Tech hardware insights

October 15, 2010

Tech Hardware Insights 3Q10 Earnings Preview: Prefer AAPL, IBM and EMC

We continue to like Apple heading into C3Q10 results next week despite the recent run up. We expect results will come in well ahead of expectations triggering another round of upward estimate revisions. We believe iPhone (MSe: 12.5M units) and iPad (MSe: 4.5M units) momentum continued during the quarter but upside is limited by supply constraints that have eased in recent weeks. We see the greatest upside relative to expectations in gross margins (lower component costs) and mac units (market share gains). Our 2011 EPS estimate of $20.36 remains 9% above the street driven by our above consensus unit estimates for iPhone (61.5M) and iPad (30M).

We like IBM as a late-cycle story. Our October CIO survey signaled a shift to mid / late-cycle software and services, with CIOs planning to increase spending on services in 2011, while decreasing spending on hardware. We believe this signals a rotation into more diversified, large-cap names, such as IBM, with 80% of revenue and about 90% of operating profit coming from software and services. In the December quarter, IBM’s hardware business should also start to benefit from new entry-level and high-end Power series, and mainframe products launched in 3Q10. Services signings will once again be the key metric, given weaker than expected signings in the June quarter.

We expect EMC to report 3Q results in-line with our and consensus expectations, which call for 3% Q/Q revenue growth, slightly below normal seasonality. Our channel checks, CIO and channel surveys all highlight healthy storage demand in the quarter with solid 4Q pipelines. We believe EMC appropriately set 3Q expectations for below seasonal public sector spending, helping alleviate concerns around large enterprise weakness and federal spending. Additionally, checks by our software team suggest VMW’s results will be at least inline with expectations.

Recent Reports

Title Date

Systems and PC Hardware: Quick Comment: Potential for C4Q PC Unit Uptick

Oct 8, 2010

Katy Huberty, CFA / Mathew Schneider, CFA / Scott Schmitz

Tech Hardware Insights: Storage Shines in C3Q10 Channel Survey

Oct 8, 2010

Katy Huberty, CFA / Mathew Schneider, CFA / Scott Schmitz / Jerry Liu

QLogic Corporation: Analyst Day Highlights Long-Term Revenue Expansion Story

Oct 7, 2010

Katy L. Huberty, CFA / Jerry Liu CIO Survey: Strengthening 2010 Growth, 2011 Looking Mid/Late-cycle

Oct 6, 2010

Adam Holt / Katy L. Huberty, CFA / Ehud Gelblum, PhD / Adam Frisch

In This Report

Earnings Previews 2

The Week Ahead 10

Weekly Stock Performance 11

MS PC and Tablet Models 12

MS PC Component Cost Tracker 13

NPD US Retail PC Sellout 14

MS Mac and iPod Channel Inventory 16

MS Hard Disk Drive Model 17

MS Hard Disk Drive Channel Inventory 18

MS Printer Channel Inventory 19

MS US Handset Monitor 20

Tech Hardware Valuation 21

Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.

Morgan Stanley & Co. Incorporated Katy L. Huberty, CFA

[email protected] +1 (1)212 761 6249

Scott Schmitz [email protected] +1 (1)212 761 0227

Mathew Schneider, CFA [email protected] +1 (1)212 761 3483

Jerry Liu [email protected] (212) 761 3735

M O R G A N S T A N L E Y R E S E A R C H N O R T H A M E R I C A

Industry View In-Line

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M O R G A N S T A N L E Y R E S E A R C H

October 15, 2010 Tech Hardware Insights

Exhibit 1 Earnings Previews

Company Date Previews

IBM 18-Oct We like IBM as a 4Q10 story. Our October CIO survey signaled a shift to mid to late cycle IT spending, w ith CIOs planning to increase spending on services in 2011, w hile decreasing spending on hardw are and communications equipment, and keeping softw are spending f lat. In hardw are, w e believe this signals a rotation into more diversif ied, large-cap names, such as IBM, w ith 80% of revenue and about 90% of operating profit coming from softw are and services. In the December quarter, IBM’s hardw are business should also start to benefit from new entry-level and high-end Pow er series, and mainframe products launched in 3Q10. For the call, services signings w ill once again be the key metric, given w eaker than expected signings in the June quarter.

Conference Call: 4:30 PM, 210-339-1426, password: 3QEarnings

AAPL 18-Oct We continue to like Apple heading into C3Q10 results next w eek despite the recent run up. We expect results w ill come in w ell ahead of expectations triggering another round of upw ard estimate revisions. We believe iPhone (MSe: 12.5M units) and iPad (MSe: 4.5M units) momentum continued during the quarter but upside is limited by supply constraints that have eased in recent w eeks. We see the greatest upside relative to expectations in gross margins (low er component costs) and mac units (market share gains). Our 2011 EPS estimate of $20.36 remains xx% above the street driven by our above consensus unit estimates for iPhone (61.5M) and iPad (30M).

Conference Call: 5:00 PM, 888-230-5496

EMC 19-Oct We expect EMC to report 3Q results in-line w ith our and consensus expectations, w hich call for 3% Q/Q revenue grow th, slightly below normal seasonality. Our channel checks, CIO and channel surveys all highlight healthy storage demand in the quarter w ith solid 4Q pipelines. We believe EMC appropriately set 3Q expectations for below seasonal public sector spending, helping alleviate concerns around large enterprise w eakness and federal spending. Additionally, checks by our softw are team suggest VMW’s results w ill be at least inline w ith expectations.

Conference Call: 8:30 AM, 210-795-1098, password: EMC

WDC 19-Oct Low investor expectations and stabilizing PC data points provide a favorable setup into results. C3Q PC unit grow th of 8% Q/Q (as reported by IDC) w as better than our estimate of 6%, and compares to our 4% HDD unit estimate for WDC. For C4Q, w e model 4% unit grow th, versus investor expectations of f lat-to-dow n. We look for a reset to C4Q earnings estimates w ith gross margins sequentially declining due to aggressive pricing, low unit grow th, and limited new product introductions. We expect similar results from both STX and WDC.

Conference Call: 5:00 PM, 800-857-4532

ISLN 21-Oct We look for modest upside to our revenue estimate, w hich calls for a 2% Q/Q decline (+44% Y/Y grow th) follow ing strong 2Q results and believe the company is on track to achieve its mid-40s revenue grow th guidance. How ever, at nearly 8x CY11 EV/Sales, Isilon shares reflect a more strategic view of the business given its differentiated solution in the high-grow th, scale-out NAS market.

Conference Call: 8:30 AM, 866-770-7051, password: 80081247

NCR 21-Oct We expect NCR to report 3Q results in-line w ith our and consensus expectations, w hich call for 5% Y/Y revenue grow th. The key issues for the call are revenue and order grow th for the regional ATM and self-service POS businesses. Analyst day on November 16 is the next catalyst in our view , as the company plans to give more details regarding its business segments than it has in the last tw o years.

Conference Call: 4:30 PM

QLGC 21-Oct QLogic pre-announced Sep quarter results at the high-end of guidance on October 7. Today, w e dow ngraded the company from Overw eight to Equal-w eight, as near-term earnings and multiple upside appear limited given decelerating server unit grow th. We also low ered our CY11 server revenue grow th estimate to 1% from prior 4% (compared to IDC at 2.4%). Please see our note titled "Dow ngrading on Slow er Demand in Server Market." For the call, December quarter revenue guidance is the key metric. Historical seasonality is +8% Q/Q.

Conference Call: 5:00 PM, 719-457-2702, password: 5344289 Source: Company Data, Morgan Stanley Research

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Exhibit 2 IBM Comparison of Estimates vs. Consensus

Full-Year C4Q10 and C2010 ExpectationsConsensus (pre-call): C4Q10E Revenues of $27.9B and EPS of $3.98, C2010E Revenue of $98.8B and EPS of $11.29Morgan Stanley Est (pre-call): C4Q10E Revenues of $28.1B and EPS of $4.05, C2010E Revenue of $98.8B and EPS of $11.30

IBM: Morgan Stanley ExpectationsQ/Q Y/Y Cons.

($ In Millions) 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Chg Chg Est.Revenues 25,302 27,006 21,710 23,250 23,567 27,230 22,856 23,723 24,130 1.7% 2.4% 24,131Y/Y Grow th 4.9% -6.4% -11.4% -13.3% -6.9% 0.8% 5.3% 2.0% 2.4%Q/Q Grow th -5.7% 6.7% -19.6% 7.1% 1.4% 15.5% -16.1% 3.8% 1.7%

EPS $2.05 $3.28 $1.70 $2.32 $2.40 $3.59 $1.97 $2.61 $2.72 4.3% 13.4% $2.75Y/Y Grow th 21.9% 17.4% 3.0% 17.1% 17.3% 9.3% 15.7% 12.5% 13.4%Q/Q Grow th 3.4% 60.3% -48.2% 36.5% 3.5% 49.5% -45.2% 32.7% 4.3%

ExpensesGross Profit 10,960 12,935 9,430 10,581 10,627 13,145 9,976 10,809 11,024 2.0% 3.7%Gross Margin (%) 43.3% 47.9% 43.4% 45.5% 45.1% 48.3% 43.6% 45.6% 45.7%SG&A 5,644 5,832 5,264 5,115 5,013 5,560 5,677 5,061 5,019 -0.8% 0.1%% of revenues 22.3% 21.6% 24.2% 22.0% 21.3% 20.4% 24.8% 21.3% 20.8%R&D 1,579 1,528 1,480 1,434 1,446 1,461 1,509 1,475 1,472 -0.2% 1.8%% of revenues 6.2% 5.7% 6.8% 6.2% 6.1% 5.4% 6.6% 6.2% 6.1%IP Income 267 328 268 302 294 313 261 297 265 -10.6% -9.7%% of revenues 1.1% 1.2% 1.2% 1.3% 1.2% 1.1% 1.1% 1.3% 1.1%Operating Income 4,004 5,903 2,954 4,334 4,462 6,437 3,051 4,570 4,798 5.0% 7.5%% of revenues 15.8% 21.9% 13.6% 18.6% 18.9% 23.6% 13.3% 19.3% 19.9%Other Income (108) (95) 168 (73) (89) (57) 463 5 (40) Net Income 2,825 4,426 2,295 3,103 3,214 4,813 2,601 3,386 3,497 3.3% 8.8%% of revenues 11.2% 16.4% 10.6% 13.3% 13.6% 17.7% 11.4% 14.3% 14.5%

