Information Technology Stock Presentation Finance 724/824 SIM Class Summer 2009 Russell Kolmin Zachary McAllister Paul Melko Mahavir Sanghavi Daniel Schuerman

Agenda Current Holdings Sector Recommendation Recommendation An Omen about Oracle A Bite of Apple Into the Big Blue Recommendation Agenda

SIM Portfolio Composition S&P 500 WeightSIM Weight+/- Consumer Discretionary 9.11%7.19% -1.92% Consumer Staples 11.81%11.65% -0.16% Energy 12.04%10.74% -1.31% Financials 13.86%8.93% -4.93% Health Care 13.73%13.30% -0.43% Industrials 9.98%12.37% 2.39% IT Current 18.72%20.41% 1.69% IT Proposed 18.72%19.72% 1.00% Materials 3.40%4.98% 2% Telecommunication Services 3.41%3.39% -0.02% Utilities 3.94%3.61% -0.34% Sector recommendation: Reduce IT holdings by 69 basis points.

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

SIM Portfolio Composition IT Recommendation SecurityTicker Market Value Unrealized Gain/(Loss) %age AssetsRecommendation New %age Assets Apple Inc.AAPL$258,973.15$38, %Sell 150 bps0.00% Hewlett Packard Co.HPQ$650,625.80($58,589)3.77%Hold3.77% Intel Corp.INTC$537,075.00($78,722)3.11%Hold3.11% Microsoft Corp.MSFT$706,517.28($127,337)4.09%Hold4.09% NCR CorpNCR$521,482.00($548,254)3.02%Hold3.02% Oracle CorpORCL$850,234.60$185, %Sell 92 bps4.00% IBM Buy 173 bps1.73% 20.41% 19.72%

Reduce Oracle Oracle is nearing 5% of all SIM holdings. Oracle has shown recent and remarkable increases. Oracle will continue to do so in the future. Time to reap some value. Reduce Oracle Corporation to 4% (sell 92 basis points)

Sell Apple– Company Profile A computer hardware/software company with revenue from: –Personal Computers –Small Business Computers –iPods –iPhones –Music Sales –Americas, Europe, Japan, Retail Incorporated in 1977 Symbol - AAPL

Sell Apple– DCF Terminal Discount Rate =12.0% Terminal FCF Growth =5.5% Upside/(Downside) to DCF =-4.2% Assumes Revenue of Growth: 20% Assumes Margins of: 17%

Sell Apple– Valuation AbsoluteHighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF Relative to the SectorHighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF

Sell Apple– Pros/Cons Pros to Selling –Overvalued based on DCF and Valuation –Microsoft Windows 7 comes out in October –Sales dependent on trendy products –Good run in 2009 –Other options with better value Cons to Selling –$27 cash per share –Growth of the iPhone and continued phone/network development –If Apple is able to continue revenue growth through new products or sales in emerging markets large gains will be missed

Buy IBM A Diversified Computer System with revenue tied to –IT infrastructure and business process services –Consulting and systems integration –Computing & storage solutions, including servers, disk & tape storage systems & software –Info Mgmt, integration, intelligence, security, storage, & collaboration software –commercial financing to dealers and remarketers of IT products Founded 1910 Symbol - IBM

Buy IBM – DCF Terminal Discount Rate =11.0% Terminal FCF Growth =4.0% Upside/(Downside) to DCF =36.60% Assumes Revenue of Growth: 6% Assumes Margins of: 16%

Buy IBM – Valuation AbsoluteHighLowMedianCurrent P/Forward E P/B (*Removed GW from BV) P/S P/CF Target$ Upside = 4% Relative to the SectorHighLowMedianCurrent P/Forward E P/B P/S P/CF

Buy IBM – Pros/Cons Pros –Mature stock with large growth potential –Focus on high margin products (i.e. services, integration) –1.80% Dividend Yield –Cash On Hand = $12.5B Cons –Debt ($96B in Tot Liabilities…$42B CL vs $49B CA) Removing GW and Intang Assets leads to TL > TA –Similarities/Competition with HP –Up 17.6% since July 10 th (Overbought??)

SIM Portfolio Composition IT Recommendation SecurityTicker Market Value Unrealized Gain/(Loss) %age AssetsRecommendation New %age Assets Apple Inc.AAPL$258,973.15$38, %Sell 150 bps0.00% Hewlett Packard Co.HPQ$650,625.80($58,589)3.77%Hold3.77% Intel Corp.INTC$537,075.00($78,722)3.11%Hold3.11% Microsoft Corp.MSFT$706,517.28($127,337)4.09%Hold4.09% NCR CorpNCR$521,482.00($548,254)3.02%Hold3.02% Oracle CorpORCL$850,234.60$185, %Sell 92 bps4.00% IBM Buy 173 bps1.73% 20.41% 19.72%

Appendix

Microsoft There shall not be any action taken upon Microsoft this quarter However it should be noted that the SIM weight is approaching 5%, therefore the next quarter should look into cutting back Microsoft appears to have an upside of about 32.3%

Other Stocks Considered FLIR GOOG ERTS ADBE HRS RHT PEGA PCLN WEBMD CRM VRSN TSRA