1. Information Technology Sector Stock Report Student Investment Management BUS-FIN 724/824 Spring 2007 Student Analysts: Taylor McAuliff Scott McBrayer Akshay Mehta Jennifer Noble Benjamin Primrose Penny Yen

2. Information Technology Sector (SP-45) Student Investment Management BUS-FIN 724/824 Spring 2007 Student Analysts: Taylor McAuliff Scott McBrayer Akshay Mehta Jennifer Noble Benjamin Primrose Penny Yen

3. IT Sector Review Begin Q S&P 500SIMOverweight 14.98% 15.61% ($3,592,904) 0.63% Vote Reduction by 1.0% Proposed S&P 500SIMUnderweight 14.98%14.61%0.37%

4. IT Sector Proposed Action SUMMARY HOLD: HPQ SELL (PORTION): MSFT -170 BPS(25% of Holdings) SELL (PORTION): INFY - 250 BPS(50% of Holdings) BUY: INTC – 200 BPS (2.0% of Portfolio) BUY: AKAM – 161 BPS (1.61% of Portfolio) SUMMARY HOLD: HPQ SELL (PORTION): MSFT -170 BPS(25% of Holdings) SELL (PORTION): INFY - 250 BPS(50% of Holdings) BUY: INTC – 200 BPS (2.0% of Portfolio) BUY: AKAM – 161 BPS (1.61% of Portfolio)

5. Microsoft Corp (NYSE:MSFT) Recommendation: Sell Portion (170 basis pts) Microsoft Corp (NYSE:MSFT) Recommendation: Sell Portion (170 basis pts)

6. Microsoft Overview Industry: Application Software Market Cap: $272.91 B 2006 Sales: $44.282 B Business Segments Client: Windows operating systems (Vista) Server and Tools: Windows Operating System Support Information Worker: Microsoft Office (2007) Microsoft Business Solutions: Financial Management, etc. for businesses MSN: Internet Service Provider Mobile and Embedded Devices: Communications Home and Entertainment: Xbox

7. Microsoft (DCF Valuation)

8. Microsoft HighLowMeanCurrentTarget Multiple Target ESP Target Price P/Forward Earnings 65.215.133.317.6 1.6128.34 P/S30.885.2911.036.39 5.6636.16 P/B21.53.86.87.9 5.4142.74 P/EBITA47.612.022.815.9 1.930.21 P/CF71.216.431.222.1 2.8562.99 Average: $40.08 Absolute Valuation

9. Microsoft Summary SUMMARY Current Price$30.83 DCF ValuationTarget Price = $37.02 Absolute ValuationTarget Price = $40.09 Target Price Selected: $37.02 (20% Upside) Microsoft Remains Undervalued Recommendation: Sell a portion of Microsoft holdings Reason: Diversify IT portfolio holdings Application: Reduce Current Holding by 25% - 170 BPS

10. Infosys Tech. Ltd. (Nasdaq: INFY) Recommendation: Sell Portion (250 basis pts) Infosys Tech. Ltd. (Nasdaq: INFY) Recommendation: Sell Portion (250 basis pts)

11. Infosys Company Overview Industry: Computer Services / IT Consulting Market Cap: $27.57 billion 2007 Sales: $3.1 billion; YoY growth of 44% Business: Provides consulting and IT services to clients globally. Pioneer in strategic offshore outsourcing of software services. Current SIM Holding Amt: $1,251,165  Current SIM Portfolio Weight: 5.38%

12. Infosys (Reasons To Sell 250 bps) High employee turnover rates  Must sustain employee growth to sustain revenue growth  3,182 employees left during this year (20% attrition rate) Increase in wages (13-15% in India; 5-6% outside of India)  Estimates that wage increase will impact margins by around 300 basis points Margins are under pressure due to rising Rupee  This quarter the operating margin dropped by 100 basis points due to rupee appreciation Top line growth was below expectations for 4Q07 DCF: Stock Overvalued  Downside -6.24%

13. Infosys ( DCF Valuation )

14. Infosys Summary Summary Current Price: $50.04 DCF Valuation: $46.92 Recommendation: Sell 50% of holdings – 250 BPS Reason to Keep Portion: Company is in best position, compared to its competitors, to benefit from rising demand for offshore services Analysts view F2008 guidance for 28-30% top line growth as conservative and to be revised upward as year progresses

