Information Technology Telecommunications Services

1. Information Technology & Telecommunications Services Sarah Ronning Nikhil Sadhu Rajeev Ponnusamy Bryan Schmehl Tim Hatfield Geoffrey Shaver

2. We will quantify these at the end.We will quantify these at the end.

3. IT & Telecom Sectors(as of 9/23/03) Information Technology 18.07% of S&P 500 12.42% of SIM Telecommunication Services 3.40% of S&P 500 3.34% of SIM Combo 21.47% of S&P 500 15.76% of SIM IT is currently underweighted in SIM Telecom is too but not nearly as much IT is currently underweighted in SIM Telecom is too but not nearly as much

4. IT Industries Application Software Communications Equip. Comp. Storage/Peripherals Computer Hardware Electronic Equip. Electronic Manufacturing Services Home Entertainment Software Internet Software & Services IT Consulting & Services Office Electronics Semiconductors Semiconductor Equipment Data Processing Services Systems Software

5. Info Tech Sector 83 companies in this sector Largest companies: Microsoft $280.61 B Intel $220.72 B IBM $155.77 B Cisco $158.83 B SIM Portfolio: Microsoft 6.17% Intel 3.31% IBM 2.93% S&P 500 Microsoft 3.37% Intel 1.98% IBM 1.66% Cisco 1.56%

6. Telecom. Services Industries Integrated Telecommunication Services 9 companies within this industry 3 biggest players from this sector are in this industry Wireless Telecommunication Services 3 companies within this industry

7. Telecom Sector 12 companies in this sector Largest companies: Verizon $89.33 B SBC Comm. $78.17 B BellSouth $47.64 B SIM Portfolio: Alltel 1.38% Verizon 0.86% Nextel 1.1% S&P 500 Verizon 0.96% SBC 0.79% BellSouth 0.47% Alltel 0.15% Nextel 0.22%

8. Business Analysis - Demand Phase of Life Cycle � Telecom Wireless, Broadband, Advanced data and IP products: Pioneer-Growth Wireline (fixed residential and business phone lines): Mature-Decline

9. Business Analysis - Demand Phase of Life Cycle � IT Industries Computers & Peripherals, Semiconductors, Communications and Electronic Equipment: Mature Software, IT Consulting & Services: Growth

10. Business Analysis - Demand Classification by Business Cycle Telecom: Wireless: Growth Wireline: Business (Cyclical), Residential (Defensive) IT Industry: Hardware: Cyclical Software and Services: Growth

11. Business Analysis - Demand External Factors Technological Factors: New innovations in IT and wireless technology keep demand up Government: Telecom is regulated. Government spending high last 3 years Social: Population more mobile. Willing to accept new technology Demographics: younger people driving demand of cell phones, broadband etc Globalization: Outsourcing will hurt US IT Services. New markets for IT/Telecom in BRIC

12. Business Analysis - Demand How are projections impacted by US/Foreign economy US economy in growth phase (GDP 7.2% in Q3) Turnaround in IT in US Overcapacity in Telecom in US in 1990�s Majority of growth for US Telecom companies will come from BRIC (Brazil, Russia, India, China)

13. Business Analysis - Supply Capacity - Telecom Excess capacity in 1990�s. Bubble burst in 2000 Consolidation, plant closure etc has improved capacity situation since 2000 Still some overcapacity in US. Demand down (except wireless) Manufacturing of telecom equipment being outsourced to specialty manufactures outside US (Flextronics, Samina)

14. Business Analysis - Supply Capacity-IT Utilization improved since last year- increased demand High tech production up 15.1% over the last year Production of computers, office equipment increased 20.5% in Q3 and semiconductor output grew 52.6%.

15. Business Analysis � Five Forces Analysis

16. Business Analysis � Five Forces Analysis

17. Business Analysis � Five Forces Analysis

18. Business Analysis � Five Forces Analysis

19. Business Analysis � Five Forces Analysis

20. Business Analysis � Industry Concentration

21. Business Analysis - Profitability Outlook

22. Business Analysis � Profitability & Pricing Profitability & Pricing Analysis Hardware: Low demand and low concentration leads to a price war � except for certain specialized products, can�t make high profits Software: Increased demand and increased spending favors the innovators � some light here Wireless: Change in demographics favors the service providers targeting the young population � sector closer to the mature phase, but still growing Landline: Sector in the decline phase � not much hope here Telecom Equipment: Low demand and low concentration leads to a price war � established history and scale economy could favor the lucky few

23. Financials � Telecomm Growth

24. Financials � IT Growth

25. Financials � IS Analysis Telecommunication

26. Financials � IS Analysis Summary Growth slightly increasing in IT and remains flat/decreasing in Telecom. IT is currently trading above its average mean price/sales ratio, while Telecom is well below its average. EPS and NI have been increasing over the past two quarters. Telecom has experienced decreasing results

27. Financials � BS Analysis Telecommunication

28. Financials � BS Analysis

29. Financials � CF Analysis Telecommunication

30. Financials � CF Analysis Summary Both IT and Telecom are gaining all of their Cash Flow from operations Cash Flows from Investing and Financing remain negative for both sectors and has worsened over the last quarter, especially on the Telecom side

31. Financials � ROE Analysis Telecommunication

32. Financials � DuPont Analytics Telecommunication

33. Financials � ROE/Ratio Analysis Summary Both Telecom and IT ROE is below the relative S&P500 average and have seen increasing ROE rates over the past year Telecom ROE has flattened lately P/E Ratio decreasing relative to S&P for Telecom and increasing for IT (Both still below averages) Sales / Assets increasing for Telecom and decreasing slightly for IT (DuPont)

34. Financials � ROE/Ratio Analysis Summary Growth mainly being generated by Sales Observing decreasing profit margins EBT / EBIT interest burden increasing Liquidity Ratios Quick Ratio � Stable for both sectors Current Ratio � Stable for both sectors

35. Valuation Analysis � P/E Ratio Telecommunication

36. Valuation Analysis � IT P/S

37. Valuation Analysis � Telecom P/S

38. Valuation Analysis � P/B

39. Valuation Analysis � P/EBITDA

40. Valuation Analysis � Telecom Price Momentum

41. Valuation Analysis � IT Price Momentum

42. Valuation - Summary Low P/E ratio relative to the S&P 500, and is on a downward trend P/S is low P/B is low and is going lower P/EBITDA is well below normal High P/E ration relative to the S&P 500. P/S is well above its normal. P/B is around its mean but seems to be on an upward trend P/EBITDA is near its long-term mean

43. In Conclusion� Recent Performance (as of 11/14/03) S&P 500 YTD +19.38% QTD +5.46% IT YTD +41.30% QTD +8.65% Telecom YTD �6.33% QTD +1.86% No reason to think it will change in the near future

44. Major Risks High % placed in IT leaves us open to downside if markets decline However S&P 500 has high % in IT A lot of gains have already been missed Not as much risk in Telecom Not much on upside either

45. Confidence in Recommendation IT spending expected to increase through next year IT has upward momentum e.g. Intel has strong recent upward momentum Telecom still has overcapacity e.g. Local Number Portability will cause price wars between wireless carriers e.g. VoIP growth will erode profits

46. Final Recommendations Telecom � Underweight -0.45% weight 2.95% of SIM IT � Overweight +0.73% weight 18.8% of SIM Combo � Overweight +0.28% weight 21.75% of SIM