recession handbook #2 lynch_0.pdftomtom neutral u/p €4.0 €2.8 tieto u/p u/p €11.8 €8.7...

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>> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. BofA Merrill Lynch 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. Refer to important disclosures on page 82 to 85. Analyst Certification on Page 80. Price Objective Basis/Risk on page 71. Link to Definitions on page 80.11079464

European Technology

Recession handbook #2

Adjusting for weaker macro and lower stock prices Shifting to more conservative estimates and valuation scenarios we upgrade Atos, Ericsson, Software AG and Telecity to Buy, downgrade Capgemini and ST to Neutral, and ARM and TomTom to Underperform. We are resuming coverage of Misys with a Buy rating. Less economy dependent Buy-rated stocks include ALU, Atos, Monitise, Nanoco, Nokia, and Amadeus. Our favourite counter-intuitive stock is ASML which outperformed both in the downturn and subsequent upturn post-Lehman. Table 1 shows our stock recommendation and price objective changes.

What’s different: tech is over-owned already Global Tech outperformed the market in the year following Lehman. This was fuelled by a rotation into tech from very underweight to overweight positions from end 2008 to mid 2009 according to our fund manager survey. That rotation boost can’t happen to the same extent today given that in July tech was one of the most liked sectors – we get the August update next week.

What’s different: more cash Customer and company net cash balances are higher, bond rates are lower, so the pressure to conserve cash is likely to be less of a constraint on enterprise/telco spending than in 2008-9. The most indebted tech name today is cash generative Amadeus (in 2008 it was Infineon and TomTom). We believe telecom equipment spending in particular could see minimal near term pressure given that outside the US spending only very recently began to improve. High cash and low valuations should prompt M&A bids, but potential sellers may not be so keen. Buybacks are the other obvious use of cash – where we see potential from Infineon, ASML, and Ericsson.

Lessons from 2008 SAP was not the safe haven most expected because license revenue fell -30% in 2009, more than the -10-15% expected, likely driven by customer cash preservation efforts that we don’t expect to see this time. IT Services margins did not fall as much as expected in 2009 thanks to headcount and outsourcing reduction. That safety value may not be available this time. Handset volume was far more resilient than expected, with units falling -6% in 2009 compared to the feared -15% or so. ASML was the surprise safe haven. For a supposed cyclical its high quality kept investors loyal. We think the transformed Infineon will be added to this club this time around.

Rating Change

Equity | Europe | Technology 12 August 2011

Andrew Griffin >> +44 20 7996 1414 Research Analyst MLI (UK) [email protected] Christian Nikolay +44 20 7996 2467 Specialist Sales MLI (UK) [email protected]

See Team Page for Full List of Contributors

Table 1: Changes to rating and price objectives Rating Price Obj Company Old New Old New Aixtron Buy Buy €29.0 €23.5 ALU Buy Buy €5.0 €3.1 Amadeus Buy Buy €16.0 €14.4 ARM Buy U/P 660p 420p ASMI Buy Buy €36.0 €20.7 ASML Buy Buy €33 €28. Atos Neutral Buy €44 €37.8 Autonomy Buy Buy 1900p 1780p Aveva U/P U/P 1277p 944p Capgemini Buy Neutral €48.0 €34.0 CSR Buy Buy 440p 300p Ericsson U/P Buy SEK87 SEK86 Indra U/P U/P €14.0 €10.4 Infineon Buy Buy €9 €7 Logica Buy Buy 170p 113.6p Logitech Neutral Neutral CHF10.7 CHF7.46 Nanoco Buy Buy 140p 100p Nokia Buy Buy €8.0 €6.4 Sage Neutral Neutral 310p 261p SAP Buy Buy €52.0 €45.6 Software Ag Neutral Buy €45.0 €35.1 ST Buy Neutral €8.5 €4.9 Telecity Neutral Buy 550p 580p Temenos Buy Buy CHF38.0 CHF21.8 TomTom Neutral U/P €4.0 €2.8 Tieto U/P U/P €11.8 €8.7 Wolfson U/P U/P 150p 120p Source: BofA Merrill Lynch Global Research

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European Techno logy 12 Augus t 2011

Contents Now and then (2008) 3 We look at similarities and difference between the current and 2008 share price declines, and how stocks have performed then and now.

Software & IT Services 7 If there is an enterprise recession we think it will be milder than in 2008/2009, so better for software stocks, but IT Services margins look more under threat as they have already used up much cost-rationalisation potential. We have upgraded Atos, Software Ag and Telecity to Buy and also flag SAP, Amadeus and Autonomy as more resilient names.

Communications technology 19 The European telco sector has reversed two years of relative decline in the last month as the market looked for defensive names. We think telco capex will be similarly resilient to economic worries. Hence our upgrade of Ericsson. Nokia remains a stock specific, not macro play, and ALU may be high beta but it looks oversold here and like Ericsson benefits from being telco capex driven.

