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EQUITY RESEARCH

COMPANY UPDATE

December 8, 2009 TECHNOLOGY/APPLIED TECHNOLOGY


Stock Rating:
OUTPERFORM
Apple Inc.
12-18 mo. Price Target $235.00 Tablet Tidbits
AAPL - NASDAQ $189.87
SUMMARY

3-5 Yr. EPS Gr. Rate 11% Our recent checks have uncovered several tidbits about Apple's forthcoming tablet.
52-Wk Range $208.71-$78.20 First, it appears Apple will begin ramping production in earnest in February,
Shares Outstanding 914.0M implying that the tablet could launch in late March or April (barring production
hiccups). Our checks also suggest that the tablet's display will be a 10.1" LTPS
Float 901.0M
based LCD screen, not an OLED display as some have suggested. Finally, contacts
Market Capitalization $170,846.1M in the US indicate Apple has been actively reaching out to book publishers with a
Avg. Daily Trading Volume 18,456,758 very attractive proposal for distributing their books on a forthcoming ebook platform
Dividend/Div Yield NA/NM (presumably the tablet). We have not updated our model to reflect the tablet but
Fiscal Year Ends Sep believe it could easily contribute $0.50-$0.75 in incremental EPS in C2H10.
Book Value $30.44 KEY POINTS
2010E ROE 20.8%
■ Our checks into Apple's supply chain indicate that the manufacturing cogs for
LT Debt $0.0M
the tablet are creaking into action and should begin to hit a mass market stride
Preferred $0.0M in February. At this stage Apple appears to be sizing its supply chain to support
Common Equity $27,832M production of as many as 1M units per month.
Convertible Available No
■ The February ramp schedule suggests a late March or April commercial
EPS Diluted Q1 Q2 Q3 Q4 Year Mult. release, since Apple will need to build at least 5-6 weeks of inventory before
2007A 1.14 0.87 0.92 1.01 3.93 48.3x going live. Our checks also indicate that the device will have a 10.1" multi-touch
display using LTPS LCD technology (as on the iPhone), not OLED.
2008A 1.76 1.16 1.19 1.26 5.36 35.4x
2009A 1.78 1.33 1.35 1.82 6.29 30.2x ■ Contacts in the US tell us Apple is approaching book publishers with a very
2010E 2.17 1.91 2.10 2.21 8.39 22.6x attractive proposal for distributing their content. Apple will split revenue 30/70
(Apple/publisher); give the same deal to all comers; and not request exclusivity.
We believe the typical Kindle/publisher split is 50/50, rising to 30/70 if Kindle is
given ebook exclusivity.
■ As innovative as it is, we believe the Kindle has disgruntled the publishing
industry (book, newspaper, and magazine) by demanding exclusivity,
disallowing advertising, and demanding a wolfish cut of revenue. The tablet is
set to change that. It should also make ebooks more relevant for education by
simplifying functions such as scribbling marginalia.
■ We have not adjusted our model to show the impact of the tablet, but we believe
it will be substantial. Conservatively assuming 1M-1.5M units per quarter at an
ASP of $1,000 and a corporate average net income margin of 22%, the tablet
could contribute $0.25-$0.38 of incremental EPS per quarter.

Stock Price Performance Company Description


Apple, Inc. designs, manufacturers, and sells
1 Year Price History for AAPL personal computers, portable digital music
240
players, and mobile communication devices, as
well as related software, services, peripherals,
200
and network solutions worldwide.
160
120
80
40
Q1 Q2 Q3
2009
Created by BlueMatrix

Oppenheimer & Co. Inc. does and seeks to do business with companies covered in its research reports. As
a result, investors should be aware that the firm may have a conflict of interest that could affect the
Yair Reiner Michael Suh objectivity of this report. Investors should consider this report as only a single factor in making their
212 667-5505 212-667-6035 investment decision. See "Important Disclosures and Certifications" section at the end of this report for
Yair.Reiner@opco.com Michael.Suh@opco.com important disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks
to Price Target" sections at the end of this report, where applicable.

Oppenheimer & Co Inc. 300 Madison Avenue 4th Floor New York, NY 10017 Tel: 800-221-5588 Fax: 212-667-8229
Apple Inc.

Apple Inc. - GAAP Model


Quarterly Consolidated Statement of Income Statement

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Net Sales $24,006 $32,479 $10,167 $8,163 $8,337 $9,870 $36,537 $12,411 $10,760 $11,355 $11,861 $46,387

COGS 15,852 21,334 6,635 5,192 5,314 6,256 23,397 7,943 6,725 7,029 7,318 29,015

Gross Profit $8,154 $11,145 $3,532 $2,971 $3,023 $3,614 $13,140 $4,468 $4,035 $4,326 $4,543 $17,372

Research and Development 782 1,109 315 319 341 358 1,333 385 409 420 439 1,653
Sales, General & Administrative 2,963 3,761 1,091 985 1,010 1,063 4,149 1,278 1,151 1,181 1,234 4,844
Total Operating Expenses 3,745 4,870 1,406 1,304 1,351 1,421 5,482 1,663 1,560 1,601 1,672 6,497

Operating Income $4,409 $6,275 $2,126 $1,667 $1,672 $2,193 $7,658 $2,805 $2,475 $2,725 $2,870 $10,875

Other Income $599 $620 $158 $63 $60 $45 $326 $34 $39 $41 $44 $157

Income Before Taxes $5,008 $6,895 $2,284 $1,730 $1,732 $2,238 $7,984 $2,839 $2,513 $2,766 $2,914 $11,032

Taxes on Income (benefit) 1,512 2,061 679 525 503 573 2,280 852 754 830 874 3,310
Net Income $3,496 $4,834 $1,605 $1,205 $1,229 $1,665 $5,704 $1,987 $1,759 $1,936 $2,040 $7,723

Diluted EPS $3.93 $5.36 $1.78 $1.33 $1.35 $1.82 $6.29 $2.17 $1.91 $2.10 $2.21 $8.39

Stock Based Comp - Total 242 $516 $170 $181 $179 $180 $710 $211 $212 $212 $213 $847

Net Income, ex. Option $3,738 $5,350 $1,775 $1,386 $1,408 $1,845 $6,414 $2,198 $1,971 $2,148 $2,252 $8,570

Diluted EPS ex. Options $4.20 $5.93 $1.97 $1.53 $1.55 $2.02 $7.07 $2.40 $2.14 $2.33 $2.44 $9.31

Diluted Shares 889 902 901 903 909 914 907 917 919 922 924 921
Source: Company Data, Oppenheimer & Co. Inc. Estimates.

