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					                                                                             MORGAN            STANLEY              RESEARCH
                                                                             NORTH          AMERICA


                                                                             Morgan Stanley & Co. Incorporated   Katy L. Huberty, CFA
                                                                                                                 Kathryn.Huberty@morganstanley.com
                                                                                                                 +1 (1)212 761 6249

                                                                                                                 Mathew Schneider, CFA
                                                                                                                 Mathew.Schneider@morganstanley.com
                                                                                                                 +1 (1)212 761 3483


                April 20, 2010


Stock Rating    Apple, Inc.
Overweight

Industry View
                Debate Shifts Back to Strong
Attractive
                iPhone Demand                                                Key Ratios and Statistics
                                                                             Reuters: AAPL.O Bloomberg: AAPL US
                                                                             Systems and PC Hardware / United States of America
                What's Changed                                               Price target                                                     $275.00
                Price Target                            $250.00 to $275.00   Shr price, close (Apr 20, 2010)                                  $244.59
                                                                             Mkt cap, curr (mm)                                              $227,081
                                                                             52-Week Range                                             $251.14-118.60
                Conclusion: We see the AAPL investment debate
                shifting back to the iPhone with the 25% unit beat in        Fiscal Year ending                     09/08     09/09    09/10e     09/11e

                C1Q and upcoming iPhone launch in June. Our view is          ModelWare EPS ($)                       6.78      9.08     13.68      14.62
                that the market under-appreciates longer-term                Prior ModelWare EPS ($)                    -      9.08     12.44      15.10
                                                                             P/E                                     16.8      20.4      17.9       16.7
                iPhone/iPad demand and if Apple plays its cards
                                                                             Consensus EPS ($)§                      5.36      6.29     11.98      13.96
                correctly, 10%+ global handset market share (25%
                                                                             Div yld (%)                                -         -         -          -
                smartphone market share) is attainable in 3-4 years –        Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare
                                                                             framework (please see explanation later in this note).
                implying bull case iPhone EPS of $23-32 depending on         § = Consensus data is provided by FactSet Estimates.
                pricing/margin strategy. If our thesis plays out, we         e = Morgan Stanley Research estimates

                believe AAPL shares could trade at $325+ in 12-months.

                What’s new: Apple topped our revenue/EPS estimates
                by 12%/39% on the back of better than expected
                iPhone/iPod demand and gross margins. Importantly,
                Int’l markets drove most of the upside with an est. 53%
                of revenue outside the US vs. just 38% two years
                ago. We raise our CY10 revenue and EPS to $63.6
                billion (from $62.8 billion) and $14.50 (from $13.70)
                which pushes our base case valuation to $275 - though
                as we note above, we have increased confidence in
                our bull case in light of recent iPhone/iPad upside.

                iPad gross margin guidance appears too
                conservative: Management guided to a 570 bps drop in
                gross margins in June, partially due to lower margin iPad
                sales (140bps). All else equal, iPad gross margins
                would have to come in at ~22% on our ests. to back into
                this guidance. We view this as conservative (and model
                a 325 bps drop) and see upside from: 1) improving mix
                post the 3G launch, 2) related high margin accessories       Morgan Stanley does and seeks to do business with
                sales, 3) volume ramp over the next few months and 4) a      companies covered in Morgan Stanley Research. As
                more benign component cost environment (ex DRAM).            a result, investors should be aware that the firm may
                                                                             have a conflict of interest that could affect the
                                                                             objectivity of Morgan Stanley Research. Investors
                What’s next - iPhone launch: We expect a new iPhone          should consider Morgan Stanley Research as only a
                launch with expanded features in June. We also see the       single factor in making their investment decision.
                potential for price cuts (to hardware and/or service         For analyst certification and other important
                plans) for the current iPhone 3GS.                           disclosures, refer to the Disclosure Section,
                                                                             located at the end of this report.
                                                                                            MORGAN                       STANLEY     RESEARCH

                                                                                            April 20, 2010
                                                                                            Apple, Inc.




Risk-Reward Snapshot: Apple (AAPL, $244.59, OW, PT $275)