Semiconductors 22 Semiconductors is the most economically sensitive of the subsectors and we have recently lowered our growth forecast for the industry to 4% for 2012. Despite this we remain selectively positive on the sector with high quality cash rich names, ASML and Infineon, our top picks. We downgrade ARM to underperform from buy on increasing earnings risk and ST to neutral from buy today.

Stock price and earnings momentum charts 33 Price and consensus earnings charts absolute, relative to sector , and relative to European market.

1 page company overviews 42


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Now and then (2008)

Chart 4: European tech (STOXX technology index SX8P)

Source: Bloomberg

Chart 6: Global tech (MSCI global technology)

Source: Bloomberg

Chart 1: Quarter to date total return of European Technology stocks

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Chart 2: Year to date total return of European Technology stocks

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Chart 3: European tech relative to market

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Chart 5: Global tech relative to market

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Chart 7: Net cash % of market capitalisation today vs December 2008

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Chart 9: Ratings dispersion and total return upside potential to price objective

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What happened last time? Post the Lehman’s bankruptcy, European tech stocks on average performed in line with the market in the fall to the March 2009 trough, two thirds outperformed in the subsequent recovery, and about 70% of names outperformed the market on a 12 month view post Lehman’s. Nokia and SAP, which then made up 55% of Eurotech market cap (today 35%) were not outperformers, so index performance understated a very strong relative performance for Eurotech in 2009 on an equal weight basis. Global tech substantially outperformed the market post Lehman’s, but we would caution that investor sentiment for tech in late 2008 was very negative, unlike today where it is one of the most liked sectors. Our fund manager survey of early August sentiment will be published next week.

Average net cash/(debt) to MV has risen from -3% to +9% since 31 December 2008

Chart 8: US AA corporate bond yield

Source: Bloomberg (MOODCAA)

ML One Hundred global technology index (Bloomberg: MLO index) Year to date total $ return Top 10 Baidu +48% Teradata +25% Netease +25% ARM +19% Electronic Arts +16% Apple +14% IBM +13% Rackspace +13% ALU +10% Accenture +9% Bottom 10 RIM -61% Logitech -57% AU Opto -55% Akamai -54% Nokia -50% Cree -45% LG Display -45% F5 -42% Computer Science -42% Juniper -42% Source: Bloomberg


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Chart 10: Share price moves since July 30th, compared to post-Lehman to trough (12 Sep 2008 to 6 Mar 2009) ranked by % of move already seen

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Chart 11: Stock performance 12 months post Lehman’s (€ total return)

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Tech stock moves in the last two weeks are still less than the moves seen from the Lehman’s bankruptcy (12 September 2008) to the market trough (6 March 2009). Software AG, Autonomy, Indra, Computacenter, and Misys are amongst the biggest movers relative to 2008/9.

Yet most tech stocks had risen substantially in the 12 months following 12 September 2008

Chart 12: On the way down: 12 Sep 2008 to 6 Mar 2009

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Chart 13: On the way up: 6 Mar 2009 to 12 Sep 2009

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The below charts track the net percentage of investors questioned in our monthly Fund Manager Survey who were overweight the technology sector. We publish a monthly Technology Sentiment report updating these charts.

Until mid 2009, the regular cycles of over and under-weight readings proved a consistent contra-indicator for absolute tech stock index performance. But since mid 2009, sentiment has stayed resolutely positive.

Chart 14: Eurotech MV share at 12 Sep 2008 (€195bn)

Nokia29%

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Chart 15: Eurotech MV share today (€156bn)

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Chart 16: Global tech sentiment and MLO global technology index

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Chart 17: European tech sentiment and tech index

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Software & IT Services Sector themes Why a recession this time will be different from 2011 If there is an enterprise recession we think it will be milder than in 2008/2009. On the whole we think a downturn will be kinder for the Software names, which will not face the cataclysmic freeze in spending they saw in H2 2008 / FY 2009. However the IT Services names look to be more at risk than last time, particularly on the margin front.

1) Short-term cutbacks should be less severe The first difference from last time (and from the 2002/03 downturn) is that IT spending intentions are much closer to lows than before. The chart below shows the run-rate of SAP licences (proforma for Business Objects and Sybase, and at current exchange rates). It is still 20% below peak. While SAP was impacted more than most other European names, certainly the IT Services names have only seen a return to significant growth in 2011, after two years of flat/down revenues.

Chart 18: Spending intentions remain subdued – SAP licences still 20% below peaks

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Source: SAP, BofA Merrill Lynch Global Research.

The second difference is that enterprise customers are much less leveraged than they were in 2008. At that point customers were much more highly geared , and on top of that the unexpected freeze in wholesale lending markets in the Autumn of 2008 left them scrambling to finance short-term operations. The results was a “nuclear winter” where any discretionary IT spend was immediately curtailed. This time around corporate balance sheet are in much better shape. Therefore, while an end demand problem is not pleasant, there should be less pressure for abrupt cutbacks.