Tax Rate 27.5% 23.8% 26.5% 27.2% 26.5% 24.6% 26.0% 26.0% 26.5%Shares Out. 1,379 1,348 1,350 1,337 1,338 1,341 1,322 1,297 1,284

Segment Revenues 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YGlobal Services $14,764 $14,332 $13,151 $13,446 $13,772 $14,630 $13,716 $13,717 $14,059 Y/Y Growth 7.9% -4.0% -9.8% -11.6% -6.7% 2.1% 4.3% 2.0% 2.1% = +Hardware $4,432 $5,425 $3,228 $3,855 $3,918 $5,190 $3,385 $3,985 $4,056 Y/Y Growth -9.5% -20.2% -23.5% -26.0% -11.6% -4.3% 4.9% 3.4% 3.5% = +Software $5,249 $6,420 $4,539 $5,166 $5,114 $6,577 $5,018 $5,277 $5,270 Y/Y Growth 11.8% 2.6% -6.4% -7.3% -2.6% 2.4% 10.6% 2.1% 3.0% = +Global Financing $633 $660 $578 $568 $536 $621 $537 $544 $530 Y/Y Growth 1.5% -1.2% -8.7% -10.4% -15.3% -5.9% -7.1% -4.2% -1.1% + +Enterprise Investments $224 $169 $213 $215 $227 $212 $201 $200 $216 Y/Y Growth -0.2% -20.0% -1.2% 10.9% 1.2% 25.0% -6.0% -7.0% -5.0%

Gross Margins 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YGlobal Services $4,564 $4,710 $4,133 $4,346 $4,590 $4,985 $4,400 $4,468 $4,638Gross margin % 30.9% 32.9% 31.4% 32.3% 33.3% 34.1% 32.1% 32.6% 33.0% = -Hardware $1,603 $2,164 $1,097 $1,430 $1,395 $2,206 $1,136 $1,438 $1,469Gross margin % 36.2% 39.9% 34.0% 37.1% 35.6% 42.5% 33.6% 36.1% 36.2% = =Software $4,447 $5,630 $3,822 $4,439 $4,382 $5,768 $4,244 $4,596 $4,608Gross margin % 84.7% 87.7% 84.2% 85.9% 85.7% 87.7% 84.6% 87.1% 87.4% = +Global Financing $311 $330 $265 $268 $238 $323 $267 $273 $254Gross margin % 49.1% 50.0% 45.9% 47.1% 44.4% 52.0% 49.8% 50.1% 48.0% - +Enterprise Investments $35 $101 $113 $99 $22 ($136) ($72) $35 $55Gross margin % 15.7% 59.9% 52.7% 46.0% 9.6% -64.5% -35.7% 17.7% 25.3%

Other Items 3Q08A 4Q08A 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YInventory Turns 79 80 80 76 77 81 82 81 81 + +Days Sales 37 38 39 38 38 37 38 36 37 + -Days Payable 44 47 44 43 45 50 45 52 45 - +Days Inventory 18 18 18 19 19 18 18 18 18 - -Cash Conversion 11 9 13 14 12 6 10 2 10 + -ROE 40.5% 86.4% 67.6% 85.1% 75.7% 93.3% 46.3% 62.5% 64.7% + -ROA 2.4% 3.9% 2.2% 3.0% 3.1% 4.5% 2.4% 3.2% 3.3% = =

CFO $3,739 $6,621 $4,386 $4,741 $5,197 $6,449 $4,437 $3,766 $5,229 + +Capex $1,126 $1,381 $760 $863 $974 $1,480 $904 $969 $1,018 + +FCF $2,454 $5,431 $3,489 $3,746 $4,076 $4,969 $3,533 $2,797 $4,211 + +Cash Balance $9,756 $12,907 $12,295 $12,526 $11,512 $13,974 $13,977 $12,241 $14,788 + +Depreciation $1,379 $1,321 $1,229 $1,242 $1,258 $1,265 $1,210 $1,183 $1,431Cash Per Share $7.07 $9.58 $9.11 $9.37 $8.60 $10.42 $10.58 $9.44 $11.51 + +

Service Signings $12.7B $17.2B $12.5B $14.0B $11.8B $18.7B $12.3B $12.3BBacklog $114B 130B 126B 132B 134B 137B 134B 129BMIPS growth 49% 12% 18% -20% -20% -19% -19% -14%Share Buyback $2.7B $0.6B $1.8B $1.7B $0.9B $3.1B $4.1B $4.1B

Source: Company Data, Morgan Stanley Research

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Exhibit 3 AAPL Comparison of Estimates vs. Consensus

Conference call Oct 18th at 5:00 PM EST. Dial-in (888) 230-5496Consensus estimates (pre-call) F1Q10 $22.0 billion revs, $4.99 EPS. FY11 $80.4 billion revs, $17.89 EPS.MS estimates (pre-call) F1Q10 $20.9 billion revs, $4.84 EPS. FY11 $82.0 billion revs, $18.79 EPS.

($ Millions) F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F3Q10 A F4Q10 E

Total Revenues 7,561 11,520 11,880 9,084 9,734 12,207 15,683 13,499 15,700 18,453 18,800Y/Y Growth 36% 74% 14% 14% 29% 6% 32% 49% 61% 51%Q/Q Growth -5% 52% 3% -24% 7% 25% 28% -14% 16% 18%Total Mac Revenue 3,634 3,639 3,565 2,960 3,354 3,980 4,450 3,760 4,399 4,498Y/Y Growth 43% 17% 0% -16% -8% 9% 25% 27% 31% 13%Total Consumer Revenue 2,407 2,523 2,640 2,218 2,352 2,933 3,704 2,959 3,331 3,304

Consumer Desktop (iMac) 869 850 757 791 737 738 1,386 1,154 936 855Consumer Portable (MacBook) 1,538 1,673 1,883 1,426 1,615 2,196 2,318 1,805 2,394 2,449

Total Professional Revenue 1,227 1,116 925 742 1,002 1,047 746 801 1,068 1,194Professional Desktop (Mac Pro) 514 518 288 265 397 351 306 378 365 434Professional Portable (MacBook Pr 713 598 637 478 605 695 440 424 704 760

iPod, iPhone, and Related Revenu 3,426 7,331 7,709 5,498 5,850 7,578 10,602 9,105 10,655 13,280Y/Y Growth 30% 139% 24% 40% 71% 3% 38% 66% 82% 75%

Other Hardw are & iTunes 1,265 1,265 1,398 1,406 1,298 1,409 1,633 1,799 1,610 1,801iPod 1,678 1,660 3,371 1,665 1,492 1,563 3,391 1,861 1,545 1,587iPhone 483 4,406 2,940 2,427 3,060 4,606 5,578 5,445 5,334 6,877iPad 0 0 2,166 3,015

Software, Service & Other 501 550 606 626 530 649 631 634 646 675Y/Y Growth 30% 28% -4% 18% 6% 18% 4% 1% 22% 4%Gross Profit 2,743 4,443 4,507 3,627 3,983 5,105 6,414 5,622 6,136 7,109

Gross profit margin 36.3% 38.6% 37.9% 39.9% 40.9% 41.8% 40.9% 41.6% 39.1% 38.5%SG&A 916 999 1,091 985 1,010 1,063 1,288 1,220 1,438 1,513R&D 292 298 315 319 341 358 398 426 464 498Operating Income 1,535 3,146 3,101 2,323 2,632 3,684 4,728 3,976 4,234 5,098

Operating Margin 20.3% 27.3% 26.1% 25.6% 27.0% 30.2% 30.1% 29.5% 27.0% 27.6%Tax rate 31.6% 31.6% 30.8% 32.1% 32.1% 32.1% 29.0% 23.7% 24.2% 26.5%Operating EPS $1.25 $2.48 $2.50 $1.79 $2.01 $2.77 $3.67 $3.33 $3.51 $4.07 $4.03Share Count 903 905 901 903 909 914 920 923 927 930

Product Summary (Units, K) F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F3Q10 A F4Q10 A

Desktop 943 936 728 818 849 787 1,234 1,147 1,004 983Y/Y Growth 49% 15% -25% -4% -10% -16% 70% 40% 18% 25%

Notebook 1,553 1,675 1,796 1,398 1,754 2,266 2,128 1,796 2,468 2,606Y/Y Growth 37% 24% 34% -2% 13% 35% 18% 28% 41% 15%

iPod 11,011 11,052 22,727 11,013 10,215 10,177 20,970 10,885 9,406 9,500 Y/Y Growth 12% 8% 3% 3% -7% -8% -8% -1% -8% -7%

iPhone 717 6,892 4,363 3,793 5,208 7,367 8,737 8,752 8,398 12,500 Y/Y Growth 166% 516% 88% 123% 626% 7% 100% 131% 61% 70%

iPad - - - - - - - - 3,270 4,500 Total CPU Units (ex-iPod) 2,496 2,611 2,524 2,216 2,603 3,053 3,362 2,943 3,472 3,589

Y/Y Growth 41% 21% 9% -3% 4% 17% 33% 33% 33% 18%ASPs F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F3Q10 A F4Q10 ADesktop 1,467 1,462 1,435 1,291 1,336 1,384 1,371 1,336 1,296 1,311

Y/Y Growth -3% 0% -7% -18% -9% -5% -4% 3% -3% -5%Notebook 1,449 1,356 1,403 1,362 1,266 1,276 1,296 1,241 1,255 1,231

Y/Y Growth 4% -5% -8% -9% -13% -6% -8% -9% -1% -3%iPod 152 150 148 151 146 154 162 171 164 167

Y/Y Growth -5% -5% -18% -11% -4% 2% 9% 13% 12% 9%iPhone 674 639 674 640 588 625 638 622 635 550

Y/Y Growth 51% 33% -13% -2% -5% -3% 8% -12%iPad - - - - - - - - 662 670 Total CPU Units (ex-iPod) 1,456 1,394 1,412 1,336 1,289 1,304 1,324 1,278 1,267 1,253

Y/Y Growth 1% -3% -8% -13% -11% -6% -6% -4% -2% -4%

Product Summary (Sales, $mm) F3Q08 A F4Q08 A F1Q09 A F2Q09 A F3Q09 A F4Q09 A F1Q10 A F2Q10 A F3Q10 A F4Q10 A

Desktop 1,383 1,368 1,045 1,056 1,134 1,089 1,692 1,532 1,301 1,289Y/Y Growth 45% 14% -31% -22% -18% -20% 62% 45% 15% 18%

Notebook 2,251 2,271 2,520 1,904 2,220 2,891 2,758 2,228 3,098 3,209Y/Y Growth 43% 18% 23% -12% -1% 27% 9% 17% 40% 11%

iPod 1,678 1,660 3,371 1,665 1,492 1,563 3,391 1,861 1,545 1,587 Y/Y Growth 7% 3% -16% -8% -11% -6% 1% 12% 4% 2%

iPhone 483 4,406 2,940 2,427 3,060 4,606 5,578 5,445 5,334 6,877 Y/Y Growth 243% 801% 184% 197% 534% 5% 90% 124% 74% 49%

iPad - - - - - - - - 2,166 3,015 Other Hardware and iTunes $1,265 $1,265 $1,398 $1,406 $1,298 $1,409 $1,633 $1,799 $1,610 $1,801

Y/Y Growth 36% 33% 17% 8% 3% 11% 17% 28% 24% 28%Software & Other 501 550 606 626 530 649 631 634 646 675

Y/Y Growth 30% 28% -4% 18% 6% 18% 4% 1% 22% 4%Total CPU Revenue (ex-iPod) $3,634 $3,639 $3,565 $2,960 $3,354 $3,980 $4,450 $3,760 $4,399 $4,498

Y/Y Growth 43% 17% 0% -16% -8% 9% 25% 27% 31% 13%

Cons. Est.