2
Apple Inc.

Apple Inc. - GAAP Model


Margin and Growth Metrics

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E

Gross Margin 34.0% 34.3% 34.7% 36.4% 36.3% 36.6% 36.0% 36.0% 37.5% 38.1% 38.3% 37.5%

Research and Development 3.3% 3.4% 3.1% 3.9% 4.1% 3.6% 3.6% 3.1% 3.8% 3.7% 3.7% 3.6%
Sales, General & Administrative 12.3% 11.6% 10.7% 12.1% 12.1% 10.8% 11.4% 10.3% 10.7% 10.4% 10.4% 10.4%

Operating Margin 18.4% 19.3% 20.9% 20.4% 20.1% 22.2% 21.0% 22.6% 23.0% 24.0% 24.2% 23.4%

Effective Tax Rate 30.2% 29.9% 29.7% 30.3% 29.0% 25.6% 28.6% 30.0% 30.0% 30.0% 30.0% 30.0%
Net Income Margin 14.6% 14.9% 15.8% 14.8% 14.7% 16.9% 15.6% 16.0% 16.4% 17.1% 17.2% 16.6%

Sequential Growth Rates


Revenue 28.8% -19.7% 2.1% 18.4% 25.7% -13.3% 5.5% 4.4%
Gross Profit 29.0% -15.9% 1.8% 19.6% 23.6% -9.7% 7.2% 5.0%
Operating Profit 47.4% -21.6% 0.3% 31.2% 27.9% -11.8% 10.1% 5.3%
Net Income 41.3% -24.9% 2.0% 35.5% 19.4% -11.5% 10.1% 5.3%
EPS 41.8% -25.0% 1.3% 34.7% 19.0% -11.7% 9.8% 5.1%
WA Shares Outstanding 2.4% 1.9% -0.4% 0.2% 0.7% 0.3% 0.6% 0.3% 0.3% 0.3% 0.3% 1.5%
Year-on-Year Growth Rates
Revenue 24.3% 35.3% 5.8% 8.7% 11.7% 25.0% 12.5% 22.1% 31.8% 36.2% 20.2% 27.0%
Gross Profit 45.7% 36.7% 6.0% 20.1% 16.3% 31.9% 17.9% 26.5% 35.8% 43.1% 25.7% 32.2%
Operating Profit 79.7% 42.3% 0.0% 26.8% 20.1% 52.1% 22.0% 31.9% 48.5% 63.0% 30.9% 42.0%
Net Income 75.8% 38.3% 1.5% 15.3% 14.6% 46.6% 18.0% 23.8% 46.0% 57.5% 22.5% 35.4%
EPS 73.4% 36.3% 1.4% 14.8% 13.9% 45.0% 17.3% 21.7% 43.4% 55.4% 21.2% 33.4%

Source: Company data, Oppenheimer & Co. Inc. estimates

3
Apple Inc.

Apple Inc. - GAAP Model


Product Breakdown

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Revenue by Product
Desktops $4,020 $5,603 $1,043 $1,050 $1,129 $1,086 $4,308 $1,060 $954 $1,029 $1,049 $4,093
Laptops 6,294 8,673 2,511 1,895 2,200 2,866 9,472 2,919 2,481 2,647 2,696 10,744
iPods 8,305 9,153 3,371 1,665 1,492 1,563 8,091 3,001 1,544 1,513 1,468 7,526
Music 2,496 3,340 1,011 1,049 958 1,018 4,036 1,279 1,327 1,260 1,323 5,189
iPhone 123 1,844 1,247 1,521 1,689 2,297 6,754 3,015 3,350 3,779 4,053 14,198
Peripherals and other HW 1,260 1,659 378 358 341 393 1,470 440 462 485 534 1,921
SW, Services, and Other 1,508 2,207 606 625 528 647 2,406 697 641 641 737 2,716

Revenue Contribution by Product


Desktops 17% 17% 10% 13% 14% 11% 12% 9% 9% 9% 9% 9%
Laptops 26% 27% 25% 23% 26% 29% 26% 24% 23% 23% 23% 23%
iPods 35% 28% 33% 20% 18% 16% 22% 24% 14% 13% 12% 16%
Music 10% 10% 10% 13% 11% 10% 11% 10% 12% 11% 11% 11%
iPhone 1% 6% 12% 19% 20% 23% 18% 24% 31% 33% 34% 31%
Peripherals and other HW 5% 5% 4% 4% 4% 4% 4% 4% 4% 4% 5% 4%
SW, Services, and Other 6% 7% 6% 8% 6% 7% 7% 6% 6% 6% 6% 6%

