Bubblelicious - Equity Research - Berenberg

BERENBERG EQUITY RESEARCH

Bubblelicious A comparative analysis

Adnaan Ahmad Analyst +44 20 3207 7851 [email protected]

Daud Khan Analyst +44 20 3465 2638 [email protected]

Jean Beaubois Specialist Sales +44 20 3207 7835 [email protected]

4 June 2014 Global Technology

What is Berenberg THOUGHT LEADERSHIP? Berenberg's analysts are recognised by investors and by corporates for their in-depth research into the industries they cover. Our THOUGHT LEADERSHIP brand will highlight the deep-dive fundamental industry research that we feel is most important to informing our forecasts and ratings.

For our disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and our disclaimer please see the end of this document. Please note that the use of this research report is subject to the conditions and restrictions set forth in the disclosures and the disclaimer at the end of this document.

Table of contents Bubblelicious: a comparative analysis

1

Our analysis offers the following key findings

2

A bubble: definition

4

Bubblelicious: a comparative analysis

5

Valuations: then and now

6

Capital raising

17

M&A: then and now

24

Conflicts of interest: then and now

27

Infrastructure build-out versus leveraging the network

29

Other considerations

35

Technology hardware stock selection valuation methods

41

Contacts: Investment Banking

43

Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)

44

Global Technology Technology Hardware/Technology Software

Bubblelicious: a comparative analysis 

Another bubble?: At the forefront of investors’ minds following the March market correction is whether we are living through another technology bubble or whether this time it is different. History teaches us a lesson or two about the future. Having lived through the technology bubble 15 years ago, we thought that it was a topical subject to examine to help us understand where we stand today with technology stocks.



Similarities and differences: In this note, we focus on the similarities and differences between the dot-com boom era and today’s technology market. We analyse data on sectors (telcos/media/technology), business models, valuations, capital raising (private and public), M&A and conflicts of interest between the two time periods, and arrive at a few lessons here for investors interested in the technology sector today.



Should we party like it’s 1999 or head for the exit? While hindsight is the only true judge, we have noted some trends that have supported the view that we may be in the midst of a bubble. Other trends, however, suggest we may only be in the same position as we were in 1998 and have a few more glory years ahead of us. When meeting investors, one of the most frequent questions we are asked (other than “how can you be sellers of Samsung and Oracle, the cheapest tech assets on the planet?”) is: “Where are we in the technology stock-hype cycle?” Is this 1997, when Yahoo! soared 500%, Lycos quadrupled, Excite tripled and AOL increased by 150%? Is it 1998, when Warren Buffett stated that “technology is just something we don’t understand, so we don’t invest in it”? Is it 1999, when Qualcomm was up 26x, BroadVision was up 15x, ARM was up 12x, and InfoSpace, Emulex and DoubleClick were up 10x? Or is it 2000, when Warren Buffett, after the start of the tech-market meltdown, stated that “we have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint – try to control your excitement”? Is it time to “party like it’s 1999”? Or should we prepare for a dot-com bust in many of these new stocks (such as social media, SaaS, mobile payment)? Should we be buying the recent pull-back in these high-flying names? Or, conversely, should we be shorting/going underweight traditional/legacy technology stocks again?



Forget the themes – pick a winner: Our analysis suggests that, like the AOL-Time Warner deal in January 2000, the WhatsAppFacebook deal earlier this year coincided with the technology market peaking. The question we find difficult to answer, though, is how much lower can these high-valuation names fall? We note that many tech stocks back in the dot-com bust fell by between 90% and 95%, and many plunged to zero. Few of these names survived (Amazon and eBay come to mind), so we think that, instead of buying a portfolio of “theme” names, which is what investors were doing in 2012-13 (SaaS, social media internet, cloud, security, big data), investors should carefully consider which ones are going to be the long-term winners, ie stick to the tech investing philosophy that technology tends to be a winner-takes-all sector and the leading players should reap the majority of the economic rewards. Until, that is, the technology evolves.

4 June 2014 Adnaan Ahmad Analyst +44 20 3207 7851 [email protected]

Daud Khan Analyst +44 20 3465 2638 [email protected]

Jean Beaubois Specialist Sales +44 20 3207 7835 [email protected]

1


Our analysis offers the following key findings 1. Mind the gap: Valuations are high in the current era but generally much lower than the stratospheric valuations during the dot-com boom. It was not uncommon to find “new tech” companies trading on 100x revenue, or 100x earnings for “old tech”. Today 20-30x revenue for new tech and 20-30x earnings for old tech is viewed as high but for the majority of old tech the valuations are languishing in the “value” territory of low teens P/E. So, when looking at valuations on the aggregate, it seems like the tech sector is well within the bounds of normality. However, peeling the onion reveals some startling valuation gaps between old tech and new tech. We should not forget that, in the dot-com era, it was not just tech stocks that ruled the roost. Anything linked to the internet (ie telcos, media, software, infrastructure) was viewed as the new paradigm and given high valuations. In this era there has been more selectivity, driven not by one all-encompassing theme but by disruption in particular industries. For example, cloud platforms are eating the traditional licence-based software model. Software-defined networks are disrupting the proprietary networking vendors and the arrival of social media suggests new advertising and consumer analytics models that will change the way consumers and businesses behave. Hence, we have this dichotomy between highly valued new tech (for example, social media, software as a service (SaaS), big data and security) and old tech that suggests that our Tech Titans theme is being played out in front of our eyes. We have noted one exception to the old versus new tech valuations, and that is in payments, where the belief is that all players will be winners because their lower transaction fees and mobile technology will lead to the whole world joining the digital payment network. 2. Plethora of valuation metrics: In any new paradigm, new valuation metrics emerge. In the dot-com era, when profits were negative and revenues were a pipe-dream for many internet companies, it became de rigueur to value stocks according to the number of “eyeballs” they attracted (ie, the number of viewers or “hits” that a website received). When we examine the current “new tech bubble”, where profits are again negative but revenue growth is rampant, we have come across valuations based on: the total addressable market (TAM) for market segments that are yet to show much revenue; the lifetime value of customers for cloud companies based on average lifetimes of over 30 years; and the future ARPU potential for social media (justifying a $40/user value for Facebook’s WhatsApp deal). Ultimately, what all these valuation metrics fail to incorporate is the cost of growth and, subsequently, the margin profile of these businesses. 3. Drilling down on venture capital financing: Another area we have examined is venture capital financing. We note three important points. Firstly, venture capital financing currently is well below the level seen in the dot-com era. Secondly, we are seeing a strong up-tick in levels of financing in the software, social media, financial technology and networking verticals. Thirdly, the level of venture capital financing to IPO conversion is significantly below the rates seen in the dot-com era. In our view, this suggests a strong “pipeline” of IPO activity to come or big M&A. Depending on the success of this pipeline, this could mark the popping of the bubble or a new phase in inflating it. 4. Lofty private market valuations: When examining private market valuations, we are intrigued by the implied valuations versus their public market peers. For 2


example, Airbnb has a $10bn valuation and IHG, Wyndham and Hyatt are at about the same level. Xiaomi (Chinese handset manufacturer) has a $10bn value versus HTC at $4.6bn or Nokia’s take-out value of $5bn. Uber has a valuation of $17bn versus AVIS at $6bn. If these valuations are correct, the IPO/M&A valuations should be even higher and this highlights a similarity to the moment when AOL’s value was perceived to be higher than Time Warner’s. 5. A shift in M&A strategy: Our M&A analysis suggests two differences between today and the dot-com era. Firstly, in the dot-com era, there was a prevalence of new technology buying new technology or legacy tech buying new technology, eg Yahoo! acquiring GeoCities and Broadcast.com or Nortel buying Xros. Today, the majority of deals are legacy tech buying legacy tech or new tech, eg Oracle buying Acme Packet and Tekelec or, on the other side of the coin, Oracle buying RightNow and Taleo. Secondly, the dot-com era acquisitions were primarily share-based, leveraging the high stock valuations. Today, with the exception of Facebook, the legacy companies are acquiring with cash, eg VMware-AirWatch and VMware-Nicira. In an era when new technology seems unphased about the lack of cash generation, the acquired targets have “got religion” and only want cash. Ultimately cash is king. 6. Conflicts of interest, a hindsight signal: We have also analysed conflicts of interest. Back in the late 1990s, companies, venture capital, industry experts, investment bankers, the media, analysts and investors were caught up in the dot-com “spell” culminating in the imprisonment of certain CEOs as well as an in-depth inquiry by Eliot Spitzer, who was then New York State Attorney General, into practices at Wall Street banks. It was a time of “CEO and Wall Street stardom”, an age of multi-year multi-million dollar bonuses. At face value, stock-based compensation is aligned for shareholders and management alike. However, it allows companies to mask underlying losses and preach on strong cash generation. Ultimately, the shareholder is driven by profit and cash flow but in a momentum-oriented world, management can drive share price through the perception of profitable growth alone. The remaining areas of conflict will become apparent after the bubble has popped, as we witnessed in the dot-com bust. 7. Looking out for a sign – any sign: What is today’s equivalent of the “Nortel moment” wake-up call (when Nortel’s CEO stated that there was double booking by customers that had resulted in a growing inventory glut)? Is it Salesforce.com’s growth decelerating markedly? Is it the collapse of the bitcoin? Is it Facebook’s advertising revenue growth coming to a halt? Or is it as simple as a failed hyped-up IPO? Time will tell. In the formation of any bubble, there is a starting point: business concepts emerge that target market opportunities, and their public market acceptance is carefully planned and strategised over many years, eg Facebook and Salesforce.com. These early successes (Salesforce.com was a poster child for SaaS companies) place a stake in the ground in terms of their business concept and valuation. As with any market, where capital flows are high, other companies with similar concepts follow (Concur, Marketo and SuccessFactors trailed behind Salesforce.com). These companies demand a similar valuation but, in our view, in aggregate are of much lower quality. It is the exposure of these companies as over-hyped and over-valued that quickly pops the valuation bubble. The impending pipeline of IPOs/M&A that we have projected based on VC financing flows suggests that we are not far away from this final phase of the bubble.

