apple company review, february 2017 from olma next ltd

FEBRUARY2017

COMPANY REVIEW

APPLE INC. CASE STUDY

OLMANEXTLTD｜FEBRUARY2017

Along with traditional financial analyses, OLMA Capital NBC Ltd commissions independent researchers to prepare comprehensive studies relating to current and future portfolio stock selections.

This case study has been prepared by Frédéric Bonelli at the request of OLMA Next Ltd.

We are pleased to share this work about Apple Inc. (AAPL) with you. We hope it will provide you with the information and insight that will help you gain a more thorough understanding of this multinational technology company.

2

ABOUT THIS WORK

Frédéric Bonelli

OLMA Next Ltd is contemplating the launch of a open ended fund. With a combination of youth and

experience, the fund seeks current and future listed companies that may be disruptive leaders.

These are businesses that are capable to sustain a

high level of growth in the next decade, and thus offer investors a long term appreciation of capital.

www.olmafund.com

OLMA Next Ltd

Frédéric Bonelli is an independent research consultant and VC entrepreneur who prepares content about trends and companies for funds and investors. He also helps start-ups and SMEs to produce corporate support materials to help with fundraising and other promotional activities.

[email protected]

You are welcome to share and adapt this work

Please cite this document as follow: fredbonelli.com, Apple Inc. Company Review, February 2017

You may distribute a modified version of this work subject to the consent of Frédéric Bonelli

http://www.olmafund.com

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https://www.linkedin.com/in/fredericbonelli

mailto:[email protected]


OLMANEXTLTD｜FEBRUARY2017 3

INTRODUCTION

IN LESS THAN FOUR DECADES, APPLE INC. HAS BECOME THE WORLD’S MOST VALUABLE

COMPANY BY MARKET CAPITALIZATION. APPLE HAS BEEN ABLE TO TRIUMPH THROUGH

STAGGERING GROWTH AND THE BROAD VISION OF ITS MAIN FOUNDER TO CREATE A

COMPREHENSIVE AND CLOSED ECOSYSTEM THAT IMPOSES ITS OWN INDUSTRIAL

STANDARDS. THIS HAS RESULTED IN AN EXTREMELY POWERFUL BRAND. HOWEVER, WITH

STEVE JOBS GONE JUST OVER FIVE YEARS AGO, CAN IT REMAIN THE APPLE IN THE EYE OF

THE CONSUMER?

ONE BILLION APPLE DEVICE ARE ACTIVELY USED WORLDWIDE



5%

12%

12%

14%

57% iPhoneiTunesMaciPadAccessoires

4

INTRODUCTION

The world’s highest market capitalization

Five years after inheriting Steve Jobs’s daunting legacy and CEO position, Tim Cook has proved his worth: under his leadership, Apple has become a market leading record breaker. By 2012, Apple Inc. had the world’s highest market capitalization1. On November 25, 2014, it smashed through the symbolic $700 billion valuation threshold. For the sixth consecutive year, the “Apple” brand is the world’s most valuable - standing at $178 billion in 2016 – a whopping 87% higher than second place Google2. Since Tim Cook arrived at the helm in 2011, Apple has more than doubled its revenue and market capitalization. Its stock price (AAPL:NSQ) has surged from $10 to $117 in ten years with a P/S ratio of 2.74 compared with 5.50 for Microsoft and 6.11 for Google.

Founded as a personal computer maker, Apple switched strategy in 2007, brutally disrupting the mobile telephone sector with the introduction of the iPhone. From the outset, the iPhone was a game changer and quickly became the new industry standard. Since then, Apple has been pursuing growth with its own four-axis strategy:

1. Complete control of its value chain – Apple designs its own products, microprocessors, operating systems, app stores, software, payment platforms and even owns and operates a network of brick and mortar stores. 2. Unique mix-marketing – Apple applies luxury sector methods and branding to the high tech sector. It creates a buzz around new products through strategic ‘’leaks’’ and organizes widely-anticipated events for the launch of new products. It controls distribution very closely by rolling-out new products slowly and frothing up demand for them. 3. Innovation as an industrial strategy – Apple uses patents, but also restricts competitor access to resources that are necessary to replicate Apple innovations. This gives Apple an exclusive competitive advantage for features such as its iPhone/iPad multitouch film, the aluminum unibody for MacBooks, and Touch Bar for the MacBook Pro. 4. Comprehensive product offering delivered through an exhaustive ecosystem – Apple’s growth stems from efficient diversification of sales revenues from a range of products, content, and services. In contrast, Google derives 90% of its revenue from advertising. Apple is becoming less dependent upon its flagship product, the iPhone. It also gains significantly from its closed ecosystem; its competitors such as Microsoft, Google and Amazon have open platforms.

TIM COOK FIRST 5 YEARS AS CEO 2007-2016 (million USD)

1 Financial Times Global 500 2 Forbes

Q3 2016$42.4 bREVENUE

APPLE GOOGLE MICROSOFT AMAZON

PC Mac computers Chrome browser Surface desk Online store

SMARTPHONE iPhone Android Windows Phone -

TABLET iPad Android tablets Surface tablets Kindle

HOME Homekit,Apple TV

Google TV, Chromecast

Xbox,Insteon Fire TV

CAR CarPlay Open Automotive Alliance Windows in the car -

WEARABLE iWatch,HealthKit

Android Wear Fit Band Health -

THE USER ECOSYSTEM BATTLE

111.9

314.5

669.4

1133.4

178

2007 2011 2016 2007 2011 2016 2007 2011 2016

233.7

108.3

24

MARKET CAP BRAND VALUE REVENUE

2x 5x 2x

APPLE REVENUE by Type, Q3 2016 (million units)

iPhone



1996: Misdiagnosed with multiple sclerosis.

1998: After twelve years at IBM and Compaq, Steve Jobs asks him to join Apple.

2008: Made donation to Barack Obama’s first White House campaign.

August 2011: Becomes Apple CEO, replacing Steve Jobs.

April 2012: According to The New York Times, Cook was the highest-paid CEO among large publicly traded companies in 2012.

October 2014: Inducted into the Alabama Academy of Honor. Came out as gay in an editorial for Bloomberg Business.

December 2014: Made donation for LGBT rights.

March 2015: Topped Fortune Magazine World’s Greatest List. Announced plans to give away most of his $800m to fortune to charity.

October 2015: Receives the Visibility Award at the Human Rights Campaign’s 19th Annual National Dinner.

5

TIM COOK: CEO

“Apple has always had the discipline to make the bold decision to walk away.” TIM COOK - CEO OF APPLE INC.

AGE

SOURCE OF WEALTH

RESIDENCE

CITIZENSHIP

MARITAL STATUS

NET WORTH: $785 MILLION56

Apple

Cupertino, CA

United States

Unknown

EDUCATION 1982: Bachelor of Science from Auburn University 1988: MBA from Duke University

DATE COMPANY POSITION

Jun, 2016 - now Nike IncLead Independent Director of the Board

Apr, 2016 - nowRobert F. Kennedy Human Rights

Member of the Board of Directors

Oct, 2013 - nowTsinghua University School of Economics and Management

Member of the Advisory Board

Feb 2010 - nowNational Football Foundation

Member of the Advisory Board

BOARD & ADVISOR ROLES (4)

DATE COMPANY TITLE

Aug, 2011 - now Apple CEO

2007 - Aug, 2011 Apple COO Interim CEO

1997 - 1998 Compaq VP, Corporate Materials

1994 - 1997 Intelligent Electronics

VP, Chief Operating Officer

1983 - 1994 IBM Corp. Director

WORK

https://translate.googleusercontent.com/translate_c?depth=1&hl=fr&prev=search&rurl=translate.google.fr&sl=en&u=https://en.wikipedia.org/wiki/Multiple_sclerosis&usg=ALkJrhjKZDd8mbsZZBZp7ajnvWtqZoDc9Q



A10 A8x / A9xMICROPROCESSORS S2 A8

6

PRODUCTS & SERVICES GLOBAL OVERVIEW

PC LAPTOP TABLETSMARTPHONE ACCESS.