$500                                                                                                                              Investment Thesis
                                                                                              Bull Case Scenarios                  The market underestimates the
                                                                                              I. Broader carrier distribution /
                                                                                              maintain subsidy (F12 market         earnings power of Apple’s mobile
                                                                              $435 (+78%)     share 10%)
$400                                                                                                                               internet devices. We view the
                                                                                              II. Lower service plan cost /
                                                                                              lower subsidy (F12 market
                                                                                              share 15%)
                                                                                                                                   combination of new product launches,
                                                                              $358 (+46%)
                                                                                              III. Razor & Blade model / no        broader distribution and more
                                                                                              subsidy (F12 market share
$300                                                                          $325 (+33%)     33%)                                 attractive pricing as demand drivers
                                                                              $275 (+12%)
                                                          $244.59                             Base Case Scenario                   over the next two years. Additionally,
                                                                                              - iPhone success limited to
                                                                                              high-end (F12 market share           we believe iPhone, Touch and iPad
                                                                                              4%)
$200                                                                                                                               margins will remain above the
                                                                              $195 (-20%)     Bear Case Scenario
                                                                                              - iPhone loses its luster, open      corporate average, driving EPS
                                                                                              ecosystems win (F12 market
                                                                                              share 2-3%)                          upside as mix improves.
$100
                                                                                                                                  Potential Catalysts
                                                                                                                                   iPhone exclusivity expiration
  $0                                                                                                                               announcements in the US, Germany,
   Apr-08                            Apr-09                    Apr-10                 Apr-11                                       Spain and Japan
            Historical Performance        Current Price     Price Target                                                           iPad shipment ramp as 3G version is
                                                                                                                                   launched and distribution expands in
                                                                                                                                   U.S. and internationally
                      12x F12          We see multiple paths to our bull case of $325+ valuation. 1)
Bull Case                                                                                                                          Further reductions in iPhone total
                   iPhone EPS          Broader global carrier distribution drives 10% global handset
Case                                                                                                                               cost of ownership (hardware or
                   of $23 + 10x        market share by F12. 12x F12 iPhone EPS of $32 + 10x core EPS
$325+                                  of $5 = $435/shr valuation. 2) Lower-end device / service plan drive                        service plan cost)
                   core EPS of
                                       15% global handset market share and $200 average subsidy – 12x                              Potential new content revenue
                         $5
                                       F12 iPhone EPS of $25 +10x core EPS of $5 = $358/shr valuation.                             streams, including books, magazines,
                                       3) iPhone sells unsubsidized, broadening Apple’s TAM and placing                            video
                                       it in market share leadership position (33% unit share). 12x F12
                                       iPhone EPS of $23 + 10x core EPS of $5 = $325/shr valuation.                               Investment Risks
                                                                                                                                   Pricing and gross margin pressure if
Base             19x C10e EPS Broader carrier distribution in developed markets doubles
                                                                                                                                   carriers push back on high iPhone
                   of $14.50  iPhone market share by F12. iPhone shipments of 42M and 59M
Case                                                                                                                               subsidies in the face of exclusivity
                     (15.8x   units in C10 and C11 as ASPs fall from $600+ to $525. 6M iPads
$275                          ship in C10 and 9M in C11. Macs continue to gain share in a rising                                   expirations, competition, and
                   ex-cash)
                              market as units rise to 14.1M units in C10 and 16.3M units in C11.                                   network congestion
                              Gross margins remain above 40% due to iPhone/touch mix shift.                                        Increased competition in the
                              EPS of $14.50 in C10 and $16.09 in C11. Multiple of 19x, low-end                                     Smartphone market from
                              of historical range.                                                                                 Android-based devices, RIMM, Palm,
                                                                                                                                   etc
                     15x C10e   iPhone and iPad shipments come in light and gross margins
Bear                                                                                                                               Shipment, gross margin and
                       EPS of   come under pressure. iPhone/iPad units of 37M/5M in CY10.
Case                                                                                                                               earnings volatility related to the
$195              $13.00 (11.5x Gross margins fall below 39% for the year due to pressure from
                                iPhone price cuts and iPad mix shift. Market multiple on EPS of                                    launch of new products
                    ex-cash)
                                $13.




                                                                                                                                                                      2
                                                                                          MORGAN             STANLEY             RESEARCH

                                                                                          April 20, 2010
                                                                                          Apple, Inc.




Exhibit 2
Apple F2Q10 Earnings Variance
                                                                                                                               F2Q10 (Mar)

($ Millions)                       F1Q08 A F2Q08 A F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F2Q10 E Cons. Est. Comments
Total Revenues                      10,430     7,980     7,561    11,520    11,880     9,084     9,734    12,207    15,683    13,499    12,037   12,000 Asia pac revenue up 184% YoY, Europe up 63%
Y/Y Growth                            46%       51%       36%       74%       14%       14%       29%        6%       32%       49%       33%
Q/Q Growth                            58%      -23%       -5%       52%        3%      -24%        7%       25%       28%      -14%      -23%
Total Mac Revenue                    3,570     3,511     3,634     3,639     3,565     2,960     3,354     3,980     4,450     3,760     3,967
Y/Y Growth                            48%       55%       43%       17%        0%      -16%       -8%        9%       25%       27%       34%
iPod, iPhone, and Related Revenu     6,232     3,940     3,426     7,331     7,709     5,498     5,850     7,578    10,602     9,105     7,445
Y/Y Growth                            43%       48%       30%      139%       24%       40%       71%        3%       38%       66%       35%
  Other Hardware & iTunes            1,199     1,305     1,265     1,265     1,398     1,406     1,298     1,409     1,633     1,799     1,687
  iPod                               3,997     1,818     1,678     1,660     3,371     1,665     1,492     1,563     3,391     1,861     1,455
  iPhone                             1,036       817       483     4,406     2,940     2,427     3,060     4,606     5,578     5,445     4,303
Software, Service & Other              628       529       501       550       606       626       530       649       631       634       626
Y/Y Growth                            80%       53%       30%       28%       -4%       18%        6%       18%        4%        1%        0%
Gross Profit                         3,405     2,607     2,743     4,443     4,507     3,627     3,983     5,105     6,414     5,625     4,721           Up QoQ due to iPhone mix and lower component prices
  Gross profit margin               32.6%     32.7%     36.3%     38.6%     37.9%     39.9%     40.9%     41.8%     40.9%     41.7%     39.2%
SG&A                                   960       886       916       999     1,091       985     1,010     1,063     1,288     1,220     1,234
R&D                                    246       273       292       298       315       319       341       358       398       426       409
Operating Income                     2,199     1,448     1,535     3,146     3,101     2,323     2,632     3,684     4,728     3,979     3,078
  Operating Margin                  21.1%     18.1%     20.3%     27.3%     26.1%     25.6%     27.0%     30.2%     30.1%     29.5%     25.6%
Tax rate                            31.6%     31.6%     31.6%     31.6%     30.8%     32.1%     32.1%     32.1%     29.0%     23.7%     29.0%            Lower tax rate to get to 27% target for the Fiscal year
Operating EPS                       $1.82     $1.22     $1.25     $2.48     $2.50     $1.79     $2.01     $2.77     $3.67     $3.33     $2.40    $2.44
Share Count                            900       899       903       905       901       903       909       914       920       923       921
Product Summary (Units, K)         F1Q08 A F2Q08 A F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F2Q10 A                               Comments
Desktop                                 977       856       943       936       728       818       849       787     1,234     1,147      968           iMac units driven by C4Q09 refresh
  Y/Y Growth                           53%       37%       49%       15%      -25%       -4%      -10%      -16%       70%       40%      -4%
Notebook                              1,342     1,433     1,553     1,675     1,796     1,398     1,754     2,266     2,128     1,796    2,027
  Y/Y Growth                           38%       61%       37%       24%       34%       -2%       13%       35%       18%       28%      62%
iPod                                22,121    10,644    11,011    11,052    22,727    11,013    10,215    10,177    20,970    10,885    9,100            Touch units up 63% YoY
  Y/Y Growth                            5%        1%       12%        8%        3%        3%       -7%       -8%       -8%       -1%     -17%
iPhone                               2,315     1,703       717     6,892     4,363     3,793     5,208     7,367     8,737     8,752    7,000            Very strong iPhone units actually rose QoQ in seasonally soft
  Y/Y Growth                                             166%      516%        88%     123%      626%         7%     100%      131%       85%              March quarter, strong demand from new carriers and existing
Total CPU Units (ex-iPod)            2,319     2,289      2,496     2,611     2,524     2,216     2,603     3,053     3,362     2,943    3,053
  Y/Y Growth                          44%       51%        41%       21%        9%       -3%        4%       17%       33%       33%      38%
Source: Morgan Stanley Research




