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Information Technology Sector Stock Report

Student Analysts: Taylor McAuliff Scott McBrayer Akshay Mehta Jennifer Noble Benjamin Primrose Penny Yen. Information Technology Sector Stock Report. Student Investment Management BUS-FIN 724/824 Spring 2007. Information Technology Sector (SP-45). Student Analysts: Taylor McAuliff

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Information Technology Sector Stock Report

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  1. Student Analysts: Taylor McAuliff Scott McBrayer Akshay Mehta Jennifer Noble Benjamin Primrose Penny Yen Information Technology Sector Stock Report Student Investment Management BUS-FIN 724/824 Spring 2007

  2. Information Technology Sector (SP-45) • Student Analysts: • Taylor McAuliff • Scott McBrayer • Akshay Mehta • Jennifer Noble • Benjamin Primrose • Penny Yen Student Investment Management BUS-FIN 724/824 Spring 2007

  3. IT Sector Review

  4. IT Sector Proposed Action • SUMMARY • HOLD: HPQ • SELL (PORTION): MSFT -170 BPS(25% of Holdings) • SELL (PORTION):INFY - 250 BPS(50% of Holdings) • BUY: INTC – 200 BPS (2.0% of Portfolio) • BUY: AKAM – 161 BPS (1.61% of Portfolio)

  5. Microsoft Corp (NYSE:MSFT) Recommendation: Sell Portion (170 basis pts)

  6. Microsoft Overview • Industry: Application Software • Market Cap: $272.91 B • 2006 Sales: $44.282 B • Business Segments • Client: Windows operating systems (Vista) • Server and Tools: Windows Operating System Support • Information Worker: Microsoft Office (2007) • Microsoft Business Solutions: Financial Management, • etc. for businesses • MSN: Internet Service Provider • Mobile and Embedded Devices: Communications • Home and Entertainment: Xbox

  7. Microsoft (DCF Valuation)

  8. Microsoft Absolute Valuation Average: $40.08

  9. Microsoft Summary SUMMARY

  10. Infosys Tech. Ltd. (Nasdaq: INFY) Recommendation: Sell Portion (250 basis pts)

  11. Infosys Company Overview Industry: Computer Services / IT Consulting • Market Cap: $27.57 billion • 2007 Sales: $3.1 billion; YoY growth of 44% • Business: • Provides consulting and IT services to clients globally. • Pioneer in strategic offshore outsourcing of software services. • Current SIM Holding Amt: $1,251,165 • Current SIM Portfolio Weight: 5.38%

  12. Infosys (Reasons To Sell 250 bps) • High employee turnover rates • Must sustain employee growth to sustain revenue growth • 3,182 employees left during this year (20% attrition rate) • Increase in wages (13-15% in India; 5-6% outside of India) • Estimates that wage increase will impact margins by around 300 basis points • Margins are under pressure due to rising Rupee • This quarter the operating margin dropped by 100 basis points due to rupee appreciation • Top line growth was below expectations for 4Q07 • DCF: Stock Overvalued • Downside -6.24%

  13. Infosys (DCF Valuation)

  14. Infosys Summary Summary • Current Price: $50.04 • DCF Valuation: $46.92 • Recommendation: Sell 50% of holdings – 250 BPS • Reason to Keep Portion: Company is in best position, compared to its competitors, to benefit from rising demand for offshore services • Analysts view F2008 guidance for 28-30% top line growth as conservative and to be revised upward as year progresses

  15. Intel, Inc (NYSE:INTC) Recommendation: Buy

  16. Intel Overview • Industry: Semiconductor • Market Cap: $128.75 Billion • 2006 Sales: $35,382 Million • Lines of Business: • The Digital Enterprise Group (56% of sales) • The Mobility Group (35% of sales) • The Flash Memory Group (6% of sales) • The Digital Home Group • The Digital Health Group • The Channel Platforms Group • The Digital Home, Digital Health and Channel Platforms groups make up combined 3% of sales

  17. Intel Company Overview Intel is the world’s leader in production of semiconductor chips. Business: Intel manufactures and designs a wide range of products including: microprocessors, motherboards, chipsets and flash memory. Intel has experienced its 20th consecutive year of profitability.

  18. Intel (INTC) • Current Price: $22.16 • Key Assumptions: • Terminal Discount Rate: 10.5% due to cyclical nature • Terminal FCF Growth Rate: 6% (tech is usually 2x the economic growth rate which has a historical average of 3%) • Target Price: $28.62 • Upside:29.1%

  19. Intel (DCF Valuation)

  20. Intel Sensitivity Analysis

  21. Intel Absolute Valuation Absolute Valuation Average: $24.58

  22. Intel Positives & Negatives • Positives to owning Intel: • The stock is undervalued and shows great promise of growth • The company generates profits in the billions • In the last 20 years the company has never been unprofitable • Negatives to owning Intel: • The industry is highly cyclical • They are in the midst of a price war with Advanced Micro Devices (AMD) • They experience intense competition from rivals • Performance relies heavily on consumer demand

  23. Intel Summary • Intel is highly profitable • Intel stock is undervalued with a 29.1% upside • Current Price:$22.16 • Target Price: $28.62 • Recommendation: Buy 2.0% of portfolio (200 BPS)

  24. Akamai Tech., Inc. (Nasdaq:AKAM) Recommendation: Buy

  25. “If you’ve ever checked sports scores, booked a hotel, tracked an order, or watched a movie trailer online, chances are good that we delivered your experience.” (AKAM website)

  26. Akamai Overview • “The leading global service provider for accelerating content and applications online” (AKAM website) • Content Delivery Network (CDN): networks used to speed up, protect, and efficiently operate the internet (and business intranets). • Currently holds 2/3 of CDN market share.

  27. Current Drivers • Support for content of: • Adobe Flash Player • Europages.com (European Bus. Directory) • Logitech • Audi AG • Clear Channel • NBA • NCAA (particularly March Madness) • Apple (podcasts and iTv) • FIFA World Cup

  28. Beyond online video! • Akamai currently handles about 20% of internet traffic. It uses its technology to reduce bottlenecks and improve performance. • Uses the “EdgePlatform” technology to detect and reduce bottlenecks. • Handles the efficient download of Microsoft Vista OS over the internet. • With the release of the Apple iTv, Akamai will handle downloads between the internet and iTv sets.

  29. Akamai • Market Cap: 7.11 Billion • Avg. Daily Volume: 4.9 million shares • Total 2006 Revenue of 428.67 M (up from 283.12 M in 2005) • 1200 employees • CEO: Paul Sagan – Was President of Akamai since May 1999, became CEO in April 2005.

  30. Akamai(DCF Valuation)

  31. Akamai(DCF Summary)

  32. IT Stock Report Summary • SUMMARY • HOLD: HPQ • SELL (PORTION): MSFT -170 BPS(25% of Holdings) • SELL (PORTION): INFY - 250 BPS(50% of Holdings) • BUY: INTC – 200 BPS (2.0% of Portfolio) • BUY: AKAM – 161 BPS (1.61% of Portfolio)

  33. Thank You • Questions?

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