EQUITY RESEARCH Technology | U.S. IT Hardware | 30 October 2012

APPLE, INC. A Closer Look at Margins Explain Apple’s December Guidance

We believe that Apple is leading the ‘‘disruptive mobility’’ trend, extracting profits and revenues from PC, mobility, printing, and even retail sectors.

When Apple reported earnings last week, its gross margin outlook raised some eyebrows. However, we don’t believe the outlook was that unusual – and seems to be a lot like other periods when the iPhone receives a major overhaul (iPhone 4 etc.). Our research shows that every major launch of a new iPhone platform has been followed by a drop in gross margins in the subsequent quarter, only to expand for about two to three quarters thereafter. We believe that the decline in gross margins is the result of an unprecedented amount of new product launches all occurring in one quarter in every major product category – with the iPhone 5 at almost the same time as a new iPad mini, a new line of iPads, new Macs and new iPod touch devices.

In addition to margin concerns, investors are understandably focused on recent turnover among the executive team. We believe that recent moves really put in place “Tim Cook’s team” vs. one he inherited. We are particularly pleased to see increased responsibilities for Jony Ive, arguably the best designer in the world. We continue to believe Apple has a deep bench of talent that can continue to execute in a manner consistent with investor expectations. While the headlines may raise some concerns about the stability of leadership, we believe that the changes may actually be rather well received by Apple employees and expect Tim Cook to play an active role in making sure the retail operation doesn’t skip a beat (Cook will serve as interim head of retail during a comprehensive search).

AAPL: Quarterly and Annual EPS (USD)

2012 2013 2014 Change y/y

FY Sep Actual Old New Cons Old New Cons 2013 2014

Q1 13.87A 13.00E 13.00E 13.59E 16.97E 16.97E 16.55E -6% 31%

Q2 12.30A 12.80E 12.80E 12.50E 14.86E 14.86E 14.27E 4% 16%

Q3 9.32A 12.61E 12.61E 11.58E 14.29E 14.29E 13.45E 35% 13%

Q4 8.67A 12.52E 12.52E 11.81E 14.54E 14.54E 13.92E 44% 16%

Year 44.14A 50.92E 50.92E 50.46E 60.66E 60.66E 59.05E 15% 19%

P/E 13.7 11.9 10.0

Source: Barclays Research.

Consensus numbers are from Thomson Reuters

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies coveredin its research reports. As a result, investors should be aware that the firm may have a conflict of interestthat could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision.

PLEASE SEE ANALYST(S) CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 21.

Stock Rating OVERWEIGHTUnchanged

Industry View NEUTRALUnchanged

Price Target USD 800.00Unchanged

Price (26-Oct-2012) USD 604.00Potential Upside/Downside +32%Tickers AAPL

Market Cap (USD mn) 566193Shares Outstanding (mn) 937.41Free Float (%) 99.8852 Wk Avg Daily Volume (mn) 16.7Dividend Yield (%) 0.4Return on Equity TTM (%) 44.32Current BVPS (USD) 119.23Source: FactSet Fundamentals

Price Performance Exchange-Nasdaq52 Week range USD 705.07-363.32

Jan- 12 Apr- 12 Jul- 12 Oct- 12

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Link to Barclays Live for interactive charting

U.S. IT Hardware Ben A. Reitzes 1.212.526.9517 benjamin.reitzes@barclays.com BCI, New York Ryan Jones 1.212.526.3222 ryan.x.jones@barclays.com BCI, New York Matthew Markezin-Press 1.212.526.6180 matt.mpress@barclays.com BCI, New York

Barclays | Apple, Inc.

30 October 2012 2

COMPANY SNAPSHOT

Apple, Inc. U.S. IT Hardware

Income statement ($mn) 2012A 2013E 2014E 2015E CAGRRevenue 156,508 196,053 230,890 258,880 18.3%EBITDA 58,518 69,046 83,793 97,140 18.4%EBIT 55,241 63,222 75,059 85,326 15.6%Pre-tax income 55,763 64,887 76,839 87,380 16.2%Tax rate (%) 25.2 25.6 25.0 24.0 -1.6%Net income 41,733 48,276 57,630 66,409 16.7%EPS (reported) ($) 44.14 50.92 60.66 69.90 16.6%Diluted shares (mn) 945.4 948.0 950.0 950.0 0.2%DPS ($) 2.63 10.62 12.19 14.02 74.6%

Margin and return data AverageEBITDA margin (%) 37.4 35.2 36.3 37.5 36.6EBIT margin (%) 35.3 32.2 32.5 33.0 33.3Pre-tax margin (%) 35.6 33.1 33.3 33.8 33.9Net margin (%) 26.7 24.6 25.0 25.7 25.5Operating CF margin (%) 32.5 31.7 32.6 34.1 32.7ROIC (%) 35.0 27.7 24.3 21.4 27.1ROA (%) 28.5 25.5 25.9 25.5 26.4ROE (%) 42.8 33.5 28.7 24.8 32.5

Balance sheet and cash flow ($mn) CAGRCash and equivalents 121,251 120,827 135,468 179,611 14.0%Total assets 176,064 203,114 241,958 278,819 16.6%Short and long-term debt 0 0 0 0 N/AOther long-term liabilities 17,040 21,346 25,139 28,187 18.3%Total liabilities 57,854 72,472 85,350 95,696 18.3%Net debt/(funds) -114,839 -157,400 -208,129 -269,132 N/AShareholders' equity 118,210 170,033 231,964 303,590 36.9%Cash flow from operations 50,856 62,229 75,378 88,163 20.1%Capital expenditure -8,295 -11,500 -14,375 -16,819 N/AFree cash flow 42,561 50,729 61,003 71,344 18.8%NOPAT 41,342 47,037 56,295 64,848 16.2%

Valuation and leverage metrics AverageP/E (reported) (x) 13.7 11.9 10.0 8.6 11.1EV/EBITDA (x) 7.7 5.9 4.3 3.1 5.3Equity FCF yield (%) 7.5 8.9 10.6 12.4 9.8EV/sales (x) 2.9 2.1 1.6 1.2 1.9P/BV (x) 4.8 3.4 2.5 1.9 3.1Dividend yield (%) 0.4 1.8 2.0 2.3 1.6Total debt/capital (%) 0.0 0.0 0.0 0.0 0.0Net debt/EBITDA (x) -2.0 -2.3 -2.5 -2.8 -2.4

Selected operating metrics (k) CAGRDesktops 4,656.0 4,396.9 4,354.6 3,960.5 -5.3%Notebooks 13,502.0 15,291.2 16,357.0 17,285.0 8.6%Total Macs 18,158.0 19,688.2 20,711.5 21,245.5 5.4%iPods 35,165.0 31,112.1 26,379.2 22,366.2 -14.0%iPhones 125,046.0 158,430.4 194,329.1 226,532.1 21.9%iPads 58,310.0 57,330.0 64,324.3 72,171.9 7.4%iPad mini N/A 39,000.0 65,340.0 82,726.2 N/A

Stock Rating OVERWEIGHTIndustry View NEUTRALPrice (26-Oct-2012) USD 604.00Price Target USD 800.00Ticker AAPL

Investment case Why Overweight? We believe Apple's valuation is attractive & that shares can continue to benefit from iPad & iPhone expansion, Mac share gains, international growth & yet-to-be-announced products. We believe Apple deserves a higher multiple vs. the group given our view that it is disrupting profit pools in traditional computing-related sectors.

Upside case USD 910.00Apple has prospects for high organic growth, with open-ended potential to gain share in phones, tablets & Macs. We view Apple’s upside scenario at $910 based on about 15x our FY14 EPS estimate of $60.66.

Downside case USD 550.00We believe the biggest issues facing Apple include the law of large numbers, aggressive competition in smart phones & very high expectations. We view Apple’s downside scenario at $550 based on about 9x our FY14 EPS estimate of $60.66.

Upside/Downside scenarios

Source: Barclays Research

Source: Company data, Barclays Research Note: FY End Sep

Barclays | Apple, Inc.

30 October 2012 3

The Barclays Apple Monitor – 10/30/12

Welcome to the Barclays Apple Monitor: The 1st section discusses research that we think is most important for the stock this week. The second section tracks iPhone activity on Flickr.com to gauge the product’s ability to move up the consumer value chain and cannibalize point & shoot cameras (warranting premium pricing). The third tells readers about weekly PC and Mac sales trends. The fourth shows ship times for major products on Apple.com, which provides a "common sense" idea of what products are most popular, capacity-constrained or both. The fifth shows top-seller lists from various sources. And the sixth section tells readers about trends at Apple’s App store, which we believe is one of the biggest differentiators for the iPhone and iPad experience — creating “stickiness”.

1. Several product launches compound familiar pressures to margins near term; December should mark the trough New Products Bring “Same Old” Margin Declines

When Apple reported earnings last week, its gross margin outlook raised some eyebrows. However, we don’t believe the outlook was that unusual – and seems to be a lot like other periods when the iPhone receives a major overhaul (iPhone 4 etc.). Our research shows that every major launch of a new iPhone platform has been followed by a drop in gross margins in the subsequent quarter, only to expand for about two to three quarters thereafter. On 10/25 Apple issued F1Q13 gross margin guidance that anticipates a q/q decline of 400 bps to 36%, largely driven by several product transitions - compared to the prior consensus estimate of 43.2%. We believe that the decline in gross margins is the result of an unprecedented amount of new product launches pushed all into one quarter – with the iPhone 5 at almost the same time as a new iPad mini, a new line of iPads, new Macs and new iPod touch devices. The iPad mini’s initial margin profile in particular is starting out significantly below the corporate average, but we believe it should scale over time (just like the iPod mini and iPod nano did).