3


A bubble: definition 

Any deviation in the price of an asset or a security or a commodity that cannot be explained in terms of “fundamentals”.



An upward price movement over an extended period of 15 to 40 months that then implodes.



Behavioural finance theory attributes stock-market bubbles to cognitive biases that lead to groupthink and herd behaviour.



Technically, some consider a bubble as occurring when the returns increase two standard deviations or more from the historical rate.

4


Bubblelicious: a comparative analysis 

Valuations      



Capital raising    



Companies Wall Street Accounting creativity

Infrastructure build-out versus leveraging the network  



Legacy consolidation occurring New tech chasing TAM Cash deals more prevalent Multiples are close to bubble levels

Conflicts of interest   



Venture capital deals rising but below the peak Financing skewed to software and social media IPO/M&A pipeline building On average, capital raise on IPO is 50% higher

M&A    



Broad versus narrow Look reasonable on a relative basis Divergence between “old” and “new” tech Eyeballs have morphed into TAM and other innovative methods Private-market valuations are sky high Some will survive, but at what price?

Massive over-capacity of network builds Vendor financing rife in dot-com era

Other considerations 5


Valuations: then and now Some indices are at their highest-ever levels, but the overall valuations are significantly lower than the multiples of the dot-com era. However, there are some subsectors that are trading on very high multiples.

6


The S&P is at an all-time high and the Nasdaq is close to its peak but, on a sector level, is only being driven by the software and services index versus the broad impact in the dot-com era. S&P 500

Nasdaq 100

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

MSCI Software and Services 250 200 150

100 50 0

S&P at all-time highs, Nasdaq close to its peaks driven by software and services MSCI Information Technology

MSCI Tech Hardware

MSCI Telecom Services

250

250

200

200

150

150

100

100

100

60

50

50

0

0

160

140 120 80 40 20 0

Source: MSCI, Bloomberg

7


On an aggregate basis multiples look unchallenging, but a magnifying glass reveals otherwise. EV/sales ratios then…

…and now

18 16 14

12 10 8 6 4 2 0 01/01/1998

Telecom Services

Information Technology

Software & Services

Technology Hardware

On an aggregate basis, multiples look reasonable, but our detailed analysis suggests that the bubble is forming (see the next page).

01/01/1999

01/01/2000

01/01/2009

01/01/2001

The software and services sector has historically traded at a premium to the sector, with the exception of the 2001 crash. In the 1999 bubble, this sector acted as a benchmark that pulled the valuation of other sectors upwards.

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

All sectors are far from the valuations seen in 1999-2001. The technology hardware index, which includes many legacy businesses, is the “cheapest” sector. Telecom services have remained nearly flat for the last 10 years.

P/E rations then…

…and now

100 90 80

Telecom Services

Information Technology

Software & Services

Technology Hardware

70 60 50 40

30 20 10 0 01/01/1998

01/01/1999

01/01/2000

01/01/2001

01/01/2009

Source: MSCI, Bloomberg: 8

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014


Multiples in selected “hot” sectors are high, but still not as high as the dot-com era. Old Tech

1999

2000

2001

2002

2003

2010

2011

2012

2013

2014

SAP

9.3

7.9

6.1

4.6

4.4

3.5

4.0

4.6

4.5

4.2

Cisco

14.3

20.3

14.7

4.9

5.3

2.0

1.2

1.6

2.1

1.9

Microsoft

20.0

15.5

11.6

8.0

6.9

2.7

2.8

2.9

2.9

3.3

Amazon

22.2

9.4

2.0

1.9

3.1

1.8

1.6

2.0

2.3

1.9

Ebay

244.4

81.9

21.6

28.9

26.2

3.2

3.7

4.2

4.1

4.0

Oracle

11.5

13.2

5.6

5.2

5.8

3.8

3.5

3.9

3.9

4.3

Juniper

168.9

114.2

33.4

6.3

7.8

3.0

1.9

1.9

2.0

2.2

6.8

22.2

18.9

2.8

6.0

1.4

1.2

1.3

1.5

1.5

Median

17.2

17.9

13.2

5.1

5.9

2.8

2.3

2.5

2.6

2.7

Cloud

1999

2000

2001

2002

2003

2010

2011

2012

2013

2014

Salesforce.com

n/a

n/a

n/a

n/a

n/a

8.2

7.2

8.5

9.2

7.2

Workday

n/a

n/a

n/a

n/a

n/a

n/a

29.6

30.8

31.9

22.9

Netsuite

n/a

n/a

n/a

n/a

n/a

9.5

13.2

16.7

18.2

15.7

Marketo

n/a

n/a

n/a

n/a

n/a

n/a

n/a

13.9

13.9

11.1

Concur

14.9

7.6

0.3

0.5

3.5

6.2

6.8

9.8

11.0

8.8

Median

14.9

7.6

0.3

0.5

3.5

8.2

10.2

13.9

13.9

11.1

Payments

1999

2000

2001

2002

2003

2010

2011

2012

2013

2014

Wirecard

n/a

12.8

6.8

0.5

3.1

3.3

3.9

5.2

6.0

5.6

Gemalto

n/a

n/a

n/a

n/a

n/a

1.2

1.8

2.5

2.7

2.7

Seamless

n/a

n/a

n/a

n/a

n/a

2.6

3.3

6.9

10.7

10.7

Ciena

Monitise

n/a

n/a

n/a

n/a

n/a

10.7

7.6

6.2

6.2

11.4

Median

n/m

12.8

6.8

0.5

3.1

3.0

3.6

5.7

6.1

8.1

Social Media

1999

2000

2001

2002

2003

2010

2011

2012

2013

2014

Facebook

n/a

n/a

n/a

n/a

n/a

n/a

11.0

13.6

16.3

16.0

Linked-In

n/a

n/a

n/a

n/a

n/a

10.8

11.5

13.9

15.6

12.1

Twitter

n/a

n/a

n/a

n/a

n/a

n/a

n/a

51.5

51.5

31.9

Google

n/a

n/a

n/a

n/a

n/a

4.9

4.1

4.6

5.4

5.2

Yahoo

156.0

104.1

13.2

10.4

12.9

3.1

3.3

5.6

7.9

7.1

Median

156.0

104.1

13.2

10.4

12.9

4.9

7.5

13.6

15.6

12.1

Semiconductors

1999

2000

2001

2002

2003

2010

2011

2012

2013

2014

Texas Instruments

6.1

7.5

6.2

4.3

3.9

2.6

2.7

3.4

4.0

4.3

ASML

8.9

8.9

5.0

3.7

3.5

2.3

2.9

4.5

5.3

4.9

Intel

8.2

7.2

6.7

5.7

5.0

2.1

2.1

2.1

2.2

2.2

Median

8.2

7.5

6.2

4.3

3.9

2.3

2.7

3.4

4.0

4.3

9

Old technology firms are valued much lower than they were during the dotcom bubble. This supports a thesis that the “dot-com bubble 2.0” is mainly present in the “new tech” space.

Valuations of the companies in the cloud/payments and internet/social media segments are still below the “old tech” valuations before the crash.


New-tech valuations show large divergence to old tech compared to the broad uplift of valuations in the dot-com era. Cloud

Payments Share price returns

500

450 400 350

Share price returns

700

Cloud

600

Payments

Legacy

500

Legacy

300 200

300

150

200

100

350

0

01/01/2010

01/01/2011

01/01/2012

01/01/2013

200 150 100

14

Cloud

12 10

01/01/2011

6

01/01/2013

0

01/01/2014

01/01/2010

Legacy

8 6 4 2

0

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

FB IPO

10

1

2

01/01/2014

TWTR IPO

Legacy

12

2

4

01/01/2013

Internet/Social

14

3

6

01/01/2012

EV/Sales (LTM)

16

Seamless and Monitise effect

4

01/01/2011

18

Wirecard and Seamless effect

Payments

5

8

01/01/2012

EV/Sales (LTM)

7

WDAY IPO

Legacy

50

01/01/2010

EV/Sales (LTM)

16

Legacy

250

0

01/01/2014

Internet/Social

300

100

50

Share price returns

400

400

250

0

Internet/social media

01/01/2010

01/01/2011

01/01/2012

01/01/2013

0

01/01/2014

01/01/2010

01/01/2011

01/01/2012

01/01/2013

01/01/2014

EV/sales (2014E/15E) ratios for selected stocks in our basket SALESFORCE.COM

4.8

12.3

WORKDAY 7.3

NETSUITE MARKETO CONCUR

4.7

Median

5.4

11.1

LINKED IN

3.2

2014E

8.5 5.4

5.5

8.7

2.9 2.3

4.3

10

6.1

Mean

2014E

8.2

6.5

Median

3.2

2015E

7.8

6.5 6.8

YAHOO

2015E

11.5

7.3

TWITTER

2.2

Mean Median

7.8

2015E

0.8 1.6

1.1 1.4

FACEBOOK

MONITISE

6.7

AMAZON

5.7

2.3 2.5

GEMALTO

OPTIMAL PMTS

6.9

Mean

25.3

SEAMLESS

9.6

6.1

5.4

4.4

WIRECARD

7.8

7.3

2014E

14.2


During the dot-com bubble, the most widely used valuation techniques were eyeballs and page views, with many companies struggling to generate revenues, let alone margins and cash flow. 