Computers
Desktop
Units 2,714 3,712 728 818 849 787 3,182 826 744 818 834 3,223
% of total 38% 38% 29% 37% 33% 26% 31% 26% 27% 27% 26% 26%
% QoQ Growth -22% 12% 4% -7% 5% -10% 10% 2%
% YoY Growth 12% 37% -25% -4% -10% -16% -14% 14% -9% -4% 6% 1%
ASP 1,481 1,509 1,433 1,284 1,330 1,380 1,354 1,283 1,283 1,258 1,258 1,270
% QoQ Growth -2% -10% 4% 4% -7% 0% -2% 0%
% YoY Growth 9% 2% -8% -19% -9% -5% -10% -10% 0% -5% -9% -6%
Revenue $4,020 $5,603 $1,043 $1,050 $1,129 $1,086 $4,308 $1,060 $954 $1,029 $1,049 $4,093
% QoQ Growth -81% 1% 8% -4% -2% -10% 8% 2%
% YoY Growth 21% 39% -31% -22% -18% -20% -23% 2% -9% -9% -3% -5%

Laptop
Units 4,337 6,003 1,796 1,398 1,754 2,266 7,214 2,379 2,022 2,225 2,336 8,962
% of total 62% 62% 71% 63% 67% 74% 69% 74% 73% 73% 74% 74%
% QoQ Growth 7% -22% 25% 29% 5% -15% 10% 5%
% YoY Growth 51% 38% 34% -2% 13% 35% 20% 32% 45% 27% 3% 24%
ASP 1,451 1,445 1,398 1,356 1,254 1,265 1,313 1,227 1,227 1,190 1,154 1,199
% QoQ Growth 4% -3% -7% 1% -3% 0% -3% -3%
% YoY Growth 3% 0% -8% -9% -13% -6% -9% -12% -9% -5% -9% -9%
Revenue $6,294 $8,673 $2,511 $1,895 $2,200 $2,866 $9,472 $2,919 $2,481 $2,647 $2,696 $10,744
% QoQ Growth 11% -25% 16% 30% 2% -15% 7% 2%
% YoY Growth 55% 38% 23% -12% -2% 27% 9% 16% 31% 20% -6% 13%

Total PC
Units 7,051 9,715 2,524 2,216 2,603 3,053 10,396 3,206 2,766 3,043 3,170 12,185
% QoQ Growth -3% -12% 17% 17% 5% -14% 10% 4%
% YoY Growth 33% 38% 9% -3% 4% 17% 7% 27% 25% 17% 4% 17%
ASP $1,463 $1,469 $1,408 $1,329 $1,279 $1,294 $1,326 $1,241 $1,242 $1,208 $1,182 $1,218
% QoQ Growth 2% -6% -4% 1% -4% 0% -3% -2%
% YoY Growth 0% -8% -13% -12% -7% -10% -12% -7% -6% -9% -8%
Revenue $10,314 $14,276 $3,554 $2,945 $3,329 $3,952 $13,780 $3,980 $3,436 $3,676 $3,746 $14,837
% QoQ Growth -2% -17% 13% 19% 1% -14% 7% 2%
% YoY Growth 40% 38% 0% -16% -8% 9% -3% 12% 17% 10% -5% 8%
Source: Company data, Oppenheimer & Co. Inc. estimates
4
Apple Inc.

Apple Inc. - GAAP Model


Product Breakdown, Cont.

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
iPods
Units 51,630 54,828 22,727 11,013 10,215 10,177 54,132 20,354 9,973 9,973 9,973 50,274
% QoQ Growth 106% -52% -7% 0% 100% -51% 0% 0%
% YoY Growth 31% 6% 3% 3% -7% -8% -1% -10% -9% -2% -2% -7%
ASP $161 $167 $148 $151 $146 $154 $149 $147 $155 $152 $147 $150
% QoQ Growth -1% 2% -3% 5% -4% 5% -2% -3%
% YoY Growth -17% 4% -18% -11% -4% 2% -10% -1% 2% 4% -4% 0%
Revenue $8,305 $9,153 $3,371 $1,665 $1,492 $1,563 $8,091 $3,001 $1,544 $1,513 $1,468 $7,526
% QoQ Growth 103% -51% -10% 5% 92% -49% -2% -3%
% YoY Growth 8% 10% -16% -8% -11% -6% -12% -11% -7% 1% -6% -7%

iPhones
Units 1,389 11,627 4,363 3,793 5,208 7,367 20,731 9,500 5,500 7,500 8,500 31,000
% QoQ Growth -37% -13% 37% 41% 29% -42% 36% 13%
% YoY Growth 737% 88% 123% 626% 7% 78% 118% 45% 44% 15% 50%
ASP $487 $549 $591 $574 $565 $605 $586 $600 $600 $550 $550 $574
% QoQ Growth -7% -3% -1% 7% -1% 0% -8% 0%
% YoY Growth 13% 44% 35% 20% -5% 7% 2% 5% -3% -9% -2%
Revenue $123 $1,844 $1,247 $1,521 $1,689 $2,297 $6,754 $3,015 $3,350 $3,779 $4,053 $14,198
% QoQ Growth 55% 22% 11% 36% 31% 11% 13% 7%
% YoY Growth 1399% 417% 302% 303% 185% 266% 142% 120% 124% 76% 110%

Music
Revenue $2,496 $3,340 $1,011 $1,049 $958 $1,018 $4,036 $1,279 $1,327 $1,260 $1,323 $5,189
% QoQ Growth 22% 4% -9% 6% 26% 4% -5% 5%
% YoY Growth 32% 34% 25% 19% 17% 22% 21% 26% 26% 32% 30% 29%

Peripherals and Other Hardware


Revenue 1,260 1,659 $378 $358 $341 $393 1,470 $440 $462 $485 $534 1,921
% QoQ Growth -12% -5% -5% 15% 12% 5% 5% 10%
% YoY Growth 15% 32% -1% -13% -22% -8% -11% 16% 29% 42% 36% 31%

Software, Services and Other


Revenue 1,508 2,207 $606 $625 $528 $647 2,406 $697 $641 $641 $737 2,716
% QoQ Growth 10% 3% -16% 23% 8% -8% 0% 15%
% YoY Growth 18% 46% -4% 18% 5% 18% 9% 15% 3% 21% 14% 13%
Source: Company data, Oppenheimer & Co. Inc. estimates

