Information
Technology
Company
Presentations
Autumn 2013
Han Cao
Nick Summe
Yujie Yuan
Chengyuan Zhang
Sector Review
SIM Sector Weights
S&P 500 Sector Weights
Telecommunica
tion Services,
Utilities,
Materials, 2.42%
3.14%
3.51%
Information
Technology,
17.89%
Consumer
Discretionary,
12.46% Consumer
Staples, 10.09%
Energy, 10.49%
Industrials,
10.73%
Health Care,
12.97%
Financials,
16.30%
Materials,
2.90%
Telecommunica
tion Services, Utilities,
2.11%
3.84%
Consumer
Staples, 8.47%
Information
Technology,
19.10%
Energy, 14.39%
Industrials,
8.95%
Health Care,
11.90%
SIM – Overweight Information Technology Sector 1.21%
*As of September 30, 2013
Consumer
Discretionary,
14.33%
Financials,
13.48%
Recommendations
Price
(11/1/13)
EMC Corp
EMC
$ 23.68
Apple Inc
AAPL $ 520.03
Qualcomm
QCOM $ 69.90
Vantiv Inc
VNTV $ 27.15
Corning Inc.
GLW
$ 17.13
Broadcom Corp BRCM $ 26.79
Google Inc
GOOG $ 1,027.04
Visa
V
$ 193.44
Company
Ticker
Target Projected
Current
Recommended Recommended
Price
Return Weight (bps) Change (bps) Weight (bps)
$ 32.19
36.0%
0
219
219
$ 700.00
34.6%
534
(34)
500
$ 90.15
29.0%
504
(4)
500
$ 33.00
21.5%
0
219
219
$ 18.42
7.5%
513
(200)
313
$ 27.52
2.7%
0
0
0
$ 980.00
-4.6%
472
(200)
272
$ 180.20
-6.8%
0
0
0
Google
Stock Performance
Advertising Market
PwC & IAB Advertising Market Forecasts
$250,000
$ in millions
$200,000
$150,000
$100,000
$50,000
$0
2011
2012
TV
2013
Out of home
2014
Newspaper
2015
Internet
2016
2017
Internet Advertising Categories
Magna Global Internet Advertising Forecasts
100,000
$ in millions
80,000
60,000
40,000
20,000
2012
2013
Search
2014
Display
2015
Mobile
2016
2017
Online Video
Google’s Market Share
• Search ~ 82%; >90% ex: Russia & China
• Display ~ 19%
• Mobile ~ 40%+ (Mobile includes search and other categories on a Mobile device)
• Video ~ 22%
•
Sources: Zenith Optimedia, Pivotal Research, Google Earnings Call
Click Growth vs. Cost Per Click Growth
Future Prospects

Continued Dominance in Search & Internet Advertising



CPC decline and emergence of apps and specialty websites a
concern
Infrastructure in Place
Winner takes most market


Revenues will grow with greater internet access and speeds


Ex: Bing and MSN lost $1.3b in MSFT’s latest FY
Google Fiber, Project Loon
Increased CapEx and Lower Margins

Android, Motorola, Chromebook

Given away for free/losing money on
Real Options
 Foray

into TV
YouTube and Chromecast
TV is the largest advertising market
 Driverless
Car
 Google Ventures Lab