MAC OS (Sierra) iOS + CarPlayOS

CONTENT

SOFTWAREILIFEIWORKS

1 2016 MacBook Pros also use a Apple T1 Chip for the Touch Bar 2 iTunes is a platform of content management that allows synchronization of multiple

devices as well as connecting them to the Store

FINALCUT

DEVICES

OFFICE ADOBE CC

…

…

UTILITIES& APPS

HEALTHKIT CAREKIT RESEARCHKITCLOUDKIT REPLAYKIT

WEARABLE

watchOS

TV

tvOS

FINANCE

ITUNES2ICLOUD APPSTORE

Wallet

USER DATA

SOCIAL

HOMEKIT

FRIENDSFAMILY

CONTENT : HEALTH : HOME :

SIRI SAFARITIME MACHINEFIND

MESSAGE

CONTACTCALENDAR

MAILNOTES

MAP…

FACETIME PHONE

MESSAGES

…

PROPRIETARY3RD PARTY

PHOTOS PODCASTS BOOKS NEWS

DISTRIBUTION& SERVICES APPLECARE

RETAIL STORES WEBSITE

FINANCE

…

Xeon E5i5 / i7

i5 / i7 + T11

m3 / m5



0

60

120

180

240

300

2015 2016 2017 2018 2019 2020

7

TO DATE

By early 2016, there were more than a billion active Apple products around the world. As of July, more than a billion iPhones had been sold since its introduction in 2007.

Between the third quarter of 2015 and third quarter of 2016, Apple posted revenues of $220 billion even though it did not release any major new products. The iPhone 7 and the new MacBook Pro were released during the fourth quarter.

The iPhone still represents Apple’s main income stream. It generates more than half of Apple revenues despite slowing smartphone demand. Apple strategically needs to manage diversification of its revenue streams and successfully impose both its hardware and online ecosystems. To do so, Apple can rely on the three major assets that it has over its competitors: $237.6 billion of cash assets (4Q2016), its unique status as both a hardware and software designer, and finally but not least, its extensive retail network. That network now includes over 500 Apple stores located in premium locations, third-party retailers and an online platform (apple.com).

APPLE’S MEDIUM TERM CHALLENGES

1. Manage uncertain outcomes: The Trump presidency and a taxation model that is being contested by the European Union1

2. Consolidate inroads in the Asian markets, especially China.2

3. Strengthen its content and service offerings to compensate for a weak growth outlook in the mobile hardware sector, and innovate by launching new products.

1 http://europa.eu/rapid/press-release_IP-16-2923_en.htm “The European Commission has concluded that Ireland granted undue tax benefits of up to €13 billion to Apple. This is illegal under EU state aid rules, because it allowed Apple to pay substantially less tax than other businesses. Ireland must now recover the illegal aid.“ 2 North America remains the Apple’s main market accounting for 40.2% of its 2015 income, while China accounts for a quarter of global sales revenue, up from 13% in 2013.

“We’re going to get Apple to start building their damn computers and things in this country instead of in other countries.”

DONALD TRUMP - 45TH PRESIDENT OF THE UNITED STATES

APPLE SHARES VS COMPETITION Index of comparative share value growth November 2011-November 2016

GLOBAL DEVICE SHIPMENT FORECAST by device type, 2015-2020 (millions of units)

Penetration rate, the slowdown in the microprocessor speed race, the increase in device performance, as well as the new hybrid devices with detachable screens are all arguments that

suggest a weak growth outcome in the mobile device retail sector over the next five years.

2000

1600

1200

800

400

0

DesktopsLaptopsTabletsSmartphones

500%

400%

300%

200%

100%

Apple (AAPL)

Amazon (AMZN)

Alphabet (GOOG)

Microsoft (MSFT)Index S&P 500 (^GSPC)

2012 20142013 20162015

Index 100: Based on share value 21/11/2011



19/03/2015: Apple (APPL) enters

the Dow Jones

07/20145 MARKET CAP:

700 BILLION USD IPO

TIMELINE

’76 ’80 ’97 ’07 ’09’08 ’11 ’13 ’15FOUNDED

’16’03

PRODUCTS LAUNCHES

IPHONE

MARKET CAP

CEO

STORES (487)

STOCK (NASDAQ:AAPL)

Apple become the largest market cap

77 - 81 : Michael Scott 81 - 83 : Mike Markkula 83 - 93 : John Sculley 93 - 96 : Michael Spindler 96 - 97 : Gil Amelio

’84

Steve Jobs Tim Cook

Macintosh

iPhone iPhone 3G

MacBook

iPhone 4S

iPad

Apple overtakes Microsoft in terms of

market cap

iPhone 5 iPhone 6 iPhone 6+

iPad Pro

iPhone 6S iPhone 6S+ iPhone 7

iTune StoreiOS

AppStore

iPad mini

Macbook Pro Touch Bar

Apple Pay Apple Health

Apple TV

iPhone 5C iPhone 5SiPhone 4iPhone 3GS

SERVICES

2001USA

2008AUSTRALIAGERMANYCHINASWITZERLAND

2009FRANCE

2004UK

2003JAPAN

2005CANADA

2007ITALY 2010

SPAIN2011HONG KONG

2012SWEDEN NETHERLANDS

2014BRAZILTURKEY

2015UAEBELGIUM

2016MACAOMEXICO

MacPro

’1006/2010

MARKET CAP: 200 BILLION USD

’1202/2012


’1411/2014


+1,000%

+500%

0%

20162014201220102008

Progression APPL vs. S&P 500

+1,250%

+750%

+250%

iWatch

Apple MusicMac

AppStore



1/4 MARKET STRATEGY: TRANSITIONING TO A ‘’COOK’’ STYLE MANAGEMENT

Apple under Steve Jobs

More than any major company, Apple’s strategy was and is a reflection of the core vision of Steve Jobs as founder and CEO. His vision tied together several key components: a limited number of products, with careful consideration paid to design and user experience, in an integrated yet closed ecosystem that seeks to hold customers within the Apple suite of hardware, software and peripherals.

Instead of regular product launches based on studies and market research, Steve Jobs mostly based decisions on his vision and intuition, and stated “You can't just ask customers what they want and then try to give that to them. By the time you get it built, they'll want something new.”

Who is Tim Cook?

Tim Cook graduated from Auburn University with a B.S. in industrial engineering. He later completed his MBA at the Fuqua School of Business of Duke University in North Carolina. He spent twelve years at IBM before joining Compaq as Vice President of Corporate Materials.

In 1998, Cook joined Apple when it was in the midst of a complicated financial situation. He was first tasked with reorganizing production, logistics and retail as Executive Vice President of Worldwide Sales and Operations. He was promoted to Chief Operating Officer in 2005.

Cook replaced Steve Jobs as Apple CEO on three separate occasions beginning in 2009. He was named Chief Executive Officer in August 2011 following the resignation of Steve Jobs for medical reasons.

Out with the Old - The Dawn of a New Strategy

In October 2012, Tim Cook dismissed Scott Forstall, Senior Vice President in charge of the iPhone operating system (iOS) and John Browett, VP Retail Operations. These dismissals came in the wake of increasing criticism over multiple bugs on the newly released iOS 6. Tim Cook proceeded with an extensive restructuring of Apple’s management flowchart. The message to management was that autocratic and conflictual management methods used by princely VPs with inflated egos would not be tolerated. Cook sought to impose his own management style, which flavors collaboration, consensus and positive energy.

On the hardware front, things also changed; a new range of models for each flagship product arrived. Jobs defended the idea of a single model for both iPhone or iPad, but now each had several versions available in a dazzling array of colors and finish. (iPhone 5SE/6/6S/7/7+, iPad Pro/Air/Mini). This was Cook’s “products based upon demand” philosophy. The Apple Watch became another example and the first launch of a completely new product under Cook’s helm.