                                                                                                                                                                                   3
                                                                                         MORGAN             STANLEY             RESEARCH

                                                                                         April 20, 2010
                                                                                         Apple, Inc.




Exhibit 3
Apple F2Q10 Earnings Variance (Continued)
ASPs                              F1Q08 A F2Q08 A F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F2Q10 A                        Comments
Desktop                             1,552   1,583   1,467   1,462   1,435   1,291   1,336   1,384   1,371   1,336   1,380
  Y/Y Growth                           4%      8%     -3%      0%     -7%    -18%     -9%     -5%     -4%      3%      8%
Notebook                            1,531   1,505   1,449   1,356   1,403   1,362   1,266   1,276   1,296   1,241   1,265
  Y/Y Growth                           1%     -1%      4%     -5%     -8%     -9%    -13%     -6%     -8%     -9%     -7%
iPod                                  181     171     152     150     148     151     146     154     162     171     160
  Y/Y Growth                         11%       7%     -5%     -5%    -18%    -11%     -4%      2%      9%    13%       6%
iPhone                                448     480     674     639     674     640     588     625     638     622
  Y/Y Growth                                                          51%     33%    -13%     -2%     -5%     -3%
Total CPU Units (ex-iPod)           1,539   1,534   1,456   1,394   1,412   1,336   1,289   1,304   1,324   1,278   1,299
  Y/Y Growth                           2%      2%      1%     -3%     -8%    -13%    -11%     -6%     -6%     -4%     -3%
Product Summary (Sales, $mm)      F1Q08 A F2Q08 A F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F2Q10 A                        Comments
Desktop                              1,516     1,355     1,383     1,368     1,045     1,056     1,134     1,089     1,692     1,532     1,239
  Y/Y Growth                          59%       48%       45%       14%      -31%      -22%      -18%      -20%       62%       45%        3%
Notebook                             2,054     2,156     2,251     2,271     2,520     1,904     2,220     2,891     2,758     2,228     2,727
  Y/Y Growth                          40%       59%       43%       18%       23%      -12%       -1%       27%        9%       17%       51%
iPod                                3,997     1,818     1,678     1,660     3,371     1,665     1,492     1,563     3,391     1,861     1,455
  Y/Y Growth                          17%        8%        7%        3%      -16%       -8%      -11%       -6%        1%       12%      -13%
iPhone                              1,036       817       483     4,406     2,940     2,427     3,060     4,606     5,578     5,445     4,303
  Y/Y Growth                                            243%      801%      184%      197%      534%         5%       90%     124%        77%
Other Hardware and iTunes          $1,199    $1,305    $1,265    $1,265    $1,398    $1,406    $1,298    $1,409    $1,633    $1,799    $1,687
  Y/Y Growth                         29%       33%        36%       33%       17%        8%        3%       11%       17%       28%       20%
Software & Other                      628       529       501       550       606       626       530       649       631       634       626
  Y/Y Growth                         80%       53%        30%       28%       -4%       18%        6%       18%        4%        1%        0%
Total CPU Revenue (ex-iPod)        $3,570    $3,511    $3,634    $3,639    $3,565    $2,960    $3,354    $3,980    $4,450    $3,760    $3,967
  Y/Y Growth                         48%       55%        43%       17%        0%      -16%       -8%        9%       25%       27%       34%
Source: Morgan Stanley Research




                                                                                                                                                            4
                                                                                                                          MORGAN                 STANLEY             RESEARCH

                                                                                                                          April 20, 2010
                                                                                                                          Apple, Inc.




Exhibit 4
Apple Income Statement
                                                             2009A                                         2010E                                      2011E                             Fiscal Year
($ in millions)                                  Dec-08   Mar-09 Jun-09         Sep-09      Dec-09   Mar-10    Jun-10        Sep-10     Dec-10    Mar-11    Jun-11   Sep-11   2008A    2009A     2010E   2011E

Revenues                                         11,880   9,084      9,734      12,207      15,683   13,499      13,434     17,127      19,549    15,282   14,663    18,500   37,492   42,906   59,743   67,993
  Consumer Revenue                                2,640   2,218      2,352       2,933       3,704    3,264       3,209      3,518       4,040     3,568    3,570     3,962    9,702   10,143   13,696   15,139
    Consumer Desktop (iMac)                         757     791        737         738       1,386    1,301       1,017        911       1,317     1,236      966       865    3,595    3,023    4,615    4,384
    Consumer Portable (iBook)                     1,883   1,426      1,615       2,196       2,318    1,963       2,193      2,607       2,723     2,331    2,604     3,096    6,107    7,120    9,081   10,755
  Professional Revenue                              925     742      1,002       1,047         746      496         914      1,259         805       541      998     1,375    4,652    3,716    3,414    3,720
    Professional Desktop (Power Mac)                288     265        397         351         306      231         381        433         324       252      416       473    2,027    1,301    1,351    1,465
    G4 Cube                                         -       -          -           -           -        -           -          -           -         -        -         -        -        -        -        -
    Professional Portable (PowerBook)               637     478        605         695         440      265         533        826         481       289      582       902    2,625    2,415    2,063    2,254
  iPod, iPhone, and Related Revenue               7,709   5,498      5,850       7,578      10,602    9,105       8,707     11,675      14,041    10,507    9,460    12,455   20,930   26,636   40,088   46,463
    Other Hardware and iTunes                     1,398   1,406      1,298       1,409       1,633    1,799       1,640      1,742       1,971     2,112    1,923     2,043    5,034    5,511    6,813    8,049
    iPod                                          3,371   1,665      1,492       1,563       3,391    1,861       1,624      1,563       3,012     1,457    1,497     1,275    9,154    8,092    8,439    7,241
    iPhone                                        2,940   2,427      3,060       4,606       5,578    5,445       4,454      7,030       7,408     6,344    5,149     7,629    6,742   13,033   22,507   26,531
    Tablet                                                                                                          990      1,340       1,650       594      891     1,508                      2,330    4,643
  Software, Service & Other Revenue                606      626       530         649         631      634          604        675         663       666      634       709    2,208    2,411    2,544    2,671