Innovative culture and employees – 20% time
 Google
Glass
 Project Loon
 Floating
Barges?
Google (GOOG)
Year
2013E
Revenue
59,868
% Grow th
14,626
Operating Margin
Interest and Other
Interest % of Sales
Taxes
872
980
1.3%
1.3%
1.3%
3,521
19.0%
15,010
18.3%
4,260
Plus/(minus) Changes WC
% of Sales
1.6%
4,652
19.0%
19,832
13.4%
4,340
25.9%
1,559
1.6%
5,116
19.0%
21,811
10.0%
4,697
11.0%
27,611
25.4%
1,731
1.6%
5,575
19.0%
23,767
9.0%
4,451
119,406
10.0%
29,769
24.9%
1,903
1.6%
6,018
19.0%
25,655
7.9%
4,776
130,129
9.0%
31,792
24.4%
2,074
1.6%
6,435
19.0%
27,431
6.9%
5,075
140,512
8.0%
33,626
23.9%
2,240
1.6%
6,814
19.0%
29,051
5.9%
5,339
2022E
150,319
7.0%
35,221
23.4%
2,396
1.6%
7,147
19.0%
30,470
4.9%
5,562
2023E
159,308
6.0%
36,531
22.9%
2,539
1.6%
7,423
19.0%
31,647
3.9%
5,735
4.0%
3.9%
3.8%
3.7%
3.6%
(1,197)
(1,042)
(780)
(874)
(978)
(1,086)
(1,194)
(1,301)
(1,405)
(1,503)
(1,593)
112,103
220,154
332,257
2.29%
27.5
26.2
15.7
14.9
339.2
$
$
1,393
25,368
108,572
2021E
4.1%
-1.5%
8,333
12.0%
9,502
19.3%
Shares Outstanding
4,046
26.4%
12.0%
2020E
4.8%
7,967
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
16.5%
23,091
97,830
2019E
5.0%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
17,488
12.0%
2018E
5.2%
13.0%
Free Cash Flow
19.0%
87,364
2017E
5.6%
7,783
Capex % of sales
3,866
4,102
2016E
7.1%
-2.0%
Subtract Cap Ex
20,610
752
12,687
% of Sales
12.3%
26.4%
% Grow th
Add Depreciation/Amort
77,978
25.4%
17.5%
Net Income
17,659
2015E
24.4%
2,691
Tax Rate
Debt
Cash
Cash/share
69,439
16.0%
Operating Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2014E
1,027.04
979.43
-4.6%
5,247
56,523
166.62
-1.0%
8,578
11.0%
12,176
28.1%
34%
66%
100%
-1.0%
8,736
10.0%
14,562
19.6%
-1.0%
8,805
9.0%
16,726
14.9%
-1.0%
8,686
8.0%
18,447
10.3%
-1.0%
8,358
7.0%
20,879
13.2%
-1.0%
7,808
6.0%
23,397
12.1%
-1.0%
7,026
5.0%
25,960
11.0%
-1.0%
6,013
4.0%
28,516
9.8%
3.6%
30,054
5.4%
Terminal Value 571,022
Free Cash Yield
23.2
22.1
13.8
13.1
-1.0%
5,735
19.9
19.0
12.1
11.4
5.26%
Terminal P/E
18.0
Terminal EV/EBITDA
12.3
Terminal Discount Rate =
Terminal FCF Growth =
10.0%
4.5%
Sensitivity Analysis
WACC
$ 979.43
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
2.0%
972.58
893.58
825.39
765.95
713.73
667.51
626.33
2.5%
1,027.09
938.41
862.67
797.26
740.25
690.14
645.78
Sensitivity Analysis
Terminal Growth
3.0%
3.5%
1,091.50 1,168.80
990.71 1,052.51
905.68
955.87
833.05
874.33
770.31
804.66
715.61
744.47
667.52
691.98
Rate
4.0%
1,263.28
1,126.67
1,015.18
922.50
844.30
777.45
719.70
4.5%
1,381.37
1,217.32
1,086.35
979.43
890.54
815.51
751.37
5.0%
1533.208
1330.627
1173.338
1047.743
945.1909
859.9146
787.9213
Valuation Analysis
Valuation Metrics
Return on Common Equity
S&P 500 Information Technology
Return on Capital
S&P 500 Information Technology
Operating Margin
S&P 500 Information Technology
Price/EPS
S&P 500 Information Technology
Price/Book
S&P 500 Information Technology
EV/T12M EBITDA
S&P 500 Information Technology
Net Debt/EBITDA
S&P 500 Information Technology
Source: Bloomberg
Sector
Sector
Sector
Sector
Sector
Sector
Sector
Current CY 2012 CY 2011 CY 2010 CY 2009 CY 2008 CY 2007 CY 2006
16.5%
16.5%
18.7%
20.7%
20.3%
16.6%
21.2%
23.3%
20.8%
19.8%
24.2%
24.2%
15.8%
16.7%
18.4%
18.4%
15.4%
15.5%
17.5%
19.9%
20.3%
16.6%
21.2%
23.3%
17.0%
16.2%
19.8%
20.0%
12.6%
-7.4%
15.5%
15.9%
23.2%
25.4%
31.0%
35.4%
35.2%
30.4%
30.6%
33.5%
21.2%
20.9%
21.2%
20.7%
16.3%
15.4%
14.8%
13.5%
28.9x
21.1x
21.3x
22.3x
30.4x
18.4x
52.0x
49.0x
16.8x
14.5x
13.2x
15.7x
22.5x
13.1x
23.4x
23.7x
4.1x
3.3x
3.6x
4.1x
5.5x
3.4x
9.5x
8.4x
3.5x
3.2x
3.1x
3.5x
3.8x
2.7x
4.6x
4.2x
16.8x
12.1x
12.4x
13.5x
17.5x
10.0x
33.2x
31.5x
8.9x
7.6x
7.4x
8.7x
10.9x
6.8x
13.4x
13.5x
-3.1x
-2.8x
-3.0x
-2.7x
-2.5x
-2.0x
-2.5x
-3.0x
-1.2x
-1.1x
-1.0x
-1.0x
-1.1x
-0.5x
-0.7x
-1.0x
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
6.4
3.7
17.7
19.2
15.1
Low
1.1
0.99
1.3
3.6
1.4
Median
1.4
1.4
2.6
6.7
2.2
Absolute Valuation
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Relative to Industry
Current
1.5
1.3
1.6
3.9
1.7
High
61.2
29
56.3
108.32
167.7
High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Low
12.9
4.6
2.9
13.15
12.6
Median
19.8
7.4
5.1
19.27
19.1
1.3
1.9
5.7
3.1
3.6
Current
20.7
6
4.1
17.23
19
Low
0.92
0.62
0.9
0.6
0.9
Median
1.1
0.97
1.4
1.6
1.3
Current
1
0.99
1.1
1.2
1.1
Recommendation
 Sell/Reduce
Position
 Price Target: 100% DCF based ~ $980
Apple
Stock Performance
Cash is King