5
Apple Inc.

Apple Inc. - GAAP Model


Balance Sheet

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Assets
Cash & Cash Equivalents $9,352 $11,875 $7,236 $4,466 $5,605 $5,263 $5,263 $9,962 $12,048 $14,869 $17,570 $17,570
Short-Term Investments 6,034 12,615 20,909 24,412 25,516 28,729 28,729 28,729 28,729 28,729 28,729 28,729
Accounts Receivable 1,637 2,422 2,196 1,932 2,686 3,361 3,361 2,929 2,711 3,658 4,039 4,039
Inventories, net 346 509 396 312 380 455 455 474 404 503 532 532
Deferred Tax Assets 782 1,447 1,613 1,539 1,731 2,101 2,101 2,101 2,101 2,101 2,101 2,101
Other Current Assets 3,805 5,822 5,311 5,057 6,151 6,884 6,884 7,954 7,840 8,067 8,356 8,356
Total Current Assets $21,956 $34,690 $37,661 $37,718 $42,069 $46,793 $46,793 $52,148 $53,834 $57,927 $61,328 $61,328

Property & Equipment, Net $1,832 $2,455 $2,580 $2,546 $2,653 $2,954 $2,954 $3,087 $3,292 $3,433 $3,585 $3,585
Goodwill 38 207 207 207 207 206 206 206 206 206 206 206
Acquired Intangible Assets, net 299 285 277 268 259 247 247 247 247 247 247 247
Other assets 1,222 1,935 2,062 2,498 2,952 3,651 3,651 3,651 3,651 3,651 3,651 3,651
Total Assets $25,347 $39,572 $42,787 $43,237 $48,140 $53,851 $53,851 $59,340 $61,230 $65,464 $69,016 $69,016

Liabilities and Equity


Accounts Payable $4,970 $5,520 $4,715 $3,976 $4,854 $5,601 $5,601 $5,645 $5,150 $6,421 $6,552 $6,552
Accrued Expenses 4,329 8,572 3,807 2,761 3,338 3,376 3,376 3,376 3,376 3,376 3,376 3,376
Deferred Revenue 0 0 6,235 7,014 8,469 10,305 10,305 13,389 13,569 14,204 15,153 15,153
Total Current Liabilities $9,299 $14,092 $14,757 $13,751 $16,661 $19,282 $19,282 $22,409 $22,095 $24,000 $25,081 $25,081

Non-Current Liabilities $1,516 $4,450 5,121 5,175 5,591 6,737 $6,737 6,737 6,737 6,737 6,737 $6,737
Total Liabilities $10,815 $18,542 $19,878 $18,926 $22,252 $26,019 $26,019 $29,146 $28,832 $30,737 $31,818 $31,818

Stockholder's Equity $14,532 $21,030 22,909 24,311 25,888 27,832 $27,832 30,193 32,398 34,727 37,198 $37,198

Total Liabilities and Equity $25,347 $39,572 $42,787 $43,237 $48,140 $53,851 $53,851 $59,340 $61,230 $65,464 $69,016 $69,016
==> Check 1.455E-11 1.455E-11
Source: Company Data, Oppenheimer & Co. Inc. Estimates.

6
Apple Inc.

Apple Inc. - GAAP Model


Cash Flow Statement

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Cash Flow from Operations $1,605 $1,205 $1,229 $1,665 $1,987 $1,759 $1,936 $2,040
Net income $3,496 $4,834 $1,605 $1,205 $1,229 $1,665 $5,704 $1,987 $1,759 $1,936 $2,040 $7,723
Adjustments:
D&A 317 473 158 172 176 197 703 176 184 196 204 760
Stock-based comp 242 516 170 181 179 180 710 211 212 212 213 847
Deferred income taxes 78 (368) (27) (4) (170) (318) (519) - - - - -
Loss on PPE 12 22 7 1 10 8 26 - - - - -
Changes in op. assets/liabilities:
Accounts receivable (385) (785) 226 264 (754) (675) (939) 432 218 (947) (380) (678)
Inventories (76) (163) 113 84 (68) (75) 54 (19) 70 (99) (30) (77)
Other current assets (1,540) (1,958) 660 199 (1,157) (752) (1,050) - - - - -
Other assets 81 (492) (116) (340) (363) (527) (1,346) (1,070) 114 (227) (290) (1,472)
Accounts payable 1,494 596 (767) (760) 879 740 92 $44 (495) 1,271 131 951
Deferred revenue 5,642 1,793 799 1,662 2,654 6,908 3,084 181 634 950 4,848
Other liabilities 1,751 1,279 116 (960) 644 16 (184) - - - - -
Net cash from operations $5,470 $9,596 $3,938 $841 $2,267 $3,113 $10,159 $4,845 $2,242 $2,977 $2,838 $12,901

Cash Flow from Investing Activities


Purchase of investments ($11,736) ($23,003) ($13,120) ($10,417) ($11,220) ($12,068) ($46,825) $0 $0 $0 $0 $0
Proceeds from investments 9,424 16,243 4,894 6,843 10,160 8,781 30,678 - - - - -
Purchase of PPE (735) (1,091) (339) (100) (246) (459) (1,144) (309) (389) (337) (356) (1,390)
Payment of Acquisition Intangibles (251) (328) (14) (16) (26) (13) (69) - - - - -
Other 49 (10) (60) 5 (7) (12) (74) (211) (212) (212) (213) (847)
Net CF from Investing ($3,249) ($8,189) ($8,639) ($3,685) ($1,339) ($3,771) ($17,434) ($520) ($600) ($549) ($568) ($2,238)

Cash Flow from Financing Activities


Payment of long-term debt $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Common stock issues 365 483 77 45 166 187 475 187 223 197 216 822
Tax benefit, stock option exercise 377 757 19 28 77 146 270 187 223 197 216 822
Stock Repurchase (3) (124) (34) 1 (35) (14) (82) - - - - -
Net Cash Flow from Financing Activities
$739 $1,116 $62 $74 $208 $319 $663 $374 $445 $393 $431 $1,644

