GLOBAL TECHNOLOGY OUTLOOK: [PDF]

EQUITY RESEARCH 17 May 2012

GLOBAL TECHNOLOGY OUTLOOK: A LOOK AT THE THREE COLUMNS OF TECH INVESTING 2012 SECTOR UPDATE AND LONG-TERM OUTLOOK

Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 127.

Barclays | Global Technology Outlook

17 May 2012

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EXECUTIVE SUMMARY

17 May 2012

Near term choppy, but product cycles drive 2H12: The Barclays Global Technology Outlook outlines our top picks and themes for 2H12 and beyond. Although concerns persist around Europe, deceleration in China, and government spending, we still believe there are investment opportunities tied to Apple, Samsung, and related customers, as well as to cloud computing and Big Data. We are increasingly upbeat about certain product cycles in 2H12, especially those around Apple, which could impact many companies in this sector – both positively and negatively. Year-to-date, the S&P 500 Information Technology Index is up 13% (but down 6% in the second quarter to date) vs the overall S&P 500 up 7% (or down 4% second quarter to date).

Three columns in tech investing: We introduce a new way to look at investing in the tech sector. Given its defiance of the law of large numbers, we believe it is as important as ever to pay attention to companies impacted by Apple – and its extraction of profits and market cap from several sectors. We are enthusiastic about the pending iPhone 5 product cycle and prospects for the iPad. As a result, our first column of investing strategy into 2H12 and beyond is centered on the potential winners from Apple’s product cycles. Here we also include the beneficiaries of Samsung’s smartphone sales, since both companies are successful. The second column consists of the companies challenged by Apple and Samsung, including those in the supply chain and those in industries that have been disrupted by smartphones and tablets (e.g., printing). The third column is what we call “Apple-safe,” including plays in cloud and Big Data.

Emerging Four-Screen Scenario: We have examined the emergence of a Four-Screen Scenario in consumer technology, which looks at the race to compete across four screens, including smartphones, tablets, computers, and TV. Our conclusion is that Apple will be hard to beat, especially since we believe it will launch a smart TV hub next year and continue to merge its Mac OS with iOS. However, we assess the attributes of both Google’s and Microsoft’s approach and how their strategies will impact several hardware companies, including Samsung.

Still expect IT spending growth given product cycles, but Europe a big risk: We have a relatively neutral outlook on the sector as a whole but believe certain players can see improved fortunes in 2H12. We identify product cycles at Apple that could impact up to $1 trillion in market cap, as well as the impact of Intel’s Romley server processor upgrade, Ultrabooks and Windows 8 in more detail in sector-specific commentary. Despite growing concerns around Europe, analysts forecast global IT spending growth in the low- to mid-single digits through 2012 with mid-single-digit growth in 2013, which is supported by our bi-annual CIO surveys for the U.S. and Europe, as well as our regional analysis of key markets. Our estimates factor in decelerating growth in developed markets, offset by stronger growth in Brazil, Russia, India, and China (BRIC) countries. An emerging concern for tech is the weakness of the euro, which could contribute to cautious earnings and revenue forecasts in May through July.

Favor Apple food chain: Given the prospect for rapid revenue acceleration into Apple product cycles this year (ranging from Macs to iPads to iPhones), we favor not only Apple but many companies in its supply chain, especially given recent concerns around second-quarter sales. Our teams highlight Qualcomm, Skyworks, Avago, Dialog Semiconductor, Imagination, Largan, Simplo, LG Display, AAC, and Catcher, to name a few.

Still like cloud and Big Data themes: Within column three, cloud and Big Data stand out as longterm investment themes. We are particularly excited about certain cycles in virtualization and new Big Data products in hardware and software. Our teams favor F5 Networks, NetSuite, VMware and Citrix for cloud exposure and EMC, Teradata, Informatica and Mellanox for Big Data exposure. 3


CONTENTS Summary of Investment Views and Key Recommendations ............................................................... 6 Introduction ..................................................................................................................................... 11 The Three Columns of Tech ............................................................................................................. 11 Four-Screen Convergence ............................................................................................................... 24 Sector Performance, Models & Charts .........................................................................................................31

PORTFOLIO STRATEGY U.S. Portfolio Strategy ...................................................................................................................... 43

Barry Knapp: Slowing growth and public policy uncertainty warrant near-term defensive positioning UNITED STATES U.S. IT Hardware .............................................................................................................................. 48

Ben Reitzes: Focusing on major new product cycles for 2H12 – Apple and EMC stand out U.S. Software ................................................................................................................................... 53

Raimo Lenschow: Structural growth stocks poised to outperform U.S. IT Consulting & Computer Services ........................................................................................... 56

Darrin Peller: Payment names continue to benefit from strong underlying drivers; mixed trends in IT services U.S. Communications Equipment ..................................................................................................... 59

Jeff Kvaal: Healthy 1Q handset shipments; networking solid U.S. Semiconductors ........................................................................................................................ 62

C.J. Muse & Blayne Curtis: A return to growth; maintain 1-Positive U.S. Semiconductor Capital Equipment ............................................................................................ 65

C.J. Muse: Orders may be peaking but appear sustainable U.S. Internet ..................................................................................................................................... 70

Anthony DiClemente: Smartphones & Devices driving growth U.S. Display and Lighting ................................................................................................................. 72

Amir Rozwadowski & Olga Levinzon: Incrementally more positive on the LED market U.S. Clean Technology & Renewables .............................................................................................. 74

Amir Rozwadowski: Focused on attractive cost/value propositions

EUROPE 17 May 2012

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European Technology Hardware ...................................................................................................... 78

Andrew Gardiner & Youssef Essaegh: Sector slowly turning, growth is in smart mobility European Software & IT Services ..................................................................................................... 81

Gerardus Vos: Tougher ‘12 but SW & processing provides shelter Israel Technology ............................................................................................................................ 83

David Kaplan & Joseph Wolf: Well Positioned ASIA EX-JAPAN Asia Ex-Japan IT Hardware............................................................................................................... 86

Kirk Yang: Lenovo remains our top pick; prefer Asustek over Acer in the near term Asia Ex-Japan Data Networking & Wireline Equipment..................................................................... 89

Jones Ku: Investment value emerging Asia Ex-Japan Semiconductors......................................................................................................... 91

Andrew Lu & SC Bae: What to expect post 2Q/3Q12 recovery Asia Ex-Japan Wireless Equipment and Products ............................................................................. 93

Dale Gai: Prefer players with exposure to new iPhone/MacBook Asia Ex-Japan LCD Displays ............................................................................................................. 95

SC Bae, Sunwoo Kim & Jamie Yeh: Bottoming out

JAPAN Japan Consumer Electronics/Display & Lighting .............................................................................. 98

Yuji Fujimori: Prefer Casio and car electronics in the near term Japan Electronic Components ........................................................................................................101

Masaru Koshita: Relying heavily on smartphone demand, see benefits from PCrelated business Japan Precision Instruments...........................................................................................................104

Masahiro Nakanomyo: Concerns over digital camera supply/demand gap widening starting in May VALUATION Equity Valuation Tables..................................................................................................................106

CONTACTS Barclays Global Technology Team and Other Contributors ............................................................125

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SUMMARY OF INVESTMENT VIEWS AND KEY RECOMMENDATIONS Sector, Rating, Analyst

Investment View

Key Recommendations

U.S. IT Hardware

Maintain our neutral view on the sector given secular weakness in printers, PCs & services offset by strong demand for storage hardware and new product cycles in 2H12.

We still favor share gainers AAPL and EMC. Apple's valuation is attractive and shares can benefit from new MacBook products, a new OS, the iPhone 5 refresh cycle and a deeper integration of iCloud across Apple products. Also, spending on storage remains relatively solid amidst a slow spending environment. For EMC, we expect the strength of new product cycles to deliver upside in 2H12. EMC remains well positioned to exceed its long-term targets and gain share.

2-Neutral Ben Reitzes Key Picks: Apple, EMC

U.S. Software 1-Positive Raimo Lenschow Key Picks: Citrix, Informatica, NetSuite

U.S. IT Consulting and Computer Services 2-Neutral Darrin Peller Key Picks: Visa, MasterCard, VeriFone Systems, Alliance Data Systems

U.S. Internet 1-Positive Anthony DiClemente

We continue to believe that two themes: The Consumerization of IT and The Utilization Era will drive investment trends in the sector for the rest of the year. We believe Apple is the winner from the consumerization of IT and also note that Big Data is an attractive opportunity for EMC. We hold a constructive sector view over the coming months because of 1) attractive valuation levels and 2) conservative guidance after 1Q earnings season that sets up a “beat and raise” environment, especially for many of the structural growth names in our universe.

We like Informatica, Citrix and NetSuite. The market was disappointed by Informatica’s conservative guidance. However, we see this correction as an opportunity given its strong Big Data exposure and risk is skewed to the upside. Citrix’s 1Q12 provided evidence of virtual desktop momentum, which should be ongoing throughout the year. NetSuite has corrected following very elevated expectations, but the underlying business remains healthy and the structural growth story unchanged.

We continue to believe the Payments sub-sector is an attractive area relative to other areas with greater macro risk. We consider Payment names well positioned to outperform even in an uncertain macro environment.

Key picks include Visa, MasterCard, VeriFone Systems and Alliance Data Systems. Visa’s strength in underlying volume/transaction drivers provide us with a high degree of confidence in its ability to sustainably achieve EPS growth of 20%+ for years to come. We view MasterCard as a secular growth story, with similar ability to drive EPS growth of 20%+. We view VeriFone as a key beneficiary of secular payment technology/security trends. We also favor ADS given solid momentum across lending and non-lending businesses.

Our outlook remains more conservative for IT Services, which has shown mixed fundamental trends and some demand pressures in 1H12. While we believe the industry continues to have longer-term opportunities, we would focus selectively on names whose valuations now reflect a material discount to underlying revenue growth potential. We believe fundamental trends in online advertising and eCommerce remain solid, as companies are increasingly focusing on reallocating advertising dollars online and developing multi-channel sales platforms.

Key Picks: Google, Priceline

We maintain our stance that the continued proliferation of smarter mobile devices and higher bandwidth speeds will drive significant increases in internet usage, with monetization likely to follow.

U.S. Wireless Equipment

Following solid F1Q global handset shipments, we retain our full year 2012 and 2013 growth rates at 8%. The mix continues to move to smartphones, where we see ongoing share consolidation around Apple and Samsung. The mobile systems market remains at best a low-single-digit growth industry Pockets of investments in small cells and LTE are unlikely to drive sustainable material long-term growth.

2-Neutral Jeff Kvaal Key Pick: Qualcomm

17 May 2012

Our top picks in the space are Google and Priceline. We continue to like Google’s dominant position in search, exposure to mobile via the Android platform, and increasing traction in display. We believe Priceline is the best levered online travel agency to the international and hotel markets. Given 60%+ growth in hotels on Booking.com in 2011 and fairly consistent triple-digit bookings growth at Agoda, we believe Priceline still has a very robust growth runway ahead.

Qualcomm remains our top pick in Wireless. Management's plan to expand its 28nm capacity is on plan and should allow the company to ease its supply shortages during F1Q (December). We expect QCOM to retain much of its market share. A healthy handset market should fuel upside to our QTL outlook.

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Sector, Rating, Analyst

Investment View

Key Recommendations

U.S. Data Networking and Wireline Equipment

Networking demand is stable, not deteriorating. Bright spots include data center (virtualization, 10G switching) and BYOD/mobility.

Our preferred names are F5 in large- and mid-cap, and Aruba Networks in small-cap on the BYOD theme.

We continue to want to own the group as we maintain that semis will grow faster than end markets as we head into June-October. Stocks will likely remain choppy over the near term (as investors potentially adhere to the old adage of “Sell in May and Go Away”), but with the SOX pulling back to below $400, we see risk-reward as favorable.

Our top ideas remain leveraged to Apple and Samsung: Qualcomm, Broadcom and Skyworks. We also prefer names with leverage to a 2H recovery in communications infrastructure, such as Altera and Cavium. We prefer NXP Semiconductors and Avago based on relative valuations and secular growth in analog, while Micron is our top name in memory as we anticipate DRAM consolidation. In SMID-cap we like LSI.

We expect 2012 wafer fab equipment (WFE) to be flat year-over-year, with yield issues and supply constraints in 28nm production driving foundry players to raise capex budgets. Foundry/logic equipment spending is now flat (vs more muted Street expectations entering the year), and the outlook for memory is still subdued. Based on the 1Q12 results/2Q12 guidance from the majority of the semiconductor production equipment (SPE) space, we believe that shipments and bookings will be flat in 2012.

We highlight ASML in front-end processing for leverage to the extreme ultraviolet (EUV) secular growth story coupled with expectations for an Intel-driven rise in 3Q12 bookings. In back-end processing, our top pick remains Teradyne given its superior leverage to all of the top mobility OEMs coupled with emerging growth from the LitePoint acquisition.

Our outlook for the Display & Lighting sector remains Neutral given the tempered demand backdrop and continued challenges of oversupply. However, given recent data points suggesting that a potential improvement in LED end market demand may be on the horizon, we are incrementally more positive on the LED market as we expect increased penetration of LEDs among general lighting applications to pick up momentum in 2013 and beyond.

Our top picks are Corning and Veeco Instruments. Corning has been hit with challenges, but we believe that average selling prices (ASPs) have normalized. We expect the company's display business to begin tracking end market demand, which remains healthy. We consider Veeco best positioned to benefit from a cyclical recovery in end market demand and the need to supply additional capacity to support rising penetration of LEDs in general lighting applications.

We believe investors in clean technology would be best positioned by maintaining exposure to those areas that are less reliant on incentives and provide comparatively more attractive cost/value propositions.

We prefer Tesla Motors in the alternative fuels market given its ongoing focus on execution and acceleration of its Model S launch in June. We like Ameresco in the energy efficiency market given its growing backlog against a backdrop of improving federal and municipalities, universities, schools and hospitals (MUSH) market activity. In the smart grid arena, we favor Elster as it will likely benefit from the impending European upgrade opportunity.

2-Neutral Jeff Kvaal Key Picks: F5 Networks, Aruba U.S. Semiconductors 1-Positive C.J. Muse Blayne Curtis Key Picks: Broadcom, Avago, LSI, NXP Semiconductors U.S. Semiconductor Capital Equipment 2-Neutral C.J. Muse Key Picks: ASML, Teradyne

U.S. Display and Lighting 2-Neutral Amir Rozwadowski & Olga Levinzon Key Picks: Corning, Veeco Instruments

U.S. Clean Technology and Renewables 2-Neutral Amir Rozwadowski Key Picks: Tesla Motors, Ameresco, Elster

European Technology Hardware 2-Neutral Andrew Gardiner & Youssef Essaegh Key Picks: ASML, ARM, Imagination, Dialog

17 May 2012

We favor the alternative fuel vehicle and energy efficiency markets and are becoming incrementally more positive on smart grids given the impending European growth cycle. We prefer to remain on the sidelines with solar until visibility on pricing stabilization and rationalization of the supplier base. The Technology sector continues to adapt to a world of low GDP growth: After a correction in mid2011, ASML orders bottomed in 3Q11 and all our major semiconductor players called the trough at some point in 4Q11/1Q12. In hindsight what we have seen is a short and soft downtick, making this transitional period more of a correction than a fullfledged cycle. However, we believe later-cycle telecom equipment players are in a more difficult situation and could take a lot longer to recover.

Our preference is for structural growth stories. Our top picks are ASML, where orders continue to improve, and names like ARM and Imagination and Dialog, which have exposure to smartphone growth and to Apple.

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Investment View

Key Recommendations

European Software & IT Services 1-Positive Gerardus Vos

We like Software on a relative basis within the Technology sector, supported by results from our CIO Survey and secular trends such as Big Data, cloud and mobility. We look for companies that can ride these trends or, at the opposite end, the well-worn restructuring stories.

Our top picks are SAP and Wirecard, two companies that have structural growth exposure; they should be more resilient vs the rest of the sector if the economic outlook worsens and are also better positioned to offer additional upside.

Israeli technology stocks appear well positioned for 2012. Storage, cloud computing, mobile handsets and security remain high priorities for IT managers globally and should continue to be areas of investment. Several companies participate in key technology trends including Big Data, cloud computing, the utilization era and Consumerization of IT.

Our top picks, Mellanox and Nice Systems, are not showing any signs of economic-related slowdown, and we expect 2H strength for Ezchip and CEVA as new servers and handsets enter the market.

We expect the industry growth driver to shift from flat-panel TVs to smartphones and tablets. For components, heavy reliance on Apple is likely to continue. The set side is likely to face a shrinking domestic market given the termination of analog TV signals. Large-caps (Sony, Sharp and Panasonic) are likely to struggle at least during the first half of FY2012 due to Apple and Samsung’s dominance of smartphones and shrinking domestic TV demand.

Our top pick is Casio Computer, as we see 1) medium-term growth opportunities in the watch business, and 2) smaller losses as digital camera ASPs improve. Although car electronic players may face risks from declining demand, JVC Kenwood looks undervalued to us.

We expect a summer rally in Japan’s electronic components sector with support from a heavy flow of new product rollouts and a recovery phase in the inventory cycle. Primary drivers are smartphone demand, led by the next-generation iPhone, GalaxyS III, and GalaxyNote products, and PC-related business offerings linked to Ivy Bridge, Ultrabooks, and Windows8. The smartphone business continues to rely on Apple and Samsung Electronics; Japanese component suppliers have significant opportunities with Apple.

Our key picks are Nidec and TDK for PC-related businesses and Ibiden as a smartphone beneficiary. Risks include HDD price trends, the timing of Apple’s new product releases, if suppliers can generate suitable profits from Apple’s business and smartphone chipset supply issues (TSMC’s 28nm line ramp-up).

Despite the Thai flooding, production of digital cameras normalized by the second half of March. Production of mirrorless and single-lens reflect (SLR) cameras ramped up in April. However, global demand for compact digital cameras continues to decline and sales of SLR cameras could be hurt by the growth of mirrorless cameras. We expect connectivity will be an important feature in the mirrorless category. We think the ability to respond to this demand will impact market share trends of individual companies and the growth of the market as a whole.

We prefer Shimadzu. Given solid global demand for analysis and measuring instruments, the company’s earnings remain strong. With new product launches from May onward, we expect earnings to remain strong. Amid weak earnings momentum in the precision instruments industry, especially in the digital camera and OA sub-sectors, we view Shimadzu as one of the few companies with strong near-term earnings potential and a plausible medium-term growth story.

Asia PC brand companies should continue to gain share globally thanks to 1) their higher exposure to China and 2) US PC companies’ reduced focus on low margin hardware businesses. We are now less negative on the Taiwan NB ODM space as we finally saw y/y margin improvement and more significant non-NB contribution, such as tablet PC, server/storage and smartphone.

Our top picks are Lenovo, Asustek, and Quanta for nearterm momentum and Hon Hai, Acer, and Pegatron for the longer term. PC shipments should be above seasonality in 2Q12, which is second-half loaded this year, but the Apple supply chain should see bigger q/q drops in 2Q12, before the expected iPhone 5 components and shipments ramp in 3Q12.

Key Picks: SAP, Wirecard Israel Technology 2-Neutral Joseph Wolf and David Kaplan Key Picks: Nice Systems, Mellanox, Ezchip, CEVA Japan Consumer Electronics 2-Neutral Yuji Fujimori Key Pick: Casio Computer Japan Electronic Components 1-Positive Masaru Koshita Key Picks: Nidec, TDK, Ibiden

Japan Precision Instruments 2-Neutral Masahiro Nakanomyo Key Pick: Shimadzu

Asia Ex-Japan IT Hardware 2-Neutral Kirk Yang and Jones Ku Key Picks: Lenovo, Asustek, Quanta, Hon Hai, Acer, Pegatron

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Investment View

Key Recommendations

Asia Ex-Japan Wireless Equipment and Products

We remain positive on the sector, but given that we have not heard of any significant changes in component order allocations, we expect some Apple component suppliers in Taiwan may see a broadbased sequential double-digit decline in 2Q12 revenues. The extent of the drop will vary depending on the company’s exposure to Apple. We would see any near-term share price weakness as an opportunity to accumulate shares of these new iPhone suppliers in 2H12.

We are positive on Catcher Technology based on three major catalysts: 1) stronger MacBook refresh demand; 2) metal casing orders for new iPhone and iPad form factors; and 3) increases in Ultrabook and Windows 8 projects. We still expect Catcher’s smartphone clients – HTC, RIM and Sony – to address their lower-than-expected sales in 201213, as we assume no order growth for Catcher in 2013.

Although most foundry/Outsourced Semiconductor Assembly and Test (OSAT)/substrate semi vendors guided to sales growth of 10-20% q/q in 2Q12, most of their customers guided to sales growth of 4-6% q/q, implying that recent strength cannot last into late 4Q12 if the mismatch continues in 3Q12. By adding more High K Metal Gate (HKMG) gate-last capacity from TSMC and Poly SiON or HKMG gate-first capacity from others, coupled with gradual yield rate improvement, we believe the shortage issue on 28nm could be resolved by 4Q12.

We favor higher-beta small-cap and strong cash flow/margin recovery names like Kinsus and Vanguard. We also like Samsung, Vanguard, Kinsus, VPEC, MediaTek, MStar and SPIL, but remain 2-Neutral on the cyclical sector and expect stocks under our coverage to trade at their average valuation for the past three years.

We believe the top-tier panel makers will see a stronger earnings recovery and leverage their capabilities to supply ultra-high-end display products, including ultra-high-resolution (Retina) OXIDE thinfilm transistor (TFT) and in-cell touch-equipped panels. These products offer 4-5x higher ASP per area compared to commodity panels and the entry barriers are substantially higher. Also, mass production of flexible organic light emitting display (OLED) could drive further penetration into mobile while TV OLEDs are delayed. We think that significant volume production of flexible OLED will begin in 4Q12 or 1H13.

We are optimistic on LG Display, Novatek Microelectronics, AU Optronics and Samsung SDI. We believe LG Display will show a strong recovery path over the next couple of years. Novatek and AUO should benefit from high-resolution migration in 2H12. Also, we remain bullish on Samsung SDI given battery growth momentum and OLED business growth.

We see the sector benefiting from four key themes: 1) increasing demand for wireless data capacity and transmission speed that should drive wireless enhancement capex for the next two years; 2) telecom equipment providers tapping into the high-growth smartphone/tablet markets; 3) solid Chinese operators’ capex in the near term, with potential ramp of 4G/LTE capex after 2013; and 4) overseas operators undergoing substantial network upgrades.

Comba Telecom is our top pick as it is the industry leader in the fast-growing wireless enhancement space in China.

1-Positive Dale Gai Key Picks: Catcher

Asia Ex-Japan Semiconductors 2-Neutral Andrew Lu Key Picks: Samsung , Vanguard, Kinsus, VPEC, MediaTek, MStar, SPIL

Asia Ex-Japan LCD Displays 1-Positive Jamie Yeh Key Picks: LG Display, Novatek, AU Optronics, Samsung SDI

Asia Ex-Japan Data Networking & Wireline Equipment 1-Positive Jones Ku Key Picks: Comba Telecom

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We also bring attention to our Underweights In addition to the tech sector’s top picks, we have a number of 3-Underweight-rated names that we list below. Some of the companies below are also listed as “challenged” from Apple later in this report. Figure 1: Barclays Tech team’s 3-Underweight rated stocks Sector

3-Underweight Rated Companies

U.S. Internet Anthony DiClemente

Pandora, Expedia

European Technology Hardware Andrew Gardiner

Kudelski, Logitech, TomTom

European Software and IT Services Gerardus Vos

Aveva, Indra Sistemas, Software

Asia Ex-Japan IT Hardware Kirk Yang

Everlight, Inventec, Ju Teng, Sunrex

Asia ex-Japan Wireless Equipment and Products Dale Gai

Compal Communications, Unimicron, Young Fast

Asia Ex-Japan Semiconductors Andrew Lu

Nan Ya PCB,

Asia Ex-Japan Data Networking & Wireline Equipment Jones Ku

China Communications Services

Asia Ex-Japan LCD Displays SC Bae & Jamie Yeh

Chimei Innolux, Coretronic, Wintek

Japan Consumer Electronics Yuji Fujimori

Panasonic

Japan Display & Lighting Yuji Fujimori

Nippon Sheet Glass

Japan Electronic Components Masaru Koshita

Taiyo Yuden

Japan Precision Instruments Masahiro Nakanomyo

Olympus, ULVAC

Source: Barclays Research

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GLOBAL TECHNOLOGY OUTLOOK

Identifying the three columns of tech: New product cycles to drive 2H12 Given possible economic weakness, investing in companyspecific product cycles may be the best approach to tech in 2H12

Welcome to the Barclays Global Technology Outlook, where we outline our top picks and key themes for the remainder of 2012 and beyond in each region. There seem to be even more reasons to be concerned about the outlook for technology now than in our last update, published in December 2011, given the crisis in Europe, some deceleration in China, and pockets of weakness in the U.S. However, we believe there are several exciting new product cycles in the second half of the year, with the biggest impact likely to be felt from Apple’s iPhone 5 and another new iPad. Also, some companies are set to benefit from new initiatives at Intel and other key products in storage and virtualization. Given mounting concerns about the outlook for tech and what could be a volatile summer, we believe it is best to focus on company-specific product cycles for 2H12.

The three columns We are introducing a new way we look at the sector, which explains where we have been – but also where we could be going. As a team, our checks indicate that both Apple and Samsung should continue to dominate the smartphone arena. Smartphones are a phenomenon reminiscent of the rise of the PC in the 1990s in terms of platform adoption and innovation – with even broader appeal given the combination of voice, Internet and applications. We estimate this market will top 1,090 million units by 2014 (up from 689 million units in 2012). The biggest innovator in the space, Apple, is now the largest company in the world, with a market cap of about $530 billion. By 2013, we estimate Apple’s revenues will approximate $200 billion, defying the “Law of Large Numbers.” In fact, this estimate seems conservative given it doesn’t include a seven-inch tablet or a new smart TV platform, which seem to be on their way. One could argue these iPhone estimates are conservative given the potential of the yet-to-be-announced iPhone 5. Let’s add to that Samsung, whose market cap is now about $148 billion: We estimate Samsung’s revenues will approximate KRWbn 229,087 in 2013, including sales of 466 million handset units. We have divided the technology sector into winners from Apple and Samsung; those that are challenged by Apple and Samsung; and those that are isolated, or “Apple-safe”

Let’s put the Apple figures alone in perspective. Apple just reported revenues of more than $46 billion in C4Q11. Within three years, it is plausible that Apple could have an $80 billion revenue quarter. This type of revenue in one quarter is about the size of both the enterprise server and storage market combined – for an entire year. NPD has estimated that U.S. consumer electronics sales reached $144 billion in 2011; we believe Apple's Americas division alone could achieve 40% of this figure if it continues to be successful. Our point is simple: Apple’s share of tech revenue, when combined with Samsung’s, is so large globally that those who are allied with them can still win – and those that are not (either in the supply chain or because of a technology disruption like printing) could face some serious challenges. We do not believe that consumers or corporations will see spending capabilities expand enough over the next five years to allow categories like PCs and printers, for example, to grow significantly. The first two columns of tech investing are rather simple: Companies aligned with the sizeable Apple and Samsung product cycles in mobility are set to thrive. Those cannibalized or obsolesced by the rise of smart mobility could see challenges. The sheer size of the upcoming iPhone 5 and iPad cycles, when combined with strong share from Samsung in

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smartphones, has only increased the importance of identifying these companies. In fact, the IT Hardware team recently published a report stating that smartphones and tablets were cannibalizing printed pages, especially for inkjet printing done in the home (see Is My iPhone Now My Printer? A Deeper Look into the Secular Challenges in Inkjet, March 22, 2012). If a company is in column two, there could be short-term opportunities into a major product launch (Windows 8 and Romley come to mind), but the positive impact may be less significant and shorter vs past cycles as spending shifts toward Apple and Samsung, supporting the consumerization of IT. Below we show these two columns. We have identified several names besides Apple that could benefit from powerful upgrade cycles in 2H12. Figure 2: 1-Overweight rated winners from Apple product cycles Winners from Apple Sector

Company

Ticker

U.S. Semiconductors

Avago

AVGO

Broadcom

BRCM

MagnaChip

MX

Skyworks

SWKS

ASML

ASML.AS

Teradyne

TER

ARM Holdings

ARMH

Dialog Semiconductor

DLG-DE

Imagination

IMG-GB

U.S. Display

Corning

GLW

U.S. Communications Equipment

QUALCOMM

QCOM

InterDigital

IDCC

AEJ IT Hardware

Cheng Uei

2392 TT

Darfon

8163 TT

U.S. Semiconductor Capital Equipment European Technology Hardware

AEJ LCD Displays AEJ Wireless Equipment & Products Japan Electronic Components

Hon Hai

2317 TT

Largan

3008 TT

Pegatron

4938 TT

Simplo

6121 TT

AUO

2409 TT

LGD

034220 KS

AAC

2018 HK

Catcher

2474 TT

TDK

4062 TY

Ibiden

6762 TY


We also identified a few names that could benefit from continued success in smartphones at Samsung.

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Figure 3: 1-Overweight rated winners from success at Samsung Winners from Samsung Sector

Company

Ticker

Asia ex-Japan IT Hardware

Samsung SDI

006400-KS

U.S. Semiconductors

Avago

AVGO

Broadcom

BRCM

Skyworks

SWKS


QUALCOMM

QCOM

European Technology Hardware

ARM

ARM.L

Israel Technology

CEVA

CEVA


We identified several names that are particularly challenged by Apple and the disruption caused by the rise of tablets and smartphones overall. Figure 4: 2-EW and 3-UW rated companies challenged by Apple and Samsung Challenged by Apple and Samsung Sector

Company

Ticker

U.S. IT Hardware

Dell

DELL

Hewlett-Packard

HPQ

Lexmark

LXK

Xerox

XRX

U.S. Software

Microsoft

MSFT


Research In Motion

RIMM

Motorola Solutions

MSI


Logitech

LOGN-CH

AEJ IT Hardware AEJ Wireless Equipment & Products

Nokia

NOK

Inventec

2356 TT

Wistron

3231 TT

BYD Electronic

285 HK


Is your tech company ‘Apple-safe’? Cloud and Big Data companies can find themselves in the third column, where Apple cannot directly disrupt them

17 May 2012

Given the rise of Apple and its share of market cap and industry profits, it is important to invest in what we call “Apple-safe” companies. This third column of tech includes cloud and Big Data themes and other enterprise-related tech trends that Apple cannot really disrupt. However, we don’t include enterprise PCs, which we believe are disrupted by the consumerization of IT, where Apple leads. Column three is dominated by storage, software and certain services. Outside of those with cloud, Big Data or virtualization exposure, successful companies in this column often include those with strong maintenance streams and a shareholder-friendly cash return policy. In the IT Hardware sector, for example, there is a large discrepancy between the P/E multiples of those companies that are “Apple challenged” and those that are “Apple safe.” For example, EMC trades at a forward P/E of 13.2x and IBM trades at 12.1x vs 5.2x for Hewlett-Packard, 7.0x for Dell, and 6.5x for Lexmark. In short, being Apple-safe makes a difference.

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Figure 5: Companies isolated from Apple’s performance (“Apple-safe”) Isolated From Apple Sector

Company

Ticker

U.S. IT Hardware

EMC

EMC

IBM

IBM

LSI

LSI

Altera

ALTR

U.S. Semiconductors

Cavium

CAVM

Oracle

ORCL

Teradata

TDC

Salesforce.com

CRM

Informatica

INFA

Qlik Tech

QLIK

VMware

VMW

Citrix

CTXS

NetSuite

N


Ericsson

ERIC


Cisco

CSCO

Juniper

JNPR

U.S. Software

F5 Networks

FFIV

Mellanox

MLNX

European Software

SAP

SAP

AEJ IT Hardware

Digital China

861 HK

Quanta

2382 TT

Israel Technology


Cloud computing – A thriving “Apple-safe” opportunity We still see attractive opportunities in the Cloud like Citrix, F5 Networks and NetSuite, to name a few

The relatively recent emergence of cloud computing has created some attractive investment opportunities in the third column of tech. As more companies look for ways to decrease operating costs and leverage the rapid growth of server, networking, and computing technologies, more CIOs are turning to cloud solutions. Companies that provide and manage solutions for desktop and server virtualization as well as develop and provide application services should be well positioned to take advantage of the defensive nature of cloud computing. New business models such as IaaS (infrastructure as a service), PaaS (platform as a service) and SaaS (software as a service) have all emerged as products of cloud computing. Names like F5 Networks provide the networking infrastructure for cloud computing. Most enterprise software companies are not impacted by Apple, specifically the SaaS and virtualization names. SaaS companies isolated from Apple include NetSuite and SalesForce.com, whose solutions and performance are not directly linked to Apple. We also would point out companies with strong exposure to server and desktop virtualization like VMWare and Citrix. In fact, Citrix seems like a big winner from the mobility trend as workers increasingly “log-in” from smart devices. Below we show how a cloud-based index has improved so far year to date after underperforming in 2011. We believe the cloud theme appears real and not on a par with the passing tastes of the internet bubble. Our so-called Cloud Composite consists of Akamai, Citrix, EMC, Juniper, NetApp, Salesforce.com, F5 Networks, Riverbed, and VMWare.

17 May 2012

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Figure 6: Barclays cloud composite indexed price performance 2011

Figure 7: Barclays cloud composite indexed price performance YTD

120

140

110

130

100

120

90

110

80 100 70 90

Cloud Composite Indexed Performance Source: FactSet, Barclays Research

Dec-11

Nov-11

Oct-11

Sep-11

Aug-11

Jul-11

Jun-11

May-11

Apr-11

Mar-11

Feb-11

Jan-11

60

80 Jan-12

Feb-12

Mar-12

Apr-12

May-12

Cloud Composite Indexed Performance Source: FactSet, Barclays Research

Big Data moves mainstream and is an attractive opportunity in the third column of tech Big Data offers plenty of opportunity, in our view, including companies like EMC, Teradata, Informatica and Mellanox

17 May 2012

We believe that Big Data is emerging as one of the most important trends in technology today. More and more unstructured data is being created as a result of digital content moving online, the rise of increasingly complex computing applications (genomics and oil exploration are just a few examples), and the ascension of cloud computing. This rapid growth in data has fuelled the need for more powerful, higher capacity, and faster technology solutions capable of managing and analyzing this data, and helps support our estimate for external storage capacity growth of 40%+ annually through 2014. Furthermore, companies are finding it critical to manage and implement the massive amounts of data they have accumulated. Companies that provide the solutions to manage, utilize, and analyze should be well positioned for growth in 2012, as we noted in our biannual Barclays CIO Survey from April 2012, in which the Big Data problems was expected to be the biggest driver of spending decisions.

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Figure 8: CIO survey question: What are your biggest trends driving your spending decisions in 2012?

"Big Data" problems Server virtualization Cloud computing Security Windows upgrade cycles Off shoring labor/Labor optimization Storage virtualization Desktop virtualization

Aug-11

Mar-12

Green computing (saving power)

0

10

20

30

40

50

# of Respondents Source: Barclays Research, CIO Survey, April 2012

We believe that companies focused on Big Data are safe from Apple’s market cap vacuum. In fact, the rise of smartphones and tablets is fuelling data growth. Companies that take advantage of the emergence of NAND Flash within the enterprise as a new storage tier and companies with scale-out storage offerings should be well positioned in Big Data. Furthermore, integrated data analytics appliances allow storage hardware companies to leverage powerful new software designed for Big Data. We look at software companies that offer data integration and data discovery solutions as best positioned to take advantage of Big Data along with general data analytics software companies. In addition to storage hardware and software, the rise of Big Data has created increasingly large demands on the networking infrastructure that supports it, which should create opportunities for wellpositioned networking companies. We have previously cited EMC with its hardware and software offers as a beneficiary of the Big Data trend, along with IBM, with its analytics strategy. However, Teradata and Informatica are data analytics companies that can capitalize on the Big Data trend within software. In addition, Mellanox is well positioned to take advantage of the increased networking demands of Big Data.

Tech companies face a challenge: How do they get out of column 2 and into column 3? Follow IBM’s lead? Industrialization of IT – A way for some tech companies to mature into higher multiples, not lower Very few large-cap tech companies have been able to convince investors they can move out of being secularly challenged (our column two) and into an advantaged position (our column three). IBM is one of the only companies to successfully achieve this status. Our team believes that other large-cap tech companies may be well-served to follow some of their tactics. The key for IBM has been a realization that it had strategic advantages in selling software and services with high recurring revenue streams, while divesting commoditizing businesses like HDDs, PCs, Printing and now cash registers. This transformation is very difficult to achieve, and not all hardware companies possess the 17 May 2012

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strategic relationships to succeed. Our team believes it will be difficult for HP, Dell and Microsoft, for example, to follow IBM’s lead given current strategies. In our opinion many companies may attempt to follow IBM in the “Industrialization” of large cap tech

We believe IBM has started what will become a trend, leading the “Industrialization” of large-cap technology. We believe that IBM compares quite favorably with most industrial companies, which goes a long way toward explaining its five-year multiple expansion and how its multiple may be sustained. IBM has distinguished itself from its comps like HP, Dell, and Microsoft, and we expect other tech companies to follow suit. Being an “industrial stock” is something many tech companies would like to be – the Industrials sector boasts P/Es of around 16.5x on average vs our IT Hardware sector, which averages about 10x excluding IBM. See IBM Corp.: Is IBM Leading the 'Industrialization' of Tech? May 7, 2012. IBM has essentially taken on more of the characteristics of industrial stocks, culminating in Warren Buffett’s purchase of a 5.5% stake last year. Our research suggests rising ROIC, core growth, cash usage, margin expansion and balance sheet optimization are key factors that influence performance and shareholder returns. Qualitative factors such as portfolio management, cycle management, and investor outreach are also key. IBM has focused on all these metrics with particular success in ROIC, cash return, margin expansion, and investor outreach. In IT Hardware, we believe EMC is well positioned to expand into higher-value revenue streams given its legacy focus in high-end storage lends itself well to moving into cloud and Big Data platforms. We also focus below on several software, networking, and other businesses that have grown from the ground-up with a focus on these key areas, which are not subject to profit and market cap degradation at the hands of Apple. IBM has seen its PE multiple expand at a significantly faster rate than its nearest competitors and over a 2 year horizon the divergence of IBM’s multiple compared to HP and Dell is even more pronounced…

Figure 9: IBM, Dell, HP forward P/E multiple –5 Yr 25x

Figure 10: IBM, Dell, HP forward P/E multiple –2 Yr 16x 14x

20x

12x 10x

15x

8x 10x

6x 4x

5x 0x May-07

2x Apr-08 IBM

Mar-09 HPQ

Source: Company Reports and FactSet

17 May 2012

Feb-10 DELL

Jan-11

Dec-11 S&P 500

0x May-10 Sep-10 IBM

Jan-11 May-11 Sep-11 HPQ

DELL

Jan-12 May-12 S&P 500


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Figure 11: Two- and five-year forward P/E averages

2 Year Average

IBM

S&P 500

HPQ

DELL

12.6x

13.5x

7.6x

8.9x

5 Year Average

12.8x

14.7x

10.5x

11.9x

Current

13.3x

13.2x

5.7x

7.3x


Information Technology has outperformed year to date, but recent performance has been fairly weak given macro concerns

Tech taking a short-term breather: The Information Technology Index has outperformed the market year to date (up 13% vs up 7% for the S&P 500), but has accelerated to the downside 2Q12-to-date (down 6% vs down 4% for the S&P 500) after a robust performance in 1Q12 (up 21% vs up 12% for the S&P 500). This year, bright spots in tech have included IT Hardware, helped by Apple’s strong C1Q performance, followed by Internet and IT Services. We still believe there are investment opportunities in cloud computing and the ongoing consumerization of IT. However, now that Apple and Samsung seem to be winning the consumerization battle, we introduced the concept of the three columns of tech. Apple has grown as big as an asset class (market cap of about $530 billion) – and is defying the law of large numbers – that we believe it is wholly appropriate to manage a tech portfolio this way.

Figure 12: S&P 500 GICS sector performance – YTD

Figure 13: S&P 500 GICS sector performance QTD 10%

20% 15% 14% 13%

4% 7%

10%

6%

5%

5%

2% 0%

5% 0%

0%

-2% -2%

Source: FactSet

17 May 2012

Industrials

Health Care

Financials

Energy

Consumer Staples

Consumer Discretionary

Materials

Health Care

Consumer Discretionary

Consumer Staples

Materials

Telecommunications Services

Information Technology

Energy

Industrials

Financials

-10% Utilities

-10%

Utilities

-5% -5% -5% -6% -6%

-2%

Information Technology Telecommunications Services

-1%

Source: FactSet

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Figure 14: S&P 500 vs S&P 500 Information Technology, 1Q12 130

Figure 15: S&P 500 vs S&P 500 Information Technology, 2Q to date 110

125 105

120 115 110

100

105 100

95

95 90 Jan-12

Feb-12 S&P 500

90 Apr-12

Mar-12 S&P 500: Information Technology

Source: FactSet

May-12 S&P 500

S&P 500: Information Technology

Source: FactSet

Figure 16: Index performance summary Barclays Global Technology Composites Hardware Internet IT Services Semiconductors Handsets Electronic Components Software Semiconductor Capital Equipment EMS (Contract Manufacturing) Telecommunications Distributors Precision Instruments Display Enterprise Networking Carrier Equipment Clean Technology

17 May 2012

1-Month % 3-Month % 6-Month % -5.2 8.4 27.7 3.1 8.6 8.6 -3.5 2.9 9.9 -3.4 2.1 12.0 -4.2 6.9 13.6 -6.3 -0.9 8.1 -4.3 -3.2 3.1 -3.6 -2.0 8.3 -11.0 -8.2 12.4 7.4 7.9 12.3 -2.2 -5.9 9.4 -7.0 1.1 7.5 -4.6 -7.6 -2.9 -12.1 -15.0 -9.1 -11.6 -11.7 -12.1 -5.6 -21.0 -19.1

1-Year % 24.6 3.8 1.2 4.6 0.2 -17.1 -0.2 -8.4 -5.5 1.9 -9.5 -11.9 -37.6 -19.4 -23.7 -51.1

QTD -4.3 0.5 -7.5 -6.0 -5.4 -11.0 -7.8 -7.6 -14.0 3.6 -7.1 -11.6 -7.1 -18.9 -15.9 -14.7

YTD % 24.1 12.7 11.8 10.5 10.3 10.2 9.9 9.5 8.1 7.7 4.5 4.0 0.6 -5.3 -8.5 -12.1

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S&P 500 Japan Nikkei 225 Hong Kong Hang Seng Index Taiwan TWSE Index Korea KOSPI Index Singapore Straits Times Index Shanghai Composite UK FTSE 100 Germany DAX Index MSCI Europe Index MSCI The World Index Technology Indices NASDAQ Composite Index Semiconductor HOLDRs Trust (SMH) PHLX / Semiconductor Index (SOX) MSCI Global Technology Index S&P 500 GICS Sectors Utilities Consumer Staples Health Care Consumer Discretionary Energy Information Technology Industrials Telecommunications Services Materials Financials

1-Month % 3-Month % 6-Month % 0.0 1.1 9.5 -5.5 0.7 6.0 -1.9 -4.3 5.4 -2.1 -4.8 2.4 -2.5 -2.4 7.3 -2.6 -1.9 4.2 4.5 2.5 -2.8 -0.9 -5.3 1.8 -1.3 -2.6 11.1 -1.7 -5.5 3.3 -1.2 -1.4 6.3 1-Month % 3-Month % 6-Month % -1.9 1.0 11.8 -3.0 -3.8 5.9 -4.4 -6.8 3.6 -4.6 0.9 10.0 1-Month % 3-Month % 6-Month % 4.6 3.0 3.2 1.9 4.7 9.7 1.1 3.4 10.8 1.9 4.7 15.3 -0.8 -6.4 -3.3 -4.4 1.5 12.3 0.3 -3.1 8.6 8.2 8.1 9.2 -0.3 -5.4 2.7 0.0 2.8 15.9

1-Year % 0.1 -8.2 -16.5 -17.1 -9.1 -8.0 -16.6 -7.9 -13.1 -14.6 -6.9 1-Year % 2.2 -10.0 -11.9 2.9 1-Year % 6.3 7.4 3.3 8.6 -10.6 8.2 -7.2 0.3 -11.4 -7.7

QTD -3.6 -8.0 -2.4 -5.2 -4.2 -3.0 6.2 -2.8 -8.7 -6.0 -4.9 QTD -5.1 -8.2 -10.7 -7.1 QTD 2.2 -0.1 -1.7 -1.7 -5.6 -6.3 -4.5 4.4 -5.3 -5.3

YTD % 8.0 6.6 8.9 5.8 6.5 9.7 9.6 -0.5 10.5 0.5 5.1 YTD % 12.6 8.0 7.5 11.7 YTD % -0.5 4.6 6.6 13.5 -2.5 13.5 5.6 5.1 4.7 15.0

Source: FactSet, Barclays Research Data as of 11 May, 2012

Barclays analysts are forecasting mid to lower single digit IT spending growth this year

17 May 2012

Still looking for modest IT spending growth: Despite growing concerns around Europe and persistent disruptions near term in some supplies due to Thailand, our analysts forecast global IT spending growth in the mid to lower single digits this year, which is supported by our bi-annual CIO surveys for the U.S. and Europe, as well as our regional analysis of key IT markets. Our colleagues in global economics research, led by Piero Ghezzi, now forecast 2012 global real GDP growth of 3.6% and 2013 growth of 4.1% (see Global Economics Weekly: Where next for Europe?, published May 11, 2012). We continue to look for growth in global IT spending to exceed global GDP modestly, especially since the IT spending forecast doesn’t include some of the weaker consumer segments. Please see our updated Barclays economic forecasts on Figure 27.

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Figure 17: CIO survey question: What is your overall IT spending trend for 2H12 Y/Y?

% of Respondents

50% 40%

Overall, 43% expect y/y growth in 2H12

Overall, 20% expect y/y declines in 2H12

30% 20% 10% 0% Up 10%+

Up 5-10%

Up 0-5% Overall

Flat

Down 05%

US

EU

Down 510%

Down 10%+

Source: Barclays Equity Research, Survey of 100 CIOs, April 2012

Recent industry checks suggest a tougher near-term environment, but product cycles could help in 2H12

17 May 2012

Recent industry checks as well as data points from our recent Annual Barclays CIO Survey in April 2012 suggest that IT spending is growing, but modestly – and could be decelerating slightly into mid-year, particularly in developed markets. We still believe that software, services, and storage still show signs of stable demand. Indications from CIOs and our checks also suggest that spending for storage could continue to grow, albeit at a slower pace near term, while servers, networking and PCs could continue to be slow until year-end. As a result, we see limited upside to our estimates for IT spending growth into next year, but note that we expect growth to remain above average in emerging markets – even with some deceleration in growth from China.

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Services, application software & storage remain highly rated areas for tech investment... Figure 18: CIO IT spending priorities – April 2012 CIO survey IT Services and Applications remain top priorities; Storage continues to rate well

% of Respondents

25% 20% 15% 10% 5% 0%

IT Services SW-Applications

Other

Storage SW-Infrastructure Mar-12

Networking

Servers

No Priorities

PCs

Aug-11

Source: Barclays Equity Research, CIO Survey, April 2012

Some near-term cyclical challenges U.S. Portfolio Strategy Analyst Barry Knapp recently downgraded the technology sector to Marketweight from Overweight

On May 11, U.S. Portfolio Strategy Analyst Barry Knapp downgraded the technology sector to Marketweight from Overweight (please see U.S. Portfolio Strategy Weekly: Monsoon Season). Knapp notes that concerns around public policy and slowing growth merit defensive positioning in the near term. The portfolio strategy team does not believe that we will reach the market low until 2Q earnings season, and with the team’s expectation for a further correction, it tactically scaled back its cyclical exposure, adding defensives and dividend yield. The downgrade to a Marketweight rating for technology comes as technology analysts’ earnings estimate revisions (relative to the 10 GICS sectors) have declined and the team’s margin diffusion index, which was approaching a trough, is showing signs of struggle. Knapp does not see much that will change the poor outlook for worldwide growth. However, he believes that the secular story is intact, and in a low-growth environment, technology should be the primary beneficiary of a reach for growth via efficiencies and the substitution of capital for labor. Looking to 2H12, the U.S. portfolio strategy team is much more optimistic and expects firming activity to boost corporate revenues and margins. This view is consistent with our call around 2H product cycles. In addition to the near-term concerns surrounding the growth of the technology sector, Knapp notes that at the S&P 500’s high in 2012, Apple was the largest stock in the index by a factor of 1.4x; was up 53% year to date, outperforming the index by 40%; and was responsible for more than 14% of the S&P 500 YTD. Apple has had an outsized impact on the sector, making the returns look a bit better than the reality excluding the juggernaut. On May 11, Barclays’ strategist further reduced ratings for cyclical exposures to reflect expectations for a mild correction.

17 May 2012

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Figure 19: Barclays U.S. investment strategy sector ratings Energy Health Care Utilities ↑ Technology ↓ Industrials Financials Telecom Staples Discretionary Materials Underweight

Marketweight

Overweight

Note: ↑/↓ = increases/decreases on 5/11/12 to ratings in place since 3/16/12 or earlier. Research Overweight: The performance of the S&P 500 sector is expected to outperform the performance of the S&P 500 index in the next 3–6 months. Marketweight: The performance of the S&P 500 sector is expected to perform in line with the S&P 500 index in the next 3–6 months. Underweight: The performance of the S&P 500 sector is expected to underperform the performance of the S&P 500 index in the next 3–6 months. Source: Barclays Portfolio Strategy Team. For more information please see the note: Monsoon Season 5/11/12

Barclays Global Technology, Media and Telecommunications Conference We are eagerly anticipating our 13th annual Global Technology, Media and Telecommunications Conference, which will take place on May 22-23 at the Sheraton New York Hotel & Tower in New York City. This year’s conference will combine our Global Technology Conference, typically held in December with our Global Communications, Media and Technology Conference. This conference is a joint effort by teams from across the U.S., Europe, Japan and Asia. We expect well over 200 speakers and officers from across the difference sectors and we expect over 1,000 attendees. We also would like to highlight our keynote roster of CBS, Deutsche Telekom (T-Mobile USA), DIRECTV, IBM, Texas Instruments, Verizon and Yahoo! For more information please refer to the information link below: https://events.barcap.com/cm.esp?id=213&pageid=_3G011DZ0Z

17 May 2012

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FOUR-SCREEN CONVERGENCE – AN OPPORTUNITY TO COMPETE?

