INFORMATION TECHNOLOGY FINANCE 824 SIM CLASS WINTER Weston Conway Daniel Kujawa Ronald Jewsikow Maria Malguarnera Steven Muszynski

Transcription

1 INFORMATION TECHNOLOGY FINANCE 824 SIM CLASS WINTER 2010 Weston Conway Daniel Kujawa Ronald Jewsikow Maria Malguarnera Steven Muszynski

2 Agenda Overview Business Analysis Economic Analysis Financial Analysis Valuation Analysis Recommendation

3 Overview Information Technology Information technology segment is made up of 811 companies. Info Tech is the largest sector in the S+P 500 which comes out to 19.06% Info Tech is 18.06% of SIM s holding Apple 4.8% Intel 4.1% Corning 4.0% Oracle 5.3%

4 Overview Information Technology In terms of market capitalization, three of the largest five companies are in the information technology sector. 2. Apple Inc. 4. Microsoft B

5 Sector Weight Telecom, 2.92% Info Tech, 18.97% Energy, 12.70% Utilities, 3.26% Materials, 3.65% Industrials, 11.15% Telecom, 4.30% Info Tech, 21.51% Energy, 11.54% Utilities, 2.32% Materials, 3.23% Industrials, 11.08% Financials, 16.13% Health Care, 10.70% Cons Staples, 10.21% Cons. Disc, 10.30% Financials, 11.74% Health Care, 13.19% Cons Staples, 9.04% Cons. Disc, 9.31% S&P 500 SIM

6 Industries Within Information Technology There are 16 different industries The biggest few are: Systems software Computer Hardware IT Consulting Internet Software

7 Key Companies Apple Inc. Microsoft Inc. IBM Google Oracle Cisco Systems Intel Corp Siemens AG Hewlett-Packard Qualcomm Market Cap B B B B B B B B B B

8 Sector Performance Info Tech S&P 500 Quarter to Date 5.25% 4.32% Year to Date 5.25% 4.32%

9 Business Analysis Sector Growth depends on Business Spending Innovation Product Adoption Continued Margin Improvement Cyclical sector Economic expansions bring more business and consumer spending. Becoming more of a need than a want

10 Growth Opportunities Some sectors more mature Emerging market, clean tech, and virtualization Potential growth drivers Governments continue to subsidize clean technology

11 Porter s Five Forces Bargaining Power of Suppliers Low No significantly large supplying firms, switching costs are low for the industry Bargaining Power of Buyers Low Not many significant substitutes Many buyers relative to the companies in the sector Industry Rivalry High Innovation is crucial for success, leading to company competition to have the best product available

12 Porter s Five Forces Threat of New Entrants Low High barriers to entry Large R&D costs due to push for innovation Few large competitors in each industry within the sector Threat of Substitutes Moderate Alternative products constantly produced

13 Life Cycle Information Technology

14 Economic Analysis R = "GDP" "Information Technology" /01/ /01/ /01/ /01/ /01/ /01/ Real GDP vs. Information Technology

15 Economic Analysis R = Information Technology Consumer Confidence Consumer Confidence vs. Information Tech

16 Economic Analysis R = Information Technology Durables Durables vs. Information Tech

17 Economic Analysis R = Information Technology Capital Spending: Computers & Periphials Computers & Periphs vs. Information Tech

18 Key Drivers for Success Real GDP Consumer Confidence Durables Global Semiconductor Bookings

19 Financial Analysis Margins Consistently growing but not as high vs. S&P 500 as the 5 yr high Cash flows Generating free cash flows

20 Financial Analysis

21 Financial Analysis Sector Revenue & Earnings Growth

22 Financial Analysis Computer Hardware Revenue & Earnings Growth

23 Financial Analysis Semiconductor Revenue & Earnings Growth

24 Financial Analysis Systems Software Revenue & Earnings Growth

25 Financial Analysis Earnings Growth Apple Intel Oracle

26 Financial Analysis Earnings Growth Apple Intel Oracle

27 Financial Analysis-Performance EPS S&P 500 Info Tech 36% 0% 1% Computer Hardware Semiconductor Software Systems 22% 12% 12% 136% 5% -23% 7% 2% 9% Apple 51% 67% 34% Intel 75% 27% -23% Oracle 16% 11% 27%

28 Financial Analysis-Performance Revenue S&P % 5% Info Tech 13% -8% 4% 16 22% -1% 11% Semiconductor Software Systems 28% -8% 2% 8% -2% 3% Apple 52% 14% 53% Intel 24% -7% -2% Oracle 15% 4% 24%

29 Valuation Analysis - Sector Absolute Basis High Low Median Current P/Trailing E P/Forward E P/B P/S P/CF Relative to High Low Median Current SP500 P/Trailing E P/Forward E P/B P/S P/CF

30 Valuation Analysis Industry Absolute Basis P/E Semi-Conductor Industry High Low Median Current Financial Services Computer Hardware Computer Software Hardware Relative to SP500 P/E High Low Median Current Semi-Conductor Industry Financial Service Computer Hardware Computer Software Hardware

31 Valuation Analysis Company Absolute Basis P/E High Low Median Current Intel MasterCard Apple Oracle Corning Relative to SP500 P/E High Low Median Current Intel MasterCard Apple Oracle Corning

32 Technical Analysis

33 Recommendation Increase by 100 basis points Expanding margins, ROE, etc. Significant Growth Opportunities