Team Members: Hanh Bui Vamsi Namburi Hang Nguyen Tejaswi Ponnada Finance 724/824 Winter 2010 Information Technology Sector Stock Recommendation Team Members: Hanh Bui Vamsi Namburi Hang Nguyen Tejaswi Ponnada Jonathan Schick

Agenda Recap of Sector Presentation Stock Recommendation: Q&A Sell Buy Recap Recommendation Sell Buy Q&A

Weight Recap Recommendation Sell Buy Q&A

Recap As of 02/28/2010, IT is overweight by 90bp S&P500: 18.77 % SIM: 19.67 % Class voted: to increase 26bp Recap Recommendation Sell Buy Q&A

Recommendation Sell 430bp of IBM Buy 350bp of RIMM Buy 50bp of HPQ Buy 56bp of INTC Recap Recommendation Sell Buy Q&A

Current and Proposed Weights Recap Recommendation Sell Buy Q&A

Research In Motion Life On Blackberry Recap Recommendation Sell Buy Q&A

Background Canadian company founded in 1984 Leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide global communications market. Primary revenue driver: BlackBerry wireless solution Traditional B2B focus: sales to carriers and services revenues from infrastructure access fee paid by carrier/distributor. - with offices in NAM, APAC and Europe. BlackBerry wireless devices, software and service. Revenue generated from BlackBerry device sales Recap Recommendation Sell Buy Q&A

Competitive Advantage International expansion Increasing carrier customer base in NAM with 63% revenues generated in United States. Expect sales to increase in Europe and Asia (China). Device portfolio Segmented by multiple price points and feature sets versus Apple’s premium web/application experience offered at a high-end price point. Recap Recommendation Sell Buy Q&A

Competitive Advantage Innovation BlackBerry Bold (RIM’s first HSDPA smart phone) BlackBerry Storm (RIM’s first touch-screen with smart phone with the award-winning SurePress technology) BlackBerry Pearl Flip (RIM’s first “clam-shell” smartphone) BlackBerry Curve 8350i (iDen-based smart phone with Push-to-Talk) BlackBerry Curve 8900 (based on a next generation platform) 2009 R&D expenditure of $684.7 million with 5000 employees and 2 new centers in U.S. and Germany Recap Recommendation Sell Buy Q&A

Competitive Advantage Unique industry position The only company to provide network infrastructure as part of an optimized enterprise solution Vertically integrated and provides both hardware and software (UI, bundled applications) and related services. Yields strong gross and operating margins with recurring revenue. Recap Recommendation Sell Buy Q&A

Risks Competition International exposure Intense competition: Google’s Nexus One, Motorola Droid and HTC Eris Apple moving toward non-exclusive distribution strategy Well-positioned within existing enterprise accounts but increased competition by Apple, Microsoft, Android and other platforms International exposure U.S. sales account for 63% of total revenue, any changes in competitive, economic or regulatory environment could affect sales. (iPhone also being sold by Verizon not likely to occur in 2010). Recap Recommendation Sell Buy Q&A

Risks Increased B2C focus Increased Capital expenditure Consumers demand low security requirements and are unwilling to pay price premium for RIM features Consumer focus on Internet browsing and “apps” and currently RIM offers sub-par browsing and apps experience. Future success depends on strengthening these offerings Increased Capital expenditure Capital spending increased from $350M in fiscal 2008 to $834M in 2009 Expect to increase- due to new products and “outsourcing” of fundamental research via spending on IP rights Recap Recommendation Sell Buy Q&A

Revenue Growth Recap Recommendation Sell Buy Q&A

EPS Recap Recommendation Sell Buy Q&A

3 month performance Recap Recommendation Sell Buy Q&A

1 year performance Recap Recommendation Sell Buy Q&A

5 year performance Recap Recommendation Sell Buy Q&A

Valuation Recap Recommendation Sell Buy Q&A

*Your Target E, S, B, etc/Share Price Target Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/Share Your Target Price (F x G) A. B. C. D. E. F. G. H. P/Forward E 45.7 10.8 25.6 14 3.3 84.48 P/S 13.7 2.4 6.3 2.7 3.5 26.99 94.465 P/B 22.7 2 4.7 14.79 93.177 P/EBITDA 90.01 7.21 23.88 11.99 17 5.79 98.43 P/CF 85.9 10 27.2 14.1 19 4.93 93.67 Current price: $73.39 Multiples Average: $92.84 DCF Target Price: $110.10 50% Multiples + 50% DCF = $101.47 or 38.2% upside Recap Recommendation Sell Buy Q&A

