IT.ppt

Information Information TechnologyTechnology

Patrick SymmondsPatrick Symmonds

Kyle SchneiderKyle Schneider

AgendaAgenda

Size and CompositionSize and Composition Business AnalysisBusiness Analysis Economic AnalysisEconomic Analysis Financial AnalysisFinancial Analysis Valuation AnalysisValuation Analysis RecommendationsRecommendations

Size & CompositionSize & Composition

Market CapitalizationMarket Capitalization– $5,704.1 Billion $5,704.1 Billion – 15.15% of S&P 50015.15% of S&P 500

SIM HoldingsSIM Holdings– Current weight 14.79%Current weight 14.79%– Underweight by 0.39%Underweight by 0.39%

Size & CompositionSize & Composition

Industry

Market Cap (billions)   Industry

Market Cap (billions)

Wireless Communications 987.46   Internet Software & Services 94.85

Application Software 548.20   Semiconductor - Specialized 82.22

Telecom Services - Foreign 523.56   Data Storage Devices 79.97

Telecom Services - Domestic 463.56   Technical & System Software 74.19

Communication Equipment 423.02   Information Technology Services 64.52

Diversified Computer Systems 311.55   Semiconductor- Memory Chips 48.63

Semiconductor - Broad Line 299.07   Computer Peripherals 44.38

Internet Information Providers 233.20   Long Distance Carriers 37.41

Networking & Communication Devices 206.97   Multimedia & Graphics Software 32.59

Personal Computers 186.52   Processing Systems & Products 28.18

Diversified Communication Services 168.85   Printed Circuit Boards 24.39

Semiconductor - Integrated Circuits 157.93   Information & Delivery Services 22.52

Business Software & Services 149.16   Security Software & Services 16.63

Diversified Electronics 126.38   Computer Based Systems 12.87

Semiconductor Equipment & Materials 121.57   Internet Service Providers 12.64

Scientific & Technical Instruments 110.53   Healthcare Information Services 10.63

Size & CompositionSize & Composition

Largest companies in Largest companies in sector by market sector by market capitalizationcapitalization

Company Market Cap (billions)

Microsoft Corporation 301.45

Cisco Systems, Inc. 181.77

Google Inc. 170.91

Intel Corporation 146.76

Hewlett-Packard Company 126.75

Nokia Corporation (ADR) 121.83

Apple Inc. 121.09

Oracle Corporation 105.33

Information Information Technology in the S&P Technology in the S&P 500500

Financials - 21.29%

Info. Technology 15.18%

Health Care - 11.89%

Industrials - 11.21%

Energy - 10.40%

Consumer Disc. - 10.23%

Consumer Stap. - 9.31%

Telecom - 3.80%

Utilities - 3.62%

Materials - 3.07%

Size & CompositionSize & Composition

Current ReturnsCurrent Returns S&P 500S&P 500

Quarter to Date:Quarter to Date: 2.41%2.41% Year to Date:Year to Date: 7.86%7.86%

SP-45SP-45 Quarter to Date:Quarter to Date: 4.49%4.49% Year to Date:Year to Date: 14.15%14.15%

Business AnalysisBusiness Analysis

Sector historically performs well Sector historically performs well at the end of bull marketsat the end of bull markets– S&P 500 currently in a bullish trendS&P 500 currently in a bullish trend

StockVal®S&P 500 COMPOSITE ADJUSTED M-Wtd (SP5A) Price 45.252002 2003 2004 2005 2006 2007

PRICE23.5

24.5

25.5

26.5

27.5

28.5

30.0

31.0

32.0

33.5

35.0

36.5

38.0

39.5

41.0

42.5

44.0

46.0

HI 46LO 24ME 35CU 45GR 12.3%

07-19-200207-20-2007

Business AnalysisBusiness Analysis

Elements of growth and maturity Elements of growth and maturity in sectorin sector– Cyclical industriesCyclical industries– Decreasing product lifecycles.Decreasing product lifecycles.