We note that Apple’s gross margins have declined by an average of -110 basis points in the following quarter after an iPhone launch. However, for major overhauls in the iPhone, like the iPhone 4, gross margins fell 220 basis points q/q – only to expand 480 basis points after about three quarters. We believe this iPhone 5 launch can mirror the iPhone 4 margin pattern given the major change in form factor and components. However, the mix shift issue within the iPad category toward the mini should likely limit the amount of multi-quarter expansion after the December quarter trough to about a 300-400 basis point expansion vs. the expansion realized after the iPhone 4. We estimate the gross margin for the iPad mini is in the low 20’s including accessories in its first quarter of shipping, especially when considering its airfreight costs. The iPhone 5 gross margin seems to be starting out in the mid- to high-40% range – but we believe it can scale into the mid-50% range over time.

Barclays | Apple, Inc.

30 October 2012 4

Figure 1: Quarterly Margin Changes During iPhone Launch

Prior Quarter Quarter of Launch Following Quarter

iPhone 6/29/2007 35.0% 36.5% 31.0%

iPhone 3G 7/11/2008 36.3% 38.6% 37.9%

iPhone 3GS 6/19/2009 39.9% 40.9% 41.8%

iPhone 4 6/24/2010 41.7% 39.1% 36.9%

iPhone 4S 10/14/2011 40.3% 44.7% 47.4%

iPhone 5 9/21/2012 42.8% 40.0% 38.4%*

0.6% -1.1%

Gross MarginsInitial Date Available

Product

Change from previous quarter

* Barclays Research Estimate Source: Company reports, Barclays Research

We believe the iPhone 5 should follow the iPhone 4 margin pattern – not the margin pattern of the 4S. The 4S utilized the same form factor and many of the same parts as the iPhone 4, which allowed it to have strong margins right out of the gate.

Figure 2: Quarterly Margin Changes During iPad Launch

Prior Quarter Quarter of Launch Following Quarter

iPad 4/3/2010 41.7% 39.1% 36.9%

iPad 2 3/11/2011 38.5% 41.4% 41.7%

iPad (3G) 3/16/2012 44.7% 47.4% 42.8%

iPad mini 11/2/2012 40.0% 38.4%* 40%*0.3% -1.2%Change from previous quarter

ProductInitial Date Available

Gross Margins

* Barclays Research Estimate Source: Company reports, Barclays Research

While we would typically expect a decline in gross margins following an iPhone launch, the iPad mini compounds the traditional effect of depressed margins. With the iPad mini’s increased portion of the mix, we believe Apple will not be able to achieve gross margins over 45% any time soon again. However, as manufacturing efficiencies improve and supply is able to meet demand, we expect that margins will improve throughout the next few quarters. We believe Apple needs to innovate more in the accessory area for iPads – with not only existing smart covers, but better keyboards and cases that will have higher attach rates. Accessories could be the key to margins in this category in the future.

Barclays | Apple, Inc.

30 October 2012 5

Figure 3: Apple Historical Gross Margins Progression

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

Gross margin

Source: Company Reports and Barclays Equity Research

Figure 4: Q/Q Difference in Apple Gross Margin, Highlighting Major Product Launches

-7.5%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

Gross Margin

iPhone 3GAvail. 7/11/08

iPhone 4Avail. 6/24/10 iPhone 5

Avail. 9/21/12

iPhone 3GSAvail. 6/19/09

iPad 1Avail. 4/3/10

iPad 2Avail. 3/11/11

iPad 3Avail 3/16/12

Source: Company Reports and Barclays Equity Research

Tim Cook Assembling “His Team”: Expands Responsibilities for Key Executives

On Monday evening, Apple announced some key changes in its senior management team that will result in the departures of software chief, Scott Forstall, and retail head, John Browett. These moves clearly show which executives Tim Cook considers his inner circle – and who will shape the direction of the company over the next several years. Frankly, we are not that surprised by the moves, considering that Forstall was squarely in the middle of the “map-gate” controversy and oversaw Siri, which still has some issues (Forstall will leave next year and serve as an advisor to Cook in the interim). With regard to Browett and his short tenure, we had wondered in the past how his background from Dixons would mesh with the Apple culture – and he was recently criticized for some staffing mistakes. While the headlines may raise some concerns about the stability of leadership to investors, we believe that the changes may actually be rather well received by Apple employees and expect Tim

Barclays | Apple, Inc.

30 October 2012 6

Cook to play an active role in making sure the retail operation doesn’t skip a beat (Cook will serve as interim head of retail during a comprehensive search).

We also view Phil Schiller SVP of Marketing as particularly key to Apple’s future and inner circle. Although he wasn’t part of the release, we believe Schiller’s role at Apple is safe and note his prominent role in the announcement of the iPad mini and new Macs.

In conjunction with the major departures, four executives are being given increased responsibilities. We provide key thoughts around what each could mean below:

1) Jony Ive, currently Senior Vice President of Industrial Design, will assume responsibilities for Human Interface. We believe that Ive and Forstall were at odds on how software – including icons and the general look and feel – meshed with the hardware design. Given his years of success, it makes sense for the internally popular Ive to have a greater say over software design.

2) Eddy Cue, currently Senior Vice President of Software and Services, will assume responsibilities for Siri and Maps – placing all online services in one group. This move shows that Siri in particular is considered an interface that will navigate Apple’s services – and could hint at more innovation around Siri as an interface for home entertainment. Cue also needs to quickly turn the Maps issues in Apple’s favor and we look forward to hearing about rapid improvements, especially as more car manufacturers integrate Siri into entertainment systems.

3) Craig Federighi, currently Senior Vice President of Mac Software Engineering, will assume responsibilities for both iOS and OS X. Federighi has held responsibility for common features between the two interfaces already – and helped merge the functionality more and more. While Federighi needs to secure key iOS talent loyal to Forstall, we actually believe that he was considered easier to work with by many engineers (Forstall was particularly close with the late Steve Jobs). By overseeing both iOS and OS X, this appointment could hint that the two interfaces will merge even further in the future – and arguably help drive a greater halo effect on the Mac segment given there are many millions more users of iOS.

4) Bob Mansfield will assume responsibility for all wireless teams within Apple for two years – including responsibility for the semiconductor teams. Apple had announced Mansfield was actually leaving Apple earlier this year, only to convince him to stay perhaps due to the promise of some eventual changes. We are intrigued by the possibilities around Mansfield’s leadership of the semiconductor teams – given our view that Apple may eventually merge its own wireless processors into certain Macbook Air-like devices to take on the best qualities of both Macs and iPads in one device. In order to stay ahead of the competition, such a merger may be needed as early as 2H13.

Though investors may be concerned about the prospect of further attrition in the executive ranks at Apple, we believe that this move really puts in place “Tim Cook’s team” vs. one he inherited. We are particularly pleased to see increased responsibilities for Jony Ive, arguably the best designer in the world. We continue to believe Apple has a deep bench of talent that can continue to execute in a manner consistent with investor expectations.

Barclays | Apple, Inc.

30 October 2012 7

Last Week’s Report Points to Bottom for Gross Margins in December Quarter

Last Thursday (10/25), Apple reported fiscal 4Q12 EPS of $8.67, which was above our estimate of $8.31, but below consensus of $8.75 and above Apple’s original guidance of $7.65. Revenue of $36.0 billion beat our estimates by about $1.6 billion due to higher sales of iPhones and Macs than we modeled. However, gross margin of 40.0% was below our estimate of 40.5% and consensus estimates of 40.8% largely due to the iPhone product transition. iPhone shipments were 26.9 million, above our estimate of 24.7 million and consensus of 25.4 million. Given constraints for the iPhone 5, we believe sales of older iPhone 4 & 4S models exceeded our expectations, especially once the prices were lowered at quarter-end. iPad shipments were 14.0 million, below our revised estimate of 15.1 million and consensus estimates of 17.3 million as customers awaited the iPad mini. Below the line, earnings were negatively impacted by lower than expected other income (a $0.23 per share hit vs. our estimate), but positively impacted by a lower tax rate ($0.12 per share help vs. our model).

Tim Cook Says Production is Ramping for the iPhone 5 – a Positive Surprise: Frankly, we thought Apple would issue a warning about iPhone 5 supply – and it really seems production has ramped in literally the last week or two – so fast that Apple’s tone around production alleviated our concerns. Apple reported fiscal 4Q iPhone unit shipments of 26.9 million (+58% y/y and +3% q/q) vs. our estimate of 24.7 million (consensus = 25.4 million). While the street seemed braced for a disappointment, these unit totals were much better than expectations. We believe sales of iPhone 4S accelerated especially once prices were lowered at quarter end, while ASP’s were actually up slightly q/q. Apple indicated that demand for the iPhone 5 remained exceptionally strong, still outstripping supply – something that could linger through the December quarter even as supply ramped quickly. Demand for the iPhone was up +38% y/y in greater China even though the iPhone 5 was only available in Hong Kong. Management expects the iPhone 5 to launch in greater China in December, which we believe is earlier than many expected given potential supply issues. Recall that the iPhone 5 was only available in 9 countries as of September 21st and an additional 22 countries on September 28th. By the end of the December quarter, Apple believes iPhone 5 will have launched in 100 countries with 240 carriers. Management affirmed that there would be no change to the launch schedule, despite supply constraints. Apple recognized $17.1 billion in iPhone related revenue in the quarter (+56% y/y; +5% q/q).

Apple indicated its iPhone channel inventory increased 800 thousand units q/q to 9.1 million total, ending the quarter below the company’s 4-to-6 week targeted range of channel inventory. We believe that the December quarter will see a meaningful drop q/q for iPhone gross margins given the lower gross margins of iPhone 5 and a full quarter of lower ASPs for the iPhone 4 ($99 with contract) and iPhone 4S (free with contract).