$147 billion in Cash & Securities; $468 billion Market Cap



Represents 1/3 of Market Cap
Onshore: $35 billion
Held “indefinitely” offshore: $111 billion




Last tax repatriation holiday was in 2004: 5.25% tax rate vs. current 35%
Corporations keeping more cash overseas than pre-2004
Last lobbying campaign in 2009
failed due to anti-corporate sentiment
after crisis
$100 billion dividend and share repurchase program through Dec ‘15



$37 billion so far
Annual dividend $12.20 at 2.3% yield
Financed through $17 billion in debt

likely to issue more until cash is repatriated
Year
2013A
Revenue
170,910
% Grow th
48,999
Operating Margin
28.7%
Interest and Other Income/(Expense)
1,156
Interest % of Sales
0.7%
Taxes
13,118
Tax Rate
26.2%
Net Income
37,037
% Grow th
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
185,617
196,324
209,431
221,319
231,668
240,184
249,013
258,168
267,658
277,497
54,570
29.4%
1,156
0.6%
14,575
26.2%
41,151
11.1%
Add Depreciation/Amort
6,757
% of Sales
4.0%
Plus/(minus) Changes WC
9,872
% of Sales
Less: CapEx & Intangible Acquisitions
Capex % of sales
Free Cash Flow
6,608
3.6%
6,244
68,914
3.7%
71,447
3.7%
74,074
3.7%
76,797
3.7%
79,620
3.7%
82,547
29.6%
29.7%
29.7%
29.7%
29.7%
29.7%
29.7%
29.7%
29.7%
882
398
398
398
398
398
398
398
398
0.4%
0.2%
0.2%
0.2%
0.2%
0.2%
0.2%
0.1%
0.1%
15,422
26.2%
43,542
5.8%
6,989
3.6%
4,932
16,398
26.2%
46,299
6.3%
7,455
3.6%
5,611
17,323
26.2%
48,910
5.6%
7,878
3.6%
5,708
18,129
26.2%
51,184
4.6%
8,247
3.6%
5,743
18,791
26.2%
53,054
3.7%
8,550
3.6%
5,714
19,478
26.2%
54,994
3.7%
8,864
3.6%
5,675
20,190
26.2%
57,005
3.7%
9,190
3.6%
5,625
20,929
26.2%
59,090
3.7%
9,528
3.6%
5,565
21,694
26.2%
61,251
3.7%
9,878
3.6%
5,769
2.5%
2.7%
2.6%
2.5%
2.4%
2.3%
2.2%
2.1%
2.1%
(9,379)
(10,005)
(9,909)
(9,678)
(9,313)
(8,908)
(9,236)
(9,575)
(9,927)
-4.8%
-4.8%
-4.8%
-4.8%
-4.5%
-4.2%
-3.9%
-3.6%
-3.6%
-3.6%
-3.6%
13.3
16.3
6.5
8.5
932
$
$
65,835
4.7%
3.4%
310,867
291,736
602,603
9.27%
Shares Outstanding
62,299
5.7%
(8,868)
45,135
-0.8%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
58,082
6.7%
5.8%
45,501
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
5.8%
(8,165)
% Grow th
Debt
Cash
Cash/share
2015E
8.6%
Operating Income
Current Price
Implied equity value/share
Upside/(Downside) to DCF
2014E
526.75
646.80
22.8%
16,960
146,761
157.53
46,083
2.1%
51.6%
48.4%
100.0%
49,360
7.1%
52,587
6.5%
55,496
5.5%
58,006
4.5%
60,625
4.5%
62,585
3.2%
64,607
3.2%
Terminal Value
Free Cash Yield
11.9
14.6
5.9
7.7
11.3
13.8
5.5
7.3
66,971
3.7%
866,440
7.73%
Terminal P/E
14.1
Terminal EV/EBITDA
8.0
Terminal Discount Rate =
Terminal FCF Growth =
11.5%
3.5%
DCF Sensitivity Analysis
WACC
$ 646.80
9.0%
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
2.0%
816.87
760.17
710.62
666.95
628.18
593.54
562.40