Cost of Sales                                     7,373   5,457      5,751       7,102       9,269    7,875       8,274     10,085      11,565     9,067    8,897    10,937   24,294   25,684   35,502   40,467

Gross Profit                                     4,507    3,627      3,983      5,105       6,414    5,625        5,160      7,042      7,983     6,214     5,765    7,563    13,198   17,223   24,241   27,526
  Gross Margin                                   37.9%    39.9%      40.9%      41.8%       40.9%    41.7%       38.4%       41.1%      40.8%     40.7%     39.3%    40.9%     35.2%    40.1%    40.6%    40.5%
                                                                                                                 -3.25%
Operating Expenses                               1,406    1,304      1,351      1,421       1,686    1,646        1,814      1,987      2,307     2,185     2,258    2,387    4,870     5,482    7,132    9,137
 Research and Development                          315      319        341        358         398      426          457        514        528       550       572      611    1,109     1,333    1,795    2,260
 Selling, General and Administrative             1,091      985      1,010      1,063       1,288    1,220        1,357      1,473      1,779     1,635     1,686    1,776    3,761     4,149    5,338    6,876
Operating Income                                 3,101    2,323      2,632      3,684       4,728    3,979        3,347      5,055      5,677     4,029     3,507    5,177    8,328    11,741   17,109   18,390
 PTOP Margin                                     26.1%    25.6%      27.0%      30.2%       30.1%    29.5%       24.9%       29.5%      29.0%     26.4%     23.9%    28.0%    22.2%     27.4%    28.6%    27.0%

Total Interest & Other Income                      158          63         60          45      33           50      47             62      81       103       118      139      620      326      192      440

Pretax Income                                    3,259    2,386      2,692      3,729       4,761    4,029       3,394       5,117      5,757     4,132     3,625    5,316    8,948    12,067   17,300   18,830
GAAP Income Tax Provision                        1,004      766        864      1,197       1,380      955         916       1,382      1,554     1,116       979    1,435    2,828     3,831    4,633    5,084
Operating Tax Provision (excl one time tax eff   1,004      766        864      1,197       1,381      955         916       1,382      1,554     1,116       979    1,435    2,828     3,831    4,634    5,084
  Effective Tax Rate                             30.8%    32.1%      32.1%      32.1%       29.0%    23.7%       27.0%       27.0%      27.0%     27.0%     27.0%    27.0%    31.6%     31.8%    26.8%    27.0%

Operating Net Income                             2,255    1,620      1,828      2,532       3,380    3,074       2,477       3,736      4,203     3,016     2,646    3,880    6,120    8,235    12,667   13,746
 Operating Net Income Margin                     19.0%    17.8%      18.8%      20.7%       21.6%    22.8%       18.4%       21.8%      21.5%     19.7%     18.0%    21.0%    16.3%    19.2%     21.2%    20.2%

Total Non-recurring Charges                         -       -          -           -           -        -           -          -           -         -        -         -        -        -        -        -

GAAP Net Income                                   2,255   1,620      1,828       2,532       3,380    3,074       2,477      3,736       4,203     3,016    2,646     3,880    6,120    8,235   12,667   13,746

Fully-diluted EPS
  EPS - ModelWare                                 $2.50   $1.79      $2.01       $2.77       $3.67    $3.33       $2.67      $4.01       $4.49     $3.21    $2.81     $4.11    $6.78    $9.08   $13.68   $14.62
  EPS - Reported                                  $2.50   $1.79      $2.01       $2.77       $3.67    $3.33       $2.67      $4.01       $4.49     $3.21    $2.81     $4.11    $6.78    $9.08   $13.68   $14.62
  EPS - ModelWare excl. Stock Option Expe         $2.63   $1.90      $2.13       $2.92       $3.90    $3.58       $2.81      $4.19       $4.68     $3.36    $2.95     $4.28    $7.17    $9.59   $14.48   $15.27

Period Ending Outstanding Shares                  890.6   892.1      895.8       900.7       906.8    913.0       918.9      923.2       927.4     931.4    935.3     938.9    888.3    900.7    923.2    938.9
Avg Shares (Basic)                                889.1   891.2      893.7       898.0       903.5    907.5       915.9      921.1       925.3     929.4    933.3     937.1    881.6    893.0    912.0    931.3
Avg Shares (Fully Diluted)                        901.5   903.0      909.2       914.4       919.8    922.9       928.9      932.6       935.7     938.7    941.6     944.5    902.1    907.0    926.0    940.1
Source: Company reports, Morgan Stanley Research




                                                                                                                                                                                                                5
                                                                                                     MORGAN              STANLEY             RESEARCH

                                                                                                     April 20, 2010
                                                                                                     Apple, Inc.




