IT Sector Presentation

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IT Sector Presentation

• Harding, Evan Parikh, Saagar Pavuluri,
  Srinivas Phoeng, Riky
• WINTER 2008

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Information Technology in the SP 500
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Current Holdings

• International Business Machines (IBM)
• 3.38
• Hewlett-Packard Company (HPQ)
• 5.33
• Intel Corporation (INTC)
• 4.49
• Microsoft Corporation  (MSFT)
• 4.22

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Class Recommendation

• Information Technology Holdings
• 1.36 Overweight
• Class Vote Decrease Holdings
• 1.36 to Bring in Line w/ SP 500

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Proposed Holdings

• Hewlett-Packard Company (HPQ)
• 0.00
• International Business Machines (IBM)
• 3.38
• Intel Corporation (INTC)
• 4.49
• Microsoft Corporation (MSFT)
• 4.22
• Apple Inc. (AAPL)
• 2.25
• SanDisk (SNDK)
• 2.00
• Motorola (MOT)
• 2.25

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Hewlett-Packard Company (NYSEHPQ)
Recommendation Sell
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Hewlett-Packard Company (HPQ)

• Recommendation
• Sell our 533 Basis Points in HPQ
• Potential Upside only 4.88
• Profit 463,220
• Gains 58.44

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(No Transcript)
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Hewlett-Packard Company DCF
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Remaining Holdings

• Microsoft (MSFT)
• Upside Potential 29.3
• Intel (INTC)
• Upside Potential 30
• International Business Machine (IBM)
• Upside Potential 37.20

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SanDisk, Inc (NYSESNDK) Recommendation
Buy
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SanDisk (SNDK)

• The company was founded in 1988 as SunDisk
  Corporation and changed its name to SanDisk
  Corporation in 1995.
• SanDisk Corporation designs, develops,
  manufactures, and markets flash storage card
  products used in various consumer electronics
  products.
• Its products include removable cards, universal
  serial bus flash drives, and flash-based MP3
  players.

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SanDisk (SNDK)

• Its products are used in digital cameras, mobile
  phones, universal serial bus drives, gaming
  consoles, MP3 players, and other digital devices.
  
• The company's products are also embedded in
  various systems for the enterprise, industrial,
  military, and other markets.
• It has operations in North America, Japan,
  Europe, the Middle East, and Africa.

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SanDisk DCF
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Absolute Valuation
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SNDK - Upside Potential

• Recommendation Buy 2.00 of portfolio (200
  Basis Points)

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Motorola, Inc (NYSEMOT) Recommendation
Buy
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Motorola Overview

• Industry Communications Equipment
• Market Cap 22.74 Billion
• 2007 Sales 36.62 Billion
• Business Segments
• Mobile Devices 52 of sales
• Home and Networks Mobility 29 of sales
• Enterprise Mobility Solutions 19 of sales

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Motorola Company Overview

• Motorola was founded in 1928 and is based in
  Schaumburg, IL.
• Motorola is a global provider of wireless and
  broadband communications products.
• Motorolas product portfolio includes
  communications infrastructure, enterprise
  mobility solutions, digital set-tops, cable
  modems, mobile devices and Bluetooth accessories.

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Motorola (MOT)

• Current Price 9.97 (COB 02/29/07)
• Assumptions
• Terminal Discount Rate 10.5 (due to business
  cyclicality)
• Terminal FCF Growth Rate 5.5 (approx 2x the GDP
  growth rate)
• Target Price 18.37 DCF, 20.03 Sum-of-Parts
• Upside 84.2 DCF, 100.9 Sum-of-Parts

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Motorola (DCF)
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Motorola Sum-of-Parts Analysis
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Motorola Multiples Evaluation
Average 11.83
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Motorola Positives Negatives

• Owning MOT ()
• The stock is currently undervalued and shows
  excellent growth potential.
• The Sum-of-Parts analysis indicates that by
  purchasing MOT you are getting their Mobile
  Devices segment essentially for free.
• MOT is a market leader in Home and Enterprise
  networking systems.
• Owning MOT (-)
• The turnaround in its Mobile Devices segment will
  extend into 2009, and it will be a financial
  detriment in the short term.
• The industry is highly cyclical
• Performance is heavily impacted by consumer
  demand.

