Information Technology Finance 724/824 SIM Class Christopher Moran Suresh Ramasubramanian Sean Ramsey

Agenda Sector Overview Business Analysis Economic Analysis Financial Evaluation Valuation Recommendation Agenda

SIM Portfolio Composition

SIM Weightings Relative S&P 500 SIM Weighting Relative S&P

SIM Weightings Relative S&P 500 IT Historical Weighting

Price Change YTD15.10% Dividend YLD1.10% Price to Earnings14 Market Capitalization82.1 Billion Institutional Ownership74% % LT Debt to Cap17% Key Ratios & Measures5 - Year RangeCurrent P/E Price to Book Price to Cash Flow Price to Sales Return on Equity18.7% %21.70% Earnings$% Change Latest Quarter (Dec 08) % Latest 12 Months % Revenues (Per Share)$% Change Latest Quarter (Dec 08) % Latest 12 Months % Dividends% Change Indicated Rate & Yield % IT Summary

Historical Earnings

SIM IT Holdings IndustryWeight in Sector Computers30.29% Software21.15% Telecommunications17.08% Semiconductors13.71% Internet11.44% Commercial Services3.91% Electronics1.86% Office/Business Equip0.40% Electrical Compo & Equip0.16% QuantitySecurityMarket ValueUnrealized Gain/(Loss) Percent of PortfolioYTD Return 17,803 Hewlett Packard Co.$640,551.94($199,735)4.45%-4.44% 27,900Intel Corp.$440,262.00($175,535)3.06%4.30% 36,700Microsoft Corp.$743,542.00($275,216)5.17%0.10% 40,300NCR Corp.$409,045.00($660,691)2.84%-21.92% 38,420Oracle Corp$743,042.80$78, %3.33%

Business Analysis Diverse sector with a focus on computer technology. Innovation is a key driver for success within the sector. High R&D costs are required to generate future growth. Industry is very cyclical. Often seen to lead the economy out of down cycles.

Business Analysis (cont.) High Barriers to Entry. Corporate spending may have slowed in the face of current economic conditions. As the economy picks up we feel corporate IT spending will follow. Substitution is not an issue, continued growth in IT will depend on innovation and new market penetration.

Barrowed from Merrill Lynch Business Cycle Analysis

Why is it still “Growth” time?

Economic Analysis Lagging Indicators Leading Indicators

Exports: Computers GDP Durable Goods Orders Lagging Indicators Economic Analysis

Export: Computers vs. IT

R^2.6 T-Stat10.39

GDP & Durable Goods vs. IT

Economic Analysis Exports: Computers GDP Durable Goods Orders Velocity of Money Supply Disposable Income Lagging IndicatorsLeading Indicators

Velocity of Money vs. IT

What is the Velocity of Money? The velocity of money is the average frequency with which a unit of money is spent in a specific period of time. Velocity associates the amount of economic activity associated with a give money supply. Where: V T = the velocity of money for all transactions nT = the nominal value of aggregate transactions M = the total amount of money in circulation (Money Supply)

Disposable Income vs. IT

Absolute High24.6 Low12.1 Median20.4 Current16.8 Price/ Earnings - Forward Relative to S&P 500 High1.4 Low.98 Median1.3 Current1.1

RELATIVE TO S&P 500 Price/ Earnings - Trailing Relative to S&P 500 Absolute High31.5 Low11.1 Median22.5 Current14.0 High1.6 Low.91 Median1.3 Current1.0

RELATIVE TO S&P 500 Price / Book Relative to S&P 500 Absolute High4.8 Low2.3 Median4.0 Current3.1 High1.7 Low1.2 Median1.4 Current1.5

RELATIVE TO S&P 500 Price / Sales Relative to S&P 500 Absolute High3.1 Low1.3 Median2.6 Current1.7 High2.0 Low1.5 Median1.7 Current1.9

RELATIVE TO S&P 500 Price / Cash Flow Relative to S&P 500 Absolute High17.7 Low8.0 Median14.7 Current9.9 High1.6 Low1.1 Median1.4 Current1.3

RELATIVE TO S&P 500 Net Profit Margin Relative to S&P 500 Absolute High12.2 Low11.0 Median11.3 Current11.8 High1.8 Low1.2 Median1.3 Current1.8

RELATIVE TO S&P 500 Return on Equity Relative to S&P 500 Absolute High22.5 Low16.7 Median19.5 Current21.7 High1.5 Low0.9 Median1.1 Current1.5

5- YearHighLowMedianCurrent P/E Forward P/E Trailing P/B P/S P/CF Net Prft Mrg ROE Valuation Analysis Summary

Of the 13 industries with Rising Relative strength in S&P 500, 6 are in the Info Tech Sector. On March 24, S&P Equity Strategy upgraded the technology sector to overweight from market weight. Above average balance sheet strength and potential to continue outgrowing the overall economy. Industry leaders in this Sector trade predominantly in the U.S Stock market. Sector is less cyclical than it was earlier this decade. Many tech companies’ offerings are essential to operate and grow businesses, and they can often help firms save money and be more efficient. Reason to Invest in Info Tech

Recommendation We recommend maintaining the current SIM IT weight within the portfolio. Although industries within the sector can be dependent on consumer spending patterns, this should not be enough to negatively impact the entire sector. There is potential upside from funds designated to IT spending from US stimulus plan.