CENTRALISED DECISION MAKING PROCESS

TEAMWORK

FOCUS ON A SMALL NUMBER OF PRODUCTS

MULTIPLE VERSIONS OF FLAGSHIP PRODUCTS

“CUSTOMERS DON’T KNOW WHAT THEY WANT UNTIL WE SHOW

THEM WHAT THEY WANT”

DEVELOPING PRODUCTS BASED ON DEMAND

S.JOBS T.COOK

SHAREHOLDERS: NO DIVIDENDS SHAREHOLDERS: DIVIDENDS

“You look at what we are great at…But the one thing we do, which I think no one else does, is integrate hardware, software, and services in such a way that most consumers begin to not differentiate anymore. So how do we keep doing that and keep taking it to an even higher

level? You have to be an A-plus at collaboration.” TIM COOK - APPLE CEO - DECEMBER 2012



2/4 MARKET STRATEGY : TIM COOK’S 2011-2016 TRACK RECORD

Tim Cook might not be Steve Jobs, but Apple remains Apple

Over the last five years, Apple has not released any new ground breaking products like the iPhone. This has predictably led to a public outcry from Apple fans and investors. There was a longing for the legendary Steve Jobs “keynote” unveilings. With his sudden disappearance, the complicated “spiritual” legacy of Jobs and his leadership style were replaced by the pursuit of growth and a successful epic management transition.

However, the figures are clear-cut: Tim Cook’s management has been exceptional. Despite attacks in all its markets, especially smartphones, and growing predatory Chinese competition and the Samsung rivalry, Apple was able to maintain its core principles.

Most important was sound finance - that is to say, stratospheric profits. In the smartphone sector alone, with no more than 12.1% market share, Apple achieved 91% of all benefits generated by all smartphone makers worldwide, around $8.5 billion.

The Apple Watch allowed Apple to take the leading position in the “connected wearable” market. This was an exceptional Trojan horse into the connected health market. By contrast it had taken four years for the iPod to gain significant traction.

Apple’s connected watch has already generated billions of dollars since its unveiling in 2015. More units were sold in its first twelve months than iPhones were sold in the year that they were launched. Over the second quarter of 2016, in the midst of a market slowdown, Apple sold over 1.6 million Apple Watches, reaping a 47% share of the “connected wearable” market.

Over the last five years under Tim Cook, Apple has had a cash flow of $237.6 billion, and a rapidly increasing R&D budget, up from $2.43 billion to $8.07 billion (2.24% and 3.45% respectively of global revenue). There has also been a plethora of innovative start-up acquisitions, especially in the past 24 months. From this it appears that Tim Cook’s next five years at the helm of Apple will most certainly be synonymous with spectacular innovation.

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016

215.6233.7

182.8170.9156.5

108.3

2011 2012 2013 2014 2015 2016

81.6

121.3146.8 155.2

205.7237.6

0

2

4

6

8

10

12

2011 2012 2013 2014 2015 2016

10.45

8.067

6.0414.475

3.3812.429

10

REVENUE 2011-2016 (billion $)

R&D INVESTMENTS 2011-2016 (billion $)

250

200

150

100

50

CASH FLOW 2011-2016 (billion $)



3/4 MARKET STRATEGY: USER BASE EXPANSION/RETENTION

The Quest for a New Customer Profile

Since 2014, Apple has sought to increase its business sector sales to compensate for a forecasted slowdown in consumer electronics sales. Apple quickly implemented strategic partnerships with big business-to-business (B2B) players such as IBM, Cisco Systems and SAP.

In September 2016, Deloitte and Apple announced that they had put together a team of 5000 consultants to preach the Apple gospel to businesses around the world.

Apple’s revenues stemming from its incursion into the B2B arena, pitting it against companies such as Microsoft or Oracle, were $25 billion for 2015, a 40% increase over the preceding year. B2B was close to zero for Apple in 2013.

The picture looks much less promising for Apple in the education sector. This is a crucial area since it enables the company to introduce future consumers to its products. Over the first quarter 2016, iOS accounted for no more than 17% of all purchases made by institutional buyers in the American K-12 education sector. Google’s cheaper Chromebook achieved 51% and Windows products took 25%. By comparison, the iPad represented 40% of the education market budget in 2013.

‘’Product as a Service” - Quest for a New Sales Strategy

Customer retention is a vital lever for sales revenue and an art at which Apple excels. It remains well ahead of competitors with an 87% customer retention rate in the United States and Europe (February 2015), versus 62% for Samsung. However, like most most luxury brands, Apple does not offer a loyalty program to customers. For product and service compatibility reasons, the Apple closed ecosystem encourages customers to make most of their purchases from Apple acquiring their first Apple product. Hence, the idea behind the Apple Upgrade Program.

Concurrent with Apple’s release of the iPhone 6S, the new Apple Upgrade Program (leasing) was put in place. The program includes two years of hardware repairs, software support, up to two incidents of accidental damage, and an annual replacement for a new iPhone. Monthly payments of $32 to $45 and a 24-month contract enabled customers to trade-in their smartphones for a new model each time Apple unveils new iPhones. Despite a few initial hiccups, one out of four iPhones were sold through the program as of Q3 2016.

AUGUST 2014 APPLE-IBM

PARTNERSHIP

DECEMBER 2014 APPLE LAUNCHES TEN

ENTERPRISE TARGETED APPS

AUGUST 2015 CISCO PARTNERSHIP

SIGNED TO OPTIMISE IOS APPS NETWORK FLOW

MAY 2016 APPLE-SAP

PARTNERSHIP

OCTOBER 2016 APPLE-DELOITTE

IMPLEMENTATION OF A 5000-STRONG CONSULTANT TEAM TO PREACH THE APPLE

GOSPEL TO BUSINESSES WORLDWIDE

APPLE B2B STRATEGY PARTNERSHIPS 2014-2016

“The deal with IBM … is the first of its kind for the two companies and is an important step for Apple, which had infiltrated businesses at an

employee, but not company, level … Apple now has the software companies wanting devices that employees actually want to use.”

MAX SLATER-ROBINS — ITPRO.CO.UK - MARCH 2016

http://itpro.co.uk



4/4 MARKET STRATEGY: INTERNATIONAL STRATEGY

Losing Speed in China

Apple’s path to sustained growth in China is rocky. iPhone sales fell 33% over the second quarter of 2016 in the face of increasingly cutthroat Chinese competition (Oppo, Huawei and Vivo). Oppo in particular stood-out: it increased its market share from 2% to 22.9% over the last two years. Oppo finished in first place for 2016 among cellphone makers for domestic market sales due to powerful field marketing tactics and a commission-based retail system. Oppo has made no secret about its intent to expand internationally.

Protectionist policies of the Chinese government are not helping; it recently banned some Apple services such as online sales of books and movies. To tackle these issues, Tim Cook has visited China seven times and recently announced the creation of R&D centers in Beijing and Shenzhen. Trump’s arrival to the equation is bound to make matters worse, especially since he has declared that the United States will not sign the Trans-Pacific-Partnership.

Emerging Markets, Apple and the Indian Dilemma

China has been unavoidable for Apple since it is such a large market,. However, Apple must also successfully establish itself in other emerging markets. Smartphone sales growth rates for industrialized countries such as United States and Western Europe, as well as China are predicted to drop in the next few years. However, analysts predict that the Indian market share of the smartphone retail sector will grow 75% by 2019 in terms of sales volume, and reach 13.5% of global demand. However, Apple must catch-up to stay in the game. Samsung alone took 29% of first quarter sales in 2016, while Apple achieved only a measly 2.2%. The issue is that prices of the Apple product range do not match purchasing power of Indian consumers; only 4% of Indians can afford Apple’s entry-level smartphone, the iPhone SE, which costs a whopping $600.

To overcome this problem, Apple should produce and market a “low-cost” smartphone that still fits its business model. This would not disrupt Apple’s luxury/premium brand strategy which produces a profit of 60% of the retail price of an iPhone 6.

0%

8%

15%

23%

30%

0

5,000

10,000

15,000

20,000

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2013 2014 2015 2016

APPLE’S MAINLAND CHINA REVENUE % of total revenue (millions of dollars)

SMARTPHONE SECTOR EVOLUTION

0%

25%

50%

75%

100%

June-15 June-16

25.1%28%

6.8%9.5% 6.8%

15.1% 9%

13.2%12%

7.3% 17.4%

20.8%22.9%

6.1%

Oppo HuaweiVivo AppleXiaomi SamsungAutres

0%5%

10%15%20%25%30%

0%

5%

10%

15%

’15 ‘19 ’15 ‘19

’15 ‘19 ’15 ‘19

China USA

India Brazil

Top five worldwide per country (volume)

’15 ‘19

China per company (sales)

UK



1/5 SUPPLY ANALYSIS: HARDWARE

Proprietary Microprocessors: the Key to Success

The successful launch of a new connected consumer electronic device in the hi tech sector is based on many factors. There must be a careful balance of performance, design, user interface friendliness (OS and apps), product positioning, price and many other factors. Apple’s major competitive advantage is due to its unique and historical strategy of pairing a software/operating system and hardware design. Microsoft, for example, has historically been a pure systems and software designer, but it has now started to develop its Surface product line.