In the dot-com boom, eyeballs translated into end-customers, and most internet companies lacked traditional valuation metrics (such as earnings).



Whenever analysts tried to relate the price of an internet stock to the underlying economic fundamentals, the maths did not work. Eyeballs were not earnings.



Some internet stocks spent more money acquiring customers than those customers spent on the companies’ websites.



A relative valuation game was being played.



The truth was that many, if not most, CEOs could not pin down the value of a customer. Therefore, they did not know how much they should be paying for a pair of eyeballs.



Today’s valuation techniques have mainly been derived from the eyeballs approach, but they are far from fundamental measures.



Due-diligence is not the most important aspect of the deal. “The speed at which term sheets are being issued is faster. We’re playing by slightly different rules than what happened even five years ago.” Alfred Lin, Partner at Sequoia Capital, speaking in 2014.

TAM LCV/CAC*

Big Data

Cloud

Security

X

X

X

Social

Payments

"Old Tech"

X

X

EV/No of users

X

EV/EBITDA

X

P/E

X

*Lifetime Customer Value/Customer Acquisition Cost

11

X


Today, valuations have become stretched in “disruptive and innovative” tech sectors. 

Disruptive technology sectors, social media, cloud, security, payments, big data and mobile are leading the “over-valuation” charge today.



The valuations of many of these sectors are stretched on many traditional metrics. 







Minimal interest rates on low-risk investments are allowing investors to place riskier bets in search of bigger returns.

Public companies include Twitter, FireEye, LinkedIn, Amazon, King, Rocket Fuel, Tesla and Netflix. 

The Netflix stock price is benefiting from “euphoria” driven by “momentum” investors, according to Netflix CEO Reed Hastings (October 2013).



“Our stock price is more than we have any right to deserve.” Tesla CEO Elon Musk, October 2013.

Recent M&A deals include WhatsApp, Oculus and Nest. 

“WhatsApp is worth more than $19bn.” Facebook founder Mark Zuckerberg, February 2014.



“This is a very substantial and very strategic acquisition for us.” Yahoo! CEO Tim Koogle in 1999 on the company’s purchase of Geocities.

Venture capital valuations: Pinterest, Airbnb, Uber, Lyft, SnapChat 

“As entrepreneurs, we’ve seen that when the sun is shining, make hay.” Kevin Hartz, Eventbrite CEO, October 2013.

12


But there are exceptions to the rule: payments stocks. Old and new alike are trading on high multiples based on TAM expansion. P/E multiples of payments companies: 2008 versus today 45.0 40.0 35.0

PE multiples

30.0 25.0 20.0 15.0 10.0 5.0 0.0

2008

2013

Source: Bloomberg

13


Private market valuations of “hot” companies are sizzling. Most companies, including Pinterest and Snapchat, have very limited revenue.

Valuations of selected private companies versus their peers Valuation $bn

Revenue $bn 5

18 last valuation $bn

16

revenue $bn

4.5 4

14

3.5

12

3

10

2.5

8

2

6

1.5

4

1

2

0.5

0

Uber

Avis: $6bn Lyft: $700m Zipcar: $500m

Airbnb

Xiaomi

IHG: $10bn Wyndham: $9.6bn Hyatt: $9.4bn

Nokia phones: $5bn HTC: $4.6bn Motorola: $12.5bn & $2.9bn

Dropbox Box: $2bn Egnyte: $250m Sharefile (Citrix): $54m

Pinterest

Spotify

Lending club

Youtube: $1.65bn Instagram: ~$1bn MySpace: $580m Bebo: $850m

Last.fm: $280m Pandora: $5.2bn Beats: $3bn

Prosper: $650m Metro Bank: ~$9.5bn

Source: Bloomberg, Berenberg

14

Jawbone

Square

Fitbit (‘13): $300m Withings (‘13): $300m GoPro: $2.1bn

Verifone: $3.7bn Ingenico: $4.8bn

Bloom Energy First Solar: $6.4bn Plug Power: $730m Ballard: $500m

GoPro Jawbone: $3.5bn Flip (‘09): $590m Lytro:~$100150m

Box

Snapchat

Dropbox: $10bn Egnyte: $250m Sharefile (Citrix): $54m

Whatsapp: $19bn Skype: $8.5bn

0


There are always survivors, but investors need to question how long it takes to justify current peak valuations and whether that involves a company re-inventing itself à la Amazon. Some legacy tech is now trading above or close to all-time highs and, surprisingly, at value multiples. eBay

Amazon 450 400 350 300 250 200 150 100 50 0

70 60 50 40 30 20 10 0

SAP 70 60

Yahoo 120 100

80 ~10 years to exceed dotcom peak

60 40 20 0

Oracle ~13 years to reach dotcom peak

50 45 40 35 30 25 20 15 10 5 0

50 40 30 20 10 0

Note: Peaks and charts are using the monthly average stock prices Source: MSCI, Bloomberg

15

~14 years to reach dotcom peak

Still far from previous peaks


There will also be M&A, but history suggests take-out values have been well below peak valuations. i2 Peaked at $2,338.30 2,500 2,000 1,500

1,000

Acquired by JDA Software at $19.73

500 0

Siebel 120

Peoplesoft 60

Peaked at $111.31

100

50

80

40

60 40

Peaked at $52.69

Acquired by Oracle at $26.49

30

Acquired by Oracle at $10.61

20

20

10

0

0

01/01/1998

Note: Peaks and charts are using the monthly average stock prices Source: MSCI, Bloomberg

16

01/01/1999

01/01/2000

01/01/2001

01/01/2002

01/01/2003


Capital raising Venture capitalist activity is increasing with more latter-stage funding. This has caused the IPO pipeline to build up to record levels.

17


The number of venture capital deals is still way below the dot-com peak but has been rising since the financial crisis. Number of US venture capital deals and the average size of the deals 20 18 5,000

Number of VC rounds has increased c30% since the financial crisis in 2009. However, it is significantly lower than the peaks experienced during the dot-com bubble.

4,000 3,000

16 14

12 10 8

2,000

6 4

1,000

2 0

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 US VC financing (lhs) Avg size of round ($m) (rhs)

Source: P. Bardwick (University of Florida)

18

Average size of a financing round ($m)

Number of US VC financing rounds

6,000


Venture capital money flows are increasing in most sectors, with software and media at their highest levels since the dot-com peaks. Software

Media and Entertainment Software

$mn

Software VC money at highest levels since the “boom” and still growing

30,000

200%

12,000

25,000

150%

10,000

20,000

100%

8,000

15,000

50%

6,000

10,000

0%

4,000

-50%

2,000

5,000

0

Networking and Equipment

$mn

$mn

yoy % 250%

12,000

200%

10,000

150%

8,000

100%

6,000

50%

4,000

0%

2,000

-50%

Semi market for funding very low and still declining

4,000 3,500 3,000

2,500 2,000 1,500 1,000 500 0

Financial Services

4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

-100%

Semiconductors $mn

M&E funding growing at a similar pace to software and reaching high levels

Financial Services

14,000

0

yoy % 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% -150%

0

-100%

Networking and Equipment Networking and Equipment funding growing at a fast pace but from a very low base

Media and Entertainment

$mn

yoy %

yoy % 200% 150% 100% 50% 0% -50%

The growth in Financial Services VC funding has picked up, but the volume is still very low

-100%

Computers and Peripherals Semiconductors

$mn

yoy % 200%

1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

150% 100% 50% 0% -50% -100%

19

Computers and Peripherals

yoy % 200%

150% 100% 50%

0% -50% -100%

C&P VC market has been fairly flat over the last few years, way below the dotcom peaks


Venture capital funds are more focused on the latter stage, leading to the build-up of a large IPO/M&A pipeline. Could this trigger the popping of the bubble or another inflationary period? VC funding by stage 100%

11%

13%

90%

10%

23%

22%

1 19%

19%

80% 70%

60%

42%

44%

27%

31%

18%

14%

1998

1999

26%

26%

25%

29%

40%

45%

50%

47%

9%

11%

8%

6%

4%

2000

2011

2012

2013

2014

46%

The companies are staying private for longer, which is shown by higher proportion of latter-stage financing within the total VC funding

50%

2

The pipeline for tech IPOs used to be significantly lower due to the fact that the companies “skipped” the latter stages of VC financing by IPO-ing earlier

40% 30% 20% 10% 0% Seed Stage

35%

Early Stage

Expansion Stage

Number of tech deals in the pipeline 450

400 350

Later Stage

300

250

Number of global Tech IPOs (#)

350 300 250

200 150 40

100

35

50

30 25

200

20 150

15

100

10

50

5

0

Value of Global Tech IPOs ($bn)

3

This has resulted in lower volumes of tech IPOs today. But with the growing pipeline, we expect the number to increase significantly over the next few years

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

20

0

+39% CAGR


The average age of a company going public today is 10 years versus six years in the dot-com era. In addition, the amount raised on average is up by 50% and while the valuations are well below the dot-com era, they are high by any other fundamental metric. 