Given our view that some production constraints may linger (even though Apple is confident in current improvement), we are leaving our estimates intact for the iPhone. For the December quarter, we forecast iPhone unit sales will rise 62% q/q to 43.5 million. We estimate strong shipments again in fiscal 2Q13 with iPhone units roughly flat at 43.5 million reflecting a full quarter of phone availability in China. For full year FY13 we estimate iPhone unit sales will grow 27% y/y to 158.43 million. Our iPhone unit estimates are shown below.

Barclays | Apple, Inc.

30 October 2012 8

Figure 5: Barclays iPhone Unit Model

ESTIMATES(units in thousands) 2011 Dec-11 Mar-12 Jun-12 Sep-12 2012E Dec-12 Mar-13 Jun-13 Sep-13 2013E 2014E 2015EiPhone 72,293 37,044 35,064 26,028 26,910 125,046 43,519 43,519 36,991 34,402 158,430 194,329 226,532 Y/Y Growth 81% 128% 88% 28% 58% 73% 17% 24% 42% 28% 27% 23% 17%Q/Q Growth 117% -5% -26% 3% 62% 0% -15% -7%

Source: Company Reports, Barclays Research

iPad – Seems Demand Impacted by Anticipation of mini: Apple reported iPad unit sales of 14.0 million in its F4Q (+26% y/y, but down -17% q/q) – lower than our revised estimate of 15.1 million (adjusted after launch of iPad Mini event) and lower than consensus of 17.3 million due to a pause ahead of the launch of new iPads. We believe the sequential iPad decrease stems from an Apple-driven effort to make sure channel partners took a less-than-seasonal-uptake in channel inventory in September ahead of new product launches, as well as seasonality in K-12 spending (June quarter normally strongest) and customer anticipation of the iPad mini. Apple noted that sell-through actually expanded 44% y/y. We estimate that iPad ASP’s were about flat q/q. Apple ended the quarter with channel inventory of 3.4 million units, actually up 200 thousand units q/q – bringing inventory just over 4 weeks of channel inventory on a trailing basis. Apple was upbeat about prospects about demand for the iPad mini, noting that the category was expected to be an “incremental” opportunity that would help the tablet category be larger than the 350 million unit PC market. Management did acknowledge that the iPad was cannibalizing the PC market, and expected that to continue. These comments should not be taken lightly by the PC sector since PC-related stocks have not fared well since the iPad was invented – and the prospects for PC-related shares remain challenging. The one negative regarding the iPad mini is that Apple acknowledged that gross margins for the product are initially significantly below the corporate average – but could improve as Apple moves up the cost curve (new products traditionally carry lower gross margins).

Apple seemed much more confident in its production capabilities than we expected, including for the iPad mini. As a result, for the December quarter we are raising our estimates to account for higher iPad sales of all new models. We now estimate total iPad unit sales (combined iPad and mini) will be 51% q/q with 21.2 million units in sales for the December quarter. For FY13, we also now estimate that Apple will grow iPad units 65% y/y to 96.3 million (was 91.4 million previously). We believe Apple can sell 6.5 million iPad minis in the December quarter while the cannibalization rate of the other iPads could run at a 25-50% rate; we estimate 39 million iPad mini’s for the full year FY13. Our iPad estimates take into account the potential for strong demand for the new device into initial constraints – and with some cannibalization of the legacy 9.7” form factor.

Figure 6: Barclays Total iPad Unit Model

ESTIMATES(units in thousands) 2011 Dec-11 Mar-12 Jun-12 Sep-12 2012E Dec-12 Mar-13 Jun-13 Sep-13 2013E 2014E 2015EiPad 32,394 15,434 11,798 17,042 14,036 58,310 14,738 12,527 15,033 15,033 57,330 64,324 72,172 iPad Mini 6,500 8,500 11,000 13,000 39,000 65,340 82,726 Total iPad 32,394 15,434 11,798 17,042 14,036 58,310 21,238 21,027 26,033 28,033 96,330 129,664 154,898 Y/Y Growth 334% 111% 151% 84% 26% 89% 38% 78% 53% 100% 65% 35% 19%Q/Q Growth 39% -24% 44% -18% 51% -1% 24% 8%

Source: Company Reports, Barclays Research

Macs – Ahead of our Estimate, Apple to See Constraints in December: Apple still outperformed the PC market in September, posting Mac unit growth of 1% y/y to 4.9

Barclays | Apple, Inc.

30 October 2012 9

million in fiscal 4Q12 vs. our estimate of 4.6 million. This week Apple launched the widely-anticipated 13” MacBook Pro with retina display and refreshed iMacs. Apple noted that 21.5” iMac will begin shipping in November and the 27” iMac will begin shipping in December. We estimate Macs will grow in the December quarter 9% q/q to 5.3 million units. With new Macs now available and prospects for more share gains vs. PCs, we are slightly raising our Mac estimates for FY13 and now estimate y/y Mac unit growth of 8% y/y (was slightly less than 8%) to 19.7 million units. We strongly believe that iPhones and iPads drive a halo effect, making more customers opt for the Mac in order to complete their digital ecosystem.

Apple Guides F1Q Conservatively – Reflects Product Constraints, Robust Demand: While there may be some initial worry about the F1Q EPS guidance, we believe Apple’s December guidance is still a bit conservative. For fiscal 1Q13 (C4Q) Apple expects revenue of about $52 billion vs. current consensus of $55.15 billion – representing a sequential increase of 45%. Apple expects F1Q gross margin of 36%, operating expenses of $4.05 billion, OI&E of $380 million, a tax rate of 26% and EPS of $11.75. Apple guided its gross margin down 400 bps q/q driven largely by major product transitions. We have never seen Apple launch so many products – packed into one single holiday quarter.

Barclays | Apple, Inc.

30 October 2012 10

Figure 7: Barclays Research Apple Unit Model

Estimates(units in thousands) 2010 2011 Dec-11 Mar-12 Jun-12 Sep-12 2012 Dec-12 Mar-13 Jun-13 Sep-13 2013E 2014E 2015EMacintosh ProductsTotal desktops 4,627 4,669 1,479 1,199 1,010 968 4,656 997 1,097 1,097 1,206 4,397 4,355 3,960Total notebooks 9,035 12,066 3,719 2,818 3,010 3,955 13,502 4,351 3,350 3,450 4,140 15,291 16,357 17,285Total Mac Units 13,662 16,735 5,198 4,017 4,020 4,923 18,158 5,348 4,447 4,547 5,347 19,688 20,712 21,246iPad 7,458 32,394 15,434 11,798 17,042 14,036 58,310 14,738 12,527 15,033 15,033 57,330 64,324 72,172iPad Mini 6,500 8,500 11,000 13,000 39,000 65,340 82,726iPod 50,312 42,620 15,397 7,673 6,751 5,344 35,165 13,360 6,680 5,678 5,394 31,112 26,379 22,366iPhone 39,989 72,293 37,044 35,064 26,028 26,910 125,046 43,519 43,519 36,991 34,402 158,430 194,329 226,532

Unit ASPTotal desktops 1,340 1,379 1,309 1,304 1,274 1,295 1,297 1,284 1,269 1,259 1,259 1,268 1,234 1,199Total notebooks 1,248 1,272 1,254 1,246 1,211 1,356 1,272 1,321 1,306 1,296 1,306 1,308 1,286 1,266Total Mac ASP 1,279 1,302 1,269 1,263 1,227 1,344 1,279 1,314 1,297 1,287 1,296 1,299 1,275 1,254iPad 643 592 558 525 511 511 535 535 535 535 535 535 545 538iPad Mini 365 365 360 340 355 333 320iPhone 608 627 636 625 602 609 620 614 609 601 593 605 580 561iPod 164 175 164 157 157 153 160 147 145 143 143 146 140 134

% of unitsTotal desktops 33.9% 27.9% 28.5% 29.8% 25.1% 19.7% 25.6% 18.6% 24.7% 24.1% 22.6% 22.3% 21.0% 18.6%Total notebooks 66.1% 72.1% 71.5% 70.2% 74.9% 80.3% 74.4% 81.4% 75.3% 75.9% 77.4% 77.7% 79.0% 81.4%Total Mac Units 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Yr/yr unit % changeTotal desktops 45.4% 0.9% 20.5% 18.8% -12.6% -24.3% -0.3% -32.6% -8.5% 8.6% 24.6% -5.6% -1.0% -9.1%Total notebooks 25.3% 33.5% 27.9% 2.4% 7.8% 9.4% 11.9% 17.0% 18.9% 14.6% 4.7% 13.3% 7.0% 5.7%Total Mac Units 31.4% 22.5% 25.7% 6.8% 1.8% 0.6% 8.5% 2.9% 10.7% 13.1% 8.6% 8.4% 5.2% 2.6%iPad 334.4% 110.5% 151.3% 84.3% 26.2% 80.0% -4.5% 6.2% -11.8% 7.1% -1.7% 12.2% 12.2%iPad Mini 67.5% 26.6%iPod -7.1% -15.3% -20.8% -14.9% -10.4% -19.3% -17.5% -13.2% -12.9% -15.9% 0.9% -11.5% -15.2% -15.2%iPhone 92.9% 80.8% 128.2% 88.0% 28.0% 57.6% 73.0% 17.5% 24.1% 42.1% 27.8% 26.7% 22.7% 16.6%

Sequential Q/Q unit % changeTotal desktops 15.7% -18.9% -15.8% -4.2% 3.0% 10.0% 0.0% 10.0%Total notebooks 2.8% -24.2% 6.8% 31.4% 10.0% -23.0% 3.0% 20.0%Total Mac Units 6.2% -22.7% 0.1% 22.5% 8.6% -16.8% 2.3% 17.6%iPad 38.8% -23.6% 44.4% -17.6% 5.0% -15.0% 20.0% 0.0%iPad Mini 30.8% 29.4% 18.2%iPod 132.5% -50.2% -12.0% -20.8% 150.0% -50.0% -15.0% -5.0%iPhone 117.0% -5.3% -25.8% 3.4% 61.7% 0.0% -15.0% -7.0%

Sequential Q/Q ASP % changeTotal desktops -0.8% -0.4% -2.2% 1.7% -0.8% -1.2% -0.8% 0.0%Total notebooks -1.1% -0.6% -2.8% 11.9% -2.6% -1.1% -0.8% 0.8%Total Mac -1.0% -0.5% -2.8% 9.5% -2.2% -1.3% -0.8% 0.6%iPad -3.7% -6.0% -2.7% 0.0% 4.8% 0.0% 0.0% 0.0%iPad Mini 0.0% -1.4% -5.6%iPod -1.4% -4.2% -0.2% -2.3% -3.9% -1.4% -1.4% 0.0%iPhone 2.4% -1.7% -3.8% 1.2% 0.8% -0.8% -1.3% -1.3%

Source: Company Reports and Barclays Research estimates

Barclays | Apple, Inc.