It took three attempts for Apple to finally find the "golden egg" in this market when in 2010 it integrated a microprocessor design model for products following the acquisition of Intrinsity. Intrinsity was founded in 1997 by 22 veterans of the semiconductor industry. Since then, the performance of Apple chips has continuously evolved, from the A4 chip in the iPhone 5 to the A10 fusion chip of the iPhone 7. Now the numbers speak for themselves; the chip that equips the iPhone 7 is on par with desktop Intel microprocessors.

Logically, the development of iOS focuses on the optimal exploitation of Apple chips to consume less energy. Apple’s mastery of the entire value chain allows the iPhone 7 to benefit from the best battery power/operating autonomy ratio. At equal power and performance levels, Apple devices consume significantly less energy than other devices.

Thanks to its total vertical integration, Apple is in position to reach total unification within a maximum of three years. It will have a single operating system and a single set of microprocessors for its entire range, from mobiles to desktops. The key advantages are:

• A perfectly homogeneous user experience; • Very high economies of scale in design and productions costs; • Freedom from dependence upon the output schedule of a contract designer

and supplier such as Intel.

2016 SMARTPHONE GEEKBENCH Geekbench 4 - average score

“It’s really unprecedented in the industry that a team like this should crank out such high-quality silicon. Typically, those who crank out

silicon for their own products aren’t industry-leading” PATRICK MOORHEAD— MOOR INSIGHT & STRATEGY - OCTOBER 2015

Source : https://browser.primatelabs.com Method: Geekbench 4

Battery Life calculations (battery power / endurance) gsmarena.com data with the following settings : Calls = 1:30h / Web Browsing = 3:30h / Video playback = 1:00h

DEVICE SINGLE-CORE MULTI-CORE EFFICIENCY AUTONOMY

Apple iPhone 7 PlusApple A10 Fusion @ 2.3 GHz 3306 5358 64.4 45

Apple iPhone 7Apple A10 Fusion @ 2.3 GHz 3298 5342 53.0 37

Samsung Galaxy S7Samsung Exynos 8890 @ 1.6 GHz 1785 5201 73.2 41

Samsung Galaxy Note 7Samsung Exynos 8890 @ 1.6 GHz 1760 5166 74.5 47

Huawei P9HiSilicon Kirin 955 @ 1.8 GHz 1734 4827 76.9 39

Samsung Galaxy S7 EdgeSamsung Exynos 8890 @ 1.6 GHz 1728 5170 66.7 54

OnePlus 3Qualcomm MSM8996 Snapdragon 820 @ 1.6 GHz 1699 4021 85.7 35

LG G5Qualcomm MSM8996 Snapdragon 820 @ 1.6 GHz 1658 87.5 32

Xiaomi Mi 5Qualcomm MSM8996 Snapdragon 820 @ 1.6 GHz 1620 60.0 50

HTC 10Qualcomm MSM8996 Snapdragon 820 @ 1.6 GHz 1611 83.3 36

Google Pixel XLQualcomm MSM8996 Pro-AB Snapdragon 821 @ 1.6 GHz 1580 4035 84.1 41

Google PixelQualcomm MSM8996 Pro-AB Snapdragon 821 @ 1.6 GHz 1573 4013 68.8 33

https://browser.primatelabs.com

http://gsmarena.com



2/5 SUPPLY ANALYSIS: OS & SOFTWARE

MacOS (Sierra): Ever Closer to a Unified System

In terms of functionality and performance, the two main operating systems, Windows 10 and MacOS Sierra, seem to be equal. However, the know-how developed by Apple on the mobile version of iOS provides an undeniable competitive advantage, especially its user experience “mobility” phenomenon. Apple is now very close to a unified watch/mobile/home/desktop ecosystem. This is evidenced by the recent MacOS Sierra Universal Clipboard and Siri virtual assistant now being available on all Apple hardware.

Windows device integration suffers from the delay taken in the mobile sector during the Steve Balmer era. In less than a decade, consumers have made their choice, and that choice is a mobile OS that comes free with the purchase of a mobile device. This pairing is now the mainstay of any digital ecosystem. Unfortunately for Windows, its mobile sector share is less than 0.4% of the market as of August 2016.

Google’s mobile OS, Android, peaked at 87.6% market share. However, it suffers from the need to simultaneously maintain the plethora of versions that are used on hundreds of devices from a variety of brands, bringing added costs and security risks. Apple however, with 11.7% of the market, only needs to develop for its own devices. It has a closed ecosystem under the Apple Appstore that requires that each App be subject to verification by Apple. This curtails the risks of malicious attacks and pernicious code.

Apple: Leading Software Designer by 2020

Apple’s numerous acquisitions provide a strong indication of what will be the important components of the software environment of any digital ecosystem by 2020. Apple’s cash flow of more than $237 billion means it can afford to simultaneously chase the best talent, create research departments with several thousand engineers, and acquire any startup, patent or license it desires. Most importantly, it can afford to be wrong and does not hesitate to backtrack when it needs to, as evidenced by Tim Cook’s admission regarding Apple’s electric vehicle project code-named “Titan".

As the “next big thing”, Apple is working on a structured augmented reality development environment for trendy Pokemon Go type applications. It appears Apple will offer this environment for its iPhone 8, which is expected in September 2017.

Camel Audio Digital synthesizers softwares

Emollient Facial recognition

Faceshift Motion Capture

Flyby Media Augmented Reality

FoundationDB Database

LearnSprout Educational softwares

LegbaCore Security softwares

Gliimpse Medical Data

LinX Imaging Cameras

Coherent Navigation

GPS

Metaio Virtual Reality

Mapsense GPS

Perceptio Deep-Learning

SemetricMusic analysis software

VocallQ Deep-Learning

Turi Inc Artificial Intelligence

MA JOR APPLE ACQUISITIONS 2015-2016 Selected Examples

IOS VS ANDROID Distribution of active versions of IOS and Android (September 2016)

34%

61%iOS 9iOS 10Antérieur à iOS 9

19% 16%

28%35% 5.x (2014)

4.4 (2013)4.1-3 (2012)6.x (2015)3-2-1.x (<2012)7.x (2016)

iOS

ANDROID

2,9%

4,8%

0,1%iOS Android Others

Market share

87,6%

11,7%

74%

4%

Malware



Q3 2014

Q3 2015

Q3 2016

Chine USA Japon

15

3/5 SUPPLY ANALYSIS: SERVICES

0%2%4%6%8%

10%12%14%16%

012345678

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

6.36.06.06.1

5.15.05.04.84.64.54.64.44.34.04.13.7

SERVICES/SOFTWARE REVENUE 2013-2016 ($ billion and % Total Revenue)

2013 2014 2015 2016

$b

-30

-20

-10

0

10

20

30

REVENUE YEAR-OVER-YEAR CHANGE (%YoY of Q4 2016)

iPhone iPad Mac Services Other

The Rise of a New Business Model?

The iPhone is without a doubt the most significant step in the Apple’s history. However, it is important to understand that Apple also owes its incredible growth to intangible disruptions. The common denominator of the ever powerful GAFAM (Google, Apple, Facebook, Amazon, Microsoft) is their ability to construct an innovative and new business model:

• Microsoft: the software license model;

• Amazon: the online retail model;

• Google: the Adsense/Adword model;

• Facebook: the social network model;

• Apple, inventor of the AppStore model.

In the second half of 2016, services accounted for 13.8% of Apple’s turnover. In the fourth quarter alone, services increased 24% overall, including:

• Apple Music: + 22% vs. Q2-2016;

• AppStore: 43% YoY 09/2015 - steady increase over five straight quarters;

• Apple Pay service + 500% YoY from September 2015.

Apple App Store: Quality and Profit

The Apple App Store offers less selection than its competitor Google Play, but better quality; each App is validated by Apple teams and thus are less exposed to malware. The Apple Store also stands out for its record breaking profitability, four times that of Google Play.