Start-up tech companies today are, in the main, putting off IPOs and staying private for longer – this is a big difference between the current tech boom and the last one.



The average company goes public after 10 years today, versus after just six years in 2000.



The average revenue for a company going public today is more than $200m versus less than $50m in 2000.



In the dot-com era, retail investors “fronted” venture capital to the dot-com darlings when they went public (IPO).



Today, start-ups are delaying their IPOs, hence venture capitalists and other private investors (high net worth) are playing the role of the retail investor and buying in at inflated prices.



Of the largest 100 venture capital rounds on the record, 88 were issued in the last five years.



New legislation in some US states will allow retail investors to buy stakes in start-up companies. Dotcom times

Webvan eToys.com Pets.com Ebay Amazon

Now

Amount raised

EV/Sales (LTM

Amount raised

EV/Sales (LTM

($m) 375 164 82.5 63 54

before IPO) 114x 71x 70x 64x 37x

($m) 16,000 1,820 367 326 229

before IPO) 21x 26x 20x 4x 27x

Facebook Twitter Workday King.com Splunk

21


Despite the average age of companies going for IPOs increasing, the number of IPOs with negative EPS is the highest since the dot-com bubble. Fraction of IPOs with negative EPS and tech stocks as a percentage of total IPOs % IPOs with negative EPS

% of Tech stocks in total IPOs

90% 80%

Share of IPOs with negative earnings is on the rise again since market recovery in 2009 (red bars)

Percentage of tech IPOs within the total IPOs decreased significantly from its peak in 1999 when almost 80% of all IPOs were in the technology sector

70% 60% 50% 40%

30% 20% 10%

0% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: P. Bardwick (University of Florida)

22


First day “pops” in share prices defined how high market appetite was back then. Today, in the hot IPOs, we are back to the levels seen in the dot-com era. First day returns of IPOs (1990-2013) 700

80% During the dotcom bubble, the average “pop” was around 50-70%

600 500

70% Today, it is between 2030%

400 300

60% 50% 40% 30%

200

20%

100

10%

0

0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 number of IPOs % first day return

Source: P. Bardwick (University of Florida) Average first-day returns relative to file price range

Dotcom times Day one "pop"

125% 105%

Webvan eToys.com Pets.com Ebay Amazon

85% 65% 45% 25% 5% -15%

1980-1989

1990-1998 Below

Within

1999-2000

2001-2013

Above

Source: P. Bardwick (University of Florida) 23

65% 280% 28% 163% 30%

Now

Annualised Return since the IPO -100% -100% -100% 7% 19%

Day one "pop" Facebook 1% Twitter 73% Workday 72% King.com -9% Splunk 70% *Actual, not annualised return

Annualised Return since the IPO 29% 31%* 160% -28%* 70%


M&A: then and now M&A activity today is very high, but the legacy businesses seem to focus more on consolidation of existing markets than venturing into a new space.

24


In the past, many legacy players invested in new technology at high multiples. Today, legacy companies are looking to consolidate their market position whereas new technology expands into new TAMs. This suggests that legacy tech is not fooled the way it was in the dot-com era. 1. During the dot-com bubble, legacy players were active by acquiring new technology

Legacy/new

New/new 45,000

25,000

Then 20,000

Then

Now

35,000 Value ($m)

Value ($m)

40,000

Now

15,000 10,000

30,000 25,000 20,000 15,000 10,000

5,000

5,000

-

-

2. AOL-Time Warner moment was a unique lesson in history and deals where a new player would take over a legacy business are very rare 3. Today, we are seeing a high level of M&A activity from legacy players consolidating the market by acquiring legacy businesses

New/legacy

Legacy/legacy 14,000

180,000 160,000

Then

Now

12,000 10,000

120,000

Value ($m)

Value ($m)

140,000 100,000 80,000 60,000

8,000 6,000

4,000

40,000

2,000

20,000 -

AOL-TimeWarner (1999)

25

Then

Now


Was Facebook’s WhatsApp deal the AOL-Time Warner moment? Nasdaq composite price movement (1999-2014) AOL-TW deal

5,000

FB-W’App deal

4,500 4,000 3,500

3,000 2,500 2,000 1,500 1,000

500 0 1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Bloomberg 

“I did it [cast his yes vote supporting the merger] with as much or more excitement and enthusiasm as I did on that night when I first made love some 42 years ago.” Time Warner board member Ted Turner, 2000.



Facebook has acquired WhatsApp, a messaging app with 450m users but no real revenue model, for $19bn. And yet, according to Facebook’s Mark Zuckerberg, WhatsApp is “worth more than $19bn”.



Facebook’s next big deal was the acquisition of Oculus VR for $2bn. Oculus currently has no revenues.

. 26


Conflicts of interest: then and now In the dot-com era, there were many conflict of interest issues, but these were only exposed in hindsight. “It’s only when the tide goes out that you can see who’s swimming naked.” Warren Buffett

27


There were a multitude of conflict of interest issues that became apparent after the dot-com bust. 

Companies: WorldCom, Nortel, Pixelon, Think Tools AG, e.Digital Corporation, InfoSpace, MicroStrategy – to name just a few – were found to have had accounting irregularities. 

“I know what I don’t know. To this day, I don’t know technology, and I don’t know finance or accounting,” Bernie Ebbers, CEO of WorldCom



Venture capital: Hype became more important than business plans. It was the age of the “star” venture capitalist.



Industry experts: Companies, banks, analysts and bankers started to leverage industry experts to promote trends and themes that would keep the bubble blowing.



Investment bankers: Some technology bankers achieved “star” status, pushing internet IPOs and advising on the plethora of tech M&A deals.



Media: The media fuelled the frenzy surrounding dot-com stocks.



Analysts: Analysts acquired “star” status. They became power-brokers and dealmakers. Their valuation methodologies and research reports became investor bibles. Some analysts misled investors and were cheerleaders for companies, offering upbeat ratings and supporting stocks.





We have one general response to the word “valuation” these days: “bull market”. We believe we have entered a new valuation zone.



It looks like a bubble, but the underlying trend is too powerful to ignore.

Investors: Investors adopted the mantra “greed is good”.

28


Infrastructure build-out versus leveraging the network In the dot-com era, new and legacy service providers leveraged easy access to capital to build state-of theart network infrastructure. Ultimately, this led to massive over-capacity which revealed itself in Q3 2000, otherwise known as the “Nortel moment”.

29


Capital flowed into network infrastructure build-outs for legacy and new service providers. New kids on the block

Legacy players



WorldCom



AT&T



360networks



Sprint



Global Crossing



Verizon



Qwest



British Telecom



Level 3



France Télécom



GTS Communications



Deutsche Telekom



Carrier 1



Telefónica



Interoute



Telecom Italia

Competing local exchange carriers (CLECs) 

MFS Communications



Winstar Communications



Teligent Telecom



Teleport Communications



Covad



NorthPoint Communications



PSINet



DSL.net

30


Infrastructure companies (both legacy and new) exhibited stellar revenue growth during the dot-com era. Today, growth is anaemic, suggesting current high valuations are not associated with the infrastructure sector. Cisco, Cisco, Juniper Ciena avgJuniper, Ciena avg

Cisco, Cisco, Juniper Ciena avgJuniper, Ciena avg

80% 60% 40% 20% 0% -20% -40% -60%

80% 60% 40% 20% 0% -20% -40% -60% FY 1998

FY 1999 FY 2000 FY 2001 Cisco, Juniper, Ciena avg

FY 2002

Nortel, Tellabs, Ericsson,Ericsson, Lucent, Alcatel avgavg Nortel,Tellabs, Lucent, Alcatel

FY 2009

FY 2013

Nortel, Tellabs, Ericsson, Lucent, Alcatel avg Nortel,Tellabs, Ericsson, Lucent, Alcatel avg

80% 60% 40% 20% 0% -20% -40% -60%

80% 60% 40% 20% 0% -20% -40% -60%

FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 Nortel,Tellabs, Ericsson, Lucent, Alcatel avg

Total avg growth

FY 2010 FY 2011 FY 2012 Cisco, Juniper, Ciena avg

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 Nortel,Tellabs, Ericsson, Lucent, Alcatel avg

Total avg growth

Total avg growth

Total avg growth

80% 60% 40% 20% 0% -20% -40% -60%

80% 60% 40% 20% 0% -20% -40% -60%

FY 1998

FY 1999 FY 2000 FY 2001 Total avg growth

FY 2009

FY 2002

31

FY 2010

FY 2011 avg growth

FY 2012

FY 2013


However, there is significant investment and high valuations in software layers above infrastructure. Valuations of selected SDN companies

Valuations of selected internet security companies 10,000

1,200 1,050

9,000

1,000

9,000

8,000

863 7,000

800

$m

$m

6,000

600

5,400 4,700

5,000 4,000

400

200

200

2,700

3,000

300

2,000

176

1,000

-

Nicira

Insieme

Cumulus

Big Switch

Palantir

Contrail

Source: Bloomberg, Berenberg analysis

32

Palo Alto Networks

Fireeye

Sourcefire


Vendor financing was rife but no longer required in a software-oriented world. Vendor financing for selected companies (1999-2013) $mn 8000 7000 Vendor financing (VF) was very popular in 1999-2002. This has changed significantly with Ericsson's VF now 85% less than in 2001.

