth getting back its sea legs heading into FY18. Based on our analysis, we believe China will account for ~25% of total revenue in FY18 and could reach roughly 30% by 2020 based on our model only behind the US geographically speaking, as it will be a major linchpin in Apple's growth story for years to come on the heels of increased smartphone and software/services/device consumer penetration in this key region. While the sticker shock of a $1,000 iPhone is a potential deterrent for the iPhone upgrade cycle in China especially with the “on the fence” Chinese consumer debating an upgrade, we continue to believe (as we did with the iPhone 6/6+ launch in 2014/2015) that the unique brand appeal and Apple ecosystem/halo impact in China will be the driving factor with this new form factor release. Lower end competition in the Chinese market remain an issue/concern, but the focus is on the growing middle class and wealthy consumers which remain the focused sweet spot for Apple in this market. In a nutshell, we believe China represents a $200 billion market opportunity for Apple over the next three years with iPhone X rekindling the growth prospects in its region through a critical upgrade window that can propel its consumer growth in China for the next 3 to 5 years.

Daniel H. Ives 917.210.3220 [email protected]

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Upgrade cycle could unleash the next leg of growth on Services

We believe Apple’s new products should drive high margin services revenue growth and continue to drive the company’s unique software/services ecosystem across technology. While Apple’s product pipeline and demand trajectory around Macs and iPads should sustain relatively stable revenue for FY18, clearly the biggest area of growth and margin improvement is around the company’s growing services business. With iCloud, Apple Pay, Apple Music, and other digital downloads driving this vast ecosystem, we believe this segment could top $50 billion of revenues by FY20 as the growing iPhone installed base further drives this software/services business. Representing the biggest revenue driver behind the iPhone, we believe much of the incremental services growth over the next few years will come from China as the “halo effect” of Apple will fully manifest itself among iPhone users especially with the iPhone X upgrade cycle kicking into full gear for FY18 in our opinion. We believe both organic and potential acquisitive means (e.g. more digital and downloadable content and services), a major iPhone X upgrade cycle, rekindled China growth, and increased Apple Watch sales (Series 3, cellular) will further drive recurring and highly profitable services growth over the next few years. We are forecasting that services growth in FY18 will be roughly $36 billion, a 20% year over year increase from FY17 based on this growing ecosystem, iPhone super cycle benefit, and international growth (China) playing a major role to tailwinds on this front.

Apple Watch gaining momentum, slowly but surely. The newest Watch Series 3 was introduced at the September launch event and importantly features cellular connectivity, which will make the Apple Watch a better standalone device for calls and data which was a clear impediment to sales around the previous two versions (Series 1 and 2) in our opinion. The Apple Watch Series 3 is priced (with cellular) at $399 and $329 as a base model. Based on our early customer feedback and

Daniel H. Ives 917.210.3220 [email protected]

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checks, we believe the cellular model will be a catalyst for Watch sales and ultimately drive higher attach rates and modestly higher ASPs for this “gate opener” wearables product. Given our bottoms up analysis that Apple has sold over 30 million Apple Watches since its launch in 2015, we believe this latest Series 3 and cellular enablement will be a much needed driver for enhanced sales (and ASPs) with our forecast of 19 million units sold in FY18 vs. 14 million in FY17 and 23 million units modeled for FY19. While Apple Watch sales still represents low to mid-single digits of overall revenue, this wearables category is an important product for Apple to further penetrate its massive consumer installed base and lay the groundwork for new product lines/technologies (e.g. AR glasses, more wearables, growing services business) over the coming years to complement its “bread and butter” iPhone franchise.

What this means for Apple’s stock? In our opinion shares of Apple hinge on the success, ASP ramp, and growth trajectory of the iPhone X upgrade cycle. While there has been a near-term pullback on shares in light of soft iPhone 8 demand out of the gates and OLED/facial recognition related product issues out of Asia that have pushed/delayed iPhone units’ sales out a few months, it’s all about how big of an upgrade cycle the iPhone X will be for FY18 and beyond in our opinion. Based on our research, we believe the iPhone X product cycle could be the strongest iPhone product cycle to date and thus we rate Apple a Highly Attractive on our GBH Value Matrix with a blended valuation target range of between $190 and $200.

Bull case scenario. We ultimately believe that with a major ASP lift and initial iPhone X demand that looks to be strong for FY18 and into FY19 gives Apple $12+ of earnings power heading into FY19. With a growing services segment, a renaissance of China growth, $250+ billion of cash in the coffer (repatriation, buybacks, M&A could be further catalysts) and a major upgrade cycle on the

Daniel H. Ives 917.210.3220 [email protected]

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horizon that Apple shares in a bull case scenario could be in the $210-$230 range (17x-18x forward P/E) over the next year in our opinion and thus becoming the first member of the “trillion-dollar market cap club”

Bear case scenario. However, the big risk over the next year is that the iPhone X upgrade cycle does not bear fruit, Apple lacks the growth catalyst the Street has been awaiting for the past 2+ years, and Cook & Co. fail to capitalize on penetrating what we believe is a $200 billion market opportunity in China over the next few years. In this scenario, the bear case scenario would be in the $135-$140 (12x forward P/E) range in our opinion with much diminished earnings power for FY19 and beyond.

Base case scenario. In sum, this is a “white knuckle” period for Apple, the smartphone industry, tech food chain, and its investors to see if Apple can prove a “super cycle” is on the horizon with iPhone X over the next 12 to 18 months to help fuel its next leg of growth, cash flow generation, and product expansion. In a base case scenario with healthy product cycle growth (but not super cycle status) around iPhone X and modest installed base penetration, we believe $160 to $175 (15x forward P/E) would be the range for shares.

Daniel H. Ives 917.210.3220 [email protected]

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