Exhibit 5
Apple Income Statement Analysis
                                                   2009A                                2010E                                 2011E                            Fiscal Year
$ in millions)                         Dec-08   Mar-09 Jun-09   Sep-09   Dec-09   Mar-10    Jun-10     Sep-10   Dec-10    Mar-11    Jun-11   Sep-11   2008A   2009A     2010E   2011E

 argin Analysis
 Gross Margin                          37.9%    39.9%   40.9%   41.8%    40.9%    41.7%     38.4%       41.1%   40.8%     40.7%     39.3%    40.9%    35.2%   40.1%    40.6%    40.5%
   Consumer Revenue                    28.0%    30.0%   30.0%   28.4%    28.0%    27.0%     27.5%       27.0%   28.3%     27.7%     28.0%    28.4%    30.0%   29.0%    27.4%    28.1%
   Professional Revenue                28.0%    30.0%   30.0%   28.0%    27.8%    26.0%     26.0%       27.0%   29.0%     28.5%     28.0%    29.0%    30.0%   28.9%    26.8%    28.7%
   iPod, iPhone, and Related Revenue   41.6%    44.1%   46.4%   48.2%    45.8%    47.2%     42.9%       46.4%   44.8%     45.2%     44.2%    45.8%    36.7%   45.0%    45.7%    45.0%
   Software, Service & Other Revenue   50.0%    50.0%   50.0%   50.0%    50.0%    50.0%     50.0%       49.0%   48.0%     48.0%     48.0%    48.0%    54.5%   50.0%    49.7%    48.0%
 R&D                                    2.7%     3.5%    3.5%    2.9%     2.5%     3.2%      3.4%        3.0%    2.7%      3.6%      3.9%     3.3%     3.0%    3.1%     3.0%     3.3%
 SG&A                                   9.2%    10.8%   10.4%    8.7%     8.2%     9.0%     10.1%        8.6%    9.1%     10.7%     11.5%     9.6%    10.0%    9.7%     8.9%    10.1%
 Operating Expenses                    11.8%    14.4%   13.9%   11.6%    10.8%    12.2%     13.5%       11.6%   11.8%     14.3%     15.4%    12.9%    13.0%   12.8%    11.9%    13.4%
 EBITDA Margin                         27.5%    27.6%   28.9%   31.8%    31.5%    31.1%     26.6%       30.9%   30.1%     29.4%     27.3%    30.9%    23.5%   29.1%    30.1%    29.6%
 PTOP Margin                           26.1%    25.6%   27.0%   30.2%    30.1%    29.5%     24.9%       29.5%   29.0%     26.4%     23.9%    28.0%    22.2%   27.4%    28.6%    27.0%
 Pretax Margin                         27.4%    26.3%   27.7%   30.5%    30.4%    29.8%     25.3%       29.9%   29.5%     27.0%     24.7%    28.7%    23.9%   28.1%    29.0%    27.7%
 Net Income                            19.0%    17.8%   18.8%   20.7%    21.6%    22.8%     18.4%       21.8%   21.5%     19.7%     18.0%    21.0%    16.3%   19.2%    21.2%    20.2%
ear-Over-Year Growth (%)
 Revenue                                 14%      14%    29%       6%      32%      49%       38%        40%      25%       13%        9%       8%     53%     14%       39%     14%
   Consumer Revenue                      13%      -9%    -2%      16%      40%      47%       36%        20%       9%        9%       11%      13%     59%      5%       35%     11%
   Professional Revenue                 -25%     -31%             -6%     -19%     -33%       -9%        20%       8%        9%        9%       9%     10%    -20%       -8%      9%
   iPod, iPhone, and Related Revenue     24%      40%    71%       3%      38%      66%       49%        54%      32%       15%        9%       7%     64%     27%       51%     16%
   Software, Service & Other Revenue     -4%      18%     6%      18%       4%       1%       14%         4%       5%        5%        5%       5%     46%      9%        6%      5%
 Gross Margin                            32%      39%    45%      15%      42%      55%       30%        38%      24%       10%       12%       7%     62%     30%       41%     14%
   Consumer Revenue                       5%      -9%    -2%      10%      40%      32%       25%        14%      10%       12%       13%      18%     50%      1%       28%     13%
   Professional Revenue                 -30%     -31%   -18%     -12%     -20%     -42%      -21%        16%      13%       20%       18%      17%      3%    -23%      -15%     17%
   iPod, iPhone, and Related Revenue     59%      88%   108%      19%      51%      77%       38%        48%      30%       11%       12%       5%     91%     56%       53%     14%
   Software, Service & Other Revenue     -4%      18%   -24%      18%       4%       1%       14%         2%       1%        1%        1%       3%     45%      0%        5%      1%
 R&D                                     28%      17%    17%      20%      26%      34%       34%        44%      33%       29%       25%      19%     42%     20%       35%     26%
 SG&A                                    14%      11%    10%       6%      18%      24%       34%        39%      38%       34%       24%      21%     27%     10%       29%     29%
 Operating Expenses                      17%      13%    12%      10%      20%      26%       34%        40%      37%       33%       25%      20%     30%     13%       30%     28%
 PTOP Margin                             41%      60%    71%      17%      52%      71%       27%        37%      20%        1%        5%       2%     89%     41%       46%      7%
 Pretax Margin                           36%      48%    63%      13%      46%      69%       26%        37%      21%        3%        7%       4%     79%     35%       43%      9%
 Net Income                              37%      47%    62%      13%      50%      90%       36%        48%      24%       -2%        7%       4%     78%     35%       54%      9%
 ModelWare EPS                           37%      47%    61%      12%      47%      86%       33%        45%      22%       -4%        5%       3%     76%     34%       51%      7%
equential Growth (%)
 Revenue                                  3%     -24%      7%     25%      28%     -14%        0%        27%      14%      -22%       -4%      26%
   Consumer Revenue                       5%     -16%      6%     25%      26%     -12%       -2%        10%      15%      -12%        0%      11%
   Professional Revenue                 -17%     -20%     35%      4%     -29%     -34%       84%        38%     -36%      -33%       84%      38%
   iPod, iPhone, and Related Revenue      5%     -29%      6%     30%      40%     -14%       -4%        34%      20%      -25%      -10%      32%
   Software, Service & Other Revenue     10%       3%    -15%     22%      -3%       0%       -5%        12%      -2%        0%       -5%      12%
 Gross Margin                             1%     -20%     10%     28%      26%     -12%       -8%        36%      13%      -22%       -7%      31%
   Consumer Revenue                      -2%     -10%      6%     18%      25%     -15%        0%         8%      20%      -14%        1%      13%
   Professional Revenue                 -23%     -14%     35%     -3%     -29%     -38%       84%        43%     -31%      -34%       81%      43%
   iPod, iPhone, and Related Revenue      4%     -24%     12%     35%      33%     -11%      -13%        45%      16%      -24%      -12%      36%
   Software, Service & Other Revenue     10%       3%    -15%     22%      -3%       0%       -5%         9%      -4%        0%       -5%      12%
 R&D                                      6%       1%      7%      5%      11%       7%        7%        12%       3%        4%        4%       7%
 SG&A                                     9%     -10%      3%      5%      21%      -5%       11%         9%      21%       -8%        3%       5%
 Operating Expenses                       8%      -7%      4%      5%      19%      -2%       10%        10%      16%       -5%        3%       6%
 PTOP Margin                             -1%     -25%     13%     40%      28%     -16%      -16%        51%      12%      -29%      -13%      48%
 Pretax Margin                           -1%     -27%     13%     39%      28%     -15%      -16%        51%      13%      -28%      -12%      47%
 Net Income                               0%     -28%     13%     39%      33%      -9%      -19%        51%      13%      -28%      -12%      47%
 ModelWare EPS                            1%     -28%     12%     38%      33%      -9%      -20%        50%      12%      -28%      -13%      46%
evenue Mix
  Consumer Revenue                       22%      24%    24%      24%      24%      24%       24%        21%      21%       23%       24%      21%     26%     24%       23%     22%
  Professional Revenue                    8%       8%    10%       9%       5%       4%        7%         7%       4%        4%        7%       7%     12%      9%        6%      5%
  iPod, iPhone, and Related Revenue      65%      61%    60%      62%      68%      67%       65%        68%      72%       69%       65%      67%     56%     62%       67%     68%
  Software, Service & Other Revenue       5%       7%     5%       5%       4%       5%        4%         4%       3%        4%        4%       4%      6%      6%        4%      4%