6000 5000 4000 3000 2000 1000 0 1999

2000 Lucent $mn

2001

2002 Nortel $mn

2003 Ericsson $mn

Source: Berenberg analysis

33

2010

2011 Expon. (Ericsson $mn)

2012

2013


Nortel Networks’ Q3 2000 earnings call was the moment the rug got pulled. 

“Nortel Networks had another quarter of outstanding growth, which reflected our continued market leadership in key growth segments ... In particular, our optical internet, wireless internet, and high-speed local internet solutions revenue grew at rates of more than 150 percent, 18 percent, and 80 percent, respectively, over the second quarter of 1999.” John Roth, Nortel CEO on the Q2 2000 earnings call.



“Slowing optical growth could be attributed to a shortage of installation manpower for new optical networking equipment as well as double-booking on behalf of customers, which is now resulting in a growing customer inventory glut”. John Roth on the Q3 2000 earnings call.

Nortel stock price

1,400 1,200

1,000 800 600 400 200 0

Jan 97

Jan 98

Jan 99

Jan 00

Jan 01

Jan 02

Jan 03

Jan 04

Jan 05

Source: Bloomberg

34

Jan 06

Jan 07

Jan 08

Jan 09


Other considerations 

House prices in the Bay Area



Rental prices in the Bay Area



Commercial office rental pricing



MBA destinations

35


House prices in the Bay Area are higher than during the dot-com era but lower than the housing bubble in the mid 2000s. Median house prices in the San Francisco area

Average rent prices in the San Francisco area (2000 vs today)

1,200,000

2000

Housing bubble

1,000,000 Current prices

800,000

Dotcom bubble

600,000

2014

San Francisco

2,842

3,057

Oakland

1,908

2,187

San Jose

2,228

2,066

400,000 200,000

0

Source: Case-Shiller House price index, Bloomberg 

As of April 2014, rents in high-end offices in San Francisco are up 81% versus 2011, according to JLL’s spring 2014 US Skyline Review.



“Salesforce $1 billion deal sets San Francisco office rent record.” Bloomberg, April 2014. Bloomberg reported that the assumed price of $84 per sq ft beats the previous San Francisco record ($80) achieved in 2000. The 15-year deal is worth almost $1bn.

36


The technology start-up community is again becoming a popular destination for MBA graduates at Stanford. Battle for the MBAs: tech versus finance % of MBAs joining tech sector is increasing… 2011 Tech jobs

…at the expense of financial services

2013 Tech jobs

2011 Finance jobs

35%

60%

30%

50%

25%

2013 Finance jobs

“Harvard and other elite schools look elsewhere as finance loses its lustre.” Wall Street Journal, September 2013.

40%

20% 30%

Stanford has seen the most significant increase in MBAs joining tech firms (up to 31% from 13% in 2011).

15% 20%

10% 5%

10%

0%

0%

Many graduates are taking equity stakes in the businesses to offset lower base salaries and are hoping to join “the next big thing”.

The long-term trends are supporting the shift Stanford University: % of MBAs joining start-ups 20% 16% 12%

Amazon hired 40% more MBAs in 2013 than in 2012

8% 4% 0% 1990

1998-2000

2012

Source: WSJ, Berenberg

37


Large-cap software and IT services stock selection – order of preference 1

Company

Rating

Target Price

Price

P/E 2015E

AVEVA (GBp)

Buy

2500

2350

19.7x

Summary comments

Consensus

Assume business can continue to grow

Buys - 8 Holds - 7 Sells - 1

earnings 10-15%. Discretionary spend and tempered oil & gas capex has hit ES division. Levers for growth in future

Valuation method Our price target is based on FY16E earnings (excluding cash).

include E3D, Brazil and China .

2

Amadeus (€)

Buy

36.4

31.9

19.3x

Stable, predictable growth in GDS. IT solutions continues to grow as airlines migrate. Air traffic expected to accelerate


Our price target is


Our price target is based on SoTP

based on FY15E adjusted earnings.

in 2014 (6%). New opportunities in Hotel following Newmarket acquisition.

3

Citrix ($)

Buy

70.0

61.1

21.1x

Margin deterioration should bottom over next six to nine months. Large scale buyback through hedged convertible, should provide 10% earnings

valuation.

enhancement. Desktop still under pressure but could bottom this year.

4

Accenture ($)

Buy

89.0

79.9

16.5x

A few hiccups in execution in 2013. Reasonable set-up for 2014, with macro recovery, Accenture could achieve top half


of guidance. FCF conversion has dropped in last couple of years, expect it to improve in 2015 as no structural change to business.

5

Cognizant ($)

Hold

51.0

48.5

16.8x

6

Cap Gemini (€)

Hold

51.0

53.9

14.5x

Strong performance in last eight months. Valuation looks full. Still overhang on Immigration Bill, consensus expectations in 2015 and beyond look aggressive. Only European player positioned for structural changes in European market. Becoming more global and cash

Our price target is based on a 5.7% implied FCF yield for 2015.


Our price target is based on FY15E


Our price target is based on a DCF method.


Our price target is based on SoTP


Our price target is



Buys - 6 Holds - 13 Sells - 8 Buys - 28 Holds - 15 Sells - 3

Our price target is

adjusted earnings.

generation allows inorganic growth in emerging markets and for key IP. Close to

7

SAP (€)

Hold

63.1

55.7

15.1x

fair value. Lots of management change, one sole CEO. Mid-term targets seem questionable

8

Temenos (CHF)

Hold

30.0

32.5

23.1x

Concerns over FCF lessening. Reported

without large M&A. Licence revenue growth at risk. earnings normalising towards underlying earnings due to reduction in net R&D

valuation.

based on FY15E adjusted earnings.

capitalisation. Re-licensing opportunity gives real tailwind to licence growth in next couple of years.

9

Indra (€)

Hold

13.1

13.2

13.1x

10

Sage (GBp)

Hold

357.0

413.8

14.8x

FY2013 ended with margins slightly lower than expected but revenues in-line. FCF expected to improve (2x) in 2014 helped by Spanish Govt payment plans. Buyback slowing. 2015 targets of 6% organic growth, margin improvement limited to 100bps.

11

Oracle ($)

Sell

28.0

41.8

12.5x

Last quarter was solid, leading to strong stock performance. Comparables look easy. We believe database market share

adjusted earnings.

based on FY15E adjusted earnings. Our price target is based on a 11% current FCF yield.

and margins are structurally challenged going forward and this is a key driver of future valuation.

12

VMware ($)

Sell

69.0

96.7

24.5x

Our view is that current tailwinds in ELAs will not offset the trend of maturation and competition in server virtualisation. Hybrid cloud will face pricing competition, and SDN is not meaningful

13

14

Software (€)

Atos (€)

Sell

Sell

21.9

52.4

28.4

63.7

14.5x

until 2015/2016. Investment in BPE peaked. ETS likely to

15.2x

see significant declines in licences. Growth in BPE unlikely to compensate. Focus shifted to carve out of Payments business. Underlying metrics (FCF, earnings) suggest IT business is



Buys - 14 Holds - 6 Sells - 6 Buys - 13 Holds - 4 Sells - 1

Our price target is


Our price target is based on billings and expected mid-term

adjusted earnings.

based on FY15E adjusted earnings. Our price target is based on SoTP valuation.

significantly overvalued. Acquisition of Bull gives new synergy story but cash becomes focus again.

15

salesforce.com ($)

Sell

44.0

54.1

79.1x

Underlying losses still large. New business growth looks to have slowed to c20%. We have changed valuation approach to give greater credit to growth.

Source: Bloomberg (Closing prices as at 2/6/2014), Berenberg estimates

38

profitability


Mid-cap software and IT services stock selection – order of preference Company

Rating

Target

Price

P/E 2015E

Summary comments

Consensus

Valuation method

24.6

11.4x

Low valuation, strong growth and margin


Our price target is based on FY15E adjusted earnings (excluding cash).


Our price target is based on FY16E EV/adjusted EBITDA multiple.


Our price target is based on FY15E adjusted earnings.


Our price target is based on a DCF method.







Price 1

Vizrt (NOK)

Buy

31.5

leverage returning. Acquisition of Mosart (newscast automation) opens up new market opportunity.