Net Change in Cash Equivalents $2,960 $2,523 ($4,639) ($2,770) $1,136 ($339) ($6,612) $4,699 $2,087 $2,821 $2,701 $12,307

Cash & Equivalents at Start of Period 6,392 9,352 11,875 7,236 4,466 5,605 11,875 5,263 9,962 12,048 14,869 5,263
Cash & Equivalents at End of Period 9,352 11,875 7,236 4,466 5,602 5,266 5,263 9,962 12,048 14,869 17,570 17,570

Free Cash Flow $4,735 $8,505 $3,599 $741 $2,021 $2,654 $9,015 $4,536 $1,853 $2,640 $2,482 $11,511
- - - - - - - -
Change in Cash and Near Equivalents
$5,613 $9,259 $3,647 $724 $2,234 $2,858 $9,463 $4,699 $2,087 $2,821 $2,701 $12,307

Cash and Near Equivalent at Start 10,110 15,723 24,982 28,629 29,353 31,587 24,982 34,445 39,144 41,230 44,051 34,445
Cash and Near Equivalent at End$15,723 $24,982 $28,629 $29,353 $31,587 $34,445 $34,445 $39,144 $41,230 $44,051 $46,752 $46,752
Source: Company Data, Oppenheimer & Co. Inc. Estimates.

7
Apple Inc.

Apple Inc. - GAAP Model


Consolidated Ratios

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Profitability Ratios
Annualized Return On Equity 24.1% 23.0% 28.0% 19.8% 19.0% 23.9% 20.5% 26.3% 21.7% 22.3% 21.9% 20.8%
Annualized Return On Assets 13.8% 12.2% 15.0% 11.1% 10.2% 12.4% 10.6% 13.4% 11.5% 11.8% 11.8% 11.2%
Annualized Return On Net Assets 14.0% 12.4% 15.1% 11.2% 10.3% 12.5% 10.7% 13.5% 11.6% 11.9% 11.9% 11.3%

Efficiency Ratios
A/R Days Sales Outstanding 24.9 27.2 19.4 21.3 29.0 30.6 33.6 21.2 22.7 29.0 30.6 31.8
A/P Days Sales Outstanding 113.9 93.7 65.1 70.1 81.2 79.6 87.6 63.8 69.6 81.1 80.3 82.2
Inventory Turns 45.8 41.9 68.0 67.5 56.7 55.8 51.4 68.0 67.5 56.7 55.8 54.5
Days of Inventory 8.0 8.7 5.4 5.4 6.4 6.5 7.1 5.4 5.4 6.4 6.5 6.7

Liquidity Ratios
Current Ratio 2.4 2.5 2.6 2.7 2.5 2.4 2.4 2.3 2.4 2.4 2.4 2.4
Quick Ratio 2.3 2.4 2.5 2.7 2.5 2.4 2.4 2.3 2.4 2.4 2.4 2.4
Net Working Capital $12,657 $20,598 $22,904 $23,967 $25,408 $27,511 $27,511 $29,739 $31,739 $33,927 $36,247 $36,247

Cash
Net Cash Per Share $17.30 $27.16 $31.22 $31.98 $34.23 $37.18 $37.48 $42.19 $44.35 $47.30 $50.11 $50.29
Source: Company Data, Oppenheimer & Co. Inc. Estimates.

8
Apple Inc.

Apple Inc. - Pro Forma Model


Quarterly Consolidated Statement of Income Statement

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Net Sales $24,622 $37,651 $11,799 $9,056 $9,742 $12,253 $42,850 $15,495 $10,941 $11,990 $12,810 $51,236

COGS 16,199 24,040 7,272 5,432 5,714 7,047 25,465 9,013 6,611 7,256 7,608 30,488

Gross Profit $8,424 $13,611 $4,527 $3,624 $4,028 $5,206 $17,385 $6,482 $4,329 $4,734 $5,202 $20,748

Research and Development 782 1,109 315 319 341 358 1,333 385 409 420 439 1,653
Sales, General & Administrative 2,963 3,761 1,091 985 1,010 1,063 4,149 1,278 1,151 1,181 1,234 4,844
Total Operating Expenses 3,745 4,870 1,406 1,304 1,351 1,421 5,482 1,663 1,560 1,601 1,672 6,497

Operating Income $4,679 $8,741 $3,121 $2,320 $2,677 $3,785 $11,903 $4,819 $2,769 $3,133 $3,530 $14,251

Other Income $599 $620 $158 $63 $60 $45 $326 $34 $39 $41 $44 $157

Income Before Taxes $5,278 $9,361 $3,279 $2,383 $2,737 $3,830 $12,229 $4,853 $2,808 $3,174 $3,574 $14,408

Taxes on Income (benefit) 1,587 2,773 975 723 795 981 3,474 1,456 842 952 1,072 4,323
Net Income $3,691 $6,588 $2,304 $1,660 $1,942 $2,849 $8,755 $3,397 $1,965 $2,222 $2,502 $10,086

Diluted EPS $4.15 $7.31 $2.56 $1.84 $2.14 $3.12 $9.65 $3.70 $2.14 $2.41 $2.71 $10.96
$1.82 $2.17 $1.91 $2.10 $2.21
Stock Based Comp - Total $242 $516 $170 $181 $179 $180 $710 $211 $212 $212 $213 $847

Net Income, ex. Option $3,933 $7,104 $2,474 $1,841 $2,121 $3,029 $9,465 $3,608 $2,177 $2,434 $2,714 $10,933

Diluted EPS ex. Options $4.42 $7.88 $2.74 $2.04 $2.33 $3.31 $10.44 $3.93 $2.37 $2.64 $2.94 $11.88

Diluted Shares 889 902 901 903 909 914 907 917 919 922 924 921
Source: Company Data, Oppenheimer & Co. Inc. Estimates.