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Exhibit 4 EMC Comparison of Estimates vs. Consensus

F4Q10 and F2010 ExpectationsCurrent Consensus Est (pre-call): F4Q10E rev of $4.62B and EPS of $0.30 (+$0.37 ex-ESO & amort), F10E rev of $16.67B and EPS of $0.92 (+$0.1.21 ex-ESO & amort).Morgan Stanley Est (pre-call): F4Q10E rev of $4.62B and EPS of $0.30 (+$0.38 ex-ESO & amort), F10E rev of $16.67B and EPS of $0.91 (+$1.22 ex-ESO & amort).EMC: F3Q10 Variance Analysis

Cons.P/M Summary ($ Millions) F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10E Est. Q/Q ChgTotal Revenues 3,150.8 3,257.4 3,517.6 4,100.2 3,890.7 4,023.5 4,135.5 4,134.6 2.8%

Y/Y Growth (9.2%) (11.3%) (5.3%) 2.1% 23.5% 23.5% 17.6%

Storage 2,363.3 2,474.9 2,699.0 3,122.2 2,919.1 2,998.9 3,076.5 2.6% Y/Y Growth (12.9%) (13.9%) (7.2%) (0.5%) 23.5% 21.2% 14.0%Content Management & Archiving 174.3 180.2 177.2 207.8 178.2 178.4 187.8 5.2% Y/Y Growth (5.9%) (11.7%) (5.8%) (0.3%) 2.2% (1.0%) 6.0%VMware 470.4 455.1 488.9 606.5 632.0 672.8 693.0 3.0% Y/Y Growth 7.4% 0.6% 3.6% 17.9% 34.3% 47.8% 41.7%Security 142.7 147.1 152.5 163.6 161.5 173.3 178.3 2.8% Y/Y Growth 5.8% 2.1% 3.5% 5.5% 13.1% 17.8% 16.9%

Cost of Goods Sold 1,467.5 1,513.6 1,564.9 1,722.5 1,672.2 1,664.3 1,704.7 2.4%Cost of Goods Sold as % of Rev 46.6% 46.5% 44.5% 42.0% 43.0% 41.4% 41.2%

Total Gross Profit 1,683.3 1,743.8 1,952.7 2,377.6 2,218.5 2,359.2 2,430.7 3.0%Gross Margin % (GAAP) 53.4% 53.5% 55.5% 58.0% 57.0% 58.6% 58.8%

SG&A 1,024.8 1,051.2 1,177.8 1,284.4 1,261.3 1,283.7 1,302.7 1.5%SG&A as % of Revenue 32.5% 32.3% 33.5% 31.3% 32.4% 31.9% 31.5%

R&D 383.3 397.9 422.1 424.2 434.9 477.7 508.7 6.5%R&D as % of Revenue 12.2% 12.2% 12.0% 10.3% 11.2% 11.9% 12.3%

Operating Income 275.2 294.7 352.8 669.0 522.3 597.8 619.4 3.6% Operating Margin 8.7% 9.0% 10.0% 16.3% 13.4% 14.9% 15.0% Non-GAAP Op Margin 14.2% 14.6% 17.2% 22.4% 19.5% 20.7% 20.9%

Net Interest Income (16.5) (12.8) (5.9) (30.3) (20.5) (10.5) (19.7) 87.4%Pre-Tax Income 258.7 281.9 346.9 638.7 501.8 587.3 599.7 2.1%Income Tax Expense 43.9 44.0 35.3 109.9 99.1 135.3 125.3Effective Tax Rate 17.0% 15.6% 10.2% 17.2% 19.7% 23.0% 20.9%Minority Interest 11.3 5.4 5.8 10.5 15.2 14.3 12.1Net Income 203.5 232.6 305.8 518.3 387.6 437.8 462.3 5.6%

Y/Y Growth (41.5%) (38.4%) (22.6%) 6.9% 90.4% 88.2% 51.2%EPS 0.10 0.11 0.15 0.25 0.18 0.21 0.22 0.22 5.2%

Y/Y Growth (38.9%) (36.4%) (22.1%) 3.1% 81.6% 79.2% 45.8%EPS (ex-ESO and Amort) 0.16 0.18 0.23 0.33 0.26 0.28 0.29 0.29

Y/Y Growth (29.2%) (27.6%) (8.5%) 4.7% 61.9% 58.4% 26.8%Share Count (Diluted) 2,021.1 2,030.0 2,066.0 2,103.6 2,119.2 2,133.0 2,142.1 0.4%

Segment Revenues F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10E Q/Q ChgProduct 1,969 2,005 2,201 2,653 2,479 2,553 2,588 1.4%

Y/Y Growth (15.9%) (18.5%) (11.7%) (4.5%) 25.9% 27.3% 17.6%Services 1,182 1,252 1,317 1,447 1,412 1,470 1,547 5.2%

Y/Y Growth 4.6% 3.3% 7.7% 16.7% 19.5% 17.4% 17.5%

EMC Information Infrastructure 2,680 2,802 3,029 3,494 3,259 3,351 3,442.5 Y/Y Growth (11.6%) (13.0%) (6.6%) (0.2%) 21.6% 19.6% 13.7%

Segment Margins F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10E Q/Q ChgProduct Margins 956 948 1,093 1,425 1,317 1,396 (100.0%)

Gross Margin % 48.5% 47.3% 49.7% 53.7% 53.1% 54.7%Services Margins 727 796 847 953 902 964 (100.0%)

Gross Margin % 61.6% 63.6% 64.3% 65.8% 63.9% 65.5%

EMC Information Infrastructure 1,330 1,413 1,609 1,933 1,741 1,848 Non-GAAP Gross Margin % 49.6% 50.4% 53.1% 55.3% 53.4% 55.2%

Balance Sheet/Return Metrics F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10EInventory Turns 7.2 7.8 7.7 7.8 7.9 8.2 7.8Days Inventory 50.3 46.5 47.7 47.3 45.8 44.5 47.0Days Sales 48.6 51.9 48.8 47.3 40.1 44.7 46.0Days Payable 40.3 41.9 48.2 48.0 42.9 45.1 46.0Cash Conversion 58.5 56.4 48.3 46.6 43.1 44.1 47.0CFO $864 $574 $888 $1,009 $1,317 $757 $866CapEx $95 $110 $72 $134 $114 $187 $149Capitalized SW $88 $64 $71 $82 $93 $92 $109ROA 1.5% 1.3% 1.2% 1.2% 1.3% 1.5% 1.6%ROE 1.6% 1.7% 2.2% 3.5% 2.5% 2.7% 2.8%FCF $680.7 $400.0 $744.9 $792.6 $1,110.1 $477.2 $608.7FCF Per Share $0.34 $0.20 $0.36 $0.38 $0.52 $0.22 $0.28

Geographic Revenue Analysis F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10E Q/Q ChgNorth America 1,639 1,681 1,900 2,165 2,119 2,147 2.8%

North America YoY Growth (13.1%) (12.8%) (6.2%) 0.5% 29.3% 27.7%EMEA 987 999 1,034 1,271 1,149 1,177 2.8%

EMEA YoY Growth (6.3%) (12.9%) (8.1%) 3.4% 16.4% 17.9%APJ 374 407 396 425 417 488 2.8%

APJ YoY Growth (1.4%) (7.6%) (0.3%) 0.7% 11.3% 19.9%Latin America 151 171 187 240 206 211 2.8%

Latin America YoY Growth (0.9%) 7.5% 11.9% 12.9% 36.8% 23.6% Source: Company Data, Morgan Stanley Research

6



Exhibit 5 WDC Comparison of Estimates vs. Consensus

F2Q11 and F2011 ExpectationsConsensus (pre call): F2Q11 Revenue and EPS of $2.49B and $0.96; F2011 Revenue and EPS of $9.59B and $3.62.Morgan Stanley Estimate (pre call): F2Q11 Revenue and EPS of $2.40B and $0.75; F2011 Revenue and EPS of $9.36B and $3.10.