As of Q3 2016, China has become the biggest market for the Apple AppStore and Google Play is absent from China. Thanks to entertainment Apps, 75% of turnover is generated on the AppStore.

APPLE VS GOOGLE APP STORES (Indexed - Q3 2016)

0

50

100

150

200

iOS App Store Google PlayDownloads Revenue

APPLE STORE TOP THREE (Revenue - $ billion Q3 2016)

100

215

100

50

2,0

1,5

1,0

0,5

0



4/5 SUPPLY ANALYSIS: SERVICES - APPLE PAY

Apple Pay

“Touchless” in-store mobile payments are a principal strategic challenge for next few years in digital services. In the United States alone, the mobile pay-as-you-go market is expected to reach $210 billion by 2019. This compares to an expected $27 billion in 2016. Apple is therefore betting big on this market, as its pioneering roll-out of Apple Pay in 2014 demonstrates.

The release of Apple Pay coincided with the appearance of fingerprint sensors on iPhones, which are also now on laptops. These make for safer transactions. Google Wallet has been around since 2011, but it does not have Apple's major competitive advantage: its "closed" ecosystem. This ecosystem enabled Apple to impose its payment app on all iOS devices. Google’s payment system had to be manually installed on Android devices. Google eventually corrected its strategy with the introduction of Android Pay in 2015, and by negotiating with the cellphone operators to equip smartphones with the app.

Apple and Google are not alone in trying to impose mobile contactless payments. Other contenders include:

• Tech giants: Samsung, Amazon, Paypal, Facebook • Banks: Chase, Capital One • Retailers: Walmart, Kohl’s and others

Banks have a particular interest to gain a foothold in the tap-and-go market in order to control the means of payment. As for retail players, the development of a mobile payment service is a sure way to save on bank transaction commissions. However, Apple has successfully lined-up the assets to its advantage: first to market, present on 100% of iOS devices, an 80 million strong iTunes user base, rapid launch internationally. It also very quickly became available through a critical mass of merchants, and unlike credit card companies, charges no transaction fees (Visa/Mastercard charge 2% to 4%).

Despite major competition, Apple seems to be successfully achieving its implementation of Apple Pay. Apple had ten million users worldwide by the end of 2016 (+ 450% YoY). In the United States, three-fourths of contactless transactions were done using Apple Pay. There are more than three million businesses in the United States and more than eleven million globally that are equipped to receive Apple Pay payments. In terms of value, one out of every two transactions took place outside the United States.

MOBILE PAYMENTS USERS number of users - Q1 2016 USA

Source : eMarketer/Apple

2015 2016

APPLE PAY AVAILABILITY 2014-2016 (country to country)

Users of the mobile payment service completed more transactions in September 2016 than in

the entire year of 2015. Transaction volume was up 500% in the fourth quarter of 2016,

compared with the same quarter in 2015.

2014

ANDROID PAY

SAMSUNG PAY

APPLE PAY

0 5 10 15

6%

1%

4%5 Million

5 Million

12 Million

% of users among Apple Pay enabled smartphone users

LAUNCHED



5/5 SUPPLY ANALYSIS: SERVICES - APPLE HEALTH

HEALTHKIT

CAREKIT

RESEARCHKIT

HUMAN 7 MINUTE CARROT FIT FITSTAR

ENDOMONDO WEBMD STARVA NOOM COACH

WITHINGSWS-50 BEDDITJAWBONE

UP3

WITHINGSBPM

IHEALTHPULSE

IHEALTHBPM

Compatible Apps & Devices

IPHONE WATCH HEALTH APP

DR CHRONO

PATIENT IO

HEALTHLOOP

SHARECARE

EPIC

Electronic Health Record

Third Party Apps Consumer

Doctor

Health plan

Hospital

Patient

Manual Input

The Health Sector - a Dedicated Market

In March 2016, Apple introduced CareKit, the third and final tool package for developers that design health dedicated apps. Sophisticated, effective, and unanimously acclaimed by health professionals, this development environment also relies on several remarkable start-up acquisitions including Gliimpse.

APPLE HEALTH SERVICE MAP

“When you look at most of the solutions, whether it’s devices, or things coming up out of Big Pharma, first and foremost, they are done to get the reimbursement [from an insurance provider]. Not thinking about what helps the patient. So if you don’t care about reimbursement, which we have the

privilege of doing, that may even make the smartphone market look small.” TIM COOK— APPLE CEO - AUGUST 2016

The global mHealth market accounted for an estimated revenue of $13.7 billion in 2015, and is expected to grow at a CAGR of 34.0% from 2016 to 2022. The mHealth apps segment is expected to witness the fastest growth among various products and services, with a CAGR of 40.1% over the forecast period.

CLOUD DATA STORAGE



MATRIX: PORTER 5 FORCES

LEVEL OF COMPETITION: STRONG

Apple is competing in every segment (smartphone, tablet, laptop, Apple TV) and also against other high tech generalists who seek, like Apple, to impose their global digital ecosystems: Amazon, Google, Microsoft, and to a lesser extent, Facebook.

Apple enjoys a designer-manufacturer core business that constitutes a very strong barrier to entry, and it projects very powerful brand capital. However, that barrier alone will not alone discourage consumer transition from one ecosystem to another: Apple must simply remain the best, always.

INDUSTRY RIVALRY

THREAT LEVEL: LOW

The bargaining power of suppliers is quite low given the multitude of them available. For most of Apple’s historical suppliers, Apple is a major customer that they cannot risk losing.

Some designers and manufacturers are suppliers of both Apple and Samsung. The fierce commercial competition between "designers" can impact and interfere with their "supplier" status with Apple.

BARGAINING POWER OF SUPPLIERS THREAT LEVEL: MODERATE

Apple’s customer satisfaction and brand loyalty are the highest in the market. Several recent disappointments could erode customer loyalty, particularly since competition has intensified and now attacks Apple on its traditional stomping ground, innovation. Examples include • SMARTPHONE: Samsung and its curved screens, Xiaomi and its "full" screens

and Google and its Pixel models. • COMPUTERS: Windows Surface, and perhaps other newcomers.

Apple attracts new buyers to its systems through the development of features (e.g. Apple Pay, mHealth) but competition could catch up.

BARGAINING POWER OF BUYERS

THREAT LEVEL: MODERATE

Whatever the product, the threat of new entrants is quite low since the market requires heavy investment in communications, R&D and manufacturing.

Chinese players have risen quickly and perform outstandingly well in the domestic market (Oppo, Vivo, Huawei, Xiaomi). However, they are struggling to expand outside Asia due to a lack of brand recognition.

THREAT OF POTENTIAL NEW ENTRANTS

THREAT LEVEL: VERY LOW

The multifunctional aspect of smartphones has developed quickly in recent years, and it makes the notion of substitute product obsolete.

As for computers, tablets with detachable keyboards appear to be credible alternatives. Apple therefore did not hesitate to design detachable models from its own products, even if it had to cannibalise its own laptops in the process.

THREATS OF SUBSTITUTES



MATRIX: SWOT

Financial stability: Apple’s treasury is flush with $237.6 billion as of 2016, an amount unparalleled in history for a private business. This gives Apple a margin to maneuver and jostle all sectors with which it is involved.

R&D investments: After an investment of close to $10 billion in R&D in 2016 alone, Apple continues to maintain a solid culture of innovation.

Strong branding: Apple has a strong brand image and its premium stores enable a global presence. Releases of new products remain much-anticipated global media events.

Ecosystem: Apple has developed connectivity between its products, encouraging customers to buy more of the interconnected Apple products.

STRENGTHS

Market opportunities: Apple is able to soundly project itself into many high-potential service markets throughout its user base with its business, marketing and technical resources. These markets have included the mobile payment market with Apple Pay or Healthcare with Apple Health.

Samsung Galaxy Note 7 scandal: In September 2016, after numerous battery explosions, Samsung recalled its flagship product for the second time. The image of Apple’s main rival was strongly affected by the scandal. Analysts expect the impact will be long lasting since several other problems still trouble the Korean conglomerate. In addition, Samsung leader was arrested in February 2017 for bribery and embezzlement as corruption scandal deepens.