30 October 2012 11

Figure 8: Apple Income Statement ($ in millions except per-share data)

Estimates2010 2011 Dec-11 Mar-12 Jun-12 Sep-12 2012 Dec-12 Mar-13 Jun-13 Sep-13 2013E 2014E 2015E

Net sales $65,225 $108,249 $46,333 $39,186 $35,023 $35,966 $156,508 $52,361 $49,478 $47,048 $47,167 $196,053 $230,890 $258,880Cost of sales 39,541 64,431 25,630 20,622 20,029 21,565 87,846 32,228 29,687 27,288 27,357 116,559 136,526 152,739Gross profit 25,684 43,818 20,703 18,564 14,994 14,401 68,662 20,133 19,791 19,760 19,810 79,494 94,364 106,141R&D 1,782 2,429 758 841 876 906 3,381 942 940 964 981 3,828 4,389 4,684SG&A 5,517 7,599 2,605 2,339 2,545 2,551 10,040 3,037 2,953 3,152 3,302 12,444 14,915 16,131Total operating expenses 7,299 10,028 3,363 3,180 3,421 3,457 13,421 3,979 3,893 4,117 4,283 16,272 19,304 20,815Operating income 18,385 33,790 17,340 15,384 11,573 10,944 55,241 16,153 15,898 15,643 15,527 63,222 75,059 85,326Interest & other income, net 155 415 137 148 288 (51) 522 405 410 420 430 1,665 1,780 2,054Income before taxes 18,540 34,205 17,477 15,532 11,861 10,893 55,763 16,558 16,308 16,063 15,957 64,887 76,839 87,380Income tax expense/(benefit) 4,527 8,283 4,413 3,910 3,037 2,670 14,030 4,239 4,175 4,112 4,085 16,611 19,210 20,971Net Income/(Loss) 14,013 25,922 13,064 11,622 8,824 8,223 41,733 12,319 12,133 11,951 11,872 48,276 57,630 66,409

GAAP EPS $15.15 $27.68 $13.87 $12.30 $9.32 $8.67 $44.14 $13.00 $12.80 $12.61 $12.52 $50.92 $60.66 $69.90Diluted shares outstanding 924.7 936.6 941.6 944.9 947.1 948.2 945.4 948.0 948.0 948.0 948.0 948.0 950.0 950.0% of total revenueGross margin 39.4% 40.5% 44.7% 47.4% 42.8% 40.0% 43.9% 38.4% 40.0% 42.0% 42.0% 40.5% 40.9% 41.0%R&D 2.7% 2.2% 1.6% 2.1% 2.5% 2.5% 2.2% 1.8% 1.9% 2.1% 2.1% 2.0% 1.9% 1.8%SG&A 8.5% 7.0% 5.6% 6.0% 7.3% 7.1% 6.4% 5.8% 6.0% 6.7% 7.0% 6.3% 6.5% 6.2%Operating profit margin 28.2% 31.2% 37.4% 39.3% 33.0% 30.4% 35.3% 30.8% 32.1% 33.3% 32.9% 32.2% 32.5% 33.0%Interest & other income, net 0.2% 0.4% 0.3% 0.4% 0.8% -0.1% 0.3% 0.8% 0.8% 0.9% 0.9% 0.8% 0.8% 0.8%Pretax operating margin 28.4% 31.6% 37.7% 39.6% 33.9% 30.3% 35.6% 31.6% 33.0% 34.1% 33.8% 33.1% 33.3% 33.8%Net margin 21.5% 23.9% 28.2% 29.7% 25.2% 22.9% 26.7% 23.5% 24.5% 25.4% 25.2% 24.6% 25.0% 25.7%Tax rate 24.4% 24.2% 25.3% 25.2% 25.6% 24.5% 25.2% 25.6% 25.6% 25.6% 25.6% 25.6% 25.0% 24.0%Year/year % changeNet Sales 52.0% 66.0% 73.3% 58.9% 22.6% 27.2% 44.6% 13.0% 26.3% 34.3% 31.1% 25.3% 17.8% 12.1%Cost of Sales 54.0% 62.9% 55.9% 42.7% 20.3% 27.7% 36.3% 25.7% 44.0% 36.2% 26.9% 32.7% 17.1% 11.9%R&D 33.7% 36.3% 31.8% 44.8% 39.5% 40.5% 39.2% 24.3% 11.8% 10.1% 8.3% 13.2% 14.6% 6.7%SG&A 33.0% 37.7% 37.4% 32.7% 32.9% 26.0% 32.1% 16.6% 26.3% 23.9% 29.4% 23.9% 19.9% 8.1%Total operating expenses 33.1% 37.4% 36.1% 35.7% 34.5% 29.5% 33.8% 18.3% 22.4% 20.3% 23.9% 21.2% 18.6% 7.8%Operating income 56.6% 83.8% 121.5% 95.4% 23.4% 25.6% 63.5% -6.8% 3.3% 35.2% 41.9% 14.4% 18.7% 13.7%Interest & other income, net -52.5% 167.7% 0.7% 469.2% 67.4% -163.0% 25.8% 195.6% 177.0% 45.8% -943.1% 219.0% 6.9% 15.4%Income before taxes 53.7% 84.5% 119.5% 96.6% 24.2% 23.9% 63.0% -5.3% 5.0% 35.4% 46.5% 16.4% 18.4% 13.7%Income tax expense/(benefit) 18.2% 83.0% 125.3% 104.4% 35.4% 23.2% 69.4% -3.9% 6.8% 35.4% 53.0% 18.4% 15.6% 9.2%Net income 70.2% 85.0% 117.6% 94.1% 20.7% 24.2% 61.0% -5.7% 4.4% 35.4% 44.4% 15.7% 19.4% 15.2%EPS Before Extraordinary Items (incl. ESO) 66.9% 82.6% 115.7% 92.2% 19.6% 23.0% 59.5% -6.3% 4.1% 35.3% 44.4% 15.4% 19.1% 15.2%Seqential Q/Q % changeNet sales 63.9% -15.4% -10.6% 2.7% 45.6% -5.5% -4.9% 0.3%Cost of sales 51.7% -19.5% -2.9% 7.7% 49.4% -7.9% -8.1% 0.3%Gross profit 81.9% -10.3% -19.2% -4.0% 39.8% -1.7% -0.2% 0.3%R&D 17.5% 10.9% 4.2% 3.4% 4.0% -0.3% 2.6% 1.7%SG&A 28.6% -10.2% 8.8% 0.2% 19.0% -2.8% 6.7% 4.7%Total operating expenses 26.0% -5.4% 7.6% 1.1% 15.1% -2.2% 5.7% 4.0%Operating income 99.1% -11.3% -24.8% -5.4% 47.6% -1.6% -1.6% -0.7%Net Income/(Loss) 97.3% -11.0% -24.1% -6.8% 49.8% -1.5% -1.5% -0.7%EPS Before Extraordinary Items (incl. ESO) 96.7% -11.3% -24.2% -7.0% 49.9% -1.5% -1.5% -0.7% Source: Company reports and Barclays Research estimates

2. Flickr Stats – iPhone 4S is the Most Popular Camera on Flickr

This week the Apple iPhone 4S remains the most popular camera on Flickr.com with 4,231 average daily users as of 10/29/12. The iPhone 4 remains in second place, with 3,868 average daily users down from 3,924 last week. Apple already has the four most popular cameraphones on Flickr, including the iPhone 4, iPhone 3G, iPhone 4S and the iPhone 3GS. The Samsung Galaxy S II remains the fifth most popular cameraphone on Flickr, with its popularity stable. We note that less than two months after release the iPhone 5 has over 357 average daily users compared to the Samsung Galaxy SIII that only has 80. We believe it will be more important to closely monitor the progress of Samsung Galaxy SIII on Flickr as we consider Samsung to be Apple’s top competitor in the smartphone market.

We believe that the iPhone is actually becoming the digital camera of choice for consumers in developed markets given its ease of use and ability to quickly get photos online. This usability helps warrant a premium for the product and creates stickiness with software that connects consumers with other Apple products. The iPhone 4S augmented Apple’s position in the higher value smart phone arena, in our view, given significant enhancements to the camera, photo editing software and sharing capabilities. In fact, the iPhone 4S has passed the iPhone 4 to become the most popular camera on Flickr. We believe the iPhone 5 has an

Barclays | Apple, Inc.

30 October 2012 12

even better digital camera than the iPhone 4S – setting Apple up for more share gains as the device gains adoption in the months ahead. In particular the faster shutter speeds and panorama features are noticeable upgrades in the iPhone 5.