15. Intel, Inc (NYSE:INTC) Recommendation: Buy Intel, Inc (NYSE:INTC) Recommendation: Buy

16. Intel Overview Industry: Semiconductor Market Cap: $128.75 Billion 2006 Sales: $35,382 Million Lines of Business: The Digital Enterprise Group (56% of sales) The Mobility Group (35% of sales) The Flash Memory Group (6% of sales) The Digital Home Group The Digital Health Group The Channel Platforms Group The Digital Home, Digital Health and Channel Platforms groups make up combined 3% of sales

17. Intel Company Overview Intel is the world’s leader in production of semiconductor chips. Business: Intel manufactures and designs a wide range of products including: microprocessors, motherboards, chipsets and flash memory. Intel has experienced its 20 th consecutive year of profitability.

18. Intel (INTC) Current Price: $22.16 Key Assumptions: Terminal Discount Rate: 10.5% due to cyclical nature Terminal FCF Growth Rate: 6% (tech is usually 2x the economic growth rate which has a historical average of 3%) Target Price: $28.62 Upside:29.1%

19. Intel ( DCF Valuation )

20. Intel Sensitivity Analysis

21. Intel Absolute Valuation Absolute valuation HighLowMeanCurrentTarget Multiple Target ESP Target Price P/Forward Earnings 32.115.321.319.822.01.0923.98 P/S7.852.734.383.685.06.2531.25 P/B6.02.93.93.54.27.9333.31 P/EBITA20.56.510.114.912.51.5819.75 P/CF24.58.612.713.813.51.0814.58 Average: $24.58 Absolute Valuation

22. Intel Positives & Negatives Positives to owning Intel: The stock is undervalued and shows great promise of growth The company generates profits in the billions In the last 20 years the company has never been unprofitable Negatives to owning Intel: The industry is highly cyclical They are in the midst of a price war with Advanced Micro Devices (AMD) They experience intense competition from rivals Performance relies heavily on consumer demand

23. Intel Summary Intel is highly profitable Intel stock is undervalued with a 29.1% upside Current Price:$22.16 Target Price: $28.62 Recommendation: Buy 2.0% of portfolio (200 BPS)

24. Akamai Tech., Inc. (Nasdaq:AKAM) Recommendation: Buy Akamai Tech., Inc. (Nasdaq:AKAM) Recommendation: Buy

25. “If you’ve ever checked sports scores, booked a hotel, tracked an order, or watched a movie trailer online, chances are good that we delivered your experience.” (AKAM website)

26. Akamai Overview “The leading global service provider for accelerating content and applications online” (AKAM website) Content Delivery Network (CDN): networks used to speed up, protect, and efficiently operate the internet (and business intranets). Currently holds 2/3 of CDN market share.

27. Current Drivers Support for content of: Adobe Flash Player Europages.com (European Bus. Directory) Logitech Audi AG Clear Channel NBA NCAA (particularly March Madness) Apple (podcasts and iTv) FIFA World Cup

28. Beyond online video! Akamai currently handles about 20% of internet traffic. It uses its technology to reduce bottlenecks and improve performance. Uses the “EdgePlatform” technology to detect and reduce bottlenecks. Handles the efficient download of Microsoft Vista OS over the internet. With the release of the Apple iTv, Akamai will handle downloads between the internet and iTv sets.

29. Market Cap: 7.11 Billion Avg. Daily Volume: 4.9 million shares Total 2006 Revenue of 428.67 M (up from 283.12 M in 2005) 1200 employees CEO: Paul Sagan – Was President of Akamai since May 1999, became CEO in April 2005. Akamai

30. Akamai ( DCF Valuation )

31. Akamai ( DCF Summary )

32. IT Stock Report Summary SUMMARY HOLD: HPQ SELL (PORTION): MSFT -170 BPS(25% of Holdings) SELL (PORTION): INFY - 250 BPS(50% of Holdings) BUY: INTC – 200 BPS (2.0% of Portfolio) BUY: AKAM – 161 BPS (1.61% of Portfolio)

33. Thank You Questions?