2.5%
853.24
790.42
736.02
688.47
646.55
609.32
576.05
Sensitivity Analysis
Terminal Growth Rate
3.0%
3.5%
4.0%
895.67
945.82 1,005.99
825.32
866.04
914.17
765.06
798.56
837.64
712.86
740.73
772.89
667.21
690.63
717.39
626.96
646.80
669.29
591.21
608.15
627.21
4.5%
1,079.54
971.91
883.83
810.41
748.27
695.00
648.81
5.0%
1171.481
1042.495
939.2599
854.7548
784.2988
724.6512
673.4974
Valuation
Relative to S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
5.7
3.1
4.3
5.3
7.6
Low
0.62
0.67
0.6
0.8
0.9
Median
Current
1.4
1.7
2.4
3.1
2.9
Absolute Valuation
P/Forward E
P/S
P/B
P/EBITDA
P/CF
Relative to Industry
0.79
0.78
1.3
1.8
1
High
P/Trailing E
P/Forward E
P/B
P/S
P/CF
High
57.2
8.3
11.9
66.33
82.6
Low
9.6
1.2
1.8
6.27
8.5
Median
25.4
4
5.6
18.88
26
6.4
3.3
2.2
4.4
6.4
Current
12
2.8
3.4
8.51
11
Low
1.1
0.92
0.4
0.8
1.1
Median
1.4
1.6
1.2
2.7
2.4
Current
1.1
1
0.9
1.7
1.2
Valuation Analysis
Valuation Metrics
Return on Common Equity
S&P 500 Information Technology
Return on Capital
S&P 500 Information Technology
Operating Margin
S&P 500 Information Technology
Price/EPS
S&P 500 Information Technology
Price/Book
S&P 500 Information Technology
EV/T12M EBITDA
S&P 500 Information Technology
Net Debt/EBITDA
S&P 500 Information Technology
Source: Bloomberg
Sector
Sector
Sector
Sector
Sector
Sector
Sector
Current CY 2012 CY 2011 CY 2010 CY 2009 CY 2008 CY 2007
30.6%
42.8%
41.7% 35.3%
30.5% 33.2%
28.5%
20.8%
19.8%
24.2% 24.2%
15.8% 16.7%
18.4%
28.7%
42.8%
41.7% 35.3%
30.5% 33.2%
28.5%
17.0%
16.2%
19.8% 20.0%
12.6%
-7.4%
15.5%
26.8%
35.3%
31.2% 28.2%
27.4% 22.2%
17.9%
21.2%
20.9%
21.2% 20.7%
16.3% 15.4%
14.8%
13.1x
12.1x
14.6x
21.3x
23.2x
12.6x
50.4x
16.8x
14.5x
13.2x
15.7x
22.5x
13.1x
23.4x
3.8x
4.2x
4.9x
6.2x
6.0x
3.4x
11.9x
3.5x
3.2x
3.1x
3.5x
3.8x
2.7x
4.6x
6.1x
8.6x
8.3x
11.2x
10.4x
10.1x
25.0x
8.9x
7.6x
7.4x
8.7x
10.9x
6.8x
13.4x
-2.3x
-2.1x
-2.3x
-2.6x
-2.7x
-2.8x
-3.3x
-1.2x
-1.1x
-1.0x
-1.0x
-1.1x
-0.5x
-0.7x
Recommendation
P/E
2014 EPS
13.2x
47.5
Target Price
$627.00
 Hold
Plus: Net Cash1/Share
$133.35
 Target
Target Price
$760.35
Price ~ $700
 Apple’s P/E is 13
 S&P 500 is at 18.71
1. Cash - debt; foreign cash repatriated at 5%
Methodology
Price
Weight
DCF
$ 646.80
50.0%
Cash Adjusted P/E
$760.35
50.0%
Target Price
$ 703.58
Current Price
Potential Upside
$ 526.75
33.6%
Vantiv
Overview
Ticker
Current Price
52-Week Range
VNTV
$27.02
$19.21-$29.74
Market Cap
Shares Outstanding
Average Volume
5.2B
194.1M
2.5M
EPS
Beta
$0.86
0.78
Dividend
-
Sector
Industry
Info Tech
IT Service
 Leading,
 Top
integrated payment processor
Business Line
Sales
Weight
Merchant
Services
$ 1,409,158
75.63%
Financial
Institution
$ 454,081
24.37%
Total
$ 1,863,239
100%
merchant acquirer (3rd) and PIN debit acquirer (1st)
Stock Performance
Business Analysis
 Drivers




