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  • 1. ab Global Equity Research Global UBS Investment Research Technology Global Tech Daily Sector Comment Japan Tech, Amdocs, Microsoft, Apple, 13 January 2011 VMware, Nuance, Infosys, & Others www.ubs.com/investmentresearch Mitsubishi Elec.: upgrade to Buy / Fujitsu: downgrade / Amdocs: upgrade In Japan electronics, Kenji Yasui recommends Toshiba & upgrades Mitsubishi Elec. to Buy on an improving business climate & likely 2H10 semi cycle bottom. James F. Hillier For Fujitsu, he expects the recovery to lag given exposure to Japan IT services, and Analyst downgrades to Neutral. In the US, Jason Kupferberg upgrades DOX to Buy on james.hillier@ubs.com accelerating F12 EPS growth, favorable mix, & attractive valuation. +1-212-713 3415 PCs: weaker 4Q growth / Microsoft: lower est’s / Asia hardware update IDC/Gartner reported 4Q PC units +3% y/y, below UBSe +5.7% y/y est. given US consumer weakness & softer APAC demand. Our hardware team expects 9% PC unit growth in 2011, down from 14% in 2010. For MSFT, Brent Thill lowers F2Q sales $200M & EPS $0.01 to reflect PC weakness but maintains a Buy. In Asia, despite reports Quanta raised prices to HP, Arthur Hsieh prefers Wistron & Catcher given superior margins; he also remains positive on HTC and TPK. Apple: raise estimates and target to $415 and reiterate Buy Maynard Um raises F1Q rev/EPS to $24.5B/$5.40 (vs. $24.2B/$5.31 cons.) on likely strong holiday sales and raises F11E on embed higher iPhone and iPad units. VMware: expect 4Q beat; retain Buy / Nuance: raise target; maintain Buy Brent Thill’s survey of 50 VMW resellers suggests a 4Q beat w/ strength in server shipments, cloud solutions, & add-on mgmt tools. On NUAN, Brent est’s F1Q inline with cons. but sees improving q/q trends from accelerating speech adoption. Table 1: Technology Data Points and Events Today Company Ticker Event Intel INTC 4Q Results Source: Company Reports, FactSet, and UBS This report has been prepared by UBS Securities LLC ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 14. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
  • 2. Global Tech Daily 13 January 2011UBS Research Highlights Industrial Electronics Sector Update Technology Analyst: Kenji Yasui Tel: +81-3-5208 6211 Q3 preview & 2011 investment outlook: recommend Toshiba, Mitsubishi Electric Biz climate to improve in 2011; good sector position needed for OP growth The semiconductor cycle, which indicates ‘tech’ demand, looks to have bottomed in CYQ3-CYQ4, and 2011 could see the business climate improve alongside a move from a bottom to a peak. Such an improvement should apply to all firms, but gaps in the extent of OP growth may appear depending on sector positioning, so we would select stocks where core units have strong sector positions. In industrial electronics, we recommend Toshiba and Mitsubishi Electric. Toshiba: NAND/nuclear; Mitsubishi Elec.: high share in ind. mechatronics Toshiba (estimated Q3 FY10 in-house OP budget ¥35bn~¥40bn; we expect ¥38bn) is one of two dominant firms in NAND and of three such firms in nuclear power. Sector positioning in global markets is high. Mitsubishi Electric (¥40bn; ¥50bn) revised up OP, especially for industrial mechatronics, in Q1 and Q2 and sustained strong earnings capabilities should support a stable high sector positioning. Fujitsu: recovery lags, esp. at home; Hitachi: establishing core ops an issue At Fujitsu (estimated Q3 FY10 in-house OP budget, ¥10bn; we expect ¥24bn), there is no sign of recovery in the domestic SI market, OP from services may miss the company’s FY10 plan and FY11 OP guidance of ¥250bn may be revised down. At Hitachi (¥70bn; ¥80bn), restructuring through H1 may see profit rise yoy, but a sense of a lull could emerge. Elpida, Renesas Elec.: Competitiveness an issue; Jan-Mar profit to fall qoq At Elpida (estimated Oct-Dec OP, -¥20bn), Jan-Mar may see a qoq fall of 20% on sharply lower PC-DRAM price. At Renesas (¥6bn), R&D costs from acquiring Nokia’s modem unit may exceed ¥10bn from Jan-Mar. Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 12 January 2011 Mitsubishi Electric Rating: Buy Target: ¥1,050 Price: ¥907 RIC: 6503.T Prior: Neutral Prior: ¥830 Mkt Cap: ¥1,948bn BBG: 6503 JP Communications Technology Analyst: Kenji Yasui Tel: +81-3-5208 6211 Business climate to improve in line with the inventory cycle; upgrade to Buy Demand is currently flat, but the future climate should accelerate demand We expect a consistent improvement in the business climate, and a strong position within the sector is essential to generate profit. Mgmt lifted its initial FY10 OP guidance of ¥140bn to ¥160bn at the Q1 results stage, then to ¥205bn at Q2 results. For industrial mechatronics its target rose from ¥49bn to ¥67bn and then to ¥93bn (+¥44bn), and thus this segment is driving OP. We believe the company is maintaining high profitability and a strong sector position. We estimate that Oct-Dec industrial mechatronics orders were about flat qoq, and we see no signs of recovery, but we expect demand to accelerate alongside the inventory cycle. We expect record profit for FY11-FY12 (exceeding ¥267.2bn in FY07) We forecast FY10 OP at ¥230bn, and we believe industrial mechatronics are very likely to overshoot target. In FY11, air conditioner OP will probably turn down yoy, but orders for heavy machinery should hit bottom in H1 FY10. Industrial mechatronics should be able to achieve growth in both sales and profit due to demand expansion, mainly overseas. Risk factors are the Chinese economy and a slowdown in LCD-related capex. Inventory cycle to bottom in CQ3-4 as assumed; climate to start improving As global capex, industrial production index and semiconductor shipments are highly correlative (Charts 4-7), we anticipate a synchronous recovery in the semi inventory cycle (Chart 1) and the global capex market. Valuation: Upgrading our rating from Neutral to Buy Expecting an improvement in the business climate, we lift our PER target from 15X, the market average, to 18X (FY11E), and hence our PT from ¥830 to ¥1,050 Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of ¥907 on 12 Jan 2011 17:24 JST Fujitsu Rating: Neutral Target: ¥600 Price: ¥551 RIC: 6702.T Prior: Buy Prior: ¥800 Mkt Cap: ¥1,141bn BBG: 6702 JP Computers Analyst: Kenji Yasui Tel: +81-3-5208 6211 Time to factor in a FY10-11 earnings shortfall; downgrade to Neutral Q3 target should be beaten, but is low: FY10 OP from services to fall short We estimate that Fujitsu’s Q3 OP plan is ¥10bn, but mgmt’s targets for hardware, ubiquitous and eliminations are probably conservative. We expect OP to beat target, at ¥24bn. Services look in line. For domestic sales from services, mgmt forecasts a recovery to +5% yoy for Jan-Mar, from -1~-2% in Oct-Dec, but a pick-up in the domestic capex market is likely to lag the global trend by 6-9 months. We do not expect a recovery in FY10, and we think FY OP guidance will be missed. FY10 OP shortfall not priced in yet; risk to be recognised after