2

RIB Software (€)

Buy

13.7

13.2

34.7x

Construction management software. Flagship iTWO product. Continued momentum in new customers signing up to Phase 2 deals. Highly valued peer group (Textura US, Glodon, China).

3

Sopra (€)

Buy

100.0

81.7

11.5x

FY 14 revenue guidance of 3-5% growth and improvement in operating margins. Reiterates 10% margin target for 2015. We expect banking software and HR Access to show growth in 2014. merger with Steria should show synergies quickly.

4

EVS (€)

Buy

48.8

39.5

17.5x

Expanding opportunities outside of sport. ENM (entertainment, news and media) showing strong growth. Near-term cost growth still high and thus impacting margins.

5

Nemetschek (€)

Hold

66.0

69.4

20.6x

Guidance of 22-24% margins in 2014 should be very achievable. Strong end to the year in Design segment. Maintenance growth driven by catch-up effect of two subsidiaries (Vectorworks and Maxon).

6

Tieto (€)

Hold

18.5

20.6

12.0x

Middle of transition to stabilise margins while revenues continue to decline. Telecom vertical expected to remain volatile in 2014. Focus of strategy on the datacentre. Wants to be positioned as a XaaS vendor in Nordics.

7

Steria (€)

Buy

18.3

19.9

9.3x

Guidance of 6-8% organic growth mainly driven by SSCL contract in UK. Operating margin growth of +10%, hinges on development in France. Merger with Sopra should help French business.


39


Technology hardware stock selection – order of preference Stock selection - order of preference Company

Rating

PT

Price*

% Implied P/E 2014E

Consensus

Investment thesis

Buys - 16 Holds - 17 Sells - 8 Buys - 13

NSN in harvest mode a positive. Royalty rate to increase to ~0.75% from 0.2% Special sits with IPR/Here

Holds - 13 Sells - 5

Smartphone/tablet volumes drive PD royalties Expansion into Networking and IoT markets Intel threat over-stated

Buys - 21 Holds - 12

Margin improvements as shift to capacity/software

3.1 3.2

Sells - 6

Industry structure stabilising

Buys - 51

Handset margins and growth peaked

Holds - 2

Shift to mid and low-end impacts margin structure

upside/ downside 1 Nokia (€) 1.1 1.2

Buy

8.4

5.8

45%

38.2

2

Buy

13.5

9.3

46%

57.4

ARM Holdings (£)

2.1 2.2 3

4

Ericsson (SEK)

Samsung (KRW)

Buy

108

Sell

1150000

82.0

1433000.0

32%

-20%

23.2

6.0

4.1

Sells - 1

4.2

Royalty rate to increase given Cortex platform mix.

Vod "arms race" in Europe lead to longer cycle

Phone business 60%+ of op profits - rest of business cannot make up slack

5

MediaTek (TWD)

Sell

210.0

508.0

-59%

7.1

5.1 65.2 Apple ($)

Sell

360

624.0

-42%

8.2

6.1

Buys - 26

4G in China an opportunity but also a threat from

Holds - 5 Sells - 3

Qualcomm on price


iPhone at 60% of profit facing LT growth and margin pressure iPad growth come under pressure with move to low-end

Tsinghua Group as long term threat to margins

Sells - 4

6.2

tabs areas: iWatch + iTV impacted by law of large New numbers. Telcos subsidy cuts could intensify

7

Qualcomm ($)

Sell

50.0

80.2

-38%

9.7

Buys - 36 Holds - 7

TAM for chips less than what analysts believe given captive market (AAPL, Samsung and Huawei)

Sells - 2

7.1

Mediatek aggressive at low-end

7.2 8

BRCM, MRVL, Intel et al fight-back for share Infineon (€)

Hold

8.1

To

7.7

From

7.0

9.1

-15%

17.9

8.2 9

Cisco ($)

Sell

16.0

24.8

-36%

7.9

9.1

Buys - 19

Pure macro play dependent on Eurozone situation


Quality end market exposure with secular growth.

Buys - 29

Gross margins to come under mid-term pressure given


mix, tech shift and price competition.

Qimonda overhang persists

Huawei now has 20K Enterprise employees - focus on emerging markets and Europe initially

9.2

Macro/GDP key swing factors in short term

10 Juniper ($) ## ## 11 Imagination(£)

Sell

Sell

To

21.0

From

22.0 1.6

25.2

2.2

-17%

-29%

13.0

Buys - 17

Increased competition in Edge routing from mobile

25.0

Holds - 22 Sells - 2 Buys - 6

Shift to software-centric networks a negative Gross margins have downward bias on price and mix Move to dual and multi core GPUs positive for royalty rate

Holds - 6 ##

Apple position is stable for the foreseeable future

Sells - 5

##

Competition from Nvidia, QCOM, ARM, BRCM and Vivante holds back major market share shift.

12 Catcher (TWD)

Sell

115.0

277.5

-59%

5.8

Sell

2.5

3.0

-16%

96.2

## ## 13 Alcatel Lucent (€)

14 Hon Hai (NT$)

Sell

64.0

93.4

-31%

7.3


Potential MacBook share loss to Foxconn tech HTC, BBRY and Dell exposure a concern Not concerned in short term on light metal casing


IP business strong but competition intensifying Cost savings of €950m lead to 7% margin in '15. Special sits on

Sells - 3

asset disposals. However, priced in at €3

Buys - 21 Holds - 4

45% of revenues from Apple and over 75% of Hon Hai's growth from Apple.

Sells - 3

##

Apple will not subsidise forever

##

Apple concentration a double-edge sword

15 Foxconn Mobile ## (HKD) ## 16 Foxconn Tech

Sell

2.5

4.3

-41%

92.6


Headwinds for Nokia, Motorola and Sony Apple may outsource more assembly to Foxconn but that is in price

Sell

55.0

70.4

-22%

10.4


Apple casing opportunity is positive

Buys - 2

MEMS technology could face comp pressure from


InvenSense

## (TWD) ## 17 STMicro (€)

Sell

4.0

7.3

-45%

20.6

##

But 60% of revenues from Nintendo Do not see game console market as structural grower

Spread in too many end markets with customers under pressure (Nokia/HP) exposure

## 18 Motorola Solutions ($) ## ## TPK (TWD) 19 ## 20 ZTE (HKD)

Sell

Sell

Sell

40.0

140

8.5

66.9

235.5

15.0

-40%

-41%

-43%

11.2

Buys - 6

Government business to face challenges given catch up


spend fall off in next 12 months.Return of cash already baked in.

10.7

Buys - 9

Alternative cheaper technologies and shift to low-end tablets/hybrids hurt share and profit prospects

11.1

Holds - 12 Sells - 3 Buys - 21 Holds - 7 Sells -5

such as Huawei TD-LTE capex growth already in price

Buys - 3

China Inc moving upscale


Samsung, Apple into mid-range smartphones. HTC margins will be under pressure New markets at an investment cost e.g China


Shift to services/messaging the right strategy but too late

## 21 HTC (TWD)

Sell

80.0

163.0

-51%

62.1

## ## 22 BBRY ($)

Sell

5.0

## ##

7.3

-31%

nm

*All prices as of COB May 28th on the relevant home exchange. Source: Bloomberg

40

Margin pressure in handset business from Chinese OEMs

Hardware business to remain loss making Services revenues to come under attack as subscribers leave and ARPU declines


Technology hardware stock selection valuation methods On Ericsson, our price target is SEK108, based on a P/E of 14x on our FY15 EPS estimate of SEK6.36 and adding SEK13/share in cash. On Nokia, our price target is €8.4, based on a SOTP valuation. On ARM, our price target is £13.5, based on a DCF model assuming a 3% terminal growth rate, an 8.1% WACC and a 65% terminal EBIT margin. On MediaTek, our price target is TWD210, based on an 8x P/E multiple on our FY15 EPS of TWD25.0. On Juniper, our price target is $21, based on a 12x P/E multiple on our FY15 EPS estimate of $1.80. On Infineon, our price target is €7.7, based on a SOTP valuation adjusted for an €800m settlement for Qimonda. On BlackBerry, our price target is $5.00, based on a SOTP valuation. On Alcatel-Lucent, our price target was €2.5, based on an EV/sales multiple of 0.8x our 2015 revenue estimate of €13.6bn. On Apple, our price target is $360, based on an 8x P/E multiple on our FY15 EPS of $46.03. On Samsung, our price target of KRW1,150,000 is based on a 7x P/E multiple on our FY15 EPS of KRW161,465. On Qualcomm, our price target is $50, based on a SOTP valuation. On Cisco, our price target is $16.0, based on an 8x P/E multiple on our FY15 EPS of $2.0. On TPK, our price target is NTD140, based on a 12x P/E multiple on our FY15 EPS of TWD11.8. On ZTE, our price target is HKD8.5, based on a SOTP valuation. On Motorola Solutions, our price target is $40, based on a 11x P/E multiple on our 2015 EPS estimate of $3.57. On STM, our price target is €4.0, based on a SOTP valuation. On Imagination, our price target is £1.6, based on a DCF model assuming a 3% terminal growth rate, 10.4% WACC and a 25% terminal EBIT margin. On Hon Hai, our price target is TWD64, based on a 8x P/E multiple on our FY15 EPS of TWD7.99. On Foxconn Mobile, our price target is HKD2.5, based on a SOTP valuation. On Catcher, our price target is TWD115, based on a 5x P/E multiple on our FY15 EPS of TWD21.35. On Foxconn Tech, our price target is TWD55, based on a 12x P/E multiple on our FY15 EPS of TWD4.66. On HTC, our price target of TWD80 is based on a SOTP valuation.

