tech presentation fall 2009
TRANSCRIPT
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TECHNOLOGY SECTOR
Industry Analysis
10.14.09
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NASDAQ VS. S&P (YTD)
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INDUSTRIES
Internet
Telecommunications
Semiconductors Software
Hardware
IT Services
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INTERNET INDUSTRY
Internet retail (ex. Amazon) Cons
State efforts to tax online purchases
Gas price declines
Aggressive in-store sales strategies Heavy technology investment spending
Pros Strong value proposition
Index up 88.3% (9/18/09)
Internet software & services Con: Highly dependent on online marketing efforts
Discretionary expense
Pro: Index up 56.5% (9/18/09) Projected to perform better than other internet companies
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INTERNET INDUSTRY CONT.
Internet portals (Yahoo!, MSN, iGoogle)
Rely heavily on advertising
Trend - difficult to convince consumers to pay for
data, information, services, etc.
Key ratios
Price/sales (price/revenue)
Profit isnt as important as revenue in determining internetcompany stock price (so says the market!)
Intrinsic value carries less weight than in other sectors
EV/EBITDA
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TELECOMMUNICATIONS INDUSTRY
Networks, telephones, mobile phones, internet-linked PCs
Deregulation in past decade (Telecommunications Act 1996 stimulate competition in
telecom industry)
Transition from voice to text/images despite fact that telephone calls still account for
biggest revenue generator in this industry
Corporate customers are industrys favorite
Less price sensitive, more quality concerned
Key ratios/terms
EBITDA Earnings before Interest, Taxes, Depreciation, & Amortization Tells you whether baseline business is profitable (cash is king)
Churn rate Rate at which customers leave for a competitor
Average revenue per user (ARPU)
Price/sales Little or no earnings for many companies (heavy infrastructure spending)
Net debt/EBITDA the lower, the better
Size matters! Rapid depreciation (replace lines every 2 yrs.) and rapid technological
change lead to huge costs, so small companies that pay bigger ones for connectivity are at
serious disadvantage
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Prices in industry are very volatile andcompetitive
4 main product categories Memory
Microprocessor
Commodity integrated circuit Complex SOC(system on chip)
R&D/Sales the higher, the better Entails more profitable future
Book-to-Bill ratio measures received semiconductor orders to
orders actually delivered (bills) Demand is highly cyclical and heavily dependent on mobile phone,
PC, other electronic equipment sales
SEMICONDUCTOR INDUSTRY
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SALES
Total Revenue = $248.6
billion in 2008(2.8%
decrease) - first decrease
since 2001 (technology
bubble burst)
Expectations were for
19% revenue decline in
2009 Normal pattern - strong
4th quarter, weak 1st
quarter
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PAST SALES RESULTS
YOY January drop was
extremely high @ 31%
decrease
America sales down11% in 2008 (2nd half
down 21% YOY)
Asia in 2008 was best
in the semiconductor
industry
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DRAM AND NAND
DRAM revenues fell 23%in 2008 vs. 7% in 2007
Bad 2008 and price cantstabilize
NAND prices dropped63% in 2008, 52% in2007
DRAM prices dropped
53% in 2008, 49% in2007
Production for bothoutpaced demand
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CREE- LED LIGHTING
Cree is a technology leader in the manufacturing of light emittingdiode (LED) chips, components, and lighting solutions.
LEDs are mainly used in backlighting for mobile devices andautomobile consoles. Cree's primary focus is to apply LEDs to moretraditional means of lighting, such as homes and buildings.
LED lights have much longer useful lives than commonly usedincandescent or fluorescent light bulbs. While the up-front cost forLED installation is greater, LED lighting can save money forcustomers in the long run because LEDs last longer and use lessenergy than existing solutions.
Commercial and industrial applications are particularly attractive and
represent the largest portion of the illumination end market, sincebuildings are usually lit at all times and are primed to take advantageof the long lives of LED lights
LED lighting is a fairly simple way for consumers to save energy.
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AONE- LITHIUM
A123 Systems, Inc- developer and
manufacturer of advanced lithium-ion batteries
and battery systems for the transportation,
electric grid services and consumer markets
Lithium for hybrid cars and extended battery
life
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SOFTWARE
2 Types: System Software - control the computer (operating system)
Application Software - lets computer perform function, developed by outside
2008 48% of software sold outside of US software growth depends on global economic growth
Software purchases to remain unchanged from 2008 to 2009; better thanother technology industries
Types of Revenue: License
Maintenance
Service
Subscription License revenues expected to be sluggish, but maintenance revenues
continue to rise
M&A will continue (Oracle)
Look for: GDP, exchange rates, consumer confidence, product cycles,hardware sales
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HARDWARE INDUSTRY
How to analyze? In a word, compare
Numbers and ratios do not stand alone
How are competitors doing Growing more? Less? The
same?Market strategies How effectively is the company
promoting its products?
Product differentiation Is the product offered unique in
any way from competitors?
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MEETS EXPECTATIONS?
Is the company on par with fast-pacedadvances of today? Example from S&P Net: IBM, Dell, Digital
Equipment Corporation used to be a dominantplayer in hardware industry, but did not deliver
products to reflect industry trends. As a result, poor
reflection in financials
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KEY CONCEPTS
Research and Development (R&D) Does the company effectivelyspend money on advancing products offered?
Growth prospects How well is the company predicted to grow in nearand distant future ?
Competitive edge Does the company stand out from competitors by
products offered or marketing strategies used? Gross Profit Margin How well is the company able to pay for other
expenses aside from cost of goods sold?
Operating Margin How well is the company able to make profit perdollar of sales? Note from S&P Net: Hardware industry operating margins have been
volatile in past several years
Return on assets and equity How much profit is the companygenerating for every dollar in assets and contributed capital? Higher internal efficiency higher ROA/ROE
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IT-SERVICES
Income Statement
Revenue
Gross Margin
Balance Sheet
Free Cash Flow
Contracts & Contract Backlogs
External Factors: Interest Rates, Real GDP
Growth
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CURRENT INDUSTRY CONDITIONS / TRENDS
Smaller corporate IT spending budgets
Federal government raises IT spending
International outsourcing
U.S. IT companies expanding abroad
Hardware companies heighten focus on
services
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QUESTIONS?