The unification dream in consumer electronics Device vendors are starting to compete across all four screens: smartphone, tablet, PC and TV

Below, our mobility teams discuss what companies are doing to create and capitalize on the vision of a unified ecosystem – resulting in a “Four Screen Convergence.” We take an in-depth look at the positioning of many consumer electronics companies within this “Four Screen Scenario” and who is likely to succeed. Apple is hard to beat. A vision for many consumer electronics companies over the past several decades has been to offer consumers a range of options within a single product category. A welldiversified product portfolio across multiple price and feature tiers allowed vendors to preserve their customer base within the brand, up-selling at opportunities where customers were looking to upgrade to a higher-end or more feature-rich product and thereby building upon the company’s brand equity. Nokia had the 1100 entry level phone and the N95 premium device. Hewlett-Packard offered PCs for internet surfers and gamers. Samsung had 32” and 60” TVs. Apple offered the iPod Touch and the Nano. A comprehensive product portfolio meant dominance within different segments of the same product category. Those companies that competed successfully in multiple product categories, such as Samsung in TVs and PCs, were rare. The past five years has brought an alternative vision of a comprehensive, unified product portfolio. Apple’s vision of a single software suite across multiple devices began a trend toward what we term the Four-Screen Scenario. In this vision, device vendors compete not only within a single product category, but also across each of the smartphone, tablet, PC, and TV categories. Vendors unify their products with a common operating system, user interface, applications suite, and cloud service. We consider the several interrelated factors that allowed the competitive landscape to shift and outline which vendors we believe will be successful in this new environment.

17 May 2012

The rise of remotely programmable hardware: All major operating systems – iOS, Android, BlackBerry, and Windows 8, provide over-the-air updates. This keeps the devices that are in the hands of consumers current and compatible. Consumers can easily migrate pictures from a three-year-old iPhone to a new MacBook.

Rapid increases in processing power: The upgrade from single core to dual core and now quad core 1GHz+ processors has enabled smartphones and tablets to run the same operating systems as their more powerful brethren, the PCs.

Proliferation of high-speed networks: The upgrade to 1 Mbps plus download speeds with HSPA+ and LTE allows users to consume much of the same media content on their phones and tablets as on their PCs. Having the vacation pictures on one’s tablet and the candid camera video on one’s PC is proving to be a compelling sales proposition.

Weaknesses of the hyper segmented sales approach: Nokia in particular found itself segmenting the market too finely. It ended up with many products targeting similar demographics. Motorola’s RAZR period also featured too many similar models.

The introduction of the tablet: The tablet blurs the lines between PC and smartphone. This contributes to a new consumer expectation – that the user experience will be similar across devices. Apple’s success in both smartphones and tablets attracted its

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phone competition to do the same. We now see many of the traditional players with a product, either existing or planned, in at least two of the four categories. Technology leaders from diverse segments are pursuing this vision. Apple of course emerged from the PC industry and is furthest along. Software leader Microsoft has assembled pieces of the vision, alongside its cell phone partners Nokia and soon Samsung. Outside of Apple, the Microsoft/Samsung partnership might be most able to mesh the components mentioned above. Google, with its acquisition of Motorola Mobility, also has the right pieces in place to make the four-screen scenario a reality. None of these technology leaders, however, have yet to establish a consistent presence in all four categories (although we anticipate a smart TV from Apple next year). Nor is a single operating system or application ecosystem yet available that runs on all devices. We believe the stakes are high in the race toward the four-screen scenario. Combined, these four markets (handset, tablet, PC, and TV) represent approximately $600-700 billion in revenues each year. Unsurprisingly, smartphone and tablet – albeit to a lesser extent – annual revenues will likely continue to rise within the mix, while PC revenues will likely decline. We therefore believe that vendors who are more closely aligned with these growth industries are best positioned to realize the four-screen vision. Hardware vendors will be heavily dependent on their software ecosystem and ability to integrate different devices

Each of our sector analysts reviews below the strengths and weaknesses of the respective players in their space. We attribute a greater weighting of 2x to software as we believe the long-term differentiation for the vendors in the space will be in software. We believe that hardware vendors in general will be heavily dependent on the operating system and the ecosystem surrounding it as well as the ability to integrate across the different hardware pieces.

Figure 20: Vendor penetration by category

Apple Google (MMI) Microsoft Samsung RIM Sony HP Toshiba Acer LG ASUS Lenovo HTC Nokia Dell Amazon Huawei ZTE

Phone 4 3 1 4 3 2 2 2 2 2 2 2 3 3 2 3 3

Key Market leader Market player Product in development or subscale Presence via partnerships or minimal IP

HARDWARE Tablet PC 4 3 3 1 1 1 3 2 2 2 3 2 4 2 3 2 4 2 2 2 3 2 3 2 2 2 4 3 2 2 -

4 3 2 1

TV 2 2 2 4 4 4 3 4 3 3 -

OS 4 4 3 1 2 1 2 1 1 -

Weighting Software Hardware

SOFTWARE Apps 4 4 3 1 2 1 1 1 1 1

Cloud 2 2 2 1 2 -

Total Score 33 29 21 17 15 15 12 11 11 10 10 10 9 9 8 7 7 7

2x 1x


17 May 2012

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The Four-Screen Scenario may never materialize for some We realize that the vision laid out here may not come to fruition for any number of reasons. First, the technical capabilities required to bring these together are quite disparate. They include a range of expertise in hardware, software, and internet services. Second, the market for four consumer electronic devices united by a common OS and cloud service may not be as large as we imagine. Consumers may not prove overly compelled by the ability to reach their music or photo collection on their TV or their movie library on their phone. Third, the investments required to play and succeed in all four categories are large – and many vendors’ pockets these days are not so deep. Finally, we consider the possibility that the owner or aggregator of the content becomes the most critical brand. Netflix, Pinterest, or Pandora might run on every platform, negating the value of our four-screen scenario. Nevertheless, we believe the vision we present here is one shared by many of the leading players today, including Apple, Microsoft, and Nokia. We consider the positioning of the leading hardware, software, and internet players below.

Vendor implications: Apple, Google, and Microsoft the furthest ahead – Samsung, RIM not far behind Apple (score = 33): The trailblazer of the four-screen ecosystem that is hard to beat Apple is clearly a leader of the integrated four-screen system. We believe that what cements Apple’s position is the integrated software ecosystem that ranges from personal media players to tablets to mobile phones. The combination of the App store and iCloud makes the Apple ecosystem very “sticky,” as it becomes highly advantageous to use these services within all devices in the Four-Screen Scenario. For example, all the songs that are purchased on an iPod nano or iPod touch can be transferred to an iPhone or Mac via iCloud or iTunes. Furthermore, while Apple has not yet entered the consumer television space, its current Apple TV offering allows users to access their content from an array of devices and to mirror their iPads and personal computers wirelessly to their television. Therefore, although Apple is not presently in the TV business, the Apple TV allows the company to infiltrate the TV screen via its dominance of the other three screens. We believe any future Apple television would be able to seamlessly access content from any Apple device (Macs, iPads, iPhone, iPod Touch) and from iCloud and iTunes – and we expect this product to become a reality at some point in 2013. We believe that Apple’s leadership in devices, app development and software makes them tough to beat in the Four-Screen Scenario. Apple has a content distribution platform that is directly linked to its hardware – and seems to be working on major enhancements with new partners. We look forward to hearing a lot more about Apple’s ecosystem at its WWDC on June 11, 2012, where we expect the company to release innovations that keep it well ahead of new Windows releases that are slated for the fall. It is important to note that new Macbook Airs, the new Mac OS X Mountain Lion, a new iOS and a new iPhone 5 should all ship before Windows 8 even gets off the ground.

Google (score = 29): Android and smart TVs driving a connected Google ecosystem Through the proliferation of Android and smart TVs, we believe Google is one of the companies best positioned to make the four-screen thesis a reality. It has a strong position in smartphones and a growing position in the tablet market via Android, which we believe 17 May 2012

26


will build with continued adoption of Ice Cream Sandwich, an operating system that facilitates easier development across tablets and phones. Google is also well-positioned in PC via both its dominant share in desktop search and its Chrome web browser. Finally, as smart TVs grow in popularity in the coming years, we expect that Google will be able to extend its reach to the television market as viewers watch YouTube clips and browse the web from their living rooms.

Microsoft (score = 21): Strength in software leveraged across all segments Microsoft is one of the few competitors that could offer a complete four-screen experience along with its hardware partners. With Windows Phone, the strong PC franchise, the upcoming tablet offerings and TV connectivity through Xbox, combined with a cloud offering to connect all devices via the new ‘Microsoft account’ (replacing Windows Live), Microsoft has many pieces of the puzzle in place. Microsoft’s search engine, Bing, and recent Skype acquisition are incremental offerings that can aid in bridging the different devices and further enhance the unified user experience. With the exception of Xbox, the company continues to be a pure software player that will work with hardware vendors like Samsung or Nokia to create a broad ecosystem. On paper many parts of Microsoft’s strategy are visible, but the company still needs to deliver some key products before a true four-screen experience is possible. The main product here is obviously Windows 8 and its new Metro style user interface. For the first time, Microsoft will be enabled to make a bigger push into the tablet market, the fastest growing of the four screens. The Metro style interface will be standard across phones, tablets and PCs, and hence will represent an important step toward unifying the user experience. However, just launching the new Windows 8 products will not be enough as Microsoft’s experience in the mobile phone market demonstrates. The new generation of Windows phones, including Nokia’s Lumia series, are innovative new products, but so far have not managed to create the level of sales momentum required to compete effectively against the dominance of the Android and Apple phones. Only post the launch of Microsoft W8 tablets later this year will we see if the company has managed to deliver its vision on time to be able to stage a comeback. We would also expect a tighter integration between the various cloud services the company is offering; this will likely be another feature of the Windows 8 launch later on this year.

Samsung (score =17): Windows 8 to strengthen position; software however behind We believe Samsung Electronics (SEC) should be one of the global leaders in the multiscreen convergence along with Apple. We think Samsung strength is based on strong presence in hardware space, especially in TV (global No. 1 with market share of 22% but much higher share in the smart TV segment), smartphone (global No. 1 with market share of 31% in 1Q12). The company does not have a dominant presence in tablet PCs and PCs yet; however, we expect upcoming Windows 8 will provide the company with the key catalyst for penetration into the tablet PC market starting from 2013. One notable change is that Samsung has finally started to focus on the software capability in its flagship smartphone the Galaxy S III on top of continued strength in the hardware. And the efforts include the significant improvement in user interface and the integration of multi devices. For example, S-Beam, which is WiFi synchronized NFC (Near Field Communication), makes the data transfer between smartphone and smartphone or between smartphone and TV much easier and fast. 17 May 2012

27


However, relative weakness on the software side, especially in OS and content, remains the bottleneck; therefore we expect it may consider a strategic alliance with OS or content providers to overcome this issue. We think Microsoft would be one of the best partners for SEC to play out the convergence between PC and handset on the PC side, while SEC should be one of the best partners for Microsoft to strengthen its market status in smartphone.

RIM (score =15): Many puzzle pieces, but the whole is less than the sum of the parts RIM has assembled many of the critical elements of the four-screen vision – the hardware, the OS, and most interestingly a proto cloud service with the Network Operations Center (NOC). We consider RIM’s NOC to be a key differentiator and while it is mostly used as a means to push and compress data, its use can expand far beyond its current form as we have initially seen with BlackBerry Music. Nonetheless, RIM has not been able to integrate these elements into a cutting edge, compelling experience. The lack of competitiveness of its hardware platform coupled with a stalling ecosystem has led to significant share loss across its core smartphone business. Management still faces many challenges ahead. Its BlackBerry 10 devices are not due to launch until early fall, which leaves RIM caught between the Playbook OS and BB7. The mediocre response to the Playbook looks unlikely to reverse itself in the near term. Developer interest has declined, which makes it harder for RIM to shape a consistent and compelling user experience. While RIM appears to have some of the right elements in place, its whole is less than the sum of the parts. We believe the BlackBerry 10 phones are RIM’s next opportunity to reclaim a position as a credible participant. However, we do not expect RIM to participate in the PC or TV market.

Sony (score =15): Competitive position in hardware – though weakening, not enough Sony has a well-established position in many of the hardware categories. It is a leader in TVs and PCs, and now an established player in the smartphone market with the consolidation of Sony Ericsson to core Sony. Sony's initial forays into the Android tablet market have been well reviewed. However, we believe Sony is not well positioned to capitalize on its hardware strengths. The company is struggling with profitability in the TV and mobile phones units, and thus management may not have the focus to pursue the Four-Screen Scenario.

HTC (score =9): Transition in the process, but competition remains the issue HTC has revamped its product line-up and brought its new “One” series models to the market for a strong rebound in 2Q12. While we expect HTC to see strong revenue growth in 2Q12 as it is ahead of its competitors in terms of flagship models, we continue to believe that more structural issues will cap the upside from there. First, competition in the high-end smartphone market will intensify when its major competitors Samsung and Apple launch their next flagship models in late 2Q12/3Q12. In addition, tier-two brands are catching up quickly with similar hardware specs but at lower prices. Second, HTC management indicated that they will try to diversify their revenues geographically, with more contribution from Asia and less from the U.S. While this is a reasonable move in the face of emerging market demand, the product mix for Asia is more skewed toward the mid- to low-end side. Though we do not believe that HTC will completely lose its brand image, these two factors will have a negative impact on either revenue or margins, and thus lead to our neutral stance on the company.

17 May 2012

28


In the near term, we do not expect HTC to move beyond current smartphone and tablet business due to its lack of competence and scale in making notebooks and larger screen devices. Even in tablets, HTC has struggled with selling the product without attractive hardware specs and prices. In addition, HTC's target in keeping current OPM (above 10%) implied limited interests in expanding out of smartphones in light of industry competition. In our view, it addresses the risks on HTC as a single product company, against the trend of convergence which might change the landscape in the smartphone industry.

Nokia (score =9): Inability to translate its dominance in mobile phones leaves it poorly positioned Nokia, up until 1Q12, has led the market in total handset shipments. It was also this quarter last year that it last held the lead position in the smartphone market. Despite its historical dominance, albeit declining, the company has not been able to translate this to current success. The Lumia launch, while mostly on track, generated only a mediocre response globally. We do not consider the two million units shipped in 1Q to be the hallmark of a rising platform. This lack of progress extends to its OS, apps, and cloud. We believe Nokia does have a tablet in development, but it is unlikely to launch before the end of the year. Nokia’s recovery now appears to be wholly dependent on the success of the Windows Phone platform. True success would likely require it to become the dominant player in the Windows ecosystem as Samsung is in the Android ecosystem. We consider Nokia’s focus on transforming its core phones business a barrier to pursuing the Four-Screen Scenario.

Amazon (7): Pieces beginning to fall into place Amazon has many of the pieces in place to drive connectivity among the four screens via its Kindle Fire, Amazon Prime streaming video offering, and App store. The Kindle Fire has emerged as a popular, economical alternative to Apple’s iPad offerings in the tablet arena, with a diverse suite of apps and games. Amazon’s Kindle e-reader, which perhaps could even be considered a “fifth screen,” has also been a big success and has taken a dominant share of the e-book market. In addition, Amazon’s partnership with Sony, which enables the use of its Prime streaming video service on Bravia televisions and PS3s, has helped Amazon extend its reach to the living room. Finally, Amazon has exposure to the smartphone market via its App store for Android, which provides a marketplace for Android users to purchase apps and games.

Huawei (score =7): Rising presence in the global devices market We expect the launch of the latest Ascend D1 Q and the previously launched Ascend P1/P1S models to strengthen Huawei’s high-end smartphone line-up starting from 2Q12 and this should lower its dependence on the low-end smartphone segment, which is under intense pricing and margin pressure. Huawei’s overall smartphone shipments are expected to post close to 100% y/y growth in 2012, up from close to 20mn units in 2011. Huawei also launched some tablet models but they have not been successful. We expect Huawei would still be an established low-priced smartphones player while it may not be able to penetrate into another category at least in the near term. Its newly established Enterprise division (focusing on cloud computing) has shown little progress over the past year. In the near term, we do not expect Huawei to expand beyond smartphones and tablets, with smartphones being their primary focus. Management has not cited any interest in entering the PC or TV market. While the company has made some investments into cloud computing, we have seen limited progress to date.

17 May 2012

29


ZTE (score =7): Focus remains on smartphones Unlike Huawei, putting more focus on killing products, ZTE pursues a more balanced smartphone portfolio by launching both Android and Windows Phone models of different price ranges. The company is likely to focus on its brand awareness and we expect the company to market more of its smartphones under its own brand names. We believe ZTE’s refreshed smartphone line-up and marketing of its own branded products will help sustain its shipment momentum and its position in the low-end smartphone segment. We expect ZTE, same as Huawei, is likely to post close to 100% smartphone shipment growth in 2012, up from around 13-15 million in 2011. However, the intense pricing and margin pressure in the low-priced smartphone segment will still be an overhang for ZTE’s share price in the near term. ZTE also launched some tablets but, like Huawei, the products were not wellreceived by the market. ZTE has also announced its intention to invest in cloud computing but so far it has shown little or none progress. Similar to Huawei, we do not expect ZTE to expand beyond smartphones and tablets in the near term. Again, management has not cited any interest in entering the PC or TV market.

17 May 2012

30


SECTOR PERFORMANCE, MODELS AND CHARTS We highlight the performance of the tech sector as well as specific industries compared to the market and relevant industries. We have also included some industry models along with a list of some of the leaders and laggards in selected sectors of the technology industry. Figure 21: The S&P 500 Information Technology sector has generally outperformed YTD

125 120 115 110 105 100

S&P 500 S&P 500 / Information Technology S&P 500 / Health Care S&P 500 / Telecommunications Services

May-12

Apr-12

Mar-12

Feb-12

Jan-12

95

S&P Small Cap 600 / Information Technology S&P 500 / Financials S&P 500 / Industrials

Source: FactSet

The figure below summarizes group valuations relative to historical averages across the tech sector for both price to earnings and enterprise value to sales ratios. The majority of the Barclays Global technology sectors are trading below their five-year P/E averages. Figure 22: Barclays Global Technology composite valuations by sub-sector Barclays Global Technology Composites S&P 500

P/E FY1 P/E FY2 5-Yr Avg.

EV/FWD Sales

5-Yr Avg.

13x

12x

15x

NM

NM

20x

17x

20x

3.5x

4.3x

Telecommunications

17x

15x

13x

2.9x

2.7x

Electronic Components

15x

13x

20x

0.9x

0.9x

IT Services

15x

13x

14x

3.2x

2.8x

Software

14x

13x

14x

3.3x

3.6x 2.0x

Internet

Semiconductor Capital Equipment

14x

12x

16x

1.8x

Precision Instruments

14x

11x

16x

0.8x

0.8x

Display

12x

11x

11x

1.2x

2.7x

Semiconductors

13x

11x

14x

2.3x

2.8x

Handsets

12x

10x

13x

1.8x

2.3x

Carrier Equipment

11x

10x

13x

1.0x

1.8x

Enterprise Networking

11x

10x

14x

1.6x

2.2x

Hardware

11x

10x

12x

1.9x

1.6x

Clean Technology

9x

9x

13x

1.3x

2.4x

EMS (Contract Manufacturing)

11x

9x

11x

0.4x

0.5x

Distributors

8x

7x

9x

0.2x

0.2x

Source: FactSet, Barclays Research

17 May 2012

31


Expect IT spending growth in low single digits through 2012; still favor storage, software The Barclays tech team forecasts global IT spending growth in the lower to mid single digits for the remainder of 2012. Our estimate is supported by recent checks and the results from our bi-annual CIO surveys for the U.S. and Europe, as well as our regional analysis of key markets. Our colleagues in global economics research, led by Piero Ghezzi, forecast 2012 global real GDP growth of 3.6% and 2013 growth of 4.1% (see Global Economics Weekly: Where next for Europe?, published May 11, 2012). We look for global IT spending growth to be relatively in line with global GDP growth in the near term. However, we still expect IT spending to outpace GDP growth over the long term. Recent industry checks suggest that IT spending is relatively steady heading into the second half of 2012 with the first half prospects weaker than those in 2H12 given prospects for new product cycles. Furthermore, we are looking for some product refresh cycles to help boost general demand toward the end of the year. We also see Big Data driving continued software demand, especially in data analytics. For 2013, we believe IT spending can still grow in the mid single digits.

The Barclays tech team forecasts global IT spending growth in the low-single digits through 2012

We have included key forecasts from our various teams on the following pages: Figure 23: Worldwide PC unit model Units in (000) Calendar Year Worldwide Y/Y Q/Q U.S.

Y/Y Q/Q % of Total Western Europe

2009 315,117 5.1%

2010 358,157 13.7%

2011 364,527 1.8%

1Q12 89,066 4.6% -7.4%

2Q12E 90,176 4% 1.2%

3Q12E 98,470 2% 9.2%

4Q12E 98,423 2% 0.0%

2012E 376,135 3.2%

1Q13E 90,411 2% -8.1%

2Q13E 91,030 1% 0.7%

3Q13E 99,929 1% 9.8%

4Q13E 100,897 3% 1.0%

2013E 382,267 1.6%

2014E 388,216 1.6%

2015E 392,785 1.2%

71,395

75,333

71,650

16,424

17,673

18,152

18,561

70,810

16,383

17,637

18,099

18,493

70,613

70,011

69,241

9%

6%

-5%

-1% 8% 20%

-3% 3% 18%

0% 2% 19%

-1%

0% 8% 19%

0% 3% 18%

0% 2% 18%

0%

-1%

-1%

23%

21%

20%

0% -12% 18%

19%

0% -12% 18%

18%

18%

18%

68,186

71,237

60,947

15,032

12,778

15,366

17,686

60,861

14,796

12,522

15,192

17,999

60,509

60,417

60,017

1%

4%

-14%

1% -15% 14%

0% 20% 16%

-1% 15% 18%

0%

-2% -15% 14%

-1% 21% 15%

2% 18% 18%

-1%

0%

-1%

22%

20%

17%

-1% -16% 17%

16%

-2% -16% 16%

16%

16%

15%

13,920

16,321

15,750

4,354

3,590

3,639

3,639

15,221

4,231

3,559

3,505

3,596

14,892

14,358

13,878

Y/Y Q/Q % of Total

-4%

17%

-3%

-7% 0% 4%

-1% -16% 4%

-4% -2% 4%

-1% 3% 4%

-3%

4%

-3% 16% 5%

-4%

4%

-9% 1% 4%

-2%

5%

-8% -18% 4%

-3%

4%

10% 11% 5%

4%

4%

4%

Asia Pacific

93,361

111,083

122,830

30,311

32,583

34,368

31,085

128,347

31,041

33,352

35,206

31,988

131,587

134,854

137,748

Y/Y Q/Q % of Total

17%

19%

11%

4% 5% 35%

3% -10% 32%

2% 7% 37%

2% 6% 35%

3% -9% 32%

2%

34%

2% 0% 34%

2%

34%

5% 7% 36%

3%

31%

6% 1% 34%

4%

30%

34%

35%

35%

68,256

84,182

93,350

22,945

23,553

26,944

27,453

100,895

23,959

23,959

27,926

28,821

104,666

108,575

111,902

-5%

23%

11%

7% 2% 28%

4% -13% 27%

2% 0% 26%

4% 17% 28%

5% 3% 29%

4%

3%

26%

8% 14% 27%

4%

24%

10% 3% 26%

8%

22%

9% -11% 26%

27%

28%

28%

Y/Y Q/Q % of Total Japan

Rest of World

Y/Y Q/Q % of Total

27%

Source: IDC, Gartner and Barclays Research

17 May 2012

32


Figure 24: Worldwide x86 server unit model (in ‘000) Calendar Year Worldwide

Y/Y Q/Q

2009 6,534 -16%

2010 7,650 17%

U.S.

Y/Y Q/Q % of Total

4Q11 2,135 3% 6%

2011 8,000 5%

1Q12 2Q12E 3Q12E 1,946 1,981 2,100 3% 1% 4% -9% 2% 6%

4Q12E 2,233 5% 6%

2012E 8,260 3%

2013E 8,463 2%

2014E 8,531 1%

2015E 8,500 0%

2,880

640

700

715

720

2,775

685

740

769

785

2,979

3,072

3,079

3,013

22%

-3% 2% 35%

-3% 1% 34%

6% 8% 37%

8% 4% 37%

9% 2% 35%

3%

0%

-2%

35%

7% -5% 35%

7%

38%

-5% 9% 36%

-4%

36%

-4% -14% 34%

36%

36%

36%

35%

1,495

1,645

415

387

382

450

1,634

387

360

371

437

1,555

1,518

1,473

1,432

-20%

10%

-2% -1% 19%

-2% 18% 21%

-7% -7% 18%

-3% 3% 18%

-3% 18% 20%

-2%

-3%

-3%

20%

-7% -14% 20%

-5%

22%

2% -7% 20%

-1%

23%

0% -10% 22%

19%

18%

17%

17%

499

540

135

124

145

125

529

143

107

134

121

505

484

465

448

-12%

8%

4% 17% 7%

-4% -14% 6%

-14% -25% 5%

-8% 25% 6%

-3% -10% 5%

-4%

-4%

-4%

7%

6% 14% 7%

-5%

7%

8% -8% 6%

-2%

8%

-13% 4% 7%

6%

6%

5%

5%

1,315

1,580

430

490

505

540

1,965

460

506

536

574

2,076

2,189

2,278

2,355

-6%

20%

28% 3% 25%

19% 7% 25%

7% -15% 24%

3% 10% 26%

6% 6% 26%

6% 7% 26%

6%

5%

4%

3%

21%

29% 14% 25%

24%

20%

23% -5% 23%

25%

26%

27%

28% 1,253

Asia Pacific

Y/Y Q/Q % of Total Rest of World

Y/Y Q/Q % of Total

3Q11 2,022 6% 3%

2,370

Japan

Y/Y Q/Q % of Total

2Q11 1,958 6% 4%

-15%

Western Europe

Y/Y Q/Q % of Total

1Q11 1,885 4% -9%

25%

855

1,005

265

257

275

300

1,097

271

268

290

316

1,145

1,201

1,236

-25%

18%

12% 7% 14%

2% 9% 14%

2% -10% 14%

4% -1% 14%

5% 8% 14%

5% 9% 14%

4%

5%

3%

1%

13%

12% -3% 13%

9%

13%

13% -10% 14%

14%

14%

14%

15%

14%


Figure 25: Worldwide printer unit model (in ‘000) Calendar Year Worldwide

Y/Y Q/Q U.S.

Y/Y Q/Q % of Total Western Europe

Y/Y Q/Q % of Total Japan

Y/Y Q/Q % of Total AP & ROW

Y/Y Q/Q % of Total

2009 2010 108,370 120,975 -12% 12%

1Q11 29,690 7% -16%

2Q11 27,675 -1% -7%

3Q11 30,070 1% 9%

4Q11 2011 33,695 121,130 -4% 0% 12%

1Q12E 28,720 -3% -15%

2Q12E 27,342 -1% -5%

3Q12E 29,714 -1% 9%

4Q12E 2012E 2013E 2014E 2015E 34,789 120,566 120,415 119,122 117,990 3% 0% 0% -1% -1% 17%

26,010

27,790

6,200

5,800

6,525

7,440

25,965

5,903

5,846

6,404

7,315

25,468

24,854

23,962

23,138

-9%

7%

-4% 13% 22%

-9% 14% 22%

1% -1% 21%

-2% 10% 22%

-2% 14% 21%

-2%

-4%

-3%

21%

-5% -21% 21%

-2%

23%

-11% -6% 21%

-7%

24%

-2% -24% 21%

21%

21%

20%

20%

25,585

26,510

6,605

5,230

6,325

8,025

26,185

6,322

5,289

6,168

8,216

25,994

25,609

25,171

24,611

-11%

4%

0% 21% 21%

-3% 27% 24%

1% -16% 19%

-2% 17% 21%

2% 33% 24%

-1%

-2%

-2%

22%

-4% -21% 22%

-1%

22%

-6% -21% 19%

-1%

24%

4% -20% 22%

22%

21%

21%

21%

7,180

7,460

1,560

1,595

1,585

2,865

7,605

1,745

1,618

1,515

2,800

7,678

7,524

7,321

7,087

-7%

4%

1% 2% 6%

8% -1% 5%

3% 81% 9%

2%

1% -7% 6%

-4% -6% 5%

-2% 85% 8%

1%

-2%

-3%

-3%

7%

6%

-5% -44% 5%

6%

12% -39% 6%

6%

6%

6%

6%

49,595

59,215

15,325

15,050

15,635

15,365

61,375

14,750

14,589

15,628

16,458

61,425

62,428

62,668

63,154

-15%

19%

3% 4% 52%

-4% -2% 46%

-4% -4% 51%

-3% -1% 53%

0% 7% 53%

7% 5% 47%

0%

2%

0%

1%

49%

4% -2% 54%

4%

46%

13% -5% 52%

51%

52%

53%

54%

51%


17 May 2012

33


Figure 26: Worldwide external storage model Value in $M Calendar Year

2009

2010

2011

2012E

1Q13E

2Q13E

3Q13E

4Q13E

ESTIMATES 2013E

1Q14E

2Q14E

3Q14E

4Q14E

2014E

2015E

Worldwide External Storage

Value Y/Y Q/Q

DAS

Y/Y Q/Q DAS % of $ Ttl SAN

Y/Y Q/Q SAN % of $ Ttl NAS

Y/Y Q/Q NAS % of $ Ttl iSCSI

Y/Y Q/Q iSCSI % of $ Ttl

$ 17,961 $ 21,287 $ 23,570 $ 25,411 $ 6,368 $ 6,523 $ 6,743 $ 7,804 $ 27,438 $ 6,915 $ 7,046 $ 7,243 $ 8,392 $ 29,596 $ 31,936 -10.6% 18.5% 10.7% 7.8% 8.0% 7.9% 7.9% 7% 7% 8% 10% 9% 8% 7% 8% -11% 2% 3% 16% -11% 2% 3% 16%

$ 3,475 $ -16%

19%

3,023 $ -13%

2,699 $ -11%

2,351 $ -13%

526 $ -16% -13%

468 $ -15% -11%

502 $ -13% 7%

527 $ -13% 5%

2,023 $ -14%

464 $ -12% -12%

399 $ -15% -14%

415 $ -17% 4%

452 $ -14% 9%

1,730 $ -14%

14%

11%

9%

8%

7%

7%

7%

7%

7%

6%

6%

5%

6%

1,515 -12%

5%

$ 9,146 $ 10,357 $ 11,841 $ 13,006 $ 3,322 $ 3,355 $ 3,455 $ 4,077 $ 14,209 $ 3,576 $ 3,612 $ 3,720 $ 4,390 $ 15,297 $ 16,425 9% 9% 9% 9% 8% 8% 8% 8% -17% 13% 14% 10% 9% 8% 7% -11% 1% 3% 18% -12% 1% 3% 18% 51% $ 3,534 $ 4% 20% $ 1,806 $ 21% 10%

49%

50%

51%

5,280 $ 49%

5,873 $ 11%

25%

25%

25%

2,627 $ 45%

3,157 $ 20%

3,706 $ 17%

12%

13%

15%

52%

51%

51%

52%

6,349 $ 1,555 $ 1,648 $ 1,723 $ 1,998 $ 8% 5% 7% 9% 14% -11% 6% 5% 16%

24%

25%

26%

26%

965 $ 1,052 $ 1,063 $ 1,201 $ 18% 13% 16% 16% -7% 9% 1% 13% 15%

16%

16%

15%

52%

52%

51%

51%

52%

6,924 $ 1,758 $ 1,829 $ 1,902 $ 2,187 $ 9% 13% 11% 10% 9% -12% 4% 4% 15% 25%

25%

26%

26%

26%

4,282 $ 1,117 $ 1,206 $ 1,206 $ 1,363 $ 16% 16% 15% 13% 13% -7% 8% 0% 13% 16%

16%

17%

17%

16%

52% 7,676 $ 11% 26% 4,893 $ 14% 17%

51% 8,473 10% 27% 5,524 13% 17%


17 May 2012

34


Figure 27: Barclays Global Economic forecasts Real GDP % over previous period, saar Global Developed Emerging BRIC America United States Canada Latin America Argentina Brazil Chile Colombia Mexico Peru Venezuela Asia/Pacific Japan Australia Emerging Asia China Hong Kong India Indonesia South Korea Malaysia Philippines Singapore Taiwan Thailand Europe and Africa Euro area Belgium France Germany Greece Ireland Italy Netherlands Portugal Spain United Kingdom Switzerland EM Europe & Africa Czech Repub. Hungary Poland Russia Turkey Israel South Africa

4Q11 2.9 0.8 5.1 7.4 2.6 3.0 1.8 1.9 0.0 1.4 4.0 3.5 1.7 4.3 4.9 4.3 -0.7 1.7 5.4 8.9 1.5 4.8 8.3 1.3 6.6 5.6 -2.5 -0.6 -36.4 1.2 -1.2 -0.3 0.6 -0.7 -20.7 -0.8 -2.6 -2.5 -5.0 -1.2 -1.2 0.0 7.3 -0.5 0.9 4.6 11.0 7.2 3.2 3.2

1Q12 3.5 1.2 5.8 6.1 2.6 2.2 2.5 3.5 5.6 2.8 5.9 4.5 2.7 4.9 3.8 6.7 3.5 1.6 7.5 6.3 4.1 9.7 5.4 4.1 4.0 4.6 5.0 1.6 43.0 -0.1 -0.7 1.1 0.4 0.3 -6.6 0.7 -2.9 -0.9 -4.9 -1.4 -1.1 0.4 1.5 -0.1 -1.4 3.5 1.5 0.3 1.9 2.8

2Q12 3.7 1.5 6.1 7.2 3.1 2.5 2.5 4.9 7.4 5.5 3.2 6.0 2.9 6.0 4.8 6.5 2.2 2.4 7.5 7.4 4.1 9.7 5.4 3.6 5.0 0.7 5.4 8.4 13.0 0.5 -0.2 0.6 0.2 1.2 -4.5 1.8 -0.6 -0.6 -4.0 -3.3 0.6 0.4 1.9 0.7 -1.5 1.7 2.7 0.8 1.8 2.9

Real GDP % annual chg

3Q12 4Q12 2011 4.2 4.4 3.8 2.0 2.0 1.3 6.5 6.7 6.4 7.6 7.8 7.5 3.6 3.4 2.5 3.0 3.0 1.7 2.5 2.5 2.5 5.3 4.7 4.4 4.0 4.0 8.8 6.8 5.3 2.7 2.5 3.9 6.3 6.6 5.0 5.8 3.8 3.9 3.9 6.3 5.8 6.9 5.3 5.4 4.2 7.0 7.0 5.9 3.0 3.0 -0.7 2.8 2.4 2.0 7.9 8.0 7.4 9.5 10.4 9.2 5.3 5.3 5.0 5.4 3.8 7.1 6.2 7.6 6.5 4.9 4.5 3.6 6.0 6.0 5.1 8.1 7.8 3.7 6.2 7.2 4.9 9.7 6.3 4.0 8.0 8.0 0.1 0.9 1.5 2.3 -0.1 0.3 1.5 0.3 1.0 1.9 0.6 0.8 1.7 1.2 1.8 3.1 -3.0 -0.9 -6.9 3.2 2.5 0.7 -0.6 -0.4 0.5 0.6 0.9 1.3 -2.0 -2.1 -1.6 -4.5 -4.1 0.7 3.5 ↓ 1.6 ↓ 0.7 0.8 0.4 2.0 1.7 3.9 4.8 1.2 1.4 1.5 -0.5 0.6 1.7 -3.0 3.8 4.3 2.7 5.1 4.3 2.7 3.0 8.4 2.3 2.9 4.9 3.1 3.4 3.1

2012 2013 4Q11 3.6 4.1 3.9 1.4 1.9 2.7 5.7 6.3 6.0 6.9 7.4 5.9 2.8 3.0 4.4 2.4 2.5 3.3 2.4 2.3 ↑ 2.7 3.8 4.2 8.3 4.7 4.2 22.9 3.3 4.7 6.7 4.0 4.7 4.0 5.4 4.9 3.9 3.2 3.3 3.5 5.8 6.0 4.5 4.9 2.2 27.4 6.0 6.5 3.4 2.5 1.9 -0.1 2.4 2.8 3.1 6.9 7.5 5.0 8.1 8.4 4.6 3.0 3.5 5.7 6.9 7.7 9.0 6.2 6.6 4.1 3.5 4.5 4.0 5.0 6.5 3.2 4.2 5.0 4.7 3.0 4.8 5.5 3.5 6.0 1.4 4.5 4.5 4.0 0.8 1.9 3.7 -0.3 0.9 2.9 0.5 1.0 3.4 0.5 1.2 2.6 0.8 1.8 2.6 -7.7 -1.3 2.6 0.7 2.2 1.5 -1.5 0.1 3.7 -0.9 1.1 2.6 -3.7 -2.1 3.8 -2.0 -0.5 2.7 0.4 ↓ 2.1 ↓ 4.7 0.5 1.1 0.1 3.3 3.7 6.3 0.3 2.0 2.1 0.1 1.7 3.6 2.7 2.5 4.1 4.3 4.5 6.9 3.2 3.8 9.2 2.5 3.7 2.5 2.7 3.6 6.1

Consumer prices % over a year ago 1Q12 3.3 2.3 5.1 4.6 3.9 2.8 2.3 7.8 24.1 5.8 4.2 3.6 3.9 4.1 25.5 2.7 0.1 1.6 4.0 3.8 4.9 6.8 3.7 3.0 2.5 3.2 4.8 1.3 3.4 3.2 2.7 3.2 2.6 2.4 1.7 1.7 3.6 2.9 3.3 1.9 3.5 -0.5 5.2 3.0 4.8 3.6 4.0 10.5 1.8 6.1

Consumer prices % annual chg

2Q12 3Q12 2011 3.0 3.0 3.9 1.9 1.8 2.6 4.9 5.0 6.3 4.1 4.2 6.7 3.3 3.3 ↓ 4.3 1.9 ↓ 1.8 ↓ 3.2 2.0 ↑ 2.3 2.9 7.6 7.9 8.1 25.4 26.8 23.5 5.1 5.4 6.6 4.0 4.6 3.3 4.0 4.1 3.4 4.0 4.1 3.4 3.7 3.2 3.4 25.4 25.5 26.1 2.5 2.5 3.7 0.0 0.1 -0.2 1.3 1.3 3.4 3.8 3.7 5.6 3.0 2.9 5.4 2.7 2.7 5.3 6.9 6.7 9.5 6.3 6.6 5.4 2.9 3.0 4.0 2.2 2.3 3.2 3.1 3.8 4.8 4.7 3.0 5.2 1.9 2.6 1.4 3.2 3.3 3.8 3.1 3.1 3.6 2.5 2.3 2.7 2.8 2.5 3.5 2.4 2.2 2.3 2.1 1.9 2.5 1.4 1.5 3.1 2.1 2.0 1.2 3.7 3.0 2.9 2.7 2.5 2.5 2.7 2.5 3.6 2.0 2.2 3.1 3.4 3.3 4.5 -0.2 0.3 0.3 5.1 5.8 6.4 3.5 3.5 1.9 5.3 5.8 3.7 3.1 3.3 3.7 4.2 5.2 8.6 9.6 10.1 6.5 2.0 2.3 3.4 6.1 6.4 5.0

2012 2013 3.1 3.2 2.0 1.9 5.0 5.5 4.3 5.2 3.5 3.8 2.2 ↓ 2.4 2.3 2.1 ↓ 7.8 8.4 26.1 28.4 5.4 6.0 4.2 3.3 3.9 3.5 3.9 3.9 3.5 2.7 26.3 31.4 2.6 3.2 0.1 0.1 1.5 2.5 3.9 4.5 3.2 4.5 3.5 3.5 6.8 6.1 6.0 6.1 3.2 3.2 2.4 2.0 3.4 3.7 3.7 2.3 2.0 2.0 3.4 3.2 3.1 2.6 2.4 1.9 2.7 2.0 2.2 2.0 2.0 1.7 1.5 1.4 1.9 0.9 3.2 2.6 2.8 ↑ 3.4 ↑ 2.6 0.8 2.0 1.3 3.3 2.6 ↑ 0.0 0.5 5.4 5.1 3.4 2.0 5.3 3.4 3.3 3.0 4.8 5.7 9.4 6.4 2.2 2.2 6.2 5.8

Note: Arrows appear next to numbers if current forecasts differ from that of the previous week by 0.5pp or more for quarterly annualized GDP, by 0.2pp or more for annual GDP and by 0.2pp or more for Inflation. Weights used for real GDP are based on IMF PPP-based GDP (5yr centred moving averages). Weights used for consumer prices are based on IMF nominal GDP (5yr centred moving averages). Source: Barclays Research Source: Barclays Global Economics Team. For more information please see the report published May 11, 2011, titled: “Global Economics Weekly: Where next for Europe?”

17 May 2012

35


Status quo: Still robust smartphone growth, tablets still led by iPad Smartphones remain a standout and are expected to grow by 46% in 2012, to more than 688 million units.

We believe smartphones remain a standout in terms of growth prospects for 2012. Our Wireless Equipment team is calling for a 46% increase in smartphone units in 2012 to more than 688 million units, with total handset units still expected to expand 8% in 2012 to 1.71 billion units. Meanwhile, Apple's third-generation iPad has cemented the tablet as a vibrant new growth category in computing, with some major upgrades possible in 2H12. We expect Apple to increase its lead over the course of the year. We forecast 101 million tablet units will be sold in 2012, which includes about 62 million iPad units (61% share). This tablet forecast doesn’t even include prospects for Apple to launch a 7” tablet.

Figure 28: Worldwide tablet model Units in (000) Apple iPad Forecast q/q change y/y change % Unit Share Other Tablets q/q change y/y change Total Tablet Forecast q/q change y/y change

2010 14,789

ASP ($) Apple iPad Forecast q/q change y/y change Other Tablets q/q change y/y change Total Tablet Forecast q/q change y/y change

2010 $ 622

Value (in $ millions) Apple iPad Forecast q/q change y/y change Other Tablets q/q change y/y change Total Tablet Forecast q/q change y/y change

2010 $ 9,194

2011 40,497

82% 3,211

174% 62% 24,620

18,000

667% 65,117

-

262%

410

$

$

584

$

-

$ 10,509 -

2Q12E 14,158 20% 53% 68% 6,720 20% 41% 20,878 -68% 49%

3Q12E 15,857 12% 43% 61% 10,080 50% 34% 25,937 49% 39%

4Q12E 20,138 27% 30% 55% 16,632 65% 58% 36,770 76% 42%

2012E 61,950 53% 61% 39,032 59% 100,982 55%

1Q13E 16,110 -20% 37% 64% 8,898 -47% 59% 25,008 -32% 44%

2Q13E 20,138 25% 42% 67% 10,010 13% 49% 30,148 -70% 44%

3Q13E 22,152 10% 40% 64% 12,213 22% 21% 34,364 37% 32%

4Q13E 26,582 20% 32% 66% 13,800 13% -17% 40,382 34% 10%

2013E 84,981

2014E 101,492

2015E 116,716

37% 65% 44,921

19% 67% 49,414

15% 69% 53,046

15% 129,903

10% 150,906

7% 169,762

29%

16%

12%

2011 $ 577

$

$ 1,315

1Q12 11,798 -24% 151% 68% 5,600 -47% 220% 17,398 -33% 170%

1Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E 2015E $ 525 $ 540 $ 530 $ 510 $ 490 $ 505 $ 505 $ 495 $ 525 $ 499 $ 469 $ 455 -6% 3% -2% -4% -4% 3% 0% -2% -7% -12% -9% -9% -7% -6% -5% -3% -7% -9% -5% -6% -3% 432 $ 380 $ 370 $ 360 $ 350 $ 360 $ 340 $ 340 $ 335 $ 320 $ 332 $ 312 $ 297 -3% -3% -3% -3% -3% 0% -1% -4% 5% -24% -30% -13% -10% -17% -11% -8% -7% -9% -8% -6% -5% 478 $ 485 $ 464 $ 438 $ 437 $ 450 $ 445 $ 435 $ 522 $ 461 $ 441 $ 418 $ 406 -2% -7% -3% -10% 0% -2% 2% -3% -13% -17% -10% -11% -9% -7% -4% -1% -11% -12% -4% -5% -3%

2011 $ 23,383

1Q12E 2Q12E 3Q12E 4Q12E 2012E 1Q13E 2Q13E 3Q13E 4Q13E 2013E 2014E 2015E $ 6,193 $ 7,644 $ 8,403 $ 10,269 $ 32,510 $ 7,893 $ 10,168 $ 11,185 $ 13,157 $ 42,403 $ 47,640 $ 53,143 -28% 23% 10% 22% -23% 29% 10% 18% 134% 35% 30% 19% 27% 33% 33% 28% 154% 39% 30% 12% 12% $ 10,627 $ 2,128 $ 2,486 $ 3,629 $ 5,821 $ 14,064 $ 3,025 $ 3,404 $ 4,091 $ 4,416 $ 14,936 $ 15,395 $ 15,732 -48% 17% 46% 60% -48% 13% 20% 8% 708% 143% -1% 16% 41% 32% 42% 37% 13% -24% 6% 3% 2% $ 34,010 $ 8,321 $ 10,131 $ 12,032 $ 16,090 $ 46,574 $ 10,918 $ 13,572 $ 15,277 $ 17,573 $ 57,340 $ 63,036 $ 68,875 -35% -70% 45% 59% -32% -71% 40% 29% 136% 24% 26% 26% 31% 34% 27% 9% 224% 37% 23% 10% 9%


Figure 29: Global smartphone market model (in millions) Feature & Basic Phones Smartphones

Total Handsets

2003 512 8

2004 660 20

2005 758 54

2006 909 82

2007 1031 122

2008 1086 140

2009 1065 179

2010 1136 283

2011 1109 470

2012E 1025 689

2013E 947 908

2014E 864 1090

520

680 31%

812 19%

991 22%

1,153 16%

1,226 6%

1,244 1%

1,419 14%

1,580 11%

1,714 8%

1,854 8%

1,954 5%

29% 150%

15% 170%

20% 52%

13% 49%

5% 15%

-2% 28% 55%

7% 58% 39%

-2% 66% 42%

-8% 46% 41%

-8% 32% 45%

-9% 20% 44%

3%

7%

8%

11%

11%

14%

20%

30%

40%

49%

56%

YoY Growth Feature & Basic Phones Smartphones 5yr Growth Smartphones Penetration

2%

Source: Gartner and Barclays Research

17 May 2012

36


Hardware the top-performing sector YTD, thanks to Apple Since our last report in December 2011, the tech sector has outperformed the S&P 500 and other broad market indices. The S&P Information Technology index is up about 13% yearto-date (as of 11 May 2012), following about a 1% y/y gain in 2011. Looking at our Barclays Global Technology Composites, many sectors outperformed the market YTD, however lately there has been some weakness compared to the S&P 500. Several sectors have underperformed broader markets in 2Q12 to date like Networking and Carrier Equipment. However, there are a few bright spots, such as the Telecommunications sector, which is up 3.6% QTD, vs the S&P 500 which is down 3.6%. We also highlight performance across all tech areas identifying both sector leaders and laggards. Figure 30: Index performance summary S&P 500 Japan Nikkei 225 Hong Kong Hang Seng Index Taiwan TWSE Index Korea KOSPI Index Singapore Straits Times Index Shanghai Composite UK FTSE 100 Germany DAX Index MSCI Europe Index MSCI The World Index Technology Indices NASDAQ Composite Index Semiconductor HOLDRs Trust (SMH) PHLX / Semiconductor Index (SOX) MSCI Global Technology Index

1-Month % 3-Month % 6-Month % 1-Year % 0.0 1.1 9.5 0.1 -5.5 0.7 6.0 -8.2 -1.9 -4.3 5.4 -16.5 -2.1 -4.8 2.4 -17.1 -2.5 -2.4 7.3 -9.1 -2.6 -1.9 4.2 -8.0 4.5 2.5 -2.8 -16.6 -0.9 -5.3 1.8 -7.9 -1.3 -2.6 11.1 -13.1 -1.7 -5.5 3.3 -14.6 -1.2 -1.4 6.3 -6.9 1-Month % 3-Month % 6-Month % 1-Year % -1.9 1.0 11.8 2.2 -3.0 -3.8 5.9 -10.0 -4.4 -6.8 3.6 -11.9 -4.6 0.9 10.0 2.9

QTD -3.6 -8.0 -2.4 -5.2 -4.2 -3.0 6.2 -2.8 -8.7 -6.0 -4.9 QTD -5.1 -8.2 -10.7 -7.1

YTD % 8.0 6.6 8.9 5.8 6.5 9.7 9.6 -0.5 10.5 0.5 5.1 YTD % 12.6 8.0 7.5 11.7

S&P 500 GICS Sectors Utilities Consumer Staples Health Care Consumer Discretionary Energy Information Technology Industrials Telecommunications Services Materials Financials Barclays Global Technology Composites Telecommunications Internet Hardware Handsets Semiconductors Distributors Display IT Services Semiconductor Capital Equipment Software Electronic Components Precision Instruments EMS (Contract Manufacturing) Clean Technology Carrier Equipment Enterprise Networking

1-Month % 3-Month % 6-Month % 4.6 3.0 3.2 1.9 4.7 9.7 1.1 3.4 10.8 1.9 4.7 15.3 -0.8 -6.4 -3.3 -4.4 1.5 12.3 0.3 -3.1 8.6 8.2 8.1 9.2 -0.3 -5.4 2.7 0.0 2.8 15.9 1-Month % 3-Month % 6-Month % 7.4 7.9 12.3 3.1 8.6 8.6 -5.2 8.4 27.7 -4.2 6.9 13.6 -3.4 2.1 12.0 -2.2 -5.9 9.4 -4.6 -7.6 -2.9 -3.5 2.9 9.9 -3.6 -2.0 8.3 -4.3 -3.2 3.1 -6.3 -0.9 8.1 -7.0 1.1 7.5 -11.0 -8.2 12.4 -5.6 -21.0 -19.1 -11.6 -11.7 -12.1 -12.1 -15.0 -9.1

QTD 2.2 -0.1 -1.7 -1.7 -5.6 -6.3 -4.5 4.4 -5.3 -5.3 QTD 3.6 0.5 -4.3 -5.4 -6.0 -7.1 -7.1 -7.5 -7.6 -7.8 -11.0 -11.6 -14.0 -14.7 -15.9 -18.9

YTD % -0.5 4.6 6.6 13.5 -2.5 13.5 5.6 5.1 4.7 15.0 YTD % 7.7 12.7 24.1 10.3 10.5 4.5 0.6 11.8 9.5 9.9 10.2 4.0 8.1 -12.1 -8.5 -5.3

1-Year % 6.3 7.4 3.3 8.6 -10.6 8.2 -7.2 0.3 -11.4 -7.7 1-Year % 1.9 3.8 24.6 0.2 4.6 -9.5 -37.6 1.2 -8.4 -0.2 -17.1 -11.9 -5.5 -51.1 -23.7 -19.4

Source: FactSet, Barclays Research Data as of 11 May, 2012

17 May 2012

37


Figure 31: Technology sector leaders year to date Sector Semiconductors

Company and Price Return Skyworks Solutions Inc. (57%), NXP Semiconductor (57%)


Advantest Corp. (78%), Aixtron SE (34%)

Display & Lighting

Veeco Instruments Inc. (78%), Cree Inc. (46%)

Software

Misys PLC (49%), Teradata Corp. (47%)

Hardware

Seagate Technology Inc. (90%), Apple Inc. (40%)

Carrier Equipment

Technicolor (37%), Cogo Group Inc. (26%)

Telecommunications

Equinix Inc. (60%), EchoStar Corp. (32%)


F5 Networks Inc. (19%), Arris Group Inc. (16%)

Handsets

Samsung Electronics Co. Ltd. (23%), QUALCOMM Inc. (13%)

IT Services

HiSoft Technology International Ltd. ADS (73%), Lender Processing Services Inc. (64%)

Internet

AOL Inc. (73%), Alibaba.com Ltd. (66%)

Clean Technology

Cree Inc. (46%), Aixtron SE ADS (33%)


ASUSTeK Computer Inc. (39%), Quanta Computer Inc. (28%)

Distributors

SYNNEX Corp. (14%), Avnet Inc. (7%)


Nikon Corp. (44%), Hitachi High-Technologies Corp. (14%)


Taiyo Yuden Co. Ltd. (32%), NHK Spring Co. Ltd. (32%)

Consumer Electronics

Technicolor (37%), Logitech International S.A. (28%)

Source: FactSet. See Figure 16 for relative index performance. Data as of 11 May, 2012.