9
Apple Inc.

Apple Inc. - Pro Forma Model


Margin and Growth Metrics

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E

Pro Forma Gross Margin 34.2% 36.2% 38.4% 40.0% 41.3% 42.5% 40.6% 41.8% 39.6% 39.5% 40.6% 40.5%

Reported Gross Margin 34.0% 34.3% 34.7% 36.4% 36.3% 36.6% 36.0% 36.0% 37.5% 38.1% 38.3% 37.5%

Research and Development 3.2% 2.9% 2.7% 3.5% 3.5% 2.9% 3.1% 2.5% 3.7% 3.5% 3.4% 3.2%
Sales, General & Administrative 12.0% 10.0% 9.2% 10.9% 10.4% 8.7% 9.7% 8.3% 10.5% 9.8% 9.6% 9.5%

Operating Margin 18.4% 19.3% 26.5% 25.6% 27.5% 22.2% 21.0% 22.6% 23.0% 24.0% 24.2% 23.4%

Effective Tax Rate 30.2% 29.9% 29.7% 30.3% 29.0% 25.6% 28.6% 30.0% 30.0% 30.0% 30.0% 30.0%
Net Income Margin 14.6% 14.9% 19.5% 18.3% 19.9% 16.9% 15.6% 16.0% 16.4% 17.1% 17.2% 16.6%

Sequential Growth Rates


Revenue 1.0% -23.2% 7.6% 18.4% 25.7% -13.3% 5.5% 4.4%
Gross Profit -0.5% -19.9% 11.1% 19.6% 23.6% -9.7% 7.2% 5.0%
Operating Profit -4.1% -25.7% 15.4% 31.2% 27.9% -11.8% 10.1% 5.3%
Net Income -5.5% -28.0% 17.0% 35.5% 19.4% -11.5% 10.1% 5.3%
EPS -1.9% -28.1% 16.2% 34.7% 19.0% -11.7% 9.8% 5.1%
WA Shares Outstanding 2.4% 1.9% 0.1% 0.1% 0.1% 0.3% 0.6% 0.3% 0.3% 0.3% 0.3% 1.5%
Year-on-Year Growth Rates
Revenue 27.5% 52.9% 13.3% 13.1% 29.0% 4.9% 13.8% 31.3% 20.8% 23.1% 4.5% 19.6%
Gross Profit 50.5% 61.6% 22.9% 33.6% 51.1% 14.4% 27.7% 43.2% 19.5% 17.5% -0.1% 19.3%
Operating Profit 90.7% 86.8% 26.0% 49.3% 83.7% 16.3% 36.2% 54.4% 19.4% 17.0% -6.7% 19.7%
Net Income 85.6% 78.5% 26.7% 36.8% 73.6% 16.9% 32.9% 47.4% 18.4% 14.4% -12.2% 15.2%
EPS 83.1% 76.0% 26.4% 36.2% 72.5% 15.7% 32.1% 44.9% 16.3% 12.8% -13.1% 13.5%

Source: Company data, Oppenheimer & Co. Inc. estimates

10
Apple Inc.

Apple Inc. - Pro Forma Model


Product Breakdown

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
Revenue by Product
Desktops $4,020 $5,603 $1,043 $1,050 $1,129 $1,086 $4,308 $1,060 $954 $1,029 $1,049 $4,093
Laptops 6,294 8,673 2,511 1,895 2,200 2,866 9,472 2,919 2,481 2,647 2,696 10,744
iPods 8,305 9,153 3,371 1,665 1,492 1,563 8,091 3,001 1,544 1,513 1,468 7,526
Music 2,496 3,340 1,011 1,049 958 1,018 4,036 1,279 1,327 1,260 1,323 5,189
iPhone 739 7,016 2,879 2,414 3,094 4,775 13,162 6,099 3,531 4,414 5,002 19,046
Peripherals and other HW 1,260 1,659 378 358 341 393 1,470 440 462 485 534 1,921
SW, Services, and Other 1,508 2,207 606 625 528 647 2,406 697 641 641 737 2,716

Revenue Contribution by Product


Desktops 16% 15% 9% 12% 12% 9% 10% 7% 9% 9% 8% 8%
Laptops 26% 23% 21% 21% 23% 23% 22% 19% 23% 22% 21% 21%
iPods 34% 24% 29% 18% 15% 13% 19% 19% 14% 13% 11% 15%
Music 10% 9% 9% 12% 10% 8% 9% 8% 12% 11% 10% 10%
iPhone 3% 19% 24% 27% 32% 39% 31% 39% 32% 37% 39% 37%
Peripherals and other HW 5% 4% 3% 4% 4% 3% 3% 3% 4% 4% 4% 4%
SW, Services, and Other 6% 6% 5% 7% 5% 5% 6% 4% 6% 5% 6% 5%

Computers
Desktop
Units 2,714 3,712 728 818 849 787 3,182 826 744 818 834 3,223
% of total 38% 38% 29% 37% 33% 26% 31% 26% 27% 27% 26% 26%
% QoQ Growth 0% -22% 12% 4% -7%
% YoY Growth 12% 37% -25% -4% -10% -16% -14% 14% -9% -4% 6% 1%
ASP 1,481 1,509 1,433 1,284 1,330 1,380 1,354 1,283 1,283 1,258 1,258 1,270
% QoQ Growth 0% -2% -10% 4% 4%
% YoY Growth 9% 2% -8% -19% -9% -5% -10% -10% 0% -5% -9% -6%
Revenue $4,020 $5,603 $1,043 $1,050 $1,129 $1,086 $4,308 $1,060 $954 $1,029 $1,049 $4,093
% QoQ Growth 0% -81% 1% 8% -4%
% YoY Growth 21% 39% -31% -22% -18% -20% -23% 2% -9% -9% -3% -5%

