1. Greg Price Greg Shaskus Min Shen Matt Sims Chris Stuart

2. Recommendation 100 bps increase in SIM allocation for IT resulting in 227 bps overweight Support: Sector Size and Composition Business Analysis Economic Analysis Financial Analysis Valuation Analysis

3. Sector Overview Largest Weight 16 Industries Highly Cyclical Revenues up 8% last quarter EPS up 56% last quarter Estimated 63% increase in earnings this quarter Source: Standard and Poors

4. SIM Sector Allocation Currently 127 Basis points overweight S&P 500

5. Industries By Market Cap:

6. Industry Performance By revenue growth:

7. Industry Performance By earnings per share growth:

8. Industries: Summary Attractive industries: Semiconductor Equipment Data Services IT Consulting Computer Hardware (HPQ, NCR) Semiconductors (INTC) Communications Equipment (RIMM) Industries to Avoid: Home Entertainment Software Systems Software (ORCL) Electronic Equipment Electronic Manufacturing

9. Largest Companies 10 largest companies in S&P 500:

10. Sector Performance

11. Business Analysis Sector growth depends on Innovation Technological advancement Cost reduction Highly diverse with companies in growth and mature phases Few dominant players in each industry within the sector Dependence on cutting edge technology leads to enormous R&D costs R&D spending is 2.5 times of the automotive industry and more than 3 times of the pharmaceutical industry R&D costs largest barrier to entry Huge threat of substitutes and piracy

12. Business Analysis (cont.) Highly cyclical sector with large impact on SIM Tends to have large growth during market recoveries Can be highly volatile Affected by customer and corporate spending Signals point that both are increasing Intel’s most recent earnings forecast signals a rebound in corporate IT spending The iPad sold over 1 million units in just 28 days

13. Business Analysis (cont.) Growth potential in the smart phone and tablet market Apple, Google, and RIM dominate the market making it difficult for other companies to be successful Increased competition will decrease prices and result in lower margins Growth potential in India, China, and Africa As penetration rates approach 90% in developed regions companies look for new opportunities

14. Other growth opportunities Microsoft Office 2010 to be released in June IT Solution Services Business Analysis (cont.) Risks of W-recession or unstable recovery Last Thursday and Friday was a perfect example Tech stocks were hit hard Many lost all of their gains for the year

15. Business Analysis Summary Long-term IT growth opportunities outweigh risks Demand will continue to increase IT becoming a business staple with massive growth potential Short-term Corporate spending/profits continue to increase GDP growth

16. Stovall’s guide to S&P Sector Rotation

17. Stovall’s Sector Rotation IT generally does well where business is down, unemployment is up, GDP is down, interest rates are falling and consumer expectations are down. Fundamentals of companies can be influenced greatly by the surrounding economy Business Cycle is used to understand the present position of the cycle and to predict what areas of the economy will be stronger in the future. Strategy is to buy into a sector that is about to take off and sell at the peak.

18. Capital Spending V. IT Sector

19. Federal Funds Rate V. IT Sector

20. Velocity of Money V. IT Sector

21. Consumer Confidence V. IT Sector

22. Consumer Spending V. IT Sector

23. Employment V. IT Sector

24. Real GDP V. IT Sector

25. Market Pyramid

26. Railroad: Total International Traffic

27. Revenue (Indexed)

28. EBITDA Margin AbsoluteRelative High26.51.4 Low21.2.8 Median22.21.1 Current26.51.4 Relative to S&P 500 Sector

29. Net Profit Margin AbsoluteRelative High12.91.9 Low11.31.2 Median11.81.4 Current12.91.9 Relative to S&P 500 Sector

30. EPS Growth (yr over yr) (%)AbsoluteRelative High47.835.5 Low-18.2-33.9 Median16.0- Current.45.3 Relative to S&P 500 Sector

31. Return on Equity AbsoluteRelative High23.51.8 Low18.7.9 Median19.51.3 Current23.51.6 Relative to S&P 500 Sector

32. Financial Analysis Strong overall performance Growth potential within sector EPS projections Sector rotation

33. Sector Valuation: Info Tech (22 years) Absolute BasisHighLowMedianCurrent P/Trailing E 74.611.126.118.9 P/Forward E 64.712.122.514.4 P/B 15.12.34.13.7 P/S 6.70.82.52.4 P/CF 45.88.216.012.1 Green= Cheap Red= Expensive