Impressive revenue and EPS growth
Stable growth in Merchant Services
eCommerce channel performs well (Litle & Co.)
Online gaming channel & Overseas opportunity
 Risks



Slow growth in Financial Institution Services
Revenue/transaction & profit margin remain flat
Debt($2.5B) & Liquidity($67M) management
Financial Analysis
Returns
ROE
ROA
Profitability
Gross Margin
Operating
Margin
Liquidity
Debt/Equity
Debt/Assets
FY 2012
FY 2011
FY 2010
7.99%
1.54%
5.95%
1.06%
54.89%
16.36%
89.93
31.91
FY 2009
FY 2008
3.77%
0.73%
-
-
53.36%
48.72%
49.87%
51.01%
14.99%
15.00%
21.46%
28.74%
141.09
50.77
147.00
52.11
106.44
46.49
-
Valuation Analysis
 Industry
 Stock
Valuation
Valuation
Vantiv Inc. (VNTV)
Analyst: Han Cao
Date: 11/01/2013
Year
Terminal
Discount
Rate =
Terminal FCF
Growth =
12.0%
4.5%
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2,123
2,440
14.9%
2,781
14.0%
3,142
13.0%
3,519
12.0%
3,906
11.0%
4,297
10.0%
4,641
8.0%
4,966
7.0%
5,264
6.0%
5,501
4.5%
Operating Income
Operating Margin
365
17.2%
444
18.2%
498
17.9%
534
17.0%
598
17.0%
664
17.0%
731
17.0%
789
17.0%
844
17.0%
895
17.0%
935
17.0%
Interest and Other
Interest % of Sales
60
2.8%
65
2.7%
70
2.5%
79
2.5%
88
2.5%
98
2.5%
107
2.5%
116
2.5%
124
2.5%
132
2.5%
138
2.5%
67
30.0%
96
30.0%
116
30.0%
137
30.0%
153
30.0%
170
30.0%
187
30.0%
202
30.0%
216
30.0%
229
30.0%
239
30.0%
99
160
61.3%
203
27.0%
259
27.3%
297
14.8%
337
13.2%
376
11.8%
411
9.3%
444
8.0%
474
6.8%
498
5.1%
191
9.0%
12
0.6%
64
3.0%
232
9.5%
36
1.5%
85
3.5%
278
10.0%
(60)
-2.2%
111
4.0%
314
10.0%
(31)
-1.0%
157
5.0%
352
10.0%
(35)
-1.0%
211
6.0%
371
9.5%
(39)
-1.0%
273
7.0%
408
9.5%
(43)
-1.0%
344
8.0%
418
9.0%
(46)
-1.0%
418
9.0%
447
9.0%
(50)
-1.0%
447
9.0%
421
8.0%
(53)
-1.0%
474
9.0%
440
8.0%
(55)
-1.0%
440
8.0%
239
342
43.5%
310
-9.5%
385
24.1%
403
4.7%
395
-1.9%
398
0.6%
365
-8.3%
394
8.2%
369
-6.4%
443
20.1%
NPV of Cash Flows
2,108
51%
NPV of terminal value
Projected Equity Value
1,989
4,097
49%
100%
Terminal
Value
6,177
Free Cash
Yield
7.18%
Terminal P/E
12.4
Terminal
EV/EBITDA
6.3
Revenue
% Growth
Taxes
Tax Rate
Net Income
% Growth
Add Depreciation/Amort
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
% Growth
Free Cash Flow Yield
7.27%
Current P/E
Projected P/E
33.0
41.2
20.5
25.6
16.1
20.1
Current EV/EBITDA
Projected EV/EBITDA
10.3
11.8
8.5
9.7
7.4
8.5
Shares Outstanding
120
Current Price
Implied equity value/share
Upside/(Downside) to DCF
Debt
Cash
Cash/share
$27.27
$34.06
24.9%
2,535
67
0.56
Technical Analysis
Recommendation
 Target
Price: $33
 Upside Potential: 22.13%
P/Forward E
DCF
Estimate
$29.00
$34.00
Price Target
$33.00
 BUY--200
bps
Weight
20%
80%
Visa
Recommendation
 Target
Price: $180.20
 Downside Potential: -9.52%
P/Forward E
DCF
Price Target
 No action
Estimate
$177.80
$180.80
$180.20
Weight
20%
80%
Corning Inc.
GLW Company Overview