($ Millions)

F3Q09 F4Q09 F1Q10 F2Q10 F3Q10 F4Q10 F1Q11EQ/Q

GrowthY/Y

GrowthFactSet

Consensus

Total Revenues $1,592 $1,928 $2,208 $2,619 $2,641 $2,382 $2,343 -1.6% 6.1% $2,359

Cost of Revenue $1,339 $1,558 $1,694 $1,932 $1,976 $1,847 $1,921 4.0% 13.4%

Gross Profit $253 $370 $514 $687 $665 $535 $422 -21.2% -17.9%Gross profit margin 15.9% 19.2% 23.3% 26.2% 25.2% 22.5% 18.0%

SG&A $49 $52 $53 $60 $64 $61 $62 1.8% 17.1% SG&A as % of Sales 3.1% 2.7% 2.4% 2.3% 2.4% 2.6% 2.7%R&D $125 $132 $142 $154 $160 $154 $162 5.0% 13.8% R&D as % of Sales 7.9% 6.8% 6.4% 5.9% 6.1% 6.5% 6.9%Total OpEx $174 $184 $195 $214 $224 $215 $224 4.1% 14.7%Operating Income $79 $186 $319 $473 $441 $320 $198 -38.1% -37.9%

Operating margin 5.0% 9.7% 14.4% 18.1% 16.7% 13.4% 8.5%Net Interest & Other Net ($3) ($2) ($2) ($2) ($1) ($1) $1 -174.3% -129.7%Pre-tax Income 76 184 317 471 440 319 199 -37.8% -37.3% Effective Tax rate 10.5% 6.0% 9.2% 8.9% 9.1% 8.5% 7.5%Net Income $68 $173 $288 $429 $400 $292 $184 -37.1% -36.2%Operating EPS $0.30 $0.76 $1.25 $1.85 $1.71 $1.24 $0.78 -37.2% -37.6% $0.86Diluted Share Count 226 227 230 232 234 235 235 0.2% 2.3%

Balance Sheet/Return Metrics F3Q09 F4Q09 F1Q10 F2Q10 F3Q10 F4Q10 F1Q11E Q/Q Y/YInventory Turns 13.9 16.6 17.2 17.1 15.6 13.2 13.8 = -Days Sales 47.6 44.2 46.1 47.4 43.8 48.5 46.0 - -Days Payable 68.8 65.0 71.3 71.0 70.2 75.1 72.0 - =Days Inventory 26.5 22.2 21.0 21.3 23.6 27.9 26.0 - +Cash Conversion 5.3 1.4 (4.2) (2.2) (2.8) 1.3 - - +ROE 2.3% 5.8% 9.0% 12.2% 10.0% 6.6% 3.9% - -ROA 3.3% 2.8% 3.0% 4.8% 6.5% 6.7% 5.6% - +CFO 355 349 434 557 588 363 365 + -Capex (106) (111) (176) (199) (177) (185) (269) - -FCF 249 238 258 358 411 178 96 - -Cash and cash equivalents 1,579 1,794 2,056 2,435 2,826 2,734 2,830 + +Depreciation 119 121 121 126 129 134 156

F3Q09 F4Q09 F1Q10 F2Q10 F3Q10 F4Q10 F1Q11E Q/Q Y/YTotal Addressable MarketEnterprise 5,578 5,893 6,690 7,490 7,503 7,484 7,693 2.8% 15.0%Desktop 51,261 54,035 58,391 63,205 65,101 61,600 63,179 2.6% 8.2%Mobile 40,412 55,032 70,606 71,537 71,126 67,414 72,018 6.8% 2.0%Consumer Electronics 14,748 16,989 17,338 18,183 19,320 19,537 19,419 -0.6% 12.0%Total Market Units 111,999 131,949 153,025 160,414 163,049 156,036 162,310 4.0% 6.1%

Drive Shipments (in'000)Desktop 18,000 19,400 21,400 24,200 26,700 24,500 25,145 Y/Y Growth -15.1% 0.0% 2.4% 37.5% 48.3% 26.3% 17.5% - +Mobile 10,100 16,900 19,600 21,200 19,800 19,900 21,560 Y/Y Growth -1.0% 44.4% 34.2% 53.6% 96.0% 17.8% 10.0% - -Consumer Electronics 3,500 3,700 3,100 4,100 4,600 5,300 4,712 Y/Y Growth 12.9% -9.8% -20.5% 0.0% 31.4% 43.2% 52.0% + +Total WDC Units 31,600 40,000 44,100 49,500 51,100 49,700 51,417 % Market Share 28.2% 30.3% 28.8% 30.9% 31.3% 31.9% 31.7% Y/Y Growth -8.4% 13.6% 11.9% 39.4% 61.7% 24.3% 16.6% - + Q/Q Growth -11.0% 26.6% 10.3% 12.2% 3.2% -2.7% 3.5% + -

Western Digital Market ShareDesktop 35.1% 35.9% 36.6% 38.3% 41.0% 39.8% 39.8% = +Mobile 25.0% 30.7% 27.8% 29.6% 27.8% 29.5% 29.9% = +Consumer Electronics 23.7% 21.8% 17.9% 22.5% 23.8% 27.1% 24.3% - +Total Market Share 28.2% 30.3% 28.8% 30.9% 31.3% 31.9% 31.7% - +

Average Blended Selling Price 50.4 47.5 49.2 52.0 50.8 47.4 45.0 - -% Decline QoQ -1.9% -5.7% 3.6% 5.6% -2.3% -6.7% -5.1%


7



Exhibit 6 ISLN Comparison of Estimates vs. Consensus

Full-Year 2011 and F4Q10 ExpectationsConsensus (Pre-call): 4Q10 revenue and EPS of $50.M and $0.04 (+$0.07 ex-ESO); 2011 revenue and EPS of $227.2M and $0.22 (+$0.36).MS Estimates: 4Q10 revenue and EPS of $48.7M and $0.03 (+$0.06 ex-ESO); 2011 revenue and EPS of $226.2M and $0.19 (+$0.31 ex-ESO)

Isilon: 2Q10 Morgan Stanley EstimatesQ/Q Y/Y Cons.

($ in Thousands) 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Chg Chg Est.Revenues 26,885 28,991 30,504 37,531 39,254 45,087 44,051 -2.3% 44.4% 46,400 Y/Y Grow th 11.4% 2.9% 0.6% 18.1% 46.0% 55.5% 44.4%Q/Q Grow th -15.4% 7.8% 5.2% 23.0% 4.6% 14.9% -2.3%

Gross Profit 14,628 16,526 17,363 21,614 24,322 27,936 26,995 -3.4% 55.5%Gross Margin (%) 54.4% 57.0% 56.9% 57.6% 62.0% 62.0% 61.3%

SG&A 15,035 14,183 14,406 16,147 16,953 19,405 19,823 2.2% 37.6%% of revenues 55.9% 48.9% 47.2% 43.0% 43.2% 43.0% 45.0%

R&D 6,409 5,837 5,902 5,520 5,750 6,102 6,387 4.7% 8.2%% of revenues 23.8% 20.1% 19.3% 14.7% 14.6% 13.5% 14.5%

Operating Net Income (6,816) (3,494) (2,945) (53) 1,619 2,429 784 -67.7% 126.6%Operating Margin (%) -25.4% -12.1% -9.7% -0.1% 4.1% 5.4% 1.8%

Other Income 299 239 164 103 (288) (283) (100) -64.7% -160.9%% of revenues 1.1% 0.8% 0.5% 0.3% -0.7% -0.6% -0.2%

Net Income (6,613) (3,377) (2,867) 140 1,115 2,013 584 -71.0% 120.4%% of revenues -24.6% -11.6% -9.4% 0.4% 2.8% 4.5% 1.3%

EPS ($0.10) ($0.05) ($0.04) $0.00 $0.02 $0.03 $0.01 -71.6% 118.0% $0.02Y/Y Grow th 11.0% 42.8% 41.5% NM NM NM NMQ/Q Grow th -52.3% 49.1% 15.7% NM 685.0% 74.2% -71.6%

EPS (non-GAAP) ($0.08) ($0.03) ($0.02) $0.02 $0.04 $0.06 $0.04 -35.6% 265.3% $0.05Y/Y Grow th 17.4% 53.7% 56.3% NM NM NM NMQ/Q Grow th -80.4% 59.9% 29.5% NM 81.1% 35.3% -35.6%

Effective Tax Rate -1.5% -3.7% -3.1% -180.2% 16.2% 6.2% 14.6%Shares Out. 63,911 64,085 64,550 68,077 69,096 71,624 73,105

Segment Revenues 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YProducts $19,869 $21,827 $22,835 $29,191 $29,877 $35,001 $33,760 Y/Y Growth 0.6% -3.7% -6.5% 16.2% 50.4% 60.4% 47.8% +Services $7,016 $7,164 $7,669 $8,340 $9,377 $10,086 $10,291 Y/Y Growth 60.5% 29.7% 29.7% 25.1% 33.7% 40.8% 34.2% +

Gross Margins 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YProducts $11,424 $12,950 $13,204 $17,021 $18,408 $21,660 $20,820Gross margin % 57.5% 59.3% 57.8% 58.3% 61.6% 61.9% 61.7% - +Services $3,204 $3,576 $4,159 $4,593 $5,914 $6,276 $6,175Gross margin % 45.7% 49.9% 54.2% 55.1% 63.1% 62.2% 60.0% - +Balance Sheet Metrics 1Q09A 2Q09A 3Q09A 4Q09A 1Q10A 2Q10A 3Q10E Q/Q Y/YInventory Turns 7.0 8.3 8.8 11.3 9.6 9.9 9.7 - =Days Sales 45 48 53 50 33 40 44 - +Days Payable 66 52 57 41 23 53 48 - -Days Inventory 52 44 41 32 38 36 37 + +Cash Conversion 31 40 36 40 47 23 33 - +ROE -10.8% -5.7% -5.0% 0.2% 1.8% 3.0% 0.8% - +ROA -5.9% -3.1% -2.5% 0.1% 0.9% 1.4% 0.4% - +Cash Balance $76,275 $75,466 $77,017 $79,154 $88,969 $99,818 $103,757

CFO ($562) ($669) $879 $2,468 $9,896 $10,000 $3,385Capex ($1,024) ($247) ($212) ($269) ($821) ($423) ($610)FCF ($1,586) ($916) $667 $2,199 $9,075 $9,577 $2,775Depreciation $1,647 $1,537 $1,445 $1,242 $1,161 $1,067 $1,151Deferred Revenue $28,779 $30,098 $32,556 $37,801 $41,368 $47,478 $48,677 Y/Y Growth 40% 29% 37% 39% 44% 58% 50% Q/Q Growth 6% 5% 8% 16% 9% 15% 3%


8



Exhibit 7 NCR Comparison of Estimates vs. Consensus

C4Q10 and C2010 ExpectationsConsensus (pre-call): C4Q10 revenues of $1.4B and EPS of $0.56 (ex-pension exp). CY10 revenues of $4.8B (4% Y/Y) and EPS of $1.42 (ex-pension exp)Morgan Stanley (pre-call): C4Q10 revenues of $1.4B and EPS of $0.56 (ex-pension exp). CY10 revenues of $4.8B (4% Y/Y) and EPS of $1.44 (ex-pension exp)

NCR Earnings Analysis($ in Millions)

F3Q08A F4Q08A F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10EQ/Q

ChangeY/Y

ChangeCons. Est.