Flickr is a leading image hosting website and is used by many photography enthusiasts to host high quality photos. According to Yahoo!, Flickr’s owner, there are over 51 million registered users that upload about 4.5 million photos daily. Flickr is integrated into Apple’s iPhoto for easy uploading and there is a dedicated app available for the iPhone for easy sharing.

3. Weekly and Monthly PC & Mac Trends – Data Show Continued Weak Mac Sales in US But New Products Could Help December Quarter Demand According to NPD, for the week of October 14-October 20, Mac unit volumes in the US were down -20.7% y/y vs. the 17.2% y/y decline reported last week and have been down at a weighted average of 9.2% y/y over the trailing four weeks. We would not read too much into the sharp downturn in weekly Mac sales as we believe results will improve shortly with new products. It appears the release of the new OS X Mountain Lion has not significantly stimulated Mac hardware sales. With regard to the entire PC market for the week of 10/14/12 to 10/20/12, NPD indicated that total unit sales in the US decreased -29.5% y/y in units (25.7% y/y in dollar sales) ahead of the Windows 8 launch, following a -13.6% y/y performance last week and weighted average growth of -11% over the trailing four weeks. Notebook units were indicated -29.1% y/y (vs. -15.0% y/y last week and weighted-average growth of -11.5% over the previous four weeks), while desktop units are indicated down 31.0% y/y (vs. -13.6% y/y last week and weighted average growth of -9.5% y/y over the previous four weeks). While we believe that PC demand is being cannibalized by iPads, Mac demand is also not immune, especially in a weak economy. We believe the new iMacs announced alongside the iPad mini should be able to help sales in December quarter.

Figure 9: Most Popular Cameras on Flickr.com

Most Popular Cameras on Flickr

(Avg. daily users) 9/24 10/1 10/8 10/15 10/22 10/29

1 Apple iPhone 4S 4,376 4,379 4,362 4,257 4,244 4,231

2 Apple iPhone 4 4,242 4,197 4,139 3,977 3,924 3,868

3 Canon EOS 5D Mark II 3,901 3,889 3,877 3,792 3,800 3,813

4 Canon EOS REBEL T2i 3,384 3,357 3,327 3,232 3,221 3,209

5 Canon EOS 7D 3,242 3,235 3,226 3,166 3,170 3,177 Source: www.flickr.com/cameras

Figure 10: Most Popular Cameraphones on Flickr.com

Source: www.flickr.com/cameras

Most Popular Cameraphones on Flickr(Avg. daily users) 9/24 10/1 10/8 10/15 10/22 10/29

1 Apple iPhone 4S 4,376 4,379 4,362 4,257 4,244 4,2312 Apple iPhone 4 4,242 4,197 4,139 3,977 3,924 3,8683 Apple iPhone 3GS 845 832 817 781 767 7534 Apple iPhone 3G 559 552 541 513 603 4935 Samsung Galaxy S II 506 504 501 484 482 478

Barclays | Apple, Inc.

30 October 2012 13

However, the higher priced MacBook Pro with retina display may be too expensive to drive significantly higher sales vs. our current estimate.

4. High Demand (and Shortages) for iPhone 5 – Ship Times Remain at 3-4 Weeks The ship times for the iPhone 5 remain at 3-4 weeks for all models and all carriers following continued heavy demand. Ship times have been 3-4 weeks for over a month now and the two iPhone purchase limit per customer is still in effect. The new discounted iPhone 4S and iPhone 4 are currently listed as “in-stock.” The Wi-Fi only versions of the iPad mini are experiencing high demand are currently shipping in 2 weeks while the refreshed iPad with retina display is shipping 1 week. We will keep a close eye on the availability of the new iPads. Both the 13” and 15” Retina Display MacBook Pro are listed as “in stock.” We believe shortages of the Retina Display that initially affected the 15” version have been mostly resolved. Furthermore, the discounted 16GB iPad 2s are still listed as in stock. We expect the iPad 2 to remain more popular in the education vertical and corporate in general. The 1080p capable Apple TV that was announced on 3/7 is also listed as in stock.

We note that there is significant demand for the iPad mini as pre-orders became available last Friday (10/26) at Midnight. However, within three days available inventory was sold out and ship times have expanded to two weeks. We expect strong demand to continue for some time for the iPad mini. In addition, iMacs that were announced alongside the iPad mini last week are not shipping as the 21.5” iMac is expected to ship in November while the 27” version is not scheduled to start shipping until December. The Mac minis that were announced last week are also listed as “in stock.”

In order to provide perspective on the evolution of Apple’s product line we include a chart that documents select Apple product releases. We include the year of introduction, date of availability as well as the price of the product upon release.

Barclays | Apple, Inc.

30 October 2012 14

Figure 11: Introduction Timeline of Selected Apple Products

Year iPhone Price @ Release* Date Available

2007 iPhone (4/8GB) $499/599 6/29/07

iPhone (16GB) $499 2/5/08 2008

iPhone 3G (8/16GB Black, 16GB White) $199/299 7/11/08

2009 iPhone 3GS (16/32GB Black, 16/32GB White) $199/299 6/19/09

iPhone 3GS (8GB Black) $99 6/24/10 2010

iPhone 4 GSM (16/32GB Black) $199/299 6/24/10

iPhone 4 GSM (8/16/32GB White, 8GB Black) $99/199/299 4/28/11 (16/32GB White), 10/14/11 (8GB Black/White)

iPhone 4 CDMA (8/16/32GB Black, 8/16/32GB White) $99/199/299 2/10/11 (16/32GB Black), 4/28/11 (16/32GB White), 10/14/11 (8GB Black/White)

iPhone 4S GSM (16/32/64GB Black, 16/32/64GB White) $199/299/399 10/14/11 2011

iPhone 4S CDMA (16/32/64GB Black, 16/32/64GB White) $199/299/399 10/14/11

2012 iPhone 5 GSM/CDMA (16/32/64GB) $199/299/399 9/21/12

Year iPad Price @ Release* Date Available

iPad (16/32/64GB WiFi) $499/599/699 4/3/10 2010

iPad GSM (16/32/64GB WiFi + 3G) $629/729/829 4/30/10

iPad 2 (16/32/64GB WiFi Black, 16/32/64GB WiFi White) $499/599/699 3/11/11

iPad 2 GSM (16/32/64GB WiFi + 3G Black, 16/32/64GB WiFi + 3G White)

$629/729/829 3/11/11 2011

iPad 2 CDMA (16/32/64GB WiFi + 3G Black, 16/32/64GB WiFi + 3G White)

$629/729/829 3/11/11

iPad 3 (16/32/64GB WiFi) $499/599/699 3/16/12

iPad 3 LTE (16/32/64GB, WiFi + 4G, Verizon/AT&T) $629/729/829 3/16/12

iPad mini (16/32/64GB WiFi) $329/429/529 11/2/12

iPad mini LTE (16/32/64GB WiFi+ 4G, Verizon/Sprint/AT&T)

$459/559/659 TBA

iPad 4 (16/32/64GB WiFi) $499/599/699 11/2/12

2012

iPad 4 LTE (16/32/64GB, WiFi + 4G, Verizon/Sprint/AT&T)

$629/729/829 TBA

*Price with service contract where applicable

Source: Apple.com, Barclays Research

5. Amazon Top Sellers – Kindle Fires Remain Prominent on Amazon’s Top Electronics List Below we list the weekly trend of the top electronics sold through Amazon.com. As of October 29, 2012, Apple held 9 of the top 10 MP3 player slots, 3 of the top 10 desktops, and 3 of the top 10 notebooks. In PCs, the netbook ASP was $293 this week vs. $309 last week; for comparison the tablet ASP is $280 vs. $263 last week and the top 10 notebook ASP is $648 vs. $670 last week (driven lower by lower priced options from Acer and HP). Please see our chart in Figure 18, which shows recent trends in both netbook and tablet ASPs. The new product releases from Amazon are dominating both the Top Electronics and Top Tablets listing on Amazon.com. We believe that Amazon’s own products will rate increasingly well on these lists vs. iPads for the foreseeable future. Furthermore, we note that the Apple TV continues to gain traction and has steadily risen on the list of bestselling electronics on Amazon.com and is ranking higher than competing products from Roku.

Barclays | Apple, Inc.

30 October 2012 15

Figure 12: Top Electronics on Amazon.com Top Electronics on Amazon:

October 8 October 15 October 22 October 291 Kindle Fire HD 7" 16GB $199 Kindle Fire HD 7" 16GB W/ Offers $199 Kindle Fire HD 7" 16GB W/ Offers $199 Kindle Fire HD 7" 16GB W/ Offers $199 2 Kindle Paperwhite 6" WiFi W/ Offers $119 Kindle Paperwhite 6" WiFi W/ Offers $119 Kindle Paperwhite 6" WiFi W/ Offers $119 Kindle Paperwhite 6" WiFi W/ Offers $1193 Kindle E Ink WiFi W/ Offers $69 Kindle E Ink WiFi W/ Offers $69 Kindle E Ink WiFi W/ Offers $69 Kindle E Ink WiFi W/ Offers $694 Kindle Fire 7" 8GB $159 Kindle Fire 7" 8GB $159 Kindle Fire 7" 8GB $159 Kindle Fire 7" 8GB $1595 Kindle Paperwhite 6" WiFi $139 Kindle Paperwhite 6" WiFi $139 Samsung Chromebook Wifi $249 Kindle Paperwhite 6" WiFi $1396 Kindle Paperwhite 6" 3G W/ Offers $179 Apple TV MD199LL/A $98 Kindle Paperwhite 6" WiFi $139 Kindle Fire HD 7" 32GB W/ Offers $2497 Apple TV MD199LL/A $99 Kindle Paperwhite 6" 3G W/ Offers $179 Apple TV MD199LL/A $98 Apple TV MD199LL/A $988 Kindle Paperwhite 6" 3G $199 Kindle Keyboard 3G $159 Kindle EInk WiFi w/ offers $69 Kindle Paperwhite 6" 3G W/ Offers $1799 Kindle Fire HD 7" 32GB $249 Kindle Fire HD 7" 16GB $214 Kindle Paperwhite 6" 3G W/ Offers $179 Samsung Galaxy Tab 2 7" $199