2) IT Services looks more exposed One surprise in 2008/09 was that IT Services margins were much more resilient than the market expected. Partly this was due to a higher outsourcing component in the mix (longer-term fixed price deals) and partly it was because increased use of offshore gave vendors an option to lower cost of delivery without having to fire full-time employees. However one big reason was that the IT Services vendors had a large subcontractor layer (typically c15% of group heads) and management teams were alert at firing them in order to protect margins.

If there is a recession this time around IT Services companies will not have the same flexibility to cut back on subcontractors, in our view. While subcontractor levels have come back in a few “hot” geographies (e.g. France), on the whole


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there is much less fat to cut. We believe, this means vendors will be forced to fire full-time employees (in the 2002/03 recession cost to fire in Europe was roughly €50,000-100,000 per head). This will cause disruption in businesses, impact margins and incur restructuring costs.

3) Software resilience will remain a strength One thing that will remain a positive will be the software business model, both in terms of high cash generation and in terms of recurring maintenance revenues. This helps to insulate group earnings from downgrades, even if there is a licence shortfall (particularly at SAP where maintenance is now half of group revenues). It also provides a backstop if valuations become distressed. In 2008 when share prices reached the NPV of maintenance profits it was an important buying signal. The table below shows the NPV of maintenance profits per share and as a proportion of the current share price. We assume a 75% maintenance gross margin, the group tax and a 2.5% annual attrition rate. We run a number of scenarios assuming 10 years, 20 years and 20+ years with a 2.5% terminal decline rate and discount cashflows back at a WACC of 9%: Table 2: Implied value of maintenance profits at the software vendors Maintenance value per share % of total

10 Year 20 Year 20 Yr +Term. 10 Year 20 Year 20 Yr + Term.

Sage GBp 228 303 337 91% 121% 135% Temenos CHF 7.7 10.3 11.4 50% 67% 74% SAP EUR 17.3 22.9 25.5 47% 63% 70% Software Ag EUR 12.7 16.9 18.7 45% 60% 67% Autonomy GBp 230 306 340 15% 20% 22% Aveva GBp 222 295 328 14% 19% 21% Sage screens well on this metric but bear in mind some of its subscription revenues will include more labour-intensive product support which may attract a lower margin. Source: Company data, BofA Merrill Lynch Global Research estimates.

4) We like names with insulated demand pools European technology is a very heterogenous sector, particularly on the Software side where companies have a number of specialised products. Therefore we think an important theme will be to focus on names where there are particular company or industry-specific drivers for them. This is not to say they will be immune in a recession (and if investors are already paying a premium for these niches then valuations could be more exposed), however given the current uncertainty around overall enterprise spend we don’t think the risks are that much higher. Examples of stocks with company-specific demand would include:

Telecity: High end data-centre/cloud demand and constrained supply.

Autonomy: Unstructured data and search.

Amadeus: High growth coming out of IT Solutions (a quarter of revenues) where the order book is full out until 2014.

In theory SAP’s new products such as HANA might also fall into this category. However it is still very small in the context of the overall group so is likely to be overshadowed by any enterprise slowdown. Also we like the potential growth opportunity for Software AG’s Business Process Excellence tools, however there are also execution issues at IDS Scheer they need to fix first.


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Our valuation framework In order to assess the risk after recent falls we have taken a number of steps.

Pre-emptive earnings cuts: We have lowered estimates for all of our Software & IT Services coverage (plus the consumer hardware names TomTom and Logitech), reflecting the bleaker macro outlook. The scenario we assume for a base-case estimates is still growth in H2, but deceleration. 2012 becomes a low growth recovery year (much like 2010 was after 2009) rather the cyclical rebound year we previously assumed. Overall estimates for the IT Services names fall by around 15%, while those for Software fall by 5-10% (earnings are more insulated in software names by higher maintenance revenues).

Stress-testing the recession downside: We also stress-test to show the potential downside if there is a fully-blown recession. We assume the enterprise slowdown is not as bad as 2008 (given corporates have more liquidity so do not need to cut back immediately). Under this scenario software licences decline by roughly 20% in 2012 and IT Services companies see a 2-4% revenue decline. Software margins are flat to slightly up (if they can cut back on sales and marketing costs), while IT Services margins have more severe compression of c100-150bp. This leads to additional earnings cuts of 15-30% in IT Services and 10-15% in software, on top of our downgraded base case numbers.

Apply a discount to mid-cycle valuations: Our mid-cycle valuations are derived from feeding our base-case estimates into our normal DCF or EVA-based valuation models. To arrive at our price objectives we then apply a recession discount to these, reflecting the fear of a potential recession the market might price in (our economists currently estimate the risk of a US recession as being about one in three). This discount varies between 10-25% for our companies. We apply a lower discount to companies which have more resilient demand pools or business models. Higher discounts go to those with more undifferentiated enterprise or consumer exposure, or to those which have bigger earnings downside risk in our recession-stress test.

