Autumn 2013
Han Cao
Nick Summe
Yujie Yuan
Chengyuan Zhang
Agenda
 Sector Overview
 Business Analysis
 Economic Analysis
 Financial Analysis
 Valuation Analysis
 Recommendation
Market Size
S&P 500 Sector Weights
Materials,
3.51%
Telecommuni
cation
Services,
Utilities,
2.42%
3.14%
SIM Sector Weights
Consumer
Discretionary
, 12.46%
Information
Technology,
17.89%
Consumer
Staples,
10.09%
Health Care,
12.97%
Industrials,
10.73%
Financials,
16.30%
Telecommuni
cation
Services,
Materials,
Utilities,
2.11%
2.90%
3.84%
Information
Technology,
19.10%
Energy,
10.49%
Consumer
Staples,
8.47%
Energy,
14.39%
Financials,
13.48%
Industrials,
8.95%
Health Care,
11.90%
SIM – Overweight Information Technology Sector 1.21%
*As of September 30, 2013
Consumer
Discretionary
, 14.33%
Industry Segments
Information
Technology
Sector
Technology,
Hardware &
Equipment
Software &
Services
Semiconductors
& Semiconductor
Equipment
Internet Software
& Services
Communications
Equipment
Electronic
Equipment &
Components
IT Services
Computers &
Peripherals
Office Electronics
Software
(Application &
Systems)
*Global Industry Classification Standard
Representative Companies
 Internet Software & Services
 Google, eBay, Salesforce.com, Visa, Western Union
 IT Services
 IBM, Xerox
 Software
 Adobe, Oracle, Symantec, Electronic Arts, Microsoft
 Communications Equipment
 Cisco Systems, Juniper Networks, Motorola Solutions
 Computers & Peripherals
 Apple, Dell, HP, SanDisk, Western Digital
 Electronic Equipment, Instruments & Components
 Molex Inc.
 Semiconductors & Semiconductor Equipment
 Intel, QUALCOMM, Texas Instruments, LAM Research, Teradyne Inc.
Company & Sector Performance
Market Cap1
Price
QTD
YTD
Top 10 Companies by Market Cap
Ticker (in $billions) (10/14/13) Return (%) Return (%)
Apple Inc. 2
AAPL
$450.3
$496.08
4.1%
(5.0%)
Google Inc 2
GOOG
$291.1
$873.97
(0.2%)
23.6%
Microsoft Corp
MSFT
$288.9
$34.45
3.5%
31.9%
Intl Business Machines Corp
IBM
$204.2
$186.45
0.7%
(1.3%)
Oracle Corp
ORCL
$151.4
$32.23
(2.5%)
(2.5%)
Visa Inc
V
$124.6
$193.10
1.0%
28.1%
Cisco Systems Inc
CSCO
$124.6
$23.23
(0.1%)
20.9%
Intel Corp
INTC
$116.7
$23.43
2.2%
17.1%
QUALCOMM Inc 2
QCOM
$116.4
$67.84
0.8%
11.3%
Mastercard Inc A
MA
$82.9
$687.32
2.3%
40.4%
Average:
1.2%
16.4%
S&P 500 Information Technology Sector SP500-45
527.31
1.6%
13.7%
S&P 500
^GSPC
1710.28
1.7%
19.9%
Over/(Under) Performance
(0.2%)
(6.2%)
1. Market Capitalization as of 10/14/13
2. Companies included in SIM Portfolio
Demand – Life Cycle
 Internet, Software & Services
 Growth Stage – Emerging Markets
 Opportunity for efficiencies & cost savings
 Technology Hardware and Equipment
 Mature
 Life Cycle Is Becoming Shorter
 Rapid pace of innovation
 Cyclical
 Essential for businesses
 Volatile for consumer luxury items
Demand
 External Factors
 Sensitive to global downturns
 Technology adoption in emerging markets
 Users and Geography
 Both businesses and consumers
 High penetration in developed countries (internet,
smartphones, etc.)
 Software piracy is a concern
Supply
 Increasing capacity
 Greater demand brings new suppliers
 More commoditized electronic components
pressure

margin
Exception: luxury products, brand name, or operating
systems/software
 Patents & IP
 Provide leverage over competitors

