Information Technology Sector Stock Report

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Information Technology Sector Stock Report
Student Analysts Taylor McAuliff Scott
McBrayer Akshay Mehta Jennifer Noble Benjamin
Primrose Penny Yen

• Student Investment Management BUS-FIN 724/824
• Spring 2007

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Information Technology Sector (SP-45)
Student Analysts Taylor McAuliff Scott
McBrayer Akshay Mehta Jennifer Noble Benjamin
Primrose Penny Yen

• Student Investment Management BUS-FIN 724/824
• Spring 2007

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IT Sector Review
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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)

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Microsoft Corp (NYSEMSFT) Recommendation Sell
Portion (170 basis pts)
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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

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Microsoft (DCF Valuation)
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Microsoft
Absolute Valuation
Average 40.08
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Microsoft Summary
SUMMARY
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Infosys Tech. Ltd. (Nasdaq INFY) Recommendation
Sell Portion (250 basis pts)
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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

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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

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Infosys (DCF Valuation)
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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

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Intel, Inc (NYSEINTC) Recommendation Buy
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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

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Intel Company Overview
Intel is the worlds 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 20th consecutive year of profitability.
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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
• Upside29.1

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Intel (DCF Valuation)
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Intel Sensitivity Analysis
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Intel Absolute Valuation
Absolute Valuation
Average 24.58
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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

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Intel Summary

• Intel is highly profitable
• Intel stock is undervalued with a 29.1 upside
• Current Price22.16
• Target Price 28.62
• Recommendation Buy 2.0 of portfolio (200 BPS)

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Akamai Tech., Inc. (NasdaqAKAM) Recommendation
Buy
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• If youve 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)

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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.

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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

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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.

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Akamai

• 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.

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Akamai (DCF Valuation)
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Akamai (DCF Summary)
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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)

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Thank You

• Questions?