Figure 32: Technology sector laggards year to date Sector Semiconductors

Company and Price Return Elpida Memory Inc (-100%), MEMC Electronic Materials Inc. (-43%)


MKS Instruments Inc. (-7%), STATS ChipPAC Ltd. (-7%)

Display & Lighting

Nippon Electric Glass Co. Ltd. (-28%), E Ink Holdings Inc. (-26%)

Software

Software AG (-15%), JDA Software Group Inc. (-14%)

Hardware

Lexmark International Inc. (-14%), Hewlett-Packard Co. (-10%)

Carrier Equipment

Powerwave Technologies Inc. (-57%), Nokia Corp. (-33%)

Telecommunications

Frontier Communications Corp. (0%), MetroPCS Communications Inc. (0%)


ShoreTel Inc. (-35%), Riverbed Technology Inc. (-28%)

Handsets

InterDigital Inc. (-39%), Nokia Corp. (-33%)

IT Services

Green Dot Corp. Cl A (-27%), Higher One Holdings Inc. (-20%)

Internet

Gree Inc. (-46%), WebMD Health Corp. (-42%)

Clean Technology

MEMC Electronic Materials Inc. (-43%), A123 Systems Inc. (-36%)


Foxconn International Holdings Ltd. (-29%), LARGAN Precision Co. Ltd. (-17%)

Distributors

Arrow Electronics Inc. (-1%), Ingram Micro Inc. (Cl A) (3%)


FUJIFILM Holdings Corp. (-10%), Seiko Epson Corp. (-10%)


Rohm Co. Ltd. (-7%), Nidec Corp. (-3%)

Consumer Electronics

Sharp Corp. (-42%), Funai Electric Co. Ltd. (-25%)

Source: FactSet. See Figure 16 for relative index performance. Data as of 11 May, 2012.

17 May 2012

38


YEAR-TO-DATE COMPOSITE PERFORMANCE Figure 33: Semiconductors

Figure 34: Semiconductor Capital Equipment 129

120

124 115

119 114

110

109 105

104 Apr-12

Mar-12

Feb-12

Dec-11

Apr-12

Feb-12

Mar-12

99 Dec-11

100

Semiconductor Capital Equipment Composite YTD Indexed Price Performance

Semiconductors Composite YTD Indexed Price Performance

Base = 100

Base = 100

Source: FactSet. Data as of 11 May, 2012.


Figure 35: Display & Lighting

Figure 36: Software

127 122

120

117

115

112

Display and Lighting Composite YTD Indexed Price Performance

Apr-12

Feb-12

Dec-11

Apr-12

100

Mar-12

97 Feb-12

105 Dec-11

102

Mar-12

110

107

Software Composite YTD Indexed Price Performance

Base = 100

Base = 100



Figure 37: Hardware

Figure 38: Carrier Equipment 114

130

112

125

110

120

108

115

Apr-12

Mar-12

Dec-11

Hardware Composite YTD Indexed Price Performance

Carrier Equipment Composite YTD Indexed Price Performance

Base = 100

Base = 100


17 May 2012

Apr-12

Mar-12

100 Feb-12

102

100 Dec-11

104

105

Feb-12

106

110


39


Figure 40: Handsets Composite

Figure 39: Enterprise Networking 118 116 114 112 110 108 106 104 102 100

113 111 109 107 105 103 101

Enterprise Networking Composite YTD Indexed Price Performance

Apr-12

Mar-12

Feb-12

Dec-11

Apr-12

Mar-12

Feb-12

Dec-11

99

Handsets Composite YTD Indexed Price Performance

Base = 100

Base = 100



Figure 41: IT Services

Figure 42: EMS (Contract Manufacturing) 140

114

135

112 110

130

108

125

106

120

104 102

115

100

105

98

100 Apr-12

Mar-12

IT Services Composite YTD Indexed Price Performance

Feb-12

Dec-11

Apr-12

Mar-12

Feb-12

Dec-11

110

EMS (Contract Manufacturing) Composite YTD Indexed Price Performance

Base = 100

Base = 100



Figure 43: Distributors

Figure 44: Precision Instruments

113

118

111 109

113

107 108

105 103

103

101

Base = 100 Source: FactSet. Data as of 11 May, 2012.

17 May 2012

Apr-12

Mar-12

Feb-12

Apr-12

Mar-12

Feb-12

Dec-11

Distributors Composite YTD Indexed Price Performance

Dec-11

98

99

Precision Instruments Composite YTD Indexed Price Performance

Base = 100


40


114

114

109

104

104

94

99

84 Apr-12

Mar-12

Feb-12

Apr-12

124

Mar-12

119

Dec-11

134

Dec-11

124

Feb-12

Figure 46: Clean Technology

Figure 45: Electronic Components

Electronic Components Composite YTD Indexed Price Performance

Clean Technology Composite YTD Indexed Price Performance

Base = 100

Base = 100



Important new global tech coverage added We have expanded our coverage since the last Global Technology Outlook. We are excited about our expanded coverage which should give us more insight into some of the biggest trends in tech. Year to date we have launched coverage on 15 new companies. Figure 47: New Barclays tech coverage Sector

Ticker

Company Name

U.S. Software

ELLI

Ellie Mae

TNGO

Tangoe

EPAM

EPAM Systems

BSFT

Broadsoft

MTSI

M/A-COM

IMI

Intermolecular

Raimo Lenschow U.S. IT Consulting & Computing Services Darrin Peller U.S. Data Networking & Wireline Equipment Jeff Kvaal U.S. Semiconductors Blayne Curtis U.S. Semiconductor Capital Equipment CJ Muse U.S. Clean Technology & Renewables Amir Rozwadowski European Technology Hardware Andrew Gardiner & Youssef Essaegh Japan Precision Instruments

TSL

Trina Solar

YGE

Yingli Green Energy Holding

IMG.L

Imagination Technologies

DLGS.DE

Dialog Semiconductor

6674.T

GS Yuasa

054620.KS

Asia Pacific Systems

056190.KS

SFA Engineering

001300.KS

Cheil Industries

006400.KS

Samsung SDI

8078.TW

Compal Communications

066570.KS

LG Electronics

Yoshihiko Nishizawa Asia Ex-Japan LCD Displays Sunwoo Kim Asia Ex-Japan IT Hardware Sunwoo Kim Asia Ex-Japan Wireless Equipment Dale Gai & SC Bae Source: Barclays Research

17 May 2012

41


PORTFOLIO STRATEGY

17 May 2012

42


U.S. PORTFOLIO STRATEGY

Slowing growth and public policy uncertainty warrant near-term defensive positioning Barry Knapp

In early March, we highlighted five risks to the equity market that we believed would lead to an April correction, with slowing global growth and public policy uncertainty in an election year the most important for the Technology sector.

If a correction materializes over the next couple of months, global growth stabilizes (Europe and Asia) and the U.S. avoids market expectations of a double dip, we would consider reducing exposure to defensive sectors and moving back into cyclicals.

At the 2012 S&P 500 peak, Apple was responsible for 14% of the index’s performance year to date. With a weight of 4.3% in the S&P 500 and 22% in the Technology sector, it’s too big to ignore.

+1 212 526 5313 [email protected] BCI, New York Eric Slover, CFA +1 212 526 6426 [email protected] BCI, New York

Slowing global growth and public policy uncertainty are the primary concerns for Technology investment We recently downgraded Technology to Marketweight from Overweight

In early March, we highlighted five risks to the equity market (see April Showers, March 9, 2012) that we believed would lead to a correction in the second quarter: flattening U.S. growth; monetary policy turning from tailwind to headwind; public policy uncertainty; decelerating earnings growth; and European deleveraging and political risks. Within this context, the most important risks to the Technology sector are slowing global growth and public policy uncertainty. After an impressive start to 2012, the equity market has come under pressure; similar to last spring, the S&P 500 has had a shallow pullback, down around 5% since early April. Global growth is off to a slow start and the recovery is being pushed beyond expectations, as evidenced by a downturn in European data (i.e., the European Purchasing Managers Index), China’s growth rebalancing and its struggling export sector. Election-related policy uncertainty was on hold while the GOP candidate nomination process was extended, but now debates have shifted to the fiscal cliff, fiscal responsibility, and entitlement reform, all of which are negative for the equity markets. Capital investment typically struggles in an election year due to elevated public policy uncertainty; indeed, Julio and Yook (2010) find that corporate investment falls 5% in the year leading up to elections relative to other years. Still, we expected technology spending, the strongest part of the investment picture, to remain strong. However, management commentary, the Barclays CIO survey and the equipment and software contribution to GDP point to slowing technology spending; policy and growth uncertainty seem at the core. The Barclays CIO survey in April 2012 showed little change from August 2011, the peak in the policy uncertainty index. John Chambers said simply that if government issues aren’t resolved, then “people are in this uncertain environment. And when they're uncertain, unfortunately, they don't spend.” This suggests to us that the improvement in the U.S. growth outlook wasn’t enough to alter confidence. There is the potential for global growth to stabilize in July and August. In our view, it begins with European PMIs, since European weakness permeates the rest of the world, including Asian exports. Policy uncertainty should follow the election cycle; in the 2010 congressional elections, stabilization began in September. We expect public policy

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uncertainty to continue to rise until we get closer to the election. However, in the near term this suggests the trajectory for the market is down, not up, and we believe a near-term bottom in equities is unlikely. In other words, even if valuations become more compelling, we still struggle to see a catalyst that would convince investors to rethink their outlook. Figure 48: In the near term, weakening global growth … ,,,,,,,,,,,,,,,,,,,,,,,,,,, Diffusion Index

Figure 49: … and public policy uncertainty should weigh on sentiment and capital investment

Diffusion Index 65

70 60 50 40 30 20 10 0 -10 -20 -30 -40 -50 -60 -70 -80

60 55 50

%

Index 250

65

225

55

200 175

45

150

35

125 45

100

40

75

25 15

50 35 00 01 02 03 04 05 06 07 08 09 10 11 12 Analysts' EPS Revisions: S&P 500

Source: FacSet, Barclays Research

Global PMI (R)

25

5 95

97

99

01

03

05

07

09

Baker Uncertainty Index: Baseline (L)

11

13 VIX (R)

Source: Baker et al (2011), Barclays Research

Tactically scaling back cyclicals, adding defensives We don’t believe we’ll reach the market low until 2Q earnings season, and with our expectation for a further correction, we have tactically scaled back our cyclical exposure, adding defensives and dividend yield. We are Marketweight Technology, after reducing our long-standing Overweight position (see Monsoon Season, May 11, 2012). Relative technology analysts’ earnings estimate revisions (relative to the 10 GICS sectors) have declined and our margin diffusion index, which was approaching a trough, is showing signs of struggle. We would likely reduce exposure to defensive sectors and move back to cyclicals if a correction materializes over the next couple of months, global growth stabilizes (Europe and Asia), and the U.S. avoids market expectations of a double dip,. Still, for the next two months, we can’t see much that will change the deteriorating global growth outlook. Longer term, however, we believe the secular story is intact, and in a low-growth environment, technology should be the primary beneficiary of a reach for growth via efficiencies and the substitution of capital for labor. Looking to 2H12, we are much more optimistic and expect firming activity to boost corporate revenues and margins.

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Figure 50: The technology capex cycle is slowing beyond our expectations. With slowing relative sentiment … %

Figure 51: … we’re tactically cautious in the near term, but would look to add cyclical exposure as the outlook firms Index

1.5

50 40 30 20 10 0 -10 -20 -30 -40 -50

1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 03

04

05

06

07

08

09

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12

Equip & Software: Contribution to Real GDP Chg SAAR Source: Barclays Research

TEC: Rel. revisions 13wk ma

4wk ma


Apple: Too big to ignore At the 2012 S&P 500 peak, Apple, the largest stock in the index by a factor of 1.4x, was up 53% year to date, outperforming the index by 40%. The company was solely responsible for 14% of the S&P's performance year to date, more than 4x its weight in the index at the beginning of the year, and also boosted S&P 500 and Technology sector 2012 EPS growth estimates by 100bp and 730bp, respectively. It is not uncommon for a single stock to have an outsized contribution to a sizable rally, but over the last 20 years, double-digit contributions in double-digit market return environments have been rare. In fact, we have to look back to 1999 when another tech giant, Microsoft, carried the weight. Still, Apple's 14% contribution this year is the largest in our sample since 1991. Figure 52: Apple, the largest stock in the S&P 500, has had a significant impact on index and Technology returns …

Figure 53: … and made an important contribution to earnings growth ,,,,,,,,,,,,,

Index

Index = 100

130 125 120 115 110 105 100 95 90 85 80

113

Jan-11

111 109 107 105 103 101 99 97 95 May-11

Sep-11

S&P 500 TEC: Price Source: FactSet, Barclays Research

17 May 2012

Jan-12

May-12

S&P 500 TEC ex-AAPL: Price

Jan-11

May-11

Sep-11

S&P 500 TEC: EPS 2012E

Jan-12

May-12

S&P 500 TEC ex-AAPL


45


Comparisons aside, it's not 1999. Valuations appear much more reasonable. The S&P 500's trailing PE ratio is ~13.5x compared with ~27x in 1999, and Apple's trailing PE is ~13.5x compared with Microsoft's ~70x in 1999. Still, the heavy reliance on one company for price returns and earnings growth poses significant concentration risk and lays the groundwork for disappointment if fundamentals falter or if prices run too far too fast. Apple's disproportionate contribution to the most recent rally raises the question: is it rational to expect a single stock to provide outsized contributions to the index price return? Moving into 2Q12 and beyond, who's going to carry the weight? One thing is certain, with a weight of 4.3% and 22% in the S&P 500 and Technology sector, respectively, it’s too big to ignore.

.

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UNITED STATES TECHNOLOGY

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47


U.S. IT HARDWARE

Focusing on major new product cycles for 2H12 – Apple and EMC stand out Ben A. Reitzes

We continue to believe that two themes drive investment trends in IT Hardware: 1) the Consumerization of IT and 2) the Utilization Era – a focus on doing more with less. However, Big Data has emerged as one of the other major investment opportunities in the sector.

We maintain our Neutral view of the sector given secular weakness in some markets like PCs, printers and services. However, we are still enthusiastic on a few of our names: Apple is leading the Consumerization of IT wave and EMC is the best positioned large-cap stock in Big Data, in our view.

1.212.526.9517 [email protected] BCI, New York Eric Sterling 1.212.526.2912 [email protected] BCI, New York Matt Markezin-Press 1.212.526.6180 [email protected] BCI, New York

Sector View

2-NEUTRAL

Expecting Apple and storage to stand out in 2012 Based on our CIO and reseller surveys, as well as other research, we believe that IT spending growth will remain relatively slow this year, in the low- to mid-single-digit range, given global public sector trends, the uncertainty surrounding the pace of recovery in the U.S. and the economic situation in Europe. Recent checks lead us to believe that segments like storage and software should grow faster than the average. Given Apple’s rising wallet share, we remain cautious about the prospects of the traditional PC even with the rise of Ultrabooks (seeking to emulate the MacBook Air) and the pending launch of Windows 8 (Apple will have already launched iOS 6 and Mac OS X Mountain Lion prior to its arrival). With strong iPhone and iPad sales and new products slated for the second half of 2012, Apple is still gaining share and disrupting profit pools, driving the shift toward mobile devices. We are anticipating a strong 2H12 for Apple as it can expand its lead in the Consumerization of IT with new MacBook Airs, a possible new iPad and the iPhone 5 product cycles starting in September. Given uncertainty in Europe and within the public sector, companies that have defensive characteristics like revenues in services and software may see more limited downside nearterm – and benefit vs those that face secular challenges (IBM comes to mind). Also, we believe companies with unique product cycles like Apple and EMC could fare well vs the group and even outperform. Forward P/E multiples within the IT hardware space remain well below historical ten-year averages, with most trading below 14x forward earnings. Year to date, the Barclays IT Hardware sector index is up 24% versus 13% for the NASDAQ and 15% for the MSCI Technology Hardware Index. However, without Apple and its large weighting, our sector is up only 9% year-to-date. Given historically low multiples and significant weightings toward Apple, as well as storage, we wouldn’t be surprised to see some sector-specific outperformance in 2H12 – but our Neutral sector view reflects unfavorable secular trends in other segments such as PCs, printers and parts of IT Services. We highlight Apple and EMC as key picks once again given major new product cycles in 2H12.

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Sector overview: ‘Big Data’ a big trend, but don’t forget the iPhone refresh cycle Apple’s lead in the Consumerization of IT to be helped by iPhone 5 and new iPads: We continue to believe we are in the early innings of the bring-your-own-device (BYOD) trend, which is the premise for the Consumerization of IT theme that seems to be driving Apple. Also, as companies try to manage growing amounts of data, Big Data will likely be an area of focus for investors for years to come. While we expect a somewhat sequential slowdown for Apple in the June quarter, we are enthusiastic about prospects for a new iPhone, iPad and MacBook Air line to culminate in another record December quarter. Indeed, Apple’s next iPhone cycle could last several quarters given several significant new features that include a new form factor, a faster processor and integration of faster 4G LTE speeds. The Consumerization of IT thesis stipulates that the consumer products used for everyday living will be introduced into the workplace through apps and/or remote authentication. For many organizations, these devices will likely replace the ones that used to be bought at the corporate level. For some larger organizations, the focus may just be on allowing these devices to access the network securely to enhance workforce productivity and morale. This trend can save corporations money and shift investment dollars toward integration, backend systems, security and servers – and away from PCs and company-issued mobile devices. The PC even sees threats on the consumer side as iPads and smartphones continue to cannibalize more typical PC tasks. We even see Apple’s iCloud playing an increasingly important role in the company’s iOS ecosystem, removing the need for the PC to act as a hub. Long term, we believe smart TVs can also cannibalize PCs, with a potential iTV from Apple in 2013 serving as the biggest disruptive force in computing and entertainment.

# of Respondents

Figure 54: CIO survey question: What platform will be supported for your corporate tablet? 90 80 70 60 50 40 30 20 10 0 Apple

RIM

Android

Microsoft (New answer this survey)

Mar-12

Unsure (Aug-11 responses include HP)

Aug-11

Source: Barclays CIO Survey, April 2012

Big Data theme rising: As corporations introduce new applications and grapple with social media, we believe that they will struggle to manage data growth (both structured and unstructured). As a result, demand for more efficient ways to manage Big Data should grow rapidly with opportunities in hardware, software and services. We believe that EMC is set to benefit from this trend given its investments in scale out storage, appliances, software and security. In our April CIO survey, respondents noted that solving Big Data problems was the biggest trend driving spending decisions. EMC should also benefit from a refresh of its 17 May 2012

49


largest product, the VMAX in 3Q12, which is likely to become more efficient and faster in dealing with larger block data loads. Figure 55: CIO survey question: What are the biggest trends driving your spending decisions in 2012? "Big Data" problems Server virtualization Cloud computing Security Windows upgrade cycles Off shoring labor/Labor optimization Storage virtualization Desktop virtualization

Aug-11

Mar-12

Green computing (saving power)

0

10

20

30

40

50

# of Respondents Source: Barclays CIO Survey, April 2012 Note: “Big Data” problems was a new category in the April 2012 survey

Leading Big Data solutions allow customers to add capacity and scale without sacrificing performance. As a result, we see significant growth for scale-out storage that increases both capacity and performance through node-based systems. EMC’s Isilon seems like one of the best assets to take advantage of the opportunity presented by Big Data. We view IBM as a leader in structured and unstructured data analytics as it has many well-positioned solutions. In addition, we believe that EMC’s Greenplum asset will benefit from an increased focus on data analytics. We also see NAND flash making a larger push into the enterprise data center. The Big Data trend increases the need for quick access to data and the need to record new information at the pace it is created. The intensifying demands placed on data access and manipulation are helping a new class of storage emerge utilizing NAND flash. Advances in analytics, virtualization and cloud computing are accelerating the transition to higher-capacity computing systems that need to access data faster and reduce latency. NAND flash is one of the key enablers of this shift. We like companies that are integrating flash storage into their product lines like EMC with their Project Thunder and VF Cache (Project Lighting).

Hardware sector driven by product cycles As uncertainty about the pace of macroeconomic recovery and the health of the European economy persists, we believe that many companies in the IT hardware sector could see a pause in 2Q12 before a better second half. Frankly, our top picks – Apple and EMC – lead this list ahead of the iPhone 5 and VMAX upgrades, respectively. However, IBM also faces a potential pause in 2Q hardware sales ahead of new POWER 7+ servers coming in 2H12. Both HP and Dell may also see a bit of a transition in the industry standard server category as the server industry transitions product lines to those based on Intel’s new Romley processor. Another reason 2H12 could be better for the sector is the alleviation of the HDD supply chain issues that stemmed from flooding in Thailand. Indeed, this issue is likely to largely subside in the second quarter. In terms of PCs, the sector could benefit from a possible 17 May 2012

50


uptick in consumer sales due to Windows 8 in the holiday season and the launch of cheaper Ultrabooks. That said, we believe that Apple’s product cycles and ongoing smartphone momentum at Samsung may take too much “wallet” for the PC uptick to be as strong as industry analysts believe.

The Industrialization of Tech, and especially IT Hardware, something to watch We recently wrote a major thematic piece in collaboration with our colleague Scott Davis (senior analyst, Multi-Industry) to explore how IBM may have started a trend that we are calling the Industrialization of Tech (please see our report IBM Corp.: Is IBM Leading the 'Industrialization' of Tech?). In short, IBM has taken on more of the characteristics of successful global industrial companies, expanding its multiple over the last five years rather significantly. We believe that it will be difficult for HP and Dell to emulate IBM’s evolution and see comparable results. However, EMC’s portfolio is also moving toward higher-value solutions, with comparable consistency – and much faster organic growth. And at some point Apple may need to take on more characteristics of an industrial company once its growth begins to slow (not a near-term concern of ours). Near term, Apple has decided to return cash to shareholders with its first dividend in 18 years and a share repurchase program to offset option dilution. We believe that new CEO Tim Cook is off to a nice start with a shareholder-friendly approach.

Key Picks remain Apple and EMC Given ongoing economic volatility, we prefer to focus on companies gaining share with attractive valuations. We believe companies that are well positioned in Big Data are likely to gain share and be among the best performers (outside of Apple) in 2012. IBM has many attractive characteristics, but shares have already outperformed the S&P 500 by more than 110% since 2007, which may be difficult to top from here especially given its valuation premium to Apple. Apple – For 2H12 we continue to believe that Apple's valuation is attractive and that the shares can benefit from new MacBook Air products, a new iPad, the iPhone 5 refresh cycle, the release of OS X Mountain Lion and a deeper integration of iCloud across Apple products. We expect Apple to continue its international expansion and look to China to drive growth in many segments. While we are not expecting a television unit next year, there are many other catalysts for C2H12. All these cycles could power many stories in tech, beyond Apple. EMC – EMC remains one of our top picks and we believe the company will continue to make its case as the next strategic IT solutions provider in our sector. Spending on storage remains relatively solid amid a slow spending environment. Also, we expect the strength of product cycles through 2012 (VMAX, Data Domain and Isilon) to deliver revenue upside in 2H12 and EMC remains well positioned to exceed its targets and accelerate growth. Further, we expect EMC to continue to gain share at the low end with its VNX solution and at the higher end with its Isilon scale-out NAS. EMC’s exposure to Big Data gives us another reason to be optimistic as many of its products – like Greenplum, Project Thunder and VF Cache (Project Lighting) – are well positioned to take advantage of growing data growth trends. Risks include government exposure (about 8-10% of total), financial services (1820% of total) and any deceleration of VMware’s revenues (EMC owns 80% of VMW).

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Valuations in IT Hardware impacted by secular concerns in PCs and printing The Barclays IT Hardware sector index historically trades at 12x consensus forward EPS estimates using a five-year average. At present, we see the group trading at 10x forward EPS versus a trough level of 8x in November 2008 and a peak level of 18x in October 2007. Current valuation levels are outside 1 standard deviation from historical average valuation levels. We believe the valuations of many names in the group (Dell, HP, Lexmark, Xerox, Ingram Micro and Tech Data) are adversely impacted by secular concerns around PCs and printers. Figure 56: Barclays U.S. IT Hardware Coverage

Ticker

Rating

Price

EPS

P/E

Fiscal

Fiscal

Cur. Yr. AAPL HPQ DELL IBM NTAP EMC LXK XRX STX DDD WDC TECD IM

1-Overweight 2-Equal Weight 2-Equal Weight 2-Equal Weight 1-Overweight 1-Overweight 2-Equal Weight 2-Equal Weight 1-Overweight 2-Equal Weight 1-Overweight 2-Equal Weight 2-Equal Weight

$ $ $ $ $ $ $ $ $ $ $ $ $

566.71 23.15 15.42 201.17 36.08 26.36 28.31 7.63 31.14 27.45 40.30 50.88 18.66

AVERAGE

$ $ $ $ $ $ $ $ $ $ $ $ $

45.81 3.99 2.10 15.08 2.38 1.74 4.35 1.13 6.92 1.20 7.75 5.70 2.02

Next Yr. $ $ $ $ $ $ $ $ $ $ $ $ $

52.00 4.11 2.10 16.66 2.77 2.01 4.35 1.23 9.67 1.50 9.80 6.10 2.20

EV/ Rev

PEG

Revenue ($ mn)

Cur. Yr.

Next Yr.

Cur. Yr.

Next Yr.

12.4x 5.8x 7.3x 13.3x 15.2x 15.2x 6.5x 6.8x 4.5x 22.9x 5.2x 8.9x 9.2x

10.9x 5.6x 7.3x 12.1x 13.0x 13.1x 6.5x 6.2x 3.2x 18.3x 4.1x 8.3x 8.5x

0.7x 1.2x 1.3x 1.3x 1.0x 1.1x 1.0x 0.6x 0.1x 1.2x NA 1.0x 0.7x

0.6x 1.2x 1.3x 1.2x 0.9x 0.9x 0.9x 0.5x 0.1x 1.0x 0.3x 0.9x 0.7x

10.3x

9.0x

0.9x

0.8x

Cur. Yr. $ $ $ $ $ $ $ $ $ $ $ $ $

159,709 121,179 62,866 108,195 6,219 22,162 4,013 22,879 15,298 353 12,038 26,342 36,767

Next Yr. $ $ $ $ $ $ $ $ $ $ $ $ $

190,451 120,816 64,545 111,966 6,974 24,706 3,900 23,375 19,335 422 17,006 27,604 38,247

Fiscal Cur Yr.

Next Yr.

3.1x 0.6x 0.3x 2.3x 1.5x 2.3x 0.4x 0.8x 0.9x 4.2x 0.7x 0.1x 0.1x

2.6x 0.6x 0.3x 2.2x 1.4x 2.1x 0.4x 0.8x 0.7x 3.5x 0.5x 0.1x 0.1x

1.3x

1.2x

Source: FactSet, Barclays Research Estimates Prices as of 5/11/12

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U.S. SOFTWARE

Structural growth stocks poised to outperform Raimo Lenschow

Software fundamentals, especially for the structural growth names, remain healthy and should support further strong results. The structural growth names continued to deliver healthy numbers in Q1 despite a more constrained IT spending environment. This outperformance should continue in 2012, in our view: First, these names benefit from higher customer spending than their traditional counterparts, and second, management teams have been conservative on guidance, creating room for upside.

We like Informatica, Citrix and NetSuite for structural and company-specific reasons. Informatica and Citrix showed a significant disconnect between the extent of their positive surprise and guidance raise. NetSuite has undergone a correction that we see as an opportunity given the unchanged structural story and strong growth.

The major structural themes in the software space remain virtualization (server and desktop), Big Data, and cloud computing, which ranked as the top three spending priorities in our April CIO survey.

+1 212 526 2712 [email protected] BCI, New York

Sector View

1-POSITIVE

IT spending priorities should benefit structural growth names We saw real evidence in the first quarter that enterprise IT departments are focusing spending on software that will save them money and/or drive growth in their business. This was illustrated by the resilience of growth at virtualization companies like Citrix and VMware and Big Data companies like Teradata, Informatica and Qlik compared to traditional software and non-mission-critical software providers (e.g., SAP, Symantec and Parametric Technology). The results of our latest CIO survey confirm this trend, as Big Data and server virtualization are the top two spending priorities for CIOs this year. In the currently constrained IT budget environment, we expect these spending patterns to continue for the rest of 2012, benefiting our structural growth names. We acknowledge that valuations appear stretched, but we think the disruptive nature of these structural growth stories is still not fully priced in by the market.

Figure 57: Top trends driving IT spending decisions in 2012 "Big Data" problems Server virtualization Cloud computing Security Windows upgrade cycles Off shoring labor/Labor optimization Storage virtualization Desktop virtualization Aug-11

Green computing (saving power) 0

5

10

Note: "Big Data" problems was a new category this survey

15

20

25

30

35

Mar-12 40

45

50

# of Respondents

Source: Barclays Research March 2012 CIO Survey (published 4 April, 2012)

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Second half of 2012 appears set for meaningful guidance raises The strong Q1 performance for the majority of our coverage universe did not translate into meaningful earnings upgrades. We are not particularly surprised by this given that companies generally do not like to raise guidance after the first quarter, which typically contributes the smallest percentage of annual revenue, and that the picture can change so dramatically over three quarters, especially in this macro environment. Regardless, we think that meaningful increases in full-year guidance after the seasonally larger second quarter are more likely on the back of the better-than-expected first quarter. We believe that Citrix, Informatica, Teradata and Ellie Mae are best set up for meaningful full-year raises over the upcoming quarters. First, the level of earnings and revenue surprises achieved in Q1 were not as highly correlated with changes to full-year consensus estimates as we think is justified. Figure 58 and Figure 59 compare the percentage by which earnings beat consensus estimates in the first quarter and the percentage change in full-year earnings estimates. The charts clearly indicate a disconnect between the two. Additionally, each of these companies has a presence in a structural growth sector of the software market: Citrix in virtualization; Teradata and Informatica in Big Data, albeit in different parts of it; and Ellie Mae in software as a service (SaaS). As such, these names should continue to see momentum in their businesses (see below). Should management teams raise their full-year guidance more meaningfully, the stretched valuations we currently have in our coverage universe should start to ease.

Upcoming investor events should provide a catalyst The second quarter is heavily weighted with technology conferences and company user/investor events. These events should serve to attract increased investor attention to the names we cover, particularly companies that have a tentacle into the Big Data theme. Investors are just starting to digest the implications for the stocks that compete in a piece of the Big Data market and we believe this conference season will provide further insight, which also supports our constructive view on the sector heading into the second quarter.

Figure 58: Q1 earnings surprise % vs. full year guidance % change

Figure 59: Q1 earnings surprise % vs. full year guidance % change 100%

20%

15%

75%

10% 50%

5% 25%

0%

-5%

0%

ARBA

CTXS

Q1 Earnings Surprise %

INFA

Full Year Guidance % Change

Source: Bloomberg, Company data, Barclays Research

17 May 2012

TDC

ELLI Q1 Earnings Surprise %

N

QLIK

Full Year Guidance % Change

Source: Bloomberg, Company data, Barclays Research

54


Key Picks Following the most recent earnings season, our favorite names are NetSuite, Informatica and Citrix, but we also like them from a long-term perspective because of their structural growth exposure. NetSuite: The share price has corrected recently following Q1 results after calculated billings delivered “only” 27.5% y/y growth (after adjusting for a mix shift in services work) against heightened expectations going into the numbers. We think that billings growth is still healthy and that Q1 was impacted by a tough comparable. Additionally, the CEO has talked of penetrating large enterprises, which, if realized, would be another significant longterm positive to growth, although the initial ramp up would be slower. We favor using the recent weakness as an opportunity to get involved as there is little evidence to suggest a slowdown in NetSuite’s business or de-railing of its structural opportunity as the leading SaaS ERP provider. Informatica: Informatica enjoyed a good set of Q1 results with better revenue and EPS, while license revenue was in line with consensus. However, there was no raise to guidance as the company preferred to stay cautious after a weak Q1 performance in Europe, suggesting a slower-than-expected reacceleration in license growth, which disappointed the market. We see this correction as an interesting opportunity. In our view, the company remains well positioned in the Big Data space and management’s conservative comments are likely to keep market expectations in check. Again, given the structural exposure, we think this leaves risks skewed to the upside over the coming months. Citrix Systems: For the first time since 2008, Citrix’s desktop business grew more than 15% YoY, while its web collaboration and cloud solutions businesses (primarily NetScaler) each grew more than 20% as well. The desktop business is showing evidence of significant momentum around virtual desktop infrastructure (VDI), which we expect to continue for the remainder of the year. We attribute the momentum to the improved ROI proposition for VDI, linked to the Windows refresh cycle. Looking into Q2, the total revenue comp is the most attractive of the year (15.8%) and the desktop solutions comp looks even easier (8.9%).

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U.S. IT CONSULTING & COMPUTER SERVICES

Payment names continue to benefit from strong underlying drivers; mixed trends in IT services Darrin D. Peller

We continue to believe the payments sub-sector of our universe is an attractive area to invest for 2012 relative to sectors with greater macro risk. We consider payments names well positioned to continue outperforming even in an uncertain macro environment, given continued strength seen in volume and transaction metrics, and opportunities from secular transformation of payments at the point-of-sale and online.

Our outlook remains more conservative for IT services names, which have shown mixed fundamental trends across the space and some demand pressures in the first half of 2012. While we believe the industry continues to have longer-term opportunities, we would focus selectively on names whose valuations now reflect a material discount to underlying revenue growth potential.

Key picks include Visa, MasterCard, VeriFone Systems and Alliance Data Systems.


Payment names continue to benefit from strong fundamentals Sector View

2-NEUTRAL

Further strength seen in volume & transaction metrics; expect solid U.S. credit card trends to hold up Within the payments industry, we continue to see strength in key underlying volume and transaction drivers. MA has reported that cross-border volumes, total U.S. processed volumes, total processed volumes outside the U.S., and processed transaction growth all held up at healthy levels. V continues to see share loss in U.S. PIN debit as a result of Durbin, weighing on the company’s overall debit volume and transaction growth, but PIN debit represents only around 2% of total company revenue. We also highlight similar strength in U.S. credit, rest-of-world and cross-border volumes through the end of April. While y/y growth comparisons become more challenging relative to prior quarters, our analysis of year-to-date metrics around the profitability of credit cards at the four largest Visa and MasterCard credit card issuers in the U.S. continues to suggest that credit card growth has remained strong year-to-date, and should remain healthy through much of the year.

Barclays Emerging Payments Forum in New York highlights industry opportunities We hosted the second annual Emerging Payments Forum in New York on March 28-29, which brought together almost 30 public and private global players to discuss emerging trends in the payment industry, including mobile payments, eCommerce, payment technology/security solutions, and prepaid services. We view VeriFone as a key beneficiary of emerging trends in mobile commerce and retailing, as well as the U.S. payments industry’s migration to EMV (~70% of U.S. terminals may be EMV- and NFC-enabled over the next few years, driving an expansion in VeriFone’s addressable market and opportunities for incremental managed services revenue). We see limited pushback on Visa and MasterCard from issuers as a result of the EMV shift; as in the U.K., lower fraud under the more secure EMV standard should offset a concern around lower interchange. V and MA also continue to push ahead with new mobile wallet initiatives, with more ubiquitous

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electronic payment usage as their primary goal, and we see incremental revenue opportunities from new payment technologies even amidst increased competition. Regarding merchant acquirers, from a competitive standpoint, we continue to see a number of new entrants in the electronic payments industry, and certain incumbents (e.g., Visa, MasterCard and VeriFone) have been moving up the value chain, potentially threatening the traditional merchant acquirers/payment processors. That said, the traditional strengths of acquirers/processors (including a strong knowledge of payments, big investments in large, scalable networks, and a prevalent/long-standing distribution channel) likely position these companies as valuable and necessary partners in the payments ecosystem. On the mortgage processing front, origination services revenue at the processors in our coverage benefitted from higher industry volumes and share gains this quarter. While origination activity remains at historical lows, the HARP 2 refinance program may provide support, and we see potential longer-term upside driven by housing market normalization. Meanwhile, CoreLogic and Lender Processing Services are both maintaining expectations for slow default activity in their near-term guidance, leaving room for upside potential should the industry begin to see initial signs of foreclosure activity later in the year.

Mixed IT Services trends, with certain vendors benefitting from relative share gains Softer 1H12 for outsourcing contract awards, followed by greater bookings acceleration in 2H12; mixed earnings results from IT services names We hosted ISG’s 1Q12 TPI Index Call, which provided initial insights on 1Q12 contract award activity for outsourcing contracts valued at more than $25 million. Overall, data directionally affirmed our checks and outsourcing industry commentary around a softer 1H CY 2012, followed by somewhat greater bookings acceleration in 2H12. With industry increasingly being driven by competitive restructuring activity, our checks continue to point to share gains for Cognizant, with Accenture also showing meaningful success among the multinational vendors in defending market share and growing with existing clients. Earnings results from consulting/outsourcing names have been particularly mixed into 2012, with Accenture, IBM and TCS coming in in-line to better than market expectations and Infosys, Wipro and Cognizant disappointing on revenue guidance. Cognizant will need to take the next couple of quarters to prove to the market that it can deliver on its new targets, but with P/E valuations today only marginally higher than peers growing at half CTSH’s anticipated growth rate, we consider the shares oversold.

Key Picks We favor companies with strong organic growth potential driven by sustainable secular trends and proven business model resilience. Key picks include: V: Strength in underlying volume/transaction drivers provide us with a high degree of confidence in Visa’s ability to sustainably achieve EPS growth of 20%+ for years to come. MA: Despite potential for some near-term regulatory headline risk, we view MasterCard as a secular growth story, with similar ability driving EPS growth of 20%+ for years to come.

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PAY: We view VeriFone as a key beneficiary of secular payment technology/security trends, and continue to see solid upside to consensus estimates and valuation. ADS: Given solid momentum across ADS' lending and non-lending businesses, we continue to see normalized earnings power well above consensus 2013 and 2014 estimates.

17 May 2012

58


U.S. COMMUNICATIONS EQUIPMENT

Healthy 1Q handset shipments; networking solid Jeff Kvaal

Handsets: Following a solid first quarter, we maintain our forecast of 8% global handset growth in 2012 and 2013. Leading vendors Apple and Samsung continue to dominate the market and we expect consolidation to continue to converge around them. Our top pick in wireless is Qualcomm.

Networking: We think networking demand is solid, but not spectacular. Bright spots include data center (virtualization, 10G switching) and bring-your-own-device (BYOD)/mobility. Given our broader mobility theme, our key pick is Aruba (ARUN). Netgear (NTGR) should also benefit in the consumer market.


Sector View

2-NEUTRAL *Sector view is for both the U.S. Data Networking & Wireline Equipment and U.S. Wireless Equipment

Solid 1Q handsets shipments; retain ‘12 and ‘13 growth rates at 8% The global handset market saw solid shipments of approximately 398 million units and smartphone shipments of approximately 145 million units in the first quarter, broadly in line with our estimates. We therefore retain our 2012 and 2013 industry growth rates of 8%, representing total unit volumes of 1.71 billion and 1.85 billion, respectively. We expect industry growth to slow to 5% in 2014 with total units of 1.95 billion. As expected, the mix within the market continues to shift to smartphones while feature phones remain on the decline. The introduction of lower-priced smartphones, including many of the sub-$150 Android devices we have seen over the past year, has indeed drawn much of the interest away from the feature phone segment. We saw solid sequential 1Q smartphone growth of approximately 50% and expect these rates to continue through the remainder of the year. Within smartphones, we also retain our 2012 and 2013 growth rates of 46% and 32%, respectively, which represent total volumes of 689mn and 908mn. Our 2014 growth rate declines to a still-solid 20%.

Figure 60: Global smartphone model (units in million) Global Smartphone Shipments 2003-2014E 2003 (in millions) Feature & Basic Phones 512 Smartphones 8

Total Handsets

520

YoY Growth Feature & Basic Phones Smartphones 5yr Growth Smartphones Penetration

2%

2004 660 20

2005 758 54

2006 909 82

2007 1031 122

2008 1086 140

2009 1065 179

2010 1136 283

2011 1109 470

2012E 1025 689

2013E 947 908

2014E 864 1090

680 31%

812 19%

991 22%

1,153 16%

1,226 6%

1,244 1%

1,419 14%

1,580 11%

1,714 8%

1,854 8%

1,954 5%

29% 150%

15% 170%

20% 52%

13% 49%

5% 15%

-2% 28% 55%

7% 58% 39%

-2% 66% 42%

-8% 46% 41%

-8% 32% 45%

-9% 20% 44%

3%

7%

8%

11%

11%

14%

20%

30%

40%

49%

56%

Source: Gartner, Barclays Research

Expect ongoing share consolidation around Apple and Samsung During 1Q12, we saw ongoing share consolidation around Apple and Samsung and we believe this trend is likely to continue through the remainder of 2012. Samsung has demonstrated the most impressive share gains over the last two years; we estimate growing from around 9% in 2010 to around 21% in 2011 and to 31% in 2012, finally replacing Nokia as the dominant player in the market in 2011. The ongoing struggles at both Research In Motion and Nokia, given their drastic transformations, have only strengthened demand at Apple and Samsung. 17 May 2012

59


Huawei, ZTE and other domestic Chinese vendors are also benefiting from strong demand within the region and continue to raise their presence on a global scale. We expect this trend to also continue - we estimate share gains to reach close to 20% of the overall market this year from just over 10% in 2011. Both Huawei and ZTE have made impressive progress in the export market as well, launching a range of device options across U.S. prepaid and postpaid carriers. Most other vendors, including Nokia, LG Electronics, Research In Motion and HTC, unsurprisingly continue to lose share this year and next. Figure 61: Global handset vendor share Handset Production Estimates (units in millions) 1Q12 Nokia 83 Samsung 91 Apple 35 LG Electronics 14 HTC 8 RIM 11 Motorola Mobility 9 Sony Ericsson Other vendors (Huawei, ZTE, Sony, others) 148 Total Handsets 398 YoY Growth 7%

Figure 62: Global smartphone vendor share

2Q12E 80 96 28 15 11 8 9

3Q12E 84 103 28 16 13 7 10

4Q12E 96 103 43 18 14 7 10

2012E 343 393 135 62 45 33 38

2013E 340 443 176 82 56 34

160 407 10%

170 430 8%

188 479 10%

666 1,714 8%

723 1,854 8%

Source: Company reports, Barclays Research

Smartphone Production Estimates (units in millions) 1Q12 Nokia 12 Samsung 44 Apple 35 HTC 8 RIM 11 LG Electronics 5 Motorola Mobility 5 Sony Ericsson Other vendors (Huawei, ZTE, Sony, others) 25 Total Handsets 145 YoY Growth 50%

2Q12E 11 52 28 11 8 6 6

3Q12E 13 58 28 13 7 8 6

4Q12E 16 61 43 14 7 9 7

2012E 52 216 135 45 33 28 24

2013E 70 292 176 56 34 49

32 154 49%

42 175 50%

58 215 39%

157 689 46%

230 908 32%

Source: Company reports, Barclays Research

Networking: BYOD is driving healthy wireless LAN gear spending Various checks and data points indicate that mobility and BYOD are a clear top theme in enterprise networking. In fact, WiFi/mobility has emerged as the top spending priority in our last three surveys of networking managers. We expect the proliferation of smartphones and tablet devices, as well as the replacement of unused wired ports, to continue to drive robust growth for wireless LAN gear. Please see our survey results note Seasonal 1H Should Drive Solid Networking (April 17, 2012). We also believe we are still in the early days of BYOD deployments, a point that Aruba emphasized at its analyst day in March. The number of BYOD users and the number of devices per user continue to rise and 802.11N still has a long way to go. For example, a large enterprise may have only around 50% of its installed base upgraded from the prior generation 802.11A/B/C. While the initial phase of the upgrade cycle was primarily about providing wireless access in conference rooms, for example, the trend toward multiple devices per user and more multimedia applications and services like Facetime is driving a continued upgrade cycle. The 802.11A/C standard should start picking up in calendar 2013. The first generation of 11A/C is expected to hit the enterprise market in 1H13, while consumer class products should begin launching this year. Netgear, for example, launched the first A/C consumer product in April 2012. In terms of competition, Cisco has long been the leader in this market, but its share has declined to around 50% from more than 60% over the past few years. Cisco recently launched new products in this market, and we believe it is trying to win back lost share. Meanwhile, Aruba has made strong traction as the number two player in this market. We believe it is convincing in its view that the gap between its technology and that of larger rivals like Cisco, Hewlett-Packard and Juniper is at least intact, if not wider than before. Its new ClearPass software offers IT managers visibility into specific devices, users and applications, and thus should drive further share gains. We are less clear on how far ahead it is versus new private competitors.

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Key Picks: Qualcomm, Aruba Qualcomm: Despite near-term capacity constraints, strong fundamental growth drivers intact We are positive on Qualcomm (co-covered with CJ Muse, U.S. Semiconductor and Semiconductor Capital Equipment) despite the company’s near-term challenge in procuring supply of its 28nm chipsets, including the highly anticipated dual mode 3G/4G MSM8960. We consider these capacity constraints a function of both better-than-expected demand – management highlighted that demand for the 8960 has improved since the beginning of the year – and lower-than-anticipated supply. Management is working on correcting this bottleneck and expects to return to normalized production volumes by the end of September or FY12. In the meantime, capacity constraints will limit our 2H Mobile Station Modem (MSM) unit volume forecast; we had lowered our estimates post F2Q results. However, we do not believe that delays on the MSM8960 all represent lost volumes. While second sourcing typically fulfils much of the lost shipments, Qualcomm is fortunate that most other vendors do not yet have a competitive solution in the market, offering both dual mode 3G/4G LTE on one integrated chipset. This is Qualcomm’s first chipset on 28nm and will also offer greater power and speed efficiency. While some customers are likely to consider alternative solutions – QCOM is working on moving some demand into its Fusion products – many will likely wait for the 8960. Qualcomm is partnering with its customers to speed up delivery of its chipsets, which we consider a positive indication that MSM shipments are mostly only delayed, rather than lost to competitors. Longer term, we consider Qualcomm’s technology leadership and ongoing execution to serve as a strong basis for maintaining its lead competitive position. Furthermore, a healthy handset market continues to benefit Qualcomm’s licensing business and we still regard management’s 2012 growth rate of 16% as conservative. We estimate CY12 sales and EPS of $20.2 billion and $3.82, respectively, above the consensus estimates of $19.3 billion and $3.76. We estimate CY13 sales and EPS of $23.8 billion and $4.45, respectively, above the consensus estimates of $22.0 billion and $4.19.

Aruba: Healthy markets support our above-consensus estimates We are positive on Aruba and expect the company to be a primary beneficiary of healthy BYOD trends. We think the primary questions on Aruba have centered on seemingly slower revenue growth and the competitive environment, particularly smaller private vendors. Although guidance for 23-25% year-over-year sales growth in the April quarter is less than the well-above-30% growth achieved in prior quarters, management has reiterated that the year-ago April and July quarters included roughly $5-6 million in China hotspot business that the company is no longer pursuing. Excluding these sales, we think management expects growth of more than 30%. Thus, we expect sales to accelerate in FY13 as Aruba anniversaries this China revenue. We lifted our estimates on Aruba following its analyst day in late March (please see our note Revenue Acceleration Lifts Our Estimates, March 29, 2012). We retain our above-consensus estimates with EPS of $1.00 in calendar 2013 (consensus is $0.90). We assume 30% sales growth in our estimate compared to consensus of 21%. Aruba should report its April-quarter results in mid/late May.

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61


U.S. SEMICONDUCTORS

A return to growth; maintain 1-Positive C.J. Muse

We continue to want to own Semiconductors as we maintain that the group will grow faster than end markets as we head into the June-October time frame. The stocks will likely remain choppy over the near term as investors potentially adhere to the old adage “Sell in May and Go Away,” but with the SOX pulling back to below $400, we see the risk-reward as favorable. We reiterate our 1-Positive rating on the sector.

Semis should command a premium multiple to Industrials as revenues track endmarket demand. Semiconductors in our universe are trading at 12.3x 2013E EPS, a 13% discount to Industrials, at 13.9x, and in line with the S&P 500, at 12.4x. We continue to believe semis should command a premium multiple to Industrials given continued solid cash generation, as most semiconductor vendors operate under a less capex-intensive model than industrials.

Given the backdrop of macroeconomic uncertainty, we recommend that investors focus on the right product cycles and attractive relative valuation. Our top picks remain Qualcomm, Broadcom, Altera and NXP Semiconductors in large-cap and Avago, Cavium, LSI and Skyworks Solutions in small- to mid-cap.

+1 212 526 8945 [email protected] BCI, New York Blayne Curtis +1 617 342 4101 [email protected] BCI, New York

Sector View

I-POSITIVE .

1Q12 marks bottom, focus turns to if inventory replenishment drives better end-market growth in 2H12 After both the market and leading chipmakers called for a trough for the last three quarters, 1Q12 finally marked the bottom for semis (SIA revenues were down 2% Q/Q in 1Q12), with most, if not all, companies guiding for sequential growth into 2Q (the average forecast for semis is 6% growth in 2Q12). The focus from here turns to the rate of recovery for semis and whether or not sufficient confidence in the end markets will support above-end-market growth as we head into the second half of 2012. We continue to model semi revenue growth of 2% in 2012, which suggests a quarterly CAGR of around 6% through 4Q12.

Figure 63: WW semi revenue Y/Y growth 1994-2012

Figure 64: Semiconductor inventory dollars and DOI $14,000

60%

90 80

$12,000

40%

$8,000

20%

40 30 20

$6,000

0%

$4,000 $2,000

-20%

10 0

$0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12

-40% -60% Nov-94

70 60 50

$10,000

Nov-99

Nov-04

Nov-09

Semiconductors Inventory Dollars ($M)

Semiconductors Inventory Days

SIA Total Revs Source: SIA and Barclays Research

Source: Company reports and Factset

Bright spots remain the autos and industrials end markets, and a potential 2H PC recovery: By segment, we believe autos and industrials continue to be healthy end markets, 17 May 2012

62


where we look for growth of 5-7%, and in-line with end markets. We also look for a 2H12 PC recovery led by normalization of the HDD supply chain and demand for new product launches with Ultrabooks/Win8/EMG, and we think the debate from here revolves around whether or not tablet cannibalization will continue to be a headwind. Mobility is mixed due to Apple’s seasonality, with focus on whether we will see broader recovery into communications infrastructure: For mobility, we see seasonality contributing to mixed results as we await the ramp-up of iPhone 5, while we see Samsung smartphone offerings continuing to perform in the near term with its Galaxy products. Lastly, we see the focus shifting to communications infrastructure and whether carrier network upgrades will support a broad-based recovery into 2H12.