10 Kindle 6" E Ink Wi-Fi $89 Samsung Galaxy Tab 2 7" $200 Kindle Fire HD 7" 32GB W/ Offers $249 Samsung Chromebook Wifi $24911 Kindle Keyboard 3G $159 Kindle Keyboard 3G W/ Offers $139 Samsung Galaxy Tab 2 7" $199 Kindle, 6" E Ink Display (Graphite) $6912 Kindle Keyboard 3G W/ Offers $139 Kindle Paperwhite 6" 3G $199 Kindle Fire HD 7" 16GB $214 Kindle Fire HD 7" 16GB $21413 Kindle Fire HD 8.9" 16GB $299 Kindle Fire HD 7" 32GB W/ Offers $249 Kindle Paperwhite 6" 3G $199 Kindle Paperwhite 6" 3G $19914 Sony BDP-S590 $105 Kindle EInk WiFi w/ offers $69 Sony BDP-S590 $108 Kindle Fire HD 8.9", 16 GB w/ Offers $29915 Kindle EInk WiFi w/ offers $69 Sony BDP-S590 $108 iPod Touch 8GB Black (4G) $175 Sony BDP-S590 3D Blu-ray $8916 Kindle Fire, Full Color 7" (used) $75 Kindle Fire, Full Color 7" (used) $75 Kindle Fire HD 8.9" 32GB W/ Offers $249 Kindle Keyboard 3G, w/ Offers $13917 Medialink N-Router $50 iPod nano 16GB slate (7G) $149 Medialink N-Router $50 Kindle Fire, Full Color 7" (used) $11518 Garmin nuvi 1450LMT $149 Kindle EInk WiFi $89 Kindle Fire, Full Color 7" (used) $109 Sony ICF-S10MK2 Pocket Radio, $1219 iPod Touch 8GB Black (4G) $175 iPod Touch 8GB Black (4G) $175 Kindle Keyboard 3G W/ Offers $139 Kindle Keyboard 3G, $15920 Roku 2 XS 1080p $97 Medialink N-Router $50 Kindle EInk WiFi $89 Kindle Fire HD 7", Wifi, 32GB $26421 iPod Touch 8GB White (4G) $175 Kindle Fire HD 8.9" 16GB w/ offers $299 Kindle Keyboard 3G $159 Kindle, 6" E Ink Display, Wi-Fi (int'l) $8922 Samsung UN55EH6070 $1398 iPod Touch 16GB White (4G) $175 Motorola SURFboard SB5101U $55 Medialink Wireless N Router $5023 Roku 2 XD $78 Roku 2 XS $98 Roku 2 XS $98 Motorola SURFboard Modem $6224 Kindle Fire HD 8.9" 32GB $369 Roku 2 XD $78 Panasonic BMP-DMPBDT220 $100 Apple iPod touch 8GB White (4G) $18025 iPod Touch 16GB White (4G) $199 Google Nexus 7 16GB $270 Roku 2 XD $78 Etón Weather Radio with Flashlight $30

Source: Amazon.com

Figure 13: Top Tablets on Amazon.com

Top 10 Tablets on Amazon:October 8 October 15 October 22 October 29

1 Kindle Fire HD 7" 16GB $199 Kindle Fire HD 7" 16GB w/ offers $199 Kindle Fire HD 7" 16GB w/ offers $199 Kindle Fire HD 7" 16GB w/ offers $1992 Kindle Fire 7" 8GB $159 Kindle Fire 7" 8GB w/ offers $159 Kindle Fire 7" 8GB w/ offers $159 Kindle Fire 7" 8GB w/ offers $1593 Kindle Fire HD 7" 32GB w/ offers $249 Samsung Galaxy Tab 2 7" $200 Kindle Fire HD 7" 32GB w/ offers $249 Kindle Fire HD 7" 32GB w/ offers $2494 Kindle Fire, Full Color 7" (used) $75 Kindle Fire HD 7" 32GB w/ offers $249 Samsung Galaxy Tab 2 7" $199 Samsung Galaxy Tab 2 7" $1995 Kindle Fire HD 8.9" WiFi 16GB $299 Kindle Fire, Full Color 7" (used) $109 Kindle Fire, Full Color 7" (used) $109 Kindle Fire, Full Color 7" (used) $1156 Kindle Fire HD 8.9" WiFi 32GB $369 Kindle Fire HD 8.9" WiFi 16GB w/ offers $299 Kindle Fire HD 8.9" WiFi 16GB w/ offers $299 Kindle Fire HD 8.9" WiFi 16GB w/ offers $2997 Google Nexus 7 16GB $276 Google Nexus 7 16GB $270 Samsung Galaxy Tab 2 10" $349 Google Nexus 7 16GB $2608 Samsung Galaxy Tab 2 7" $248 Kindle Fire HD 8.9" WiFi 32GB w/ offers $369 Google Nexus 7 16GB $269 Kindle Fire HD 8.9" WiFi 32GB w/ offers $3699 iPad 2 16GB, WiFi, Wt $415 iPad 2 16GB, WiFi, Bk $435 Kindle Fire HD 8.9" WiFi 32GB w/ offers $369 Samsung Galaxy Tab 2 10" $349

10 Kindle Fire HD 8.9" LTE 32GB $499 iPad 2 16GB, WiFi, Wt $419 iPad 2 16GB, WiFi, Bk $425 Pan Digital 72-70FW $57 Source: Amazon.com

Figure 14: Top Notebooks on Amazon.com

Top 10 Notebooks on Amazon:October 8 October 15 October 22 October 29

1 Dell Inspiron i15N-2728BK $430 Toshiba Satellite U845-S406 $640 Samsung Chromebook WiFi $249 Samsung Chromebook WiFi $2492 MacBook Pro MD101LL/A $1139 Dell Inspiron i15N-2728BK $430 MacBook Pro MD101LL/A $1100 MacBook Pro MD101LL/A $11003 MacBook Air MD231LL/A $1139 MacBook Pro MD101LL/A $1139 Samsung Chromebook 3G $330 MacBook Air MD231LL/A $11004 VIZIO CT14-A0 $598 MacBook Air MD231LL/A $1139 Dell Inspiron i15N-2728BK $430 Samsung Chromebook 3G $3305 ASUS A53Z-AS61 $400 ASUS A53Z-AS61 $400 MacBook Air MD231LL/A $1534 HP Pavilion dv6-7010us 15.6-Inch $5006 HP Pavilion g6-1d80nr $459 MacBook Pro MD313LL/A $999 ASUS A53Z-AS61 $400 ASUS A53Z-AS61 15.6-Inch Laptop $4457 MacBook Pro MD102LL/A $1424 MacBook Pro MD102LL/A $1439 Samsung Series 3 NP-RV515-A04US $400 VIZIO Thin and Light CT14-A0 $6008 ASUS N56VM-AB71 $900 Sony VAIO E Series SVE14112FXW $568 Samsung ATIV Smart PC 700t $1200 Acer Aspire V5-531-4636 HD Display $3369 Toshiba Satellite C655D-S5515 $328 Acer Aspire AS5750Z-4835 $400 Sony VAIO E Series SVE15115FXQ $650 HP 2000-2a10nr 15.6-Inch $362

10 Acer Aspire AS5750Z-4835 $395 ASUS N56VM-AB71 $900 Acer Aspire AS5750Z-4835 $410 Apple MacBook Pro MD102LL/A $1455 Source: Amazon.com

Figure 15: Top Desktops on Amazon.com

Top 10 Desktops on Amazon:October 8 October 15 October 22 October 29

1 iMac MC309LL/A $1169 iMac MC309LL/A $1169 iMac MC309LL/A $1155 Apple Mac Mini MD387LL/A Desktop $5992 Mac Mini MC815LL/A $587 Dell Optioplex 745 $145 Mac Mini MC815LL/A $580 Apple Mac Mini MD388LL/A Desktop $7993 Dell Optiplex GX620 SFF (used) $86 HP Pavilion p2-1120 $330 CyberpowerPC GUA880 $510 Apple iMac MC309LL/A Desktop $11344 HP Pavilion p7-1235 Desktop $537 Dell Optiplex GX620 (used) $125 HP Pavilion p6-2100 $395 Dell Optiplex GX620 (used) $1255 HP TouchSmart 320-1030 $644 Mac Mini MC815LL/A $599 Acer AX1470-UR11P $360 Dell Optiplex GX620 SFF (used) $856 HP TouchSmart 520-1030 $746 CyberpowerPC GUA880 $510 HP Pavilion p2-1120 $330 HP Pavilion p6-2100 $3727 Samsung Series 3 Chromebox $330 HP TouchSmart 320-1030 $644 Dell Optiplex GX620 SFF (used) $86 Dell Optiplex 745 $1458 Dell Optiplex GX620 (used) $125 Samsung Series 3 Chromebox $330 HP Pavilion p7-1235 Desktop $570 CyberpowerPC Gamer Ultra GUA880 $5109 Dell Optioplex 745 $142 HP Pavilion p7-1235 Desktop $539 Dell Optiplex 745 $145 Dell Inspiron i660-3034BK Desktop $400

10 Acer AX1470-UR11P $360 iMac MC813LL/A $1639 Dell Optiplex GX620 (used) $125 HP TouchSmart 320-1030 - Black $720 Source: Amazon.com

Barclays | Apple, Inc.