Worldwide with more than
160 years
Specialty – glass and
ceramics
Five segments:





Display Technologies
Environmental Technologies
Telecommunications
Life Sciences
Specialty Materials







Ticker: GLW
Current Price: $17.26
Mkt Cap.: $25 billion
Shares Outstanding: 1,460.4
million
Dividend Yield: 2.3%
2012 Earnings: $1,728 million
Industry: Electronic
Component
Source: baseline, 10-k, yahoo finance
Stock
Performance
(5 year)
As of Nov. 4 2013
Source: yahoo finance
1 year return: 44.56%
5 year return: 64.55%
Financial Analysis
As of Nov. 4 2013
Source: baseline
Valuation
Analysis
As of Nov. 4 2013
Source: baseline
As of Nov. 4 2013
Business Analysis
Drivers




Gorilla glass
Information technology
industry boost in Asia, fiber
and cable demand increase
Display segment
Collaboration with Samsung
Risks
 Sapphire
glass
 Weak flat panel display
demand
EMC Corp.
EMC Company Overview



Develops, supports and
delivers information & virtual
infrastructure technologies,
services and solutions
Offices in 86 countries
Three businesses



VMware
EMC Info. Infrastructure
Pivotal







Ticker: EMC
Current Price: $23.58
Mkt Cap.: $50.1 billion
Shares Outstanding: 2,085.85
million
Dividend Yield: 1.7%
2012 Earnings: $3963.87
million
Industry: Computer Storage
Source: baseline, 10-k, yahoo finance
Stock
Performance
(5 year)
As of Nov. 4 2013
Source: yahoo finance
1 year return: -4.94%
5 year return: 117.17%
Financial Analysis
As of Nov. 4 2013
Source: baseline
Valuation
Analysis
As of Nov. 4 2013
Source: baseline
As of Nov. 4 2013
Business Analysis
Drivers
 Cloud
network
 $3.5 million buy-back
 Pivotal and VMware
 13% growth in Latin
America and 8% growth in
Asia
Risks
 Slowing
growth in
Information Infrastructure
 Government policies
As of Nov. 4 2013
Recommendation
EMC
 Target:
$32.19
 Current: $23.58
 Upside: 36.5%
 Dividend: 1.7%
 Buy 2%
Corning
 Target:
$18.42
 Current: $17.26
 Upside: 6.7%
 Dividend: 2.3%
 Sell 2%
As of Nov. 4 2013
Qualcomm
Qualcomm Overview
•
•
•
•
Started with seven people in 1985
A world leader in providing wireless technology services
Commands a 65% share of the wireless chipset market
The third largest in the semiconductor market
Qualcomm
Drivers