Source: Company reports, Morgan Stanley Research




                                                                                                                                                                                   6
                                                                                                           MORGAN           STANLEY            RESEARCH

                                                                                                           April 20, 2010
                                                                                                           Apple, Inc.




Exhibit 6
Apple Balance Sheet
($ in millions)                                    2009A                                  2010E                                 2011E                              Fiscal Year
                                     Dec-08    Mar-09 Jun-09       Sep-09    Dec-09   Mar-10   Jun-10   Sep-10   Dec-10     Mar-11    Jun-11    Sep-11   2008A    2009A     2010E   2011E

Assets
  Current Assets:
    Cash and cash equivalents         7,236     4,466     5,605     5,263     7,609   10,018   13,297   17,872   23,043     23,668    26,839    31,816   11,875    5,263   17,872   31,816
    Short-term investments           20,909    24,412    25,516    28,729    32,211   31,686   31,686   31,686   31,686     31,686    31,686    31,686   12,615   28,729   31,686   31,686
    Accounts receivable               2,196     1,932     2,686     3,361     3,090    2,886    3,707    4,715    3,852      3,099     3,886     4,893    2,422    3,361    4,715    4,893
    Inventories                         396       312       380       455       576      638      547      646      719        635       491       582      509      455      646      582
    Deferred tax assets                1,097     1,065     1,095     1,135    1,180    1,142    1,142    1,142    1,142      1,142     1,142     1,142    1,044    1,135    1,142    1,142
    Other current assets               2,890     2,676     3,015     3,140    3,690    4,515    4,515    4,515    4,515      4,515     4,515     4,515    3,920    3,140    4,515    4,515
  Total Current Assets               34,724    34,863    38,297    42,083    48,356   50,885   54,893   60,577   64,957     64,745    68,560    74,633   32,385   42,083   60,577   74,633
  Property, Plant & Equipment, ne     2,580     2,546     2,653     2,954     3,115    3,504    3,875    4,242    4,560      4,647     4,743     4,846    2,455    2,954    4,242    4,846
  Acquired Intangible Assets            484       475       466       453       494      743      730      717      705        694       684       673      492      453      717      673
  Other assets                          832     1,264     1,585     2,011     1,961    1,925    1,925    1,925    1,925      1,925     1,925     1,925      839    2,011    1,925    1,925
  Non-current debt and equity inve      -         -         -         -         -        -        -        -        -          -         -         -        -        -        -        -
  Total Fixed Assets                  3,896     4,285     4,704     5,418     5,570    6,172    6,530    6,885    7,190      7,266     7,351     7,445    3,786    5,418    6,885    7,445