OPPORTUNITIES

Legal proceedings: In February 2016, Apple was found guilty of using four patents from VirnetX, a company that specialized in mobile security technology. A month prior to that, Apple was sued by Dot 23 Technologies LLC for integrating three of its patents into the Siri application. Other lawsuits are pending against the company.

iPhone dependency: With close to 64% of revenue from the iPhone family of products, Apple remains overly dependent on its flagship product.

iPhone 7 launch problems: Following launch, the iPhone 7 quickly went out of stock, testifying to less than ideal sales management and associated logistics.

In China, many iPhone 7 users reported network connectivity issues and the brand image suffered accordingly.

WEAKNESSES

Increasing competition: Competition in the smartphone market has grown tremendously with the emergence of many new players, especially in China with Xiaomi, Vivo and Oppo. Although these competitors are now mainly present in the Chinese market, their internationalization is a real threat to Apple since their products are innovative, well made and well priced.

Android market penetration: Google dominates the mobile device market in terms of penetration rate thanks to its open Android OS. Despite its critical mass, Google is still struggling to find profitability. However, it has the means to continue to seek the perfect business model.

THREATS



MATRIX: PESTEL ANALYSIS

Fiscal policies of the United States and Europe are evolving towards stricter taxation of multinationals.

The Chinese government exerts ever greater control over Apple’s digital content in China (the Apple book and movie online platform is blocked).

Apple is making efforts to obtain favors from the Chinese government (e.g. construction of R&D centers in Beijing and Shenzhen), but it is becoming increasingly dependent upon China, since it is the largest contributor to its turnover. The growing bond between Apple and the Chinese government could harm the image of the brand, especially in Europe and the United States. Donald Trump wants Apple to manufacture its products in the United States.

POLITICAL

Competitors like Samsung and Google are showing great abilities to emulate Apple products.

Many Apple products, like Apple TV for example, cater to a limited market.

TECHNOLOGICAL DEVELOPMENT

Labor costs are increasing in China. The increase in value of the dollar makes it more costly to develop international markets, especially in key markets like Europe and China.

The emergence of a middle class in many developing countries makes it possible to foster greater demand for premium products such as the Apple products.

ECONOMIC

Apple has successfully developed a more eco-friendly image, particularly through efforts to bring renewable energy power to its plants. As of 2014, 100% of Apple operations in the United States and 87% of global operations are powered by renewable energy.

Tim Cook made a strong statement by hiring Lisa Jackson, after she stepped down as the head of the US Environmental Protection Agency.

ENVIRONMENTAL

Apple has greatly enhanced its image as a socially responsible corporation. Tim Cook has taken a committed position on the subject: • Involvement in the Fair Labor Association; • A high profile op-ed in the Wall Street Journal in 2013

stating Apple support for workplace equality and urging Congress to support the Employment Nondiscrimination Act;

• Resistance to demands from the FBI that it should create backdoors to its own encrypted software.

SOCIAL

Apple’s European tax scheme, with profits accrued to a practically untaxed head office, was fiercely denounced by the European Commission.

Apple is increasingly being attacked on issues related to patents and branding and is also targeted by class actions that tarnish its image and that of its products.

LEGAL



Q&A

What are the consequences of Apple’s fiscal strategy?

In August 2016, the European Commission ordered Apple to hand over thirteen billion euros plus interest to Ireland in unpaid taxes.

This tax award was instigated by Margarethe Vestager, European Commissioner for Competition. She had examined similar cases of deals between companies and countries of the European Union such as those between the Netherlands and Starbucks, and Luxembourg and Fiat. She called them "sweetheart deals”.

The European Commission is challenging Apple’s two main divisions in Ireland: Apple Sales International (ASI), which collects company revenues from Europe, Middle East, Africa and India; and Apple Operations Europe (AOE), with is responsible for, among other tasks, the manufacture of certain MacBook components.

According to the European Competition Commission, these companies and in particular ASI, funneled most of their profits to a head office that had no premises or employees. Apple benefited from unfair terms of taxation negotiated directly with the Irish Government. Instead of the standard 12.5% profits tax for non-resident companies, Apple paid no more than 0.05% to 2% on all its worldwide revenues, excluding the United States.

The three protagonists involved in the case made legal-fiscal arguments to defend their respective interests:

• Apple fears receiving another very expensive retroactive tax adjustment and has already been defeated in terms of image by the scandal.

• The European Commission wants to set an example to restore its image in a context marred by Brexit and a concern for depleted authority vis-a-vis member states.

• Ireland fears losing its status as a “legal tax-heaven” which enabled it to attract many foreign corporations that have adopted financial structures similar to Apple.

Both Apple and the Irish government have voiced their intent to appeal the decision put forth by the European commission.

“In 2011 Apple Sales International made a profit of €16 billion, less than €50 million euros were allocated to the

Irish branch, The rest, the huge majority, was allocated to the so-called head office where they remained untaxed…For every €1 million in profits, it paid just €500 in taxes.”

MARGARETHE VESTAGER EUROPEAN COMMISSIONER FOR COMPETITION - AUG 2016

AOE

ASI

APPLE INC.

EU stores

HEAD OFFICE

Irish staffed

Irish staffed

PROFITALLOCATION

No-Tax residence “paper” company

with no employees

US staffed

R&D financing

APPLE OFFSHORE STRUCTURE simplified and focused on EU

Commission claims

ASI: Apple Sales International • Handles the import and distribution of

Apple products after their manufacture in China—everywhere outside the Americas.

• Accounts for 99.6% of the €13 billion figure • Non-resident company (Head Office) that

has an Irish branch.

AOE: Apple Operations Europe • Was the more important company of the

two subsidiaries when the 1991 tax deal was put in place.

• Makes MacBooks and provides shared services to Apple’s EMEA subsidiaries.

€13 BILLION demanded in back taxes = 100% Ireland

healthcare budget27% of Apple 2015 profitOR



Q&A

Is the Apple Watch a failure?

Launched in September 2014, the Apple Watch was not the first smartwatch on the market. Samsung launched the first of its kind, the Galaxy Gear, in September 2013.

For many analysts, the Apple Watch is an emblem of the Apple era under Tim Cook; it was the first innovative product released by Apple since the death of Steve Jobs. Although it is not a true game-changer on the scale of the iPhone, the product meets real market demand.

In order to properly assess the Apple Watch sales figures and its medium-term potential, one must avoid the pointless comparison with the traditional mechanical watch market1. Although it is worn on the wrist and looks like a traditional watch, the Apple Watch is far from just a watch. Apple Watch is a new connected device, which will only reveal the full possibility of its functionalities by the fourth or fifth generation.

1 Who would seriously try to compare the bicycle market to the motorcycle market under the pretense that they are both two wheelers?

[…] The Apple Watch started shipping almost one year ago. […] Is it essential for daily life? Of course not. Chances are you already own an iPhone, which has many of the same features. But you can’t wear an iPhone on your wrist, and that’s why the Apple Watch will become a key component in Apple’s product lineup—even if it doesn’t seem like it yet. […] Apple recently filed a patent application for smart watch bands with modular pieces. The patent covers a band that has multiple links, each with an electrical component. Those components could include an actuator, an electricity generator, a photovoltaic cell, a speedometer, GPS, a thermometer, a blood pressure sensor, a sweat sensor, a magnetic field sensor, a speaker, a force sensor, and more, according to Apple’s filing on March 31. […] Millions of Americans avoid going to the doctor until they absolutely have to. The watch could be a preventative health device, nudging you to seek medical attention when your heart rate is irregular or when the cortisol levels in your sweat are abnormal. With CareKit apps, you’ll be able to immediately share that data with a doctor. Health insurance companies and the employers who pay them will love this.

“Apple Watch's second year: Health apps will make it a must-have

Forget Hermès bands. Let's think bigger.

by Caitlin McGarry April, 2016 http://www.macworld.com/

“Several generations of Apple Watch are necessary given the technological breakthroughs that are still needed to house potential components into such a small device and to develop a truly long lasting battery. This is the main challenge that Apple faces: to fully occupy the market space in terms of market share, and to develop the strategic partnerships that will allow it to prepare for the market’s future.