Key Picks Our top ideas remain levered to 3Q builds at Apple and Samsung, and encompass QCOM and BRCM in our large-cap universe and SWKS in our small- and mid-cap universe. We also favor names tied to a 2H recovery in communications infrastructure, such as ALTR and CAVM. NXPI and AVGO remain our preferred stocks based on relative valuation and secular analog growth. DRAM industry consolidation is supportive of MU, while LSI remains our preferred name within our SMID universe. We favor names tied to Apple and Samsung ahead of 3Q builds: With an iPhone 5 release anticipated within the next six months, we favor names tied to AAPL ahead of a 3Q build. Our top picks here remain QCOM, where we expect the new iPhone to feature the new MDM9615 modem (LTE voice and data); BRCM, which is likely to provide connectivity with the BCM4334 WLAN combo chip; and SWKS, which we believe will see the biggest content increase among RF names. For names tied to Samsung, we believe BRCM has seen success tied to the Galaxy Y on the low end, and believe most of the baseband revenues from Samsung are now coming from 3G rather than 2G. At Samsung we also favor SWKS with share gains in the Galaxy SIII and significant content in the Note. 2H communications infrastructure recovery: Semi vendors that see revenues from communications infrastructure had mostly positive comments in 1Q, the most positive of which came from TXN, as the company believes the inventory build for wireless infrastructure has been depleted, though we still see communications infrastructure as second-half weighted. Our preferred names here remain ALTR, where management noted wireless and wireline demand picking up and depleted inventories driving 2Q up double digits, and CAVM, where we see encouragement from NSN wins starting to ramp up, along with revenue from base stations at Huawei, Samsung and Cisco on the way this year. Relative value and secular analog growth: We favor NXPI and AVGO here, with leverage to key end markets and discounted relative valuations versus peers. For NXPI, we believe that the longer-term operating efficiency and debt reduction story is well understood by investors, but that top-line growth is underappreciated. We also continue to favor AVGO, as we believe it should benefit from a recovery in Industrial and Wired, is well positioned in the iPhone 5 refresh (LTE and possibly Band 2), and should see a tailwind from LTE rollouts at Verizon and AT&T. Layer in its cheap valuation of 11x CY13 EPS versus analog peers trading at around 13.5x, and we see upside to the shares from here. DRAM industry consolidation: Our positive thesis on Micron remains intact, namely that DRAM ASPs have troughed in 1Q and meaningful cuts to commodity DRAM supply should drive better supply/demand balance. While Elpida’s bankruptcy clouds the near-term 17 May 2012

63


picture a bit, we believe a strategic buyer will eventually win out, which would be positive for the DRAM industry and in turn for MU. Layer in leverage to the Ultrabook product cycle in 2H12 through its NAND business and leverage to improving PC order trends starting in 2Q12, and MU remains our favorite name in memory. HDD recovery wrapping up, favor LSI for longer-term share gains: In HDDs, the desktop market was the last to recover and is expected to make a full recovery by 3Q. We like LSI’s position in the long term for share gains at Western Digital (likely 1TB desktop platter) and we see that as the next major leg of growth in 3Q/4Q. While near-term HDDs continue to carry the day, we believe several underappreciated secular drivers lie ahead (WD share gains, SSDs, PCIe Flash, Multicore processor and DSP wins), contributing to the story in 2H12 and beyond. Figure 65: Semiconductor CY12 PE vs Industrials, S&P 500 20.0x

Figure 66: Semiconductor CY13 PE vs Industrials, S&P 500 18.0x

18.3x

18.0x

17.2x

16.0x

16.1x

17.2x

16.0x

15.9x

13.9x

14.0x

14.0x

13.2x

12.4x

12.3x

13.2x

12.4x

12.0x

11.2x

12.0x 10.0x

10.0x 8.0x

8.0x

6.0x

6.0x 4.0x

4.0x

2.0x

2.0x

0.0x

0.0x

PE (CY12) Semis

CY 12 PE ex cash Industrial

PE (CY13)

Semis

Source: FactSet

17 May 2012

CY13 PE ex cash

S&P 500 Industrial

S&P 500

Source: FactSet

64


U.S. SEMICONDUCTOR CAPITAL EQUIPMENT

Orders may be peaking but appear sustainable C. J. Muse

We expect 2012 wafer fab equipment (WFE) to be flat year over year, with yield issues and supply constraints in 28nm production driving foundry players to raise capex budgets, foundry/logic equipment spending now flattish (vs more muted Street expectations entering the year), and the outlook for memory still subdued. Based on the 1Q12 results/2Q12 guidance from the majority of the semiconductor production equipment (SPE) space, we believe that shipments and bookings will be flat in 2012.

Shares of SPE names are likely to remain relatively range-bound as investors weigh the likelihood of peaking orders against the view that current business levels are likely sustainable not only through 2H12, but also through 2013.

In this environment, we recommend leverage to product cycle stories with attractive valuations. We highlight ASML as our top pick in front-end processing for leverage to the extreme ultraviolet (EUV) secular growth story coupled with expectations for an Intel-driven rise in 3Q12 bookings. In back-end processing, our top pick remains Teradyne given its superior leverage to all of the top mobility OEMs coupled with emerging growth from the LitePoint acquisition.


Sector View

2-NEUTRAL

17 May 2012

We see flattish WFE in 2012 and flat to +/-10% in 2013 While we had anticipated modest declines in 2012 WFE entering the year, rapid customer migrations to 28nm and continued yield issues at the leading foundries have raised the outlook for foundry capex. This has offset more muted NAND WFE, where oversupply and depressed ASPs have delayed investment. We see 2012 WFE flattish at around $31.5 billion, and while we anticipate some pullback in foundry spending in 2013, we believe the recovery in NAND and logic spending should allow 2013 WFE to track flat to +/-10% Y/Y.

65


Figure 67: Wafer fab equipment outlook ($ in Billions)

$40

$37 $33

$33

$35

$31 $29-33

$29

$30

$25

$25

$22

$20 $15

$15

$16 $12

$10 $5

20 09 20 11 20 13 E

20 03 20 05 20 07

19 99 20 01

19 97

19 95

19 93

19 91

19 89

19 85 19 87

19 81 19 83

$0

Source: Barclays Research, SEMI

Key drivers of 2013 spending – look for MPU and NAND to ramp up Our 2012 WFE assumptions are based on: 1) flattish foundry capex, as Samsung and TSMC vie for 28nm business, with UMC and GlobalFoundries also seeking to become more competitive; 2) flattish to slightly down MPU spending, with a recovery in orders beginning in 3Q12; and 3) still sluggish NAND and DRAM spending given more muted demand and industry overcapacity. For 2013, we look for: 1) Intel’s spending on equipment to rise in earnest as the company ramps up 14nm production at various fabs; 2) NAND spending to recover given the secular growth drivers in NAND adoption (SSD penetration into PCs, increasing demand for handsets and tablets); and 3) foundry spending to decline from several years of peak-level spending, though still supported by the substantially higher capital intensity at the 28nm node coupled with initial investment in 20nm production.

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Figure 68: Spending by segment WFE Spending by Segment ($B) $31.5 $31.5 $29-33B

35 30 25 20 15

$12 $12

$9-11 $7 $7 $8

10

$7.5 $8 $8-9

$5 $5 $5-6

5 0 Foundry/Logic

MPU

NAND 2011

2012E

DRAM

Total

2013E


Orders tracking flattish through year-end, with potential for quarterly fluctuations based on seasonality and customer exposure Following a stronger-than-anticipated order ramp for many equipment companies in 1Q12, we believe the 1Q12 industry order run-rate has reached $30+ billion. And given our expectations for 2012 WFE to total approximately $31.5 billion, we believe the order and shipment trajectory will be flattish to modestly higher through year-end. This in turn will likely keep the group range-bound with orders looking to peak, but a sell-off is unlikely given expectations for these orders/shipments to be sustainable at least through year-end. As a result, we expect SPE shares to remain range-bound until investors gain confidence that capex will rise in either 2012 (representing upside to the consensus view that it will be flat) or 2013.

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67


Figure 69: WFE bookings and billings trajectory $14.0

3Q07 annualized WFE run-rate = $36B


$12.0

$ Billions

$10.0


$8.0

$6.0

$4.0 3Q05 annualized WFE run-rate = $19B

$2.0

4Q11E annualized WFE run-rate = ~ $28B


$03 Q03 Q04 1 3 1Q

05 Q06 Q06 3 1 3Q

04 Q05 1 3Q

07 Q07 3 1Q

08 Q08 Q09 1 3 1Q

Billings

09 Q10 1 3Q

E E 10 Q11 Q11 12 Q12 3 1 3Q 3 1Q

Bookings

Source: Barclays Research, WWSEMS

Mobility providing support for $2.5 billion+ SOC test demand in 2012 Driven by strength in mobility-related system-on-chip (SOC) demand, tester demand has been stronger than expected in the first half of 2012. Looking to 2H12, we believe tester demand will continue to be supported by a recovery in spending from core analog and automotive/industrial-related SOC demand. As a result, we see the 2012 SOC test market trending flattish year over year at around $2.55 billion, with similar levels of spending likely in 2013. Importantly, we believe SOC test spending will continue to be weighted toward mobility-related integrated circuits, which should disproportionately favor Teradyne. We estimate that Teradyne’s SOC test market share will ramp up from around 40% in 2011 to 47.5% in 2012 and 49% in 2013. Figure 70: SOC test market and buy rate $6.0B

4.0%

3.7%

3.5%

$5.0B

3.0% $4.0B

2.3%

2.5%

2.1%

$3.0B

2.0% 1.8%

1.3% 1.2%

$2.0B

1.5% 1.0%

$1.0B

0.8%

$0.0B

0.5% 0.0%

1996

1998

2000

2002 SOC Test

2004

2006

2008

2010 2012E

SOC Buy Rate

Source: WSTS, VLSI, Barclays Research

17 May 2012

68


Key Picks In this environment, we recommend leverage to product-cycle stories with attractive valuations.

17 May 2012

ASML is our top pick in front-end. First, it has spent heavily on EUV, an advance that shortens the wavelength of light used in a lithography machine, which translates into higher resolution and smaller features. Second, it stands to benefit from an Intel-driven increase in 3Q12 bookings. This combination gives us increased confidence in the company’s 2013-14 growth.

In back-end, our top pick remains TER. Teradyne enjoys superior leverage to all of the top mobility OEMs and to the emerging growth in wireless products thanks to its September 2011 acquisition of LitePoint. Concerns of an order peak could prove to be a headwind, but we point to still-underappreciated growth, share gains in SOC test, and attractive valuation as reasons to support continued outperformance.

69


U.S. INTERNET

Smartphones and devices driving growth Anthony DiClemente, CFA

We rate the Internet sector 1-Positive. We believe fundamental trends in online advertising and eCommerce remain solid, and maintain our stance that the continued proliferation of smarter mobile devices and higher bandwidth speeds will drive significant increases in Internet usage, with monetization trends likely to follow.

Our top picks in the space are Google and Priceline. We continue to believe Google’s dominant position in search, exposure to mobile via the Android platform, and increasing traction in display position the company well going forward. We believe Priceline is the best levered online travel agency to the international and hotel markets. Given 60%+ growth in hotels on Booking.com in 2011 and fairly consistent triple-digit bookings growth at Agoda, we believe Priceline still has a robust growth runway ahead.

+1 212 526 4008 [email protected] BCI, New York Perry Gold +1 212 526 7827 [email protected] BCI, New York

Sector View

1-POSITIVE

Mobile devices in early growth stage Smartphones and devices are delivering Internet growth: We believe the impact of mobile devices on Internet usage, advertising, and commerce is still in its early stages. Internet connectivity is becoming a must have on the majority of devices, and we believe network speeds, affordable data plans, and the devices themselves with full HTML browsers are enabling this transition. Among our coverage group, we believe Google is the best positioned to benefit. We are impressed with the Android’s momentum, which currently has 47% share of domestic smartphone platforms and is activating ~850,000 devices a day. In addition, Amazon has become a competitor in the tablet market via its low-priced Kindle Fire offering, and we look for new tablet offerings in 2H12, which we believe could help Amazon to win share in digital media as sales of physical media will decline over time. We believe search ports better than display on mobile, and by extension local-focused queries should monetize well on mobile devices. The limited screen size of mobile devices drives higher click-through rates in search, while mobile ad formats such as “click-to-call,” often associated with local ads, are more effective on mobile devices than on desktop, in our view. We believe display will not monetize as well given the greater sense of intrusion on the smaller screen and less overall space for ad placement. Given Google’s leverage to search, and its higher share of queries on mobile, we believe it is among the best-positioned companies in our coverage group for the shift toward smartphone and tablet usage. On the other hand, we are more cautious on companies such as Yahoo! and AOL given their reliance on display advertising and their relative lack of innovation and investment in mobile. We also think eCommerce converts well on mobile devices and helps to further blur the lines between offline and online retailing. We believe Amazon, eBay and Priceline are well-positioned here. All three companies have invested heavily in mobile and we believe offer strong multi-screen experiences via their apps. Amazon’s Kindle family helps to increase its exposure to digital media while allowing it to have a say in the direction of the space via its investment on the hardware side. eBay has also seen strong traction to date in mobile as its PayPal business saw 2011 Total Payment Volume (TPV) of $4 billion, and it has guided to $7 billion of TPV in 2012, while its Marketplace segment saw mobile Gross Merchandise Volume (GMV) of $5 billion in 2011, and guided to GMV of $8 billion by 2012.

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Priceline’s largest brand, Booking.com, recognized $1 billion in bookings via mobile devices in 2011. Internet remains the fastest-growing category within advertising: Internet advertising continues to benefit from secular tailwinds as the gap between U.S. Internet advertising dollars as a percentage of total ad dollars (around 1/6) should close versus the Internet’s percentage of overall media consumption time (more than 1/3). However, we do not believe online advertising is totally insulated from a macro slowdown. We believe that any macro softness will be more impactful on the display side than on the search side, particularly as branded advertising budgets get trimmed. Of note, we believe that portals like AOL, Microsoft, and Yahoo! have begun to face increased competition from the likes of Google and social sites in display. Content battles continue to heat up: Internet companies are increasing their clamor for content, particularly streaming video content, as traditional media continues to migrate toward new media distribution channels and the media consumption model increasingly moves to rent from buy. As a result, we believe that streaming video content will be much more expensive for Internet companies to acquire. In addition, there is now more competition bidding up the value of this content; Amazon has been investing in content for its subscription video-on-demand (SVOD) offering from Amazon Prime, bringing the total number of advertised titles available to Prime members up to around 17,000. Comcast also has entered the space with its February launch of Streampix, a standalone SVOD service which could eventually be offered out of footprint as another direct competitor to Netflix. Moreover, most Multi-System Operators have online platforms for on-demand content, including Comcast’s XFINITY platform, AT&T’s U-Verse, Verizon’s Fios, Direct TV, DISH, and others. It is our view that these distributors will continue to acquire digital content for ondemand viewing in footprint, and longer-term we believe TV Everywhere threatens to cannibalize users’ time spent on connected devices.

Key Picks Google (1-Overweight; $750 Price Target): Despite market concerns around cost per click (CPC) declines and the Motorola Mobility acquisition, we believe Google continues to be a significant, well-positioned player and disruptor across the Internet. Google remains dominant in Search, where it is benefitting from very strong volume growth (1Q12 paid clicks grew 39% Y/Y). In addition, Google has strong exposure to mobile via its Android platform, which is seeing ~850,000 daily activations; it is our view that the net effect of the shift toward mobile devices and mobile search will be incremental net revenues and paid clicks. Moreover, its emerging businesses continue to grow rapidly, and the company continues to gain traction via its display initiatives across YouTube, the content network, and the Ad Exchange. Priceline (1-Overweight; $800 Price Target): We believe Priceline is the best positioned online travel agency (OTA) to benefit from global travel trends and it is our top pick across the OTA sub-sector. Priceline comprises the rare combination of strong top line growth at scale and high EBITDA margins. As we believe global hotel and rental car online travel penetration is in its relatively early days, we expect continued strong growth ahead. We do retain some caution, however, as Priceline is the most exposed OTA to Europe.

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U.S. DISPLAY AND LIGHTING

Incrementally more positive on the LED market Amir Rozwadowski

Our outlook for the Display & Lighting sector remains Neutral given the tempered demand backdrop and continued challenges of oversupply. However, given recent data points suggesting that a potential improvement in LED end market demand may be on the horizon, we are incrementally more positive on the LED market as we expect increased penetration of LEDs among general lighting applications to pick up momentum in 2013 and beyond.

Our top picks are Corning and Veeco Instruments. While Corning has been hit with a number of challenges, including share loss and steeper-than-expected pricing declines in its core display business, we believe that average selling prices (ASPs) have since normalized. Coupled with low channel inventory, we expect the company's display business to now more closely track end market demand, which remains healthy – albeit at a much more mature pace. We consider Veeco best positioned to benefit from not only a cyclical recovery in end market demand, but also the need to supply additional capacity to support rising penetration of LEDs in general lighting applications.

+1 212 526 4043 [email protected] BCI, New York Olga Levinzon +1 212-526-9134 [email protected] BCI, New York

Sector View

2-NEUTRAL

LCD: Pricing adjustments now behind, look for more normalized glass demand Over the past few quarters, the LCD glass supply chain has been negatively impacted by questions around the pace of end market demand, pricing volatility and share shifts. Moreover, as LCD TVs evolve, questions around the impact of technical innovation (i.e., thinner screens, OLEDs) on glass manufacturers remain an overhang. In our view, while some challenges persist, we believe that recent data points suggest that a number of concerns impacting the industry have shown signs of bottoming, thus pointing to stability and ultimately a higher probability of end market recovery. End market demand, while maturing, is holding up comparatively well. Worldwide LCD TV unit sales growth has proven to be resilient with regional strength in the U.S. and China offset by YoY declines in Europe and Japan. On the pricing front, recent commentary out of Corning suggests that while ASPs have declined more steeply than expected in recent quarters, a more normalized level – i.e., in the low to mid single range – has emerged in recent quarters. In our view, the primary culprits for driving the accelerated pricing declines – share shifts and increased financial pressure on the panel manufacturers – have now eased, which should enable more steady declines in the coming quarters. Moreover, key suppliers including Corning and Asahi Glass have cut back capacity, which should allow for more normalized channel inventory levels. Lastly, technical innovation is clearly a longer-term variable affecting the end market and could have a sustainable impact on glass manufacturers. However, in our view, the evolution of the LCD TV industry should not be regarded as just a threat but also as a potential opportunity. As OLEDs will take time to hit the mass market (the first large-format TVs at the Consumer Electronics Show debuted to the tune of a $10,000 price tag), we believe vendors are looking at opportunistic ways to capitalize on potential market opportunities, and thus closely monitor end markets as they evolve.

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LEDs: Industry overcapacity remains a headwind, beginning to see a light at the end of the tunnel Our primary concern on the LED market remains industry overcapacity and the pace at which LEDs would penetrate general lighting applications. We have consistently maintained that LED penetration into General Lighting was a question of "when," not "if", though visibility has been lacking on the progression of adoption. However, as industry data have been increasingly pointing toward improved traction, with strong LED lighting revenue growth among the top lighting conglomerates, we are now incrementally more positive that the general lighting opportunity is beginning to gain some traction. Coupled with a recent pullback in the shares, we would look more optimistically around the space as momentum continues to build. Specific to LED equipment, we’d note that while the LED industry started off the year with ~60% overcapacity, our estimates suggest that the combination of growing LED penetration into TV backlighting coupled with steady growth in LED lighting should absorb the excess capacity by the end of 2012. As a result, we anticipate metal organic chemical vapor deposition (MOCVD) bookings to begin to accelerate in 2H12 as LED makers target LED area demand growth in 2013 and beyond. As a result, we see MOCVD tool demand picking up from the 2012 trough levels of ~315 tools.

Key Picks Corning: Visibility on end-market demand remains limited, but we are encouraged that Corning may reach trough quarterly earnings in 2Q. We believe that ASP declines have normalized. Coupled with low channel inventory, we expect the company's display business to now more closely track end-market demand, which remains healthy – albeit much more mature. Thus, with stabilizing fundamentals and a high likelihood for an increased cash return strategy in coming quarters, we retain our positive view on the shares. Veeco Instruments: We believe Veeco is best positioned to benefit not only from a cyclical recovery in end-market demand, but also new capacity additions in LED general lighting applications. Veeco is poised for market share gains; we expect it to have 55% of the MOCVD market by 2013. Moreover, we believe the Street is underestimating VECO’s more streamlined business model and strong operating leverage. Our above-consensus 2012 and 2013 EPS estimates are $1.60 and $2.15, respectively, versus $1.28 and $1.93 for the Street. We see “normalized” EPS of around $4.00 in the next 3-5 years, and see continued upside potential in the shares.

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U.S. CLEAN TECHNOLOGY AND RENEWABLES

Focused on attractive cost/value propositions Amir Rozwadowski

Rising energy demand is a long-term positive for clean technology and renewables. Despite near-term broader market challenges, rising energy demand spurred by global population growth and low market penetration suggests a large multi-year growth opportunity. The need to fill the gap between energy needs and what fossil fuels can provide, together with growing private sector investment even in a challenging macro environment, supports our more sanguine view in the long term.

We see pockets of opportunity in alternative-fuel vehicles and energy efficiency. With less support from government stimulus and regulatory incentives, the clean tech industry will need to drive demand with technologies that provide an attractive cost/value proposition. We see pockets of opportunity in electric vehicles (EV), energy efficiency and smart grids over markets such as LEDs and solar, which are still digesting the dual challenges of overcapacity and tightening incentives.

Diminishing incentives pose a major risk. The success of select sub-markets depends on the ability to develop viable and competitive economic models. A prolonged global macro recovery could derail opportunities for sector growth as select technologies would be unable to build the scale needed to compete with incumbent solutions.

+1 212 526 4043 [email protected] BCI, New York Shrenil Bhansali +1 212 526 7570 [email protected] BCI, New York

Sector View

2-NEUTRAL

Demand growth to drive next phase of clean technology In our view, the next phase of the clean technology sector’s evolution will be led by demand rather than incentive-supported supply growth. As many of the supportive initiatives that were in place have either disappeared or declined in size, we believe investors that are focused on the clean technology arena will be best positioned by maintaining exposure to those areas that are less reliant on incentives and provide more attractive cost/value propositions. We recognize that the broader sector will continue to depend on government support and regulatory incentives, particularly since the industry is still in the early stages of development. However, we continue to believe that companies with less risk of further consolidation are the ones that can provide differentiated value to specific end markets, thus spurring ongoing and steady growth in demand. By end market, we are thus relatively positive on the near-term outlook for the alternative fuel vehicle market, particularly vendors that provide comparative performance metrics to available internal combustion engine alternatives. We believe the increasing availability of broader options by established automotive OEMs should raise consumer awareness, and those vendors that cater to high discretionary income customers should be better positioned to capitalize on early adopters in the market. We believe the adoption of alternative fuel vehicles will continue to be driven by two primary markets. The first is the premium market, where high discretionary income buyers don’t need to take into account the total cost of ownership (TCO) argument for owning an electric vehicle and will pay for innovation as they can afford to take on any risk associated with a pure EV. The second market is where a TCO argument makes complete sense; i.e., in the case of fleet vehicles which have defined driving plans and could benefit from a reduction in fuel costs over multiple vehicles.

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We also have a positive view on the energy efficiency market, which we believe is the lowhanging fruit of the sector. We believe that the installation of newer, more energy-efficient solutions (e.g., lighting, building management systems) is the easiest way to reduce energy costs, particularly since residential and commercial energy use is one of the highest outlays in the U.S. market. In our view, the energy service company (ESCO) market is an attractive way to capitalize on broader energy efficiency trends, but also provides a stable longer-term tailwind given exposure to long-term, highly visible, cash-generative contracts. Within the market itself, channel checks indicate the municipality, university, school and hospital (MUSH) market is recovering and federal RFPs continue to gain traction. When we first began tracking the smart grid space at the end of last year, the principle concern was the limited visibility on the timing of the international upgrade cycle (led by Europe), making it difficult to assess when the gap left by decelerating investment in the U.S. would be filled. However, we are now incrementally more positive on the pace of European demand given conversations with utilities and meter vendors alike, and expect it to increasingly serve as a key driver of stocks in the smart grid space over the next 12-24 months. We suggest that investors begin to take a second look at what could be a significant multi-year cycle. We believe the solar market is 1) facing the threat of profitless prosperity, where even tier-1 manufacturers are unable to generate profitability; 2) facing tempered demand given diminishing incentives (i.e., German and Italian tariff cuts and the expiration of the U.S. 1603 cash grant; and 3) ripe for consolidation and, more likely, rationalization as select vendors need to exit the market in order to support the longer-term health of each company. We still do not consider it an opportune time to actively call the “survival trade” in the market just yet, and would wait for further evidence of stable pricing trends – and more importantly visibility on the ability to stabilize margins – ahead of looking for longer-term plays.

Key Picks Tesla Motors (TSLA; 1-Overweight – co-covered by Global Autos and Auto Parts Analyst Brian Johnson) is our top pick in the alternative fuel vehicle market as we believe the company is well positioned to capture share in the EV market as a premium provider of automobiles. Tesla has a number of factors working in its favor. First, demand is healthy. We believe the company’s accelerating reservation trends, which currently stand at 9.7K by our estimates, indicate that there is strong appetite for the Model S. We believe Tesla sits at the right niche of the EV market, focused on high-end users willing to pay for innovation and performance, and would be relatively less bothered by a tepid economic backdrop. On the execution front, we have been impressed by the company’s ability to ramp up its NUMMI facility, and thus believe it is well on track to meet its launch deadlines with deliveries scheduled to begin in July. Given high short interest in the shares, we believe management’s ability to achieve its targets could drive further appreciation. Ameresco (AMRC; 1-Overweight) is our energy efficiency pick. While we recognize that contract awards are likely to remain lumpy, particularly for the MUSH markets, we believe longer-term trends for energy efficiency contracts are positive, particularly in the federal market. We consider Ameresco’s ESCO business model comparatively defensible in the current environment, and thus like its longer-term visibility and cash generative characteristics. Elster (ELT; 1-Overweight) emerges as our top pick in the smart grid sector, largely as it generates close to 70% of revenues from international markets, 49% of which come from 17 May 2012

75


Europe where the next leg of spending should emerge in late 2012/early 2013. Most recently, Elster’s award wins with Iberdrola and E.ON highlight the company’s incremental share gain in the residential electricity market, a market Elster is beginning to penetrate. This remains material as we expect market growth to remain steady, suggesting the potential for further share gains. Power-One (PWER; 1-Overweight) is our top relative solar sector pick as we believe the company is well positioned to gain share in the growing North American and Indian markets. While we believe 2012 serves as an investment year, and likely a trough year, we believe the company’s sales and margins should gradually improve into 2H12. Additionally, the inverter market is less likely to be commoditized versus other areas of the solar value chain. That said, we recognize that the company’s performance is unlikely to be completely divorced from broader solar market demand, where we continue to see downward pressure.

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EUROPE TECHNOLOGY

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EUROPEAN TECHNOLOGY HARDWARE

Sector slowly turning, growth is in smart mobility Andrew Gardiner, CFA

The Technology sector continues to adapt to a world of low GDP growth: After a correction in mid-2011, ASML orders bottomed in 3Q11 and all our major semiconductor players called the trough at some point in 4Q11/1Q12. In hindsight what we have seen is a short and soft downtick, making this transitional period more of a correction than a full-fledged cycle. However, we believe later-cycle telecom equipment players are in a more structurally difficult situation and could take a lot longer to recover.

There is still little good cheer for most companies that are not benefiting from specific structural growth drivers: ASML is gaining market share and growing with its customers’ tech upgrades, Infineon’s automotive semis end-market is continuing to outgrow the sector with the ongoing electronification of cars, and the trio of ARM, Imagination and Dialog is surfing the smartphone wave. The outlook is, however, still muted in spaces with less obvious innovation (telecom equipment) or with direct exposure to the consumer (Logitech, TomTom).

Our preference is for structural growth stories, and our top picks are ASML (1-OW, orders continue to improve with logic customers and extreme ultraviolet lithography (EUV) into next year) and the smartphone and Apple eco-systems with ARM (1-OW, high exposure to smartphones, entering new markets with tech lead on Intel), Imagination and Dialog (1-OW, strong leverage to Apple while diversifying and growing share and end-markets).

+44 (0)203 134 7217 [email protected] Barclays, London Youssef Essaegh +44 (0)203 134 7250 [email protected] Barclays, London Tim Warren, CFA +44 (0)203 555 2013 [email protected] Barclays, London

Sector View

2-NEUTRAL

Prefer stocks with strong global positioning focused on key technology trends Given the still weak economic environment and the ongoing sovereign debt crisis, we made our key recommendations on stocks with a strong global positioning that play into key technology trends. This means that we missed some of the strong risk-on trade during 1Q. However, the past few weeks have shown that this can reverse rapidly and we remain of the view that positioning for the aforementioned structural trends offers better risk-reward. In addition to our recent upgrade of ARM, we remain strong proponents of Dialog Semiconductor and Imagination given their gearing into the smartphone and tablet growth and into Apple and Samsung in particular. ASML also remains one of our top picks. We expect orders to continue to improve and positive EUV news flow to create momentum in the shares. Historically, slowing order momentum has been a sell signal for ASML, but we expect orders to remain strong in 2H12, driven by Intel’s 2013 plans for 14nm, and we think any macro driven share price weakness would represent an enhanced buying opportunity. In telecom infrastructure, we retain our cautious view, as weak trends are supported by caution from both customers and suppliers. On the customer side, a muted snap-back from the prolonged debate over AT&T/T-Mobile in the U.S. (small up-tick + network modernisation), sluggish trends in Europe (mostly network modernisation) and lack of significant upgrades in emerging markets suggest to us another year of lacklustre growth.

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Figure 71: European Technology Hardware – key recommendations 1-Overweight

Rationale

3-Underweight Rationale

Imagination

Tablets / smartphones / Apple

TomTom

Legacy pressures more than offset new growth areas

ASML

Capex cycle bottomed, 2013 adds EUV and increased capital intensity

Kudelski

Exposure to digital TV, downside to estimates forecast

Dialog

Tablets / smartphones / Apple

ARM

Tablets / smartphones, return to estimate & newsflow momentum Logitech

Consumer electronics exposure, restructuring continuing


Key Picks ASML (1-Overweight/2-Neutral, €45 price target): ASML continues to be well positioned for the long term, in our view. The correction in expectations for the macro outlook created some lumpiness around 3Q11 but that is now stable and the company’s net bookings are back to growth. In the medium term, we believe that ASML will be in an increasingly strong position due to: 1) its importance to the industry (lithography as a percentage of semi capex); 2) increasing capital intensity in lithography (cutting edge tools are getting more expensive but those for the less critical layers too); and 3) market share gains (ASML’s dominance in immersion and as the sole manufacturer of next generation EUV tool). ASML is on track to deliver a FY2012 at €4.9-5bn revenue. We expect orders to remain strong in the near term, led by increasing foundry spending on leading edge nodes (TSMC is seeing shortages in its 28nm, Samsung continues to invest material amounts, and Intel, which will soon start to build its 14nm fabs). NAND is also a driver, albeit of a smaller magnitude, with demand continuing to increase, led by the rise of smart mobility devices such as smartphones and ultra-thin and low-power laptops. We believe that orders will remain strong in 2H12 and into next year. Such activity suggests quarterly sales of c.EUR1bn+ in the next few quarters, supportive of Datastream consensus 2012 revenue expectations of EUR4.9-5.0bn. ASML trades on 14/10x 2012/13E EPS, and we forecast 25%+ EPS growth in each of the next two years. While we acknowledge multiple de-risking for EUV uncertainty, we expect ASML to continue to make progress on throughput and that as EUV becomes more commercially viable, multiple pressure will recede, driving shares toward our EUR45 price target or 16/13x P/E. We reiterate our 1-OW rating. ARM (1-Overweight/2-Neutral, £7.25 price target) has performed weakly over the past year as the market digested its prospects in the PC market and earnings momentum slowed. We see more upside in the smartphone and tablet segments, and ARM retains its strong position in both, despite threats from Intel. Our in-depth analysis of ARM vs Intel concludes that while both sides are moving into one another’s market, there should be no material shifts in smartphone or PC share. We forecast tablets to grow strongly and for ARM to retain the upper hand. On Windows on ARM, Microsoft’s disclosure has resulted in a more modest expectation of adoption of ARM in PCs, contributing minimally to 2012/13 estimates. 1Q12 was a mixed quarter, with the dominant highlight given the negative reaction of shares being a small miss in royalty revenue due to the Thai floods. We believe the stock price weakness since then to be overdone, and we continue to see significant value on a 12month view, with royalties set to trough in 2Q12. The stock still awaits positive earnings momentum and improved news flow. We expect positive consensus estimate revisions to

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return this year, with continued strength in smartphones/tablets, operating leverage and improving tax. Shares are attractively valued given growth: ARM remains on premium multiples, but at 36x/30x 2013/14 P/E, we consider such multiples increasingly attractive for a company generating 20% CAGR in EPS and with such a strong business model. Our DCF points to £7.25 fair value for shares, implying +40% upside to current trading levels. We are 1-OW. Imagination Technologies (1-Overweight/2-Neutral, £7.60 price target) is a semiconductor IP licensing company focused primarily on the graphics chip market with its successful Power VR product line. In a similar fashion to ARM, it sells licenses to customers and generates royalties which provide a long-term stream of high-margin revenue with good visibility into the future. Imagination is heavily exposed to smartphones, one of the few areas of consumer electronics that has grown at double-digit rates over the past few years despite the weakening macro economy. Currently, more than 70% of Imagination’s royalties derive from graphics IP, with the bulk in smartphones. We expect the category to grow at a CAGR of c40% through F2014, supporting both licensing and royalty revenue growth. We continue to see Imagination as a top pick and a structural winner due to its high exposure to smartphones and tablets. While Imagination is highly leveraged to the Apple story (100% market share of iOS devices), it is well diversified too: Strong exposure to the Android eco-system (c40% market share), and to the rapid growth of the low-end smartphone (MediaTek 3G chipsets are 100% Imagination). Imagination, unlike ARM, is also agnostic to the Intel vs ARM battle because it provides its IP to both camps (Intel's Atom System-on-Chip uses Imagination's Graphics). Recent major design wins and market share gains in the smartphone/tablet space include Huawei, Qualcomm, MStar, Samsung and ST-Ericsson. Given the strong long-term cash flow story, Imagination shares trade at high near-term multiples of 60/41x 12/13 PE and the licensing business model makes a DCF more suitable for valuation. Our forecasts support a DCF-driven valuation of £7.60. We rate the stock 1-Overweight. Dialog’s (1-Overweight/2-Neutral, €19.50 price target) 1Q results and outlook demonstrated that it remains one of the best positioned European plays on smartphone and tablet growth. While the iPhone 4S/5 transition causes a slight pause in quarterly revenue momentum, we believe Dialog is still on track to grow revenue at >20% and EPS at >30% three-year CAGRs. 1Q12 revenue was largely in line, but Dialog guided sales flat to slightly down for 2Q, driven by the iPhone 4S/5 transition. Following this pause, management have increased confidence in achieving consensus expectations for the full year driven by "new product launches from customers,” which we think includes iPhone 5, additional models from Samsung and other Asian Android vendors. Our 2012 revenue estimate of $750mn is 4% ahead of Datastream consensus and we expect the acceleration of growth in 2H to drive up expectations and shares. Dialog has seen gross margins bottom in 4Q11 and expects gradual improvement through 2012. This bottoming in gross margin and consistent opex management should combine to drive margin expansion in 2H12 and into 2013. We forecast adjusted EPS of 1.22 in 2012, growing by 50% to 1.83 in 2013. Dialog is attractively valued, in our view, at 1.9x/1.5x 2012/13 EV/sales and 20/14x P/E, which we believe fail to reflect the material growth prospects of the company. We reiterate our 1-Overweight rating and €19.50 price target.

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EUROPEAN SOFTWARE & IT SERVICES

Tougher ’12 but SW & processing provide shelter Gerardus Vos

Growth has been holding up well during the first part of 2012, but we forecast this will slow into the second half of the year.

We therefore prefer more defensible names and focus on product cycles (SAP), restructuring/self-help (AtoS, Temenos, Micro Focus) and the processors (Amadeus, Wirecard). We continue to avoid Indra (50% exposure to Spain), Software AG (ETS in terminal decline) and Aveva (expensive and slowdown is not priced in, in our view).

+44 (0)203 314 6690 [email protected] Barclays, London John King +44 (0)203 134 7545 [email protected] Barclays, London

Decent global IT growth, but keep an eye on Europe Sector View

1-POSITIVE

From a global perspective, we forecast growth of 3-5% for FY12, which equates to ~1-1.6x Global GDP leverage, in line with the historical average. However, it should be no surprise to investors to see a strong divide between the individual regions. Europe is the weakest region and we forecast IT budgets will be flat to slightly down in this region. From a top-down perspective, we would therefore avoid companies that derive their earnings predominately in Europe. We continue to be neutral/bearish on most of the IT sector that has a high exposure to Europe, but also on those with significant exposure to the weaker verticals (like government and finance). Figure 72 shows that the top 4 IT Service players have on average 80% of revenue exposure to Europe. Figure 72: IT Services exposure to ‘risk’ verticals Europe Atos Capgemini Indra Logica

Financial Services

Public sector

Security & Total "risk Defence verticals"

81%*

20%

26%

46%

74%

22%

23%

45%

77%**

14%

14%

89%

16%

28%

23%

51% 44%

* Excluding WorldLine, ** 50% Spain Source: Barclays Research and Company Data

However, we believe there are places to hide in the sector, and we continue to prefer Software and Processing over IT Services. The rationale behind our view is the more global nature of the software industry and its proven ability to protect earnings in a downturn. The Processing companies under coverage (WDI and AMS) also managed prior downturns well while increasing earnings. In our note “Recession Proofing the Numbers”, 10 October 2011, we calculated that in a 2008-09 recession scenario, there would be just ~5% downside to our FY12 Software estimates (this excludes the 35% downside we calculated for AVV). Similarly, under such a scenario we estimated there would be ~3% earnings risk to the Processors. This is in sharp contrast to the IT Service industry where we calculated almost 20% downside. In addition, restructuring in European IT Services is extensive, resulting in an even greater impact on reported earnings, as highlighted by Logica’s warning in December. As a result, our ratings on the stocks are relatively defensive as shown in Figure 73.

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Figure 73: Stock Ratings in European Software & IT Services 1-Overweight

2-Equal Weight

3-Underweight

SAP

Dassault Systemes

Software AG

Micro Focus

Sage

Aveva

Temenos

Capgemini

Indra

AtoS

Logica

Amadeus

Steria

Wirecard

Sopra Tieto


Calls centred at product cycle, self-help and visibility (processing) Product cycle Following the acquisition of Misys we only have SAP in this space, and whilst it misexecuted during Q1, the product cycle is intact in our view. This cycle is about the development of a new technology platform (application infrastructure), based on inmemory DB technology, mobility and cloud. This is a potentially disruptive change to the industry and should bring it ahead of the competitors. We argue that this should drive license growth of 10-15% through 2015 (vs 3% over the 2003-’09) cycle and double digit revenue growth, and should continue to re-rate the stock toward 16-18x, versus the current 14x FY13E P/E.

Self-help/restructuring Micro Focus, AtoS and Temenos are all in this group. We believe AtoS is the most developed restructuring story and further re-rating will likely be based on growth and the undervalued payment business (Worldline is the 4th largest European PSP by revenues). Micro Focus reported initial stabilisation in December and we would expect further improvement in the May results. In addition, we expect Loosemore to indicate whether he will try to grow the business or will run it to be a cash generator. Finally, we upgraded Temenos to 1-OW from 2-EW on 25 April, 2012 (see “Time to look through cycle – upgrade to 1-Overweight”) as we argue that it is now a trough license revenues and expect the turn in Q2. In addition, the new management team has brought TEMN to a more professional setting and this should result in less volatility around the licenses.

Visibility/processing Both Amadeus and Wirecard have above-average visibility, which should carry a premium, in our view. AMS is relatively cheap and following the US deals the next catalyst should be the debt renewal, which could trigger a debate about greater cash returns to the shareholders. Wirecard’s secular growth in the online payment space is unlikely to be derailed by the weak macro environment. In addition, following the equity raising in March, it is likely to accelerate consolidation in this space, and we expect this company to emerge as one of the leaders in Europe.

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ISRAEL TECHNOLOGY

Well positioned Joseph Wolf

The Israeli technology stocks in our coverage universe continue to be well positioned for 2012. MLNX and NICE are not showing any signs of economic related slowdown and we expect 2H strength for EZCH and CEVA as new servers and handsets enter the market.

We believe that storage, cloud computing, mobile handsets and security remain high priorities for IT managers globally and that these areas will continue to be areas of investment. Several companies participate in key technology trends including Big Data, cloud computing, the utilization era, and Consumerization of IT.

+972.3.623.8746 [email protected] Barclays, London David Kaplan +972.3.623.8747 [email protected] Barclays, London Tavy Rosner +972.3.623.8628 [email protected] Barclays, London

Sector View

1-POSITIVE

Prefer niche semis and software Our preferred sectors in Israel Technology remain niche semiconductors and software. We believe that trends toward merchant vendors will continue to drive the development decisions at most large companies, and that the semi names in our coverage will benefit from these trends. In software and hardware, we are biased toward companies with growing exposure to Big Data and SaaS trends.

Key Picks Mellanox is our top pick in Israel. 2012 is proving to be a breakout year for the company as its mix of business moves from the niche high performance computing segment and into more mainstream data center applications. Its core revenue run has jumped 35% since 4Q11. We expect MLNX to lead with Infiniband; its momentum in 10GB/s Ethernet, its disproportionately positive Romely opportunity, and its emerging Web 2.0 opportunities have it in the real sweet spot of the growing unstructured data segment of technology. EZ Chip is exposed to the economically sensitive carrier equipment segment, but the CESR market that it sells into remains an area of spending growth as mobile data and video traffic continues to proliferate and we expect sales to improve beginning in 2Q12 and throughout the year. We believe EZCH has exposure to 60-65% of the market given its relationships with Cisco, ZTE, Hauwei, Tellabs, and Ericsson. With the new NP-4 slated for volume production we see EZCH poised for strong growth as carrier pending resumes. Ceva is well positioned in the two fastest-growing segments of the mobile handset market – the high-end smartphone market and the low-end feature phone/inexpensive smartphone markets. CEVA has a strong relationship with Samsung and has a solid base in the Android segment globally and already has key design wins in 4G/LTE. It has introduced new products for audio and video in the application specific processor market as designers offload CPU resources to the DSP. In the low end, CEVA has 55-60% market share in the 1.1 billion unit emerging market segment. 1H12 is proving to be a transition period for mobile carriers and devices – we expect growth to resume in 2H12. Given the weak stock performance YTD, we expect that CEVA may have taken the opportunity to buy back shares, something it has not done since 2010. Nice is a leader in analyzing structured and unstructured data, a key area for 2012 and beyond. NICE made four acquisitions in 2011 which together are likely to add upwards of

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$0.10 to EPS. We see these acquisitions and the share buy-back as good uses of its significant cash balance. At the same time it continues to work toward a mid-term 20% operating margin target and we believe that there may be some upside to that target. Figure 74: Israel Technology – stocks’ performance LTM 120 100 80 60 40 20

`

0 -20 -40 26/04/11

26/06/11 CEVA Mellanox Amdocs

26/08/11

26/10/11 Elbit Systems NICE Systems Comverse

26/12/11

26/02/12 26/04/12 EZchip Ceragon Nasdaq Composite

Source: Thomson Datastream, Barclays Research

Figure 75: Israel Technology – Valuation Sheet (Sector rating is 1-Positive*) Ticker

Analyst

Barclays Rating

Closing Potential Market Cap Price Price Target Upside/ (US$m) 5/11/12 downside

DOX

Kaplan/Kvaal

1-OW

$30.09

$35

16%

5,150

NON GAAP P/E

NON GAAP EPS

12E

13E

12E

13E

11.3

10.9

2.66

2.77

CEVA

Wolf

1-OW

$16.95

$30

77%

393

18.3

14.2

0.93

1.20

CRNT

Wolf

1-OW

$9.22

$11

19%

335

16.4

7.1

0.56

1.30

CMVT

Kaplan/Kvaal

1-OW

$6.49

$8

23%

1,422

58.5

5.7

0.11

1.14

ESLT

Wolf

2-EW

$35.43

$46

30%

1,536

9.8

8.1

3.60

4.39

EZCH

Wolf

1-OW

$40.46

$48

19%

1,095

32.4

21.7

1.25

1.87

MLNX

Wolf

1-OW

$58.02

$65

12%

2,353

26.4

25.1

2.19

2.31

NICE

Kaplan

2-EW

$37.69

$43

14%

2,384

15.9

14.3

2.37

2.64

Source: Company data, Barclays Research Stock rating: 1-OW = 1-Overweight; 2-EW = 2-Equal Weight; 3-UW = 3-Underweight *Sector rating for CMVT is 2-Neutral

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ASIA EX-JAPAN TECHNOLOGY

17 May 2012

85


ASIA EX-JAPAN IT HARDWARE

Lenovo remains our top pick; prefer Asustek over Acer in the near term Kirk Yang

We maintain our view that Asia PC brand companies will continue to gain share globally thanks to: 1) their higher exposure to the China market; and 2) US PC companies’ reduced focus on the low-margin hardware business.

We are now less negative on the Taiwan NB ODM space as we finally saw y/y margin improvement and more significant non-NB contributions, such as tablet PCs, server/storage and smartphones.

Our top picks in the Asia ex-Japan IT Hardware sector are Lenovo, Asustek and Quanta for the near-term momentum, and we continue to like Hon Hai, Acer, and Pegatron for the longer term (all rated 1-OW). PC shipments should be above seasonality in 2Q12, which is second-half-loaded this year, but we expect the Apple supply chain to see bigger q/q drops in 2Q12 before the expected iPhone 5 components and shipments ramp in 3Q12.

+852 2903 4635 [email protected]

Barclays Bank, Hong Kong Wayne Dong +886 2 6638 4696 [email protected]

BCSTW, Taiwan Jerry Wu +886 2 6638 4685 [email protected]

BCSTW, Taiwan Richard Cheng +852 2903 0342 [email protected]

Barclays Bank, Hong Kong Sector View

2-NEUTRAL

Prefer brand PC companies; less negative on Taiwan NB ODMs Among the Asia PC brand companies, all of which we rate 1-OW, Lenovo remains our top pick, while we prefer Asustek over Acer in the short term, given Asustek’s stronger-thanexpected 1Q12 results and its above-industry growth momentum in 2Q12E. According to IDC’s preliminary 1Q12 PC shipment data released on 11 April, Lenovo posted +44% y/y shipment growth versus market growth of only 2.3%, being the fastest-growing PC brand among the top five. Lenovo continues to firmly hold its position as the secondlargest PC vendor, and we think should become No. 1 in the next one to two years. We expect this shipment strength is likely to continue given Lenovo’s high exposure to the China PC market and aggressive share gains in emerging markets. Asustek has also posted better-than-industry average growth in 1Q12 with PC shipments up 22% y/y versus industry growth of +2% y/y. We expect new Ultrabook launches with Intel’s new Ivy Bridge, and new MB products and new tablet PCs should help Asustek continue its market share gains in Europe/emerging markets and on China exposure. We have been negative on the ODM space since we initiated coverage in late 2010, due to weak global NB PC demand, cost pressures, excessive competition and declining margins. While we still prefer brand PC companies over NB ODM ones, we are now less negative on the Taiwan NB ODMs for five main reasons: 1) more significant non-NB contributions are expected to move the needle in 2013; 2) 1Q12 OPM finally improved y/y, the first time in the past eight quarters; 3) NB shipments bottomed in 1Q12 and are likely above seasonality for 2Q12; 4) potential 2H12 demand from Ultrabooks, Ivy Bridge and Windows 8; and 5) attractive cash dividend yield and improving ROE.

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Figure 76: Global PC vendor shipment y/y and market share trend, 1Q09-4Q11 Worldwide PC Unit Share Trends Vendor 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 HP 19.7% 19.2% 19.6% 20.2% 18.8% 17.9% 17.8% 19.5% 18.6% 18.1% 17.9% 16.3% Lenovo 6.7% 8.3% 8.6% 8.8% 8.4% 10.2% 10.4% 10.2% 9.9% 12.2% 13.5% 14.0% Dell 13.1% 13.0% 12.6% 11.9% 12.6% 12.8% 12.6% 12.1% 12.6% 12.9% 11.8% 12.9% Acer Group 11.4% 12.4% 13.5% 12.8% 13.0% 12.4% 13.4% 11.5% 10.9% 10.7% 10.1% 10.5% ASUS 3.1% 3.4% 4.5% 5.1% 5.2% 5.0% 5.3% 5.3% 5.2% 5.2% 6.2% 6.6% Toshiba 5.4% 5.0% 5.0% 5.3% 5.6% 5.4% 5.2% 5.8% 5.9% 5.3% 5.3% 5.5% Apple 3.4% 3.9% 3.8% 3.7% 3.5% 4.2% 4.4% 4.5% 4.5% 4.7% 5.3% 5.3% US PC Unit Share Trends Vendor 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 HP 27.2% 24.8% 24.6% 28.8% 24.7% 25.3% 24.9% 28.7% 26.5% 26.5% 28.3% 23.2% Dell 25.9% 23.8% 25.2% 22.0% 23.4% 23.7% 23.6% 22.0% 22.8% 22.4% 21.7% 22.6% Apple 6.9% 8.4% 8.9% 7.2% 7.0% 9.0% 10.5% 8.6% 9.7% 10.3% 11.9% 11.0% Toshiba 6.6% 7.3% 7.8% 8.2% 8.4% 8.4% 8.6% 9.9% 10.2% 9.1% 8.0% 10.3% Acer Group 10.4% 12.0% 10.7% 11.8% 12.7% 10.9% 10.4% 8.9% 8.3% 8.3% 6.7% 8.2% Lenovo 3.4% 4.1% 3.8% 3.4% 4.0% 4.8% 5.6% 4.9% 5.5% 6.8% 6.7% 7.3% ASUS 1.9% 2.4% 2.3% 3.7% 4.5% 3.5% 2.5% 2.8% 3.0% 2.8% 2.6% 3.8%

Source: IDC, Barclays Research

Key Picks Asustek (2357 TT; 1-OW; PT NT$338): We continue to see Asustek’s 2012 shipments target as achievable in NBs (both regular and netbooks), MBs and tablet PCs. We note that the company aims to grow its regular NB shipments by 22% y/y to 18mn units in 2012, while netbook (Eee PC) shipments should drop by 18% y/y to 4mn units. MB shipments were guided at 23-24mn units (flat to slightly up). Tablet PC shipments guided at 3mn units (up 67% y/y). Lenovo (992 HK; 1-OW; PT HK$8.5): We continue to see strong momentum in FY2013 on multiple drivers including various launches of mass market smartphones in China, Ultrabooks (eg, a well-received Yoga tablet/Ultrabook hybrid announced for 2H launch) and smart TVs. We also expect Lenovo to continue to gain share with a more aggressive push into non-China markets, especially the EMEA region. Acer’s ex-CEO Gianfranco Lanci became head of EMEA on 2 April and set a goal of becoming the top-three PC brand in the region with 10% market share in 2013 (it is ranked No.5 with 8.2% market share as of 4Q11), with the long-term goal to be the No.1 PC brand in the region. We also expect Lenovo will be able to strongly “protect” its dominance in the China PC market with its strength in the fast-growing tier 4-6 cities, where it holds a higher market share than overall China. Quanta (2382 TT; 1-OW; PT NT$92): We were encouraged by the y/y GP and OP margin improvements (although partly helped by lower FX gains), now two quarters in a row and for only the third time in the past 10 quarters, which was the main reason for our recent upgrade of Quanta to 1-OW from 3-UW. We look for margins to remain stable in 2Q12 and then improve for the rest of the year, helped by higher non-NB product mix, cheaper labour rates with government incentives in Chongqing, more cloud computing sales contributions and better NB pricing.