Margins are steadily decreasingMargins are steadily decreasing Intense competition among all Intense competition among all

industriesindustries

Business AnalysisBusiness Analysis

Globalization Globalization – High Percentage of international High Percentage of international

salessales– Outsourcing increasingOutsourcing increasing

Price volatilityPrice volatility– High Betas and correlation to marketHigh Betas and correlation to market

New technology drives sector and New technology drives sector and increases volatilityincreases volatility

Economic AnalysisEconomic Analysis

GDPGDP CPICPI Government expendituresGovernment expenditures Disposable incomeDisposable income Private fixed investmentsPrivate fixed investments Interest ratesInterest rates

Financial AnalysisFinancial Analysis

Income Statement Income Statement – As % of Sales As % of Sales – As % YOY changeAs % YOY change– Ratio analysisRatio analysis

Valuation AnalysisValuation Analysis

Absolute ValuationAbsolute Valuation Sector relative to S&P 500Sector relative to S&P 500 Price trendsPrice trends

– 5 Year5 Year– 3 Year3 Year– 1 Year1 Year

RecommendationsRecommendations

Currently:Currently:– 39 Basis Points below S&P 50039 Basis Points below S&P 500

Recommendation:Recommendation:– Increase 39 Basis Points to be in line Increase 39 Basis Points to be in line

with S&P 500with S&P 500 Reasoning: Pros outweigh the Reasoning: Pros outweigh the

Cons for the industryCons for the industry

RecommendationRecommendation

Cons:Cons:– Industry is currently priced Industry is currently priced

expensively, well above historical expensively, well above historical meanmean

RecommendationsRecommendations

ProsPros– Current Strong Bull Market and Current Strong Bull Market and

strong supporting economic strong supporting economic indicatorsindicators

– High levels of GlobalizationHigh levels of Globalization– Technical Analysis shows up trendsTechnical Analysis shows up trends

Questions and Questions and CommentsComments

Price to GDPPrice to GDP

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.952002 2003 2004 2005 2006 2007

PRICE13

14

16

18

20

22

24

27

30

33

HI 33LO 14ME 25CU 33GR 13.3%

07-19-200207-20-2007

GROSS DOMESTIC PRODUCT ($BIL)10400

10800

11200

11600

12000

12400

12800

13200

13600

14000

HI 13620.2 LO 10527.4 ME 11970.3 CU 13620.2 GR 5.9%

09-30-200203-31-2007

BACK

Price to CPIPrice to CPI

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.952002 2003 2004 2005 2006 2007

PRICE13

14

16

18

20

22

24

27

30

33

HI 33LO 14ME 25CU 33GR 13.3%

07-19-200207-20-2007

CPI-ALL ITEMS180

184

188

192

196

200

204

208

212

HI 208.35 LO 180.10 ME 190.95 CU 208.35 GR 3.0%

07-31-200206-30-2007

BACK

Price to Government Price to Government ExpendituresExpenditures

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.952002 2003 2004 2005 2006 20072002 2003 2004 2005 2006 2007 2008

PRICE13

14

16

18

20

22

24

27

30

33

HI 33LO 14ME 25CU 33GR 13.3%

07-19-200207-20-2007

FEDERAL GOVT EXPENDITURES ($BIL)2070

2160

2250

2340

2430

2520

2610

2700

2790

2880

HI 2801.5 LO 2103.4 ME 2425.6 CU 2801.5 GR 6.6%

09-30-200203-31-2007

BACK

Price to Disposable Price to Disposable IncomeIncome

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.952002 2003 2004 2005 2006 20072002 2003 2004 2005 2006 2007 2008

PRICE13

14

16

18

20

22

24

27

30

33

HI 33LO 14ME 25CU 33GR 13.3%

07-19-200207-20-2007

DISPOSABLE PERSONAL INCOME-REAL,SAAR ($BIL)7420

7560

7700

7840

7980

8120

8260

8400

8540

8680

HI 8568.9 LO 7543.5 ME 8057.8 CU 8509.8 GR 2.4%

07-31-200205-31-2007

BACK

Price to Private Fixed Price to Private Fixed InvestmentsInvestments

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.952002 2003 2004 2005 2006 20072002 2003 2004 2005 2006 2007 2008

PRICE13

14

16

18

20

22

24

27

30

33

HI 33LO 14ME 25CU 33GR 13.3%

07-19-200207-20-2007

PVT DOMESTIC FIXED INV-REAL ($BIL)1500

1550

1600

1650

1700

1750

1800

1850

1900

1950

HI 1914.6 LO 1536.3 ME 1757.1 CU 1838.1 GR 4.0%

09-30-200203-31-2007

BACK

Price to Interest RatesPrice to Interest Rates

StockVal®S&P INFO TECH. SECTOR COMPOSITE ADJ (SP-45) Price 32.951997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20081997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PRICE13

16

19

22

26

32

38

45

54

64

HI 64LO 14ME 25CU 33GR 7.4%

07-18-199707-20-2007

FEDERAL FUNDS RATE (%)0.8

1.0

1.2

1.6

2.0

2.6

3.4

4.4

5.6

7.0

HI 6.86 LO 0.96 ME 4.61 CU 5.25 GR -0.2%

07-18-199707-20-2007

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