41


Semi-cap equipment stock selection – order of preference 1

Company

Rating

AMAT ($)

Buy

PT 23.0

Price* 20.5

P/E 2015E 15.5

Consensus Buys - 13 Holds - 11 Sells - 3

Investment thesis

Valuation method

*AMAT and TEL merger due in H2 remains biggest catalyst.

Our price target is

*Benefit from 3D NAND driven demand of deposition and etching

based on FY17E

equipment.

discounted earnings.

*Gaining share in etching and process control.

2

ASMI (€)

Buy

34.0

30.1

12.8


*ALD TAM expansion opportunity driven by the increased usage of

Our price target is

double patterning processes.

based on FY15E

*GM expansion driven by supply chain optimisation activities.

adjusted earnings.

*ASMP is recovering in 2014 after weak 2013, due to both demand recovery and the shipping of the TCB tool into Intel as prime supplier.

3

4

Veeco ($)

ASML (€)

Buy

Hold

46.0

70.0

33.3

62.6

26.6

16.3


*Chinese players remain the biggest buyers as subsidies still exist.

Our price target is

*Share in China remains much higher than Aixtron at least in 2014.

based on FY15E


*Current share price has baked in the news that EUV will be limited in Our price target is

adjusted earnings.

10nm.

based on FY16E

*Limited catalyst in coming quarter as TSMC and Samsung are likely

discounted earnings.

to make their decision by end of 2014. *EUV execution risk remains, and Q2 is likely to be light for ASML given TSMC 20nm ramp completion.

5

Aixtron (€)

Hold

11.0

10.8

53.8


*Current share in Chinese market is much lower than Veeco.

Our price target is

*May gain share with new tool, but unlikely to happen in 2014.

based on FY15E

*OLED is still far away from volume adoption, and LG is the only

adjusted earnings.

player that are active.

6

Tokyo Electron (¥)

Hold

5539.0

6299.0

22.7


*Cost optimisation plans such as facility restructuring, solar exiting,

Our price target is

components subsidiary share disposal positive for profitability.

based on FY15E

*Legacy market exposure remains and lost share to LAM.

EV/Sales multiple.

*AMAT integration remain the biggest catalyst.


42


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43

Kieran O'Sullivan Jonathan Saxon

+1 617 292 8292 +1 646 445 7202


Please note that the use of this research report is subject to the conditions and restrictions set forth in the “General investment-related disclosures” and the “Legal disclaimer” at the end of this document. For analyst certification and remarks regarding foreign investors and country-specific disclosures, please refer to the respective paragraph at the end of this document.

Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) Company Alcatel-Lucent Accenture plc Aixtron SE Amadeus IT Holding SA Applied Materials Inc Apple Inc ARM Holdings plc ASM International NV ASML Holding NV Atos SA AVEVA Group plc BlackBerry Cap Gemini SA Catcher Technology Co Ltd Cisco Systems Inc Citrix Systems Inc Cognizant Technology Solutions Corp Ericsson EVS Broadcast Equipment SA Foxconn Mobile Ltd Foxconn Technology Co Ltd Hon Hai Precision Ind Co Ltd HTC Corporation Imagination Technologies Group plc Indra Sistemas SA Infineon Technologies AG Juniper Networks Inc MediaTek Inc Motorola Solutions Inc Nemetschek AG Nokia Oyj Oracle Corp Qualcomm Inc RIB Software AG Sage Group plc salesforce.com Inc Samsung Electronics Co Ltd SAP AG Software AG Sopra Group SA Groupe Steria SCA STMicroelectronics NV Temenos Group AG Tieto Corporation Tokyo Electron Ltd TPK Holding Co Ltd

Disclosures 5 no disclosures no disclosures 5 no disclosures 5 no disclosures no disclosures 5 no disclosures no disclosures no disclosures 5 no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures 5 no disclosures no disclosures no disclosures no disclosures no disclosures 5 no disclosures 5 no disclosures no disclosures no disclosures 5 3, 5 no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures

44


Veeco Instruments Inc Vizrt Ltd VMware Inc ZTE Corp (1) (2) (3) (4) (5)

no disclosures no disclosures no disclosures no disclosures

Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as “the Bank”) and/or its affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of a public offering of this company. The Bank acts as Designated Sponsor for this company. Over the previous 12 months, the Bank and/or its affiliate(s) has effected an agreement with this company for investment banking services or received compensation or a promise to pay from this company for investment banking services. The Bank and/or its affiliate(s) holds 5% or more of the share capital of this company. The Bank holds a trading position in shares of this company.

Historical price target and rating changes for Alcatel-Lucent in the last 12 months (full coverage) Date 10 September 13 05 December 13 06 March 14

Price target - EUR 2.50 2.70 2.50

Rating Hold Hold Sell

Initiation of coverage 06 January 10

Historical price target and rating changes for Accenture plc in the last 12 months (full coverage) Date 10 March 14 28 March 14

Price target - USD 94.00 89.00

Rating Buy Buy

Initiation of coverage 13 March 12

Historical price target and rating changes for Aixtron SE in the last 12 months (full coverage) Date 26 September 13 07 January 14

Price target - EUR 12.00 11.00

Rating Hold Hold

Initiation of coverage 23 February 11

Historical price target and rating changes for Amadeus IT Holding SA in the last 12 months (full coverage) Date 17 June 13 10 March 14


Rating Buy Buy

Initiation of coverage 17 June 13

Historical price target and rating changes for Applied Materials Inc in the last 12 months (full coverage) Date 22 July 13 25 September 13 20 March 14

Price target - USD 14.40 20.00 23.00

Rating Hold Buy Buy

Initiation of coverage 22 July 13

Historical price target and rating changes for Apple Inc in the last 12 months (full coverage) Date

Price target - USD

Rating


Historical price target and rating changes for ARM Holdings plc in the last 12 months (full coverage) Date

Price target - GBP

Rating


45


Historical price target and rating changes for ASM International NV in the last 12 months (full coverage) Date 22 July 13 07 January 14 12 March 14

Price target - EUR 31.00 30.00 34.00

Rating Buy Buy Buy


Historical price target and rating changes for ASML Holding NV in the last 12 months (full coverage) Date 22 July 13 20 March 14


Rating Hold Hold


Historical price target and rating changes for Atos SA in the last 12 months (full coverage) Date 10 September 13 08 January 14


Rating Sell Sell


Historical price target and rating changes for AVEVA Group plc in the last 12 months (full coverage) Date 04 December 13

Price target - GBp 2500.00

Rating Buy


Historical price target and rating changes for BlackBerry in the last 12 months (full coverage) Date

Price target - USD

Rating


Historical price target and rating changes for Cap Gemini SA in the last 12 months (full coverage) Date 10 September 13 10 March 14


Rating Hold Hold


Historical price target and rating changes for Catcher Technology Co Ltd in the last 12 months (full coverage) Date

Price target - TWD

Rating

Initiation of coverage 09 December 11

Historical price target and rating changes for Cisco Systems Inc in the last 12 months (full coverage) Date

Price target - USD

Rating


Historical price target and rating changes for Citrix Systems Inc in the last 12 months (full coverage) Date 05 June 13 30 April 14


Rating Sell Buy


Historical price target and rating changes for Cognizant Technology Solutions Corp in the last 12 months (full coverage) Date 07 August 13 06 November 13 10 March 14

Price target - USD 87.00 102.00 51.00

Rating Buy Buy Hold

46



Historical price target and rating changes for Ericsson in the last 12 months (full coverage) Date 10 September 13

Price target - SEK 108.00

Rating Buy


Historical price target and rating changes for EVS Broadcast Equipment SA in the last 12 months (full coverage) Date 04 December 13 16 May 14


Rating Buy Buy


Historical price target and rating changes for Foxconn Mobile Ltd in the last 12 months (full coverage) Date

Price target - HKD

Rating


Historical price target and rating changes for Foxconn Technology Co Ltd in the last 12 months (full coverage) Date 11 September 13 05 December 13

Price target - TWD 64.00 55.00

Rating Sell Sell


Historical price target and rating changes for Hon Hai Precision Ind Co Ltd in the last 12 months (full coverage) Date 05 December 13

Price target - TWD 64.00

Rating Sell


Historical price target and rating changes for HTC Corporation in the last 12 months (full coverage) Date 11 September 13

Price target - TWD 80.00

Rating Sell


Historical price target and rating changes for Imagination Technologies Group plc in the last 12 months (full coverage) Date 11 September 13 06 March 14

Price target - GBp 210.00 160.00

Rating Sell Sell

Initiation of coverage 20 October 11

Historical price target and rating changes for Indra Sistemas SA in the last 12 months (full coverage) Date 17 June 13 10 March 14


Rating Buy Hold


Historical price target and rating changes for Infineon Technologies AG in the last 12 months (full coverage) Date 11 September 13 05 December 13 06 March 14 04 June 14