Q3 results Q4 OP accounts for about half of full-term profit in the service segment. It is difficult to estimate full-term OP in H1, but forecast accuracy increases as OP accumulates in Q1-Q3. The FY10 IFIS consensus is for OP of ¥184.5bn, which is close to mgmt’s target of ¥185bn. We believe investors will start to recognise the risk of a shortfall following the Q3 results announcement, and that sustainable share price advances will be difficult after results come out. Mid-term FY11 OP target is high at ¥250bn; awaiting downward revision The current mid-term plan envisages FY11 OP of ¥250bn, requiring ¥65bn yoy OP growth, mostly through business improvements. We believe this target is too high. The IFIS consensus already assumes a downward revision to FY11 OP to ¥212.8bn. We await a revision for now and intend to revisit after analysing the achievability of the revised OP target Valuation: downgrade from Buy to Neutral; PT down from ¥800 to ¥600 With conditions unlikely to improve near term, we base our PT on average PBR (excluding the IT bubble period), of 2X, applied to end-FY10E adjusted BPS. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of ¥551 on 12 Jan 2011 17:53 JST UBS 2
  • 3. Global Tech Daily 13 January 2011 Amdocs Rating: Buy Target: US$33.00 Price: US$27.87 RIC: DOX.N Prior: Neutral Prior: US$30.00 Mkt Cap: US$5.48bn BBG: DOX US Diversified Technology Services Analyst: Jason Kupferberg Tel: +1-212-713 3559 Upgrade to Buy on better risk/reward Looking through current transition year to EPS acceleration in F12 Primary reasons for our upgrade: 1) decisive actions by new CEO set up F12 for strong EPS growth acceleration following the current transition year, 2) re-investments announced in Nov. should help long-term growth profile (though we still believe pre-recession levels of 8-10% organic revenue growth will be tough to achieve), 3) more attractive valuation (11x/10x C11/C12E FCF, plus $7.29/share in net cash). Potential modest catalysts: F1Q print (1/25), analyst meeting (2/23). Continued favourable mix shift: emerging markets, managed services We believe DOX’s medium/long-term growth profile should be enhanced by a continued mix shift towards emerging markets (now almost 10% of total revs) and managed services (currently 45% of total revs). DOX also continues to enjoy an industry-leading reputation for product and service quality among its core client base in the communications sector, though we continue to acknowledge potential risks regarding customer concentration and competition. Operating margins should gradually improve off F1Q trough Per last quarter’s reset, F1Q11 operating margins are expected to be 15-17%. Depending on the pace/mix of new wins and internal investment spending, we think margins could exit F11 at 17%+ and be back in the ~18% range next year, which would likely promote multiple expansion for shares. Valuation: Upgrade to Buy from Neutral; new PT $33 vs. $30 prior Our estimates (which are GAAP, while consensus is pro forma) are unchanged. Our new PT is based on 12x unchanged C12 FCF estimate of $2.73 and our DCF. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$27.87 on 12 Jan 2011 17:12 EST UBS Global I/O: IT Hardware Computers Analyst: Maynard J. Um Tel: +1-212-713 3372 Consumer Weakness Weighs on 4Q10 PC Growth 4Q10 PC growth below expectations; APAC & US the culprits IDC reported preliminary 4Q10 y/y PC unit growth of 2.7% (+3.9% q/q) with Gartner reporting 3.1% growth (+5.1% q/q) below UBSe of 5.7% growth (+5.4% q/q). Ongoing challenges in the US consumer market, as well as softer than expected demand in APAC (IDC noted channel inventory issues in 4Q) were the main drivers of the shortfall, with the impact from tablets also playing a role. Enterprise unable to offset consumer softness; See some 2011 deceleration Similar to prior quarters, healthy corporate demand could not offset continued consumer softness. We continue to prefer enterprise over consumer & are comfortable with our 2011 PC unit growth est of 9.1% (IDC expects slightly less than +10%) vs +14% in 2010. Note that 2011 is likely to be marked by some ongoing mature mkt consumer softness (see limited 1H catalysts) offset somewhat by contd benefit from a corporate refresh & aggressive pricing, but expect visibility to remain cloudy. Results reinforce our developed market view that tablets are likely to push out PC replacement cycles, particularly near/medium-term. HP & Lenovo sequential share gainers; Dell overtakes Acer for #2 position According to IDC, HP maintained its top position and gained 170bps q/q (-70bps y/y) vs our expectation for flat share. Dell climbed to the #2 position despite losing 50bps q/q (this seq trend is better than normal & Dell gained 20bps y/y) driven by strength in emerging mkts & the ongoing corporate refresh. Acer dropped to the #3 global position as it lost 250bps q/q (- 220 bps y/y) which we believe was due to weakness in netbook/notebooks with much of the shortfall coming from Europe. Lenovo was flat q/q (+160bps y/y) given its leading market share in China, benefits from market expansion initiatives, and exposure to the corporate PC market. In the US, Apple gained 150bps y/y (global share not provided). Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 12 January 2011 Microsoft Rating: Buy Target: US$35.00 Price: US$28.55 RIC: MSFT.O Prior: Unchanged Prior: Unchanged Mkt Cap: US$248bn BBG: MSFT US Software Analyst: Brent Thill Tel: +1-415-352 4694 Lowering FQ2 Estimates on CQ4 PCs CQ4 PCs Succumb to Pressure, Lowering Estimates IDC and Gartner reported weaker than expected CQ4 global PC unit growth of +2.7% y/y and +3.1% respectively which was roughly half the growth expected in the quarter. Tablets, weak consumer demand and a slowdown in Asia Pac demand were the general culprits to the lower than expected growth. Partially offsetting the worse than expected PC environment in FQ2 is upside in Kinect (8M units sell-in vs. our 5M est.). However the net is we’re lowering FQ2 and FY11 estimates. Estimate Changes We’re lowering FQ2 revenue by $200M (the net of -$500M for revised PC forecast, +$300M for revised Kinect sales) and EPS by $0.01 given the margin-unfriendly mix shift yielding our new FQ2 estimate of $19.1B/$0.69. Revenue is now inline with consensus and we’re $0.01 ahead in EPS, though we expect consensus estimates to be revised lower on the CQ4 PC data. With CQ4 PC trends likely to persist into CQ1 and CQ2 we’re lowering our FY11 estimate to $69B/$2.48 from $69.5B/$2.50 ($200M out of FQ2/FQ3, $100M out of FQ4). Fundamental View: Stock Trades at a Discount to 3 year EPS Outlook FY11 is year 1 of a 3 year enterprise product cycle. Stronger enterprise demand boosts ASPs and sets up 3 years of double digit EPS growth (est. CAGR 14%). Valuation: Inexpensive at 11.5x PE vs. 15.4x 5yr Avg & 14% EPS CAGR We expect this valuation gap to continue to narrow with continued execution throughout its FY11 product cycle. $35 price target = 14x FY11E EPS of $2.48. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$28.55 on 12 Jan 2011 18:42 EST UBS 3