Valuations Asustek (2357 TT; 1-OW; PT NT$338): Our price target of NT$338 for Asustek is based on a P/E of 12x 2013E, which is higher than the multiples for the NB EMS/ODMs of 7-10x. However, we believe it deserves to trade at 12x, which is still at the lower end of its historical five-year trading range of 9-25x. We look for a re-rating of the stock as we expect the company's operating profit growth to resume a double-digit CAGR for the next two

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years and we look for Asustek’s MB business, China share gains and Ultrabooks to provide potential upside surprises to our earnings estimates. Lenovo (992 HK; 1-OW; PT HK$8.5): Our 12-month price target of HK$8.50 for Lenovo is based on a P/E multiple of 13x applied to our EPS forecast for FY2013/14, plus HK$1.50 per share to account for excess cash. Our forward P/E target is in line with those of its brand peers and already shows a de-rating from the historical trading range given concerns about tablet PC growth and cannibalization. Quanta (2382 TT; 1-OW; PT NT$92): Our NT$92 price target for Quanta is based on 10x FY13E EPS, which is slightly above the average historical five-year trading range of 5-13x forward EPS. The target multiple we apply is also the highest among the NB ODMs due to Quanta’s promising margin outlook and successful diversification plan to other non-NB products such as servers (cloud computing) and tablet PCs. We also expect Quanta to post one of the highest EPS growth rates in 2012/13E among the NB ODMs.

17 May 2012

88


ASIA EX-JAPAN DATA NETWORKING & WIRELINE EQUIPMENT

Investment value emerging Jones Ku

We believe near-term capex momentum remains strong, with overall capex growing by 9% this year helped by a 3G capex increase at China Unicom and the additional TD-SCDMA capex at China Mobile, delayed from 2011, on top of solid 2G capex guidance.

We expect wireless enhancement capex to grow by 15-20% over the next two years to meet the increasing data demand.

Comba Telecom stands out as a likely major beneficiary of this capex growth as it is the leader in the wireless enhancement and optimization space in China, and its investment in femto cell technology should make a meaningful contribution in 2013.

+852 2903 3901 [email protected] Barclays Bank, Hong Kong Kirk Yang +852 2903 4635 [email protected] Barclays Bank, Hong Kong

Overall capex poised for 9% growth in 2012 Sector View

1- POSITIVE

Capex momentum still solid in the near term: China Mobile guided for +15% 2G capex growth in 2012 and said that Rmb18bn would be spent by the parentco on TD-SCDMA in 2012 on top of the delayed capex of Rmb24bn from 2011. China Unicom’s capex increase should be the major growth driver for networking equipment companies. This has eased previous concerns of declining 2G capex for Comba, which should also benefit from the 3G capex ramp in 2012. More capex spending on wireless enhancements: We expect total telco capex in China to remain broadly flat over the next two to three years as 2G/3G “Phase 1” capex (base stations and core transmission equipment builds) is largely complete and full nationwide 4G/LTE capex will only kick in after 2013 when the Chinese government issues 4G licenses. We believe the capex spending of the three Chinese telco operators over the next two to three years will mainly focus on network optimization and enhancement to meet the increasing data demand. Wireless enhancement and optimization capex will grow by around 15-20% in China over the next two years, while overall capex will grow by 9% in 2012E. Figure 77: China telco operator capex forecasts, 2009-12E Rmb bn

2009

2010

2011

2012E

China Mobile

129.4

124.3

128.5

131.9

China Mobile TD (parco)

58.8

25.0

24.0

23.0

China Unicom

78.1

75.6

77.9

100.0

China Telecom

40.3

41.6

49.5

54.3

China Telecom (parco)

54.0

27.0

22.0

19.0

359.6

293.5

301.9

328.2

-18.4%

2.9%

8.7%

Total Growth Source: Company data, Barclays Research estimates

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Key Pick – Comba Comba Telecom (1-OW; PT HK$8.3): We believe the recent share-price pullback on the 2011 earnings miss and concerns that capex is slowing down were overdone. At only 7x 12-month forward P/E, and as an industry leader, Comba’s share price offers a very attractive risk/reward profile, in our view. Comba has been investing in its femto cell technology since last year, which, we believe, will represent a future trend in the wireless enhancement space, given that it is less expensive for telecom operators to build capacity within an indoor building than to use mini-base stations. Comba is also able to provide its own gateway (on top of the femto cell), which is the most expensive part and which also creates a high entry barrier from a technology standpoint. Femto cell is expected to begin meaningful sales/earnings contribution in 4Q12 and make a full contribution in 2013E. ZTE (2-EW; PT HK$24.7): While we like the company for its longer term strategies on its network and terminals businesses, with limited Phase 1 capex growth both in China and overseas markets before the strong 4G/LTE capex kicks in, we expect margin pressure on the network and terminal businesses will continue to be an overhang for the stock. However, at below HK$20, we believe some investors may find value in the stock from a longer term perspective (probably with a two-year time horizon to include the global 4G/LTE capex roll out and more rationalized competition in the low-priced smartphones market). In the near term we do not expect the stock to go beyond HK$24 (past nine-month resistance level) until margins start to pick up. China Communication Services (3-UW; PT HK$4.2): With more than 90% sales exposure from China and 65% sales exposure from the three operators, we expect CCS to benefit from the stable capex ramp-up from the three operators and the upcoming capex cycle. However, with its exposure mainly to lower-end services, we expect its top line and bottom line to grow at mid-teens rates, and these are mostly in the share price already. We do not see any near-term catalysts for the stock, and we expect concerns on how the company will use the proceeds from its rights issue to continue to be an overhang.

Valuation Comba (1-OW; PT HK$8.3): Our HK$8.3 PT is based on a P/E of 13x average 2012-13E EPS, which is at the lower end of the stock’s two-year historical trading range. Given the company’s strong sales and earnings growth potential, and improved earnings visibility, but acknowledging the low level at which the shares are trading currently, we view a P/E of 13x as appropriate. ZTE (2-EW; PT HK$24.7): Our HK$24.7 price target for ZTE is based on a P/E of 18x average EPS of 2012-13E, which is in line with its five-year historical trading average. We forecast earnings will grow at a CAGR of 38% during 2012-14E, which translates into a PEG of 0.5x our target multiple of 18x. China Communication Services (3-UW; PT HK$4.2): Our 12-month price target of HK$4.20 for CCS is based on a target P/E of 7.5x applied to the average of our EPS forecasts for 2012 and 2013. Our target P/E is below the two-year historical trading range as we await more concrete details concerning its expansion plans after the rights issue. We forecast earnings will grow at a CAGR of 14% through 2012-14E, which translates into a PEG of 0.5x on our target multiple.

17 May 2012

90


ASIA EX-JAPAN SEMICONDUCTORS

What to expect post 2Q/3Q12 recovery Andrew Lu

While most of the foundry/Outsourced Semiconductor Assembly and Test (OSAT)/substrate semi vendors are guiding to sales growth of 10-20% q/q in 2Q12, we find most of their customers are guiding to growth of 4-6% q/q, implying recent strength will not last into 4Q12 if the mismatch continues in 3Q12. By adding more High K Metal Gate (HKMG) gate-last capacity from TSMC and Poly SiON, or HKMG gate-first capacity from others, and with gradual yield rate improvement, we believe the shortage in 28nm capacity will be overcome by 4Q12.

We remain 2-Neutral on the cyclical sector and expect stocks under our coverage to trade at three-year average valuations. We note top sector picks Samsung, Vanguard, Kinsus and VPEC (all 1-OW) will likely stand out, along with 1-OW-rated MediaTek, MStar and SPIL.

+8862-6638-4698 [email protected] BCSTW, Taiwan Seung Chul Bae +822-2126-2932 [email protected] BCSL, Seoul

Why a mismatch? Sector View

2-NEUTRAL

Most global customers are guiding for sales growth of 4-6% q/q in 2Q12, while the foundry/OSAT/substrate semi vendors are guiding for much stronger 10-20% q/q sales growth. We attribute the mismatch to: 1) Customers building up new product inventory starting 2Q12, ahead of their seasonally strong 2H12, despite still having 2.5-3 months of inventory as of 1Q12 (vs 2.3-2.8 MOI in 1Q11 and 1.7-2.7 MOI in 4Q12). 2) IDM outsourcing may accelerate again in the short term after nearly five years of consecutive weakness. 3) 5% incrementally stronger sales growth for TSMC than peers might be driven by 28nm ramp up. Given foundry/OSAT/substrate semi vendors are running ahead of customers by 2-3 months, we believe recent strength may not be able to last into 4Q12 if the growth mismatch continues through 3Q12. Figure 78: IDM to total sales contribution for TSMC and UMC 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1Q99 2Q00 3Q01 4Q02 1Q04 2Q05 3Q06 4Q07 1Q09 2Q10 3Q11 4Q12 TSMC

UMC

Source: Company data, Barclays Research estimates

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91


Will the 28nm shortage continue into 2013? We believe the shortage on 28nm will be overcome by 4Q12 as TSMC is adding an additional 10k per month 28nm HKMG gate-last wafers to 68k per month capacity for customers, and yield rate is improving quarter by quarter. Plus, another 20k per month is to be added by Poly SiON, or HKMG gate-first capacity may be coming from Samsung, Globalfoundries and UMC, based on our channel checks. Rising capital intensity remains a key concern for foundries: Although foundry vendors have guided for stronger sequential growth than OSAT, substrate and fabless vendors, we believe rising capital intensity and depreciation will limit margin upside for foundries once utilization reaches 100% for TSMC.

Key Picks We highlight higher-beta small cap and strong cash flow/margin recovery names Kinsus and Vanguard for their company-specific attributes. Kinsus (3189 TT, 1-OW, PT NT$119): We expect three catalysts will drive near-term outperformance: 1) A5x and A6 substrate orders to kick in; we estimate sales contribution of 5-10% for 2H12 and 5% for 2012 from Apple; 2) 3G/4G LTE smartphone baseband, AP and PA are driving a better product mix (to 35% of sales in 2012E from 27-28% in 2011) and margin improvement of 2-3ppts in 2012-14E from 2010-11; and 3) Piotek and other investment losses are likely to fall to less than 12% of profit in 2012E from 16% of profit in 2011, on our estimates. Vanguard (5347 TT, 1-OW, PT NT$20): We expect a re-rating on Vanguard and estimate its ROE will improve to 10-12% for 2Q12-14E from 7-8% over the past four years, driven by: 1) the completion of the Fab 2 conversion, which should benefit gross margin by 5ppts; 2) lower depreciation costs, which should boost 2013/14E margins by 7.5-9ppts; 3) product mix shift to higher-margin power management ICs; and 4) the return of cash to shareholders. Figure 79: Relative performance vs Taiwan Weighted Index

90% 70% 50% 30% 10% -10% -30%

Kinsus

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

-50%

Vanguard

Source: TEJ, Barclays Research

17 May 2012

92


ASIA EX-JAPAN WIRELESS EQUIPMENT AND PRODUCTS

Prefer players with exposure to new iPhone/MacBook Dale Gai

Most Apple component players are expected to suffer from Apple’s order cuts on the product transition for iPhone, which we view as a short-term issue, and suggest accumulating on weakness for those with exposure to the new iPhone orders.

Apple is expected to launch its new generation MacBook series in late 2Q12, including MacBook Pro and MacBook Air, and we expect relevant suppliers to see strong order uptick in 2Q12 ahead of the launch.

Catcher (1-OW, PT NT$230) is our top pick, as we believe that the company will benefit from the MacBook refresh cycle and that the downside from the smartphone clients has been priced in.

+886 2 6638 4697 [email protected] BCSTW, Taiwan Derrick Yang +886 2 6638 4686 [email protected] BCSTW, Taiwan

Weak Apple orders in 2Q12 offer good opportunity to accumulate shares of selective Apple plays Sector View

1-POSITIVE

Some Apple component suppliers in Taiwan may see a broad-based sequential double-digit decline for 2Q12 revenues, with the extent of the drop depending on their varying exposure to Apple. While companies with a high reliance on Apple tend to be quite cautious when making comments, we believe that they should see more of a revenue decline in 2Q12, given that we have not heard of any significant changes in component order allocations. We see the weakness among Apple component suppliers as a short-term issue on the new product transition, and believe component inventory restocking will resume in 3Q12, ahead of the new iPhone launch, bringing revenues back to their growth trajectory. We would see any near-term share price weakness as an opportunity to accumulate shares of these new iPhone suppliers in 2H12. Based on forecasts from our Apple analyst Ben Reitzes, we forecast quarterly sell-in volume of 33/30/38/47mn units over 1Q-4Q12, while our checks conclude 10-15% potential upside to orders from Apple in 3Q/4Q12 for the new iPhone launch. We expect the new iPhone, carrying LTE/4G network and thinner form factors, to drive component supplier momentum in 2012-13, and believe recent share price softness offers a more attractive entry point. Companies that we believe follow this theme include Tripod (PT NT$100), AAC (PT HK$25) and Largan (PT NT$660), all rated 1-OW.

MacBook refresh cycle to drive component suppliers’ 2Q12 business We expect the refresh of the MacBook models to ship from 2Q12 with new features that will likely include: 1) Ivy Bridge (paired with Intel HD 4000 graphics) and Mountain Lion OS; 2) a thinner form factor for the MacBook Pro; 3) possibly a 15-inch screen for the MacBook Air; and 4) possibly a Retina display for MacBook Pro, which we believe will help boost replacement demand. Catcher has been one of the major unibody casing suppliers for Apple’s MacBook Air and Pro, holding the majority of the market share for the MacBook Air (80-90%) and a significant, but smaller share (50%), for the MacBook Pro with Foxconn Tech accounting for the remainder of both. We believe Catcher’s CNC machines will be more heavily used because of the greater number of aluminium unibody units in the new MacBook Pro. Although we expect Catcher’s allocation for the Air to remain at 80-90% in 2012, we estimate increased allocations for the Pro (from 30-40% in 2011 to 50% in 2012), which could push Catcher’s 17 May 2012

93


sales up 20% q/q in 2Q12 and up 10% q/q in 3Q12 beyond the secular growth for Apple’s MacBooks. Catcher’s focus on MacBooks should allow it to avoid the potential near-term downside risks that other Apple supply-chain companies are facing following significant order cuts for the iPhone and flattish orders for the iPad ahead of revamps.

Key Pick: Catcher We are positive on Catcher (2474 TT, PT NT$230) due to three major catalysts: 1) stronger MacBook refresh demand from 2Q12 with the new Air line-up and thinner form factors for the Pro; our supply-chain checks indicate higher sell-in units on MacBook component orders – 4.0mn/5.3mn in 2Q-3Q12E – and Catcher is gaining share in allocations of metal casing parts for the Pro; 2) the possibility of metal casings orders in 2H12 for a prospective iPad Mini and iPhone 5 are not yet in our estimates or consensus forecasts, which could represent 12-15% earnings upside in 2H12; and 3) increases in Ultrabook and Windows 8 tablet projects in 2H12-1H13 based on our checks suggest upside in sales and margins, with improved capacity utilisation rates and higher NRE gains. Key risks are from smartphone clients: We still expect Catcher’s smartphone clients – HTC, RIM and Sony – to address their lower-than-expected sales in 2012-13, as we assume no order growth for Catcher in 2013. However, as Catcher’s sales exposure to HTC and RIM is expected to fall to 15-16% and 5-6% in 2H12, respectively, from 20%-plus and 8-9% in 2011 (with consensus forecasts now lower) our base-case assumption is that the downside risks from smartphones will be offset by Catcher’s diversification away from smartphones, with market-share gains in PC and tablets for clients Apple, Amazon and PC brands in 2H12.

Valuation Our 12-month price target for Catcher of NT$230 is based on a P/E of 13x applied to 12-month forward (3Q12-2Q13E) earnings. We adopt 12-month forward EPS into our valuation, as we believe Catcher’s weak 1Q12 is now in the price and investors will now look ahead to the next product cycle from 3Q12. Since 2006, when Catcher became the major supplier of light metal casings for IT products, the stock has traded at forward P/Es of 7-25x for an average of 13-14x. We set our target multiple at the mid-cycle of the past five years vs 10x previously. Our PT implies a P/B multiple of 2.6x on the average for 2012-13E, in light of our forecast ROE of 20-21% for 2012-13E, and considering the dilution from the convertible bond conversion. Since 2006, Catcher’s P/B has ranged from 1.0-5.8x, with an average of 2.1x, and an average ROE of 20% in 2006-11. Figure 80: Catcher – forward P/E band

Figure 81: Catcher – forward P/B band

400

400

350

350

300 250

300

200 150

200

100 50 0

100

Jan-04

250 150 50 0 Jan-06

Jan-08

Jan-10

Price

4x

8x

16x

20x

24x

Source: Company data, Bloomberg, Barclays Research estimates

17 May 2012

Jan-12 12x

Jan-04

Jan-06

Jan-08

Jan-10

Price

0.5x

1.5x

3.5x

4.5x

5.5x

Jan-12

2.5x

Source: Company data, Bloomberg, Barclays Research estimates

94


ASIA EX-JAPAN LCD DISPLAYS

Bottoming out SC Bae

We believe the top-tier panel makers will be on a stronger earnings recovery path and will leverage their capabilities to supply ultra-high-end display products, including ultra-high-resolution (Retina) OXIDE thin-film transistor (TFT) and in-cell touch-equipped panels. We see this business opportunity as significant because these products offer 4-5x higher ASP per area compared to commodity panels and the entry barriers are also substantially higher. We think LG Display, Samsung Electronics (1-OW, covered by SC Bae), Sharp (2-EW, covered by Yuji Fujimori) and potentially AUO will obtain most of the benefits. Also we like Samsung SDI based on strong earnings growth in Samsung’s small-size organic light emitting display (OLED) business.

Driver IC makers should directly benefit from this trend since the resolution upgrade will increase the number of driver ICs used on panels, while panel makers should indirectly benefit as the upgrade will enhance product ASPs, boost entry barriers, and lower supply after consuming more capacity. Our pick in this area is Novatek.

From a mid- to long-term perspective, we see the supply/demand dynamics of the commodity panel industry bottoming out based on supply discipline and slower but steady demand growth. We think the potential for capacity in the global panel industry to shrink amid line conversion to OXIDE TFT and OLED could create higher visibility for the turnaround of the commodity panel industry. Accordingly, we recently upgraded AUO.

+822-2126-2932 [email protected] BCSL, Seoul Sunwoo Kim +822-2126-2934 [email protected] BCSL, Seoul Jamie Yeh +886266384689 [email protected] BCSTW, Taiwan Sebastian Hou +886266384687 [email protected] BCSTW, Taiwan

See global TFT-LCD supply tightening; steady increase in demand Sector View

1- POSITIVE

Global TFT-LCD panel industry turnaround: We believe the amount of oversupply will ease from 2H12 and that supply will tighten during 2Q13 or 3Q13 because of the ongoing deceleration of supply increases resulting from limited new line building (except for Chinese makers) and some capacity losses at first tiers amid line conversion to OXIDE TFT, OLED and touch screen. On the demand side, we expect slow but steady demand increase to continue until 2013, combined with size and mix improvements. In terms of ASP, we do not expect significant upside or downside to panel prices during 2012 given the continuing oversupply situation in 8G and larger fabs, and the tight supply in 7.5G and smaller. However, from 2Q13 we expect overall ASP dynamics will show a more meaningful recovery based on better supply-demand dynamics. Specialty panels further expansion: Following Apple’s adoption of retina display in the new iPad, we expect specialty panel adoption to expand to the larger than 10-inch segments, including notebooks and monitors, starting with the Macbook series and iMac. This is consistent with the evolution of the CPU (e.g., Ivy Bridge), whose graphics functions have significantly improved from previous versions. We believe display is positioned as a core device in the evolution of the product cycle of mobile devices and PCs. In addition to horizontal expansion on increasing product adoption, the forthcoming Windows 8 will provide horizontal expansion opportunity for panel makers that can produce an in-cell touch screen-equipped panel in the long run. Apple’s adoption of in-cell in the iPhone5 will likely be the catalyst. Mass production of flexible OLED to drive further penetration into mobile, while TV OLEDs delayed a little: In the OLED space, we remain optimistic about the current small size

17 May 2012

95


of the OLED industry as we believe that flexible OLED technology will offer un-matchable advantages to regular OLED. We expect mass production will be seen in 4Q12 at the final product level. On the other hand, TV OLED production could be delayed a little due to yields and quality issues in oxide TFT panels and SMS (small mask scanning) technologies. We think that significant volume production of flexible OLED will begin during 4Q12 or 1H13.

Key Picks LG Display (1-OW, covered by SC Bae): We believe LG Display will show a strong recovery path over the next couple of years given: 1) the expanding business opportunity from specialty panels, which have a substantial price premium over commodity panels and higher entry barriers, driven by Apple and Windows 8; and 2) the reduction of oversupply in commodity panels due to disciplined capex and slower but steady demand growth. Valuations remain attractive at 0.8x 2012E P/B vs the 10-year average of 1.6x and the three-year average of 1.2x. Our price target of KRW36,000 is derived from the three-year average of 1.2x, based on 2012E BVPS. Novatek and AUO benefit from high-resolution migration from 2H12: We expect the trend begun by smartphones to expand into tablets and NBs in 2013. Driver IC manufacturers should benefit from this trend since the resolution upgrade will double the number of driver ICs used on panels, while panel makers should also indirectly benefit from enhanced product ASPs, higher entry barriers and lower supply by using more capacity. Our picks from Taiwan include Novatek (3034 TT, 1-OW, covered by Jamie Yeh) and AUO (2409 TT, 1-OW, covered by Jamie Yeh). Novatek in 2012 should benefit from: 1) improving shipments because of seasonality; 2) smartphone growth (higher ASPs and margins than on feature phones); 3) the entry of local China panel makers; and 4) the high resolution trend. Samsung SDI (1-OW, covered by Sunwoo Kim): We remain bullish on Samsung SDI given: 1) the company’s solid growth momentum in the battery business on the back of robust demand for polymer batteries from tablets and prismatic batteries from Samsung Electronics’ high-end smartphones; 2) the strong growth outlook for Samsung Display Corp’s OLED business, which should be positive for SDI’s equity method income; and 3) attractive valuation based on our SOTP methodology. Our price target of KRW220,000 is at 17x 2012E P/E, but is lower than the three-year average historical P/E of 22x. Figure 83: SDI - share prices and quarterly OP from battery

Figure 82: LGD – OP breakdown by panel type 2,000

(KRWbn)

250,000

(KRW)

(KRWbn

140

1,500

200,000

120

1,000

100

150,000

500

80

0

100,000

60

(500)

40

50,000

(1,000)

20

(1,500) 2010

2011

2012E

Specialty

Commodity

Source: Barclays Research estimates

17 May 2012

160

2013E

0 Apr 09 Apr 10 Apr 11 Apr 12 Apr 13 Apr 14 Share price (LHS)

0

Battery OP (RHS)

Source: Barclays Research estimates

96


JAPAN TECHNOLOGY

17 May 2012

97


JAPAN CONSUMER ELECTRONICS/DISPLAY & LIGHTING

Prefer Casio and car electronics in the near term Yuji Fujimori

We expect the industry growth driver to shift from thin panel TVs to smartphones and tablets. For components, heavy reliance on Apple is likely to continue. The set side, on the other hand, is likely to face a shrinking domestic market, affected especially by TV conditions.

Our top pick is Casio Computer, where we see strong medium-term growth opportunities for the watch business and smaller losses as digital camera ASPs improve. At the car electronics makers (Pioneer and JVC Kenwood) there is a risk of the industry environment changing due to decreasing demand and intensifying competition, but JVC Kenwood still looks undervalued.

+813 4530 2973 [email protected] BSJL, Tokyo Makoto Bizen +813 4530 2923 [email protected] BSJL, Tokyo

Near-term challenges to overcome Sector View

2-NEUTRAL

The Japanese consumer electrical sector is facing two key issues: 1) structural reform of the TV business, which is becoming increasingly commoditized, and 2) how to achieve growth in the smartphone and tablet PC sectors, where hardware is currently the main differentiating factor. However, the two main companies other than Sony, Panasonic and Sharp, do not have the business base to allow them to compete on a global scale, and we expect Sony to face a difficult environment in the smartphone business. In addition, we expect the domestic consumer electrical market, particularly for TVs, to continue to shrink in 1H 2012 in reaction to the demand driven by the termination of analog TV signals last year, and accordingly we see no reason to be aggressive buyers of the large-cap consumer electrical stocks. Continued reliance on Apple: On the component front, we expect reliance on Apple’s supply chain to continue. Once the weak 1H results at Sharp have been discounted (with the company expecting an operating loss of JPY45.0bn) and we start to see the benefits of the alliance with Hon Hai and a move to higher-resolution panels coming through in 2H, we believe there could be some upside for the share price over the medium term. We also expect Sony to maintain a competitive advantage in the field of BSI-CMOS imagers. Recognizing the risks in the car electronics subsector: In the car electronics subsector, while we expect steady growth to continue through 1H 2012, in 2H we expect the market to start factoring in the potential negatives. The main factors to consider are: 1) expectations that the government subsidy on eco cars (worth around JPY300bn in total) will be withdrawn in Aug-Sep; 2) the prospect of gradually intensifying competition in the domestic dealer options market (with the full-scale participation of Panasonic from March); and 3) a likely slowdown in the pace of yen appreciation against the dollar. Top pick is Casio Computer (6952, 1-OW): The main reasons are: 1) medium-term growth opportunities in the watch business, and 2) scope for reduction in losses on an increase in digital camera ASPs. We also believe there is little cause for concern about a capital increase for accelerated redemption of around JPY50bn in convertible bonds (announced by the company on 13 March). In particular, we believe that for the six leading brands in the watch business (G-Shock, Oceanus, etc.), the company should be able to increase ASPs by around 5% every year while achieving 10% growth in volumes. The company targets FY3/13 sales of JPY100bn and OP of JPY20bn, but we believe these are merely transitional targets.

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Key Picks Current focus stocks: Aside from Casio Computer (see above), among car electronics companies, we see a risk of the business environment changing, but believe JVC Kenwood (6632) still looks relatively undervalued. We maintain our 1-OW ratings on both stocks. Among LCD glass stocks, while the stocks are looking less attractive for the medium term, glass prices appear to be recovering, and we maintain our 1-OW rating on Nippon Electric Glass. Large-cap stocks still look like laggards but also better value: As Sony (6758, 2-EW) shares have undergone a sharp adjustment, they no longer look particularly overvalued. Whether the smartphone business succeeds is likely to remain the most important determinant of any significant rally in the share price, and we expect the results of a fullscale push in the US market in Apr-Jun to be the key indicator. At Sharp (6753, 2-EW), our stance is to look for a medium-term entry point. We expect earnings recovery to be led by a pickup in sales of panels for Apple and of next-generation tablet computers and highresolution notebook PCs. We also believe the alliance with Hon Hai should help reduce risks at the 10G plant. However, we get the impression that the shift to a solutions driven business at Panasonic (6752, 3-UW) may take some time (since new management may not make a mark until the budgeting exercise from October 2012). Figure 84: Long-term A/V product cycle: History of margin peaks at 30% proliferation rates （％）

Black and White TV penetration rate (rhs)

Cell Phone penetration rate (rhs)

Color TV penetration rate (rhs)

(%)

25

100.0

20

80.0

B

FPD TV penetration rate (rhs)

Panasonic OPM (lhs)

15

10

90.0

VTR penetration rate (rhs)

70.0

DSC penetration rate (rhs)

C

60.0 50.0

A D

40.0

E

5

30.0 20.0

0 10.0 Smartphone penetration rate (rhs)

0.0

19 57 19 60 19 63 19 66 19 69 19 72 19 75 19 78 19 81 19 84 19 87 19 89 19 92 19 95 19 98 20 01 20 04 20 07 20 10 20 13 E

-5

Panasonic, Sharp and Sony cumulative average OPM

Source: Company data, Barclays Research estimates

17 May 2012

99


Figure 85: Higher resolution trend spreading to notebook PCs Pixel per inch(ppi) Maker

Panel Size

--

QVGA

--

VGA

diagonal 320X240 640X480 85 5 9 65 6 12 55 7 15 46 9 17 40 10 20 32 13 25 23 17 35 20 20 40 19 21 42 17 24 47 15.6 26 51 15.4 26 52 15 27 53 13 31 62 12.1 33 66 11.6 34 69 10.1 40 79 9.7 41 82 7.0 57 114 4.8 83 167 4.5 Feature 89phone178 4.3 93 186 4.2 95 190 4 100 200 3.5 114 229 3.2 125 250

Sony Ericsson

HTC

Apple

Apple

iPad 2 XPERIA Sensation iPhone4S arc (XGA) 854X480

960X540

960X640

12 13 15 17 18 20 21 24 24 28 31 34 43 48 49 55 52 58 58 65 63 71 64 72 65 73 75 85 81 91 84 95 97 109 101 114 140 157 204Smartphone 229 218 245 228 256 233 262 244 275 280 315 306 344

14 18 21 25 29 36 50 58 61 68 74 75 77 89 95 99 114 119 165 240 256 268 275 288 326 361

--

Sony

Samsung Samsung

HD720 Xperia NX Galaxy SIII

1024X768 1280X720 1280X720

15 20 23 28 32 40 56 64 67 75 82 83 85 98 106 110 127 132 183 267 284 298 305 319 366 400

17 23 27 32 37 46 64 73 77 86 94 95 98 113 121 127 145 151 210 306 326 342 350 366 420 459

17 23 27 32 37 46 64 73 77 86 94 95 98 113 Tablet 121 127 145 151 210 306 326 342 350 366 420 459

1280X720

17 23 27 32 37 46 64 73 77 86 94 95 98 113 121 127 145 151 210 306 326 342 350 366 420 459

NEC

Dell

Galaxy MultiSyncL Inspiron Tab CD15" 10.1" EA191M 1280X800

18 23 27 33 38 47 66 75 79 89 97 98 101 116 125 130 149 156 216 314 335 351 359 376 431 472

1280X1024

19 25 30 36 41 51 71 82 86 96 105 106 109 126 135 141 162 169 234 341 364 381 390 409 468 512

ASUS

K52F 15.6"

Apple

iPhone5

1366X768 1366X768 1440X800

18 18 24 24 28 28 34 34 39 39 49 49 Notebook PC 68 68 78 78 82 82 92 92 100 100 102 102 104 104 121 121 130 130 135 135 155 155 162 162 224 224 326 326 348 348 364 364 373 373 391 391 448 448 490 490

19 25 30 36 41 51 72 82 87 97 106 107 110 127 136 142 163 170 235 343 366 383 392 411 471 515

Apple MacBook Pro 15" (Upgrade)

--

FHV

Apple

Apple

--

MacBook iPad3 Pro 15" QFHD (QXGA) (2012 (4K2K) model)

--

SHV (4K8K)

1680X1050 1920X1080 2048X1536 2880X1800 3840X2160 7680X4320

23 30 36 43 50 62 86 99 104 117 127 129 132 152 164 171 196 204 283 413 440 461 472 494 566 619

TV 26 34 40 48 55 69 96 110 116 130 141 143 147 169 182 190 218 227 315 459 490 512 525 549 629 688

30 39 47 56 64 80 111 128 135 151 164 166 171 197 212 221 253 264 366 533 569 595 610 638 731 800

34 45 53 63 73 91 126 145 153 171 186 189 194 223 240 250 288 299 415 605 646 676 692 724 830 908

52 68 80 96 110 138 192 220 232 259 282 286 294 339 364 380 436 454 629 918 979 1025 1049 1099 1259 1377

104 136 160 192 220 275 383 441 464 518 565 572 587 678 728 760 872 908 1259 1836 1958 2049 2098 2197 2518 2754

Source: Company data, Barclays Research estimate

17 May 2012

100


JAPAN ELECTRONIC COMPONENTS

Relying heavily on smartphone demand, see benefits from PC-related business Masaru Koshita

We expect a summer rally by Japan’s electronic components sector with support from a heavy flow of new product rollouts through the summer and a recovery phase in the inventory cycle. Primary drivers are smartphone demand, led by nextgeneration iPhone, GalaxyS III, and GalaxyNote products, and PC-related products linked to Ivy Bridge, Ultrabooks, and Windows8.

While we think investors can select stocks broadly in this environment, our key picks are Nidec (1-OW) and TDK (1-OW) for PC-related business and Ibiden (1-OW) as a smartphone beneficiary. We also see Murata (2-EW) as likely to attract attention for its smartphone exposure. Shinko Electric (2-EW) shares may strengthen if the yen slips against other currencies.

Risks include HDD price trends, the timing of Apple’s new product releases, whether suppliers can generate suitable profits from Apple business, and smartphone chipset supply issues (TSMC’s 28nm line ramp-up).

+81 3 4530 2937 [email protected] BCJL, Tokyo

New product releases should lead to a summer rally Sector View

1-POSITIVE .

We foresee a summer rally from June-July, following orders adjustments and weaker share prices in Apr-May, fueled by an upward phase in the two-year inventory cycle and heavy flow of new product releases, and expect Japanese component firms, which have been maintaining or enhancing their global competitiveness, to benefit from these conditions. We will be focusing on new product releases ahead of the summer, including next-generation smartphones, such as iPhone, GalaxyS III, and GalaxyNote, and PC-related offerings linked to Ivy Bridge, Ultrabooks, and Windows8. Smartphone business continues to rely on Apple and Samsung Electronics, and Japanese component suppliers have significant opportunities with Apple. Devices supplied for the iPhone include AnyLayer substrates and FC-CSP by Ibiden (top shares), ASMs, WiFi modules, various filters, and MLCCs by Murata (top supplier), and batteries by TDK (leading supplier). However, Apple-related business is challenging and tests management skills in terms of scheduling (scale and volatility), aggressive use of new parts and devices, frequent specification changes, and pricing pressure. The second half of 2012 is a key juncture for the PC industry, which has seen growth rates slump due to inroads by smartphones and tablets, because of upcoming rollouts of new products and specifications, including Ivy Bridge, Ultrabooks, and Windows8. Market shares have become increasingly concentrated at component firms with superior technologies and volume production capabilities amid maturation of the PC industry. For HDD-related business, Nidec and TDK have expanded their presences and reinforced positions as top suppliers for spindle motors and heads respectively since flooding in Thailand. While HDD pricing, which moved upward after the floods, is a key factor, we do not foresee a return to past price competition because of industry reorganization. Ibiden and Shinko Electric (particularly the latter) are raising their market shares for Intel’s MPU flip-chip packages due to quality problems at Taiwan-based NanYa PCB that surfaced at the end of 2011. This business is also benefiting from a generation change to Ivy Bridge processors.

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Forex rates are a top earnings and share-price volatility factor for Japan’s electronic components sector. We see the positive spiral spurred by a weaker yen as likely to support strong share-price gains. Specific steps include 1) earnings upside linked to forex sensitivity, 2) improved trading terms and competitiveness versus rivals from other countries, 3) prolongation of the inventory cycle recovery phase, and 4) higher share-price valuations from a risk-off to risk-on shift. Stocks with high weak-yen gearing are Shinko Electric and Taiyo Yuden (3-UW). However, investors should also pay attention to the negative spiral from yen appreciation.

Key Picks While we think investors can select stocks broadly in this environment, our key picks are Nidec (1-OW) and TDK (1-OW) for PC-related business and Ibiden (1-OW) as a smartphone beneficiary. We also see Murata (2-EW) as likely to attract attention for its smartphone exposure. Shinko Electric (2-EW) shares may strengthen if the yen slips against other currencies. Risks include HDD price trends, the timing of Apple’s new product releases, whether suppliers can generate suitable profits from Apple business, and smartphone chipset supply issues (TSMC’s 28nm line ramp-up). Figure 86: Japanese components monthly orders vs ISM mfg new orders

ISM, Feb 54.9,Mar 54.5, Apr 58.2

100

100%

90

80%

80

60%

70

40%

60

20%

50

0%

40

-20%

30

-40%

20

-60% 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 ISM mfg new orders (LHS)

Orders: JPN components

Source: US Supply Chain Management Association, Barclays Research

17 May 2012

102


Figure 87: Japan’s electronic components and devices inventory cycle

Ⅱ

2011Q1

Ⅰ

2010Q4

60% 50% 40%

2008

30%

2007

Inventory (% y/y)

2011 2011Q3 2009

2005

2011Q4

2009Q1

20%

2004Q1

10%

2006

0%

2010Q1

2012Q4

2012Q1

-10%

2010

2012Q2

-20% -30%

2009Q4

-40%

Ⅲ -60%

-50%

Ⅳ -40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

-50%

-60% 70%

Production (% y/y) Source: METI, Barclays Research estimates

17 May 2012

103


JAPAN PRECISION INSTRUMENTS

Concerns over digital camera supply/demand gap widening starting in May Masahiro Nakanomyo

Recent precision instrument results show continued slow growth in OA equipment sales.

Copier sales have increased slightly on a rebound from the impact of flooding in Thailand, but the market for laser printers and inkjet printers is sluggish.

While expectations for digital cameras are rising, we think demand for compact models is losing momentum due to increasing smartphone proliferation. We are concerned the growth potential of even interchangeable-lens cameras will shrink unless they are made more appealing through improvement of connectivity features.

+81 3 4530 2962 [email protected] BCJL, Tokyo Yoshihiko Nishizawa +81 3 4530 2994 [email protected] BCJL, Tokyo

Growth in mirrorless cameras could upset sales in SLR cameras Sector View

2-NEUTRAL

The impact of flooding in Thailand on digital cameras lasted until February, but production at sector companies had basically normalized by the latter half of March. Production of new mirrorless and single-lens reflect (SLR) cameras has ramped up in April. However, global demand for compact digital cameras continues to trend lower than last year, and we are concerned growth in sales of SLR cameras could be held back by growth in mirrorless cameras. Makers are also increasing the supply of mirrorless cameras in FY2012, which we think could upset the supply/demand balance. Nikon has launched a mirrorless model featuring wireless LAN connectivity. With Samsung Electronics launching a model featuring WiFi connectivity, we expect connectivity to become an important feature in the mirrorless category as well. We think the ability of companies to respond to this demand will impact market share trends of individual companies as well as the growth potential of the market as a whole.

Key Picks In the precision instruments sector, we focus on Shimadzu. The company's earnings remain firm on strong global demand for analysis and measuring instruments and new product launches. We expect earnings to remain firm on the launch of new products from May onward. Amid weak overall earnings momentum in the precision instruments industry, especially in the digital camera and OA subsectors, we view Shimadzu as one of the few sector companies with strong near-term earnings potential and a plausible medium-term growth story.

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104


Figure 88: Interchangeable lens cameras (supply/demand)

Figure 89: Compact cameras (supply/demand) (YoY)

(YoY)

70%

120%

60%

100%

50% 80%

40%

60%

30%

40%

20%

20%

10% 0%

0%

-10%

-20%

-20% -40% -60%

-30%

0 0 0 Jan-1 Mar-1 May-1

1 0 0 1 1 0 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1

Shipments

Sales (Domestic)

Source: Barclays Research on CIPA data

17 May 2012

2 1 1 2 2 1 Jul-1 Sep-1 Nov-1 Jan-1 Mar-1 May-1

Global Sales (estimates)

-40%

1 0 0 1 0 1 1 0 11 n-12 ar-12 ay-12 10 0 1 Jan-1 Mar-1 May-1 Jul-1 Sep-1 NovJan-1 Mar-1 May-1 Ja M Jul-1 Sep-1 NovM

Shipments

Sales (Domestic)

Source: Barclays Research on CIPA data

105


EQUITY VALUATION TABLE – U.S. TECHNOLOGY Ben Reitzes

U.S. IT Hardware (2-Neutral) Ticker AAPL DELL EMC HPQ IBM IM LXK NTAP STX DDD TECD WDC XRX

Company Name Apple Dell EMC Hewlett-Packard International Business Machines Ingram Micro Lexmark International NetApp Seagate Technology 3D Systems Tech Data Western Digital Xerox

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 570.52 15.55 26.14 23.51 200.60 18.72 28.44 35.70 31.47 27.66 51.12 40.74 7.64

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 36.18 38.03 135.44 18.73 78.35 15.44 45.39 55.43 32.40 30.74 41.97 27.02 20.09 24.41 61.80 15.53 71.25 30.24 21.60 31.64 101.18

Currency USD USD USD USD USD USD USD

Price 5/11/2012 17.00 13.32 31.74 46.33 10.23 3.43 36.96

Rating 1-OW 2-EW 1-OW 2-EW 2-EW 2-EW 2-EW 1-OW 1-OW 2-EW 2-EW 1-OW 2-EW

Market Cap (USD M) 533,472 27,400 54,886 46,487 231,389 2,846 2,024 12,959 13,382 1,414 2,111 9,571 10,297

Rating 2-EW 1-OW 1-OW 2-EW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW 1-OW

Market Cap (USD M) 8,360 3,809 18,560 931 14,588 333 4,908 16,347 798 258,243 2,946 134,427 2,393 2,084 73,562 11,328 12,020 4,988 803 1,343 43,229

Rating 2-EW 1-OW 2-EW 2-EW 2-EW 2-EW 1-OW

Market Cap (USD M) 1,712 20,188 3,687 2,362 443 94 1,433

2011E 3.2 0.4 2.4 0.6 2.4 0.1 0.4 1.6 1.0 4.3 0.1 0.8 0.8

EV/Sales, x 2012E 2.7 0.3 2.2 0.6 2.3 0.1 0.5 1.4 0.8 3.6 0.1 0.6 0.8

2011E 2.8 6.7 6.2 7.3 5.4 4.0 5.0 4.0 4.6 2.9 9.2 3.3 1.9 4.5 3.5 1.5 4.2 4.6 5.8 2.9 8.5

EV/Sales, x 2012E 2.5 5.7 4.8 5.0 4.8 3.1 4.3 3.7 3.8 2.6 7.3 3.1 1.7 3.6 3.1 1.4 3.4 4.0 4.7 2.6 7.1

2011E 3.5 2.0 na 3.5 0.5 0.9 1.7

EV/Sales, x 2012E 2.6 2.0 na 2.9 0.5 0.5 1.4

5Y Avg. 2.6 0.3 2.5 0.7 2.1 0.1 0.5 2.3 0.6 3.2 0.1 0.5 0.9

Price/Earnings, x 2011E 2012E 5Y Avg. 12.5 11.0 12.7 7.4 7.4 8.8 15.0 13.0 14.6 5.9 5.7 6.7 13.3 12.0 12.2 9.3 8.5 8.6 6.5 6.5 7.2 15.0 12.9 19.4 4.5 3.3 6.2 39.0 26.9 22.8 9.0 8.4 9.2 5.3 4.2 2.7 6.8 6.2 7.8

Sales Growth (%) 2011E 2012E 47.54% 19.25% 1.28% 2.67% 10.77% 11.48% -4.43% -0.30% 1.20% 3.49% 1.21% 4.03% -3.83% -2.82% 21.40% 12.13% 39.44% 26.39% 53.29% 19.55% -0.55% 4.79% 26.37% 41.27% 1.12% 2.17%

5Y Avg. 3.1 5.4 7.1 7.7 5.4 2.2 4.9 3.6 5.5 2.7 9.7 3.6 2.1 5.7 4.8 1.8 3.7 4.5 5.5 3.0 8.2

Price/Earnings, x 2011E 2012E 5Y Avg. 17.6 15.1 19.2 38.4 32.2 32.6 83.6 63.0 76.5 -74.9 -234.1 -262.7 28.4 24.1 27.0 34.3 23.8 20.2 27.7 22.1 29.6 18.7 16.3 17.2 49.1 33.4 45.7 11.3 9.5 10.0 199.9 119.9 201.1 11.2 10.0 12.6 13.7 10.9 14.9 55.5 41.4 67.6 19.5 16.5 20.5 9.6 8.2 9.3 26.0 21.7 22.9 25.2 21.8 25.0 52.7 36.6 48.3 29.8 25.1 25.3 37.1 30.8 38.6

Sales Growth (%) 2011E 2012E 11.26% 12.66% 19.86% 16.35% 30.82% 27.82% 50.95% 44.65% 16.01% 14.02% 40.56% 30.64% 14.76% 17.17% 10.10% 9.13% 18.87% 23.24% 5.92% 11.39% 27.11% 25.00% 4.25% 6.16% 10.26% 10.41% 29.16% 26.37% 17.05% 12.23% 2.85% 5.29% 15.77% 24.88% 15.73% 15.40% 37.22% 22.92% 8.24% 13.68% 22.64% 19.81%

5Y Avg. 3.4 2.6 2.1 4.4 0.5 1.3 1.2

Price/Earnings, x 2011E 2012E 5Y Avg. na 68.0 5.9 9.9 9.2 8.5 34.1 22.2 25.4 16.8 14.7 21.8 9.7 8.5 9.2 -3.6 -18.1 5.9 23.1 17.2 15.5

Sales Growth (%) 2011E 2012E -51.88% 31.63% 3.95% 3.63% na na 19.71% 18.49% -11.38% 9.98% 15.04% 102.56% -44.03% 16.97%

# # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 190,451 52.00 64,545 2.10 24,706 2.01 120,816 4.11 111,966 16.66 38,247 2.20 3,900 4.35 6,974 2.77 19,335 9.67 422 1.03 27,604 6.10 17,006 9.80 23,375 1.23

Consensus FY2 Ests. Sales (M) EPS 195,362 53.88 63,491 2.21 24,755 2.00 124,621 4.42 111,926 16.61 38,241 2.25 3,902 4.33 6,943 2.72 19,523 9.42 417 1.32 27,222 6.20 17,830 9.08 23,449 1.22

# # # # # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 2,777 2.40 619 1.18 3,790 2.15 165 -0.08 2,919 3.25 102 0.65 1,054 2.05 4,627 3.40 175 0.97 82,527 3.25 376 0.35 39,425 2.69 1,421 1.85 523 0.59 17,944 3.74 7,288 1.89 3,415 3.29 1,229 1.39 177 0.59 435 1.26 5,535 3.29

Consensus FY2 Ests. Sales (M) EPS 2,698 2.41 609 1.15 3,677 2.08 160 -0.07 2,887 3.21 95 0.63 1,028 1.89 4,612 3.34 173 0.90 80,629 3.04 371 0.34 39,583 2.63 1,393 1.75 514 0.58 17,254 3.53 7,130 1.83 3,039 3.13 1,194 1.38 170 0.56 426 1.28 5,474 3.17

# # # # # # # #

FY2 Ests. Sales (M) EPS 387 0.25 8,500 1.45 na 1.43 673 3.15 551 1.20 79 -0.19 641 2.15

Raimo Lenschow

U.S. Software (1-Positive) Ticker ADSK ARBA CRM CSOD CTXS ELLI INFA INTU LOGM MSFT N ORCL PMTC QLIK SAP SYMC TDC TIBX TNGO TRAK VMW

Company Name Autodesk Ariba Salesforce.com Cornerstone OnDemand Citrix Systems Ellie Mae Informatica Intuit LogMeIn Microsoft NetSuite Oracle Parametric Technology Qlik Technologies SAP AG Symantec Teradata TIBCO Software Tangoe DealerTrack Holdings VMware

CJ Muse and Olga Levinzon

U.S. Display & Lighting (2-Neutral) Ticker AIXG GLW CREE IPGP ORBK LEDS VECO

Company Name Aixtron Corning Cree IPG Photonics Orbotech SemiLEDS Veeco Instruments

Source: FactSet, Reuters, and Barclays Research estimates.

17 May 2012

Stock Ratings: 1-OW = 1-Overweight, 2-EW = 2-Equal Weight, 3-UW = 3-Underweight, RS = Rating Suspended.