Chart 19: Laying out our recession framework for the Software & IT Services names PRICE OBJECTIVE EPS CHANGES EPS STRESS-TEST SCENARIO P/E VALUATION

Mid- Discount Price Curr. Upside/ Rating EPS - OLD EPS - NEW EPS - RECESSION EPS recession downside 2012 P/E ratingCycle Applied Objectuv e Price Downside Old New '11 '12 '13 '11 '12 '13 '11 '12 '13 '11 '12 '13 Current Mid-Cy cle PO 2008

IT SERVICEAtos-Origin 42.0 -10% 37.8 32.4 17% Neutral Buy 3.23 3.99 4.46 3.22 4.01 4.56 3.11 3.87 3.99 -3% -4% -13% 8.1x 10.5x 9.4x 5.2xCapgemini 40.0 -15% 34.0 29.0 17% Buy Neutral 2.73 3.21 3.62 2.53 2.72 3.10 2.52 2.30 2.59 -1% -15% -16% 10.6x 14.7x 12.5x 6.3xIndra 13.0 -20% 10.4 11.7 -11% U/P U/P 1.26 1.35 1.35 1.19 1.15 1.29 1.19 1.02 1.14 0% -11% -12% 10.2x 11.3x 9.1x 9.4xLogica 142.0 -20% 113.6 86.0 32% Buy Buy 13.55 15.40 16.78 12.19 13.19 15.24 11.85 10.20 11.07 -3% -23% -27% 6.5x 10.8x 8.6x 5.4xTieto 10.9 -20% 8.7 9.2 -6% U/P U/P 1.05 1.26 1.46 0.93 1.08 1.37 0.90 0.75 1.12 -3% -30% -18% 8.6x 10.1x 8.1x 5.0xSOFTWAREAutonomy 19.8 -10% 17.8 15.5 15% Buy Buy 1.24 1.45 1.60 1.21 1.48 1.74 1.19 1.31 1.50 -2% -11% -14% 17.0x 21.6x 19.4x 14.9xAv ev a 1,180 -20% 944.0 1,558.0 -39% U/P U/P 56.28 63.28 73.36 56.28 57.83 64.07 56.28 56.71 52.91 0% -2% -17% 26.9x 20.4x 16.3x 6.8xMisy s 350.0 -10% 315.0 268.0 18% N/R Buy na na na 13.33 23.48 24.97 13.33 20.83 21.67 0% -11% -13% 11.4x 14.9x 13.4x 5.9xSage 290.0 -10% 261.0 249.7 5% Neutral Neutral 20.10 21.88 22.50 19.61 20.55 21.49 19.59 18.57 19.09 0% -10% -11% 12.2x 14.1x 12.7x 9.6xSAP 50.7 -10% 45.6 36.6 25% Buy Buy 2.66 3.24 3.74 2.57 3.17 3.68 2.51 2.90 3.27 -2% -9% -11% 11.5x 16.0x 14.4x 11.3xSoftw are Ag 39.0 -10% 35.1 28.1 25% Neutral Buy 2.55 2.78 2.94 2.36 2.52 2.67 2.30 2.17 2.30 -3% -14% -14% 11.2x 15.5x 13.9x 6.7xTemenos 27.3 -20% 21.8 15.4 42% Buy Buy 1.73 2.10 2.35 1.52 1.69 1.90 1.37 1.41 1.54 -10% -16% -19% 9.1x 22.3x 17.8x 5.6xOTHERAmadeus 16.0 -10% 14.4 32.5 -56% Buy Buy 1.05 1.27 1.41 1.03 1.15 1.27 1.02 1.06 1.01 -1% -8% -20% 28.2x 13.9x 12.5x naLogitech 13.0 -25% 9.8 8.5 15% Neutral Neutral 0.85 0.90 1.30 0.85 0.52 1.04 0.85 0.49 0.64 0% -6% -39% 16.2x 24.9x 18.7x 6.6xTelecity 580.0 0% 580.0 507.5 14% Neutral Buy 23.96 28.00 37.07 23.77 26.66 35.70 23.77 24.03 32.02 0% -10% -10% 19.0x 21.8x 21.8x naTomTom 3.7 -25% 2.8 3.2 -13% Neutral U/P 0.32 0.35 0.40 0.32 0.21 0.20 0.32 0.12 0.09 0% -44% -53% 14.7x 17.1x 12.8x 2.7x

Source: Company data, BofA Merrill Lynch Global Research estimates.


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We show the outputs of this framework in the table above, as well as the implied P/E multiples on fiscal 2012 earnings. We also show the trough P/E multiple reached at the point of maximum panic in October 2008 to give an idea of the downside risk if the market fully prices in a major recession. We have highlighted the names where we have made ratings changes above, and we discuss these and other major price objective changes in the commentary below:

Amadeus is another underestimated name One safe haven we would point to is Amadeus. This remains one of the less-known names in the sector, and at first sight air traffic does not sound like defensive areas. However bear in mind a quarter of Amadeus’ revenues come from IT Solutions where the business is growing strong double-digit and has a contracted order book out to 2014. Also even in the last downturn air traffic volumes only declined 5.7% in the worst year (2008). This means Amadeus’ revenues could be surprisingly resilient. Meanwhile it generates 40% EBITDA margins and plenty of cash, as is likely to increase its dividend payout over the next two years as net debt comes down towards its 1.5x EBITDA target.