Products 757 797 458 540 541 695 468 587 601 2.3% 11.0%Services 622 624 550 584 594 650 561 590 594 0.7% 0.0%Total Revenues 1,379 1,421 1,008 1,124 1,135 1,345 1,029 1,177 1,195 1.5% 5.2% $1,197 Y/Y Growth 7.9% -6.6% -14.8% -15.6% -17.7% -5.3% 2.1% 4.7% 5.2%

Products gross profit 197 197 88 117 108 110 85 124 119 Gross Margin % 26.0% 24.7% 19.2% 21.7% 20.0% 15.8% 18.2% 21.1% 19.8%Services gross profit 113 130 96 112 116 136 106 117 118 Gross Margin % 18.2% 20.8% 17.5% 19.2% 19.5% 20.9% 18.9% 19.8% 19.8%Gross Profit 310 327 184 229 224 246 191 241 237 -1.8% 5.7% Gross Margin % 22.5% 23.0% 18.3% 20.4% 19.7% 18.3% 18.6% 20.5% 19.8%

Non-Pension Gross Profit 313 329 205 252 247 268 221 269 266 Non-Pension Gross Margin % 22.7% 23.2% 20.3% 22.4% 21.8% 19.9% 21.5% 22.9% 22.2%

SG & A 163 170 159 156 159 143 165 164 168 2.7% 5.9% % of sales 11.8% 12.0% 15.8% 13.9% 14.0% 10.6% 16.0% 13.9% 14.1%R & D 35 37 35 34 36 36 39 39 42 7.2% 16.1% % of sales 2.5% 2.6% 3.5% 3.0% 3.2% 2.7% 3.8% 3.3% 3.5%Operating Income 112 120 (10) 39 29 67 (13) 38 26 Operating Margin % 8.1% 8.4% -1.0% 3.5% 2.6% 5.0% -1.3% 3.2% 2.2%

Non-Pension Operating Income 117 127 28 78 70 108 43 88 79 Non-Pension Operating Margin % 8.5% 8.9% 2.8% 6.9% 6.2% 8.0% 4.2% 7.5% 6.6%

Interest Income/(Expense) (6) (5) (5) (5) 0 0 (1) 0 0Other Income/(Expense) 5 0 0 0 (1) (1) 1 0 0

Tax Rate 32% 25% 7% 38% -14% 12% -8% 37% 22%

Net Income 76 86 (14) 21 32 58 (14) 24 21EPS (Diluted) $0.46 $0.54 ($0.09) $0.13 $0.20 $0.36 ($0.09) $0.15 $0.13 $0.13 Y/Y EPS Growth 16% 3% -145% -69% -59% -31% -6% 19% -31%EPS (Adj for Cons ex Pension Exp) $0.59 $0.61 $0.06 $0.31 $0.37 $0.52 $0.15 $0.35 $0.38 $0.37

Shares (FD) 166.2 159.9 158.3 159.8 160.2 159.3 159.9 161.6 162.9 0.8% 1.7%

Balance Sheet/Return Metrics F3Q08A F4Q08A F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10EInventory Turns 6 6 5 5 5 6 5 5 5 Days Sales 63 59 76 69 68 61 77 68 68 Days Payable (38) (41) (51) (50) (54) (47) (56) (53) (54) Days Inventory 61 58 76 70 71 57 77 71 71 Cash Conversion 86 76 102 90 86 72 99 86 86 ROE 5% 6% -3% 5% 7% 13% -2% 4% 3%ROA 6% 6% 5% 4% 3% 2% 2% 2% 2%

CFO 157 108 38 53 25 107 14 95 11Capex 22 17 10 19 39 53 39 41 22Add. of capitalized software 15 16 15 17 14 15 13 15 16FCF 120 75 13 17 (28) 39 (38) 39 (26)Cash Balance 733 711 716 407 419 451 400 447 446Depreciation 25 24 26 30 30 30 30 31 32Cash Per Share 4.4 4.4 4.5 2.5 2.6 2.8 2.5 2.8 2.7

Segment Revenues F3Q08A F4Q08A F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10EAmericas 620 584 459 505 514 544 464 515 529

Y/Y Growth 9% -8% -6% -13% -17% -7% 1% 2% 3%EMEA 502 558 386 384 390 489 363 421 410

Y/Y Growth 4% -8% -22% -25% -22% -12% -6% 10% 5%APJ 257 279 163 235 231 312 202 241 256

Y/Y Growth 14% -1% -20% -2% -10% 12% 24% 3% 11%

Segment Gross Margins F3Q08A F4Q08A F1Q09A F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10EAmericas 115 121 80 100 103 103 94 117

Gross margin % 18.5% 20.7% 17.4% 19.8% 20.0% 18.9% 20.3% 22.7%EMEA 140 148 92 97 94 118 88 96

Gross margin % 27.9% 26.5% 23.8% 25.3% 24.1% 24.1% 24.2% 22.8%APJ 69 65 33 55 50 69 39 56

Gross margin % 26.8% 23.3% 20.2% 23.4% 21.6% 22.1% 19.3% 23.2%


9



Exhibit 8 QLGC Comparison of Estimates vs. Consensus

F3Q11 and F2011 Pre-Call ExpectationsCurrent Consensus Est (pre-call): F3Q11E revenue of $155m and EPS of $0.35 ex-ESO, F11E revenue of $593m and EPS of $1.28 ex-ESO.Morgan Stanley Est (pre-call): F3Q11E revenue of $155m and EPS of $0.35 ($0.28 ex-ESO), F11E revenue of $590m and EPS of $1.01 ($1.29 ex-ESO).

Cons.P/M Summary ($ Millions) F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10A F4Q10A F1Q11A F2Q11E Est. Q/Q ChgTotal Revenues 171.2 163.7 130.5 122.8 131.5 149.1 145.7 142.6 146.5 146.1 2.7%

Y/Y Growth 22.0% 3.6% (18.3%) (27.1%) (23.2%) (8.9%) 11.6% 16.2% 11.4%

Host Products 119.7 112.2 88.4 88.3 94.0 110.4 103.7 102.5 105.4 2.8% Y/Y Growth 14.6% (5.7%) (19.9%) (26.8%) (21.4%) (1.5%) 17.4% 16.0% 12.1%Netw ork Products 29.8 32.8 25.1 25.0 24.5 27.4 22.6 25.6 26.4 2.9% Y/Y Growth 35.7% 17.8% (8.9%) (16.5%) (17.8%) (16.4%) (10.0%) 2.7% 7.7%Silicon Products 15.7 16.5 13.7 7.4 9.6 8.7 16.7 11.9 12.2 2.8% Y/Y Growth 36.2% 77.8% (1.6%) (52.4%) (38.7%) (47.5%) 21.8% 60.4% 27.2%Other 6.1 2.2 3.4 2.1 3.3 2.6 2.7 2.6 2.5 (5.0%) Y/Y Growth 149.1% 10.6% (57.3%) (10.8%) (45.0%) 16.7% (19.9%) 27.2% (25.3%)

Cost of Goods Sold 49.6 52.9 42.7 43.1 46.0 51.4 49.3 48.5 49.8 2.6%Cost of Goods Sold as % of Rev 29.0% 32.3% 32.7% 35.1% 35.0% 34.5% 33.8% 34.0% 34.0%

Total Gross Profit 121.6 110.8 87.9 79.7 85.5 97.7 96.5 94.1 96.7 2.8%Gross Margin % 71.0% 67.7% 67.3% 64.9% 65.0% 65.5% 66.2% 66.0% 66.0%

R&D 32.8 32.8 33.3 34.0 34.2 33.7 34.5 34.7 34.4 (0.8%)R&D as % of Revenue 19.2% 20.0% 25.5% 27.7% 26.0% 22.6% 23.7% 24.3% 23.5%

S&M 23.2 20.1 18.3 18.7 19.2 18.5 19.3 20.4 20.1 (1.8%)S&M as % of Revenue 13.6% 12.3% 14.0% 15.2% 14.6% 12.4% 13.3% 14.3% 13.7%

G&A 9.1 8.2 7.7 8.3 7.8 8.8 9.3 8.5 8.7G&A as % of Revenue 5.3% 5.0% 5.9% 6.8% 6.0% 5.9% 6.4% 5.9% 6.0%

Operating Income 56.4 49.7 28.6 18.7 24.3 36.7 33.3 30.5 33.5 9.9% Operating Margin 32.9% 30.4% 21.9% 15.2% 18.5% 24.6% 22.9% 21.4% 22.9%Interest Income 3.0 2.5 4.5 2.9 2.3 1.7 3.6 1.7 1.7 4.0%Pre-Tax Income, ModelWare 59.4 52.9 31.2 21.0 26.6 38.4 35.7 31.8 35.2 10.6%Income Tax Expense 19.2 15.3 10.9 4.8 8.0 8.8 9.4 5.6 6.3Effective Tax Rate 32.3% 29.0% 35.0% 22.8% 30.1% 22.8% 26.4% 17.7% 18.0%Net Income, Pro Forma 40.2 37.5 20.3 16.2 18.6 29.7 26.3 26.2 28.9

Y/Y Growth 48.8% 5.5% (38.4%) (55.9%) (53.7%) (21.0%) 29.5% 61.2% 55.0%Net Income, GAAP 27.2 30.8 19.2 15.0 16.2 28.6 (4.8) 25.4 28.9 13.4%

Y/Y Growth 20.3% (3.4%) (15.7%) (52.7%) (40.5%) (7.0%) (125.1%) 70.1% 78.6%

EPS, Pro Forma 0.30 0.30 0.17 0.14 0.16 0.25 0.23 0.23 0.26 11.7%Y/Y Growth 62.7% 14.6% (31.7%) (50.7%) (47.9%) (14.2%) 38.8% 69.3% 62.8%

EPS, Pro Forma (ex-ESO) 0.34 0.34 0.20 0.20 0.21 0.31 0.28 0.30 0.32 0.31Y/Y Growth 52.2% 12.7% (27.9%) (37.1%) (37.9%) (7.5%) 41.3% 54.2% 53.6%