Laptop 0
Units 4,337 6,003 1,796 1,398 1,754 2,266 7,214 2,379 2,022 2,225 2,336 8,962
% of total 62% 62% 71% 63% 67% 74% 69% 74% 73% 73% 74% 74%
% QoQ Growth 0% 0% 7% -22% 25% 29%
% YoY Growth 51% 38% 34% -2% 13% 35% 20% 32% 45% 27% 3% 24%
ASP 1,451 1,445 1,398 1,356 1,254 1,265 1,313 1,227 1,227 1,190 1,154 1,199
% QoQ Growth 0% 0% 4% -3% -7% 1%
% YoY Growth 3% 0% -8% -9% -13% -6% -9% -12% -9% -5% -9% -9%
Revenue $6,294 $8,673 $2,511 $1,895 $2,200 $2,866 $9,472 $2,919 $2,481 $2,647 $2,696 $10,744
% QoQ Growth 0% 0% 11% -25% 16% 30% 0% 2% -15% 7% 2% 0%
% YoY Growth 55% 38% 23% -12% -2% 27% 9% 16% 31% 20% -6% 13%

Total PC
Units 7,051 9,715 2,524 2,216 2,603 3,053 10,396 3,206 2,766 3,043 3,170 12,185
% QoQ Growth 0% -3% -12% 17% 17%
% YoY Growth 33% 38% 9% -3% 4% 17% 7% 27% 25% 17% 4% 17%
ASP $1,463 $1,469 $1,408 $1,329 $1,279 $1,294 $1,326 $1,241 $1,242 $1,208 $1,182 $1,218
% QoQ Growth 0% 2% -6% -4% 1%
% YoY Growth 0% 0% -8% -13% -12% -7% -10% -12% -7% -6% -9% -8%
Revenue $10,314 $14,276 $3,554 $2,945 $3,329 $3,952 $13,780 $3,980 $3,436 $3,676 $3,746 $14,837
% QoQ Growth 0% -2% -17% 13% 19%
% YoY Growth 40% 38% 0% -16% -8% 9% -3% 12% 17% 10% -5% 8%
Source: Company data, Oppenheimer & Co. Inc. estimates
11
Apple Inc.

Apple Inc. - Pro Forma Model


Product Breakdown, Cont.

FY FY 1Q09A 2Q09A 3Q09A 4Q09A FY 1Q10E 2Q10E 3Q10E 4Q10E FY


2007A 2008A Dec-08A Mar-09A Jun-09A Sep-09A 2009A Dec-09E Mar-10E Jun-10E Sep-10E 2010E
iPods
Units 51,630 54,828 22,727 11,013 10,215 10,177 54,132 20,354 9,973 9,973 9,973 50,274
% QoQ Growth 0% 106% -52% -7% 0%
% YoY Growth 31% 6% 3% 3% -7% -8% -1% -10% -9% -2% -2% -7%
ASP $161 $167 $148 $151 $146 $154 $149 $147 $155 $152 $147 $150
% QoQ Growth 0% -1% 2% -3% 5%
% YoY Growth -17% 4% -18% -11% -4% 2% -10% -1% 2% 4% -4% 0%
Revenue $8,305 $9,153 $3,371 $1,665 $1,492 $1,563 $8,091 $3,001 $1,544 $1,513 $1,468 $7,526
% QoQ Growth 0% 103% -51% -10% 5%
% YoY Growth 8% 10% -16% -8% -11% -6% -12% -11% -7% 1% -6% -7%

iPhones
Units 1,389 11,627 4,363 3,793 5,208 7,367 20,731 9,500 5,500 7,500 8,500 31,000
% QoQ Growth 0% 0% -37% -13% 37% 41% 29% -42% 36% 13%
% YoY Growth 0% 737% 88% 123% 626% 7% 78% 118% 45% 44% 15% 50%
ASP $487 $549 $591 $574 $565 $605 $586 $600 $600 $550 $550 $574
% QoQ Growth 0% 0% -7% -3% -1% 7% -1% 0% -8% 0%
% YoY Growth 0% 13% 44% 35% 20% -5% 7% 2% 5% -3% -9% -2%
Revenue $677 $6,380 $2,579 $2,176 $2,944 $4,457 $12,156 $5,700 $3,300 $4,125 $4,675 $17,800
% QoQ Growth 0% 55% 22% 11% 36% 31% 11% 13% 7%
% YoY Growth 1399% 417% 302% 303% 185% 266% 142% 120% 124% 76% 110%
Other iPhone Revenue $201 $195 $229 $318 $942 $399 $231 $289 $327 $1,246
Plug $99 $43 ($79)
Total iPhone Revenue $2,879 $2,414 $3,094 $4,775 $13,162 $6,099 $3,531 $4,414 $5,002 $19,046

Music
Revenue $2,496 $3,340 $1,011 $1,049 $958 $1,018 $4,036 $1,279 $1,327 $1,260 $1,323 $5,189
% QoQ Growth 0% 0% 22% 4% -9% 6% 26% 4% -5% 5%
% YoY Growth 32% 34% 25% 19% 17% 22% 21% 26% 26% 32% 30% 29%

Peripherals and Other Hardware


Revenue 1,260 1,659 $378 $358 $341 $393 1,470 $440 $462 $485 $534 1,921
% QoQ Growth 0% 0% -12% -5% -5% 15% 12% 5% 5% 10%
% YoY Growth 15% 32% -1% -13% -22% -8% -11% 16% 29% 42% 36% 31%

Software, Services and Other


Reported Revenue 1,508 2,207 606 625 528 647 2,406 697 641 641 737 2,716
% QoQ Growth 0% 0% 10% 3% -16% 23% 0% 8% -8% 0% 15%
% YoY Growth 18% 46% -4% 18% 5% 18% 9% 15% 3% 21% 14% 13%
Source: Company data, Oppenheimer & Co. Inc. estimates

12
Apple Inc.

Price Target Calculation


Our price target of $235 is derived by applying our 18x multiple to our FY10E non-GAAP operating EPS of $10.96 and adding back $37
per share in cash. The 18x target is well below Apple's five-year average P/E of 29x and discounts the possibility of continued economic
uncertainty and increased competition across Apple's product lines. We have shifted our valuation metric to pro forma earnings from free
cash flows for several reasons: Apple investors are accustomed to valuing the company based on earnings rather than cash flows;
Apple's pro forma earnings are a better measure of the Apple's fundamental performance than GAAP measures; and recent changes in
FASB revenue recognition rules mean that Apple's GAAP numbers could strongly resemble our non-GAAP numbers starting in FY10.

