March quarter revenue and EPS miss. Guidance also below expectations: Apple(AAPL US, not rated, CMP USD104.35) reported March quarter revenue ofUSD50.5bn, down 33% q-o-q and 13% y-o-y, 3% lower than FactSet consensusforecast of USD52bn. Margins were also slightly lower and resulted in EPS ofUSD1.90 versus consensus of USD2.00. For the June quarter, management guidedrevenue of USD41-43bn (15-19% q-o-q decline, 13-17% y-o-y decline), the mid-pointof which is 11% lower than the USD47.3bn consensus. While below expectations,management also argued the q-o-q decline is comparable to the 17% decline that thecompany has averaged from the March to June quarter for the last three years. TheJune quarter gross margin was also guided to of 37.5-38%, below consensusestimates of 39.3%, and mostly due to lower revenue and falling ASPs.

　　iPhone unit ahead expectation; Greater China weakness a concern: iPhoneshipments in the March quarter of 51.2m (-16% y-o-y) were slightly ahead of recentconsensus in the 48-50m range. Notably, Greater China revenue declined 26% y-o-y.

　　Management was quick to blame Hong Kong specifically as Mainland China revenuewas down only 11% y-o-y (and only 7% on a constant currency basis). Revenueguidance for the June quarter of USD40-42bn implies iPhone units of roughly 40munits (down approximately 20% q-o-q and 16% y-o-y), below consensus expectationsin the 43-44m range. Most importantly, management wants to purge USD2bn inchannel inventory in the June quarter given the weak macro environment (and aheadof iPhone 7 launch in Sept). ASPs declined in March q-o-q and were guided todowntick further as inventory of higher ASP 6 and 6S series is purged, and the mix ofiPhone SE ramps. In fact, management claims demand for the SE model is currentlyahead of supply. Despite macro headwinds and a maturing smartphone market, theCEO remains optimistic based on: 1) upgraders (the 6S pattern is better than 5S);2) android switchers (at record levels), and; 3) new buyers (India up 56% y-o-y). Thecompany also announced respectable increases to capital return programmes.

　　We have Buy ratings for covered Asia supply chain stocks: We believe mostshare prices for Apple supply-chain companies have factored in near-term iPhoneweakness, i.e. Catcher underperformed the TAIEX index by 17% y-t-d and Quantaunderperformed by 16% y-t-d. Within Asia supply chain, we have Buy ratings onTSMC, SK Hynix, Samsung, LG Innotek, Quanta, Catcher, Radiant and LGD.