Price target - EUR 6.50 6.70 7.00 7.70

Rating Hold Hold Hold Hold


Historical price target and rating changes for Juniper Networks Inc in the last 12 months (full coverage) Date 06 March 14 04 June 14


Rating Sell Sell

47



Historical price target and rating changes for MediaTek Inc in the last 12 months (full coverage) Date

Price target - TWD

Rating

Initiation of coverage 03 September 10

Historical price target and rating changes for Motorola Solutions Inc in the last 12 months (full coverage) Date

Price target - USD

Rating


Historical price target and rating changes for Nemetschek AG in the last 12 months (full coverage) Date 13 November 13 31 March 14


Rating Buy Hold


Historical price target and rating changes for Nokia Oyj in the last 12 months (full coverage) Date 10 September 13 05 December 13


Rating Buy Buy


Historical price target and rating changes for Oracle Corp in the last 12 months (full coverage) Date 05 June 13

Price target - USD 28.00

Rating Sell


Historical price target and rating changes for Qualcomm Inc in the last 12 months (full coverage) Date

Price target - USD

Rating


Historical price target and rating changes for RIB Software AG in the last 12 months (full coverage) Date 28 August 13 01 November 13 02 April 14

Price target - EUR 7.70 8.60 13.70

Rating Buy Buy Buy


Historical price target and rating changes for Sage Group plc in the last 12 months (full coverage) Date 04 December 13

Price target - GBp 357.00

Rating Hold


Historical price target and rating changes for salesforce.com Inc in the last 12 months (full coverage) Date 10 March 14

Price target - USD 44.00

Rating Sell


Historical price target and rating changes for Samsung Electronics Co Ltd in the last 12 months (full coverage) Date 11 September 13

Price target - KRW 1150000.00

Rating Sell


Historical price target and rating changes for SAP AG in the last 12 months (full coverage) Date 23 January 14 08 May 14


Rating Hold Hold

48



Historical price target and rating changes for Software AG in the last 12 months (full coverage) Date 05 June 13 24 October 13


Rating Sell Sell


Historical price target and rating changes for Sopra Group SA in the last 12 months (full coverage) Date 17 June 13 04 April 14


Rating Buy Buy


Historical price target and rating changes for Groupe Steria SCA in the last 12 months (full coverage) Date 17 June 13 31 October 13 04 April 14

Price target - EUR 13.40 13.40 18.30

Rating Buy Hold Buy


Historical price target and rating changes for STMicroelectronics NV in the last 12 months (full coverage) Date

Price target - EUR

Rating


Historical price target and rating changes for Temenos Group AG in the last 12 months (full coverage) Date 30 July 13 10 March 14

Price target - CHF 18.00 30.00

Rating Sell Hold

Initiation of coverage 12 May 05

Historical price target and rating changes for Tieto Corporation in the last 12 months (full coverage) Date 17 June 13 24 October 13 07 May 14

Price target - EUR 18.80 17.20 18.50

Rating Hold Hold Hold


Historical price target and rating changes for Tokyo Electron Ltd in the last 12 months (full coverage) Date 22 July 13 25 September 13

Price target - JPY 4331.00 5539.00

Rating Sell Hold


Historical price target and rating changes for TPK Holding Co Ltd in the last 12 months (full coverage) Date 11 September 13 05 December 13

Price target - TWD 250.00 140.00

Rating Sell Sell


Historical price target and rating changes for Veeco Instruments Inc in the last 12 months (full coverage) Date 07 January 14 14 April 14


Rating Hold Buy

Initiation of coverage 23 February 11

Historical price target and rating changes for Vizrt Ltd in the last 12 months (full coverage) Date 09 August 13

Price target - NOK 31.50

Rating Buy

49



Historical price target and rating changes for VMware Inc in the last 12 months (full coverage) Date 05 June 13 22 October 13 30 January 14

Price target - USD 57.00 62.00 69.00

Rating Sell Sell Sell


Historical price target and rating changes for ZTE Corp in the last 12 months (full coverage) Date

Price target - HKD

Rating


Berenberg distribution of ratings and in proportion to investment banking services Buy Sell Hold

43.00 % 14.51 % 42.49 %

63.33 % 3.33 % 33.33 %

Valuation basis/rating key The recommendations for companies analysed by Berenberg’s Equity Research department are made on an absolute basis for which the following three-step rating key is applicable: Buy: Sell:

Sustainable upside potential of more than 15% to the current share price within 12 months; Sustainable downside potential of more than 15% to the current share price within 12 months;

Hold: Upside/downside potential regarding the current share price limited; no immediate catalyst visible. NB: During periods of high market, sector, or stock volatility, or in special situations, the recommendation system criteria may be breached temporarily.

Competent supervisory authority Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory Authority), Graurheindorfer Straße 108, 53117 Bonn and Marie-Curie-Str. 24-28, 60439 Frankfurt am Main, Germany.

General investment-related disclosures Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“) has made every effort to carefully research all information contained in this financial analysis. The information on which the financial analysis is based has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised press as well as the company which is the subject of this financial analysis. Only that part of the research note is made available to the issuer (who is the subject of this analysis) which is necessary to properly reconcile with the facts. Should this result in considerable changes a reference is made in the research note. Opinions expressed in this financial analysis are our current opinions as of the issuing date indicated on this document. The companies analysed by the Bank are divided into two groups: those under “full coverage” (regular updates provided); and those under “screening coverage” (updates provided as and when required at irregular intervals). The functional job title of the person/s responsible for the recommendations contained in this report is “Equity Research Analyst” unless otherwise stated on the cover. The following internet link provides further remarks on our financial analyses: http://www.berenberg.de/research.html?&L=1&no_cache=1

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Legal disclaimer This document has been prepared by Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“). This document does not claim completeness regarding all the information on the stocks, stock markets or developments referred to in it. On no account should the document be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgements. The document has been produced for information purposes for institutional clients or market professionals. Private customers, into whose possession this document comes, should discuss possible investment decisions with their customer service officer as differing views and opinions may exist with regard to the stocks referred to in this document. This document is not a solicitation or an offer to buy or sell the mentioned stock. The document may include certain descriptions, statements, estimates, and conclusions underlining potential market and company development. These reflect assumptions, which may turn out to be incorrect. The Bank and/or its employees accept no liability whatsoever for any direct or consequential loss or damages of any kind arising out of the use of this document or any part of its content. The Bank and/or its employees may hold, buy or sell positions in any securities mentioned in this document, derivatives thereon or related financial products. The Bank and/or its employees may underwrite issues for any securities mentioned in this document, derivatives thereon or related financial products or seek to perform capital market or underwriting services.

Analyst certification

I, Adnaan Ahmad, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by the Bank or its affiliates. I, Daud Khan, hereby certify that all of the views expressed in this report accurately reflect my personal views about any and all of the subject securities or issuers discussed herein. In addition, I hereby certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this research report, nor is it tied to any specific investment banking transaction performed by the Bank or its affiliates.

Remarks regarding foreign investors

The preparation of this document is subject to regulation by German law. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

United Kingdom

This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.

United States of America This document has been prepared exclusively by the Bank. Although Berenberg Capital Markets LLC, an affiliate of the Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets LLC does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC. In addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information.

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Third-party research disclosures Company

Disclosures

Alcatel-Lucent Accenture plc Aixtron SE Amadeus IT Holding SA Applied Materials Inc Apple Inc ARM Holdings plc ASM International NV ASML Holding NV Atos SA AVEVA Group plc BlackBerry Cap Gemini SA Catcher Technology Co Ltd Cisco Systems Inc Citrix Systems Inc Cognizant Technology Solutions Corp Ericsson EVS Broadcast Equipment SA Foxconn Mobile Ltd Foxconn Technology Co Ltd Hon Hai Precision Ind Co Ltd HTC Corporation Imagination Technologies Group plc Indra Sistemas SA Infineon Technologies AG Juniper Networks Inc MediaTek Inc Motorola Solutions Inc Nemetschek AG Nokia Oyj Oracle Corp Qualcomm Inc RIB Software AG Sage Group plc salesforce.com Inc Samsung Electronics Co Ltd SAP AG Software AG Sopra Group SA Groupe Steria SCA STMicroelectronics NV Temenos Group AG Tieto Corporation Tokyo Electron Ltd TPK Holding Co Ltd Veeco Instruments Inc Vizrt Ltd VMware Inc ZTE Corp

no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures no disclosures

(1) (2)

Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any class of the subject company by the end of the prior month.* Over the previous 12 months, Berenberg Capital Markets LLC has managed or co-managed any public

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(3) (4) (5)

offering for the subject company.* Berenberg Capital Markets LLC is making a market in the subject securities at the time of the report. Berenberg Capital Markets LLC received compensation for investment banking services in the past 12 months, or expects to receive such compensation in the next 3 months.* There is another potential conflict of interest of the analyst or Berenberg Capital Markets LLC, of which the analyst knows or has reason to know at the time of publication of this research report.

* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the ‘Disclosures in respect of section 34b of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG)’ section above.

Copyright

The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the Bank’s prior written consent. © May 2013 Joh. Berenberg, Gossler & Co. KG

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