Consensus FY2 Ests. Sales (M) EPS 365 0.30 8,816 1.52 1,406 1.36 652 3.24 564 1.40 55 -0.49 654 2.09

FY2 Estimates = Next Fiscal Year Estimates

106


EQUITY VALUATION TABLE – U.S. TECHNOLOGY Anthony DiClemente

U.S. Internet (1-Positive) Ticker AMZN AOL DMD EBAY EXPE GOOG GRPN AWAY IACI LNKD NFLX OPEN PCLN QNST RLOC SFLY TRIP VPRT WBMD YHOO ZNGA

Company Name Amazon.com Inc. AOL Inc. Demand Media Inc. eBay Inc. Expedia Inc. Google Inc. Cl A Groupon Inc. HomeAway Inc. IAC/InterActiveCorp. LinkedIn Corporation Netflix Inc. OpenTable Inc. priceline.com Inc. QuinStreet Inc. ReachLocal Inc. Shutterfly Inc. TripAdvisor Inc. Vistaprint N.V. WebMD Health Corp. Yahoo! Inc. Zynga Inc


Price 5/11/2012 226.69 26.28 8.65 41.21 40.91 613.66 9.87 25.18 48.75 111.00 72.42 37.84 681.11 8.05 9.30 27.12 40.79 38.32 21.87 15.44 7.82

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 38.31 58.70 125.80 125.80 61.05 27.00 17.78 17.62 66.47 39.53 43.37 24.50 422.98 15.20 22.83 44.45 118.17 17.28

Rating 2-EW 2-EW 1-OW 2-EW 3-UW 1-OW 1-OW 2-EW 1-OW 1-OW 2-EW 1-OW 1-OW 2-EW 2-EW 1-OW 2-EW 2-EW 2-EW 2-EW 2-EW

Market Cap (USD M) 102,130 2,457 721 53,212 5,199 200,057 6,295 2,067 4,232 11,466 4,020 854 33,915 363 264 967 5,444 1,418 1,244 18,817 5,761

Rating 2-EW 2-EW 1-OW 1-OW 1-OW 2-EW 1-OW 1-OW 2-EW 2-EW 2-EW 1-OW 1-OW 1-OW 1-OW 1-OW 1-OW 1-OW

Market Cap (USD M) 1,904 40,596 6,335 6,335 18,585 4,187 1,899 745 9,072 3,281 3,407 2,099 53,461 761 4,317 4,743 96,188 10,592

2011E 1.5 1.1 1.8 3.6 1.3 4.5 na 6.6 1.5 13.1 1.0 5.4 6.0 1.0 0.4 1.4 7.6 1.5 1.8 3.7 0.7

EV/Sales, x 2012E 1.2 1.1 1.6 3.2 1.2 3.8 na 5.5 1.3 9.1 0.9 4.6 4.8 1.1 0.4 1.2 6.4 1.3 1.7 3.6 0.6

2011E 4.8 1.3 3.6 3.6 2.2 0.4 1.8 na 2.7 5.7 1.6 1.6 6.4 2.7 2.2 3.1 10.7 2.3

EV/Sales, x 2012E 3.9 1.3 3.3 3.3 1.9 0.4 1.7 na 2.6 5.2 1.4 1.6 5.7 2.2 2.1 2.8 9.5 2.2

5Y Avg. 1.2 0.9 1.4 2.7 1.6 3.7 6.1 7.6 0.9 9.8 2.0 5.9 4.2 1.1 0.3 1.7 6.2 1.4 2.7 3.6 2.0

Price/Earnings, x 2011E 2012E 5Y Avg. 206.1 94.8 70.4 93.9 45.3 30.9 26.2 21.6 24.5 17.5 15.6 13.8 15.0 13.2 12.0 14.0 11.7 14.2 61.7 11.2 77.4 48.4 40.0 55.0 20.1 16.5 18.1 179.0 68.9 221.9 905.3 31.4 -146.9 25.4 22.7 29.5 21.6 16.7 17.1 28.8 38.3 23.8 -103.3 -465.0 -55.1 271.2 77.5 81.4 28.7 23.7 25.7 22.2 21.3 20.7 364.5 156.2 213.9 13.1 12.0 18.4 34.0 27.9 43.0

Sales Growth (%) 2011E 2012E 33.61% 31.68% 0.44% -1.50% 6.84% 14.29% 20.40% 13.40% 11.37% 9.50% -6.15% 18.36% 40.46% 31.12% 40.38% 20.00% 29.60% 9.18% 71.36% 44.31% 13.81% 15.52% 15.11% 16.00% 27.00% 23.42% -10.67% -6.39% 18.43% 16.22% 21.83% 17.59% 18.51% 18.01% 25.69% 17.29% -10.45% 4.72% -8.35% 4.13% 20.58% 15.49%

5Y Avg. 5.1 1.3 3.2 3.2 2.5 0.4 1.5 na 2.6 5.0 1.8 1.4 5.2 2.9 2.0 2.9 8.5 2.3

Price/Earnings, x 2011E 2012E 5Y Avg. 23.2 20.6 19.1 15.2 13.9 15.0 14.8 13.0 12.2 14.8 13.0 12.2 18.1 15.1 20.2 10.9 12.3 7.7 16.2 14.2 13.7 13.7 11.6 15.9 12.9 11.7 12.1 15.3 13.6 13.4 12.3 11.0 14.6 10.2 9.2 7.7 18.9 16.1 15.3 18.1 14.8 24.9 17.6 15.5 15.6 16.7 13.2 17.9 19.5 16.6 15.3 10.2 9.1 10.6

Sales Growth (%) 2011E 2012E 57.47% 24.37% 2.60% 6.40% 16.22% 8.22% 16.22% 8.22% 20.14% 19.57% 0.24% 0.16% 5.75% 3.81% 23.75% 21.98% 5.79% 5.38% 20.29% 8.16% 18.10% 11.88% -4.26% 1.25% 13.60% 12.53% 29.11% 21.55% 6.07% 4.70% 46.89% 11.16% 21.20% 12.23% 4.96% 2.99%

# # # # # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 84,581 2.39 2,095 0.58 397 0.40 15,908 2.65 4,206 3.09 42,105 52.50 2,966 0.88 336 0.63 2,914 2.96 1,291 1.61 4,213 2.31 186 1.67 6,808 40.90 337 0.21 517 -0.02 678 0.35 891 1.72 1,205 1.80 524 0.14 4,757 1.29 1,588 0.28

Consensus FY2 Ests. Sales (M) EPS 81,415 2.54 2,078 0.77 396 0.43 16,028 2.72 4,185 3.20 42,305 50.63 3,001 0.75 344 0.67 2,952 3.36 1,335 1.20 4,211 2.18 192 1.89 6,727 39.49 366 0.34 519 0.11 669 0.49 921 1.82 1,247 2.04 526 0.39 4,605 1.08 1,754 0.37

# # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 337 1.86 29,859 4.22 3,863 9.70 3,863 9.70 8,793 4.05 16,106 2.20 1,469 1.25 505 1.52 4,835 5.70 676 2.91 2,457 3.94 2,026 2.65 8,583 26.35 242 1.03 2,009 1.47 2,129 3.36 11,607 7.12 5,937 1.90

Consensus FY2 Ests. Sales (M) EPS 333 2.05 30,179 4.28 3,834 9.67 3,834 9.67 8,717 3.99 15,834 2.81 1,467 1.18 508 1.53 4,739 5.75 684 2.93 2,393 3.88 2,066 2.67 8,629 26.21 244 1.03 1,914 1.43 2,170 3.29 11,453 7.07 6,111 1.94

Darrin Peller

U.S. IT Consulting & Computer Services (2-Neutral) Ticker ACTG ACN ADS ADS CTSH CSC CLGX EPAM FISV FLT GPN LPS MA RPXC TSS PAY V WU

Company Name Acacia Research Corp Accenture Alliance Data Systems Alliance Data Systems Cognizant Technology Solutions Computer Sciences CoreLogic EPAM Systems Inc Fiserv FleetCor Technologies Global Payments Lender Processing Services MasterCard RPX Total System Services VeriFone Systems Visa Western Union


17 May 2012



107


EQUITY VALUATION TABLE – U.S. TECHNOLOGY Jeff Kvaal

U.S. Wireless Equipment (2-Neutral) Ticker CMVT ERIC IDCC MMI MSI NOK QCOM RIMM

Company Name Comverse Technology Ericsson InterDigital Motorola Mobility Holdings Motorola Solutions Nokia Corp. QUALCOMM Research In Motion

Currency USD USD USD USD USD USD USD USD

Price 5/11/2012 6.48 9.05 26.84 39.35 49.54 3.24 62.48 11.80

Rating 1-OW 2-EW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW

Market Cap (USD M) 1,419 29,624 1,190 11,952 14,469 12,134 107,108 6,185

Rating 1-OW 1-OW 2-EW 1-OW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW

Market Cap (USD M) 1,714 1,937 1,464 1,835 807 1,190 90,538 9,851 9,562 1,278 2,141 2,665 200 1,388

Rating 2-EW 2-EW 2-EW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW 1-OW 2-EW 1-OW

Market Cap (USD M) 531 14,280 707 1,590 311 296 8,366 4,865 324 1,355 3,277 2,914

2011E 1.0 4.6 3.1 0.7 1.6 0.2 4.9 0.4

EV/Sales, x 2012E na 4.5 3.1 0.6 1.5 0.2 4.2 0.4

2011E 4.2 2.3 0.9 2.9 4.5 1.1 1.3 6.7 1.6 0.7 1.0 2.8 0.7 0.4

EV/Sales, x 2012E 3.4 2.0 0.8 2.3 3.6 1.0 1.2 5.7 1.5 0.6 0.9 2.5 0.5 0.4

2011E 0.9 1.6 1.1 2.2 0.2 4.0 2.2 1.2 1.3 1.0 2.3 1.7

EV/Sales, x 2012E 0.8 1.5 1.0 1.7 0.1 2.8 2.0 1.1 0.9 1.0 2.3 1.6

5Y Avg. 1.0 -0.3 4.9 0.5 1.2 0.4 5.0 0.7

Price/Earnings, x 2011E 2012E 5Y Avg. 58.9 na na 16.5 11.8 13.6 26.8 26.8 23.0 77.2 44.7 31.5 16.3 14.2 15.8 -13.5 23.1 18.5 16.8 14.5 16.3 118.0 15.7 16.6

Sales Growth (%) 2011E 2012E 0.85% na -85.12% 2.82% -11.85% -1.88% 0.70% 5.55% 6.22% 5.96% -19.05% 3.32% 28.33% 18.83% -35.83% 3.54%

5Y Avg. 7.8 2.8 0.9 4.9 6.2 1.2 1.5 5.8 2.3 0.8 2.0 5.1 1.0 0.4

Price/Earnings, x 2011E 2012E 5Y Avg. 25.6 18.1 32.8 18.3 13.8 15.7 13.2 11.5 12.4 25.7 19.0 36.5 21.2 16.5 28.5 60.3 17.7 23.8 9.2 9.1 10.0 27.3 23.3 23.9 21.3 13.8 18.0 11.8 10.6 13.4 12.0 9.6 16.5 17.7 14.1 27.7 -138.7 20.8 146.8 -126.3 189.5 48.3

Sales Growth (%) 2011E 2012E 10.32% 24.00% 12.05% 10.81% 23.54% 5.28% 31.40% 29.94% 18.74% 23.00% 5.48% 9.50% 6.40% 4.78% 22.25% 18.09% 0.16% 10.00% 18.00% 14.93% 5.58% 10.43% 13.80% 15.00% 21.52% 37.47% -12.89% 0.70%

5Y Avg. 0.7 1.4 0.8 1.8 0.3 2.4 2.2 1.2 1.4 1.1 1.8 1.7

Price/Earnings, x 2011E 2012E 5Y Avg. 18.9 11.0 10.7 12.4 11.5 11.2 15.9 10.6 12.8 64.3 25.7 19.8 -7.4 -13.9 -11.3 -53.6 23.2 -78.0 11.2 10.2 11.0 18.9 12.3 13.7 -20.0 13.0 -2.7 14.3 12.3 12.4 13.0 12.4 11.0 8.7 7.6 8.7

Sales Growth (%) 2011E 2012E -5.77% 10.27% -12.25% 1.97% -21.67% 6.86% 5.01% 31.57% 12.21% 17.89% 11.46% 45.00% -0.67% 6.53% -18.68% 9.19% -46.30% 48.51% -5.17% 3.85% 3.49% 1.71% 26.38% 9.30%

# # # # # # # # #

FY2 Ests. Sales (M) na 34,719 261 13,886 9,232 32,333 22,809 12,249

EPS na 0.77 1.00 0.88 3.50 0.14 4.30 0.75

Consensus FY2 Ests. Sales (M) EPS 1,749 0.65 35,847 0.79 259 1.01 13,181 0.83 9,180 3.50 42,301 0.11 21,954 4.19 14,623 1.75

# # # # # # # # # # # # # # #

FY2 Ests. Sales (M) 420 891 1,416 677 202 2,012 48,184 1,663 4,901 1,602 1,744 951 334 1,128

EPS 1.39 2.19 1.10 0.88 1.78 0.68 1.85 5.32 1.31 3.30 1.25 1.19 0.20 0.02

Consensus FY2 Ests. Sales (M) EPS 414 1.27 900 2.23 1,422 1.12 627 0.81 195 1.65 2,065 0.88 48,536 1.93 1,664 5.44 4,943 1.17 1,561 3.25 1,672 1.13 978 1.19 329 0.15 1,186 0.08

FY2 Ests. Sales (M) EPS 537 1.20 9,411 0.96 576 1.01 821 2.00 224 -0.45 87 0.30 3,360 4.88 2,875 3.28 199 0.51 810 2.10 1,424 3.65 1,974 2.05

Consensus FY2 Ests. Sales (M) EPS 546 1.19 10,047 1.12 633 1.00 774 2.04 227 -0.38 85 0.39 3,379 4.84 3,092 3.50 205 0.58 803 1.91 1,412 3.12 1,937 1.98

# # # # # # # # # # # # #

Jeff Kvaal

U.S. Data Networking & Wireline Equipment (2-Neutral) Ticker APKT ADTN ARRS ARUN BSFT CIEN CSCO FFIV JNPR NTGR PLCM RVBD SHOR TLAB

Company Name Acme Packet Adtran Arris Group Aruba Networks Broadsoft Ciena Cisco Systems F5 Networks Juniper Networks NETGEAR Polycom Riverbed Technology ShoreTel Tellabs

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 25.13 30.32 12.69 16.72 29.30 12.06 16.81 124.08 18.07 34.91 12.01 16.81 4.16 3.79

Currency USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 13.24 11.06 10.67 51.41 6.26 6.97 50.00 40.45 6.61 25.82 45.41 15.62

CJ Muse

U.S. Semiconductor Capital Equipment (2-Neutral) Ticker AEIS AMAT BRKS CYMI FORM IMI KLAC LRCX LTXC MKSI NVLS TER

Company Name Advanced Energy Industries Applied Materials Brooks Automation Cymer FormFactor Intermolecular Inc. KLA-Tencor Lam Research LTX-Credence MKS Instruments Novellus Systems Teradyne


17 May 2012



108


EQUITY VALUATION TABLE – U.S. TECHNOLOGY CJ Muse and Blayne Curtis

U.S. Semiconductors (1-Positive) Ticker AMD ALTR ADI ATML AVGO BRCM CAVM CY ENTR FSL IDTI INTC LLTC LSI MX MRVL MXIM MCHP MTSI MU NVDA NXPI RFMD SLAB SWKS CODE TXN TQNT VLTR XLNX

Company Name Currency Advanced Micro Devices Inc. USD Altera Corp. USD Analog Devices Inc. USD Atmel Corp. USD Avago Technologies Ltd. USD Broadcom Corp. USD Cavium Inc. USD Cypress Semiconductor Corp. USD Entropic Communications Inc. USD Freescale Semiconductor Ltd USD Integrated Device Technology Inc. USD Intel Corp. USD Linear Technology Corp. USD LSI Corp. USD MagnaChip Semiconductor Corp. USD Marvell Technology Group Ltd. USD Maxim Integrated Products Inc. USD Microchip Technology Inc. USD MA-Com Technology Solutions Holdings Inc USD Micron Technology Inc. USD NVIDIA Corp. USD NXP Semiconductors N.V. USD RF Micro Devices Inc. USD Silicon Laboratories Inc. USD Skyworks Solutions Inc. USD Spansion Inc. Cl A USD Texas Instruments Incorporated USD TriQuint Semiconductor Inc. USD Volterra Semiconductor Corp. USD Xilinx Inc. USD

Price 5/11/2012 6.78 33.48 37.13 7.63 30.88 33.37 24.46 13.43 3.89 11.10 5.89 27.24 30.76 7.71 11.40 13.56 26.86 31.93 16.23 6.29 12.42 23.53 3.97 34.17 25.24 10.93 30.78 4.99 30.12 33.33

Rating 2-EW 1-OW 2-EW 1-OW 1-OW 1-OW 1-OW 1-OW 2-EW 2-EW 2-EW 2-EW 2-EW 1-OW 1-OW 2-EW 2-EW 2-EW 1-OW 1-OW 2-EW 1-OW 2-EW 2-EW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW

Market Cap (USD M) 4,755 10,802 11,059 3,386 7,532 18,387 1,216 2,046 342 2,738 833 137,044 7,081 4,383 420 7,873 7,849 6,132 735 6,225 7,672 5,924 1,097 1,465 4,787 654 35,223 830 782 8,727

Rating 2-EW 1-OW 1-OW 2-EW 2-EW 2-EW 1-OW 1-OW 2-EW 2-EW

Market Cap (USD M) 164 509 1,640 1,395 672 1,610 451 3,466 577 546

2011E 0.8 4.2 3.1 2.0 2.8 2.3 4.8 2.4 0.5 2.0 0.9 2.4 5.5 1.3 0.6 1.7 3.1 3.7 2.8 0.9 1.1 2.1 1.1 2.2 2.9 0.9 2.8 0.8 3.6 3.4

EV/Sales, x 2012E 0.8 3.6 2.8 1.8 2.5 2.1 3.5 2.0 0.4 1.9 0.9 2.3 4.9 1.2 0.5 1.5 2.9 3.4 2.5 0.9 1.0 2.0 1.0 2.1 2.5 0.8 2.6 0.7 3.1 3.3

2011E 0.6 0.9 1.1 0.4 0.5 0.9 0.3 6.3 0.4 6.5

EV/Sales, x 2012E 0.4 0.8 1.1 0.5 0.5 0.8 0.3 2.1 0.3 5.8

5Y Avg. 0.8 4.5 3.0 2.3 3.1 2.2 5.4 3.0 1.6 2.0 1.1 2.1 4.9 1.3 0.5 1.8 2.6 4.0 na 1.1 1.7 2.0 1.6 2.8 2.8 0.9 2.6 1.2 2.8 3.2

Price/Earnings, x 2011E 2012E 5Y Avg. 8.5 8.0 10.1 17.8 14.2 16.4 16.3 13.3 14.3 23.1 13.4 17.8 12.1 10.5 12.5 10.9 10.0 12.1 81.5 21.3 33.9 15.1 11.0 14.6 16.2 10.5 10.7 18.5 8.5 14.1 17.8 12.0 15.8 11.0 10.4 9.7 17.3 14.4 14.8 9.8 9.1 11.2 6.2 5.8 5.8 11.9 9.4 10.7 17.7 14.9 14.2 15.7 14.4 16.1 15.6 11.1 17.7 -10.5 12.1 2.1 18.3 14.1 16.1 13.4 9.1 9.6 26.5 12.4 14.9 17.0 17.1 18.8 13.2 11.0 12.8 11.5 7.3 11.2 16.6 13.4 13.8 499.0 12.5 31.3 20.2 18.3 16.9 15.2 14.4 14.7

Sales Growth (%) 2011E 2012E 4.74% 4.20% -7.97% 15.79% -6.69% 9.74% -12.91% 10.83% 3.84% 12.78% 11.26% 9.76% -8.07% 36.76% -13.08% 16.18% 27.00% 28.08% -7.15% 8.13% 4.39% 10.20% 5.54% 4.94% -14.65% 12.51% 29.66% 6.38% 10.45% 5.61% 2.29% 10.51% -2.72% 7.60% 7.01% 8.49% 1.32% 14.73% -5.66% 9.42% 1.80% 7.62% 2.24% 6.81% 2.71% 11.40% 8.09% 2.52% 10.79% 16.28% -9.62% 6.83% 1.17% 5.25% -5.14% 13.53% 18.99% 14.17% 8.89% 2.46%

5Y Avg. 1.0 1.0 1.1 1.8 1.2 1.1 0.6 6.0 0.4 5.1

Price/Earnings, x 2011E 2012E 5Y Avg. -0.8 -1.7 -31.4 13.6 11.5 14.2 12.6 11.0 11.8 3.8 3.9 10.7 3.6 3.3 7.5 10.3 9.6 11.8 7.1 5.9 7.6 -12.8 38.3 -15.3 -10.1 14.5 -9.9 -5.0 -69.0 -5.2

Sales Growth (%) 2011E 2012E 60.86% 73.05% 12.61% 7.93% 1.39% 5.49% 27.97% -0.54% 11.35% 8.29% -9.29% 4.35% -6.66% 4.53% 177.12% 201.59% -10.54% 17.79% -85.52% 13.46%

# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) 7,168 2,200 3,065 1,740 2,736 9,023 326 1,005 391 4,590 606 59,809 1,425 2,819 902 3,836 2,588 1,606 361 9,072 4,380 4,580 997 545 1,828 1,033 14,625 965 212 2,500

EPS 0.85 2.35 2.79 0.57 2.94 3.35 1.15 1.22 0.37 1.30 0.49 2.62 2.14 0.85 1.95 1.44 1.80 2.22 1.46 0.52 0.88 2.60 0.32 2.00 2.29 1.50 2.30 0.40 1.65 2.31

Consensus FY2 Ests. Sales (M) EPS 7,259 0.89 2,174 2.17 3,036 2.71 1,790 0.64 2,666 2.85 9,062 3.17 309 0.92 995 1.28 383 0.34 4,534 1.54 619 0.53 61,225 2.68 1,442 2.13 2,809 0.85 906 1.94 3,904 1.46 2,603 1.84 1,656 2.29 360 1.47 9,680 0.61 4,494 0.91 4,598 2.77 989 0.33 581 2.29 1,764 2.14 1,048 1.71 14,961 2.39 910 0.27 210 1.82 2,637 2.36

# # # # # # # # # # #

FY2 Ests. Sales (M) EPS 443 -0.65 885 1.00 1,999 1.32 3,521 4.10 1,084 1.71 2,304 4.21 992 0.63 1,707 0.86 2,158 0.50 2,411 -0.05

Consensus FY2 Ests. Sales (M) EPS 417 -0.73 910 1.03 2,079 1.39 3,471 3.93 1,043 1.55 2,257 4.08 1,036 0.56 1,699 0.89 2,175 0.60 2,432 0.09

Amir Rozwadowski

U.S. Clean Technology (2-Neutral) Ticker AONE AMRC ELT FSLR GTAT ITRI PWER TSLA TSL YGE

Company Name A123 Systems Ameresco Elster Group First Solar GT Advanced Technologies Itron Power-One Tesla Motors Trina Solar Ltd. ADS Yingli Green Energy Holding Co. Ltd. ADS

Currency USD USD USD USD USD USD USD USD USD USD


17 May 2012

Price 5/11/2012 1.03 11.53 14.33 16.14 5.52 40.20 4.01 32.25 7.24 3.45



109


EQUITY VALUATION TABLE – EUROPE TECHNOLOGY Andrew Gardiner

European Technology Hardware (2-Neutral) Ticker Company Name AIXA-DE Aixtron SE ALU-FR Alcatel-Lucent ARM-LON ARM Holdings ASML-NL ASML Holding CSR-LON CSR Dialog Semiconductor PLC DLG-DE ERIC.B-SE Ericsson IFX-DE Infineon Technologies IMG-LON Imagination Technologies Group PLC Kudelski KUD-CH LOGN-SWX Logitech International NOK1V-HELNokia PIC-GB Pace STM-PAR STMicroelectronics TCH-PAR Technicolor TOM2-AMS TomTom

Currency EUR EUR GBP EUR GBP EUR SEK EUR GBP CHF CHF EUR GBP EUR EUR EUR

Price 5/11/2012 13.17 1.22 5.08 36.85 2.23 16.23 63.15 6.78 6.32 6.75 9.41 2.47 0.86 4.12 1.64 3.49

Currency EUR EUR GBP EUR EUR EUR GBP GBP GBP EUR EUR EUR EUR CHF EUR EUR

Price 5/11/2012 15.40 45.81 15.99 29.00 72.00 8.16 0.74 4.59 2.66 48.01 24.40 42.00 14.77 15.95 12.81 13.45

Currency USD USD USD ILS USD USD USD

Price 5/11/2012 30.12 9.50 17.24 136.70 39.49 57.16 37.62

Rating 2-EW 2-EW 1-OW 1-OW 2-EW 1-OW 2-EW 1-OW 1-OW 3-UW 3-UW 2-EW 2-EW 2-EW 2-EW 3-UW

Market Cap (USD M) 1,721 3,591 11,286 19,756 717 1,432 29,278 9,326 2,693 389 1,757 11,869 422 4,721 474 1,004

Rating 1-OW 1-OW 3-UW 2-EW 2-EW 3-UW 2-EW 1-OW 2-EW 1-OW 3-UW 2-EW 2-EW 1-OW 2-EW 1-OW

Market Cap (USD M) 8,891 4,949 1,757 5,772 11,425 1,723 1,924 1,215 5,499 74,056 2,744 645 589 1,190 1,187 1,774

Rating 1-OW 1-OW 1-OW 2-EW 1-OW 1-OW 2-EW

Market Cap (USD M) 5,262 335 400 1,528 1,028 2,289 2,410

2011E 3.5 0.2 11.9 2.5 0.4 1.7 0.7 1.5 12.8 0.6 0.5 0.2 0.3 0.5 0.4 0.9

EV/Sales, x 2012E 2.7 0.2 10.5 2.2 0.4 1.4 0.7 1.3 10.0 0.6 0.5 0.2 0.3 0.4 0.4 1.0

2011E 2.6 0.5 5.5 0.4 3.7 0.7 0.4 3.1 2.4 3.5 2.0 0.5 0.3 2.7 0.5 3.1

EV/Sales, x 2012E 2.4 0.5 5.0 0.4 3.5 0.6 0.4 3.0 2.3 3.1 2.0 0.5 0.3 2.4 0.5 2.6

2011E 1.3 0.7 4.7 0.7 na 5.1 na

EV/Sales, x 2012E 1.2 0.6 3.9 0.6 na 4.3 na

5Y Avg. 2.9 0.4 12.9 2.2 0.2 1.4 0.9 1.3 12.6 0.8 0.5 0.4 0.3 0.5 0.4 0.9

Price/Earnings, x 2011E 2012E 5Y Avg. -1317.0 54.9 -26.2 -30.6 122.2 11.4 33.8 28.2 41.8 13.2 10.5 10.3 6.8 4.8 7.6 13.3 8.9 13.6 17.3 12.2 13.5 15.1 12.1 11.4 53.6 35.3 53.4 16.1 9.4 11.6 16.8 14.5 10.4 -13.7 22.4 11.8 3.2 2.6 2.4 82.3 7.5 9.6 10.3 5.5 10.5 11.6 12.5 7.2

Sales Growth (%) 2011E 2012E -51.81% 31.45% -2.66% 2.62% 13.14% 13.88% -11.82% 14.69% 21.00% 1.86% 43.57% 22.59% -0.30% 2.82% -1.70% 8.50% 33.61% 27.48% -4.20% 3.21% 0.22% 3.60% -19.05% 3.32% -3.26% 1.34% -4.84% 7.68% -2.81% -0.92% -15.25% -7.95%

5Y Avg. 2.9 0.4 5.5 0.6 3.3 0.8 0.5 1.7 2.5 3.2 2.5 0.6 0.4 3.1 0.5 2.6

Price/Earnings, x 2011E 2012E 5Y Avg. 11.8 11.0 11.2 11.6 9.5 9.5 25.4 21.3 24.3 12.2 10.3 12.0 20.7 19.4 18.7 8.7 7.2 9.6 6.6 6.3 7.6 6.7 6.2 6.4 13.1 13.0 13.1 15.1 12.8 13.6 11.4 10.7 12.0 7.1 6.7 8.9 6.1 5.0 6.9 16.3 13.0 14.1 9.9 8.0 9.6 17.5 15.3 15.4

Sales Growth (%) 2011E 2012E 4.61% 5.64% 28.23% 3.45% 9.78% 10.99% 3.51% 6.70% 13.96% 6.64% 5.52% 4.93% -1.16% 2.17% 0.43% 1.60% 2.84% 5.90% 12.35% 12.23% -0.61% 1.20% 14.54% 8.73% 1.73% 4.33% 1.80% 9.75% 1.74% 3.17% 23.77% 16.67%

5Y Avg. 1.3 0.7 7.5 2.5 7.8 3.2 2.0

Price/Earnings, x 2011E 2012E 5Y Avg. 11.3 10.9 11.3 17.3 7.3 12.0 18.5 14.4 23.8 24.9 22.2 29.3 31.1 20.3 20.8 26.1 22.2 20.1 15.4 13.7 14.8

Sales Growth (%) 2011E 2012E 2.90% 4.65% 11.03% 17.07% 5.58% 20.74% 6.19% 11.23% 11.89% 49.15% 63.20% 18.29% 17.28% 13.96%

# # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 387 0.24 15,310 0.01 634 0.18 5,715 3.50 1,042 0.46 928 1.83 232,618 5.17 4,263 0.56 167 0.18 864 0.72 2,405 0.65 32,333 0.11 2,264 0.33 9,868 0.55 3,322 0.30 993 0.28

Consensus FY2 Ests. Sales (M) EPS 430 0.54 15,476 0.16 630 0.17 5,546 3.24 1,037 0.35 889 1.59 242,273 5.73 4,266 0.55 158 0.15 866 0.66 2,421 0.88 32,793 0.10 2,312 0.30 9,874 0.56 3,349 0.33 1,089 0.37

# # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 3,049 1.40 9,037 4.80 212 0.75 10,705 2.82 2,167 3.72 2,977 1.13 3,960 0.12 445 0.74 1,453 0.20 17,944 3.76 1,100 2.29 1,308 6.23 1,855 2.97 529 1.23 1,919 1.61 469 0.88

Consensus FY2 Ests. Sales (M) EPS 2,980 1.32 8,985 4.50 213 0.73 10,335 2.84 2,156 3.70 2,951 1.05 3,956 0.12 436 0.75 1,409 0.22 17,310 3.44 1,126 2.33 1,257 6.14 1,854 2.47 508 1.21 1,870 1.46 468 0.85

# # # # # # # #

FY2 Ests. Sales (M) EPS 3,422 2.77 579 1.30 72 1.20 3,328 6.15 106 1.95 501 2.57 1,061 2.74

Gerardus Vos

European Software & IT Services (1-Positive) Ticker Company Name AMS-MCE Amadeus IT ATO-PAR ATOS AVV-LON Aveva Group CAP-PAR Capgemini DSY-FR Dassault Systemes IDR-MCE Indra Sistemas LOG-LON Logica MCRO-LON Micro Focus International PLC SGE-LON Sage Group SAP-DE SAP SOW-DE Software Sopra Group SOP-FR RIA-FR Groupe Steria TEMN-CH Temenos Group TIE1V-HEL Tieto Oyj WDI-DE Wirecard

Joseph Wolf and David Kalpan

Israel Technology (1-Positive) Ticker DOX CRNT CEVA ESLT-IL EZCH MLNX NICE

Company Name Amdocs Ceragon Networks CEVA Elbit Systems EZchip Semiconductor Mellanox Technologies NICE-Systems


17 May 2012


Consensus FY2 Ests. Sales (M) EPS 3,428 2.89 548 1.00 67 1.10 3,142 5.06 101 1.90 500 2.58 1,042 2.74


110


EQUITY VALUATION TABLE – JAPAN TECHNOLOGY Yuji Fujimori

Japan Consumer Electronics (2-Neutral) Ticker 6952-TKS 6839-OSE 6632-TKS 6752-TKS 6773-TKS 6753-TKS 6758-TKS

Company Name Casio Computer Funai Electric JVC Kenwood Panasonic Pioneer Sharp Sony

Currency JPY JPY JPY JPY JPY JPY JPY

Price 5/11/2012 492.00 1455.00 301.00 579.00 369.00 411.00 1213.00

Currency JPY JPY JPY

Price 5/11/2012 587.00 570.00 101.00

Currency JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY

Price 5/11/2012 7960.00 1527.00 7450.00 4390.00 1061.00 810.00 6530.00 3515.00 687.00 774.00 3740.00

Rating 1-OW 2-EW 1-OW 3-UW 2-EW 2-EW 2-EW

Market Cap (USD M) 1,654 621 522 16,745 1,482 5,656 15,273

Rating 2-EW 1-OW 3-UW

Market Cap (USD M) 8,487 3,546 1,140

Rating 2-EW 1-OW 2-EW 2-EW 2-EW 2-EW 1-OW 2-EW 2-EW 3-UW 1-OW

Market Cap (USD M) 3,445 2,733 17,094 11,590 2,889 2,371 11,176 4,740 1,161 1,138 5,889

2011E 0.5 -0.1 0.2 0.3 0.3 0.5 0.2

EV/Sales, x 2012E 0.5 -0.1 0.2 0.3 0.3 0.5 0.2

2011E 0.9 0.7 0.8

EV/Sales, x 2012E 0.9 0.7 0.8

2011E 1.5 0.5 0.7 1.2 0.7 0.4 1.2 0.5 0.5 0.7 0.6

EV/Sales, x 2012E 1.4 0.5 0.7 1.2 0.7 0.4 1.0 0.4 0.5 0.6 0.6

5Y Avg. 0.5 0.0 0.2 0.4 0.3 0.5 0.3

Price/Earnings, x 2011E 2012E 5Y Avg. 47.3 10.0 32.2 27.7 21.9 14.5 5.4 4.6 9.9 -1.8 12.8 30.4 9.3 7.6 9.9 -11.7 13.8 66.2 32.1 8.8 11.7

Sales Growth (%) 2011E 2012E -11.61% 5.30% -1.28% -6.17% 2.69% 0.70% -8.77% 0.13% 9.44% 5.02% 8.72% 6.37% 11.80% 0.70%

5Y Avg. 1.1 1.4 0.8

Price/Earnings, x 2011E 2012E 5Y Avg. 10.6 12.6 9.4 9.5 6.9 8.4 -9.2 10.8 21.7

Sales Growth (%) 2011E 2012E 0.03% -0.08% 12.62% -0.87% 0.99% 0.36%

5Y Avg. 1.9 0.9 0.9 1.3 0.8 0.4 1.4 0.8 0.7 0.7 0.8

Price/Earnings, x 2011E 2012E 5Y Avg. 17.2 16.2 20.5 9.8 8.7 13.3 16.3 15.3 23.5 17.1 16.2 22.0 10.4 8.4 27.9 9.1 7.1 9.2 13.2 11.5 14.3 24.0 19.7 22.3 11.8 9.9 -1.7 -4.5 14.5 0.9 10.0 9.5 22.6

Sales Growth (%) 2011E 2012E 6.34% 6.25% 15.37% 5.95% 11.89% 1.82% 15.34% 2.70% -3.95% 2.17% 14.82% 6.26% 36.00% 13.79% 9.05% 5.15% 15.93% 2.30% -12.79% 7.26% 15.53% 1.14%

# # # # # # # #

FY2 Ests. Sales (M) EPS 318,000 49.10 228,000 66.43 331,800 64.79 7,940,000 45.25 502,000 48.45 2,840,000 29.74 7,200,000 137.36

Consensus FY2 Ests. Sales (M) EPS 316,624 39.82 241,599 85.21 348,836 62.13 8,030,257 45.46 519,313 51.59 2,722,567 27.01 6,907,698 109.80

# # # #

FY2 Ests. Sales (M) EPS 1,214,000 46.58 377,600 82.59 559,700 9.31

Consensus FY2 Ests. Sales (M) EPS 1,259,947 66.01 314,136 42.50 565,410 5.74

# # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 107,092 490.30 367,770 174.82 1,356,699 485.80 692,523 270.79 279,430 125.90 537,778 113.32 1,055,879 566.24 349,327 178.86 149,233 69.09 196,815 53.36 951,691 393.38

Consensus FY2 Ests. Sales (M) EPS 104,395 431.07 335,105 130.11 1,337,761 514.45 705,255 297.75 289,385 106.34 522,780 104.69 865,360 564.81 337,378 151.74 145,017 33.19 195,575 22.08 932,784 384.88

Yuji Fujimori

Japan Display & Lighting (2-Neutral) Ticker 5201-TKS 5214-TKS 5202-TKS

Company Name Asahi Glass Nippon Electric Glass Nippon Sheet Glass

Masaru Koshita

Japan Electronic Components (1-Positive) Ticker 6806-TKS 4062-TKS 6971-TKS 6981-TKS 5334-TKS 5991-TKS 6594-TKS 6963-TKS 6967-TKS 6976-TKS 6762-TKS

Company Name Hirose Electric Ibiden Kyocera Murata Manufacturing NGK Spark Plug NHK Spring Nidec Rohm Shinko Electric Industries Taiyo Yuden TDK


17 May 2012



111


EQUITY VALUATION TABLE – JAPAN TECHNOLOGY Masaru Koshita

Japan Electronic Components (1-Positive) Ticker 6806-TKS 4062-TKS 6971-TKS 6981-TKS 5334-TKS 5991-TKS 6594-TKS 6963-TKS 6967-TKS 6976-TKS 6762-TKS 7731-TKS 7733-TKS 6645-TKS 7752-TKS 6724-TKS 6590-TKS 7701-TKS 8035-TKS 7732-TKS 6728-TKS

Company Name Hirose Electric Ibiden Kyocera Murata Manufacturing NGK Spark Plug NHK Spring Nidec Rohm Shinko Electric Industries Taiyo Yuden TDK Nikon Olympus OMRON Ricoh Co. Seiko Epson Shibaura Mechatronics Shimadzu Tokyo Electron Topcon ULVAC

Currency JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY


17 May 2012

Price 5/11/2012 7960.00 1527.00 7450.00 4390.00 1061.00 810.00 6530.00 3515.00 687.00 774.00 3740.00 2279.00 1130.00 1695.00 641.00 930.00 198.00 706.00 3995.00 623.00 515.00

Rating 2-EW 1-OW 2-EW 2-EW 2-EW 2-EW 1-OW 2-EW 2-EW 3-UW 1-OW 2-EW 3-UW 1-OW 2-EW 2-EW 2-EW 1-OW 2-EW 1-OW 3-UW

Market Cap (USD M) 3,445 2,733 17,094 11,590 2,889 2,371 11,176 4,740 1,161 1,138 5,889 11,303 3,772 4,667 5,813 2,081 122 2,605 8,953 722 318

2011E 1.5 0.5 0.7 1.2 0.7 0.4 1.2 0.5 0.5 0.7 0.6 0.9 0.8 0.5 0.6 0.3 0.4 0.8 0.8 1.0 0.6

EV/Sales, x 2012E 1.4 0.5 0.7 1.2 0.7 0.4 1.0 0.4 0.5 0.6 0.6 0.8 0.8 0.5 0.6 0.3 0.4 0.7 0.8 0.9 0.7

5Y Avg. 1.9 0.9 0.9 1.3 0.8 0.4 1.4 0.8 0.7 0.7 0.8 0.7 1.1 0.6 0.6 0.3 0.4 0.7 0.8 0.7 0.8

Price/Earnings, x 2011E 2012E 5Y Avg. 17.2 16.2 20.5 9.8 8.7 13.3 16.3 15.3 23.5 17.1 16.2 22.0 10.4 8.4 27.9 9.1 7.1 9.2 13.2 11.5 14.3 24.0 19.7 22.3 11.8 9.9 -1.7 -4.5 14.5 0.9 10.0 9.5 22.6 15.1 13.7 13.2 12.6 8.6 21.4 14.6 11.7 11.4 14.5 9.1 14.0 11.5 9.2 9.2 98.0 5.4 13.6 12.6 10.7 11.6 20.5 19.7 14.5 14.4 10.5 14.3 -0.5 13.4 16.8

Sales Growth (%) 2011E 2012E 6.34% 6.25% 15.37% 5.95% 11.89% 1.82% 15.34% 2.70% -3.95% 2.17% 14.82% 6.26% 36.00% 13.79% 9.05% 5.15% 15.93% 2.30% -12.79% 7.26% 15.53% 1.14% 7.98% 3.53% 4.89% 4.49% 2.51% 4.41% 1.66% 2.33% -0.91% 1.72% 2.90% 9.38% 3.28% 7.27% -2.07% 0.81% 3.20% 6.86% -9.07% -17.06%


# # # # # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 107,092 490.30 367,770 174.82 1,356,699 485.80 692,523 270.79 279,430 125.90 537,778 113.32 1,055,879 566.24 349,327 178.86 149,233 69.09 196,815 53.36 951,691 393.38 1,027,000 166.44 930,000 131.15 663,000 144.46 1,980,000 70.34 885,000 100.62 44,300 36.43 295,000 66.10 625,000 203.16 109,000 59.38 175,000 38.50

Consensus FY2 Ests. Sales (M) EPS 104,395 431.07 335,105 130.11 1,337,761 514.45 705,255 297.75 289,385 106.34 522,780 104.69 865,360 564.81 337,378 151.74 145,017 33.19 195,575 22.08 932,784 384.88 1,076,380 193.13 937,656 134.08 669,227 154.20 2,004,216 74.49 909,954 116.15 43,276 22.62 295,842 52.78 690,100 327.72 103,285 46.96 181,113 10.68


112


EQUITY VALUATION TABLE – ASIA EX-JAPAN TECHNOLOGY Andrew Lu & SC Bae

Asia Ex-Japan Semiconductors (2-Neutral) Ticker Company Name 2311-TW Advanced Semiconductor Engineering 000660-KRXHynix Semiconductor 3189-TW Kinsus Interconnect Technology 2454-TW MediaTek 3697-TW MStar Semiconductor 8046-TW Nan Ya Printed Circuit Board 005930-KRXSamsung Electronics 2325-TW Siliconware Precision Industries 2330-TW Taiwan Semiconductor Manufacturing 2303-TW United Microelectronics 5347-TW Vanguard International Semiconductor 2455-TW Visual Photonics Epitaxy Co. Ltd. 3105-TW Win Semiconductors Corp.

Currency TWD KRW TWD TWD TWD TWD KRW TWD TWD TWD TWD TWD TWD

Price 5/11/2012 29.15 26600.00 92.20 264.00 181.50 54.60 1327000.00 33.50 85.30 14.55 15.15 51.90 45.85

Currency KRW TWD KRW TWD TWD TWD TWD KRW TWD TWD KRW TWD TWD

Price 5/11/12 13950.00 13.05 104500.00 12.20 26.05 28.95 89.50 22900.00 88.00 132.00 56800.00 365.00 18.75

Rating 2-EW 1-OW 1-OW 1-OW 1-OW 3-UW 1-OW 1-OW 2-EW 2-EW 1-OW 1-OW 2-EW

Market Cap (USD M) 6,473 13,788 1,400 10,244 3,271 1,201 151,449 3,511 75,277 6,247 796 393 1,013

Rating 1-OW 1-OW 2-EW 3-UW 3-UW 1-OW 2-EW 1-OW 1-OW 2-EW 1-OW 2-EW 3-UW

Market Cap (USD M) 263 3,922 4,626 3,038 642 1,064 718 7,172 1,806 1,970 879 2,924 1,052

Rating 3-UW 1-OW 2-EW

Market Cap (USD M) 3,533 818 7,958

2011E 1.2 2.0 1.4 2.4 1.9 0.5 0.8 1.4 4.3 1.6 1.0 3.6 na

EV/Sales, x 2012E 1.1 1.7 1.4 2.0 1.6 0.4 0.7 1.3 4.0 1.4 1.0 3.2 na

2011E na 0.8 1.0 0.7 0.2 1.1 na 0.4 0.9 0.7 na 0.7 0.5

EV/Sales, x 2012E na 0.7 0.9 0.7 0.2 0.8 na 0.4 0.9 0.7 na 0.7 0.4

2011E 0.2 0.9 0.6

EV/Sales, x 2012E 0.2 0.8 0.5

5Y Avg. 1.1 2.1 1.5 2.3 1.6 0.8 0.8 1.3 3.8 1.3 0.8 3.4 na

Price/Earnings, x 2011E 2012E 5Y Avg. 12.7 10.8 10.2 82.8 11.4 64.9 13.4 11.8 13.6 23.0 18.6 16.2 14.0 12.2 12.4 6.6 5.7 10.3 9.0 7.7 10.2 18.0 15.2 16.7 14.3 14.9 13.2 14.1 11.2 12.0 17.6 10.7 17.2 17.3 15.0 16.9 15.0 13.8 15.9

Sales Growth (%) 2011E 2012E 9.01% 11.04% -0.33% 17.52% 10.69% 1.68% 7.12% 15.57% 9.14% 16.95% 39.35% 14.75% 24.07% 11.90% 10.66% 14.23% 15.50% 7.74% 0.45% 12.42% 1.32% 7.17% 32.45% 11.12% na na

5Y Avg. na 0.6 1.0 0.7 0.2 1.3 na 0.4 0.9 0.7 na 1.0 0.6

Price/Earnings, x 2011E 2012E 5Y Avg. na na na -4.1 15.2 8.1 19.1 15.8 18.5 -3.1 23.5 5.5 10.1 9.7 10.0 11.3 6.4 9.4 17.5 na 17.6 13.5 6.3 12.5 8.2 7.4 7.7 10.5 10.1 9.3 na na na 7.5 7.2 11.2 19.5 10.1 13.3

Sales Growth (%) 2011E 2012E na na 3.38% 10.50% 10.12% 14.87% -4.97% 5.48% 0.55% 4.96% -13.60% 30.51% na na 17.40% 7.84% 30.99% 9.93% 29.49% 6.86% na na 19.32% -1.80% 35.75% 5.11%

5Y Avg. 0.3 1.3 0.9

Price/Earnings, x 2011E 2012E 5Y Avg. 9.4 8.3 9.8 7.1 5.9 8.6 20.0 13.9 18.2

Sales Growth (%) 2011E 2012E 17.00% 16.00% 16.00% 15.00% 22.27% 19.26%

# # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 224,359 2.69 12,177,000 2,338.52 25,607 7.79 107,526 14.16 45,548 14.88 60,493 9.64 229,087,008 171,835.30 77,406 2.20 531,452 5.73 129,184 1.30 16,495 1.42 3,168 3.45 na 3.33

# # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS na na 433,770 0.86 7,060,000 6,595.09 511,318 0.52 81,329 2.68 43,334 4.51 na na 30,753,000 3,663.14 50,500 11.97 87,766 13.13 na na 167,993 51.02 132,752 1.85

Jamie Yeh, SC Bae & Sunwoo Kim

Asia Ex-Japan LCD Displays (1-Positive) Ticker Company Name 054620-KRXAsia Pacific Systems Inc. 2409-TW AU Optronics 001300-KRXCheil Industries Inc. 3481-TW Chimei Innolux 5371-TW Coretronic 8069-TAI E Ink Holdings 3149-TW G-TECH Optoelectronics 034220-KRXLG Display 3034-TW Novatek Microelectronics 6176-TW Radiant Opto-Electronics 056190-KRXSFA Engineering Corp. 3673-TW TPK Holding 2384-TW Wintek

Asia Ex-Japan Data Networking & Wireline Equipment (1-Positive) Ticker 552-HK 2342-HK 763-HK

Company Name China Communications Services Comba Telecom Systems Holdings ZTE

Currency HKD HKD HKD


17 May 2012

Consensus FY2 Ests. Sales (M) EPS 219,675 2.80 13,117,950 2,849.07 25,371 8.77 106,834 15.37 46,245 15.79 42,732 5.27 221,055,856 163,403.00 74,810 2.49 559,026 6.91 125,350 1.14 16,803 1.53 3,351 3.75 13,255 3.81

Price 5/11/2012 3.96 4.16 17.96


# # # #

FY2 Ests. Sales (M) 72,620 8,477 125,777

EPS 0.48 0.70 1.29

Consensus FY2 Ests. Sales (M) EPS 355,153 1,706.17 419,131 0.14 6,993,520 7,863.74 520,027 -0.55 84,692 3.11 33,250 2.81 13,419 6.81 29,003,646 2,370.56 41,831 8.44 92,668 14.42 1,079,381 6,290.33 179,445 49.91 107,482 1.16 Jones Ku Consensus FY2 Ests. Sales (M) EPS 71,006 0.41 8,636 0.65 124,550 1.28


113


EQUITY VALUATION TABLE – ASIA EX-JAPAN TECHNOLOGY Kirk Yang

Asia Ex-Japan IT Hardware (2-Neutral) Ticker Company Name 2353-TAI Acer 2357-TAI ASUSTeK Computer 2392-TAI Cheng Uei Precision Industry 2385-TAI Chicony Electronics 2324-TAI Compal Electronics 8163-TAI Darfon Electronics 861-HKG Digital China Holdings 3211-TAI Dynapack International Technology 2448-TW EPISTAR 2393-TW Everlight Electronics 2354-TW Foxconn Technology 2317-TAI Hon Hai Precision Industry 2356-TAI Inventec 3336-HKG Ju Teng International Holdings 992-HKG Lenovo Group 4938-TW Pegatron 2382-TAI Quanta Computer 006400-KRXSamsung SDI Co. Ltd. 3376-TW Shin Zu Shing Co. 6121-TAI Simplo Technology 751-HKG Skyworth Digital Holdings 2387-TAI Sunrex Technology 2347-TAI Synnex Technology International 903-HKG TPV Technology 3231-TAI Wistron

Currency TWD TWD TWD TWD TWD TWD HKD TWD TWD TWD TWD TWD TWD HKD HKD TWD TWD KRW TWD TWD HKD TWD TWD HKD TWD

Price 5/11/2012 32.20 313.00 57.90 56.70 33.75 19.65 14.30 159.50 71.00 59.20 102.50 87.70 10.30 1.64 7.14 42.60 80.00 167000.00 80.40 217.50 3.05 16.60 70.80 1.72 42.45

Rating 1-OW 1-OW 1-OW 2-EW 2-EW 1-OW 1-OW 2-EW 1-OW 3-UW 2-EW 1-OW 3-UW 3-UW 1-OW 1-OW 1-OW 1-OW 2-EW 1-OW 1-OW 3-UW 2-EW 2-EW 2-EW

Market Cap (USD M) 2,880 8,022 940 1,177 4,999 213 2,012 824 2,076 845 4,092 31,916 1,215 236 9,504 3,270 10,440 6,334 434 2,075 1,041 206 3,800 520 3,003

Rating 1-OW 2-EW 1-OW 3-UW 1-OW 2-EW 1-OW 2-EW 1-OW 1-OW 1-OW 3-UW 1-OW 3-UW

Market Cap (USD M) 3,788 615 4,933 843 3,249 12,707 2,238 10,622 2,783 426 1,641 1,608 552 322

2011E 0.1 0.5 0.3 0.6 0.1 0.3 0.2 0.8 3.2 1.9 0.7 0.2 0.1 0.7 0.2 0.2 0.3 1.2 1.1 0.9 0.4 0.4 0.4 0.1 0.1

EV/Sales, x 2012E 0.1 0.4 0.3 0.6 0.1 0.2 0.2 0.7 2.7 1.6 0.6 0.2 0.1 0.7 0.2 0.2 0.2 1.2 1.1 0.8 0.3 0.4 0.3 0.0 0.1

2011E 4.2 0.1 2.9 0.3 0.3 0.7 3.4 0.3 0.3 0.7 1.0 0.8 0.4 0.4

EV/Sales, x 2012E 3.3 0.1 2.5 0.3 0.2 0.6 2.7 0.3 0.3 0.7 0.9 0.8 0.4 0.3

5Y Avg. 0.2 0.3 0.4 0.6 0.1 0.3 0.2 0.7 2.5 1.8 0.8 0.3 0.1 0.6 2.0 0.2 0.2 1.1 0.9 0.8 0.4 0.5 0.3 0.5 0.1

Price/Earnings, x 2011E 2012E 5Y Avg. 12.0 7.0 9.5 12.5 11.1 8.3 7.6 6.9 7.2 9.5 9.0 9.2 7.9 7.4 7.4 23.7 12.8 16.1 12.0 9.8 11.8 15.5 16.3 12.2 87.7 24.7 40.1 19.8 18.0 16.0 10.8 9.0 11.7 8.7 6.9 8.8 7.3 7.2 9.1 8.1 8.1 7.5 162.3 121.0 117.4 11.3 7.1 9.1 10.9 8.7 10.4 12.9 9.8 10.8 16.6 16.6 13.9 11.5 11.0 10.1 6.3 4.8 7.5 8.3 8.0 9.5 14.0 12.3 13.2 34.4 28.7 44.2 8.5 8.1 7.7

Sales Growth (%) 2011E 2012E 15.71% 12.73% 4.89% 11.69% 49.10% 32.18% 7.81% 5.57% 39.95% 7.22% 7.84% 13.26% 24.99% 16.90% 9.70% 5.51% -15.35% 16.89% -7.96% 14.48% 14.83% 30.83% 17.30% 16.05% 12.62% 8.64% -10.79% 0.00% 34.66% 16.93% 8.34% 15.38% 3.63% 19.13% 9.50% 0.86% 20.38% 4.07% 27.48% 15.44% 18.12% 14.78% 6.72% 6.97% 9.60% 11.76% 11.41% 7.32% 10.88% 8.22%