  • 4. Global Tech Daily 13 January 2011 Asia Hardware Insights Technology Hardware & Equipment Analyst: Arthur Hsieh Tel: +8862-8722 7348 The ODMs strike back? NB food chain: margin expansion on the back of price hike? Despite some initial success, we think Quanta could still face the most threat from EMS makers once they ramp up their learning curve or become aggressive again. If OEMs would allow price hike for industry wide issues, Wistron should also qualify and maintain its superior margins. Overall, ODMs could pass on a major portion of the recent increase in cost to the OEMs, but rather than expanding margins Touch panel: low season provides buying opportunity We believe the order flow will remain slow into Q1 due to product transition for tablet and seasonality in handset demand. However, we expect demand to pick up once all new products are ready and the limited industry capacity in cover glass should prevent oversupply from happening. Component makers likely to show better seasonality While most component makers’ December revenue show MoM decline, they expect Q1 will show better than normal seasonality. We believe that’s mainly because 1) smartphone demand continues to be strong 2) launch of new tablet provides new opportunities for select component makers. Positive on HTC, TPK and Catcher We are positive on HTC due to its share gain in Q410 and the growth potential in Android platform. We like TPK given its leading position in Apple’s supply chain and its capability to ramp up yield rate ahead of others in a product transition. We also like Catcher as we believe it has stronger bargaining power given the limited number of capable unibody metal casing suppliers. Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 13 January 2011 Apple Rating: Buy Target: US$415.00 Price: US$344.42 RIC: AAPL.O Prior: Unchanged Prior: US$365.00 Mkt Cap: US$318bn BBG: AAPL US Computers Analyst: Maynard J. Um Tel: +1-212-713 3372 Expecting Strong Q1 & 2011; Raise Target Apple a key beneficiary during holiday qtr with its strong product line-up We believe Apple’s FY1Q11 was supported by a strong product line-up that included some of the most heavily gifted items during the holiday season (iPad, iPhone, iPod), as well as strong buzz & demand for MacBook Air (MBA). With strong demand for its products for most of the quarter, we believe Apple is in store to report a strong Q1 & we raise our rev/EPS ests to $24.5bn/$5.40 from $23.9b/$5.14 (Street: $24.2b/$5.31). Accrual reversal & cost improvements likely to offset MacBook Air mix We believe MBA sales were strong as lower price points drove consumers & holiday shoppers. Though we believe this would normally result in lower overall Mac gross mgn, potential warranty accrual reversals (90bps impact last qtr), component pricing tailwinds, & iPad cost improvements should more than offset mix shift. Looking forward, CDMA iPhone mix should help gross margins, somewhat offset by iPad2 in FY3Q, but expect mix to improve with iPhone 5. Raising estimates Raising ests to embed higher iPhone (69.4mn CY11), iPad (29.2mn CY11) units & opex adjustments. FY11 rev/EPS increases to $93.7b/$20.08 from $91.5b/$19.42. Valuation: Raise Target to $415 (was $365) and reiterate Buy Rating Our $415 price target is based on ~20x (~15.5x incl. cash) our CY11 EPS estimate. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$344.42 on 12 Jan 2011 18:42 EST VMware Rating: Buy Target: US$114.00 Price: US$95.16 RIC: VMW.N Prior: Unchanged Prior: Unchanged Mkt Cap: US$40.6bn BBG: VMW US Software Analyst: Brent Thill Tel: +1-415-352 4694 Proprietary VAR Survey & FQ4 Earnings Preview FQ4 Proprietary Global VAR Survey Results We surveyed 50 VARs (50% US/50% Europe) in the final month of FQ4 with results suggesting VMW beat FQ4. We’re modelling FQ4 $810M/$0.45 vs. consensus $804M/$0.44. Positive VAR Survey: Top 3 Takeaways 28% of VARs reported beating their FQ4 target which was an improvement vs. 23% beating their target in FQ3. VARs reported actual sequential sales growth in FQ4 of 8.4% vs. their target +7.9%. 2) FQ4 sales linearity showed a strong close to the quarter, and 3) no irregular discounting. FQ4 Preview, Expect Beat We expect a FQ4 beat based on our channel checks, continued strength in server shipments, enterprise demand for Cloud solutions, and surging demand for VMW’s new add-on management tools. VMW has a meaningful opportunity to cross-sell add-on management tools to its vSphere customers. We are encouraged by our VAR survey showing strong attach for vCenter. 40% of channel partners indicated 50%+ of their customer base are adopting the vCenter management tools. Valuation $114 PT based on 30x FY12e FCF/sh of $3.79. Our target multiple is a 1.3 PEG on FY09-12E FCF/share and is inline with the current FY11e FCF/sh trading multiple. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$95.16 on 12 Jan 2011 18:42 EST UBS 4
  • 5. Global Tech Daily 13 January 2011 Nuance Communication Rating: Buy Target: US$25.00 Price: US$20.48 RIC: NUAN.O Prior: Unchanged Prior: US$20.00 Mkt Cap: US$6.02bn BBG: NUAN US Software Analyst: Brent Thill Tel: +1-415-352 4694 Raising PT to $25; Expect Improving Ramp in FY11 as End-Markets Recover Raising PT $25; Well Positioned to Benefit from End-Market Trends PT to $25 as roll-fwd 1 qtr and up P/E to 16x. NUAN is poised to see sequentially improving trend this FY as: (1) speech adoption accelerates in handsets, cars, and among mobile healthcare workers, (2) smartphones grow rapidly and gain advanced speech functionality thanks to faster processors and 3G/4G speeds, (3) automotive end-markets recover and design- win momentum translates to shipments/royalties, (4) Healthcare segment benefits from HITECH Act and new pdts, (5) Enterprise rebounds from negative comps, and (6) SaaS model matures. FQ1 (Dec.) Earnings Preview: Expect Meet or Slight Beat While we believe trends were solid, FQ1s can start off seasonally slow. We expect NUAN to post in-line to slight upside to our ests: rev UBSe $320M, Street $319M, guide $312-325M; EPS USBe $0.31, St. $0.31, guide $0.28-0.32. Date: early Feb. NUAN Story Hitting Mainstream, Creating Multi-Yr Rev Engines Co’s dominant leadership in speech & other mobile input technologies was evident at recent CES and Detroit auto show, with expansion at Toyota and Harman. Valuation: Expect Multiple to Expand Slightly We are raising our 12-mo PT from $20 to $25 as we roll forward our base EPS 1 qtr (5-8 qtrs out) and increase the P/E from 13x to 16x. Our P/E assumes a 15% premium (was a 5% discount) to 3-year EPS CAGR 14%, though still representing a discount to historical 5-yr mean/median of 18.5x/16.6x (6-yr 19.2/19.1x). Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of US$20.48 on 12 Jan 2011 17:12 EST TCS Rating: Neutral Target: Rs1,150.00 Price: Rs1,099.40 RIC: TCS.BO Prior: Unchanged Prior: Unchanged Mkt Cap: Rs2,152bn BBG: TCS IB Diversified Technology Services Analyst: Diviya Nagarajan Tel: +91-22-6155 6072 Q3 FY11 offers near-term upside potential TCS looks set to outperform in Q3 FY11 as well We estimate Tata Consultancy Services (TCS) will report revenue of US$2.17bn, implying 8.3% QoQ growth, ahead of peers Infosys and Wipro. Our estimates are 2% ahead of consensus, which expects TCS’s revenue to grow in line with that of Infosys. We believe such an outperformance could trigger near-term upside for TCS’s share price, which will release its results on 17 January 2011. Volume growth likely to remain relatively high despite seasonal weakness The December quarter is seasonally weak for most large Indian vendors due to the holiday season in the US and Europe, which are their major markets. We forecast QoQ volume growth of 7% for TCS, 4.2% lower than in Q2 FY11. Even so, TCS is likely to be the fastest growing firm among its peers in Q3 FY11. Our margin forecast for TCS is more conservative than for Infosys TCS has so far bucked the margin decline trend in almost all Indian IT vendors. Its Q2 FY11 EBITDA margin reached a five-year high of 30% despite rising wage pressures and currency appreciation. We forecast a 40bp decline in its EBITDA margin in Q3 FY11, which is higher than the 15bp decline we forecast for Infosys (despite Infosys offering 20,000 job promotions in Q3 FY11). Valuation: maintain Neutral, Q3 could trigger near-term stock upside We expect TCS to continue its relative outperformance to its peers in Q3 FY11, which we believe could offer near-term share price upsides. While we maintain our Neutral rating, we believe the current 7% discount to Infosys’ FY11E PE could narrow following a strong Q3 FY11. We derive our Rs1,150 price target from a DCF-based methodology and explicitly forecast long- term valuation drivers using UBS’s VCAM tool. We assume a WACC of 11.5% and terminal growth of 3%. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of Rs1,099.40 on 11 Jan 2011 23:38 SGT Tokyo Electron Rating: Buy Target: ¥8,500 Price: ¥5,330 RIC: 8035.T Prior: Unchanged Prior: Unchanged Mkt Cap: ¥963bn BBG: 8035 JP Semiconductors Analyst: Yoshitsugu Yamamoto Tel: +81-3-5208 6268 Oct-Dec orders come in at ¥143bn, in line with company forecast Oct-Dec orders ¥143bn (-17% qoq); SPE orders -15% Oct-Dec orders were in line with company estimates (semiconductors -15%, FPD/PV ¥10bn- ¥15bn), with semiconductor orders ¥128bn (-15% qoq) and FPD/PV orders ¥15bn (-33%). This is slightly above our forecast (¥120bn and ¥10bn). Compared with Jul-Sep, DRAM orders declined, NAND/foundry increased, and logic fell sharply. The decline in logic orders is a reaction to large-scale orders received for a Samsung plant in the US and was as expected. Current company outlook: increase expected for Jan-Mar At present, the only thing the company has said about its forecast for Jan-Mar is that it expects an increase from Oct-Dec. Specific figures will apparently be released when results are announced on 31 Jan. We forecast semiconductor orders of ¥160bn and FPD/PV orders of ¥10bn. DRAM orders are likely to decline, but the scenario for NAND/foundry products to drive orders is unchanged. FPD/PV orders could exceed the UBS forecast on growth for small and medium-sized LTPS products. We plan to review our forecasts after a company visit and further analysis. UBS forecast revised slightly; discounting higher R&D costs, etc. We have revised our forecast slightly as the FY10 R&D cost estimate was raised from ¥67bn to ¥71bn when interim results were announced. We have revised our OP forecasts from ¥102.3bn to ¥96.1bn for FY10 and from ¥120.4bn to ¥120.2bn for FY11. The small revision to sales reflects current strength for orders. Valuation We maintain a PT of ¥8,500 based on a FY11E PER of 18X. Source: The content presented above reflects a front page summary of UBS Research content, UBS estimates based on a share price of ¥5,330 on 11 Jan 2011 23:47 GMT UBS 5
  • 6. Global Tech Daily 13 January 2011 Wireless Equipment Short Interest Communications Technology Analyst: Maynard J. Um Tel: +1-212-713 3372 Short Interest (Dec 31st) & Catalyst Update Wireless Equipment: short interest decreases in second half of December Short Interest (SI) for the period ended December 31st decreased 6.4% prd/prd for the companies under coverage & was down 14.1% prd/prd for the broader Wireless Equipment universe. Avg share price for our covered companies increased 3.0% in the prd while the Coverage Ratio was up to 4.4 days vs. 3.4 in prior prd. RIMM and Nokia short interest decreases RIM SI decreased 7.2% prd/prd after decreasing 10.3% in prior prd (shrs down 1.8% in prd). Though bullishness around Playbook & QNX on BlackBerries have driven sentiment, we see a number of uncertainties & challenges around competition, market acceptance & the need for ecosystem improvements that limit visibility. NOK SI was down 7.8% prd/prd after being up 6.5% in prior prd (shrs up 4.7% in prd). QCOM short interest decreases, ERIC short interest increases QCOM SI decreased 11.4% prd/prd after decreasing 8.8% in prior prd (shrs up 0.8% in prd). We continue to prefer QCOM given catalysts such as the growth & increasing competition within the tablet market, an iPhone 5 design win, and carrier competition. ERIC SI increased 1.0% after declining 16.7% in prior prd (shrs up 8.2%). Catalyst Update Please see Table 2 for a list of upcoming catalysts in Wireless. Source: The content presented above reflects a front page summary of UBS Research content, UBS commentary as at 12 January 2011 UBS 6
  • 7. Global Tech Daily 13 January 2011Data Points Atos Origin (ATO.FP, Buy): has been awarded a five year contract by Nomura Asset Management, UK to support its money market funds, along with further automation of Nomura’s compliance and operational processing. (Company reports) Blackboard (BBBB, NR): has reaffirmed its F4Q sales/EPS guidance of $114.8- 118.8M/ $0.31-0.35 vs. consensus of $117.4M/$0.34; BBBB guided F1Q to $121M/$0.24 vs. $114.9M/$0.36 consensus and F11 to $540M/$1.82 vs. $505.8M/$1.92 consensus and that F1Q and F11 guidance includes the impact of its Presidium acquisition. (Company reports) Cray (CRAY, NR): announced that it expects preliminary F10 sales to be within the previously guided range of $305-325M vs. $313.3M consensus; in addition the company expects to be profitable in F10 and for F11 the company expects sales to grow and to be profitable. (Company reports) DragonWave (DRWI, NR): shares were down 13.9% after hours as DRWI reported F3Q sales/EPS of $27M/$0.00 with gross margin of 48%; DRWI shipped products to 31 new customers in F3Q, bringing YTD total to 64 new customers; in addition DRWI guided sales to $15M vs. consensus of $27M. (Company reports) Exfo (EXFO, NR): shares were up 15.5% after hours as EXFO reported F1Q sales/EPS of $65.65M/$0.02 vs. $64M/$0.05 consensus with telecom book-to-bill ratio of 1.37 and that telecom gross margin had reached 62.2% of sales in F1Q11; EXFO guided F2Q EPS to $0.07-0.11 vs. $0.08 consensus and also expects a pre-tax, foreign