34. Sector Valuation: Info Tech (22 years) Green= Cheap Red= Expensive Relative to SP 500 HighLowMedianCurrent P/Trailing E 2.60.911.41.1 P/Forward E 2.70.981.31.0 P/B 3.00.91.41.7 P/S 3.00.91.72.0 P/CF 2.61.11.51.3

35. Sector Valuation: Info Tech (5 years) Absolute BasisHighLowMedianCurrent P/Trailing E 25.011.120.818.9 P/Forward E 22.412.118.914.4 P/B 4.82.33.93.7 P/S 3.01.32.52.4 P/CF 17.78.214.112.1 Green= Cheap Red= Expensive

36. Sector Valuation: Info Tech (5 years) Green= Cheap Red= Expensive Relative to SP 500 HighLowMedianCurrent P/Trailing E 1.50.911.21.1 P/Forward E 1.40.981.31.0 P/B 1.81.21.51.7 P/S 2.11.51.72.0 P/CF 1.61.11.3

37. Industry Valuation: Computer Hard ware (HPQ, NCR) Absolute BasisHighLowMedianCurrent P/Trailing E 95.110.421.917.0 P/Forward E 45.610.819.514.9 P/B 11.21.03.95.0 P/S 3.30.41.31.7 P/CF 29.27.113.611.2 Green= Cheap Red= Expensive

38. Industry Valuation: Computer Hard ware (HPQ, NCR) Relative to SP500 HighLowMedianCurrent P/Trailing E 5.70.751.20.98 P/Forward E 1.90.811.21.0 P/B 2.50.41.32.4 P/S 1.50.51.01.4 P/CF 1.70.81.2 Green= Cheap Red= Expensive

39. Industry Valuation: Semiconductor (INTC) Absolute BasisHighLowMedianCurrent P/Trailing E 135.811.623.526.4 P/Forward E 422.111.924.111.9 P/B 13.81.63.63.0 P/S 13.00.73.33.0 P/CF 37.36.414.39.9 Green= Cheap Red= Expensive

40. Industry Valuation: Semiconductor (INTC) Relative to SP500 HighLowMedianCurrent P/Trailing E 5.60.741.41.5 P/Forward E 34.70.601.40.84 P/B 2.60.81.31.4 P/S 5.80.92.42.5 P/CF 2.40.91.31.0 Green= Cheap Red= Expensive

41. Industry Valuation: Systems Software (ORCL) Absolute BasisHighLowMedianCurrent P/Trailing E 75.69.426.915.3 P/Forward E 35.19.819.714.3 P/B 26.63.05.84.6 P/S 21.82.27.83.6 P/CF 65.68.219.212.1 Green= Cheap Red= Expensive

42. Industry Valuation: Systems Software (ORCL) Relative to SP500 HighLowMedianCurrent P/Trailing E 2.50.831.40.88 P/Forward E 1.70.781.21.0 P/B 5.51.32.2 P/S 9.72.85.63.0 P/CF 3.71.01.81.3 Green= Cheap Red= Expensive

43. Industry Valuation: Communications Equipment (RIMM) Absolute BasisHighLowMedianCurrent P/Trailing E 211.911.025.420.9 P/Forward E 475.112.122.416.8 P/B 12.11.04.33.0 P/S 5.10.72.13.2 P/CF 55.58.817.614.5 Green= Cheap Red= Expensive

44. Industry Valuation: Communications Equipment (RIMM) Relative to SP500 HighLowMedianCurrent P/Trailing E 10.10.911.41.2 P/Forward E 29.11.01.41.2 P/B 2.40.31.4 P/S 3.00.71.62.7 P/CF 3.20.81.61.5 Green= Cheap Red= Expensive

45. Conclusions Based on Valuation: Sector as a whole and most industries within are currently undervalued; Economy likely to pick up, upside potential in this sector.

46. Recommendation 100 bps increase in weight to 227 bps overweight Top-line growth prospects: Office electronics, Data Services, Electronic Equipment, Semiconductor Equipment industries Current phase of business cycle favors investment in the IT sector Sector as a whole and the industries are currently undervalued