30 October 2012 16

Figure 16: Top MP3 Players on Amazon.com

Top 10 Desktops on Amazon:October 8 October 15 October 22 October 29

1 iMac MC309LL/A $1169 iMac MC309LL/A $1169 iMac MC309LL/A $1155 Apple Mac Mini MD387LL/A Desktop $5992 Mac Mini MC815LL/A $587 Dell Optioplex 745 $145 Mac Mini MC815LL/A $580 Apple Mac Mini MD388LL/A Desktop $7993 Dell Optiplex GX620 SFF (used) $86 HP Pavilion p2-1120 $330 CyberpowerPC GUA880 $510 Apple iMac MC309LL/A Desktop $11344 HP Pavilion p7-1235 Desktop $537 Dell Optiplex GX620 (used) $125 HP Pavilion p6-2100 $395 Dell Optiplex GX620 (used) $1255 HP TouchSmart 320-1030 $644 Mac Mini MC815LL/A $599 Acer AX1470-UR11P $360 Dell Optiplex GX620 SFF (used) $856 HP TouchSmart 520-1030 $746 CyberpowerPC GUA880 $510 HP Pavilion p2-1120 $330 HP Pavilion p6-2100 $3727 Samsung Series 3 Chromebox $330 HP TouchSmart 320-1030 $644 Dell Optiplex GX620 SFF (used) $86 Dell Optiplex 745 $1458 Dell Optiplex GX620 (used) $125 Samsung Series 3 Chromebox $330 HP Pavilion p7-1235 Desktop $570 CyberpowerPC Gamer Ultra GUA880 $5109 Dell Optioplex 745 $142 HP Pavilion p7-1235 Desktop $539 Dell Optiplex 745 $145 Dell Inspiron i660-3034BK Desktop $400

10 Acer AX1470-UR11P $360 iMac MC813LL/A $1639 Dell Optiplex GX620 (used) $125 HP TouchSmart 320-1030 - Black $720 Source: Amazon.com

Figure 17: Top Netbooks on Amazon.com

Top 10 Netbooks on Amazon:October 8 October 15 October 22 October 29

1 Acer AO725-0899 $315 Acer AO725-0899 $316 Acer AOD270-1824 $228 Acer AOD270-1824 $2282 Acer AOD270-1824 $228 Acer AO722-0825 $348 Acer AO725-0899 $316 Acer AO725-0899 $2993 Acer AOD270-1410 $248 Acer AOD270-1824 $290 Acer AO756-4854 $360 Acer AO756-4854 $3604 Acer AO722-0825 $343 Acer AOD756-2808 $420 ASUS 1025C-MU17-BK $251 Acer AO722-0825 $3325 Acer AO756-4854 $360 Acer AO756-4854 $360 Acer AO722-0825 $345 HP Mini 110-4250NR $3006 Acer AOD756-2808 $420 Acer AOD270-1410 $301 HP Mini 110-4250NR $296 ASUS X101CH-EU17-BK 10.1-Inch $2167 HP Mini 110-4250NR $300 ASUS 1025-BBK301 $249 ASUS 1025C-MU17-WT $251 ASUS X101CH-EU17-WT $2168 Acer AO722-0473 $359 ASUS X101CH-EU17-WT $222 ASUS 1025-BBK301 $239 ASUS 1025C-BBK301 Eee PC $2389 ASUS 1025-BBK301 $249 Acer AO722-0473 $330 Acer AO722-0473 $346 Acer Aspire One AO722-0473 $344

10 ASUS X101CH-EU17-WT $260 ASUS 1025-MU17-WT $251 Acer AO270-1410 $300 Acer Aspire One AOD270-1410 $270 Source: Amazon.com

Figure 18: Amazon Top 10 Netbook & Tablet ASP Weekly Trend (Average ASP of top 10 Netbooks/Tablets for sale)

$200

$250

$300

$350

$400

Netbook Tablet

Source: Barclays Research, Amazon.com

Barclays | Apple, Inc.

30 October 2012 17

6. Apps a Differentiator for Apple vs. Peers over the Long Term: We believe the App Store remains a key differentiating factor for Apple’s iPhone, iPad and iPod Touch vs. Android and other platforms. This software strategy enables a distinctive “stickiness,” which should enhance customer loyalty/retention over the long term as “apps” personalize devices to levels that competitive imitations cannot match. Also, the use and purchase of apps over cellular networks ensures that iPhones retain relatively high usage characteristics, leading to the purchase of data plans that drive high subsidies from carriers (which equals high margins for Apple over time).

At the iPad mini event on 10/23/12, Apple disclosed that over 35 billion apps have been downloaded from the App store. Previously, Apple announced on 6/11/12 that 30 billion apps had been downloaded and on 3/3/12, Apple had announced that 25 billion apps have been downloaded from its App store. As of 9/12/12, there were over 700k Apps on the App store and as of 10/25/12, 275k specifically for the iPad. Also, Apple said on 9/12/12 that there have been over 400 cumulative iOS device sales though June quarter. On 7/24/12, Apple stated over 14 million copies of the iTunes U app have been downloaded. On 7/24/12, Apple stated that over 150 million people had signed up for iCloud services which compares to the 125 million iCloud customers on 6/11/12 and the 100 million customers that were signed up on 2/16/12. We believe iCloud is a major driver of App store loyalty given it allows customers to purchase Apps on one iOS device and use it on others. Also, on 1/24/12, Apple announced that 100 million Apps had been downloaded from the Mac App Store in less than one year. In comparison, Google announced on 9/26 that the Google Play store for Android has seen 25 billion downloads to date with a total of 675k Apps available. Apple has paid developers more than $6.5 billion since the App Store inception.

Barclays | Apple, Inc.

30 October 2012 18

Figure 19: Top iPhone Apps

Top 10 Paid Apps

10/15 10/22 10/291 Snail Bob $0.99 The Night Sky $0.99 R-Tech Commander Colony XD $0.99

2 Doodle Jump $0.99 Clone Camera $1.99 Grand Theft Auto 3 $0.99

3 Where's My Water? $0.99 Plants vs. Zombier $2.99 Grand Theft Auto : Chinatown Wars $0.99

4 Cut the Rope $0.99 True Skate $1.99 Toca Tailor $0.99

5 Devil's Attorney $2.99 Sonic Jump™ $1.99 Languages $0.99

6 Bad Piggies $0.99 777 Slots Heaven HD: Slot Machine Game $0.99 He-Man: The Most Powerful Game In… $0.99

7 WhatsApp Messenger $0.99 Tiny War™ $0.99 Angry Birds Seasons $0.99

8 Slender-Man $0.99 Facebomb $0.99 Living Earth $0.99

9 Mini Empires Plus $0.99 Doodle Jump $0.99 Plants vs. Zombies $0.99

10 Pocket Climber $0.99 Where's My Water? $0.99 True Skate $1.99

Top 10 Free Apps

10/15 10/22 10/291 Gangnam's Style WatchESPN Hurricane

2 Fix-it Felix Jr. Subway Surfers Stacheify

3 Facebomb Swap! Monster Quest™ Talking Rex the Dinosaur

4 Pic Stitch MARVEL War of Heroes Slendr

5 Solar Walk Toca Hair Salon The Weather Channel®

6 City Story Metro: Halloween Pandora Radio Weird but True

7 YouTube Vintique Zombiewood

8 Podcasts The Price is Right™ Slots Contract Killer 2

9 Find My Friends Bakery Story: Halloween Random Heroes

10 iTunes u Streaker Run Bubbly Galaxy With Buddies

Top Grossing Apps

10/15 10/22 10/291 Bubble Mania™ FREE Walking Dead: The Game $4.99 Bike Race Free FREE

2 Tap Campus Life FREE True Skate $1.99 The Sims™ FreePlay FREE

3 GSN Casino FREE Battle Nations FREE Battle Nations FREE

4 Crazy Taxi $4.99 Bubble Mania™ FREE Crime City FREE

5 The Simpsons™: Tapped Out FREE The Simpsons™: Tapped Out FREE Subway Surfers FREE

6 Pandora Radio FREE Pandora Radio FREE Modern War FREE

7 Clash of Clans FREE Clash of Clans FREE Tap Campus Life FREE8 Kingdoms of Camelot: Battle for the N… FREE Kingdoms of Camelot: Battle for the N… FREE The Simpsons™: Tapped Out FREE

9 Rage of Bahamut FREE Rage of Bahamut FREE Pandora FREE

10 MLB.com At Bat FREE Legend of the Cryptids FREE Clash of Clans FREE Source: Apple.com

Barclays | Apple, Inc.