Atos – Upgrade to Buy We upgrade Atos to Buy from Neutral with a €37.8 price objective (previously €44 previously). Three key drivers are:

1) Restructuring story intact: Since the beginning of 2008 Atos has cut cost admirably and expanded margins from 4.6% in 2007 to 6.7% in 2010 (210bp margin expansion). With the acquisition of Siemens SIS, Atos has expanded the scope of this restructuring programme. Given the management commitment to margin expansion we believe Atos margins should expand in 2012 / 2013.

2) Siemens SIS offers ample scope for cost cutting: In December 2010, Atos laid out plans for cost containment at SIS. These include

Cost synergies of ~€125m: Procurement and indirect costs, Merger of headquarters and management layer overlap

TOP2 programme cost benefit of ~€100m: Streamline G&A and Sales functions, Lean management

We believe the company Management has guided conservatively and should be able to achieve this cost containment guidance.

3) Estimate revisions to continue on the upward trend. Atos 12 month forward EPS estimates have consistently increased over the last 2 years. Given that Atos has just begun the integration/cost containment programme at SIS and the margin expansion potential at Atos is relatively macro independent, we believe, consensus estimates should remain stable/increase over the next few quarters.


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Chart 20: Atos – 12 month forward EPS and PE (2007 - present)

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Source: DataStream, BofA Merrill Lynch Global Research estimates.

Valuation: At current levels, Atos trades on 9.9x / 8.0x our 2011 / 2012 adjusted EPS estimates. On an EV/EBITDA basis, Atos trades at 4.8x / 4.1x our 2011 / 2012 adjusted EBITDA estimates. Given the greater proportion of long-term contracts, a management team committed to delivering margin expansion and the low starting of margins in 2011 we believe Atos should show margin expansion in 2012 / 2013. We estimate the fair value of Atos to be €41 based on our DCF estimate. However, given investor risk appetite in the current macro environment, we take a 10% discount to the DCF-based fair value for our price objective. We upgrade Atos to a Buy recommendation (from Neutral) with a €37.8 PO (from €44 previously).

Autonomy benefits from secular demand trends Expectations reasonable for growth: Autonomy’s license revenue growth has been consistently robust over the last 3 quarters. Q2 license grew 15% yoy in Q2’11 after having grown by 19% yoy in Q1’11. After 3 quarters of not so eventful results, overall investor perception of Autonomy has changes significantly. The communication has also been very restrained. Management also guided to Q3’11 revenues/EPS inline with estimates which are undemanding in our view.

OEM revenues drive growth and margins in the out years: OEM revenue stream is a key asset of Autonomy with a growth rate of 37% in FY’11E and margins of over 90%. We model OEM revenues to grow by 28% in FY’12, which we view as conservative, and even in the stretch-low scenario of double dip we anticipate this revenue stream to grow by 24%. The growth in this business should compensate the margin compression from the lower margin IDOL cloud keeping overall group margins stable/improving.

Valuation at historic lows: At current levels, Autonomy trades at 16.6x 12 month forward consensus EPS at the low end of its trading range (from 2007). However, since 2009 the company has been trading within a narrow range of 16.2x to 22.8x 12 month forward consensus EPS.

Table 3: Atos - Estimate changes

Revenues Adjusted

op margins Adjusted

EPS FY2011E Old estimates € 6,950 6.1% € 3.23 New Estimates € 6,754 6.2% € 3.22 Consensus € 6,745 5.8% € 3.22 FY2012E Old estimates € 9,028 5.8% € 3.99 New Estimates € 8,526 6.6% € 4.01 Consensus € 8,595 6.0% € 4.06 Source: BofA Merrill Lynch Global Research estimates.


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Chart 21: Autonomy – 12 month forward PE (2007 – present)

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Our DCF estimates suggests a fair value of ₤19.8 for the Autonomy. Applying a 10% discount to this fair value (the lower end of the range of discounts applied given the improved communication and consistent results) we arrive at our new price objective of ₤17.8 down from ₤19. We retain our Buy recommendation.

Capgemini - Downgrade to Neutral We downgrade Capgemini to Neutral from Buy and lower our price objective to €34 (from €48 previously). Three key drivers are:

1) Look for headline downgrades: Around 63% of Capgemini revenues come from cyclical business. Given the uncertainty in the macro environment, we believe there are significant downside risks to the top-line and more importantly margins estimates. We revise our FY’11 / FY’12 revenue estimates from €9,426m / €10,083m to €9543m / €9,722m. We would like to remind investors that the Capgemini revenues are positively impacted by the Prosodie acquisition and negatively impacted by the weakening of the USD and GBP versus the EUR. We now look for FY’11E / FY’12E adjusted operating margins of 7.4% / 7.6% resulting in FY’11 / FY’12 adjusted EPS estimates of €2.53/ €2.72.