High free cash flow and low debt
dominates CDMA technology in the
chipset market
Focused towards other fast growing
technology: LTE network
Major customers: Apple and Samsung
Special business model: provide all
wireless companies with the R&D to
bring their innovations to market
Continued innovation
Risks



High innovation dependence
High competitive
Apple and Samsung are developing
their own chips
Smartphone growth will come from developing countries in the future:
• Expending market
• Lower the overall profit
Qualcomm Financial Analysis
2012
2011
2010
2009
2008
Operating Margin
29.72%
33.60%
29.87%
21.37%
33.48%
Net profit Margin
32.00%
28.50%
29.60%
15.30%
28.40%
Return on Equity
20.13%
16.64%
16.67%
10.30%
18.70%
Return on Assets
44.46%
41.07%
35.95%
37.95%
45.36%
Debt/Asset
22.01%
25.95%
31.77%
25.98%
26.95%
Debt/Common equity
28.22%
35.04%
46.57%
35.09%
36.89%
R&D Expense / Net Profit
32.60%
29.70%
31.90%
31.90%
29.50%
Profitablity
Management Effectiveness
Solvency
 High
R&D expense/Net Profit: Most companies are under 10%
Qualcomm(QCOM)
Analyst: Chengyuan Zhang
2013/9/29
Year
Revenue
Terminal Discount Rate =
Terminal FCF Growth =
2013E
23,186
% Grow th
Operating Income
Operating Margin
Investment Income
% of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
Subtract Cap Ex
Capex % of sales
Free Cash Flow
8,579
37.0%
1,076
4.6%
1,930
22.5%
7,725
38.0%
1,272
4.7%
2,330
22.5%
9,297
2015E
31,316
14.9%
11,900
38.0%
1,468
4.7%
2,678
22.5%
10,691
2016E
34,761
11.0%
13,209
38.0%
1,629
4.7%
3,339
22.5%
11,500
2017E
38,584
11.0%
14,662
38.0%
1,809
4.7%
3,706
22.5%
12,765
2018E
41,671
8.0%
15,835
38.0%
1,953
4.7%
4,002
22.5%
13,786
2019E
45,005
8.0%
17,102
38.0%
2,110
4.7%
4,323
22.5%
14,889
2020E
47,705
6.0%
18,128
38.0%
2,236
4.7%
4,582
22.5%
15,782
2021E
50,568
6.0%
19,216
38.0%
2,370
4.7%
4,857
22.5%
16,729
2022E
52,590
4.0%
19,984
38.0%
2,465
4.7%
5,051
22.5%
17,398
2023E
54,694
4.0%
20,784
38.0%
2,564
4.7%
5,253
22.5%
18,094
15.0%
7.6%
11.0%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
1,391
818
939
1,043
1,158
1,250
1,350
1,431
1,517
1,578
1,641
6.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
-84
-224
-224
-189
-210
-170
-183
-198
-214
-144
-152
-0.4%
-0.8%
-0.7%
-0.5%
-0.5%
-0.4%
-0.4%
-0.4%
-0.4%
-0.3%
-0.3%
1,159
818
939
1,043
1,158
1,250
1,350
1,431
1,517
1,578
1,641
5.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
7,872
9,074
10,467
11,310
12,555
13,616
14,706
15,584
16,515
17,254
17,943
15.3%
15.4%
8.1%
11.0%
8.5%
8.0%
6.0%
6.0%
4.5%
4.0%
76,890
93,885
170,775
6.55%
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
15.6
22.1
11.8
16.9
Shares Outstanding
1,720
Current Price
Implied equity value/share
Upside/(Downside) to DCF
10,355
20.4%
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
27,251
17.5%
% Grow th
Add Depreciation/Amort
2014E
11.0%
4.0%
69.9
$ 99.29
42.0%
45%
