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Information Technology Sector

Information Technology Sector

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Information Technology Sector

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  1. Information Technology Sector Finance 724/824SIM Class Autumn 2009 Scott McGrath John Morgan Denise Morrison A Presentation By:

  2. Agenda • Sector Information • Business Analysis • Performance / Economic Indicators • Valuation • Recommendation

  3. S & P 500 By Sector Info Technology Sector is Currently Overweight by 288 Basis Points

  4. SIM Portfolio By Sector Info Technology Sector is Currently Overweight by 288 Basis Points

  5. Information Technology • Largest sector in S&P 500 • Both by weighting and market cap • Highest performing sector YTD

  6. SIM Info Technology Stocks IndustrySIM Stocks Application Software Computer Hardware IBM, Hewlett-Packard, NCR Internet Software & Services IT Consulting & Services Computer Storage Equipment Electron Instruments Networking Equipment Office Electronics Semiconductors Intel Systems Software Microsoft, Oracle

  7. Information Technology:Industry Performance

  8. Market Cap: $Billions Largest CompaniesMarket Cap (Billions) 1) Microsoft 253.7 2) Apple 173.8 3) Google 173.7 4) IBM 161.4 5) Cisco Systems 138.0 6) Hewlett-Packard 115.8 7) Oracle 106.8 8) Intel 105.7 Only other Info Technology stock we own is NCR with a market cap of 1.6 Billion

  9. Business Analysis- Info Technology • Sector growth depends primarily on technological advancement and innovation. • Unpredictable: what is hot today may be obsolete in 6 months • Dependence on cutting edge technology leads to enormous R&D costs • These R&D costs are the largest barrier to entry

  10. Business Analysis (cont.) Cyclical Sector with large impact on S&P500 Tends to follow market cycles, can be highly volatile Can be a leading indicator during recovery, growth periods Largely impacted by Corporate and Consumer Spending Current Corporate/Consumer spending is down– mixed reviews on when this starts to recover Some analysis suggests IT spending takes 7-9 quarters following the trough in the cycle (Q209) to return to consistent YOY growth

  11. Business Analysis (cont.) Information Technology Life Cycle – primarily impacted by the life cycle of PCs PCs’ typical life-span = 3-5 yrs (physically longer, however obsolete) Demand – largely affected by developed countries, growth potential in under-developed countries 60% of all PCs owned by 15% of the world-wide population1 LOTS of untapped demand Increasing handheld device demand/infrastructure Tel-com sector expanding infrastructure and increased cell phone capabilities desired 1: www.garnter.com (June 23, 2008)

  12. Business Analysis (cont.) Growth Opportunities US Healthcare reform(Electronic Patient records) Windows 7/Office 2010/Snow Leopard Increased Corporate Spending/ Profits (following recovery, where / when will money be spent?) Stimulus Package(everyone wins, right?) New Technology from Afghanistan/Iraq (like GPS from 1st Iraq war) Asia / India / Emerging Markets development(exploding demand?) Growth Risks Regulations (China, Iran, North Korea, etc) Double-dip recession or unstable recovery or long, slow growth Tax Effects

  13. Business Analysis Summary • Long Term • IT Growth Opportunities outweigh risks • Demand will undoubtedly increase long term • IT becoming a business staple with massive growth potential innovation globally • Short-term • Corporate Spending/Profits rebound? • GDP growth

  14. Info Technology

  15. S & P 500 vs. Info Technology QTD 6%

  16. S & P 500 vs. Info Technology YTD

  17. Info Tech Sector vs. US GDP Growth– 3 year time frame

  18. Info Tech Sector vs. US Corp Profits-- 3 year time frame

  19. Info tech vs. US Consumer Confidence- 3 years

  20. Key Drivers • GDP (very cyclical) • Globalization • Corporate Profits • Consumer Confidence– need strong economy with consumer participation

  21. Valuation: Info Tech Sector Green= Cheap Red= Expensive

  22. Valuation: Info Tech Sector Green= Cheap Red= Expensive

  23. Valuation: Computer Hardware

  24. Valuation: Computer Hardware

  25. Valuation: Semiconductors

  26. Valuation: Semiconductors

  27. Valuation: Systems Software

  28. Valuation: Systems Software

  29. Recommendation • Long Term: • Info Tech will be sector leader amongst S&P • Short Term: • Have enjoyed strong outperformance • Rebound in economy/spending may take time

  30. Recommendation  Lower our weight of the info technology sector by 250 basis points • Why? • Currently overweight by 288 basis points • Info Tech sector is up 42% YTD compared to 14% for the S&P 500 • GDP Growth forecasted 2% – 2.5% for years to come puts some pressure on IT growth • Majority of growth s/t likely to come from smaller companies (we don’t own)

  31. Recommendation • Use proceeds to possibly bring financials sector to S&P 500 level weight? • Being in-line with S&P 500 index still has Info Tech at a 19% allocation