5Y Avg. 4.4 0.2 3.0 0.3 4.3 1.0 4.2 0.3 0.5 0.7 0.9 1.0 0.5 0.7

Price/Earnings, x 2011E 2012E 5Y Avg. 18.8 14.6 15.5 6.4 5.4 6.5 11.4 10.7 10.9 8.8 9.4 10.0 na 345.0 287.5 9.3 8.3 9.8 14.7 10.9 13.5 12.4 9.4 21.1 9.8 8.4 8.1 9.7 8.9 9.5 10.8 9.5 9.1 11.1 8.3 9.1 9.4 8.1 9.3 45.7 15.3 8.8

Sales Growth (%) 2011E 2012E 37.99% 27.01% 10.00% 15.00% 24.43% 14.74% 315.94% 11.00% -1.49% 26.07% -3.37% 17.33% 3.75% 25.37% -3.39% 10.38% 8.96% 7.48% -3.59% 8.77% 4.45% 15.19% 5.62% 9.73% 14.54% 6.18% -19.43% 22.42%

# # # # # # # # # # # # # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 620,000 4.60 450,000 28.20 160,812 8.45 68,967 6.28 1,040,000 4.55 33,439 1.54 83,000 1.46 27,214 9.79 21,732 2.88 19,643 3.28 197,554 11.40 4,700,000 12.73 465,000 1.43 7,346 0.20 34,000 0.06 750,000 6.02 1,370,000 9.24 6,012,000 17,116.80 9,775 4.85 70,805 19.80 33,000 0.63 15,307 2.08 380,000 5.75 13,200 0.06 790,000 5.25

Consensus FY2 Ests. Sales (M) EPS 581,335 3.02 484,063 30.25 133,296 6.63 71,449 5.93 889,168 3.93 33,439 1.54 80,636 1.38 34,865 12.84 21,518 2.75 20,484 3.89 155,608 10.10 4,621,135 10.74 465,000 1.43 8,260 0.31 34,375 0.06 845,558 4.42 1,322,758 7.69 5,995,363 11,851.63 10,175 5.75 73,934 19.24 30,147 0.56 15,307 2.08 391,787 5.54 13,573 0.06 813,322 5.77

# # # # # # # # # # # # # # #

FY2 Ests. Sales (M) EPS 7,115 1.64 20,073 0.39 51,273 18.03 84,608 4.34 7,892 0.01 525,924 54.05 20,791 44.86 57,859,000 7,910.05 269,500 4.30 14,294 7.80 49,206 9.66 76,663 3.68 41,329 6.92 16,291 4.13

Consensus FY2 Ests. Sales (M) EPS 6,863 1.53 19,264 0.32 52,555 19.26 71,270 3.78 7,926 0.02 523,718 62.03 19,266 41.25 58,780,652 8,126.49 166,733 3.70 13,506 7.03 47,587 9.28 76,803 3.72 38,912 6.56 16,562 2.71

Dale Gai

Asia Ex-Japan Wireless Equipment & Products (1-Positive) Ticker Company Name 2018-HK AAC Technologies Holdings 285-HK BYD Electronic 2474-TW Catcher Technology 8078-TW Compal Communications 2038-HK Foxconn International Holdings 2498-TW HTC 3008-TW LARGAN Precision 066570-KRXLG Electronics Inc. 2301-TW Lite-On Technology 3311-TW Silitech Technology 3044-TW Tripod Technology 3037-TW UniMicron Technology 6285-TW Wistron NeWeb 3622-TW Young Fast Optoelectronics

Currency HKD HKD TWD TWD HKD TWD TWD KRW TWD TWD TWD TWD TWD TWD


17 May 2012

Price 5/11/2012 23.95 2.12 193.00 40.95 3.45 449.00 490.00 74500.00 36.30 69.20 91.70 30.70 56.10 63.00



114


EQUITY PEFORMANCE TABLE – U.S. TECHNOLOGY Ben Reitzes

U.S. IT Hardware (2-Neutral) Ticker AAPL DELL EMC HPQ IBM IM LXK NTAP STX DDD TECD WDC XRX

Company Name Apple Dell EMC Hewlett-Packard International Business Machines Ingram Micro Lexmark International NetApp Seagate Technology 3D Systems Tech Data Western Digital Xerox

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 566.71 15.42 26.36 23.15 201.17 18.66 28.31 36.08 31.14 27.45 50.88 40.30 7.63

Market Cap (USD M) 533,472 27,400 54,886 46,487 231,389 2,846 2,024 12,959 13,382 1,414 2,111 9,571 10,297

52 Week High Low 644.00 310.50 18.36 13.29 30.00 19.84 41.74 21.50 210.69 157.13 19.80 15.45 38.34 25.87 56.49 33.00 32.55 9.05 31.56 12.78 59.29 38.21 44.44 22.64 10.83 6.55

Current vs. 52 Week (%) High Low -12.0 82.5 -16.0 16.0 -12.1 32.9 -44.5 7.7 -4.5 28.0 -5.8 20.8 -26.2 9.4 -36.1 9.3 -4.3 244.1 -13.0 114.8 -14.2 33.2 -9.3 78.0 -29.5 16.5


Price 5/11/2012 36.25 39.17 137.78 18.82 79.46 15.40 45.26 55.83 33.20 31.16 42.62 27.00 20.24 24.80 62.85 15.45 71.14 30.07 22.72 31.36 102.32

Market Cap (USD M) 8,360 3,809 18,560 931 14,588 333 4,908 16,347 798 258,243 2,946 134,427 2,393 2,084 73,562 11,328 12,020 4,988 803 1,343 43,229

52 Week High Low 46.15 22.99 40.45 21.90 164.75 94.09 23.50 11.50 88.49 50.21 15.80 3.46 62.42 34.15 62.33 39.87 44.60 26.74 32.95 23.65 51.78 25.32 35.92 24.72 28.95 14.25 35.62 19.59 72.52 47.39 20.50 14.94 79.89 43.19 34.67 18.43 23.05 8.01 31.98 14.01 118.79 74.69

Current vs. 52 Week (%) High Low -21.5 57.7 -3.2 78.9 -16.4 46.4 -19.9 63.7 -10.2 58.3 -2.5 345.1 -27.5 32.5 -10.4 40.0 -25.6 24.2 -5.4 31.8 -17.7 68.3 -24.8 9.2 -30.1 42.0 -30.4 26.6 -13.3 32.6 -24.6 3.4 -11.0 64.7 -13.3 63.2 -1.4 183.6 -1.9 123.8 -13.9 37.0

1M -9.2 -4.3 -7.5 1.0 -0.9 2.6 -11.4 -15.0 22.7 23.3 -1.8 6.5 -1.2

3M 15.6 -12.4 -0.2 -18.1 4.3 -3.4 -23.8 -10.0 20.1 36.5 -3.4 5.6 -3.5

Historical Price Performance (%) 6M 1Y 5Y 48.1 63.3 431.5 3.9 -5.2 -38.9 8.6 -4.7 71.9 -12.1 -43.4 -47.4 9.4 17.7 91.6 2.2 -0.7 -5.0 -14.3 -9.4 -44.7 -14.8 -34.1 -6.6 79.7 77.3 45.0 69.5 38.7 162.9 7.8 -3.9 41.3 58.0 4.7 125.1 -6.0 -27.0 -56.8

3M -3.6 28.6 5.5 3.5 9.6 136.4 -2.1 -2.2 -17.8 0.8 -7.6 -5.2 -25.8 -17.9 -1.7 -12.7 14.8 8.4 43.9 9.9 7.1

Historical Price Performance (%) 6M 1Y 5Y 10.6 -19.9 -14.5 19.1 8.1 332.7 6.0 0.1 218.0 27.5 -12.1 NA 10.2 -6.6 151.6 177.2 125.1 NA 0.8 -15.3 206.9 5.0 1.0 98.2 -18.9 -23.9 NA 17.0 19.8 0.5 2.5 19.2 NA -14.8 -24.1 46.1 -3.5 -13.4 11.5 -17.3 -19.7 NA 3.5 -4.0 33.4 -7.0 -20.6 -20.3 28.7 30.2 NA 6.4 -0.9 231.6 57.9 NA NA 23.8 24.1 -5.1 4.1 8.7 NA

Company Name Autodesk Inc. Ariba Inc. salesforce.com inc. Cornerstone OnDemand Inc. Citrix Systems Inc. ELLIE MAE Inc. Informatica Corp. Intuit Inc. LogMeIn Inc. Microsoft Corp. NetSuite Inc. Oracle Corp. Parametric Technology Corp. Qlik Technologies Inc. SAP AG ADS Symantec Corp. Teradata Corp. TIBCO Software Inc. Tangoe Inc. DealerTrack Holdings Inc. VMware Inc.

1M -8.3 16.3 -11.9 -8.4 6.3 43.1 -10.0 -5.4 -4.5 0.9 -10.8 -4.7 -0.6 -18.6 -4.3 -11.6 7.7 -5.3 26.7 10.7 -8.3

17 May 2012

YTD 19.3 35.4 33.5 2.7 29.0 173.3 22.9 5.4 -16.0 18.4 3.5 5.3 10.0 0.9 16.7 -0.8 46.9 26.5 40.3 16.1 21.6

QTD -14.5 16.3 -12.3 -14.2 -0.7 38.4 -14.2 -7.9 -8.0 -4.7 -16.5 -7.3 -28.1 -23.7 -11.5 -17.0 4.5 -0.9 14.8 4.6 -10.0

CJ Muse and Olga Levinzon

U.S. Display & Lighting (2-Neutral) Ticker Company Name AIXG Aixtron GLW Corning CREE Cree IPGP IPG Photonics ORBK Orbotech LEDS SemiLEDS VECO Veeco Instruments Source: FactSet, Reuters, and Barclays Research estimates.

QTD -4.8 -6.3 -12.5 -1.3 -3.9 0.9 -14.4 -20.3 16.8 17.5 -5.8 -1.6 -5.4

Raimo Lenschow

U.S. Software (1-Positive) Ticker ADSK ARBA CRM CSOD CTXS ELLI INFA INTU LOGM MSFT N ORCL PMTC QLIK SAP SYMC TDC TIBX TNGO TRAK VMW

YTD 40.9 6.3 21.4 -8.7 9.1 2.9 -14.0 -1.6 91.9 92.1 3.5 31.6 -4.0

52 Week Current vs. 52 Week (%) Price Market Currency 5/11/2012 Cap (USD M) High Low High Low 1M 3M USD 16.89 1,712 40.81 11.18 -58.6 51.1 3.2 10.4 USD 13.31 20,188 21.14 11.51 -37.0 15.6 -0.5 -2.1 USD 32.07 3,687 44.83 20.25 -28.5 58.4 7.8 12.0 USD 46.76 2,362 78.59 33.33 -40.5 40.3 0.1 -16.4 USD 10.15 443 14.30 8.95 -29.0 13.4 -6.7 -7.4 USD 3.46 94 11.45 2.60 -69.8 33.1 -2.3 -1.4 USD 36.97 1,433 57.67 20.35 -35.9 81.7 39.3 30.3 Stock Ratings: 1-OW = 1-Overweight, 2-EW = 2-Equal Weight, 3-UW = 3-Underweight, RS = Rating Suspended.

Historical Price Performance (%) 6M 1Y 5Y YTD 19.3 -58.2 120.8 33.9 -8.6 -36.4 -42.8 2.6 12.5 -19.1 65.1 44.0 -0.9 -33.5 140.1 36.8 -0.2 -17.5 -52.2 2.5 -7.5 -69.1 NA 0.6 34.8 -28.6 107.4 77.7 FY2 Estimates = Next Fiscal Year Estimates

QTD -1.9 -5.4 0.3 -11.0 -11.7 -13.8 29.2

115


EQUITY PEFORMANCE TABLE – U.S. TECHNOLOGY Anthony DiClemente

U.S. Internet (1-Positive) Ticker AMZN AOL DMD EBAY EXPE GOOG GRPN AWAY IACI LNKD NFLX OPEN PCLN QNST RLOC SFLY TRIP VPRT WBMD YHOO ZNGA

Company Name Amazon.com Inc. AOL Inc. Demand Media Inc. eBay Inc. Expedia Inc. Google Inc. Cl A Groupon Inc. HomeAway Inc. IAC/InterActiveCorp. LinkedIn Corporation Netflix Inc. OpenTable Inc. priceline.com Inc. QuinStreet Inc. ReachLocal Inc. Shutterfly Inc. TripAdvisor Inc. Vistaprint N.V. WebMD Health Corp. Yahoo! Inc. Zynga Inc


Price 5/11/2012 227.68 26.06 8.46 40.74 41.11 605.23 9.90 25.35 48.52 107.23 77.38 37.27 675.39 8.03 9.19 26.60 41.73 37.64 21.82 15.19 7.48

Market Cap (USD M) 102,130 2,457 721 53,212 5,199 200,057 6,295 2,067 4,232 11,466 4,020 854 33,915 363 264 967 5,444 1,418 1,244 18,817 5,761

52 Week High Low 246.71 166.97 27.47 10.06 16.82 5.24 41.96 26.86 43.92 22.43 670.25 473.02 31.14 9.82 45.75 19.77 52.78 33.89 122.70 55.98 304.79 62.37 97.83 31.54 774.96 411.26 17.97 7.91 25.20 6.05 64.45 21.34 44.46 23.99 54.27 23.89 52.12 21.54 18.70 11.09 15.91 7.58

Current vs. 52 Week (%) High Low -7.7 36.4 -5.1 159.0 -49.7 61.5 -2.9 51.7 -6.4 83.3 -9.7 28.0 -68.2 0.8 -44.6 28.2 -8.1 43.2 -12.6 91.6 -74.6 24.1 -61.9 18.2 -12.8 64.2 -55.3 1.5 -63.5 51.9 -58.7 24.6 -6.1 73.9 -30.6 57.6 -58.1 1.3 -18.8 37.0 -53.0 -1.3

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 38.27 58.61 127.20 2.42 61.29 27.11 17.49 17.36 66.56 39.68 43.39 24.69 422.40 14.74 22.89 44.27 117.92 17.12

Market Cap (USD M) 1,904 40,596 6,335 111 18,585 4,187 1,899 745 9,072 3,281 3,407 2,099 53,461 761 4,317 4,743 96,188 10,592

52 Week High Low 47.24 28.32 65.89 47.40 130.66 80.38 19.44 1.75 78.75 53.54 45.14 22.80 19.20 7.64 23.61 13.25 71.74 48.75 41.30 24.28 53.93 38.26 29.55 12.91 466.98 258.34 31.41 11.02 23.88 15.80 55.89 30.25 125.35 73.11 21.20 14.55

Current vs. 52 Week (%) High Low -19.0 35.1 -11.0 23.6 -2.6 58.2 -87.6 38.3 -22.2 14.5 -39.9 18.9 -8.9 128.9 -26.5 31.0 -7.2 36.5 -3.9 63.4 -19.5 13.4 -16.4 91.2 -9.5 63.5 -53.1 33.8 -4.1 44.9 -20.8 46.3 -5.9 61.3 -19.2 17.7

1M 21.2 5.9 33.3 16.2 29.0 -2.1 -27.2 6.7 2.4 13.3 -28.9 -3.8 -8.1 -24.2 42.4 1.0 18.0 6.3 -3.9 3.0 -32.1

3M 22.2 43.2 40.2 24.8 22.0 1.3 -53.1 -4.3 8.2 23.4 -41.6 -14.7 25.0 -23.7 9.3 0.4 35.8 -2.3 -19.3 -4.3 -41.3

Historical Price Performance (%) 6M 1Y 5Y 7.5 11.2 272.1 74.5 37.3 NA 23.9 -46.7 NA 34.0 21.5 21.7 58.4 71.6 78.6 3.1 13.1 33.0 -59.6 NA NA -25.3 NA NA 18.8 35.8 60.9 44.2 NA NA -14.9 -69.5 230.5 -0.9 -60.8 NA 28.9 28.9 1105.1 -6.5 -54.7 NA -0.1 -62.3 NA -26.4 -53.5 47.7 NA NA NA 14.4 -27.9 3.2 -32.5 -57.0 -58.5 -3.2 -16.8 -48.0 NA NA NA

3M -5.5 3.1 6.7 -6.0 -12.9 -16.8 30.3 26.2 3.5 8.3 -15.7 28.3 6.8 -20.5 6.6 -2.7 3.7 -1.7

Historical Price Performance (%) 6M 1Y 5Y 14.8 -4.2 171.3 3.0 3.1 53.1 25.2 37.2 100.2 -3.1 -86.9 NA -9.3 -22.2 52.5 7.0 -40.0 -50.8 32.1 -3.7 -36.4 NA NA NA 16.2 6.5 26.8 39.0 17.0 NA -4.1 -18.4 12.1 26.2 -11.9 NA 17.5 50.5 204.7 8.6 -44.7 NA 16.0 18.8 -26.7 9.4 -14.3 18.5 27.0 47.1 NA 3.1 -17.8 -18.3

YTD 31.0 74.0 30.1 35.9 41.0 -5.0 -52.2 8.3 14.4 76.2 4.5 -3.3 45.6 -14.0 50.5 19.2 61.8 25.2 -41.8 -4.3 -16.9

Darrin Peller

U.S. IT Consulting & Computer Services (2-Neutral) Ticker ACTG ACN ADS CIS CTSH CSC CLGX EPAM FISV FLT GPN LPS MA RPXC TSS PAY V WU

Company Name Acacia Research Corp.-Acacia Technologies Accenture PLC Alliance Data Systems Corp. Camelot Information Systems Inc. ADS Cognizant Technology Solutions Corp. Computer Sciences Corp. CoreLogic, Inc. EPAM Systems Inc Fiserv Inc. FleetCor Technologies Inc. Global Payments Inc. Lender Processing Services Inc. MasterCard Inc. Cl A RPX Corp. Total System Services Inc. VeriFone Systems Inc. Visa Inc. Western Union Co.


17 May 2012

QTD 11.9 38.5 19.3 11.7 22.3 -4.3 -46.3 -0.6 -0.7 8.8 -37.0 -6.5 -5.1 -23.3 30.4 -13.4 14.4 -0.9 -14.5 1.4 -40.5

1M -1.6 -7.0 2.2 -25.7 -18.4 -4.2 17.9 -19.2 -1.7 4.4 -2.6 1.5 -0.4 -5.8 1.9 -13.6 1.2 -0.2


YTD 4.9 10.3 21.1 -12.6 -5.1 13.9 37.5 NA 13.2 32.3 -8.5 62.6 13.5 20.2 16.7 25.1 16.4 -5.4

QTD -8.2 -9.0 -0.1 -34.3 -20.7 -9.8 8.9 -14.1 -4.2 2.0 -8.7 -5.8 0.6 -10.4 -1.0 -14.3 0.1 -1.8


116


EQUITY PEFORMANCE TABLE – U.S. TECHNOLOGY Jeff Kvaal

U.S. Wireless Equipment (2-Neutral) Ticker CMVT ERIC IDCC MMI MSI NOK QCOM RIMM

Company Name Comverse Technology Ericsson InterDigital Motorola Mobility Holdings Motorola Solutions Nokia Corp. QUALCOMM Research In Motion

Currency USD USD USD USD USD USD USD USD

Price 5/11/2012 6.49 9.06 26.76 39.23 49.83 3.20 61.86 11.80

Market Cap (USD M) 1,419 29,624 1,190 11,952 14,469 12,134 107,108 6,185

52 Week High Low 7.99 5.90 15.44 8.58 82.50 25.50 39.81 20.77 52.78 38.36 8.80 3.12 68.87 45.98 45.78 11.67

Current vs. 52 Week (%) High Low -18.8 10.0 -41.4 5.5 -67.6 4.9 -1.4 88.9 -5.6 29.9 -63.6 2.6 -10.2 34.5 -74.2 1.1

Currency USD USD USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 24.41 30.24 12.51 16.55 29.80 13.10 16.51 125.91 17.95 35.19 12.36 16.99 4.16 3.73

Market Cap (USD M) 1,714 1,937 1,464 1,835 807 1,190 90,538 9,851 9,562 1,278 2,141 2,665 200 1,388

52 Week High Low 81.20 24.86 43.58 25.46 13.08 9.60 33.73 16.20 45.32 21.26 28.14 9.89 21.30 13.30 139.46 69.01 40.37 16.67 45.31 23.45 34.30 11.72 41.83 16.75 12.00 4.09 4.82 3.63

Current vs. 52 Week (%) High Low -69.9 -1.8 -30.6 18.8 -4.4 30.3 -50.9 2.2 -34.2 40.2 -53.4 32.5 -22.5 24.1 -9.7 82.4 -55.5 7.7 -22.3 50.1 -64.0 5.5 -59.4 1.4 -65.3 1.7 -22.6 2.8

Currency USD USD USD USD USD USD USD USD USD USD USD USD

Price 5/11/2012 13.37 10.98 10.36 51.61 6.26 7.00 50.03 41.42 6.65 25.86 46.44 15.71

Market Cap (USD M) 531 14,280 707 1,590 311 296 8,366 4,865 324 1,355 3,277 2,914

52 Week High Low 15.50 7.56 15.17 9.70 12.65 7.40 53.00 34.57 10.64 4.68 10.01 5.01 55.43 33.20 48.99 34.81 9.52 4.81 34.99 20.01 50.54 25.95 18.01 10.37

Current vs. 52 Week (%) High Low -13.7 76.9 -27.6 13.2 -18.1 40.0 -2.6 49.3 -41.2 33.8 -30.1 39.7 -9.7 50.7 -15.5 19.0 -30.1 38.3 -26.1 29.2 -8.1 79.0 -12.8 51.5

1M 3.7 -5.4 -20.1 -0.1 2.4 -35.6 -5.6 -8.7

3M 1.6 -5.5 -27.2 -0.3 4.5 -34.7 1.2 -23.6

Historical Price Performance (%) 6M 1Y 5Y -4.4 -15.4 -71.6 -9.0 -41.2 -50.9 -39.0 -41.4 -13.8 0.6 54.1 NA 10.0 4.9 -32.6 -49.8 -62.9 -86.7 13.2 9.8 42.3 -32.9 -73.9 -76.7

3M -22.8 -18.3 6.2 -29.1 -9.6 -25.7 -15.5 0.1 -20.5 -6.5 -42.3 -39.2 -27.5 -1.0

Historical Price Performance (%) 6M 1Y 5Y -32.4 -68.8 114.4 -6.2 -29.0 18.3 18.7 12.5 -16.0 -27.4 -48.9 16.8 -21.9 -28.2 NA -8.1 -56.8 -58.8 -9.7 -5.5 -36.1 16.0 18.9 222.7 -24.0 -52.2 -22.2 -3.1 -15.2 3.3 -34.9 -59.2 -26.6 -40.4 -52.7 -5.1 -36.3 -65.1 NA -13.3 -20.2 -64.5

3M 22.1 -14.6 -11.5 3.8 18.6 -21.0 1.2 -4.4 -8.8 -17.2 -3.6 -5.3

Historical Price Performance (%) 6M 1Y 5Y 46.8 -14.0 -44.2 -9.7 -26.6 -42.3 6.6 -14.1 -36.5 18.3 2.8 25.7 0.2 -40.0 -85.1 NA NA NA 7.9 11.1 -9.4 -4.4 -16.2 -23.6 6.4 -26.7 -64.1 -3.0 -5.2 -1.8 32.0 27.1 41.0 12.9 -6.1 -7.0

YTD -5.5 -10.7 -38.4 1.4 7.0 -32.8 14.2 -18.6

Jeff Kvaal

U.S. Data Networking & Wireline Equipment (2-Neutral) Ticker APKT ADTN ARRS ARUN BSFT CIEN CSCO FFIV JNPR NTGR PLCM RVBD SHOR TLAB

Company Name Acme Packet Adtran Arris Group Aruba Networks Broadsoft Ciena Cisco Systems F5 Networks Juniper Networks NETGEAR Polycom Riverbed Technology ShoreTel Tellabs

1M -1.6 6.5 16.4 -19.5 -21.4 -20.7 -14.0 -3.3 -13.5 -1.6 -13.7 -34.0 -14.8 1.3

YTD -18.7 0.5 17.3 -9.7 -3.0 -0.3 -7.0 16.9 -11.5 4.0 -26.3 -28.5 -34.8 -6.2

Company Name Advanced Energy Industries Applied Materials Brooks Automation Cymer FormFactor Intermolecular Inc. KLA-Tencor Lam Research LTX-Credence MKS Instruments Novellus Systems Teradyne


17 May 2012

QTD -8.7 -2.8 12.3 -25.0 -23.4 -25.5 -20.5 -8.1 -21.0 -8.6 -37.0 -40.1 -26.8 -6.4 CJ Muse

U.S. Semiconductor Capital Equipment (2-Neutral) Ticker AEIS AMAT BRKS CYMI FORM IMI KLAC LRCX LTXC MKSI NVLS TER

QTD -5.7 -12.2 -23.0 0.3 -2.5 -41.0 -8.2 -19.7

1M 10.9 -5.9 -8.1 10.0 19.2 8.1 -4.0 -2.3 5.9 -4.9 -1.8 -0.3


YTD 23.4 3.3 3.9 3.3 23.7 -18.8 3.6 9.3 23.6 -7.2 10.0 14.6

QTD 0.9 -11.1 -13.5 2.8 12.2 12.2 -8.1 -9.3 -8.1 -12.6 -9.0 -7.5


117


EQUITY PEFORMANCE TABLE – U.S. TECHNOLOGY CJ Muse and Blayne Curtis

U.S. Semiconductors (1-Positive) Ticker AMD ALTR ADI ATML AVGO BRCM CAVM CY ENTR FSL IDTI INTC LLTC LSI MX MRVL MXIM MCHP MTSI MU NVDA NXPI RFMD SLAB SWKS CODE TXN TQNT VLTR XLNX

Company Name Currency Advanced Micro Devices Inc. USD Altera Corp. USD Analog Devices Inc. USD Atmel Corp. USD Avago Technologies Ltd. USD Broadcom Corp. USD Cavium Inc. USD Cypress Semiconductor Corp. USD Entropic Communications Inc. USD Freescale Semiconductor Ltd USD Integrated Device Technology Inc. USD Intel Corp. USD Linear Technology Corp. USD LSI Corp. USD MagnaChip Semiconductor Corp. USD Marvell Technology Group Ltd. USD Maxim Integrated Products Inc. USD Microchip Technology Inc. USD MA-Com Technology Solutions Holdings Inc USD Micron Technology Inc. USD NVIDIA Corp. USD NXP Semiconductors N.V. USD RF Micro Devices Inc. USD Silicon Laboratories Inc. USD Skyworks Solutions Inc. USD Spansion Inc. Cl A USD Texas Instruments Incorporated USD TriQuint Semiconductor Inc. USD Volterra Semiconductor Corp. USD Xilinx Inc. USD

Price 5/11/2012 6.78 33.73 37.33 7.68 30.94 33.79 24.19 13.69 3.93 11.20 5.86 27.63 30.65 7.74 11.16 13.81 26.85 31.90 15.75 6.36 13.21 24.09 4.01 34.29 25.39 10.96 30.74 5.05 29.93 33.24

Market Cap (USD M) 4,755 10,802 11,059 3,386 7,532 18,387 1,216 2,046 342 2,738 833 137,044 7,081 4,383 420 7,873 7,849 6,132 735 6,225 7,672 5,924 1,097 1,465 4,787 654 35,223 830 782 8,727

52 Week High Low 9.07 4.31 48.91 30.39 43.28 29.23 15.40 7.12 39.45 26.42 39.66 27.59 47.29 22.84 23.95 13.10 9.44 3.36 20.97 9.43 8.74 4.70 29.27 19.16 35.30 25.41 9.20 4.75 15.25 5.10 16.86 11.23 30.00 20.62 41.50 29.30 22.43 14.80 10.93 3.97 20.52 11.47 31.14 13.06 7.89 3.86 48.50 30.36 30.31 13.72 21.02 7.21 35.63 24.34 14.13 3.97 34.87 18.09 37.74 26.55

Current vs. 52 Week (%) High Low -25.2 57.3 -31.0 11.0 -13.7 27.7 -50.1 7.9 -21.6 17.1 -14.8 22.5 -48.8 5.9 -42.8 4.5 -58.4 17.0 -46.6 18.8 -33.0 24.7 -5.6 44.2 -13.2 20.6 -15.9 62.9 -26.8 118.8 -18.1 23.0 -10.5 30.2 -23.1 8.9 -29.8 6.4 -41.8 60.2 -35.6 15.2 -22.6 84.4 -49.2 3.9 -29.3 12.9 -16.2 85.1 -47.9 52.0 -13.7 26.3 -64.3 27.2 -14.2 65.5 -11.9 25.2

Price 5/11/2012 1.03 11.53 14.33 16.14 5.52 40.20 4.01 32.25 7.31 3.53

Market Cap (USD M) 164 509 1,640 1,395 672 1,610 451 3,466 577 546

52 Week High Low 6.25 0.82 15.82 8.60 17.74 11.52 142.22 16.05 17.50 5.53 55.59 26.90 9.15 3.56 39.95 21.50 27.00 5.28 11.52 2.75

Current vs. 52 Week (%) High Low -83.5 25.6 -27.1 34.1 -19.2 24.4 -88.7 0.6 -68.5 -0.2 -27.7 49.4 -56.2 12.6 -19.3 50.0 -72.9 38.4 -69.4 28.4

1M -10.0 -9.2 -1.3 -14.1 -16.1 -7.1 -14.5 -4.9 -22.2 -18.4 -11.6 -0.8 -2.4 -3.9 0.9 -8.1 -1.2 -9.0 -21.6 -12.0 -12.3 -0.8 -8.7 -15.8 -2.0 3.0 -2.9 -14.7 -4.4 -4.4

3M -3.8 -16.5 -5.9 -22.0 -10.5 -9.8 -26.1 -25.6 -45.2 -33.2 -11.8 2.0 -8.4 -7.4 6.8 -15.5 -1.2 -13.0 NA -20.4 -21.9 8.8 -22.3 -23.2 7.6 -16.4 -7.7 -19.5 -3.4 -8.2

Historical Price Performance (%) 6M 1Y 5Y 19.8 -24.2 -51.7 -8.5 -30.5 44.1 3.5 -10.2 -6.5 -20.1 -50.1 33.6 -6.7 -13.8 NA -2.2 -1.5 2.0 -29.9 -47.5 41.0 -27.2 -38.3 297.9 -21.3 -58.5 NA -10.2 NA NA -0.8 -30.9 -60.7 13.2 18.3 22.6 -3.0 -11.8 -18.5 33.2 1.0 -8.2 54.1 -24.2 NA -6.4 -9.9 -21.8 3.0 -5.2 -15.2 -10.7 -22.7 -21.0 NA NA NA 21.4 -40.8 -48.1 -14.2 -37.2 -43.2 50.9 -21.9 NA -42.5 -34.9 -33.9 -18.6 -20.6 2.2 32.3 -15.7 262.6 11.8 -45.4 NA 0.5 -13.2 -15.9 -2.0 -64.1 -3.7 27.5 15.5 83.8 4.2 -7.0 12.4

3M -44.7 -17.7 1.3 -63.4 -40.8 -2.8 -30.8 6.0 -28.7 -35.4

Historical Price Performance (%) 6M 1Y 5Y -62.3 -81.7 NA 11.0 -25.8 NA 3.9 -10.9 NA -64.3 -87.5 -76.6 -28.1 -50.6 NA 12.2 -25.2 -39.1 -28.8 -58.0 2.5 5.2 16.3 NA 3.1 -73.0 -73.9 -1.4 -69.6 NA

Company Name A123 Systems Inc. Ameresco Inc. Cl A Elster Group SE ADS First Solar Inc. GT Advanced Technologies Inc. Itron Inc. Power-One Inc. Tesla Motors Inc. Trina Solar Ltd. ADS Yingli Green Energy Holding Co. Ltd. ADS


17 May 2012

QTD -15.5 -15.9 -8.1 -22.7 -20.8 -15.1 -20.9 -14.1 -33.3 -27.9 -17.6 -3.1 -8.7 -11.2 -5.0 -13.8 -6.1 -14.2 -21.7 -22.3 -19.3 -11.6 -20.3 -20.5 -8.7 -10.3 -8.4 -27.6 -12.5 -8.6

Amir Rozwadowski

U.S. Clean Technology (2-Neutral) Ticker AONE AMRC ELT FSLR GTAT ITRI PWER TSLA TSL YGE

YTD 25.6 -9.8 3.8 -5.8 7.0 13.7 -14.0 -20.5 -23.9 -12.3 7.9 12.3 2.4 29.6 52.4 -2.1 3.1 -12.8 NA 0.0 -10.4 53.1 -26.5 -21.3 55.6 32.0 5.7 2.5 17.6 4.0

Currency USD USD USD USD USD USD USD USD USD USD

1M 25.8 -11.2 -4.3 -24.7 -23.8 -4.2 -8.9 1.5 13.8 3.6


YTD -30.4 -16.5 11.9 -52.3 -22.5 12.6 -5.4 15.4 8.4 -9.2

QTD 0.0 -15.4 -8.1 -35.8 -32.2 -11.3 -18.7 -11.5 1.5 -4.7


118


EQUITY PEFORMANCE TABLE – EUROPE TECHNOLOGY Andrew Gardiner

European Technology Hardware (2-Neutral) Currency EUR EUR GBP EUR GBP EUR SEK EUR GBP CHF CHF EUR GBP EUR EUR EUR

Price 5/11/2012 13.22 1.22 5.07 37.74 2.24 17.26 63.55 6.90 6.17 6.86 9.40 2.52 0.83 4.10 1.59 3.56

Market Cap (USD M) 1,721 3,591 11,286 19,756 717 1,432 29,278 9,326 2,693 389 1,757 11,869 422 4,721 474 1,004

52 Week High Low 28.52 8.34 4.43 1.08 6.48 4.42 39.26 21.22 3.91 1.53 18.84 9.82 96.65 58.15 8.31 4.89 7.34 2.85 15.80 6.17 11.85 5.80 6.15 2.34 1.20 0.44 8.28 3.94 5.24 0.98 6.26 2.40

Current vs. 52 Week (%) High Low -53.6 58.5 -72.4 13.4 -21.7 14.6 -3.9 77.9 -42.8 46.2 -8.4 75.8 -34.2 9.3 -17.0 41.0 -16.0 116.3 -56.6 11.2 -20.7 62.0 -59.1 7.8 -30.8 90.8 -50.5 4.0 -69.7 61.9 -43.2 48.6

Ticker Company Name AMS-MCE Amadeus IT ATO-PAR ATOS AVV-LON Aveva Group CAP-PAR Capgemini DSY-FR Dassault Systemes IDR-MCE Indra Sistemas LOG-LON Logica MCRO-LON Micro Focus International PLC MSY-LON Misys SGE-LON Sage Group SAP-DE SAP SOW-DE Software SOP-FR Sopra Group RIA-FR Groupe Steria TEMN-CH Temenos Group TIE1V-HEL Tieto Oyj WDI-DE Wirecard Israel Technology (1-Positive)

Currency EUR EUR GBP EUR EUR EUR GBP GBP GBP GBP EUR EUR EUR EUR CHF EUR EUR

Price 5/11/2012 15.19 45.98 16.00 29.38 72.03 7.66 0.74 4.69 3.47 2.62 48.87 24.13 42.00 14.66 16.10 12.52 13.45

Market Cap (USD M) 8,891 4,949 1,757 5,772 11,425 1,723 1,924 1,215 1,883 5,499 74,056 2,744 645 589 1,190 1,187 1,774

52 Week High Low 15.75 11.21 49.07 28.86 18.01 12.90 41.66 21.98 76.76 49.07 15.98 7.36 1.46 0.57 4.82 2.30 4.30 2.12 3.13 2.25 54.85 32.88 44.50 21.54 64.78 34.28 22.75 10.00 30.90 11.55 15.65 8.39 15.03 9.43

Current vs. 52 Week (%) High Low -3.6 35.5 -6.3 59.3 -11.2 24.0 -29.5 33.7 -6.2 46.8 -52.0 4.1 -49.2 28.7 -2.7 104.2 -19.3 63.9 -16.5 16.3 -10.9 48.6 -45.8 12.1 -35.2 22.5 -35.6 46.6 -47.9 39.4 -20.0 49.2 -10.5 42.6

1M 12.5 11.6 1.3 -5.1 6.2 -0.8 -14.0 -1.6 0.2 -8.6 -4.1 -4.3 -14.3 -2.6 2.9 -8.1 -3.5

3M 7.5 10.2 -7.8 0.5 13.4 -22.6 -9.2 3.2 20.2 -10.9 0.3 -8.8 -12.4 -5.4 -6.5 -5.1 -8.4

Ticker DOX CRNT CEVA ESLT-IL EZCH MLNX NICE

Currency USD USD USD ILS USD USD USD

Price 5/11/2012 30.09 9.22 16.95 136.70 40.46 58.02 37.69

Market Cap (USD M) 5,262 335 400 1,528 1,028 2,289 2,410

52 Week High Low 32.39 25.41 13.76 7.25 35.60 16.47 185.60 125.90 46.79 27.70 67.20 25.81 40.04 27.17

Current vs. 52 Week (%) High Low -7.1 18.4 -33.0 27.2 -52.4 2.9 -26.3 8.6 -13.5 46.1 -13.7 124.8 -5.9 38.7

1M -2.3 -1.2 -20.4 -4.0 -7.3 42.7 -2.3

3M -0.8 11.2 -33.7 -6.0 6.6 55.9 5.0

Ticker AIXA-DE ALU-FR ARM-LON ASML-NL CSR-LON DLG-DE ERIC.B-SE IFX-DE IMG-LON KUD-CH LOGN-SWX NOK1V-HEL PIC-GB STM-PAR TCH-PAR TOM2-AMS

Company Name Aixtron SE Alcatel-Lucent ARM Holdings PLC ASML Holding N.V. CSR PLC Dialog Semiconductor PLC Ericsson LM Shs B Infineon Technologies AG Imagination Technologies Group PLC Kudelski S.A. Logitech International S.A. Nokia Corp. Pace PLC STMicroelectronics N.V. Technicolor TomTom N.V.

1M 2.5 -20.1 -12.9 1.0 3.7 -7.5 -4.2 -4.8 -5.7 6.0 33.4 -35.5 22.1 -22.8 7.3 18.9

3M 13.3 -27.3 -10.6 6.6 -5.7 0.7 -0.9 -9.1 0.2 -19.2 20.3 -34.6 -2.3 -19.5 -20.8 -10.2

Historical Price Performance (%) 6M 1Y 5Y 26.8 -53.4 125.5 -17.9 -72.1 -87.4 -18.7 -14.4 265.8 24.0 27.2 86.5 27.3 -43.1 -70.5 24.9 9.3 801.7 -5.0 -33.9 -50.4 4.1 -17.6 -32.1 36.4 34.8 412.8 -37.2 -56.9 -85.2 25.7 -18.3 -71.0 -47.9 -59.0 -86.6 41.9 -8.1 8.6 -21.1 -49.9 -71.6 26.2 -67.9 -98.5 11.0 -43.7 -86.2

YTD 33.7 1.2 -14.3 13.5 21.4 29.0 -10.3 16.6 15.1 -20.6 28.2 -34.6 18.8 -10.3 41.1 14.4

Gerardus Vos

European Software & IT Services (1-Positive)

Company Name Amdocs Ceragon Networks CEVA Elbit Systems EZchip Semiconductor Mellanox Technologies NICE-Systems


17 May 2012

QTD -1.9 -30.2 -13.3 -4.3 -2.0 -13.8 -11.8 -13.9 -6.6 1.9 30.3 -41.2 15.7 -34.6 -22.3 -1.6


Historical Price Performance (%) 6M 1Y 5Y YTD QTD 22.8 9.5 NA 22.9 5.9 36.6 7.2 -12.4 35.1 3.1 -0.8 -2.7 85.7 11.8 -2.4 5.0 -30.0 -47.8 20.1 -15.9 22.1 26.8 69.7 16.3 1.6 -29.6 -48.3 -54.6 -17.0 -13.5 -4.2 -48.4 -60.0 19.7 -25.0 29.4 17.7 65.3 17.2 -1.8 24.6 0.1 34.2 50.1 -1.5 -3.7 -10.1 4.3 -9.6 -10.1 9.9 8.5 37.6 17.5 -10.8 -17.1 -41.9 13.9 -14.6 -15.4 -6.7 -27.7 -17.1 17.6 -13.8 13.8 -34.8 -68.1 12.2 -15.8 4.6 -47.4 -42.2 3.6 -6.9 10.1 -0.4 -45.3 16.5 -11.5 18.1 9.3 82.7 8.3 -8.3 Joseph Wolf and David Kalpan Historical Price Performance (%) 6M 1Y 5Y YTD QTD 0.2 0.8 -16.4 5.6 -4.6 19.3 -20.8 21.8 23.4 0.1 -41.3 -44.4 136.5 -43.0 -24.1 -11.4 -25.6 -21.9 -12.7 -7.6 29.1 14.7 150.3 39.4 -8.9 67.3 75.9 217.4 75.9 36.6 11.9 0.3 0.7 9.2 -4.3 FY2 Estimates = Next Fiscal Year Estimates

119


EQUITY PEFORMANCE TABLE – JAPAN TECHNOLOGY Yuji Fujimori

Japan Consumer Electronics (2-Neutral) Ticker 6952-TKS 6839-OSE 6632-TKS 6752-TKS 6773-TKS 6753-TKS 6758-TKS

Company Name Casio Computer Funai Electric JVC Kenwood Panasonic Pioneer Sharp Sony

Currency JPY JPY JPY JPY JPY JPY JPY

Price 5/11/2012 499 1394 299 570 344 390 1135

Market Cap (USD M) 1,654 621 522 16,745 1,482 5,656 15,273

52 Week High Low 655 427 2765 1376 459 249 1032 574 434 287 788 403 2353 1203

Current vs. 52 Week (%) High Low -23.8 16.9 -49.6 1.3 -34.9 20.1 -44.8 -0.7 -20.7 19.9 -50.5 -3.2 -51.8 -5.7

Currency JPY JPY JPY

Price 5/11/2012 578 551 99

Market Cap (USD M) 8,487 3,546 1,140

52 Week High Low 1036 582 1166 553 270 100

Current vs. 52 Week (%) High Low -44.2 -0.7 -52.7 -0.4 -63.3 -1.0

Currency JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY

Price 5/11/2012 7840 1499 7370 4300 1083 899 6470 3340 679 757 3690

Market Cap (USD M) 3,445 2,733 17,094 11,590 2,889 2,371 11,176 4,740 1,161 1,138 5,889

52 Week High Low 8920 6510 2759 1458 8910 6060 5680 3870 1231 907 919 608 7900 5660 5070 3345 850 492 1134 484 4840 2404

Current vs. 52 Week (%) High Low -12.1 20.4 -45.7 2.8 -17.3 21.6 -24.3 11.1 -12.0 19.4 -2.2 47.9 -18.1 14.3 -34.1 -0.1 -20.1 38.0 -33.2 56.4 -23.8 53.5

1M -11.7 -9.6 -13.8 -13.7 -6.8 -22.5 -23.5

3M 0.6 -18.3 -9.9 -11.3 -2.9 -24.0 -21.0

Historical Price Performance (%) 6M 1Y 5Y 13.6 -23.7 -79.7 -12.4 -46.9 -84.4 -2.6 -26.6 NA -16.0 -42.1 -76.4 19.4 8.2 -75.6 -41.2 -44.6 -81.1 -8.2 -47.6 -81.5

3M -9.0 -14.9 -24.1

Historical Price Performance (%) 6M 1Y 5Y -2.2 -43.0 -66.2 -15.1 -50.5 -70.7 -28.9 -58.1 -85.2

3M 3.4 -13.8 11.7 -3.7 6.5 3.1 -12.2 -8.2 12.3 5.6 0.1

Historical Price Performance (%) 6M 1Y 5Y 13.9 -7.1 -44.1 -10.7 -43.4 -77.5 12.5 -14.7 -36.8 7.1 -21.2 -48.4 9.6 -4.2 -46.5 22.5 4.8 -24.1 3.7 -11.4 -8.7 -6.3 -29.1 -66.6 34.7 -15.6 -69.5 27.3 -30.4 -69.4 14.9 -11.5 -62.8

YTD 5.4 -21.4 13.2 -11.5 6.6 -38.9 -12.2

Yuji Fujimori

Japan Display & Lighting (2-Neutral) Ticker 5201-TKS 5214-TKS 5202-TKS

Company Name Asahi Glass Nippon Electric Glass Nippon Sheet Glass

1M -8.6 -15.4 -13.7

Company Name Hirose Electric Ibiden Kyocera Murata Manufacturing NGK Spark Plug NHK Spring Nidec Rohm Shinko Electric Industries Taiyo Yuden TDK


17 May 2012

YTD -9.1 -25.2 -29.9

QTD -13.9 -18.4 -18.1

Masaru Koshita

Japan Electronic Components (1-Positive) Ticker 6806-TKS 4062-TKS 6971-TKS 6981-TKS 5334-TKS 5991-TKS 6594-TKS 6963-TKS 6967-TKS 6976-TKS 6762-TKS

QTD -14.3 -19.3 -15.6 -21.7 -10.2 -30.0 -26.7

1M -4.0 -20.3 2.6 -7.8 -4.2 -4.0 -9.2 -8.7 -11.9 -4.1 -13.8


YTD 17.9 0.3 20.4 11.0 11.1 18.8 -2.4 -2.1 31.1 34.8 9.7

QTD -5.7 -25.8 1.2 -7.9 -7.5 -6.3 -10.9 -11.4 -12.5 -9.7 -17.9


120


EQUITY PEFORMANCE TABLE – JAPAN TECHNOLOGY Masaru Koshita

Japan Electronic Components (1-Positive) Ticker 7751-TKS 8060-TKS 7762-TKS 7735-TKS 4901-TKS 6674-TKS 8036-TKS 6856-TKS 7741-TKS 6951-TKS 4902-TKS 7731-TKS 7733-TKS 6645-OSE 7752-TKS 6724-TKS 6590-TKS 7701-TKS 8035-TKS 7732-TKS 6728-TKS

Company Name Canon Canon Marketing Japan Citizen Holdings Dainippon Screen Manufacturing FUJIFILM Holdings GS Yuasa Corp. Hitachi High-Technologies Horiba Hoya Jeol Konica Minolta Holdings Nikon Olympus OMRON Ricoh Co. Seiko Epson Shibaura Mechatronics Shimadzu Tokyo Electron Topcon ULVAC


17 May 2012

Currency JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY JPY

Price 5/11/2012 3465 972 469 665 1635 360 1898 2908 1788 224 634 2474 1130 1734 642 922 190 712 3960 606 451

Market Cap (USD M) 51,370 1,694 1,913 1,998 9,857 1,921 3,308 1,543 9,746 229 4,079 11,303 3,772 4,667 5,813 2,081 122 2,605 8,953 722 318

52 Week High Low 4015 3230 1075 828 537 352 787 434 2536 1622 565 326 2064 1322 2963 2204 1942 1546 273 190 741 484 2555 1560 2835 424 2323 1381 938 588 1436 881 344 191 755 555 4950 3325 675 338 2147 504

Current vs. 52 Week (%) High Low -13.7 7.3 -9.6 17.4 -12.7 33.2 -15.5 53.2 -35.5 0.8 -36.3 10.4 -8.0 43.6 -1.9 31.9 -7.9 15.7 -17.9 17.9 -14.4 31.0 -3.2 58.6 -60.1 166.5 -25.4 25.6 -31.6 9.2 -35.8 4.7 -44.8 -0.5 -5.7 28.3 -20.0 19.1 -10.2 79.3 -79.0 -10.5

1M -7.7 0.9 -4.6 -7.9 -9.1 -11.8 2.9 6.9 0.4 3.5 -6.4 -4.1 -13.7 3.4 -14.8 -14.8 -10.0 0.1 -12.9 15.2 -34.6

3M 1.3 3.6 8.3 15.6 -10.5 -10.4 14.3 19.9 1.3 9.3 0.8 11.4 -11.5 7.4 3.9 -9.7 -12.8 5.4 -3.3 33.7 -52.2


Historical Price Performance (%) 6M 1Y 5Y 2.8 -8.5 -50.9 14.5 10.4 -59.1 10.5 -3.5 -55.1 24.6 -11.0 -33.1 -5.9 -31.8 -68.3 -7.0 -33.6 43.1 18.6 14.4 -39.9 21.7 16.9 -31.8 10.6 3.5 -51.3 13.6 2.6 -73.0 9.2 -9.7 -63.9 32.6 36.4 -24.5 133.5 -52.7 -74.5 5.3 -23.9 -48.6 2.2 -28.1 -76.1 -2.0 -34.5 -73.6 -7.9 -39.1 -72.7 7.3 0.4 -33.3 1.7 -12.4 -52.5 56.9 38.4 -68.6 -45.8 -71.4 -86.9

YTD 1.5 9.7 5.6 3.7 -10.3 -10.1 15.1 25.7 8.9 21.2 7.1 33.0 11.7 9.6 -4.5 -9.1 2.6 8.3 2.0 75.5 -45.4

QTD -8.9 -4.2 -7.3 -7.0 -13.2 -15.7 0.2 5.9 0.0 -0.9 -12.4 -6.6 -14.1 -2.0 -18.0 -17.5 -18.5 -2.7 -13.2 16.6 -41.7


121


EQUITY PEFORMANCE TABLE – ASIA EX-JAPAN TECHNOLOGY Andrew Lu & SC Bae

Asia Ex-Japan Semiconductors (2-Neutral) Ticker 2311-TW 000660-KRX 3189-TW 2454-TW 3697-TW 8046-TW 005930-KRX 2325-TW 2330-TW 2303-TW 5347-TW 2455-TW 3105-TW

Company Name Currency Advanced Semiconductor Engineering Inc. TWD SK hynix Inc KRW Kinsus Interconnect Technology Corp. TWD MediaTek Inc. TWD MStar Semiconductor Inc. TWD Nan Ya Printed Circuit Board Corp. TWD Samsung Electronics Co. Ltd. KRW Siliconware Precision Industries Co. Ltd. TWD Taiwan Semiconductor Manufacturing Co. Ltd. TWD United Microelectronics Corp. TWD Vanguard International Semiconductor Corp. TWD Visual Photonics Epitaxy Co. Ltd. TWD Win Semiconductors Corp. TWD

Price 5/11/2012 29 25400 90 263 179 53 1303000 34 86 15 14 51 44

Market Cap (USD M) 6,473 13,788 1,400 10,244 3,271 1,201 151,449 3,511 75,277 6,247 796 393 1,013

52 Week High Low 33 23 35200 15500 133 71 362 221 220 110 117 52 1418000 672000 39 23 90 62 16 10 16 9 64 27 53 18


Price 5/11/12 13750 13 104000 12 26 29 87 22200 88 127 56900 356 19

Market Cap (USD M) 263 3,922 4,626 3,038 642 1,064 718 7,172 1,806 1,970 879 2,924 1,052

52 Week High Low 17050 10100 24 12 139500 70800 30 11 49 17 73 28 145 51 41100 17300 101 61 140 71 67600 45200 914 325 39 18


Price 5/11/2012 4 4 18

Market Cap (USD M) 3533 818 7958

52 Week High Low 5 3 9 4 30 17

Current vs. 52 Week (%) High Low -20.8 34.6 -54.6 2.0 -40.2 3.4

1M 0.3 -4.1 0.7 -4.2 4.3 -11.8 1.2 -3.7 4.0 2.8 13.9 0.4 1.1

3M 2.3 -1.5 0.3 -9.4 -6.9 -26.5 25.0 1.5 10.9 -3.0 20.2 8.8 6.4

Historical Price Performance (%) 6M 1Y 5Y 8.4 -3.8 7.7 23.7 -20.1 -16.9 -4.9 -12.2 -18.8 -14.7 -25.1 -40.2 0.8 -16.2 NA -31.8 -46.9 -70.1 41.9 48.9 130.8 17.3 -11.8 -49.5 17.5 14.7 26.4 15.9 -3.6 -35.8 35.9 1.3 -49.5 23.6 -13.0 80.5 56.5 25.4 NA

3M 5.3 -20.7 6.6 -25.2 -2.8 -33.1 -3.8 -21.0 2.7 11.9 2.2 -18.7 -25.6

Historical Price Performance (%) 6M 1Y 5Y 8.6 5.7 328.6 -4.7 -45.4 -72.8 3.5 -15.7 204.7 -9.0 -57.1 -86.4 3.2 -41.6 -49.8 -54.5 -49.4 42.8 24.0 -24.8 283.7 6.0 -42.4 -43.3 18.4 -0.2 -45.8 45.5 39.6 197.1 -6.1 -2.1 174.4 -14.4 -57.3 NA -5.3 -50.5 -24.0

Company Name Asia Pacific Systems Inc. AU Optronics Corp. Cheil Industries Inc. Chimei Innolux Corp. Coretronic Corp. E Ink Holdings Inc. G-TECH Optoelectronics Corp. LG Display Co. Ltd. Novatek Microelectronics Corp. Radiant Opto-Electronics Corp. SFA Engineering Corp. TPK Holding Co. Ltd. Wintek Corp.