On September 29, 2016, an Apple partnership with Aetna was made public. The healthcare provider, which covers about 23 million people in the United States, is now subsidizing the price of Apple Watch for customers as part of its wellness reimbursement plan (cash back for exercise). As part of the agreement, Aetna will also create multiple health apps for the iPhone and iPad - these are set to be released in 2017. As a start, Aetna said that its almost 50,000 employees will be eligible for an Apple Watch at no cost.

The iPod, iPad and iPhone each took years to achieve their full potential, whether in terms of market statistics or from a technological standpoint. It is too soon to judge the Apple Watch. Patience has costs, but the good news is that Apple can afford it.



Q&A

Apple Management Structure and Compensation

Tim Cook CEO

Angela Ahrendts Senior Vice President Retail

Eddy Cue Senior Vice President

Internet Software and

Services

Craig Federighi Senior Vice President

Software Engineering

Jonathan Ive Chief Design Officer

Luca Maestri Senior Vice President

Chief Financial Officer

Dan Riccio Senior Vice President

Hardware Engineering

Phil W. Schiller Senior Vice President

Worldwide Marketing

Bruce Sewell Senior Vice President

General Counsel

Jeff Williams Chief Operating Officer

Johny Srouji Senior Vice President

Hardware Technologies

Salary: Stock Awards:

Compensation: Total

~$2M ~$136,5M

~$8M ~$146,5M

Salary: Stock Awards:

Compensation: Total:

~$1M ~$20M

~$4M ~$25M

ESTIMATED EXECUTIVE COMPENSATION (2016)

Revenues, stock awards & bonus

undisclosed



Apple Inc.

Income Statement ($m) FY2015 FY2014 FY2013

Revenues 215,639 233,715 182,795

Gross Profit 84,263 93,626 70,537

Pretax Income 61,372 72,515 53,483

Net Profit (loss) 45,687 53,394 39,510

EPS Basic Net 8.35 9.28 6.49

EPS Diluted Net 8.31 9.22 6.45

Total operating expense 155,615 162,485 130,292

Operating income 60,024 71,230 52,503

Balance Sheet ($m)

Total Current Assets 106,869 89,378 68,531

Total Assets 321,686 290,479 231,839

Total Liabilities 193,437 171,124 120,292

Shareholders Equity 128,249 119,355 111,547

Cash Flow Statement ($m)

Cash Flow 45,687 53,394 39,510

Net Cash From Operating Activities 65,824 81,266 59,713

Net Cash From Invesment Activities -45,977 -56,274 -22,579

Net Cash From Financing Activities -20,483 -17,716 -37,549

Net Change In Cash And Cash Equivalents -636 7,276 -415

APPLE INC. NASDAQ: AAPL)

IPO on 29 June 2010 on NASDAQ

Founded Sector 01/04/1976 Electronic

Employees End of Fiscal Year 110 000 30 September

Adress Website 1 Infinite Loop www.apple.com Cupertino, California United States of America

($m)

($m)

FINANCIAL STATEMENTS

-40%

-20%

0%

20%

40%

,0

40,000

80,000

120,000

160,000

200,000

240,000

2016201520142013

Revenues Net Profit (loss) Profit margin

-40%

-20%

0%

20%

40%

,0

40,000

80,000

120,000

160,000

200,000

240,000

2016201520142013

Revenues Net Profit (loss) Profit margin



SHAREHOLDING STRUCTURE, FUNDING ROUNDS AND M&A DEALS

MERGER & ACQUISITIONS SINCE MAY 2014 (27)

Data from 30 June 2016

DATE ACQUIRED AMOUNT

Sep 23, 2016 tuplejump Unknown

Aug 22, 2016 Gliimpse $200M in Cash

Aug 5, 2016 Turi Unknown

Feb 3, 2016 LegbaCore Unknown

Jan 29, 2016 Flyby Media Unknown

Jan 28, 2016 LearnSprout Unknown

Jan 7, 2016 Emotient Unknown

Nov 24, 2015 faceshift $18.2M (terms undisclosed)

Oct 5, 2015 Perceptio Unknown

Oct 2, 2015 VocalIQ Unknown

Sep 15, 2015 Mapsense $25M (terms undisclosed)

Jun 26, 2015 Privaris Unknown

May 28, 2015 Metaio Unknown

May 28, 2015 Metaio Unknown

May 18, 2015 Coherent Navigation Unknown

Apr 14, 2015 Linx Imaging $20M (terms undisclosed)

Apr 8, 2015 Dryft Unknown

Apr 7, 2015 OttoCat Unknown

Mar 24, 2015 FoundationDB Unknown

Feb 24, 2015 Camel Audio Unknown

Jan 21, 2015 Semetric Cash & Stock

Nov 3, 2014 Union Bay Networks Unknown

Sep 23, 2014 Prss Unknown

Jul 28, 2014 Concept.io $30M (terms undisclosed)

Jul 25, 2014 Booklamp Unknown

Jun 6, 2014 Spotsetter Unknown

May 28, 2014 Beats Electronics $3B in Cash & Stock

SHAREHOLDERS Nº OF SHARES % HELD

The Vanguard Group, Inc. 334.23m 6.27%

BlackRock Fund Advisors 214.30m 4.02%

Fidelity Management & Research Co. 153.49m 2.88%

SSgA Funds Management, Inc. 152.03m 2.85%

Northern Trust Investments, Inc. 68.51m 1.29%

T. Rowe Price Associates, Inc. 58.34m 1.09%

Geode Capital Management LLC 49.23m 0.92%

Norges Bank Investment Management 48.15m 0.90%

Capital Research & Management Co. (World Investors)

38.34m 0.72%

Invesco PowerShares Capital Management LLC 38.33m 0.72%

TOP TEN INSTITUTIONAL SHAREHOLDERS

21.66 % !Percent of shares

held by top 10 holders



USD per share

90

120

140

130

2014 2015 2016Apr Jul OctApr Jul Oct Apr Jul Oct

80

100

110

26

EQUITY & DEBT SITUATION

KEY STATS AND RATIOS

TRAILING TOTAL RETURNS Total return (%) as of 31/08/2016

60%40%

RATIOS YTD 3Q 2016 2016

Net profit margin 19.24% 21.19%

Operating margin 25.10% 27.84%

EBITD margin - 32.38%

Return on average assets 11.53% 14.93%

Return on average equity 28.38% 36.90%

— -

STOCK ANALYSIS

Equity $126.541bn

Debt $84.935m

APPLE INC. (NASDAQ: AAPL)

TOTAL RETURN (%) AS OF 31/08/2016 1-MTH 3-MTH 6-MTH YTD 1-YR 3-YR 5-YR 10-YR 15-YR

AAPL -2.16 4.70 11.82 7.12 -4.69 13.65 16.87 24.70 33.73

Consumer Electronics -2.05 3.66 11.29 8.40 -2.80 11.66 15.81 16.18 14.77

S&P 500 TR USD 3.70 1.83 6.01 9.79 8.06 9.07 14.45 6.89 6.62

1-month 15-year10-year5-year3-year1-yearYTD6-months3-months

- 20%

0%

20%

40%

AAPL Consumer Electronics S&P 500 TR USD



CONCLUSION

Over the last four decades, Apple has faced and prevailed over numerous obstacles. Nothing has hindered its impressive growth. In just over five years, Tim Cook has successfully transitioned Apple into the "post-Jobs" era. This era saw Apple become the highest value company in the world, with the most revenue and with a cash flow of over $230 billion. This gave Apple an unparalleled advantage over competition. Apple continuously develops its range of products, putting the vision of Steve Jobs within reach: to supply a global ecosystem of products, systems and services that accompanies users throughout their daily lives.

Apple has anticipated the downward trend in the smartphone market, which still contributes to more than half of revenues to date, by implementing numerous solid propositions, now largely focused on services. The potential to capitalize on Apple’s billion captive users within a skillfully closed ecosystem is simply enormous.

Just four years ago, Warren Buffet said “the chances of being wrong with IBM are probably less at least for us, than the chances of being way wrong in Google or Apple… I just don’t know how to value them”. But in 2016, Berkshire Hathaway, Buffet’s own investment firm, acquired $1.5 billion of Apple shares.

Has the investment strategy of one of the most brilliant and respected investors of the planet evolved? No, Apple has.