30 October 2012 19

Figure 20: Top iPad Apps

Top Paid iPad Apps10/15 10/22 10/29

1 Wipeout $1.99 Finger Tied $0.99 Stack the States $0.99

2 Where's My Perry $0.99 Jumping Finn Turbo $1.99 Grand Theft Auto: Chinatown Wars HD $0.99

3 Fruit Ninja HD $2.99 Sonic Jump™ $1.99 NOAA Hi-Def Radar $1.99

4 Avengers Initiative $2.99 True Skate $1.99 Plants vs. Zombies HD $0.99

5 It's The Great Pumpkin, Charlie Brown $4.99 Zone Zero HD $0.99 Grand Theft Auto 3 $0.99

6 Devil's Attorney $2.99 Walking Dead: The Game $4.99 Tetris® for iPad $1.99

7 Bad Biggies Best Egg Recipes $0.99 Wipeout $1.99 Cut the Rope HD $0.99

8 MONOPOLY Millionarie for iPad $4.99 Where's My Perry $0.99 Toca Tailor $0.99

9 Plague Inc. $0.99 Fruit Ninja HD $2.99 He-Man: The Most Powerful Game In… $0.99

10 Bad Piggies HD $2.99 Plague Inc. $0.99 Disney Junior Minnie Mouseke-Puzzles $0.99

Top Free iPad Apps10/15 10/22 10/29

1 Action Movie FX WatchESPN Poker Texas HD

2 Fix-it Felix Jr. Ragdoll Blaster 3: Deluxe HD Talking Rex the Dinosaur for iPad

3 Netflix Christmas Magic Colors - All in one Holiday Fam… My Town 2: Getaways

4 City Story Metro: Halloween Flow Free Bubble Witch Saga

5 Craftsy The Price is Right™ Zombiewood

6 Trulia Real Estate Vintique Mirros of Albion HD

7 Adobe Photoshop Express Toca Hair Salon Punch Quest

8 Solar Walk Monster Quest™ Gizmonauts

9 Dead Dome Bakery Story: Halloween Magic Puzzles

10 Kumo Lumo The Winder Image Letterpress

Top Grossing iPad Apps10/15 10/22 10/29

1 Minecraft - Pocket Edition $6.99 Battle Nations FREE Tap Campus Life FREE

2 DoubleDown Casino - Slots FREE The Tribez HD FREE Crime City FREE

3 National Geographic Magainze FREE Minecraft - Pocket Edition $6.99 Smurfs' Village FREE

4 Zinio FREE DoubleDown Casino - Slots FREE Minecraft - Pocket Edition $6.99

5 Mystery Manor: Hidden Adventure HD FREE Zinio FREE Mystery Manor: Hidden Adventure HD FREE

6 The Sims™ FreePlay FREE Mystery Manor: Hidden Adventure HD FREE The Sims™ FreePlay FREE

7 The Simpsons™: Tapped Out FREE The Simpsons™: Tapped Out FREE The Simpsons™: Tapped Out FREE

8 Clash of Clans FREE Clash of Clans FREE Clash of Clans FREE

9 Comics FREE Comics FREE Comics FREE

10 NYTimes for iPad FREE NYTimes for iPad FREE NYTimes for iPad FREE Source: Apple.com

Barclays | Apple, Inc.

30 October 2012 20

Figure 21: Top Mac Apps

Top Paid Mac Apps10/15 10/22 10/29

1 MenuTab Pro for Facebook $2.99 Disk Doctor $1.99 Order & Chaos© Online $6.99

2 Mint QuickView $4.99 Voila: Powerful Screen capture… $4.99 Machinarium $4.99

3 Twins - Duplicate Finder $2.99 Grand Theft Auto: Vice City $4.99 Living Earth HD $4.99

4 RAGE®: Campaign Edition $14.99 Tweetbot for Twitter $19.99 Star Wars®: Knights of the Old Republic® $9.99

5 Doom3 $4.99 Cubemen $1.99 Trine 2 $4.99

6 Aperture $79.99 Boom $4.99 Instamac $0.99

7 AirAttack $0.99 Folding Text $14.99 Civilization V: Campaign Edition $19.99

8 OS X Mountain Lion $19.99 Grand Theft Auto: San Andreas $7.99 Busy Cal 2 $29.99

9 Pages $19.99 PopClip $2.99 Disk Doctor $1.99

10 Keynote $19.99 xScan $0.99 Voila: Powerful Screen capture… $4.99

Top Free Mac Apps10/15 10/22 10/29

1 Stardom: The A-List Instabar Red Crucible 2

2 Inbetween Land Kingdom Chronicles CollageIt Free

3 Rail Maze Memory Clean CheatSheet

4 Picture Collage Maker Lite Small Street Degrees

5 Battle Nations Motorbike Lite Pocket

6 SketchBook Express Battle Nations Deer Hunter Reloaded

7 Evernote Sketchbook Express Memory Clean

8 Xcode Flutter Small Street

9 Twitter Evernote Battle Nations

10 Kindle Xcode SketchBook Express

Top Grossing Mac Apps10/15 10/22 10/29

1 iBank $59.99 Grand Theft Auto: San Andreas $7.99 Voila $4.99

2 GarageBand $14.99 Tweetbot for Twitter $19.99 Order & Chaos© Online $6.99

3 Coda 2 $74.99 FoldingText $14.99 BusyCal 2 $29.99

4 Call of Duty® 4: Modern Warfare™ $29.99 iBank $59.99 Tweetbot for Twitter $19.99

5 Battle Nations FREE GarageBand $14.99 iBank $59.99

6 OS X Mountain Lion $19.99 Coda 2 $74.99 GarageBand $14.99

7 Final Cut Pro $299.99 Battle Nations FREE Battle Nations FREE

8 Pages $19.99 OS X Mountain Lion $19.99 OS X Mountain Lion $19.99

9 Keynote $19.99 Final Cut Pro $299.99 Final Cut Pro $299.99

10 Logic Pro $199.99 Pages $19.99 Pages $19.99 Source: Apple.com

Barclays | Apple, Inc.

30 October 2012 21

ANALYST(S) CERTIFICATION(S)

I, Ben A. Reitzes, hereby certify (1) that the views expressed in this research report accurately reflect my personal views about any or all of thesubject securities or issuers referred to in this research report and (2) no part of my compensation was, is or will be directly or indirectly related tothe specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED

Barclays Research is a part of the Corporate and Investment Banking division of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). For current important disclosures regarding companies that are the subject of this research report, please send a writtenrequest to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com orcall 212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities.

Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from acceptingpayment or reimbursement by any covered company of their travel expenses for such visits.

In order to access Barclays Statement regarding Research Dissemination Policies and Procedures, please refer tohttps://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.

The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamentalanalysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, orotherwise.

Primary Stocks (Ticker, Date, Price)

Apple, Inc. (AAPL, 26-Oct-2012, USD 604.00), Overweight/Neutral

Guide to the Barclays Fundamental Equity Research Rating System:

Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below)relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverageuniverse").

In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investorsshould carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating

Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon.

Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or tocomply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company.

Industry View

Positive - industry coverage universe fundamentals/valuations are improving.

Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating.

Negative - industry coverage universe fundamentals/valuations are deteriorating.

Below is the list of companies that constitute the "industry coverage universe":

U.S. IT Hardware

Apple, Inc. (AAPL) Dell Inc. (DELL) EMC Corp. (EMC)

Fusion-io Inc. (FIO) Hewlett-Packard (HPQ) IBM Corp. (IBM)

Ingram Micro Inc. (IM) Lexmark International (LXK) NetApp, Inc. (NTAP)

Seagate Technology (STX) Tech Data Corp. (TECD) Western Digital Corp. (WDC)

Xerox Co. (XRX)

Distribution of Ratings:

Barclays | Apple, Inc.

30 October 2012 22

IMPORTANT DISCLOSURES CONTINUED

Barclays Equity Research has 2531 companies under coverage.

42% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 54% of companies with this rating are investment banking clients of the Firm.

43% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% ofcompanies with this rating are investment banking clients of the Firm.

13% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 43% ofcompanies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target:

Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock willtrade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's pricetarget over the same 12-month period.

Barclays offices involved in the production of equity research:

London

Barclays Bank PLC (Barclays, London)

New York

Barclays Capital Inc. (BCI, New York)

Tokyo

Barclays Securities Japan Limited (BSJL, Tokyo)

São Paulo

Banco Barclays S.A. (BBSA, São Paulo)

Hong Kong

Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong)

Toronto

Barclays Capital Canada Inc. (BCCI, Toronto)

Johannesburg

Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg)

Mexico City

Barclays Bank Mexico, S.A. (BBMX, Mexico City)

Taiwan

Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan)

Seoul

Barclays Capital Securities Limited (BCSL, Seoul)

Mumbai

Barclays Securities (India) Private Limited (BSIPL, Mumbai)

Singapore

Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

Barclays | Apple, Inc.

30 October 2012 23

IMPORTANT DISCLOSURES CONTINUED

Apple, Inc. (AAPL) Stock Rating Industry View

USD 604.00 (26-Oct-2012) OVERWEIGHT NEUTRAL

Rating and Price Target Chart - USD (as of 26-Oct-2012) Currency=USD

Date Closing Price Rating Price Target

24-Oct-2012 616.83 800.00

12-Sep-2012 669.79 810.00

24-Apr-2012 560.28 750.00

19-Mar-2012 601.10 730.00

06-Mar-2012 530.26 710.00

24-Jan-2012 420.41 630.00

23-Sep-2011 404.30 555.00

19-Jul-2011 376.85 515.00

20-Apr-2011 342.41 465.00

18-Jan-2011 340.65 450.00

12-Jan-2011 344.42 420.00

18-Oct-2010 318.00 390.00

12-Oct-2010 298.54 385.00

21-Jul-2010 254.24 340.00

22-Jun-2010 273.85 325.00

01-Jun-2010 260.83 320.00

21-Apr-2010 259.22 315.00

08-Apr-2010 239.95 300.00

27-Jan-2010 207.88 285.00

26-Jan-2010 205.94 265.00

Closing Price Target Price

Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12

100

200

300

400

500

600

700

800

900

07-Jan-2010 210.58 260.00 Link to Barclays Live for interactive charting

C: Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Apple, Inc. or one of its affiliates.

D: Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Apple, Inc. in the past 12 months.

J: Barclays Bank PLC and/or an affiliate trades regularly in the securities of Apple, Inc..

K: Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Apple, Inc. within the past 12 months.

L: Apple, Inc. is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate.

M: Apple, Inc. is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: Our price target is $800 based on about 13x our FY14 EPS estimate of $60.66.

Risks which May Impede the Achievement of the Barclays Research Price Target: Risks include: 1. the economic environment and consumer spending trends 2. Mac demand momentum 3. execution risk in Apple's ability to continue launching the iPhone successfully in the US andinternational markets.

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