exchange loss of $0.03 per share on the significant increase in the value of the Canadian dollar since November 30 2010. (Company reports) Gemalto (GTO.FP, Sell): announced partnership with MasterCard (MA, Buy) on global card replacement services; financial details were not disclosed. (Company reports) Google (GOOG, Buy): the Wall Street Journal reported that GOOG has acquired eBook Technologies, an eBook technology startup; financial terms were not disclosed. (Wall Street Journal) Infosys (INFO.IN, Neutral): shares are down ~5% in India as Infosys reported weaker than expected 14% rise in net profit to Rs17.80B ($396M) vs. Rs18.21B consensus in F3Q, with sales of Rs71.06B, up 2.3% q/q and 24% y/y vs. Rs71.76B consensus and operating margins of 30.2%. In addition the company is likely to hire about 5,000 employees in the current quarter; mgmt noted that a weaker economic recovery in developed markets with high unemployment and risk of sovereign default could impact industry growth, however mgmt still raised FY guidance by 2% to Rs274-275B and EPS by 2% to Rs119. In US dollar terms Infosys reported F3Q sales of $1.59B, up 5.8% q/q vs. $1.57B consensus with EPADS of $0.69 vs. 0.67 consensus, added 40 new clients and 5,311 net employees during the quarter and guided 4Q sales/EPADS to $1.60- 1.62B/$0.69-0.70 vs. $1.62B/$0.69 consensus, guiding F11 sales/EPS to 6.04- 6.06B/$2.60-2.61 vs. prior $5.95-6.00B/$2.54-2.58 and $6.05B/$2.58 consensus. (Company reports) Intel (INTC, Buy): Daily Mail reported that INTC may be looking to bid for IQE. (Daily Mail) UBS 7
  • 8. Global Tech Daily 13 January 2011 Mercury Computer (MRCY, NR): announced the acquisition of LNX Corp for $31M and an earn out of up to $5M; in addition MRCY reported preliminary F2Q sales/EPS of $55.5M/$0.20 vs. guidance of $54-55M and $54.5M/$0.12 consensus. (Company reports) Micron (MU, Neutral): Bloomberg reported that Nanya Technology (2408.TT, Sell) may sell its stake in Inotera Memories (3474.TT, Sell) to MU. (Bloomberg) SMIC (0981.HK, Sell): DigiTimes reported that the company has received more orders from international IDM companies; in addition citing industry sources, DigiTimes also reported that SMIC is launching a five-year project at its 12-inch fabs with a target capacity of more than 2M wafers annually by 2015, giving the company $5B in revenues. (DigiTimes) SS&C Technologies (SSNC, NR): announced that it is likely to offer 11M shares. (Company reports)Note: data following (Company name in parenthesis includes (ticker, UBS rating); NR = not rated. Sources for Data Points include thefollowing: UBS, Commercial Times, Dow Jones, Digitimes.com, Economic Daily, Financial Times, New York Times, StreetAccount,StreetEvents, thestreet.com, and other sources. UBS 8
  • 9. Table 2: UBS Global Technology Universe Summary Global Tech Daily 13 January 2011 Technology Summary Price Performance Valuation Growth Margin Mkt Cap % off % from Abs. Perf.(%) EV / Sales EV / EBITDA P/E Sales EPS EBIT $m Y High Y Low 1w 1m 3m YTD 12m 11E 12E 11E 12E 11E 12E 11E 12E 11E 12E 09 10 11E 12E Regions Americas 2,547,005 7% 42% 1 4 11 4 14 2.0 1.9 8.3 7.6 14.1 12.8 10% 8% 11% 11% 17.2% 19.9% 20.3% 20.7% Asia, ex. Japan 716,337 7% 47% 1 4 13 1 18 0.9 0.9 8.1 7.2 17.4 14.5 16% 9% -6% 20% 6.8% 8.3% 7.0% 7.5% EMEA 282,198 11% 34% 3 5 2 2 5 1.2 1.2 7.4 7.1 14.0 13.0 6% 3% 24% 8% 8.6% 11.3% 12.7% 13.1% Japan 530,434 5% 31% -1 4 12 1 14 0.7 0.6 5.7 5.3 17.8 15.7 10% 3% 39% 13% 3.0% 5.5% 6.4% 7.0% Sub-Sectors Communications Equipment 419,798 17% 28% 1 4 2 2 0 1.0 0.9 6.9 6.4 13.9 12.5 8% 6% 13% 11% 7.6% 10.2% 10.8% 11.2% Components 272,624 6% 41% 1 4 13 1 15 0.6 0.6 6.2 5.6 15.1 12.5 17% 8% 16% 21% 3.9% 5.7% 5.7% 6.2% Internet 471,144 5% 51% 1 3 11 4 21 3.6 3.1 11.7 10.0 19.5 16.4 23% 17% 22% 19% 25.9% 25.9% 25.8% 26.0% Hardware 1,004,661 6% 44% 1 5 9 3 20 0.9 0.9 7.3 6.8 13.8 12.6 11% 6% 17% 10% 7.5% 8.6% 9.1% 9.6% Services 310,540 5% 38% 0 6 7 0 16 1.7 1.5 9.5 8.7 17.9 15.9 10% 8% 13% 12% 12.4% 13.2% 13.6% 14.0% Semi Equipment 107,360 5% 41% 2 5 16 1 8 1.5 1.5 6.9 7.3 12.6 13.8 13% -2% 31% -9% 0.7% 14.4% 17.0% 16.2% Semiconductors 716,005 4% 44% 3 6 22 5 19 1.5 1.4 6.7 6.2 14.8 13.1 6% 4% -7% 13% 8.4% 15.9% 14.4% 15.4% Software 737,290 7% 35% 0 3 10 1 10 3.3 3.0 8.6 7.9 14.8 13.3 10% 8% 13% 11% 32.3% 33.7% 34.4% 35.1% Solar 36,552 25% 44% 5 3 -7 7 -14 1.3 1.2 6.5 6.0 13.6 12.2 17% 8% 26% 12% 5.7% 12.4% 13.0% 13.3% Global Technology 4,075,974 7% 41% 1 4 11 3 14 1.3 1.2 7.7 7.1 15.0 13.4 11% 6% 11% 12% 9.9% 12.4% 12.5% 13.1% Weighted average of companies under coverage where data available. All figures in US$ m. Source: UBS estimates on 12 Jan 2011. EPS based on earnings with constant shares #. Major Indices % off % from Abs. Perf.(%) Close Y High Y Low 1w 1m 3m YTD 12m NASDAQ Composite 2,737 0% 33% 1 4 13 3 20 S & P 500 1,286 0% 27% 1 4 10 2 13 FTSEurofirst 300 1,164 0% 1% 1 3 9 4 10 Philadelphia Semiconductor Index (SOX) 440 0% 44% 4 6 24 7 24 Top Tech Performers 1 Day % Cascade Microtech Inc. 18% NVIDIA Corporation 15% Dwango 8% Micron Technology Inc. 7% Motech Industries 6% Bottom Tech Performers 1 Day % Nortel Networks Corp. -6% Ju Teng International Holdings Limited -5% Telecity Group -4% Nichicon -3% NS Solutions -3% Source: UBSUBS 9
  • 10. Global Tech Daily 13 January 2011Table 3: Technology Events CalendarStart EndDate Date Company Ticker Event17-Jan 21-Jan Various UBS Greater China Conference 201118-Jan 18-Jan Adtran ADTN 4Q Results18-Jan 18-Jan Apple AAPL 1Q Results18-Jan 18-Jan Cree CREE 2Q Results18-Jan 18-Jan IBM IBM 4Q Results18-Jan 18-Jan Linear Technology LLTC 2Q Results18-Jan 18-Jan Pervasive Software PVSW 2Q Results18-Jan 18-Jan Plantronics PLT 3Q Results18-Jan 18-Jan Seagate Technology STX 2Q Results18-Jan 18-Jan STMicroelectronics STM.FP 4Q Results18-Jan 18-Jan Tessco TESS 3Q Results18-Jan 18-Jan Western Digital WDC 2Q Results19-Jan 19-Jan Acxiom ACXM 3Q Results19-Jan 19-Jan Amdocs DOX 1Q Results19-Jan 19-Jan Amphenol APH 4Q Results19-Jan 19-Jan Applied Micro Circuits AMCC 3Q Results19-Jan 19-Jan AsiaInfo-Linkage ASIA 4Q Results19-Jan 19-Jan ASML Holdings ASML 4Q Results19-Jan 19-Jan austriamicrosystems AMS.SW 4Q Results19-Jan 19-Jan eBay EBAY 4Q Results19-Jan 19-Jan F5 Networks FFIV 1Q Results19-Jan 19-Jan Intersil ISIL 4Q Results19-Jan 19-Jan Largan Precision 3008.TT UBS hosted 4Q Results Call19-Jan 19-Jan MTS Systems MTSC 1Q Results19-Jan 19-Jan Netflix NFLX 4Q Results19-Jan 19-Jan Novellus Systems NVLS 4Q Results19-Jan 19-Jan NVE Corp NVEC 3Q Results19-Jan 19-Jan Parametric Technology PMTC 1Q Results19-Jan 19-Jan Plexus PLXS 1Q Results19-Jan 19-Jan Qlogic QLGC 3Q Results19-Jan 19-Jan Rockwell Automation ROK 1Q Results19-Jan 19-Jan Sanmina-SCI SANM 1Q Results19-Jan 19-Jan Skyworks Solutions SWKS 1Q Results19-Jan 19-Jan Teradyne TER 4Q Results19-Jan 19-Jan Xilinx XLNX 3Q Results19-Jan 19-Jan Westell Technologies WSTL 3Q Results19-Jan 19-Jan Wipro WPRO.IN 3Q Results20-Jan 20-Jan Advanced Micro Devices AMD 4Q Results20-Jan 20-Jan Cegid CGD.FP 4Q Results20-Jan 20-Jan Conexant Systems CNXT 1Q Results20-Jan 20-Jan Cypress Semiconductor CY 4Q Results20-Jan 20-Jan Disco 6146.JP 3Q Results20-Jan 20-Jan Emulex ELX 2Q Results20-Jan 20-Jan Fairchild Semiconductor International FCS 4Q Results20-Jan 20-Jan F5 Networks FFIV 1Q Results20-Jan 20-Jan Flextronics FLEX 3Q Results20-Jan 20-Jan Google GOOG 4Q Results20-Jan 20-Jan International Rectifier IRF 2Q Results20-Jan 20-Jan KLA-Tencor KLAC 2Q Results20-Jan 20-Jan Kulicke & Soffa Industries KLIC 1Q Results20-Jan 20-Jan Lattice Semiconductor LSCC 4Q Results20-Jan 20-Jan Maxim Integrated Products MXIM 2Q Results20-Jan 20-Jan MEMC Electronic Materials WFR 4Q Results20-Jan 20-Jan Mercury Computer Systems MRCY 2Q Results20-Jan 20-Jan Microsemi MSCC 1Q Results20-Jan 20-Jan NetScout Systems NTCT 3Q Results20-Jan 20-Jan Polycom PLCM 4Q Results20-Jan 20-Jan ScanSource SCSC 2Q Results20-Jan 20-Jan Sunpower SPWRA 4Q Results UBS 10