APPLE CAMPUS 2 BY FOSTER PARTNERS OPENING PLANNED FOR EARLY 2017



SOURCESPictures used in the document: apple.com. Icons from The Noun Project (thenounproject.com) : Icone 54 - Jennifer Helms - Nicolas Molès - Matteo D. - Nikita Kozin - Sybolon - Delwar Hossain

Slide 4 http://www.rankingthebrands.com/The-Brand-Rankings.aspx?rankingID=37&year=1096

Slide 7 http://fortune.com/2016/01/18/donald-trump-says-hell-make-apple-stop-making-iphones-in-china/ https://www.statista.com/statistics/263441/global-smartphone-shipments-forecast/ https://www.statista.com/statistics/272595/global-shipments-forecast-for-tablets-laptops-and-desktop-pcs/ http://www.marketwatch.com/story/apples-stock-has-gotten-a-bad-rap-under-tim-cook-2016-08-24

Slide 8 http://amigobulls.com/stocks/AAPL/stockcharts

Slide 9 http://www.businessinsider.com/scott-forstall-leaving-apple-2012-10?IR=T nounproject : Icon54

Slide 10 http://www.cnbc.com/2016/08/22/tim-cooks-next-five-years-as-apple-ceo-will-be-different-from-his-first.html http://www.investors.com/news/technology/click/apple-iphone-grabs-104-of-smartphone-industry-profit-in-q3/ http://thenextweb.com/apple/2016/11/04/apple-iphone-profits-q3-2016/ https://www.idc.com/getdoc.jsp?containerId=prUS41611516 http://bgr.com/2016/05/05/apple-watch-sales-profits-iphone-ipod/ http://images.apple.com/newsroom/pdfs/Q4FY16ConsolidatedFinancialStatements.pdf

Slide 11 http://www.itpro.co.uk/strategy/26179/how-apple-built-a-25-billion-enterprise-business-in-three-years http://uk.businessinsider.com/ipad-sales-hit-lowest-point-in-educational-market-since-2013-2016-6?r=US&IR=T http://futuresource-consulting.com/2016-05-K-12-Q1-Press-Release-2961.html http://www.fool.com/investing/general/2015/02/05/apple-inc-brand-loyalty-is-paying-off-handsomely.aspx http://www.imore.com/apple-q3-2016-transcript

Slide 12 http://www.gsmarena.com/idc_q2_2016_huawei_tops_chinese_market_xiaomis_shipments_down_by_38-news-19976.php http://www.counterpointresearch.com/press_release/chinajune2016/ https://www.statista.com/chart/585/top-5-smartphone-markets/ http://www.gfk.com/insights/press-release/smartphones-growth-unabated-in-3q-though-china-expected-to-weigh-on-2017-demand/ https://www.statista.com/statistics/431224/market-share-smartphone-shipments-countries/

http://www.independent.co.uk/news/business/analysis-and-features/apples-iphone-the-most-profitable-product-in-history-10009741.html http://www.smartphonemarketresearch.com/

Slide 13 https://browser.primatelabs.com/android-benchmarks http://www.counterpointresearch.com/press_release/3q2016global/ http://www.digitaltrends.com/computing/how-apple-quietly-built-a-silicon-empire/

Slide 14 https://www.statista.com/chart/5930/adoption-of-ios-and-android-versions/ http://www.idc.com/prodserv/smartphone-os-market-share.jsp http://www.forbes.com/sites/maribellopez/2016/06/22/apples-macos-sierra-holds-its-ground-against-microsofts-windows-10/#bceb5493c18c http://www.securityweek.com/mobile-malware-shows-rapid-growth-volume-and-sophistication http://resources.alcatel-lucent.com/asset/200492 http://www.itproportal.com/2016/08/09/a-rising-tide-of-sophisticated-mobile-malware-threats/ http://bgr.com/2016/03/04/android-malware-accessibility-clickjacking/ https://www.sophos.com/en-us/medialibrary/PDFs/other/sophos-mobile-security-threat-report.pdf?la=en

Slide 15 https://www.ft.com/content/68e80a44-9b28-11e6-b8c6-568a43813464 http://www.cmlviz.com/cmld3b/images/AAPLservices_quarterly_816.gif https://www.statista.com/statistics/263426/apples-global-revenue-since-1st-quarter-2005/ http://venturebeat.com/2016/10/26/apples-service-revenue-growth-provides-offers-optimism-amid-tough-year-and-a-glimpse-of-the-future/ http://www.macworld.co.uk/news/apple/apple-q4-2016-financial-results-iphone-mac-sales-down-again-3581769/ https://www.appannie.com/fr/insights/market-data/q3-2016-index-china-hits-ios-app-store-milestone/ https://www.techinasia.com/10-android-app-stores-china-2014-edition

Slide 16 http://www.androidauthority.com/samsung-pay-growing-faster-than-apple-pay-677551/ https://www.bloomberg.com/news/articles/2016-03-01/samsung-gunning-for-apple-in-race-to-dominate-mobile-payments http://fortune.com/2016/07/26/apple-pay-contactless/ http://uk.businessinsider.com/apple-pay-is-dominating-the-mobile-payments-industry-2016-7?r=US&IR=T http://arstechnica.com/business/2016/06/apple-android-samsung-whos-winning-the-mobile-pay-app-race/

Slide 17 http://www.slideshare.net/handeum/apple-health-ecosystem https://www.statista.com/statistics/295771/mhealth-global-market-size/ http://www.marketwatch.com/story/global-mhealth-market-expected-to-grow-at-34-cagr-during-2016---2022-by-ps-market-research-2016-03-14 https://www.psmarketresearch.com/market-analysis/mobile-healthcare-market http://realmoney.thestreet.com/articles/08/23/2016/apple-takes-glimpse-potentially-big-healthcare-innovation

http://www.slideshare.net/FrostandSullivan/healthcare-2020-disrupt-transform-and-collapse http://www.slideshare.net/FrostandSullivan/healthcare-2020-disrupt-transform-and-collapse http://ophirgottlieb.tumblr.com/post/149332044804/apple-healthcare-tech-and-services-success-could http://www.slideshare.net/rrgossen/health-20-slides http://fortune.com/2016/08/11/apple-standalone-health-device/ https://www.linkedin.com/pulse/could-apple-become-what-doctor-ordered-karol-severin

Slide 20 https://www.greenbiz.com/article/what-apples-reuse-robot-says-about-sustainability-and-tech http://mallenbaker.net/article/clear-reflection/how-tim-cook-brought-corporate-social-responsibility-to-apple http://vertohomes.com/apple-sustainability-iphone7-rank/

Slide 21 http://www.forbes.com/sites/leesheppard/2016/09/05/the-eu-case-against-apples-irish-tax-deal/#6a4c4eba7e2b http://www.bbc.com/news/world-europe-37251084 http://mashable.com/2016/08/30/apple-sweetheart-deal-ireland/#kpiNN70ZIEqx http://www.irishtimes.com/business/economy/how-the-european-commission-calculated-13bn-tax-bill-1.2773254 http://fortune.com/2016/08/30/apple-tax-ireland-ruling/ http://www.businessinsider.co.id/what-just-happened-to-apple-explained-2016-8/#2LGcIJclA4tS5YvQ.97

Slide 22 http://www.macworld.com/article/3056689/hardware/apple-watchs-second-year-health-apps-will-make-it-a-must-have.html http://thehustle.co/apple-partnership-deals https://www.bloomberg.com/news/articles/2016-09-27/aetna-to-make-apple-watch-available-in-health-monitoring-push http://mashable.com/2016/09/28/apple-watch-aetna/#ripxxX4TwPqM

Slide 23 http://fortune.com/2016/01/07/apple-tim-cook-compensation/ http://www1.salary.com/Tim-Cook-Salary-Bonus-Stock-Options-for-APPLE-INC.html

Slides 24-26 Financial Times - Morningstar - Google finance - Yahoo finance - Amigobulls - Nasdaq -Crunchbase - 4-traders.com - CNN - Reuters -

The contents of this document have been researched and implemented with the highest degree of care. However, the possibility of errors in the processing of sources acknowledgement and copyright respect for external content use cannot be fully excluded. Please send any remarks or corrections to: [email protected]

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