Total Assets                         38,620    39,148    43,001    47,501    53,926   57,057   61,423   67,462   72,147     72,012    75,911    82,078   36,171   47,501   67,462   82,078
Liabilities
  Current Liabilities:
    Accounts payable                  4,715     3,976     4,854     5,601     6,511    5,666    6,983    7,953    8,124      6,325     7,316     8,388    5,520    5,601    7,953    8,388
    Accrued expenses                  6,162     5,403     5,725     5,905     6,586    6,563    6,856    7,935    7,997      6,441     6,511     7,506    5,841    5,905    7,935    7,506
    Current Debt                        -         -         -         -         -        -        -        -        -          -         -         -        -        -        -        -
    Other current liabilities           -         -         -         -         -        -        -        -        -          -         -         -        -        -        -        -
  Total Current Liabilities          10,877     9,379    10,579    11,506    13,097   12,229   13,839   15,888   16,121     12,766    13,827    15,893   11,361   11,506   15,888   15,893
  Non-Current Liabilities
    Long-term debt                      -         -         -         -         -        -        -        -        -          -         -         -        -        -        -        -
    Deferred revenue - non-curren       814       771       788       853       922      941      941      941      941        941       941       941      768      853      941      941
    Deferred tax liabilities          1,363     1,644     2,020     2,652     3,289    3,689    3,689    3,689    3,689      3,689     3,689     3,689      999    2,652    3,689    3,689
    Other non-current liabilities       816       800       850       850       850      850      850      850      850        850       850       850      746      850      850      850
  Total Non-Current Liabilities       2,993     3,215     3,658     4,355     5,061    5,480    5,480    5,480    5,480      5,480     5,480     5,480    2,513    4,355    5,480    5,480
Total Liabilities                    13,870    12,594    14,237    15,861    18,158   17,709   19,319   21,368   21,601     18,246    19,307    21,373   13,874   15,861   21,368   21,373
Series A preferred stock                                                                                                                                    -        -        -        -
Total Shareholder's Equity           24,750    26,554    28,764    31,640    35,768   39,348   42,105   46,094   50,546     53,766    56,604    60,704   22,297   31,640   46,094   60,704
Total Liabilities and Shareholder 38,620       39,148    43,001    47,501    53,926   57,057   61,423   67,462   72,147     72,012    75,911    82,078   36,171   47,501   67,462   82,078
Source: Company reports, Morgan Stanley Research




                                                                                                                                                                                           7
                                                                                                                     MORGAN              STANLEY               RESEARCH

                                                                                                                     April 20, 2010
                                                                                                                     Apple, Inc.




Exhibit 7
Apple Cashflow Statement
($ in millions)                                                 2009A                                         2010E                                      2011E                                 Fiscal Year
                                                 Dec-08     Mar-09    Jun-09      Sep-09      Dec-09      Mar-10    Jun-10     Sep-10    Dec-10      Mar-11    Jun-11     Sep-11     2009A        2010E       2011E
Cash Flow Statement (Non Cumulative)
Operating activities:
  Net Income / (Loss)                             2,255     1,620       1,828      2,532       3,378       3,074      2,477     3,736     4,203       3,016      2,646     3,880     8,235       12,665      13,746
  Cumulative effect of accounting change            -         -           -          -           -           -          -         -         -           -          -         -         -            -           -
  Adjustments to reconcile net income:                        -           -          -                       -
     Depreciation & Amortization                   168        181         182        203         209         216       229       232       206         470        502       537        734          886       1,714
     Provision for (benefit from) deferred inc     276        294         202        268         425         468       -         -         -           -          -         -        1,040          893         -
     Gain on non-current investments, net          -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
     Gain on short-term investments, net           -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
     Unrealized loss on conv. securities           -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
     Loss on sale of PP&E                            7          1          10          8           6           3       -         -         -           -          -         -            26           9         -
     Non-cash restructuring                        -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
     In-Process R&D                                -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
     Stock based compensation expense              170        181         179        180         205         231       134       171       176         138        132       167        710          742         612
     Tax benefit from ESO                          -          -           -          -           -           -         -         -         -           -          -         -          -            -           -
  Changes in Operating Assets and Liabilities:
     Accounts receivable                            226       264        (754)      (675)        271         211       (821)   (1,009)      864         753       (787)   (1,006)     (939)      (1,347)       (177)
     Inventories                                    113        84         (68)       (75)       (121)        (62)         91      (99)      (73)         84        144       (91)        54        (191)         64
     Other current assets                         1,097       137        (384)      (101)       (517)       (307)       -         -         -           -          -         -         749         (824)        -
     Other assets                                     7      (368)       (241)      (300)         47         102        -         -         -           -          -         -        (902)         149         -
     Accounts payable                              (767)     (760)        879        740         956        (974)     1,317       970       171      (1,799)       991     1,072         92       2,269         435
     Deferred revenue                               200       (72)        195        198         606         (29)       166       281       526         (77)       164       285       521        1,024         898
     Accrued restructuring costs                    -         -           -          -           -           -          -         -         -           -          -         -         -            -           -
     Other current liabilities                      186      (721)        242        132         316        (603)       127       798      (464)     (1,479)       (94)      709      (161)         638      (1,328)
     Deferred tax liabilities                       -         -           -          -           -           -          -         -         -           -          -         -         -            -           -
Net Cash Provided by Operating Activities         3,938       841       2,270      3,110       5,781       2,330      3,721     5,080     5,608       1,104      3,698     5,553    10,159       16,912      15,964
Investing activities:
  Purchase of short-term investments          (13,082)     (10,401)   (11,213)    (12,028)   (12,922)    (12,139)       -         -         -           -          -         -      (46,724)    (25,061)        -
  Proceeds from maturities of short-term inve   2,226        4,054      6,500       7,010      6,216       7,115        -         -         -           -          -         -       19,790      13,331         -
  Proceeds from sales of short-term investm     2,668        2,789      3,660       1,771      3,199       5,487        -         -         -           -          -         -       10,888       8,686         -
  Purchases of long-term investments              (38)         (16)         (7)       (40)         (6)         (3)      -         -         -           -          -         -         (101)          (9)       -
  Net Proceeds from sale of PP&E                  -            -          -           -          -           -            28       31         34         36         39        42        -            59         151
  Purchase of PP&E                               (339)        (100)      (246)       (459)      (376)       (274)      (615)     (618)     (545)       (582)      (626)     (673)    (1,144)     (1,883)     (2,426)
  Cash paid for acquisition of technology         (14)         (16)       (26)        (13)       -           -          -         -         -           -          -         -          (69)        -           -
  Proceeds from sale of ARM shares                -            -          -           -          -           -          -         -         -           -          -         -          -           -           -
  Other                                           (60)           5          (7)       (12)       (69)       (269)       -         -         -           -          -         -          (74)       (338)        -
Net cash used in investing activities          (8,639)      (3,685)    (1,339)     (3,771)    (3,958)        (83)      (587)     (587)     (511)       (546)      (587)     (631)   (17,434)     (5,215)     (2,274)
Financing activities:
  Increase (decrease) in notes payable to ba        -          -          -          -           -           -         -          -         -           -          -         -         -            -          -
  Increase (decrease) in long-term borrowing        -          -          -          -           -           -         -          -         -           -          -         -         -            -          -
  Proceeds from issuance of common stock             77         45        166        187         374         160       145         82           74       66         60        54       475          761        253
  Excess tax benefits from stock-based com           19         28         77        146         252         161       -          -         -           -          -         -         270          413        -
  Cash used for repurchase of common stoc           (34)         1        (35)       (14)       (103)       (159)      -          -         -           -          -         -         (82)        (262)       -
Net Cash used in Financing Activities                62         74        208        319         523         162       145         82           74       66         60        54       663          912        253
Increase/(decrease) in Cash and Cash Equ         (4,639)    (2,770)     1,139       (342)      2,346       2,409      3,279     4,575     5,171        625       3,171     4,976     (6,612)     12,609      13,943
Adjustments for restatements                        -          -          -           -          -           -          -         -         -           -          -         -
Cash and Cash Equivalents at Beginning of P      11,875     7,236       4,466      5,605       5,263       7,609     10,018    13,297    17,872      23,043     23,668    26,839    11,875        5,263      17,872
Cash and Cash Equivalents at End of Peri          7,236     4,466       5,605      5,263       7,609     10,018      13,297    17,872    23,043      23,668     26,839    31,816     5,263       17,872      31,816
Source: Company reports, Morgan Stanley Research