  • 11. Global Tech Daily 13 January 2011Start EndDate Date Company Ticker Event20-Jan 20-Jan Sybase SY 4Q Results20-Jan 20-Jan Synaptics SYNA 2Q Results20-Jan 20-Jan Tyco Electronics TEL 1Q Results21-Jan 21-Jan Concurrent Computer CCUR 2Q Results21-Jan 21-Jan General Electric GE 4Q Results21-Jan 21-Jan HTC Corp 2498.TT 4Q Results24-Jan 24-Jan Texas Instruments TXN 4Q Results24-Jan 24-Jan VMware VMW 4Q Results24-Jan 24-Jan Volterra Semiconductor VLTR 4Q Results24-Jan 24-Jan Wincor Nixdorf WIN.GR 1Q Results25-Jan 25-Jan Amdocs DOX 1Q Results25-Jan 25-Jan EMC EMC 4Q Results25-Jan 25-Jan Ericsson ERICB.SS 4Q Results25-Jan 25-Jan Hutchinson Tech HTCH 1Q Results25-Jan 25-Jan Molex MOLX 2Q Results25-Jan 25-Jan Nidec 6594.JP 3Q Results25-Jan 25-Jan Shin-Etsu Chemical 4063.JP 3Q Results25-Jan 25-Jan Tellabs TLAB 4Q Results25-Jan 25-Jan Total System Services TSS 4Q Results25-Jan 25-Jan Yahoo YHOO 4Q Results25-Jan 25-Jan Yahoo Japan 4689.JP 3Q Results26-Jan 26-Jan Automatic Data Processing ADP 2Q Results26-Jan 26-Jan Cohu COHU 4Q Results26-Jan 26-Jan Harris HRS 2Q Results26-Jan 26-Jan Logitech International LOGI 3Q Results26-Jan 26-Jan Oce OCE.NV 4Q Results26-Jan 26-Jan Qualcomm QCOM 1Q Results26-Jan 26-Jan Sage Group SGE.LN 1Q Results26-Jan 26-Jan SAP AG SAP.GR 4Q Results26-Jan 26-Jan UMC 2303.TT 4Q Results26-Jan 26-Jan Xerox XRX 4Q Results27-Jan 27-Jan Advantest 6857.JP 3Q Results27-Jan 27-Jan AU Optronics 2409.TT 4Q Results27-Jan 27-Jan Cabot Microelectronics CCMP 1Q Results27-Jan 27-Jan Compuware CPWR 3Q Results27-Jan 27-Jan CyberAgent 4751.JP 1Q Results27-Jan 27-Jan Kyocera 6971.JP 3Q Results27-Jan 27-Jan Microsoft MSFT 2Q Results27-Jan 27-Jan Nokia NOK1V.FH 4Q Results27-Jan 27-Jan Novatek Microelectronics 3034.TT 4Q Results27-Jan 27-Jan Riverbed Technology RVBD 4Q Results27-Jan 27-Jan Software AG SOW.GR 4Q Results31-Jan 31-Jan ARM Holdings ARM 4Q Results31-Jan 31-Jan Murata Manufacturing 6981.JP 3Q Results31-Jan 31-Jan TDK 6762.JP 3Q Results31-Jan 31-Jan Tokyo Electron 8035.JP 3Q Results1-Feb 1-Feb Autonomy AU.LN 4Q Results1-Feb 1-Feb HiQ International HIQ.SS 4Q Results1-Feb 1-Feb Infineon Technologies IFX.GR 1Q Results1-Feb 1-Feb Lexmark International LXK 4Q Results2-Feb 2-Feb F-Secure Oyj DTV.GR 4Q Results4-Feb 4-Feb Avid Tech AVID 4Q Results4-Feb 4-Feb Corning GLW Investor Meeting4-Feb 4-Feb mixi 2121.JP 3Q Results7-Feb 7-Feb Dainippon Screen Manufacturing 7735.JP 3Q Results7-Feb 7-Feb Disco 6146.JP 3Q Results8-Feb 8-Feb Sanken Electric 6707.JP 3Q Results8-Feb 8-Feb Taiyo Yuden 6976.JP 3Q Results9-Feb 9-Feb Cisco Systems CSCO 2Q Results9-Feb 9-Feb Renewable Energy Corp REC.NO 4Q Results UBS 11
  • 12. Global Tech Daily 13 January 2011Start EndDate Date Company Ticker Event10-Feb 10-Feb Comptel Oyj CTL1V.FH 4Q Results10-Feb 10-Feb eBay EBAY Analyst Day10-Feb 10-Feb Tietoenator TIE1V.FH 4Q Results11-Feb 11-Feb Alcatel-Lucent ALU.FP 4Q Results11-Feb 11-Feb Nokia NOK1V.FH Business Update Call11-Feb 11-Feb Micron Technology MU Analyst Conference15-Feb 15-Feb Dell DELL 4Q Results15-Feb 15-Feb NICE Systems NICE 4Q Results15-Feb 15-Feb NetApp NTAP 3Q Results15-Feb 15-Feb Zebra Tech ZBRA 4Q Results16-Feb 16-Feb Sunplus Technology 2401.TT 4Q Results16-Feb 16-Feb Atos Origin ATO.FP 4Q Results16-Feb 16-Feb TEMENOS Group TEMN.SW 4Q Results17-Feb 17-Feb Sapient SAPE 4Q Results21-Feb 21-Feb Nam Tai Electronics NTE 4Q Results22-Feb 22-Feb Hewlett-Packard HPQ 1Q Results23-Feb 23-Feb Logica LOG.LN 4Q Results24-Feb 24-Feb LBi International LBI.SS 4Q ResultsSource: UBS, (Company reports, and FactSet) UBS 12
  • 13. Global Tech Daily 13 January 2011Table 4: UBS Global Technology TeamAmericas & GlobalNikos Theodosopoulos Global Tech Strategist; Communications Tech New York nikos.theodosopoulos@ubs.com +1 212 713 3286Jack Monti Communications Tech New York jack.monti@ubs.com +1 212 713 4795Maynard Um IT Hardware & Communications Tech New York maynard.um@ubs.com +1 212 713 3372Arun Sharma IT Hardware (Disk Drives) New York arun.sharma@ubs.com +1 212 713 1033Brian Fitzgerald Internet & Interactive Entertainment New York brian.fitzgerald@ubs.com +1 212 713 2851Brian Pitz Internet & Interactive Entertainment New York brian.pitz@ubs.com +1 212 713 9310Jason Kupferberg IT Services New York jason.kupferberg@ubs.com +1 212 713 3559Stephen Chin Semiconductor Capital Equipment; Solar New York stephen.chin@ubs.com +1 212 713 4111Uche Orji Semiconductors New York uche.orji@ubs.com +1 212 713 4015Parag Agarwal Semiconductors New York parag.agarwal@ubs.com +1 212 713 2563James Hillier Technology (Global Coordinator) New York james.hillier@ubs.com +1 212 713 3415Amitabh Passi Electronics Supply Chain San Francisco amitabh.passi@ubs.com +1 415 352 5537Steven Chin Semiconductors San Francisco steven.chin@ubs.com +1 415 352 5675Steven Eliscu Semiconductors San Francisco steven.eliscu@ubs.com +1 415 352 5674Brent Thill Software San Francisco brent.thill@ubs.com +1 415 352 4694Asia & Pacific RimWenlin Li Internet (China) Hong Kong wenlin.li@ubs.com +852 2971 6404Gary Ngan Internet (China) Hong Kong gary.ngan@ubs.com +852 2971 8317Lu Yeung Solar (China) Hong Kong lu.yeung@ubs.com +852 6081 0223Yu Zhang Technology (China) Shanghai yu.zhang@ubs.com +8621 3866 8447Diviya Nagarajan IT Services Mumbai diviya.nagarajan@ubs.com +91 22 6155 6072Sean Kim Hardware Seoul sean.kim@ubs.com +82 2 3702 8802Nicolas Gaudois Technology Seoul nicolas.gaudois@ubs.com +82 2 3702 8801Arthur Hsieh Electronics Hardware Taipei arthur.hsieh@ubs.com +8862 8722 7348Jonah Cheng Semiconductors (Foundry, Fabless) Taipei jonah.cheng@ubs.com +8862 8722 7340Samson Hung Semiconductors (IC Design & Substrate) Taipei Samson.Hung@ubs.com +8862 8722 7355Fumihide Goto Components Tokyo fumihide.goto@ubs.com +81 3 5208 6265Yuki Nakayasu IT Services & Interactive Entertainment Tokyo yuki.nakayasu@ubs.com +81 3 5208 7151Mika Nishimura Components (Semi Package) Tokyo mika.nishimura@ubs.com +81 3 5208 6267Takaaki Muramatsu Glass, Components, Solar Tokyo takaaki.muramatsu@ubs.com +81 3 5208 6262Sumito Takeda Internet Tokyo sumito.takeda@ubs.com +81 3 5208 6247Shinsuke Iwasa Consumer Electronics Tokyo shinsuke.iwasa@ubs.com +81 3 5208 7340Yoshitsugu Yamamoto Semiconductor Capital Equipment Tokyo yoshitsugu.yamamoto@ubs.com +81 3 5208 6268Hitoshi Shin Technology (Japan) Tokyo hitoshi.shin@ubs.com +81 3 5208 6225EuropeDavid Kerstens Technology (Benelux Small/Mid Cap) Amsterdam david.kerstens@ubs.com +31 20 551 0164Marcus Baeumer Technology (Germany Small/Mid Cap) Frankfurt marcus.baeumer@ubs.com +49 69 1369 8244Patrick Hummel Solar Frankfurt patrick.hummel@ubs.com +49 69 1369 8295Gareth Jenkins Communications Tech, Semis, & Semi Equip. London gareth.jenkins@ubs.com +44 20 7567 3950Michael Briest Software & IT Services London michael.briest@ubs.com +44 20 7568 8367Chris Grundberg Software & IT Services London chris.grundberg@ubs.com +44 20 7567 5355Anuj Krishan Technology (Hardware) London anuj.krishan@ubs.com +44 20 7568 7105Roni Biron Technology (Israel) Tel Aviv roni.biron@ubs.com +972 99 600 118Darren Shaw Technology (Israel) Tel Aviv darren.shaw@ubs.com +972 99 600 113Fabian Wenner Solar Zurich fabian.wenner@ubs.com +41 44 239 1683Source: UBS UBS 13