EPS, GAAP 0.20 0.24 0.16 0.13 0.14 0.25 (0.04) 0.22 0.26Y/Y Growth 31.5% 5.0% (6.5%) (47.2%) (33.0%) 1.0% (126.9%) 78.7% 87.6%

Share Count (Diluted) 132.8 126.5 121.5 119.5 117.9 116.5 113.3 113.7 112.3 (1.3%)

Balance Sheet/Return Metrics F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10A F4Q10A F1Q11A F2Q11EInventory Turns 6.0 7.0 4.2 5.8 7.9 9.4 10.2 8.0 7.8Days Inventory 60.4 51.3 85.0 62.6 45.6 38.2 35.5 45.2 46.2Days Sales 41.0 48.1 47.2 50.5 51.5 52.0 45.3 47.0 48.0Days Payable 67.0 61.1 77.8 58.1 61.6 62.1 67.2 66.4 64.0Cash Conversion 34.4 38.4 54.5 55.0 35.5 28.1 13.5 25.9 30.2CFO $55 $50 $58 $17 $32 $44 $69 $31 $40CapEx ($7) ($9) ($9) ($7) ($6) ($5) ($7) ($5) ($6)FCF $48.5 $41.3 $48.7 $10.0 $26.0 $38.9 $62.4 $25.3 $34.3FCF Per Share 0.37 0.33 0.40 0.08 0.22 0.33 0.55 0.22 $0.31ROA, Operating 18.9% 17.0% 9.6% 8.1% 9.2% 14.3% 14.1% 13.7% 15.0%ROE 5.8% 5.9% 3.2% 2.6% 3.0% 4.8% 4.5% 4.6% 5.0%

Other Items ($ Million) F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10A F4Q10A F1Q11A F2Q11EShare Buyback Expense (39) (98) (41) (21) (46) (42) (54) (53) (40)

Geographic Revenue Analysis F2Q09A F3Q09A F4Q09A F1Q10A F2Q10A F3Q10A F4Q10A F1Q11A F2Q11EUnited States 84 76 64 61 59 67 64 64

YoY Growth 22.1% (3.7%) (20.7%) (24.6%) (30.1%) (12.2%) 1.2% 5.1%EMEA 42 40 31 28 28 36 35 32

YoY Growth 21.5% 0.4% (20.8%) (30.7%) (33.9%) (12.1%) 13.5% 13.0%APAC & Japan 36 39 28 26 36 38 38 39

YoY Growth 26.7% 33.8% (11.3%) (26.9%) (0.1%) (3.5%) 35.1% 48.7%Rest of the World 9 9 7 7 9 9 8 8

YoY Growth 7.2% (14.5%) (10.1%) (32.9%) (3.7%) 10.5% 2.5% 3.4%


10



The Week Ahead

Monday, October 18

Earnings: Apple (AAPL), IBM (IBM) and VMware (VMW)

Economics: TICS Report (9:00 am), Industrial Production (9:15 am) and National Association of Home Builders Housing Market Index (1:00 pm)

Tuesday, October 19

Earnings: EMC (EMC), Juniper Networks (JNPR) and Western Digital (WDC)

Economics: Housing Starts (8:30 am)

Wednesday, October 20

Earnings: Netflix (NFLX), Seagate Technology (STX), Mellanox Technologies (MLNX), Nanya Technology (2408-TW) and Xilinx (XLNX)

Economics: Beige Book (2:00 pm)

Thursday, October 21

Earnings: Tata Consultancy Services (532540-IN), LG Display (034220-KR), Polycom (PLCM), Informatica (INFA), SanDisk (SNDK), Amazon (AMZN), QLogic (QLGC), Citrix (CTXS), AT&T (T), NCR (NCR), Nokia (NOK), Riverbed (RVBD), Xerox (XRX) and Isilon Systems (ISLN)

Economics: Philadelphia Fed Survey (10: 00 am), Leading Indicators (10: 00 am), 2-Year, 5-Year and 7-Year T-Notes announcement and 5-Year TIPS

Friday, October 22

Earnings: Ericsson ADR (ERIC) and Verizon (VZ)

11



Exhibit 9 Systems & PC Hardware: Weekly Stock Performance

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

CM

L

ISLN

EMC

DEL

L

BRC

D

AAPL

NTA

P

NC

R

WD

C

Larg

e/M

id C

ap

Smal

l Cap

QLG

C

HPQ LXK

TDC

IBM NZ

SMT

Syst

ems

& PC

Softw

are

Serv

ices

NAS

DAQ

S&P

500

Com

m E

quip

Sem

i

Source: FactSet, Morgan Stanley Research

Exhibit 10 Systems & PC Hardware: 52-Week Stock Performance

-30%

-10%

10%

30%

50%

70%

90%

110%

130%

ISLN NZ

LXK

NTA

P

Smal

l Cap

AAPL TD

C

Larg

e/M

id C

ap

EMC

NC

R

IBM

SMT

CM

L

QLG

C

DEL

L

HPQ

WD

C

BRC

D

Syst

ems

& PC

NAS

DAQ

Serv

ices

Softw

are

S&P

500

Com

m E

quip

Sem

i


12



Exhibit 11 Morgan Stanley PC and Tablet Models Total PC Market - Quarterly Total PC Market - Annual

Netbook Market (Included in PC Model) - Quarterly Netbook Market (Included in PC Model) - Annual

Tablet Market (Excluded from PC Model) - Quarterly Tablet Market (Excluded from PC Model) - Annual

-

20

40

60

80

100

120

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

E

4Q10

E

1Q11

E

2Q11

E

3Q11

E

4Q11

E

Mill

ions

-10%

-5%

0%

5%

10%

15%

20%

25%

30%Notebook UnitsDesktop UnitsPC Units Y/Y Growth

-

100

200

300

400

500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012E

Mill

ions

-5%

0%

5%

10%

15%

20%Desktop Units Notebook Units PC Units Y/Y Growth

-

2

4

6

8

10

12

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

E

4Q10

E

Mill

ions

0%

5%

10%

15%

20%

25%Netbook UnitsNotebook Penetration

-

10

20

30

40

2007 2008 2009 2010E 2011E 2012E 2013E

Mill

ions

0%

5%

10%

15%

20%

25%Netbook UnitsNotebook Penetration

-

2

4

6

8

10

12

14

16

18

1Q10 2Q10 3Q10E 4Q10E 1Q11E 2Q11E 3Q11E 4Q11E

Mill

ions Other Units

Apple Units

-

10

20

30

40

50

60

70

80

90

2010E 2011E 2012E 2013E

Mill

ions Other Units

Apple Units

Source: IDC, Company Data, Morgan Stanley Research

13



Exhibit 12 PC Component Cost Tracker Aggregate PC Component Cost Index PC Panel Cost Tracker

DRAM Cost Tracker Hard Disk Drive Cost Tracker

40

60

80

100

120

140

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

20

40

60

80

100

120

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

Notebooks Desktops

0

10

20

30

40

50

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

DDR2 DDR360

70

80

90

100

110

4Q06

1Q07

2Q07

3Q07

4Q07

1Q08

2Q08

3Q08

4Q08

1Q09

2Q09

3Q09

4Q09

1Q10

2Q10

3Q10

4Q10

Source: DRAM eXchange, Display Search, Morgan Stanley Research

14



Exhibit 13 U.S. Retail PC Units Sellout

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

8/17/0

8

9/14/0

8

10/12

/08

11/9/

08

12/7/

081/4

/092/1

/093/1

/09

3/29/0

9

4/26/0

9

5/24/0

9

6/21/0

9

7/19/0

9

8/16/0

9

9/13/0

9

10/11

/09

11/8/

09

12/6/

091/3

/10

1/31/1

0

2/28/1

0

3/28/1

0

4/25/1

0

5/23/1

0

6/20/1

0

7/18/1

0

8/15/1

0

9/12/1

0

Y/Y Change of 4-Week Moving Average

Source: NPD, Morgan Stanley Research

Exhibit 14 U.S. Retail PC ASP

-30%

-20%

-10%

0%

10%

20%

8/17/0

8

9/14/0

8

10/12

/08

11/9/

08

12/7/

081/4

/092/1

/093/1

/09

3/29/0

9

4/26/0

9

5/24/0

9

6/21/0

9

7/19/0

9

8/16/0

9

9/13/0

9

10/11

/09

11/8/

09

12/6/

091/3

/10

1/31/1

0

2/28/1

0

3/28/1

0

4/25/1

0

5/23/1

0

6/20/1

0

7/18/1

0

8/15/1

0

9/12/1

0

Y/Y Change


15



Exhibit 15 U.S. Retail Notebook Sellout

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

8/17/0

8

9/14/0

8

10/12

/08

11/9/

08

12/7/

081/4

/092/1

/093/1

/09

3/29/0

9

4/26/0

9

5/24/0

9

6/21/0

9

7/19/0

9

8/16/0

9

9/13/0

9

10/11

/09

11/8/

09

12/6/

091/3

/10

1/31/1

0

2/28/1

0

3/28/1

0

4/25/1

0

5/23/1

0

6/20/1

0

7/18/1

0

8/15/1

0

9/12/1

0


Units Revenue


Exhibit 16 U.S. Retail Desktop Sellout

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

8/17/0

8

9/14/0

8

10/12

/08

11/9/

08

12/7/

081/4

/092/1

/093/1

/09

3/29/0

9

4/26/0

9

5/24/0

9

6/21/0

9

7/19/0

9

8/16/0

9

9/13/0

9

10/11

/09

11/8/

09

12/6/

091/3

/10

1/31/1

0

2/28/1

0

3/28/1

0

4/25/1

0

5/23/1

0

6/20/1

0

7/18/1

0

8/15/1

0

9/12/1

0


Units Revenue


16



Exhibit 17 Mac Distributor Inventory Trends (Units)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 2007 2008 2009 2010

Source: Morgan Stanley Research

Exhibit 18 iPod Distributor Inventory Trends (Units)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2006 2007 2008 2009 2010


17



Exhibit 19 Morgan Stanley Hard Disk Drive Model Total HDD Market - Quarterly Total HDD Market - Annual

HDD End Market Breakdown - Quarterly HDD End Market Breakdown - Annual

-

50

100

150

200

250

Mar-07

Jun-0

7

Sep-07

Dec-07

Mar-08

Jun-0

8

Sep-08

Dec-08

Mar-09

Jun-0

9

Sep-09

Dec-09

Mar-10

Jun-1

0

Sep-10

Dec-10

Mar-11

Jun-1

1

Sep-11

Dec-11

Mill

ions

-20%

-10%

0%

10%

20%

30%

40%

50%Total HDD Units (LHS)