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Motorola Summary

• Motorola has good profitability in its Home and
  Networks Mobility and Enterprise Mobility
  segments 2007 Op Margins of 6.63 and 17.21,
  respectively.
• Motorolas stock is currently undervalued with an
  84.2 upside DCF
• Current Price 9.97 (COB 02/29/08)
• Target Price 18.37 DCF
• Recommendation Buy 2.25 of portfolio (225 Basis
  Points)

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Apple, Inc (NYSEAAPL) Recommendation Buy
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Apple, Inc. Company Overview

• Apple Inc. designs, manufactures, and sells
• personal computers, portable digital music
  players,
• and mobile communication devices, as well as
• related software, services, peripherals, and
• networking solutions worldwide.
• Located in Cupertino, California
• The Company's reportable operating segments are
  comprised of the Americas, Europe, Japan, and
  Retail.

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Apple, Inc. (AAPL)

• Industry Computer Hardware
• Market Cap 105.6 Billion
• 2007 Sales 24.01 Billion
• Geographic Business Segment Growth 2006 to 2007
• Americas 23
• Europe 33
• Japan -11
• Retail 27
• Other Segments 30

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Apple, Inc. (AAPL)

• Current Price 120.24 (As of 03/03/2008)
• 52 Week Range 83.75 202.96
• Price Change YTD Down 36.9, Last 12 Months Up
  46.4
• Assumptions
• Terminal Discount Rate 10.25 (due to business
  cyclicality)
• Terminal FCF Growth Rate 5.0 (lower than the
  information technology sector average)
• Target Price 164.00 (DCF)
• Upside 36.24 (DCF)

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Apple, Inc. (DCF)
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Apple Inc. (Upside Potential)
DCF Analysis
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Apple Inc. Positives Negatives

• Owning AAPL()
• The stock is currently undervalued and shows
  excellent growth potential.
• Apple, Inc. is a leader in innovation with such
  products as the new MacPro, MacBook Air, Apple TV
  Version 2, upgraded Ipod, and Iphone units
• Expansion of Apple retail stores
• Computers now sold in Best Buy stores, Apple
  retail stores, and on Apple.com Desktop sales
  increased 59, while portable sales increased 40
  
• Expect 10 billion iphone units sold
• Owning AAPL (-)
• Slower Ipod sales growth. The industry is highly
  cyclical
• Performance is heavily impacted by consumer
  demand.

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Apple Inc. Summary

• 15.4 billion in cash and no debt
• Q1 Apple, Inc. increased revenue from previous
  year Q1 by 35 Revenue was 9.6 billion with 45
  percent coming from International sales They
  increased net income by 57.5 b/c of better
  margins and non-operating income
• 37 percent revenue growth in Mac computers and 17
  percent revenue growth in Ipods in Q1 over Q1 of
  previous year
• Apples stock is currently undervalued with an
  36.24 upside (DCF)
• Current Price 120.20 (As of 03/03/2008)
• Target Price 164.00 (DCF)
• Recommendation Buy 2.25 of portfolio (225 Basis
  Points)

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Final Recommendation

• Current IT Holdings 1.36 Overweight
• Class Vote Decrease Holdings 1.36 to Bring in
  Line w/ SP 500
• New Recommendation Increase holdings 1.17 to
  3.20 Overweight
• Rationale Recent IT Sector sell-off presents an
  undervalued buying opportunity with strong
  long-term upside potential.

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Proposed Holdings

• Hewlett-Packard Company (HPQ)
• 0.00
• International Business Machines (IBM)
• 3.38
• Intel Corporation (INTC)
• 4.49
• Microsoft Corporation (MSFT)
• 4.22
• Apple Inc. (AAPL)
• 2.25
• SanDisk (SNDK)
• 2.00
• Motorola (MOT)
• 2.25

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• Questions?

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Backup Slides
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Motorola
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Motorola Technical Analysis
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Motorola Relative to SP 500
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Motorola Relative to IT Sector SP-45
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Motorola Income Statement
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SanDisk
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Technical Analysis
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SP 500
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Technology Sector
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Income Statement
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Apple, Inc.