3M 1.3 -20.2 -18.5

Historical Price Performance (%) 6M 1Y 5Y 23.4 -17.6 -15.8 -34.3 -53.3 93.1 -19.6 -34.0 64.3

Currency KRW TWD KRW TWD TWD TWD TWD KRW TWD TWD KRW TWD TWD

1M 19.2 -11.2 12.6 -13.5 0.8 -24.1 -4.4 -13.6 -1.3 7.3 6.8 -17.0 -16.3

YTD 7.3 0.4 3.5 0.0 27.1 -26.7 40.9 -6.5 15.9 52.6 -6.9 -7.5 -12.8

Company Name China Communications Services Corp. Ltd. Comba Telecom Systems Holdings Ltd. ZTE CORP H


17 May 2012

Currency HKD HKD HKD

QTD 6.0 -3.9 8.2 -10.8 -3.8 -24.6 -13.5 -14.3 -1.6 1.3 5.3 -23.2 -17.7 Jones Ku

Asia Ex-Japan Data Networking & Wireline Equipment (1-Positive) Ticker 552-HKG 2342-HKG 763-HKG

QTD -1.4 -9.8 -2.1 -6.1 1.0 -15.1 3.2 -6.0 1.0 1.2 19.4 -4.0 1.6

Jamie Yeh, SC Bae & Sunwoo Kim

Asia Ex-Japan LCD Displays (1-Positive) Ticker 054620-KRX 2409-TW 001300-KRX 3481-TW 5371-TW 8069-TAI 3149-TW 034220-KRX 3034-TW 6176-TW 056190-KRX 3673-TW 2384-TW

YTD 12.5 21.2 14.7 -4.9 14.9 -11.2 25.4 23.6 12.5 14.6 43.6 57.3 56.0

1M 0.8 -3.3 -10.2


YTD 15.7 -33.5 -26.2

QTD 5.6 -3.2 -14.1


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EQUITY PEFORMANCE TABLE – ASIA EX-JAPAN TECHNOLOGY Kirk Yang

Asia Ex-Japan IT Hardware (2-Neutral) Ticker 2353-TAI 2357-TAI 2392-TAI 2385-TAI 2324-TAI 8163-TAI 861-HKG 3211-TAI 2448-TW 2393-TW 2354-TW 2317-TAI 2356-TAI 3336-HKG 992-HKG 4938-TW 2382-TAI 006400-KRX 3376-TW 6121-TAI 751-HKG 2387-TAI 2347-TAI 903-HKG 3231-TAI

Company Name Acer Inc. ASUSTeK Computer Inc. Cheng Uei Precision Industry Co. Ltd. Chicony Electronics Co. Ltd. Compal Electronics Inc. Darfon Electronics Corp. Digital China Holdings Ltd. Dynapack International Technology Corp. EPISTAR Corp. Everlight Electronics Co. Ltd. Foxconn Technology Co. Ltd. Hon Hai Precision Industry Co. Ltd. Inventec Corp. Ju Teng International Holdings Ltd. Lenovo Group Ltd. Pegatron Corp. Quanta Computer Inc. Samsung SDI Co. Ltd. Shin Zu Shing Co. Ltd. Simplo Technology Co. Ltd. Skyworth Digital Holdings Ltd. Sunrex Technology Corp. Synnex Technology International Corp. TPV Technology Ltd. Wistron Corp.

Currency TWD TWD TWD TWD TWD TWD HKD TWD TWD TWD TWD TWD TWD HKD HKD TWD TWD KRW TWD TWD HKD TWD TWD HKD TWD

Price 5/11/2012 32 300 57 56 33 19 14 159 70 59 98 86 10 2 7 43 81 165500 80 218 3 16 71 2 43

Market Cap (USD M) 2,880 8,022 940 1,177 4,999 213 2,012 824 2,076 845 4,092 31,916 1,215 236 9,504 3,270 10,440 6,334 434 2,075 1,041 206 3,800 520 3,003

52 Week High Low 58 27 327 184 90 52 62 41 38 26 36 13 17 8 189 91 96 48 82 46 145 86 117 62 16 10 3 1 8 4 48 25 86 48 211000 99900 90 49 265 148 5 2 27 16 80 62 5 1 54 30

Current vs. 52 Week (%) High Low -44.3 17.2 -8.3 63.2 -36.6 9.8 -9.5 38.3 -14.0 28.3 -47.0 44.4 -14.9 75.2 -15.9 74.9 -27.1 45.4 -28.6 28.9 -32.5 13.9 -26.2 40.5 -34.9 7.7 -36.7 88.5 -6.5 75.4 -11.0 73.3 -5.9 69.0 -21.6 65.7 -11.1 63.9 -17.6 47.3 -42.8 29.7 -40.2 2.2 -11.1 15.0 -69.7 23.9 -20.5 40.5

Price 5/11/2012 24 2 186 41 4 430 472 71600 36 69 91 30 56 61

Market Cap (USD M) 3,788 615 4,933 843 3,249 12,707 2,238 10,622 2,783 426 1,641 1,608 552 322

52 Week High Low 25 13 5 2 278 120 73 23 6 3 1224 403 1005 451 116761 52592 40 27 90 62 127 64 56 31 121 43 211 51

Current vs. 52 Week (%) High Low -4.2 79.9 -55.0 20.8 -33.0 55.6 -43.4 77.2 -41.0 10.6 -64.9 6.7 -53.0 4.7 -38.7 36.1 -9.8 34.8 -23.9 11.2 -27.8 41.9 -46.7 -1.8 -53.6 32.0 -71.0 20.6

1M -16.6 15.7 -12.7 1.6 2.3 -6.9 -6.4 0.9 1.0 0.9 -7.2 -20.3 -14.5 -18.8 -2.5 -2.4 6.2 27.5 5.5 -0.2 -15.7 -6.7 -1.7 -10.4 -2.2

3M -24.9 27.5 -18.1 -6.3 -0.7 -10.7 0.3 -1.8 -3.7 -2.0 -21.8 -14.0 -20.8 14.7 6.2 12.4 12.7 10.2 4.7 -1.4 -23.8 -11.7 -2.6 -19.6 -11.2

Historical Price Performance (%) 6M 1Y 5Y -7.2 -39.9 -47.4 52.7 45.7 15.6 -9.5 -13.6 -28.8 15.0 5.0 51.6 23.6 4.3 15.7 6.5 -43.0 -70.6 19.6 -7.0 355.4 50.5 61.3 220.7 17.5 -20.8 -38.2 6.5 -26.7 -48.8 -1.4 -25.5 -47.7 10.9 -11.5 -28.9 -3.7 -32.5 -46.0 15.5 -32.5 -15.5 28.0 63.8 145.4 41.5 39.9 NA 33.1 39.6 75.0 30.0 -10.2 207.6 50.6 18.1 -41.4 24.3 11.5 114.2 -24.7 -40.0 187.7 -19.8 -37.8 -51.1 -0.1 -1.8 132.4 -24.9 -60.7 -70.5 14.1 -14.0 9.9

3M 14.3 -24.3 -1.8 -40.7 -39.6 -20.1 -23.2 -14.3 -0.8 -13.0 4.2 -22.7 -11.5 -23.5

Historical Price Performance (%) 6M 1Y 5Y 39.6 13.5 222.3 -18.8 -49.0 NA 24.1 3.8 10.6 -6.1 72.1 -54.2 -31.8 -22.8 -85.7 -29.3 -60.0 59.4 -17.8 -45.3 19.4 25.1 -28.4 11.8 25.2 -0.1 -30.9 -21.3 -1.1 -43.6 16.7 -22.3 -4.1 -16.0 -37.3 -31.2 -13.2 -44.4 10.9 -21.7 -64.0 NA

YTD -8.3 45.2 -2.2 14.2 11.8 24.4 18.8 38.1 10.4 12.3 6.1 5.8 -7.2 84.3 37.8 29.3 25.6 25.1 37.4 22.9 12.1 0.9 -3.1 21.1 10.7

Dale Gai

Asia Ex-Japan Wireless Equipment & Products (1-Positive) Ticker 2018-HK 285-HK 2474-TW 8078-TW 2038-HK 2498-TW 3008-TW 066570-KRX 2301-TW 3311-TW 3044-TW 3037-TW 6285-TW 3622-TW

Company Name AAC Technologies Holdings Inc. BYD Electronic (International) Co. Ltd. Catcher Technology Co. Ltd. Compal Communications Inc. Foxconn International Holdings Ltd. HTC Corp. LARGAN Precision Co. Ltd. LG Electronics Inc. Lite-On Technology Corp. Silitech Technology Corp. Tripod Technology Corp. UniMicron Technology Corp. Wistron NeWeb Corp. Young Fast Optoelectronics Co. Ltd.


17 May 2012

QTD -17.4 12.9 -17.6 -1.8 2.1 -11.1 -7.3 0.2 -5.3 -4.1 -15.6 -23.0 -20.1 -18.0 2.2 -6.9 4.0 20.9 2.8 -1.8 -16.0 -15.5 -2.9 -7.0 -4.1

Currency HKD HKD TWD TWD HKD TWD TWD KRW TWD TWD TWD TWD TWD TWD

1M 1.3 -12.4 -4.0 -10.6 -36.7 -14.6 -10.4 -4.9 6.1 3.7 -2.8 -13.8 -11.8 -11.6


YTD 37.3 -4.1 37.4 -10.0 -31.1 -9.7 -13.4 0.1 6.5 0.9 25.6 -13.8 13.3 1.3

QTD 13.5 -9.4 -7.0 -19.6 -37.6 -24.4 -15.1 -10.8 2.2 2.6 -6.9 -15.7 -13.3 -12.8


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EQUITY PEFORMANCE TABLE – INDICES Indices Ticker SP50 SP701 SP704-SPX UKX-FTX E1TEC-DJX NIK-NKX HSI-HKX P1TEC-DJX

Company Name Currency S&P 500 USD S&P 500 / Information Technology -SEC USD S&P Small Cap 600 / Information Technology -SEC USD FTSE 100 GBP Dow Jones Euro / Technology USD Japan Nikkei 225 JPY Hang Seng Index HKD Dow Jones Asia Pacific / Technology USD


17 May 2012

Price 5/11/2012 1353 465 255 5576 180 8953 19965 198

Market Cap (USD M) 12,277,194 2,448,616 90,609 2,321,154

786,639

52 Week High Low 1422 1075 502 358 282 191 6084 4791 242 156 10255 8136 23708 16170 220 166

Current vs. 52 Week (%) High Low -4.9 25.9 -7.4 29.9 -9.6 33.9 -8.4 16.4 -25.7 14.9 -12.7 10.0 -15.8 23.5 -9.9 19.3

1M 0.0 -4.4 -0.5 -0.9 -7.1 -5.5 -0.6 -3.0

3M 1.1 1.5 -4.8 -5.3 -5.9 0.7 -2.7 1.4


Historical Price Performance (%) 6M 1Y 5Y 9.5 0.1 -8.9 12.3 8.2 23.4 8.2 -9.3 9.9 1.8 -7.9 -15.0 -4.3 -25.4 -39.9 6.0 -8.2 -49.2 6.7 -13.3 -2.5 9.7 -8.1 -9.7

YTD 8.0 13.5 6.2 -0.5 3.4 6.6 9.7 10.1

QTD -3.6 -6.3 -6.0 -2.8 -13.0 -8.0 -1.6 -5.1


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BARCLAYS GLOBAL TECHNOLOGY TEAM AND OTHER CONTRIBUTORS U.S. Technology Ben Reitzes Global Sector Coordinator U.S. IT Hardware +1 212 526 9517 [email protected] Raimo Lenschow, CFA U.S. Software +1 212 526 2712 [email protected]

C.J. Muse U.S. Semiconductors; U.S. Semiconductor Capital Equipment +1 212 526 8945 [email protected]

Blayne Curtis U.S. Semiconductors +1 617 342 4101 [email protected]

Darrin Peller U.S. IT Consulting & Computer Services +1 212 526 7144 [email protected]

Jeff Kvaal U.S. Data Networking & Wireline Equipment; U.S. Wireless Equipment +1 212 526 2216 [email protected]

Olga Levinzon U.S. Display & Lighting +1 212 526 9134 [email protected]

Amir Rozwadowski U.S. Clean Technology & Renewables; U.S. Display & Lighting +1 212 526 4043 [email protected]

Anthony DiClemente U.S. Internet +1 212 526 1341

Gerardus Vos European Software & IT Services +44 20 313 46690 [email protected]

David Kaplan Israel Technology +972 3 623 8747 [email protected]

Joseph Wolf Israel Technology +972 3 623 8746 [email protected]

Masaru Koshita Japan Electronic Components +81 3 4530 2937 [email protected]

Masahiro Nakanomyo Japan Precision Instruments +81 3 4530 2962 [email protected]

Yoshihiko Nishizawa Japan Precision Instruments +81 3 4530 2994 [email protected]

Kirk Yang Asia ex-Japan IT Hardware +852 290 34635 [email protected]

Jones Ku Asia ex-Japan Data Networking & Wireline Equipment, IT Hardware, and Wireless Equipment & Products +852 290 33901 [email protected]

Dale Gai Asia ex-Japan Wireless Equipment & Products +886 2 6638 4697 [email protected]

Andrew Lu Asia ex-Japan Semiconductors +886 2 6638 4698 [email protected]

Jamie Yeh Asia ex-Japan LCD Displays +852 290 34670 [email protected]

SC Bae Asia ex-Japan Semiconductors; LCD Displays and Wireless Equipment & Products +82 2126 2932 [email protected]

Derrick Yang Asia ex-Japan IT Hardware +886 2 663 84686 [email protected]

Wayne Dong Asia ex-Japan IT Hardware +886 2 6638 4696 [email protected]

Jerry Wu Asia ex-Japan IT Hardware +886 2 6638 4685 [email protected]

Sunwoo Kim Asia ex-Japan IT Hardware & LCD Displays +822 2126 2934 [email protected]

[email protected]

European Technology Andrew Gardiner, CFA European Technology Hardware +44 20 313 47217 [email protected] Youssef Essaegh European Technology Hardware +44 203 134 7250 [email protected]

Japan Technology Yuji Fujimori Japan Consumer Electronics; Japan Display & Lighting +81 3 4530 2973 [email protected]

Asia ex-Japan Technology

Other Contributors Barry Knapp U.S. Portfolio Strategy +1 212 526 5313 [email protected] 17 May 2012

Eric Slover, CFA U.S. Portfolio Strategy +1 212 526 6426 [email protected] 125


17 May 2012

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ANALYST(S) CERTIFICATION(S) We, Ben A. Reitzes, Barry Knapp, Raimo Lenschow, CFA, Darrin D. Peller, Jeff Kvaal, C.J. Muse, Blayne Curtis, Amir Rozwadowski, Olga Levinzon, Anthony DiClemente, CFA, Andrew M. Gardiner, CFA, Youssef Essaegh, Gerardus Vos, David Kaplan, Joseph Wolf, Kirk Yang, Wayne Dong, Jerry Wu, Jones Ku, CFA, Andrew Lu, SC Bae, Dale Gai, Derrick Yang, Sunwoo Kim, Jamie Yeh, Yuji Fujimori, Masaru Koshita, Masahiro Nakanomyo and Yoshihiko Nishizawa, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.

IMPORTANT DISCLOSURES CONTINUED When an equity research report covers six or more subject companies, Barclays generally does not include specific conflict of interest disclosures regarding the subject companies and instead provides the reader with instructions about how to view or obtain the applicable conflict of interest disclosures. In order to comply with the requirements of the Korea Financial Investment Association, specific disclosures about subject companies with securities listed on the Korea Exchange are included herein. To access important disclosures, including, where relevant, price targets, regarding other companies that are the subject of this research report, please send a written request to: Barclays Research Compliance, 745 Seventh Avenue, 17th Floor, New York, NY 10019 or refer to http://publicresearch.barcap.com or call 1-212-526-1072.

The analysts responsible for preparing this research report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities. Research analysts employed outside the US by affiliates of Barclays Capital Inc. are not registered/qualified as research analysts with FINRA. These analysts may not be associated persons of the member firm and therefore may not be subject to NASD Rule 2711 and incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst’s account. Analysts regularly conduct site visits to view the material operations of covered companies, but Barclays policy prohibits them from accepting payment or reimbursement by any covered company of their travel expenses for such visits.

In order to access Barclays Statement regarding Research Dissemination Policies https://live.barcap.com/publiccp/RSR/nyfipubs/disclaimer/disclaimer-research-dissemination.html.

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The Corporate and Investment Banking division of Barclays produces a variety of research products including, but not limited to, fundamental analysis, equity-linked analysis, quantitative analysis, and trade ideas. Recommendations contained in one type of research product may differ from recommendations contained in other types of research products, whether as a result of differing time horizons, methodologies, or otherwise.

Materially Mentioned Stocks (Ticker, Date, Price) AAC Technologies Holdings (2018.HK, 11-May-2012, HKD 24.10), 1-Overweight/1-Positive Acer Inc. (2353.TW, 11-May-2012, TWD 32.00), 1-Overweight/2-Neutral Alliance Data Systems Corp. (ADS, 11-May-2012, USD 127.20), 1-Overweight/2-Neutral Altera Corp. (ALTR, 11-May-2012, USD 33.73), 1-Overweight/1-Positive Amadeus (AMA.MC, 11-May-2012, EUR 15.19), 1-Overweight/1-Positive Amazon.com, Inc. (AMZN, 11-May-2012, USD 227.68), 2-Equal Weight/1-Positive Amdocs Ltd. (DOX, 11-May-2012, USD 30.09), 1-Overweight/1-Positive Ameresco Inc. (AMRC, 11-May-2012, USD 11.53), 1-Overweight/2-Neutral AOL Inc. (AOL, 11-May-2012, USD 26.06), 2-Equal Weight/1-Positive Apple, Inc. (AAPL, 11-May-2012, USD 566.71), 1-Overweight/2-Neutral ARM Holdings PLC (ARM.L, 11-May-2012, GBP 5.07), 1-Overweight/2-Neutral Aruba Networks Inc. (ARUN, 11-May-2012, USD 16.55), 1-Overweight/2-Neutral ASML Holding NV (ASML.AS, 11-May-2012, EUR 37.74), 1-Overweight/2-Neutral Asustek Computer Inc. (2357.TW, 11-May-2012, TWD 299.50), 1-Overweight/2-Neutral AtoS (ATOS.PA, 11-May-2012, EUR 45.98), 1-Overweight/1-Positive AU Optronics Corp. (2409.TW, 11-May-2012, TWD 13.05), 1-Overweight/1-Positive Avago Technologies Ltd. (AVGO, 11-May-2012, USD 30.94), 1-Overweight/1-Positive Aveva (AVV.L, 11-May-2012, GBP 16.00), 3-Underweight/1-Positive Broadcom Corp. (BRCM, 11-May-2012, USD 33.79), 1-Overweight/1-Positive Capgemini (CAPP.PA, 11-May-2012, EUR 29.38), 2-Equal Weight/1-Positive Casio Computer Co., Ltd. (6952.T, 11-May-2012, JPY 499), 1-Overweight/2-Neutral Catcher Technology Co., Ltd. (2474.TW, 11-May-2012, TWD 186.00), 1-Overweight/1-Positive 17 May 2012

127


IMPORTANT DISCLOSURES CONTINUED Cavium Inc. (CAVM, 11-May-2012, USD 24.19), 1-Overweight/1-Positive Ceragon Networks Ltd. (CRNT, 11-May-2012, USD 9.22), 1-Overweight/1-Positive CEVA, Inc. (CEVA, 11-May-2012, USD 16.95), 1-Overweight/1-Positive China Communications Services (0552.HK, 11-May-2012, HKD 3.95), 3-Underweight/1-Positive Cisco Systems, Inc. (CSCO, 11-May-2012, USD 16.50), 1-Overweight/2-Neutral Citrix Systems (CTXS, 11-May-2012, USD 79.46), 1-Overweight/1-Positive Comba Telecom (2342.HK, 11-May-2012, HKD 4.18), 1-Overweight/1-Positive Corning Inc. (GLW, 11-May-2012, USD 13.31), 1-Overweight/2-Neutral Cypress Semiconductor Corp. (CY, 11-May-2012, USD 13.69), 1-Overweight/1-Positive Dassault Systèmes (DAST.PA, 11-May-2012, EUR 72.03), 2-Equal Weight/1-Positive Dialog Semiconductor (DLGS.DE, 11-May-2012, EUR 17.25), 1-Overweight/2-Neutral eBay, Inc. (EBAY, 11-May-2012, USD 40.74), 2-Equal Weight/1-Positive Elbit Systems Ltd. (ESLT, 11-May-2012, USD 35.43), 2-Equal Weight/1-Positive Elster Group SE (ELT, 11-May-2012, USD 14.33), 1-Overweight/2-Neutral EMC Corp. (EMC, 11-May-2012, USD 26.36), 1-Overweight/2-Neutral EZchip Semiconductor (EZCH, 11-May-2012, USD 40.46), 1-Overweight/1-Positive Google Inc. (GOOG, 11-May-2012, USD 605.23), 1-Overweight/1-Positive Hon Hai Precision Industry Co., Ltd. (2317.TW, 11-May-2012, TWD 86.40), 1-Overweight/2-Neutral Ibiden Co., Ltd. (4062.T, 11-May-2012, JPY 1499), 1-Overweight/1-Positive IBM Corp. (IBM, 11-May-2012, USD 201.17), 2-Equal Weight/2-Neutral Imagination Technologies (IMG.L, 11-May-2012, GBP 6.17), 1-Overweight/2-Neutral Indra Sistemas (IDR.MC, 11-May-2012, EUR 7.66), 3-Underweight/1-Positive Informatica Corp. (INFA, 11-May-2012, USD 45.26), 1-Overweight/1-Positive JVC KENWOOD Corporation (6632.T, 11-May-2012, JPY 299), 1-Overweight/2-Neutral Kinsus Interconnect Technology (3189.TW, 11-May-2012, TWD 90.00), 1-Overweight/2-Neutral Largan Precision Co., Ltd. (3008.TW, 11-May-2012, TWD 472.00), 1-Overweight/1-Positive Lenovo Group Ltd. (0992.HK, 11-May-2012, HKD 7.21), 1-Overweight/2-Neutral LG Display (034220.KS, 11-May-2012, KRW 22200.00), 1-Overweight/1-Positive Logica (LOG.L, 11-May-2012, GBP 0.74), 2-Equal Weight/1-Positive LSI Corp. (LSI, 11-May-2012, USD 7.74), 1-Overweight/1-Positive MasterCard Inc. (MA, 11-May-2012, USD 422.40), 1-Overweight/2-Neutral MediaTek Inc. (2454.TW, 11-May-2012, TWD 263.00), 1-Overweight/2-Neutral Mellanox Technologies (MLNX, 11-May-2012, USD 58.02), 1-Overweight/1-Positive Micro Focus (MCRO.L, 11-May-2012, GBP 4.69), 1-Overweight/1-Positive Misys (MSY.L, 11-May-2012, GBP 3.47), RS-Rating Suspended/1-Positive MStar Semiconductor, Inc. (3697.TW, 11-May-2012, TWD 179.00), 1-Overweight/2-Neutral Murata Manufacturing Co., Ltd. (6981.OS, 11-May-2012, JPY 4300), 2-Equal Weight/1-Positive Netflix Inc. (NFLX, 11-May-2012, USD 77.38), 2-Equal Weight/1-Positive NetSuite Inc. (N, 11-May-2012, USD 42.62), 1-Overweight/1-Positive Nice Systems (NICE, 11-May-2012, USD 37.69), 2-Equal Weight/1-Positive Nidec Corp. (6594.OS, 11-May-2012, JPY 6470), 1-Overweight/1-Positive NIKON Corp. (7731.T, 11-May-2012, JPY 2474), 2-Equal Weight/2-Neutral Nippon Electric Glass Co., Ltd. (5214.T, 11-May-2012, JPY 551), 1-Overweight/2-Neutral Novatek Microelectronics Corp. (3034.TW, 11-May-2012, TWD 87.50), 1-Overweight/1-Positive NXP Semiconductors NV (NXPI, 11-May-2012, USD 24.09), 1-Overweight/1-Positive Panasonic Corporation (6752.T, 11-May-2012, JPY 570), 3-Underweight/2-Neutral 17 May 2012

128


IMPORTANT DISCLOSURES CONTINUED Pegatron Corp. (4938.TW, 11-May-2012, TWD 42.80), 1-Overweight/2-Neutral Pioneer Corporation (6773.T, 11-May-2012, JPY 344), 2-Equal Weight/2-Neutral Power-One Inc. (PWER, 11-May-2012, USD 4.01), 1-Overweight/2-Neutral Priceline.com Inc. (PCLN, 11-May-2012, USD 675.39), 1-Overweight/1-Positive QUALCOMM, Inc. (QCOM, 11-May-2012, USD 61.86), 1-Overweight/2-Neutral Quanta Computer Inc. (2382.TW, 11-May-2012, TWD 81.30), 1-Overweight/2-Neutral Sage Group Plc (SGE.L, 11-May-2012, GBP 2.62), 2-Equal Weight/1-Positive Samsung Electronics (005930.KS, 11-May-2012, KRW 1303000.00), 1-Overweight/2-Neutral Samsung SDI (006400.KS, 11-May-2012, KRW 165500.00), 1-Overweight/2-Neutral SAP AG (SAPG.DE, 11-May-2012, EUR 48.87), 1-Overweight/1-Positive Sharp Corporation (6753.T, 11-May-2012, JPY 390), 2-Equal Weight/2-Neutral Shimadzu Corp. (7701.T, 11-May-2012, JPY 712), 1-Overweight/2-Neutral Shinko Electric Ind. (6967.T, 11-May-2012, JPY 679), 2-Equal Weight/1-Positive Siliconware Precision Industries (2325.TW, 11-May-2012, TWD 33.70), 1-Overweight/2-Neutral Skyworks Solutions, Inc. (SWKS, 11-May-2012, USD 25.39), 1-Overweight/1-Positive Software AG (SOWG.F, 11-May-2012, EUR 24.13), 3-Underweight/1-Positive Sony Corporation (6758.T, 11-May-2012, JPY 1135), 2-Equal Weight/2-Neutral Sopra (SOPR.PA, 11-May-2012, EUR 42.00), 2-Equal Weight/1-Positive Steria (TERI.PA, 11-May-2012, EUR 14.66), 2-Equal Weight/1-Positive TDK Corp. (6762.T, 11-May-2012, JPY 3690), 1-Overweight/1-Positive Temenos (TEMN.S, 11-May-2012, CHF 16.10), 1-Overweight/1-Positive Teradyne Inc. (TER, 11-May-2012, USD 15.71), 1-Overweight/2-Neutral Tesla Motors Inc. (TSLA, 11-May-2012, USD 32.25), 1-Overweight/2-Neutral Tieto (TIE1V.HE, 11-May-2012, EUR 12.52), 2-Equal Weight/1-Positive Tripod Technology Corp. (3044.TW, 11-May-2012, TWD 91.40), 1-Overweight/1-Positive Vanguard International Semiconductor (5347.TWO, 11-May-2012, TWD 14.45), 1-Overweight/2-Neutral Veeco Instruments Inc. (VECO, 11-May-2012, USD 36.97), 1-Overweight/2-Neutral VeriFone Systems Inc. (PAY, 11-May-2012, USD 44.27), 1-Overweight/2-Neutral Visa Inc. (V, 11-May-2012, USD 117.92), 1-Overweight/2-Neutral Visual Photonics Epitaxy Co., Ltd. (2455.TW, 11-May-2012, TWD 51.30), 1-Overweight/2-Neutral Wirecard (WDIG.DE, 11-May-2012, EUR 13.45), 1-Overweight/1-Positive ZTE Corporation (0763.HK, 11-May-2012, HKD 17.70), 2-Equal Weight/1-Positive

Other Material Conflicts The Corporate and Investment Banking Division of Barclays is providing investment banking services to Dell Inc. in relation to its acquisition of Wyse Technology.

GOOG: The Corporate and Investment Banking Division of Barclays is providing investment banking services to Motorola Mobility in the potential sale of the company to Google. MSY.L: The Corporate and Investment Banking Division of Barclays Bank PLC is acting as corporate broker to Misys PLC. The Corporate and Investment Banking Division of Barclays is Corporate Broker, and providing investment banking services to Misys plc in connection with the potential approaches by Magic Bidco Limited (an investment vehicle indirectly ownded by Vista Funds) for Misys plc. All ratings, estimates and price targets on Misys plc previously issued by the firm's Research Department have been temporarily suspended due to Barclays role in this potential transaction.

Guide to the Barclays Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal Weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the "sector coverage universe"). 17 May 2012

129


IMPORTANT DISCLOSURES CONTINUED In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone.

Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Corporate and Investment Banking Division of Barclays is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals/valuations are improving. 2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "sector coverage universe":

Asia ex-Japan Data Networking & Wireline Equipment China Communications Services (0552.HK)

Comba Telecom (2342.HK)

ZTE Corporation (0763.HK)

Acer Inc. (2353.TW)

Asustek Computer Inc. (2357.TW)

Cheng Uei Precision Industry Co., Ltd. (2392.TW)

Chicony Electronics (2385.TW)

Compal Electronics Inc. (2324.TW)

Darfon Electronics (8163.TW)

Digital China Holdings Ltd. (0861.HK)

Dynapack International Technology Corp. (3211.TWO)

Epistar Corporation (2448.TW)

Asia ex-Japan IT Hardware

Everlight Electronics (2393.TW)

Foxconn Technology Co., Ltd. (2354.TW)

Hon Hai Precision Industry Co., Ltd. (2317.TW)

Inventec Inc. (2356.TW)

Ju Teng International Co., Ltd. (3336.HK)

Lenovo Group Ltd. (0992.HK)

Pegatron Corp. (4938.TW)

Quanta Computer Inc. (2382.TW)

Samsung SDI (006400.KS)

Shin Zu Shing Co., Ltd. (3376.TW)

Simplo Technology Co., Ltd. (6121.TWO)

Skyworth Digital Holdings Ltd. (0751.HK)

Sunrex Technology (2387.TW)

Synnex Technology International Corp. (2347.TW)

TPV Technology Ltd. (0903.HK)

Asia Pacific Systems (054620.KS)

AU Optronics Corp. (2409.TW)

Cheil Industries (001300.KS)

Wistron Corporation (3231.TW)

Asia ex-Japan LCD Displays Chimei InnoLux Corp. (3481.TW)

Coretronic Corporation (5371.TWO)

E Ink Holdings Inc. (8069.TWO)

G-TECH Optoelectronics Corp. (3149.TW)

LG Display (034220.KS)

Novatek Microelectronics Corp. (3034.TW)

Radiant Opto-Electronics Corp. (6176.TW)

SFA Engineering (056190.KS)

Taiwan Surface Mounting Technology (6278.TW)

TPK Holding Co., Ltd. (3673.TW)

Wintek Corporation (2384.TW)

Asia ex-Japan Semiconductors Advanced Semiconductor Engineering (2311.TW)

Kinsus Interconnect Technology (3189.TW)

MediaTek Inc. (2454.TW)

MStar Semiconductor, Inc. (3697.TW)

Nan Ya Printed Circuit Board (8046.TW)

Samsung Electronics (005930.KS)

Siliconware Precision Industries (2325.TW)

SK Hynix (000660.KS)

TSMC (2330.TW)

United Microelectronics Corp. (2303.TW)

Vanguard International Semiconductor (5347.TWO)

Visual Photonics Epitaxy Co., Ltd. (2455.TW)

Win Semiconductors Corp. (3105.TWO)

Asia ex-Japan Wireless Equipment & Products AAC Technologies Holdings (2018.HK)

BYD Electronic (0285.HK)

Catcher Technology Co., Ltd. (2474.TW)

Compal Communications Inc. (8078.TW)

Foxconn International Holdings (2038.HK)

HTC Corp. (2498.TW)

17 May 2012

130


IMPORTANT DISCLOSURES CONTINUED Largan Precision Co., Ltd. (3008.TW)

LG Electronics (066570.KS)

Lite-on Technology Corp. (2301.TW)

Silitech Technology Corp. (3311.TW)

Tripod Technology Corp. (3044.TW)

Unimicron Technology Corp. (3037.TW)

Wistron NeWeb Corp. (6285.TW)

Young Fast Optoelectronics Co., Ltd. (3622.TW)

European Software & IT Services Amadeus (AMA.MC)

AtoS (ATOS.PA)

Aveva (AVV.L)

Capgemini (CAPP.PA)

Dassault Systèmes (DAST.PA)

Indra Sistemas (IDR.MC)

Logica (LOG.L)

Micro Focus (MCRO.L)

Misys (MSY.L)

Sage Group Plc (SGE.L)

SAP AG (SAPG.DE)

Software AG (SOWG.F)

Sopra (SOPR.PA)

Steria (TERI.PA)

Temenos (TEMN.S)

Tieto (TIE1V.HE)

Wirecard (WDIG.DE)

European Technology Hardware Aixtron AG (AIXGn.DE)

Alcatel-Lucent (ALUA.PA)

ARM Holdings PLC (ARM.L)

ASML Holding NV (ASML.AS)

CSR plc (CSR.L)

Dialog Semiconductor (DLGS.DE)

Ericsson (ERICb.ST)

Imagination Technologies (IMG.L)

Infineon Technologies AG (IFXGn.DE)

Kudelski S.A. (KUD.S)

Logitech International SA (LOGN.VX)

Nokia (NOK1V.HE)

Pace plc (PIC.L)

STMicroelectronics NV (STM.PA)

Technicolor S.A. (TCH.PA)

Amdocs Ltd. (DOX)

Ceragon Networks Ltd. (CRNT)

CEVA, Inc. (CEVA)

Elbit Systems Ltd. (ESLT)

EZchip Semiconductor (EZCH)

Mellanox Technologies (MLNX)

Casio Computer Co., Ltd. (6952.T)

Funai Electric Co., Ltd. (6839.OS)

JVC KENWOOD Corporation (6632.T)

Panasonic Corporation (6752.T)

Pioneer Corporation (6773.T)

Sharp Corporation (6753.T)

Nippon Electric Glass Co., Ltd. (5214.T)

Nippon Sheet Glass Co., Ltd. (5202.T)

Hirose Electric Co., Ltd. (6806.T)

Ibiden Co., Ltd. (4062.T)

Kyocera Corp. (6971.T)

Murata Manufacturing Co., Ltd. (6981.OS)

NGK Spark Plug Co., Ltd. (5334.T)

NHK Spring Co., Ltd. (5991.T)

Nidec Corp. (6594.OS)

Rohm Co., Ltd. (6963.OS)

Shinko Electric Ind. (6967.T)

Taiyo Yuden Co., Ltd. (6976.T)

TDK Corp. (6762.T)

TomTom NV (TOM2.AS)

Israel Technology

Nice Systems (NICE)

Japan Consumer Electronics

Sony Corporation (6758.T)

Japan Display & Lighting Asahi Glass Co., Ltd. (5201.T)

Japan Electronic Components

Japan Precision Instruments Canon Inc. (7751.T)

Canon Marketing Japan Inc. (8060.T)

Citizen Holdings Co., Ltd. (7762.T)

Dainippon Screen Mfg. Co. Ltd. (7735.T)

FUJIFILM Holdings Corp. (4901.T)

GS Yuasa Corporation (6674.T)

Hitachi High-Technologies Corp. (8036.T)

HORIBA Ltd. (6856.T)

Hoya Corp. (7741.T)

JEOL Ltd. (6951.T)

Konica Minolta Holdings Inc. (4902.T)

NIKON Corp. (7731.T)

Olympus Corp. (7733.T)

OMRON Corp. (6645.OS)

Ricoh Co., Ltd. (7752.T)

Seiko Epson Corp. (6724.T)

Shibaura Mechatronics Corp. (6590.T)

Shimadzu Corp. (7701.T)

Tokyo Electron Ltd. (8035.T)

TOPCON CORP. (7732.T)

ULVAC Inc. (6728.T)

A123 Systems Inc. (AONE)

Ameresco Inc. (AMRC)

Elster Group SE (ELT)

First Solar Inc. (FSLR)

GT Advanced Technologies Inc. (GTAT)

Itron Inc. (ITRI)

Power-One Inc. (PWER)

Tesla Motors Inc. (TSLA)

Trina Solar Ltd. (TSL)

U.S. Clean Technology & Renewables

Yingli Green Energy Holding Co., Ltd. (YGE)

U.S. Data Networking & Wireline Equipment 17 May 2012

131


IMPORTANT DISCLOSURES CONTINUED Acme Packet, Inc. (APKT)

Adtran Inc. (ADTN)

ARRIS Group, Inc. (ARRS)

Aruba Networks Inc. (ARUN)

BroadSoft Inc. (BSFT)

CIENA Corp. (CIEN)

Cisco Systems, Inc. (CSCO)

F5 Networks, Inc. (FFIV)

Juniper Networks (JNPR)

NETGEAR, Inc. (NTGR)

Polycom, Inc. (PLCM)

Riverbed Technology, Inc. (RVBD)

ShoreTel Inc. (SHOR)

Tellabs, Inc. (TLAB)

U.S. Display & Lighting Aixtron SE (AIXG)

Corning Inc. (GLW)

Cree Inc. (CREE)

IPG Photonics (IPGP)

Orbotech (ORBK)

SemiLEDs Corp. (LEDS)

Amazon.com, Inc. (AMZN)

AOL Inc. (AOL)

Demand Media, Inc. (DMD)

eBay, Inc. (EBAY)

Expedia, Inc. (EXPE)

Google Inc. (GOOG)

Groupon, Inc. (GRPN)

HomeAway, Inc. (AWAY)

IAC/InterActiveCorp (IACI)

Veeco Instruments Inc. (VECO)

U.S. Internet

LinkedIn Corporation (LNKD)

Millennial Media Inc. (MM)

Netflix Inc. (NFLX)

OpenTable, Inc. (OPEN)

Pandora Media Inc. (P)

Priceline.com Inc. (PCLN)

QuinStreet, Inc. (QNST)

ReachLocal, Inc. (RLOC)

Shutterfly, Inc. (SFLY)

TripAdvisor (TRIP)

Vistaprint N.V. (VPRT)

WebMD Health Corp. (WBMD)

Yahoo! Inc. (YHOO)

Zynga Inc. (ZNGA)

U.S. IT Consulting & Computer Services Acacia Research Corp. (ACTG)

Accenture Plc (ACN)

Alliance Data Systems Corp. (ADS)

Camelot Information Systems (CIS)

Cognizant Technology Solutions (CTSH)

Computer Sciences Corp. (CSC)

CoreLogic, Inc. (CLGX)

EPAM Systems Inc (EPAM)

Fiserv Inc. (FISV)

FleetCor Technologies, Inc. (FLT)

Global Payments Inc. (GPN)

Lender Processing Services, Inc. (LPS)

MasterCard Inc. (MA)

RPX Corporation (RPXC)

Total System Services Inc. (TSS)

VeriFone Systems Inc. (PAY)

Visa Inc. (V)

Western Union Co. (WU)

3D Systems Corp. (DDD)

Apple, Inc. (AAPL)

Dell Inc. (DELL)

EMC Corp. (EMC)

Hewlett-Packard (HPQ)

IBM Corp. (IBM)

Ingram Micro Inc. (IM)

Lexmark International (LXK)

NetApp, Inc. (NTAP)

Seagate Technology (STX)

Tech Data Corp. (TECD)

Western Digital Corp. (WDC)

Advanced Energy (AEIS)

Applied Materials (AMAT)

Brooks Automation (BRKS)

Cymer, Inc. (CYMI)

FormFactor, Inc. (FORM)

Intermolecular Inc. (IMI)

KLA-Tencor (KLAC)

Lam Research (LRCX)

LTX-Credence Corp. (LTXC)

MKS Instruments (MKSI)

Novellus Systems (NVLS)

Teradyne Inc. (TER)

Advanced Micro Devices (AMD)

Altera Corp. (ALTR)

Analog Devices (ADI)

Atmel Corp. (ATML)

Avago Technologies Ltd. (AVGO)

Broadcom Corp. (BRCM)

Cavium Inc. (CAVM)

Cypress Semiconductor Corp. (CY)

Entropic Communications Inc. (ENTR)

Freescale Semiconductor Holdings (FSL)

Integrated Device Technology, Inc. (IDTI)

Intel Corp. (INTC)

Linear Technology (LLTC)

LSI Corp. (LSI)

M/A-COM Technology Solutions Holdings, Inc. (MTSI)

MagnaChip Semiconductor (MX)

Marvell Technology Group, Ltd. (MRVL)

Maxim Integrated Products (MXIM)

Microchip Technology (MCHP)

Micron Technology, Inc. (MU)

NVIDIA Corp. (NVDA)

NXP Semiconductors NV (NXPI)

RF Micro Devices (RFMD)

Silicon Laboratories, Inc. (SLAB)

U.S. IT Hardware

Xerox Co. (XRX)

U.S. Semiconductor Capital Equipment

U.S. Semiconductors

17 May 2012

132


IMPORTANT DISCLOSURES CONTINUED Skyworks Solutions, Inc. (SWKS)

Spansion Inc. (CODE)

Texas Instruments, Inc. (TXN)

Triquint Semiconductor (TQNT)

Volterra Semiconductor Corp. (VLTR)

Xilinx, Inc. (XLNX)

U.S. Software Ariba, Inc. (ARBA)

Autodesk Inc. (ADSK)

Citrix Systems (CTXS)

Cornerstone OnDemand Inc. (CSOD)

DealerTrack Holdings (TRAK)

Ellie Mae Inc. (ELLI)

Informatica Corp. (INFA)

Intuit Inc. (INTU)

LogMeIn, Inc. (LOGM)

Microsoft Corp. (MSFT)

NetSuite Inc. (N)

Oracle Corp. (ORCL)

Parametric Technology (PMTC)

Qlik Tech (QLIK)

Salesforce.com Inc. (CRM)

SAP AG (SAP)

Symantec Corp. (SYMC)

Tangoe Inc (TNGO)

Teradata Corp. (TDC)

TIBCO Software (TIBX)

VMware Inc. (VMW)

Comverse Technology, Inc. (CMVT)

Ericsson (ERIC)

InterDigital, Inc. (IDCC)

Motorola Mobility Holdings (MMI)

Motorola Solutions, Inc. (MSI)

Nokia (NOK)

QUALCOMM, Inc. (QCOM)

Research In Motion (RIMM)


Distribution of Ratings: Barclays Equity Research has 2299 companies under coverage. 43% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 55% of companies with this rating are investment banking clients of the Firm. 42% have been assigned a 2-Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 48% of companies with this rating are investment banking clients of the Firm. 13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 41% of companies with this rating are investment banking clients of the Firm.

Guide to the Barclays Research Price Target: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period.

Barclays offices involved in the production of equity research: London Barclays Bank PLC (Barclays, London) New York Barclays Capital Inc. (BCI, New York) Tokyo Barclays Capital Japan Limited (BCJL, Tokyo) São Paulo Banco Barclays S.A. (BBSA, São Paulo) Hong Kong Barclays Bank PLC, Hong Kong branch (Barclays Bank, Hong Kong) Toronto Barclays Capital Canada Inc. (BCCI, Toronto) Johannesburg Absa Capital, a division of Absa Bank Limited (Absa Capital, Johannesburg) Mexico City Barclays Bank Mexico, S.A. (BBMX, Mexico City) Taiwan Barclays Capital Securities Taiwan Limited (BCSTW, Taiwan) Seoul

17 May 2012

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IMPORTANT DISCLOSURES CONTINUED Barclays Capital Securities Limited (BCSL, Seoul) Mumbai Barclays Securities (India) Private Limited (BSIPL, Mumbai) Singapore Barclays Bank PLC, Singapore branch (Barclays Bank, Singapore)

17 May 2012

134


IMPORTANT DISCLOSURES CONTINUED

LG Display (034220 KS / 034220.KS)

Stock Rating

KRW 22200.00 (11-May-2012)

1-OVERWEIGHT

Rating and Price Target Chart - KRW (as of 11-May-2012)

Currency=KRW Date

48,000

28-Nov-2011

Sector View

1-POSITIVE

Closing Price

Rating

Price Target

24450.00

1-Overweight

36000.00

46,000 44,000 42,000 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 18,000 16,000 Jul- 09

Jan- 10

Jul- 10

Closing Price

Jan- 11

Target Price

Jul- 11

Jan- 12

Rating Change

Link to Barclays Live for interactive charting

Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by LG Display or one of its affiliates. Barclays Bank PLC and/or an affiliate trades regularly in the securities of LG Display. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from LG Display within the past 12 months. LG Display is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: We use the cyclical context of historical P/B and apply the mid-cycle (three-year average) P/B of 1.2x to set our target price of KRW36,000, given our expectation of an upcycle in specialty panels (accounting for 25% of revenue) combined with a recovery cycle in commodity panels (accounting for 75% of revenue). We use a relatively shorter range for historical valuation as the company has shown a derating trend since 2006 when global LCD TV penetration started to exceed 50% on an annual basis. Risks which May Impede the Achievement of the Barclays Research Price Target: The key risks that could keep our price target from being achieved, in our view, include the following: 1) weaker-than-expected TV demand in China after the market reaches a saturation point as well as in Europe due to concerns about the macro economy in that region and 2) execution risks in manufacturing specialty panels, especially for the New iPad and iPhone 5.

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Samsung Electronics (005930 KS / 005930.KS)

Stock Rating

KRW 1303000.00 (11-May-2012)

1-OVERWEIGHT


Currency=KRW Date

2.0M

1.8M

1.6M

Sector View

2-NEUTRAL

Closing Price

Rating

Price Target

30-Apr-2012

1390000.00

1800000.00

15-Mar-2012

1250000.00

1500000.00

30-Jan-2012

1115000.00

1300000.00

08-Nov-2011

970000.00

1-Overweight

1250000.00

1.4M

1.2M

1.0M

0.8M

0.6M

0.4M Jul- 09

Jan- 10

Jul- 10

Closing Price

Jan- 11

Target Price

Jul- 11

Jan- 12

Rating Change


Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Samsung Electronics or one of its affiliates. Barclays Bank PLC and/or an affiliate has received compensation for investment banking services from Samsung Electronics in the past 12 months. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Samsung Electronics. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Samsung Electronics within the past 12 months. Samsung Electronics is, or during the past 12 months has been, an investment banking client of Barclays Bank PLC and/or an affiliate. Samsung Electronics is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: Our 12-month price target of KRW1.8mn for SEC is based on a cyclical context historical P/B valuation. In our valuation, we apply a target P/B multiple of 2.3x to our estimate for the average BVPS of 2012 and 2013. Our target multiple is higher than the stock's historical average for the past 10 years as the expected ROE for 2012 of 22% exceeds the 10-year average of 20%. Our new price target of KRW1.8mn is applicable to 12.5 x 2012 P/E, which is in line with the 10-year average of 12.0x. Risks which May Impede the Achievement of the Barclays Research Price Target: Key risks to our price target and, thus, our positive call on SEC include 1) a double dip in global economy, which might impact demand across the board; 2) much slower-than-expected (flexible) OLED ramp-up, which is the key to market share gains in smart devices, in our view; and 3) materially negative results from any kind of lawsuit.

17 May 2012

136



Samsung SDI (006400 KS / 006400.KS)

Stock Rating

KRW 165500.00 (11-May-2012)

1-OVERWEIGHT


Currency=KRW Date

0.24M

0.22M

Sector View

2-NEUTRAL

Closing Price

30-Apr-2012

163000.00

10-Feb-2012

151500.00

Rating

Price Target 220000.00

1-Overweight

180000.00

0.20M

0.18M

0.16M

0.14M

0.12M

0.10M

80,000.00

Jul- 09

Jan- 10

Jul- 10

Closing Price

Jan- 11

Target Price

Jul- 11

Jan- 12

Rating Change


Barclays Bank PLC and/or an affiliate is a market-maker and/or liquidity provider in securities issued by Samsung SDI or one of its affiliates. Barclays Bank PLC and/or an affiliate trades regularly in the securities of Samsung SDI. Barclays Bank PLC and/or an affiliate has received non-investment banking related compensation from Samsung SDI within the past 12 months. Samsung SDI is, or during the past 12 months has been, a non-investment banking client (securities related services) of Barclays Bank PLC and/or an affiliate.

Valuation Methodology: Our 12-month price target of KRW220,000 for Samsung SDI is set using a P/B-based SOTP valuation, which is equivalent to 16.9x 2012E EPS and 1.6x 2012E BPS. We apply a SOTP valuation to reflect different profitablilty of each division.In valuing SDI's investment assets, we reflect a 15% discount to the listed companies and a 30% discount to the unlisted companies. Risks which May Impede the Achievement of the Barclays Research Price Target: Key risks to our KRW220,000 PT for Samsung SDI are: 1) aggressive capacity expansion at battery competitors that could create pressure on product ASP and 2) continued delay in commercialisation of Ex batteries. General risks to the OLED sector include: 1) worse-than-expected execution of OLED development, especially for TV applications; 2) a lower-than-expected ASP premium over LCD; and 3) the emergence of an alternative technology such as crystal LEDs that could have a competitive edge in initial investment cost and power consumption.

17 May 2012

137

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