Y/Y Growth (RHS)

48% 46%40% 38%

32% 36% 44% 45%

14% 13% 12% 11%

0%

20%

40%

60%

80%

100%

Mar-07

Jun-0

7

Sep-07

Dec-07

Mar-08

Jun-0

8

Sep-08

Dec-08

Mar-09

Jun-0

9

Sep-09

Dec-09

Mar-10

Jun-1

0

Sep-10

Dec-10

Mar-11

Jun-1

1

Sep-11

Dec-11

Enterprise

Desktop

Mobile

CE

-

100

200

300

400

500

600

700

800

900

2001

A20

02A

2003

A20

04A

2005

A20

06A

2007

A20

08A

2009

A20

10E

2011

E20

12E

Mill

ions

0%

5%

10%

15%

20%

25%

30%Total HDD Units (LHS) Y/Y Growth (RHS)

57%

34%41%

21%

50%43%

16% 12%12%

0%

20%

40%

60%

80%

100%

2001

A20

02A

2003

A20

04A

2005

A20

06A

2007

A20

08A

2009

A20

10E

2011

E20

12E

Enterprise

Desktop

Mobile CE


18



Exhibit 20 Weekly Hard Disk Drive Distributor Inventory Trends (Units)

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

May-09

Jun-0

9Ju

l-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-1

0

Feb-10

Mar-10

Apr-10

May-10

Jun-1

0Ju

l-10

Aug-10

Sep-10

Inve

ntor

y U

nits


Exhibit 21 Weekly Hard Disk Drive Distributor Inventory ASPs (W/W Change)

-4%

-3%

-2%

-1%

0%

1%

2%

Jan-0

8

Feb-08

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

May-09

Jun-0

9Ju

l-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-1

0

Feb-10

Mar-10

Apr-10

May-10

Jun-1

0Ju

l-10

Aug-10

Sep-10


19



Exhibit 22 Weekly Printer Distributor Inventory Trends (Value)

Mar-08

Apr-08

May-08

Jun-0

8Ju

l-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-0

9

Feb-09

Mar-09

Apr-09

May-09

Jun-0

9Ju

l-09

Aug-09

Sep-09

Oct-09

Nov-09

Dec-09

Jan-1

0

Feb-10

Mar-10

Apr-10

May-10

Jun-1

0Ju

l-10

Aug-10

Sep-10

Inve

ntor

y Va

lue


20



Exhibit 23 Weekly U.S. Handset Monitor

Shelf Space Monitor Handset Brand 7/6/2010 7/13/2010 7/20/2010 7/27/2010 8/3/2010 8/10/2010 8/17/2010 8/24/2010 8/31/2010 9/7/2010 9/14/2010 9/21/2010 9/28/2010 10/5/2010 10/12/2010BlackBerry 27 26 25 23 19 19 21 19 20 24 26 24 23 26 24HTC 15 15 15 12 12 10 11 10 10 8 10 10 13 12 11LG 21 21 20 23 23 22 21 20 19 23 24 22 22 21 18Motorola 19 19 20 21 21 19 20 19 22 21 22 22 19 19 21Nokia 12 11 11 12 11 11 11 9 11 11 11 10 10 10 9Palm 6 6 6 6 6 7 7 7 7 7 7 7 6 7 6Samsung 53 53 56 57 57 56 54 54 54 54 53 54 55 51 52Sony Ericsson 3 3 3 3 2 2 4 4 4 5 5 5 5 4 3Others 63 63 60 60 60 58 56 56 55 59 64 65 65 63 64Grand Total 219 217 216 217 211 204 205 198 202 212 222 219 218 213 208

Subsidy Monitor

Handset Brand 7/6/2010 7/13/2010 7/20/2010 7/27/2010 8/3/2010 8/10/2010 8/17/2010 8/24/2010 8/31/2010 9/7/2010 9/14/2010 9/21/2010 9/28/2010 10/5/2010 10/12/2010BlackBerry 70% 69% 76% 73% 74% 74% 73% 72% 71% 72% 74% 71% 69% 69% 68%HTC 56% 58% 58% 62% 64% 68% 60% 65% 62% 66% 53% 58% 55% 55% 55%LG 76% 76% 72% 76% 76% 73% 75% 77% 74% 79% 81% 80% 81% 87% 88%Motorola 62% 65% 60% 60% 63% 62% 62% 63% 63% 57% 61% 62% 58% 50% 54%Nokia 91% 92% 92% 91% 96% 93% 93% 91% 91% 91% 95% 94% 94% 94% 93%Palm 70% 70% 70% 69% 71% 75% 75% 75% 75% 89% 93% 93% 92% 78% 78%Samsung 82% 82% 83% 83% 81% 82% 81% 81% 81% 81% 79% 79% 79% 79% 80%Sony Ericsson 100% 100% 100% 100% 84% 84% 74% 81% 89% 86% 86% 86% 91% 82% 94%Others 67% 69% 68% 70% 69% 68% 70% 69% 72% 66% 67% 68% 67% 70% 70%

ASP Monitor

Handset Brand 7/6/2010 7/13/2010 7/20/2010 7/27/2010 8/3/2010 8/10/2010 8/17/2010 8/24/2010 8/31/2010 9/7/2010 9/14/2010 9/21/2010 9/28/2010 10/5/2010 10/12/2010BlackBerry $89 $92 $87 $92 $88 $88 $92 $97 $97 $82 $81 $92 $98 $85 $72HTC $123 $117 $117 $117 $113 $118 $128 $128 $143 $122 $126 $133 $132 $130 $130LG $53 $52 $62 $48 $48 $60 $55 $44 $51 $43 $39 $40 $38 $24 $20Motorola $102 $93 $107 $109 $100 $105 $104 $106 $100 $109 $97 $95 $103 $119 $111Nokia $15 $10 $10 $15 $7 $10 $10 $12 $15 $15 $8 $8 $7 $7 $8Palm $67 $67 $67 $63 $58 $50 $50 $50 $50 $43 $21 $21 $25 $29 $25Samsung $40 $42 $44 $41 $43 $41 $41 $43 $41 $44 $48 $49 $48 $49 $49Sony Ericsson $0 $0 $0 $0 $25 $25 $62 $50 $37 $46 $46 $46 $30 $57 $27Others $61 $55 $56 $49 $50 $53 $52 $52 $50 $43 $41 $43 $46 $40 $43

For AT&T, Sprint-Nextel, and T-Mobile the subsidy is equal to the difference between the retail price and the price to a consumer with a two-year contract, including all discounts. For Verizon, the subsidy is understated because the company does not provide a retail price without a 2-year contract. Source: Morgan Stanley Research

21



Exhibit 24 Systems & PC Hardware: Revenue and Earnings Growth

REVENUE GROWTH 2010

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

SMT

AAPL

ISLN NZ

NTA

P

CM

L

EMC

WD

C

DEL

L

Med

ian

QLG

C

TDC

HPQ LXK

NC

R

IBM

BRC

D

REVENUE GROWTH 2011

0%

5%

10%

15%

20%

25%

30%

AAPL

ISLN

CM

L

NZ

SMT

NTA

P

EMC

TDC

NC

R

Med

ian

BRC

D

HPQ IBM

DEL

L

QLG

C

LXK

WD

C

EPS, ADJ., GROWTH 2010

-40%

-20%

0%

20%

40%

60%

80%

100%

ISLN

SMT

NZ

AAPL

NTA

P

QLG

C

EMC

LXK

DEL

L

Med

ian

HPQ

NC

R

TDC

IBM

WD

C

BRC

D

CM

L

EPS, ADJ., GROWTH 2011

-40%

-20%

0%

20%

40%

60%

80%

100%C

ML

NZ

ISLN

SMT

AAPL TD

C

EMC

IBM

HPQ

Med

ian

NC

R

DEL

L

QLG

C

NTA

P

BRC

D

LXK

WD

C


22



Exhibit 25 Systems & PC Hardware: Gross and EBIT Margins

EBIT MARGINS 2010

-5%

0%

5%

10%

15%

20%

25%

30%

AAPL

QLG

C

TDC

IBM

SMT

EMC

NTA

P

BRC

D

Med

ian

WD

C

HPQ LXK NZ

NC

R

DEL

L

ISLN

CM

L

EBIT MARGINS 2011

0%

5%

10%

15%

20%

25%

30%

35%AA

PL

QLG

C

TDC

IBM

SMT

EMC

NTA

P

BRC

D

NZ

Med

ian

HPQ

WD

C

LXK

ISLN

NC

R

DEL

L

CM

L

GROSS MARGINS 2010

0%

10%

20%

30%

40%

50%

60%

70%

QLG

C

NZ

NTA

P

ISLN

EMC

TDC

BRC

D

CM

L

Med

ian

SMT

IBM

AAPL LX

K

HPQ

WD

C

NC

R

DEL

L

GROSS MARGINS 2011

0%

10%

20%

30%

40%

50%

60%

70%

NZ

QLG

C

NTA

P

ISLN

EMC

TDC

BRC

D

CM

L

Med

ian

SMT

IBM

AAPL LX

K

HPQ

NC

R

WD

C

DEL

L


23



Exhibit 26 Systems & PC Hardware: Valuation Metrics

P/E 2010

0

10

20

30

40

50

60

70

80

90

ISLN

CM

L

NZ

NTA

P

TDC

AAPL SM

T

EMC

QLG

C

Med

ian

IBM

DEL

L

BRC

D

LXK

NC

R

HPQ

WD

C

EV/EBITDA 2010

0

10

20

30

40

50

60

70

80

CM

L

ISLN NZ

NTA

P

TDC

AAPL EM

C

QLG

C

Med

ian

BRC

D

IBM

SMT

HPQ LXK

DEL

L

NC

R

WD

C

EV/SALES 2010

0

1

2

3

4

5

6

7

8

9

10

11

ISLN NZ

CM

L

AAPL

NTA

P

TDC

QLG

C

EMC

Med

ian

IBM

BRC

D

SMT

HPQ LXK

WD

C

NC

R

DEL

L

P/FCF 2010

0

10

20

30

40

50

60

70BR

CD

NC

R

ISLN

CM

L

NZ

TDC

AAPL

NTA

P

DEL

L

Med

ian

EMC

SMT

QLG

C

HPQ IBM

LXK

WD

C


24



Exhibit 27 Morgan Stanley Estimates vs. Consensus (Quarterly)