2) First multiple compression, then estimates revision: Looking at the 12 month forward consensus EPS and 12 month forward consensus PE for Capgemini since 2007, we see that Capgemini experience significant multiple compression from ~20x in April 2007 to ~6.5x in October 2008. During the same period 12 month forward EPS estimates for Capgemini continued to increase from €2.99 to €3.67. Given the jaded macro outlook we expect consensus estimates for FY’12 EPS should come down from the current €2.94 to our €2.72.


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Chart 22: Capgemini – 12 month forward EPS and PE (2007 - present)

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3) Lower Net Cash levels imply lesser ability to restructure; drop in PE valuation premium: Capgemini ended H1’11 with a net cash position of €169m versus €809m at the end of H1’10. The company also guided to an FY’11 net cash position of around €250 (FY’10: €1,063m). The drop in the net cash was largely due to an increase in working capital and the cash payout for acquisitions in H1. The company historically (since January 2007) traded at an 11% and 34% premium to Atos and Logica respectively. Given the drop in net cash reserves we expect this premium to lessen a bit in the coming quarters.

Valuation: At current levels, Capgemini trades on 11.4x /10.6x our 2011 / 2012 adjusted EPS estimates. On an EV/EBITDA basis, Capgemini trades at 5.6x / 5.4x our 2011 / 2012 adjusted EBITDA estimates. Given the cyclical nature of the business, the increased hiring we believe that only the lower end of the margin guidance is achievable. We estimate the fair value of Capgemini to be €40 based on our DCF estimates. However, given investor risk appetite in the current macro environment, we take a 15% discount to the DCF-based fair value for our price objective. We rate Capgemini Neural with a €34 PO (from €48 previously).

Misys – Resume coverage at Buy We resume coverage on Misys with a Buy rating and a 315p price objective.

Maintenance is resilient: Although all of Misys revenues are derived from the Financial Services sector, 45% comes from high-margin, recurring maintenance fees. Given that stickiness of maintenance revenues, this revenue stream is relatively resilient in a downturn. Consequently, in FY’09/FY’10, when license revenues were -4%/ 0%, maintenance revenue continued to grow by 16% / 6% resulting in margin expansion. In addition, the acquisition of Sophis (FY’09 EBIT margins of 41% and a sustainable tax rate of 15%) should also drive margin expansion in FY’12.

Still a strategic asset: Also the stock has recently fallen after a potential US bidder withdrew its M&A bid, and we believe Misys shares may be oversold in the near-term. Although another bid is unlikely in the immediate future, at a 5.9x TTM

Table 4: Capgemini - Estimate changes

Revenues Adjusted

op. margin Adjusted

EPS FY2011E Old estimates € 9,426 7.5% € 2.73 New Estimates € 9,543 7.4% € 2.53 Consensus € 9,622 6.9% € 2.46 FY2012E Old estimates € 10,083 8.1% € 3.21 New Estimates € 9,722 7.6% € 2.72 Consensus € 10,176 7.7% € 2.94 Source: BofA Merrill Lynch Global Research estimates.


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maintenance multiple, the business remains a strategic asset which would be attractive to someone looking to potentially acquire customer base in the Core Banking industry.

Roll-out of new products another plus: Within the Banking division, Misys added 27 new BankFusion customers in FY’11 taking to total to 40 BankFusion customers. The company expects to sign another 30+ customers in FY’12 in comparison to the leading banking software vendor signing 40-50 customers a year.

Valuation: Our DCF model suggests a fair value of 350p. Applying a 10% discount to this 350p fair value (the lower end of the range of discounts applied given its resilient maintenance revenues) we arrive at our price objective of 315p, which implies 13.4x our 2012 P/E.

SAP remains a core holding We retain our Buy rating on SAP with a €46 price objective (previously €52). The PO change comes because we apply a 10% macro discount to our existing mid-cycle valuation.

Q3 expectations are nowhere near as excessive as 2008: In the near term investors will be concerned about Q3, where the last two weeks of September will be crucial for deal signings. The worry is that 2011 will be like 2008 where SAP were upbeat in July and raised guidance after H1, only to come out with a major miss on Q3. However we are more upbeat. While there is clearly uncertainty around customer spending, we do not think expectations are nearly as high as they were in Q3 2008. Remember in 2008 SAP missed consensus expectations of €860m with a licence number of €740m. In contrast our current Q3 licence forecast including Sybase is only €682m. Also as we talked about before, even if a recession does start to bite in Q3 we don’t think corporates will have the sort of liquidity crunch they had in 2008.

However we have made pre-emptive earnings cuts: However we have, as with all out names, made pre-emptive cuts to earnings. We have reduced Q3 licence growth expectations from 13.6% to 4.4% and now expect 5.7% licence growth in Q4 (albeit against a tough comp). Of course there is still a wide range of uncertainty around H2. Given SAP’s new product roll-out and management’s extremely confidence in H2 it is still possible that they could deliver very strong results. However at this stage we would prefer to start from a prudent baseline and upgrade, rather than face ongoing earnings cuts.

