Tech Presentation Fall 2009

8/14/2019 Tech Presentation Fall 2009

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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?

Tech Presentation Fall 2009

Documents

Transcript of Tech Presentation Fall 2009