55%
100%
Terminal Value 266,578
Free Cash Yield
12.9
18.4
10.5
15.1
11.2
16.0
9.2
13.1
6.73%
Terminal P/E
14.7
Terminal EV/EBITDA
11.8
Debt
Cash
Cash/share
0
2,530
1.47
Qualcomm Valuation
Relative to
S&P 500
P/Trailing E
P/Forward E
P/B
P/S
P/CF
Relative to Industry High
Low
Median Current
P/Trailing E
1.8
0.13
1.2
1.1
P/Forward E
1.5
0.78
1.2
1.1
P/B
1.8
0.9
1.3
1.2
P/S
5.9
1.6
2.7
1.6
P/CF
2.2
1
1.4
1.2
Absolute Valuation High
P/Forward E
P/S
P/B
P/EBITDA
P/CF
37.9
16.5
8
40.12
39.9
Low
13.2
4.8
2.7
11.67
12.4
Median
19.9
7.9
4.3
19.25
20.2
Current
14.1
5
3
11.68
13.6
High
Low
2.3
2.1
2.6
10.7
3.8
Median
0.94
0.89
1.2
3.4
1.2
Current
1.4
1.3
1.7
6.2
2.1
1
0.98
1.3
3.5
1.3
Target Multiple Target per Share Target Price
19.5
7.2
3.8
18.32
18.9
Target Price: 81.00*50%+99.29*50% = $90.15/share
3.72
11.12
21.82
4.71
4.58
72.54
80.06
82.92
86.29
86.56
81.67
Qualcomm Recommendation
 Current
SIM Weight: 5.04%
 Final target price: $90.15/share
 Potential upside: 28.97%
 Investment decision: Hold
BROADCOM(BRCM)
Analyst: Chengyuan Zhang
2013/9/29
Year
2013E
2014E
Revenue
8,927
9,848
10,769
11,415
10.3%
9.4%
1,428
1,576
16.0%
16.0%
% Grow th
Operating Income
Operating Margin
Interest expense
% of Sales
Taxes
Tax Rate
Net Income
% of Sales
Plus/(minus) Changes WC
% of Sales
12.0%
3.0%
2018E
2019E
2020E
2021E
2022E
2023E
12,100
12,705
13,340
14,007
14,707
15,148
15,603
6.0%
6.0%
5.0%
5.0%
5.0%
5.0%
3.0%
3.0%
1,723
1,826
1,936
2,033
2,134
2,241
2,353
2,424
2,496
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
16.0%
(57)
(63)
(69)
(73)
(77)
(81)
(85)
(90)
(94)
(97)
(100)
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
-0.6%
69
79
87
92
97
102
107
113
118
122
126
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
1,302
1,433
1,567
1,661
1,761
1,849
1,942
2,039
2,141
2,205
2,271
% Grow th
Add Depreciation/Amort
Terminal Discount Rate =
Terminal FCF Growth =
2015E
2016E
2017E
10.1%
9.4%
6.0%
6.0%
5.0%
5.0%
5.0%
5.0%
3.0%
3.0%
143
148
162
171
181
178
173
168
162
167
156
1.6%
1.5%
1.5%
1.5%
1.5%
1.4%
1.3%
1.2%
1.1%
1.1%
1.0%
-111
-111
-111
-111
-111
-111
-111
-111
-111
-111
-111
-1.2%
-1.1%
-1.0%
-1.0%
-0.9%
-0.9%
-0.8%
-0.8%
-0.8%
-0.7%
-0.7%
Subtract Cap Ex
538
594
538
571
484
508
400
280
294
151
156
Capex % of sales
6.0%
6.0%
5.0%
5.0%
4.0%
4.0%
3.0%
2.0%
2.0%
1.0%
1.0%
Free Cash Flow
796
876
1,080
1,151
1,348
1,408
1,604
1,816
1,897
2,109
2,160
10.1%
23.2%
6.6%
17.1%
4.5%
13.9%
13.2%
4.5%
11.2%
2.4%
Terminal Value
24,721
% Grow th
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Current EV/EBITDA
Projected EV/EBITDA
Shares Outstanding
Current Price
Implied equity value/share
Upside/(Downside) to DCF
$
7,974
7,959
15,933
5.17%
50%
50%
100%
11.8
12.2
10.3
10.7
579
10.7
11.1
9.4
9.7
26.61
27.52
3.4%
Free Cash Yield
9.8
10.2
8.6
8.9
8.74%
Terminal P/E
10.9
Terminal EV/EBITDA
9.6
Debt
Cash
Cash/share
1700
850.00
1.47