                                                                                                                                                                                                                 8
                                                                                MORGAN           STANLEY       RESEARCH

                                                                                April 20, 2010
                                                                                Apple, Inc.




                                                       Morgan Stanley ModelWare is a proprietary analytic framework that helps clients
                                                       uncover value, adjusting for distortions and ambiguities created by local accounting
                                                       regulations. For example, ModelWare EPS adjusts for one-time events, capitalizes operating
                                                       leases (where their use is significant), and converts inventory from LIFO costing to a FIFO
                                                       basis. ModelWare also emphasizes the separation of operating performance of a company
                                                       from its financing for a more complete view of how a company generates earnings.



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As of March 31, 2010, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in
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Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Brocade Communications Systems,
Compellent Technologies, Inc., DELL, EMC Corp., Hewlett-Packard, IBM, NetApp Inc, Seagate Technology.
In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Apple, Inc., Brocade
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STOCK RATINGS
Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below).
Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the
equivalent of buy, hold and sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since
Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley




                                                                                                                                                      9
                                                                                              MORGAN            STANLEY           RESEARCH

                                                                                              April 20, 2010
                                                                                              Apple, Inc.




Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as
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and other considerations.
Global Stock Ratings Distribution
(as of March 31, 2010)
For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside
our ratings of Overweight, Equal-weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we
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weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy
recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

                              Coverage Universe    Investment Banking Clients (IBC)
                                             % of                   % of % of Rating
Stock Rating Category            Count       Total     Count Total IBC Category
Overweight/Buy                   1042           41%            325         43%           31%
Equal-weight/Hold                1095           43%            348         46%           32%
Not-Rated/Hold                     15            1%              4          1%           27%
Underweight/Sell                  373           15%             87         11%           23%
Total                           2,525                          764
Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual
circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan
Stanley or an affiliate received investment banking compensation in the last 12 months.
Analyst Stock Ratings
Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe,
on a risk-adjusted basis, over the next 12-18 months.
Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage
universe, on a risk-adjusted basis, over the next 12-18 months.
Not-Rated (NR). Currently the analyst does not have adequate conviction about the stock's total return relative to the average total return of the
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Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage
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Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.
Analyst Industry Views
Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the
relevant broad market benchmark, as indicated below.
In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant
broad market benchmark, as indicated below.
Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant
broad market benchmark, as indicated below.
Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index;
Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.
.
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not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.




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                                                                                             MORGAN           STANLEY            RESEARCH

                                                                                             April 20, 2010
                                                                                             Apple, Inc.




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                                                                                                                                                                            11
                                                                                       MORGAN    STANLEY            RESEARCH




The Americas                                   Europe                                    Japan                           Asia/Pacific
1585 Broadway                                  20 Bank Street, Canary Wharf              4-20-3 Ebisu, Shibuya-ku        1 Austin Road West
New York, NY 10036-8293                        London E14 4AD                            Tokyo 150-6008                  Kowloon
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Industry Coverage:Systems and PC Hardware

Company (Ticker)                              Rating (as of) Price* (04/20/2010)


Katy L. Huberty, CFA
Apple, Inc. (AAPL.O)                         O (05/26/2009)                 $244.59
Brocade Communications Systems               E (05/04/2009)                   $6.37
(BRCD.O)
Compellent Technologies, Inc.                 E (11/19/2007)                  $13.12
(CML.N)
DELL (DELL.O)                                E (11/17/2009)                  $17.01
EMC Corp. (EMC.N)                            O (07/27/2009)                  $19.41
Hewlett-Packard (HPQ.N)                      O (11/16/2007)                  $53.56
IBM (IBM.N)                                  E (09/08/2009)                 $129.69
Isilon Systems, Inc. (ISLN.O)                E (11/16/2007)                  $10.43
Lexmark International (LXK.N)                E (09/08/2009)                  $37.91
NCR Corp. (NCR.N)                            E (03/12/2004)                  $15.28
NetApp Inc (NTAP.O)                          E (07/27/2009)                  $34.67
Netezza Corporation (NZ.N)                   O (10/22/2007)                  $13.42
QLogic Corporation (QLGC.O)                  O (09/08/2009)                  $21.19
Seagate Technology (STX.O)                   E (10/07/2008)                  $19.33
Teradata (TDC.N)                             E (09/08/2009)                  $30.36
Western Digital (WDC.N)                      U (10/07/2008)                  $40.22

Stock Ratings are subject to change. Please see latest research for each company.
* Historical prices are not split adjusted.




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