  • 14. Global Tech Daily 13 January 2011 Statement of RiskTechnology sector investing involves a high degree of risk. Rapid technologicalchanges, increasing competition, and exposure to macroeconomic cycles areamong the many risks faced by investors in technology stocks. Moreover, it isextremely difficult to project the financial results of tech companies since theiroperating models are highly volatile and unpredictable. Finally, valuing techstocks can prove challenging as neither traditional nor non-traditional valuationmeasures have provided much insight into how these stocks trade. Analyst CertificationEach research analyst primarily responsible for the content of this researchreport, in whole or in part, certifies that with respect to each security or issuerthat the analyst covered in this report: (1) all of the views expressed accuratelyreflect his or her personal views about those securities or issuers; and (2) no partof his or her compensation was, is, or will be, directly or indirectly, related tothe specific recommendations or views expressed by that research analyst in theresearch report. UBS 14
  • 15. Global Tech Daily 13 January 2011Required DisclosuresThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches andaffiliates are referred to herein as UBS.For information on the ways in which UBS manages conflicts and maintains independence of its research product;historical performance information; and certain additional disclosures concerning UBS research recommendations,please visit www.ubs.com/disclosures. The figures contained in performance charts refer to the past; past performance isnot a reliable indicator of future results. Additional information will be made available upon request.UBS Securities Co. Limited is licensed to conduct securities investment consultancy businesses by the China SecuritiesRegulatory Commission.UBS Investment Research: Global Equity Rating Allocations 1 2 UBS 12-Month Rating Rating Category Coverage IB Services Buy Buy 49% 40% Neutral Hold/Neutral 42% 35% Sell Sell 8% 21% 3 4 UBS Short-Term Rating Rating Category Coverage IB Services Buy Buy less than 1% 14% Sell Sell less than 1% 0%1:Percentage of companies under coverage globally within the 12-month rating category.2:Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided withinthe past 12 months.3:Percentage of companies under coverage globally within the Short-Term rating category.4:Percentage of companies within the Short-Term rating category for which investment banking (IB) services were providedwithin the past 12 months.Source: UBS. Rating allocations are as of 31 December 2010.UBS Investment Research: Global Equity Rating Definitions UBS 12-Month Rating Definition Buy FSR is > 6% above the MRA. Neutral FSR is between -6% and 6% of the MRA. Sell FSR is > 6% below the MRA. UBS Short-Term Rating Definition Buy: Stock price expected to rise within three months from the time the rating was assigned Buy because of a specific catalyst or event. Sell: Stock price expected to fall within three months from the time the rating was assigned Sell because of a specific catalyst or event. UBS 15
  • 16. Global Tech Daily 13 January 2011KEY DEFINITIONS Forecast Stock Return (FSR) is defined as expected percentage price appreciation plus gross dividend yield over the next 12months. Market Return Assumption (MRA) is defined as the one-year local market interest rate plus 5% (a proxy for, and not aforecast of, the equity risk premium). Under Review (UR) Stocks may be flagged as UR by the analyst, indicating that the stocks price target and/or rating aresubject to possible change in the near term, usually in response to an event that may affect the investment case or valuation. Short-Term Ratings reflect the expected near-term (up to three months) performance of the stock and do not reflect anychange in the fundamental view or investment case.Equity Price Targets have an investment horizon of 12 months.EXCEPTIONS AND SPECIAL CASESUK and European Investment Fund ratings and definitions are: Buy: Positive on factors such as structure, management,performance record, discount; Neutral: Neutral on factors such as structure, management, performance record, discount; Sell:Negative on factors such as structure, management, performance record, discount.Core Banding Exceptions (CBE): Exceptions to the standard +/-6% bands may be granted by the Investment ReviewCommittee (IRC). Factors considered by the IRC include the stocks volatility and the credit spread of the respective companysdebt. As a result, stocks deemed to be very high or low risk may be subject to higher or lower bands as they relate to the rating.When such exceptions apply, they will be identified in the Company Disclosures table in the relevant research piece.Research analysts contributing to this report who are employed by any non-US affiliate of UBS Securities LLC are notregistered/qualified as research analysts with the NASD and NYSE and therefore are not subject to the restrictions contained inthe NASD and NYSE rules on communications with a subject company, public appearances, and trading securities held by aresearch analyst account. The name of each affiliate and analyst employed by that affiliate contributing to this report, if any,follows.UBS Securities LLC: James F. Hillier. UBS 16