Ex: Google’s acquisition of Motorola Mobility was purchased for
it’s patent portfolio; Motorola is still unprofitable
Profitability & Pricing
 Product Segmentation
 High end vs. Low end consumer products (ex: iPhone 5s
vs. 5c)
 Large company presence in North America & Asia-
Pacific Region
 Barriers to Entry
 Switching Costs & “Lock-in”
 Software – Microsoft Product Suite for businesses
 Customer loyalty and Brand Name
 Regulations
 Google in China & Russia
Profitability & Pricing
 Threat of Substitutes
 Very high for products; more defensible for some
software/services
 Constant innovation and short life cycle
 Leads to expensive acquisitions and high R&D to maintain
market position
 Competition
 Most intense for products without brand name or distinct
advantage
 Internet: Winner takes most market



Google, eBay, Amazon
Giveaways (Google Fiber), link-and-leverage
Priority on gaining market share before monetization (Facebook,
LinkedIn, Twitter)
REAL GDP
Consumer Spending
Disposable Income
Computer & Software
Exports: Computers
Cellular Telephone
S&P 500
Financial Analysis
 Higher R&D, Earnings are more resilient to downturns
Income and Expenses per Share
SPX Index
Sales
Sales Growth (YoY)
R&D Expense
R&D as % of Sales
Earnings
Earnings Growth (YoY)
S5INFT Index
Sales
Sales Growth (YoY)
R&D Expense
R&D as % of Sales
Earnings
Earnings Growth (YoY)
CY 2005 CY 2006 CY 2007 CY 2008 CY 2009 CY 2010 CY 2011 CY 2012
Current
CY 2013 CY 2014
826.4
7.5%
28.2
3.4%
74.0
12.5%
878.2
6.3%
30.7
3.5%
85.4
15.5%
951.4 992.3
8.3%
4.3%
31.4
32.0
3.3%
3.2%
84.7
58.7
-0.9% -30.7%
902.2
-9.1%
26.2
2.9%
61.2
4.3%
940.9 1,021.0 1,071.1 1,097.2 1,123.3 1,174.0
4.3%
8.5%
4.9%
2.4%
4.9%
4.5%
27.1
27.8
30.0
32.4
2.9%
2.7%
2.8%
2.9%
83.4
98.7
101.1
103.9
110.7
122.9
36.3% 18.3%
2.4%
2.8%
9.5%
11.1%
130.2
8.7%
11.2
8.6%
15.0
15.1%
133.9
2.8%
11.8
8.8%
15.0
-0.1%
146.4
9.3%
12.9
8.8%
17.6
17.1%
140.2
-8.7%
12.7
9.1%
16.5
-7.1%
163.1
16.4%
13.1
8.0%
25.7
56.2%
153.6
4.9%
14.1
9.2%
17.7
0.8%
189.6
16.2%
15.3
8.1%
31.0
20.5%
203.6
7.4%
17.4
8.5%
32.0
3.2%
204.2
0.3%
18.4
9.0%
32.0
0.2%
211.4
3.8%
222.9
5.4%
37.9
18.5%
41.7
10.2%
Information Technology Margins
vs. S&P500
Information Technology Industry
Margins
Information Technology Industry
Margins
Return on Equity
Financial Analysis--Information Technology
Financial Analysis--Application software
Financial Analysis--Microsoft
Financial Analysis--Computer Hardware
Financial Analysis--Apple
Financial Analysis--Semiconductors
Financial Analysis--Intel
Financial Analysis--Internet Software & SVC
Financial Analysis--Google
Valuation Analysis -- Sector
Valuation Analysis -- Industry
Valuation Analysis – Industry
Valuation Analysis – Industry
Technical Analysis
Recommendations
 Sector Opportunities
 Potential high earnings growth
 Earnings are resilient during economic downturn
 High profit margins
 Trade below historical average
 Sector Risks
 Sustainable growth
 Services industry overvalued
 Economic risks
 Recommendation: Stay at current weight and diversified