Morgan Stanley Estimates Consensus Estimates (Bloomberg) Variance (Positive = MS higher)Revenue EPS Revenue EPS Revenue EPS

Current Qtr Next Qtr Current Qtr Next Qtr Current Qtr Next Qtr Current Qtr Next Qtr Current Qtr Next Qtr Current Qtr Next Qtr

AAPL 18,453 e 20,909 e 4.07 e 4.84 e 18,457 e 21,351 e 4.04 e 4.92 e 0% -2% 0.03 -0.08DELL 15,340 e 15,190 e 0.30 e 0.32 e 15,752 e 16,335 e 0.32 e 0.35 e -3% -7% -0.02 -0.03EMC 4,135 e 4,618 e 0.29 e 0.38 e 4,139 e 4,632 e 0.30 e 0.38 e 0% 0% 0.00 0.01HPQ 32,605 e 32,725 e 1.26 e 1.21 e 32,775 e 32,746 e 1.26 e 1.20 e -1% 0% 0.00 0.01IBM 24,130 e 28,102 e 2.72 e 4.05 e 24,110 e 27,870 e 2.74 e 4.02 e 0% 1% -0.01 0.03NTAP 1,198 e 1,290 e 0.49 e 0.51 e 1,188 e 1,246 e 0.49 e 0.51 e 1% 4% 0.01 0.01TDC 470 e 512 e 0.38 e 0.46 e 464 e 521 e 0.39 e 0.49 e 1% -2% 0.00 -0.02WDC 2,343 e 2,398 e 0.78 e 0.75 e 2,381 e 2,567 e 0.84 e 1.07 e -2% -7% -0.06 -0.32

Average 0% -2% -1% -3%Median 0% -1%

BRCD 531 e 551 e 0.12 e 0.13 e 538 e 558 e 0.13 e 0.15 e -1% -1% -0.01 -0.02CML 39 e 44 e 0.05 e 0.09 e 38 e 42 e 0.04 e 0.07 e 2% 4% 0.01 0.02ISLN 44 e 49 e 0.04 e 0.06 e 46 e 50 e 0.05 e 0.06 e -4% -2% -0.01 0.00LXK 1,041 e 1,060 e 0.84 e 0.74 e 1,040 e 1,106 e 0.97 e 1.02 e 0% -4% -0.13 -0.28NCR 1,195 e 1,384 e 0.38 e 0.56 e 1,204 e 1,386 e 0.36 e 0.53 e -1% 0% 0.01 0.03NZ 64 e 71 e 0.06 e 0.10 e 58 e 64 e 0.08 e 0.11 e 10% 11% -0.01 -0.01QLGC 146 e 155 e 0.32 e 0.35 e 145 e 156 e 0.31 e 0.35 e 1% -1% 0.02 0.00SMT 244 e 203 e 0.28 e 0.16 e 233 e 214 e 0.23 e 0.14 e 5% -5% 0.05 0.02

Average 1% 0% -3% -9%Median 0% -1%

Source: Bloomberg, Morgan Stanley Research

Exhibit 28 Morgan Stanley Estimates vs. Consensus (Fiscal Year)

Morgan Stanley Estimates Consensus Estimates (Bloomberg) Variance (Positive = MS higher)Revenue EPS Revenue EPS Revenue EPS

Current FY Next FY Current FY Next FY Current FY Next FY Current FY Next FY Current FY Next FY Current FY Next FY

AAPL 63,335 e 82,049 e 14.59 e 18.79 e 63,226 e 78,282 e 14.48 e 17.65 e 0% 5% 0.10 1.14DELL 60,937 e 63,442 e 1.22 e 1.33 e 62,311 e 65,825 e 1.29 e 1.45 e -2% -4% -0.06 -0.11EMC 16,667 e 18,837 e 1.22 e 1.42 e 16,682 e 18,443 e 1.21 e 1.39 e 0% 2% 0.01 0.03HPQ 125,359 e 131,549 e 4.50 e 5.12 e 125,471 e 131,956 e 4.51 e 4.99 e 0% 0% -0.01 0.12IBM 98,811 e 103,955 e 11.30 e 12.80 e 98,733 e 102,668 e 11.30 e 12.40 e 0% 1% 0.01 0.40NTAP 4,979 e 5,690 e 2.20 e 2.40 e 4,906 e 5,612 e 2.02 e 2.24 e 1% 1% 0.18 0.17TDC 1,882 e 2,053 e 1.67 e 1.97 e 1,884 e 2,035 e 1.72 e 1.99 e 0% 1% -0.05 -0.02WDC 9,361 e 10,394 e 3.10 e 4.01 e 9,855 e 10,671 e 4.04 e 4.73 e -5% -3% -0.95 -0.72

Average -1% 0% -2% 2%Median 0% 1%

BRCD 2,178 e 2,315 e 0.47 e 0.52 e 2,082 e 2,229 e 0.58 e 0.58 e 5% 4% -0.11 -0.06CML 151 e 188 e 0.20 e 0.40 e 149 e 182 e 0.18 e 0.27 e 1% 4% 0.03 0.13ISLN 177 e 226 e 0.20 e 0.31 e 180 e 226 e 0.21 e 0.35 e -2% 0% -0.02 -0.04LXK 4,176 e 4,225 e 4.15 e 3.50 e 4,219 e 4,311 e 4.59 e 4.50 e -1% -2% -0.44 -1.01NCR 4,785 e 5,128 e 1.44 e 1.58 e 4,802 e 5,100 e 1.40 e 1.64 e 0% 1% 0.05 -0.06NZ 257 e 311 e 0.33 e 0.59 e 235 e 282 e 0.31 e 0.48 e 10% 11% 0.02 0.11QLGC 590 e 620 e 1.29 e 1.41 e 593 e 638 e 1.27 e 1.42 e -1% -3% 0.02 -0.02SMT 858 e 988 e 1.06 e 1.30 e 869 e 1,034 e 0.65 e 1.03 e -1% -4% 0.40 0.27

Average 1% 1% -1% -7%Median 0% 0%

Source: Bloomberg, Morgan Stanley Research

25



Exhibit 29 Systems & PC Hardware: Short Interest

Short Interest 1-Month Short/ Days to Shares 90-Day10/14/2009 5/14/2010 6/14/2010 7/14/2010 8/14/2010 9/13/2010 10/14/2010 Change Shares Cover OS Avg Vol

AAPL 16.0 11.5 11.9 12.7 10.3 11.3 11.8 4% 1.3% 0.6 927 21DELL 41.5 59.0 45.3 53.7 55.6 43.9 49.7 13% 2.5% 2.0 1,960 25EMC 61.7 39.5 43.4 52.4 54.6 43.4 58.6 35% 2.7% 2.2 2,133 26HPQ 30.2 15.3 17.7 21.8 20.1 22.4 21.6 -4% 0.9% 0.9 2,376 24IBM 13.0 9.4 13.5 14.7 15.1 15.5 15.6 1% 1.2% 2.6 1,297 6NTAP 22.2 14.7 12.3 14.9 17.5 18.4 23.0 25% 6.1% 3.0 374 8STX 16.8 22.3 25.3 24.9 20.5 11.6 15.1 30% 3.0% 1.1 500 14TDC 2.0 2.7 2.4 3.4 2.8 2.6 2.7 1% 1.6% 1.6 170 2WDC 9.7 7.7 10.9 12.9 6.6 5.8 9.1 58% 3.9% 1.5 235 6

Average 18% 2.6% 1.7Median 13% 2.5% 1.6

BRCD 21.9 18.3 17.4 19.6 22.4 20.3 27.9 38% 5.8% 2.1 482 13CML 1.2 3.2 2.9 3.2 2.9 2.4 2.7 14% 8.6% 4.0 32 1ISLN 0.5 1.4 1.8 2.8 4.2 4.0 3.9 -1% 5.5% 4.2 72 1LXK 16.5 8.2 8.8 11.9 7.6 7.0 8.1 17% 10.2% 4.7 79 2NCR 3.4 6.2 6.4 5.1 3.8 4.4 3.9 -12% 2.4% 2.4 162 2NZ 3.2 5.3 5.5 6.7 7.4 7.2 3.1 -57% 4.7% 1.5 66 2QLGC 7.1 4.6 4.7 4.3 5.1 4.4 5.9 35% 5.2% 2.3 114 3SMT 2.1 2.9 3.2% 2.6 91 1

Average 5% 5.7% 3.0Median 14% 5.4% 2.5


26



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27



Coverage Universe Investment Banking Clients (IBC)

Stock Rating Category Count % of Total Count

% of Total IBC

% of Rating Category

Overweight/Buy 1115 42% 394 43% 35%Equal-weight/Hold 1146 43% 413 45% 36%Not-Rated/Hold 14 1% 4 0% 29%Underweight/Sell 381 14% 99 11% 26%Total 2,656 910 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months. Not-Rated (NR). 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Industry Coverage:Systems and PC Hardware

Company (Ticker) Rating (as of)Price* (10/14/2010)

Katy L. Huberty, CFA Apple, Inc. (AAPL.O) O (05/26/2009) $302.31Brocade Communications Systems (BRCD.O)

E (05/04/2009) $5.88

Compellent Technologies, Inc. (CML.N)

E (11/19/2007) $18.29

DELL (DELL.O) U (09/10/2010) $14.27EMC Corp. (EMC.N) O (07/27/2009) $21.21Hewlett-Packard (HPQ.N) O (11/16/2007) $42.13IBM (IBM.N) E (09/08/2009) $141.5Isilon Systems, Inc. (ISLN.O) E (11/16/2007) $27.22Lexmark International (LXK.N) U (07/14/2010) $45.09NCR Corp. (NCR.N) E (03/12/2004) $14.22NetApp Inc (NTAP.O) E (07/27/2009) $50.39Netezza Corporation (NZ.N) O (10/22/2007) $26.93QLogic Corporation (QLGC.O) E (10/14/2010) $17.3SMART Technologies (SMT.O) O (08/24/2010) $12.31Seagate Technology (STX.O) ++ $12.69Teradata (TDC.N) E (09/08/2009) $38.33Western Digital (WDC.N) E (09/01/2010) $29.49

Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted.

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