Interestingly, even a significant Q4 licence cut does not mean a big downgrade for group earnings. EPS falls by 3.6% for 2011E and 2.3% for 2012E (where we forecast 10% licence growth). Overall our revised estimates sit at the lower end of the FY guidance range; management guided to the upper end at H1 results. Table 5: Our revised SAP estimates versus guidance 2011E at constant currencies 2011E reported Guide BofAML Guide BofAML High High SSRS revenue 11,252 11,105 11,028 10,885 % change 14.0% 12.5% 11.7% 10.3% Services & other 2,839 3,088 2,783 3,027 Revenue 14,091 14,193 13,811 13,912 Opex (9,441) (9,594) (9,288) (9,438) Operating profit 4,650 4,599 4,523 4,473 Operating margin 33.0% 32.4% 32.8% 32.2% Effective tax rate 28.5% 28.0% 27.5% Source: SAP, BofA Merrill Lynch Global Research estimates.


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But don’t lose sight of negative. However we think investors need to take a step back on SAP. The reasons investors will continue to hold this stock over the next twelve months will not be for HANA growth or mobile middleware (although they would be very welcome if they came through). It’s because SAP has an incredibly resilient model with half of revenues coming from recurring, high margin maintenance (where prices are still going up due to the Enterprise Support switch). SAP generates €3bn of cash a year (a third of that being paid as upfront maintenance in Q1) which makes it to us an obvious flight-to-quality name.

Resilient margins: Finally SAP has traditionally been a resilient cost-cutter, expanding margins every year in the current downturn and every year between 2001 and 2005. In 2003 it managed to expand margins by 400bp, and in 2010 by 300bp. While margins are now at a higher level than in the past and there may be less obvious fat to cut, our stress-test recession scenario assumes margins expand by 240bp to just shy of 35%.

Software AG – Upgrade to Buy Doubly punished on warning and macro sell-off: Software Ag’s shares have both fallen with the market, and before that was marked down 18% on a Q2 profits warning. We think the warning relates to either macro-related issues or to company specific problems with its IT Services unit which can be fixed. Therefore we think the shares have been doubly punished, which creates an opportunity.

ETS is a solid cash generator and we believe in the BPE story: In the meantime roughly 40% of revenues come from a mature, cash generator mainframe business which should be relatively resilient in the downturn. We are also upbeat on the prospects for structural growth in its Business Process Excellence software unit (another 40% of group); which this is clearly vulnerable to cyclical cutbacks in the near-term we are confident that Software Ag has a solid product set and at current levels comes as a free growth option. For more see our note More than Meets the Eye (May 13th).

Maintenance is a positive in a downturn: We also see valuation support from recurring maintenance which accounts for between half and two-thirds of valuation. While this is not yet at “buy it” levels, licence growth does deteriorate further then maintenance helps insulate earnings from the full impact.

Valuation: Our mid-cycle valuation of €39 is based on DCF estimates which assumes 5-6% mid-term revenue growth and 25-26% EBIT margins. Although macro distress maybe a headwind for ETS and BPE licences in the near-term we believe this scenario is still well achievable. We apple a 10% macro discount to this to arrive out our new €35.10 price objective, down from €45, implying 13.9x 2012E P/E.

Telecity – Upgrade to Buy from Neutral Structural growth: Telecity provides high-end data-centres. This is a structural growth market with its own supply/demand dynamics which are highly favourable to data-centre providers. This means it is relatively insulated from the downturn. The company reported H1 results this week where it said it still saw strong demand across all geographies. Upbeat commentary from competitor Equinix also remains robust. Through the last downturn (08-09) Telecity delivered 20-30% revenue growth. Our revised estimates assume 2% price declines, but no major change in forecast volume growth.

http://research1.ml.com/C?q=!nUzdUmdWjsPiW3aNx!9zA__&s


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Cash generative: Also bear in mind that Telecity’s existing business is highly cash generative with 40%+ EBITDA margins. If it were to convert its existing investments into substantial cash generators, stop building new capacity and run them for utilisation EBITDA margins in theory should be 70%. This sort of highly cash generative asset will be seen as a safe haven in uncertain times.

M&A remains an important sector theme: Over the last twelve months we have been concerned that Telecity may be capacity-constrained in terms of being able to add more space in its existing facility. However it has raised further debt capital to fund M&A with the recent acquisition of Data Electronics in Ireland. At its recent H1 results Telecity said it had a further £100m of capital it could invest. If this was fully expended we estimate this would take the business to a very manageable 2x debt/EBITDA (excluding the EBITDA benefit coming in from an acquisition). Also sector consolidation continues in the US with telecoms willing to acquire data-centre vendors.

Valuation: Our price objective assumes Telecity trades at its mid-cycle valuation of 580p (rolling forward from the 550p when we last updated our valuation in February). We do not assume a macro discount given the relatively insulated growth prospects. This implies Telecity trades on 22x 2012 P/E and 16x 2013E. Admittedly this is not cheap but we think the company still has solid growth prospects and is less likely to be impacted by macro sentiment.