Key Risks to Price Target


Risks to our price target include further weakening of consumer demand; increased competition from Apple's traditional PC hardware
and software rivals as well as from new competitors in the wireless handset market; the potential for large, unexpected increases in
component costs, which could negatively impact margins; slower than anticipated acceptance of the iPhone or reduced subsidization by
wireless service providers; Apple's potential inability to gain PC market share in line with our expectations; and a sudden change in
leadership.

Important Disclosures and Certifications


Analyst Certification - The author certifies that this research report accurately states his/her personal views about the
subject securities, which are reflected in the ratings as well as in the substance of this report.The author certifies that no
part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views
contained in this research report.
Potential Conflicts of Interest:
Equity research analysts employed by Oppenheimer & Co. Inc. are compensated from revenues generated by the firm
including the Oppenheimer & Co. Inc. Investment Banking Department. Research analysts do not receive compensation
based upon revenues from specific investment banking transactions. Oppenheimer & Co. Inc. generally prohibits any
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covered companies that are required to be specifically disclosed in this report, Oppenheimer & Co. Inc. may have a long
position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in
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Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by
Oppenheimer & Co. Inc:
Stock Prices as of December 8, 2009
Amazon.Com, Inc. (AMZN - Nasdaq, 134.11, OUTPERFORM)

13
Apple Inc.

Rating and Price Target History for: Amazon.Com, Inc. (AMZN) as of 12-07-2009

03/05/07 04/25/07 07/17/07 07/25/07 01/30/08 01/31/08 06/23/08 09/18/08 09/22/08 01/30/09 03/09/09
I:N:$36 N:$45 N:$76 N:UR P:NA P:$68 P:NA NR:NA P:$81 P:$57 P:$0

150

120

90

60

30

0
2007 2008 2009

10/19/09
O:$130

Created by BlueMatrix

Rating and Price Target History for: Apple Inc. (AAPL) as of 12-07-2009

05/21/08 07/22/08 10/10/08 12/17/08 01/06/09 01/15/09 04/22/09 06/03/09 07/22/09 10/01/09 10/20/09
I:O:$235 O:$213 O:$145 P:NA O:$135 O:$120 O:$140 O:$160 O:$185 O:$210 O:$235

240

200

160

120

80

40
2007 2008 2009

Created by BlueMatrix

All price targets displayed in the chart above are for a 12- to- 18-month period. Prior to March 30, 2004, Oppenheimer &
Co. Inc. used 6-, 12-, 12- to 18-, and 12- to 24-month price targets and ranges. For more information about target price
histories, please write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017, Attention: Equity Research
Department, Business Manager.

Oppenheimer & Co. Inc. Rating System as of January 14th, 2008:

Outperform(O) - Stock expected to outperform the S&P 500 within the next 12-18 months.

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Apple Inc.

Perform (P) - Stock expected to perform in line with the S&P 500 within the next 12-18 months.

Underperform (U) - Stock expected to underperform the S&P 500 within the next 12-18 months.

Not Rated (NR) - Oppenheimer & Co. Inc. does not maintain coverage of the stock or is restricted from doing so due to a potential
conflict of interest.

Oppenheimer & Co. Inc. Rating System prior to January 14th, 2008:

Buy - anticipates appreciation of 10% or more within the next 12 months, and/or a total return of 10% including dividend payments,
and/or the ability of the shares to perform better than the leading stock market averages or stocks within its particular industry sector.

Neutral - anticipates that the shares will trade at or near their current price and generally in line with the leading market averages due to
a perceived absence of strong dynamics that would cause volatility either to the upside or downside, and/or will perform less well than
higher rated companies within its peer group. Our readers should be aware that when a rating change occurs to Neutral from Buy,
aggressive trading accounts might decide to liquidate their positions to employ the funds elsewhere.

Sell - anticipates that the shares will depreciate 10% or more in price within the next 12 months, due to fundamental weakness
perceived in the company or for valuation reasons, or are expected to perform significantly worse than equities within the peer group.

Distribution of Ratings/IB Services Firmwide

IB Serv/Past 12 Mos.

Rating Count Percent Count Percent

OUTPERFORM [O] 376 45.90 133 35.37


PERFORM [P] 400 48.80 107 26.75
UNDERPERFORM [U] 43 5.30 7 16.28

Although the investment recommendations within the three-tiered, relative stock rating system utilized by Oppenheimer & Co. Inc. do not
correlate to buy, hold and sell recommendations, for the purposes of complying with FINRA rules, Oppenheimer & Co. Inc. has assigned
buy ratings to securities rated Outperform, hold ratings to securities rated Perform, and sell ratings to securities rated Underperform.

Company Specific Disclosures


Oppenheimer & Co. Inc. makes a market in the securities of AAPL and AMZN.

Additional Information Available

Please log on to http://www.opco.com or write to Oppenheimer & Co. Inc., 300 Madison Avenue, New York, NY 10017,
Attention: Equity Research Department, Business Manager.

15
Apple Inc.

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Copyright © Oppenheimer & Co. Inc. 2009.

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