  • 17. Global Tech Daily 13 January 2011Company Disclosures Company Name Reuters 12-mo rating Short-term rating Price Price date Amdocs Limited16 DOX.N Buy N/A US$27.87 12 Jan 2011 Apple Inc.6c, 7, 16 AAPL.O Buy N/A US$344.42 12 Jan 2011 Catcher Technology 2474.TW Buy N/A NT$117.00 12 Jan 2011 2, 3, 4, 5a, 6a, 6b, 6c, 7, 16 Dell Inc. DELL.O Buy N/A US$14.39 12 Jan 2011 Elpida Memory 6665.T Neutral N/A ¥1,048 12 Jan 2011 16 Ericsson ERICb.ST Neutral N/A SKr77.25 12 Jan 2011 2, 4, 5a, 16 Fujitsu 6702.T Neutral N/A ¥551 12 Jan 2011 2, 4, 5a, 6a, 6b, 6c, 7, Hewlett-Packard Co. 16 HPQ.N Buy N/A US$45.64 12 Jan 2011 16 Hitachi 6501.T Neutral N/A ¥450 12 Jan 2011 20 HTC Corporation 2498.TW Buy (CBE) N/A NT$877.00 12 Jan 2011 16, 18b Infosys Technologies Ltd. INFY.BO Neutral N/A Rs3,374.95 12 Jan 2011 2, 4, 16 Lenovo Group Ltd 0992.HK Buy N/A HK$4.83 12 Jan 2011 2, 4, 5a, 6a, 6b, 6c, 7, 16, Microsoft Corp. 18a, 22 MSFT.O Buy N/A US$28.55 12 Jan 2011 14, 16 Mitsubishi Electric 6503.T Buy N/A ¥907 12 Jan 2011 6b, 6c, 7, 16 Nokia NOK1V.HE Neutral N/A €8.23 12 Jan 2011 5a, 6a, Nuance Communications, Inc. 16 NUAN.O Buy N/A US$20.48 12 Jan 2011 16 Qualcomm Inc. QCOM.O Buy N/A US$52.34 12 Jan 2011 Quanta 2382.TW Neutral N/A NT$61.30 12 Jan 2011 5a, 16 Renesas Electronics 6723.T Neutral N/A ¥973 12 Jan 2011 5b, 16, 20 Research in Motion Limited RIMM.O Neutral (CBE) N/A US$63.53 12 Jan 2011 23a, 23b, 23c, 23d, Samsung Electronics 23e, 23f 005930.KS Neutral N/A Won930,000 12 Jan 2011 Tata Consultancy Services Ltd. TCS.BO Neutral N/A Rs1,135.50 12 Jan 2011 16 Tokyo Electron 8035.T Buy N/A ¥5,370 12 Jan 2011 4, 5a, 16 Toshiba 6502.T Buy N/A ¥482 12 Jan 2011 TPK Holding 3673.TW Buy N/A NT$716.00 12 Jan 2011 13, 16 VMware, Inc VMW.N Buy N/A US$95.16 12 Jan 2011 5a, 16, 18c Wipro Ltd. WIPR.BO Sell N/A Rs467.50 12 Jan 2011 1, 5a Wistron Corporation 3231.TW Buy N/A NT$58.30 12 Jan 2011Source: UBS. All prices as of local market close.Ratings in this table are the most current published ratings prior to this report. They may be more recent than the stock pricingdate1. UBS is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering of securities of this company/entity or one of its affiliates.2. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates within the past 12 months.3. UBS Securities LLC is acting as finacial advisor to Dell Inc on its announced agreement to acquire Compellent Technologies.4. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.5a. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.5b. UBS Securities Canada Inc or an affiliate expect to receive or intend to seek compensation for investment banking services from this company/entity within the next three months.6a. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment banking services are being, or have been, provided.6b. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment banking securities-related services are being, or have been, provided. UBS 17
  • 18. Global Tech Daily 13 January 20116c. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities services are being, or have been, provided.7. Within the past 12 months, UBS Securities LLC has received compensation for products and services other than investment banking services from this company/entity.13. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities as of last month`s end (or the prior month`s end if this report is dated less than 10 days after the most recent month`s end).14. UBS Limited acts as broker to this company.16. UBS Securities LLC makes a market in the securities and/or ADRs of this company.18a. The U.S. equity strategist, a member of his team, or one of their household members has a long common stock position in Microsoft Corp.18b. The U.S. equity strategist, a member of his team, or one of their household members has a long position in the ADRs of Infosys Technologies Ltd.18c. The U.S. equity strategist, a member of his team, or one of their household members has a position in the ADRs of Wipro Ltd.20. Because UBS believes this security presents significantly higher-than-normal risk, its rating is deemed Buy if the FSR exceeds the MRA by 10% (compared with 6% under the normal rating system).22. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month`s end (or the prior month`s end if this report is dated less than 10 working days after the most recent month`s end).23a. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,121,780 units of DAISHINSECURITIES ELW 0H48 (Samsung Electronics call warrants) as of 12 Jan 2011.23b. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,400,000 units of DAISHINSECURITIES ELW 0E55 (Samsung Electronics call warrants) as of 12 Jan 2011.23c. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,400,000 units of DAISHINSECURITIES ELW 0H50 (Samsung Electronics call warrants) as of 12 Jan 2011.23d. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,400,000 units of HANWHASECURITIES ELW 0065 (Samsung Electronics call warrants) as of 12 Jan 2011.23e. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,599,000 units of DAISHINSECURITIES ELW 0C17 (Samsung Electronics call warrants) as of 12 Jan 2011.23f. UBS Securities Pte. Ltd., Seoul Branch is a liquidity provider for the equity-linked warrants of this company and beneficially owned 3,599,900 units of DAISHINSECURITIES ELW 0H49 (Samsung Electronics call warrants) as of 12 Jan 2011.This report may contain a discussion and analysis of both equity and fixed income securities of the same issuer. The opinions orrecommendations with respect to an equity security may be different from those for a fixed income security due to a number offactors including, but not limited to, the type of security involved and its characteristics, the nature of the market for that security,the analytical methodology employed for that type of security, the assumptions utilized under the particular methodology and theUBS rating system applicable to that type of security.Unless otherwise indicated, please refer to the Valuation and Risk sections within the body of this report. UBS 18
  • 19. Global Tech Daily 13 January 2011For a complete set of disclosure statements associated with the companies discussed in this report, including information onvaluation and risk, please contact UBS Securities LLC, 1285 Avenue of Americas, New York, NY 10019, USA, Attention:Publishing Administration.Additional Prices: Atos Origin, €40.76 (12 Jan 2011); Broadcom Corporation, US$46.05 (12 Jan 2011); Deutsche Bank, €42.24(12 Jan 2011); Gemalto, €33.67 (12 Jan 2011); Google Inc., US$616.87 (12 Jan 2011); Inotera Memories, NT$16.05 (12 Jan2011); Intel Corp., US$21.30 (12 Jan 2011); JPMorgan Chase & Co., US$44.71 (12 Jan 2011); MasterCard Inc., US$232.83 (12Jan 2011); Mercury Computers, US$18.07 (12 Jan 2011); Micron Technology Inc., US$9.34 (12 Jan 2011); Morgan Stanley,US$28.71 (12 Jan 2011); Nanya Technology, NT$16.25 (12 Jan 2011); Semiconductor Manufacturing Intl Corp, HK$0.62 (12Jan 2011); Source: UBS. All prices as of local market close. UBS 19
  • 20. Global Tech Daily 13 January 2011Global DisclaimerThis report has been prepared by UBS Securities LLC, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates are referred to herein as UBS. In certain countries, UBS AG isreferred to as UBS SA.This report is for distribution only under such circumstances as may be permitted by applicable law. Nothing in this report constitutes a representation that any investment strategy orrecommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for informationpurposes, it does not constitute an advertisement and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments in any jurisdiction. 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