DCF

HP – Buy 50 basis points Best performing IT company this month in SIM at 7.9% Continues to grow through acquisitions EDS 2008 3com 2009 Becoming the first full service provider Revised guidance upward for 2010 Revenues of $121.5-$122.5B vs $118-$119B EPS of $4.37-$4.44 vs $4.25-$4.35 Recap Recommendation Sell Buy Q&A

DCF

Sensitivity Analysis Recap Recommendation Sell Buy Q&A

Valuation - multiples Recap Recommendation Sell Buy Q&A Relative to S&P 500 High Low Median Current P/Trailing E 1.5 .63 1.0 .67 P/Forward E 1.6 .64 .88 .77 P/B 1.4 .5 .9 1.3 P/S .4 .7 P/CF 1.8 .6 .8 Relative to Industry High Low Median Current P/Trailing E 1.1 .54 .79 .74 P/Forward E 1.2 .57 .75 .81 P/B .7 .3 .6 P/S 1.0 .5 P/CF .8 Recap Recommendation Sell Buy Q&A

Valuation - multiples Price for multiples - $60.53 DCF Target Price - $66.58 50% multiples, 50% DCF - $63.55 or 22.21% Recap Recommendation Sell Buy Q&A

Intel- Buy 56bp Market Cap: $113.4bn World largest semiconductor chip maker, market share of over 70% 80% international sales 2009 Q4 revenue jumped 28% year-over-year Benefit from IT spending rebound Recap Recommendation Sell Buy Q&A

DCF

Sensitivity Analysis Recap Recommendation Sell Buy Q&A

Valuation Current price: $20.79 Multiples Average: $26.91 DCF Target Price: $27.58 50% Multiples + 50% DCF = $27or 31% upside Recap Recommendation Sell Buy Q&A

Sell IBM International Business Machines – core focus on providing IT strategy and consulting services to business domains Competition in all business lines from offshore companies Increasing dollar value a concern for their revenue from offshore consulting No sign of potential breakthrough technologies (growing through acquisitions) Recap Recommendation Sell Buy Q&A

Financial Valuations Price Target from Valuation: $135.28 Recap Recommendation Sell Buy Q&A

DCF

Sensitivity Analysis Price Target from DCF: $143.08 Overall Price (50% from both DCF and Valuation) : 0.5*143.08+0.5*135.08 = $139.08 Recap Recommendation Sell Buy Q&A

Stocks Analyzed Researched stocks in Telecom Sector with focus on low-medium market caps and growth potential

Recommendation Sell 430bp of IBM Buy 350bp of RIMM Buy 50bp of HPQ Buy 56bp of INTC Recap Recommendation Sell Buy Q&A

Q&A

NCR Discount Rate: 13.2% Terminal FCF Growth: 5% Current : $13.06 DCF Target: $18.14 Upside: 39%

NCR

Oracle Discount Rate 12% Terminal Growth 4% Current $24.76 Price Target $32.84 Upside 33.1%

Oracle Absolute Valuation High Low Median Current #Your Target Multiple *Your Target E, S, B, etc/Share Your Target Price (F x G) A. B. C. D. E. F. G. H. P/Forward E 117.9 10.6 25.0 13.5 21 1.55 32.55 P/S 27.5 2.7 6.2 5.0 5.3 6.1 32.33 P/B 61.9 3.4 9.9 3.8 5.2 6.26 32.57 P/EBITDA 97.13 8.06 16.27 8.81 12 32.42 P/CF 151.5 11.1 27.3 15.5 1.53 32.25