Temenos – retain Buy rating Despite the disruptions in Q2’11, we believe Temenos’ long-term structural growth story remains intact. Investors have been spooked by the receivables write-off of $28m in Q2’11. Temenos Management tried to reassure this write-off was one-off, largely due to legacy contracts and should help recover services margin and cash conversion for the group. We view this weakness as another buying opportunity. Temenos currently trades at 12.8x 12 month forward consensus EPS at the lower end of its trading range. Our DCF model suggests a fair value of CHF 27.3 for the Temenos stock. Applying a 20% discount to this fair value (the higher end of the range of discounts applied given the beta for the stock) we arrive at our new price objective of CHF21.8 down from CHF38. We retain our Buy recommendation.

Table 6: Temenos - Estimate changes

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EPS FY2011E Old estimates $545 26.1% $1.73 New Estimates $512 24.5% $1.52 Consensus $527 $1.42 FY2012E Old estimates $620 27.4% $2.10 New Estimates $579 25.0% $1.69 Consensus $579 $1.70 Source: Bloomberg, BofA Merrill Lynch Global Research estimates


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Chart 23: Temenos – 12 month forward PE (2007 – present)

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TomTom - Neutral to Underperform Structural pressure: TomTom is already exposed to structural pressures in its core satnav unit. Increasing proliferation of smartphones with GPS is cannibalising its satnav sales which are still over half of group revenues but are declining at double digit-rates. It has already warned once this year (Q1) on weak consumer. In a recession scenario we see 50% downside risk to earnings.

A weak consumer environment: Weak consumer environment, particularly in Europe, is a cyclical headwind. If market uncertainty continues this is likely to accelerate PND declines.

Balance sheet could yet play a role on sentiment: In 2008/2009 the company’s debt required equity refinancing. Although most of the debt has now been paid down, this is still a tail risk; TomTom remains geared at around 1.5x debt/EBTIDA on a 13% EBITDA margin. If a sudden slowdown pressured margins, we believe there is an outside risk covenants struck at c3x Debt/EBITDA could come into play (although company does not have major repayments falling due in the near term).

Valuation: Our new price objective of EUR2.80, down from EUR4.00, applies a 25% discount to our EUR3.7 fair value (assumes 5.5% long-term margins and flat revenues in our DCF model). This discount is wider than that applied to most other names due to the combination of immediate macro and structural risk for TomTom.


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Table 7: Summary of estimate changes Revenues Adjusted EPS New EPS vs. Old '11E '12E '13E '11E '12E '13E '11E '12E '13E IT SERVICES Atos Old 6,950 9,028 9,319 3.23 3.99 4.46 New 6,754 8,526 8,723 3.22 4.01 4.56 (0.6%) 0.4% 2.3% Capgemini Old 9,426 10,083 10,680 2.73 3.21 3.62 New 9,543 9,722 9,992 2.53 2.72 3.10 (7.3%) (15.2%) (14.5%) Indra Old 2,610 2,757 2,898 1.26 1.35 1.35 New 2,569 2,833 2,974 1.19 1.15 1.29 (5.5%) (15.4%) (4.8%) Logica Old 3,902 4,087 4,310 13.6 15.4 16.8 New 3,914 4,074 4,321 12.19 13.19 15.24 (10.0%) (14.4%) (9.2%) Tieto Old 1,788 1,836 1,891 1.05 1.26 1.46 New 1,742 1,700 1,751 0.93 1.08 1.37 (11.6%) (14.6%) (6.4%) SOFTWARE Autonomy Old 974 1,082 1,201 1.24 1.45 1.60 New 1,019 1,195 1,338 1.21 1.48 1.74 (2.1%) 1.7% 8.9% Aveva Old 174 194 216 56.28 63.28 73.36 New 95 128 164 56.28 57.83 64.07 0.0% (8.6%) (12.7%) Misys Old na na na na na na New 370 446 534 13.33 23.48 24.97 Sage Old 1,495 1,586 1,681 20.10 21.88 22.50 New 1,475 1,522 1,607 19.61 20.55 21.49 (2.4%) (6.1%) (4.5%) SAP Old 14,044 15,668 17,292 2.66 3.24 3.74 New 13,912 15,386 16,982 2.57 3.17 3.68 (3.6%) (2.3%) (1.6%) Software Ag Old 1,196 1,302 1,402 2.55 2.78 2.94 New 1,110 1,146 1,224 2.36 2.52 2.67 (7.1%) (9.4%) (9.0%) Temenos Old 545.473 620.154 693.869 1.73 2.10 2.35 New 512 579 646 1.52 1.69 1.90 (12.1%) (19.5%) (19.2%) HARDWARE AND OTHER Amadeus Old 2,719 2,847 3,001 1.05 1.27 1.41 New 2,664 2,712 2,849 1.03 1.15 1.27 (2.0%) (9.4%) (9.7%) Logitech Old 2,363 2,497 2,704 0.85 0.90 1.30 New 2,363 2,252 2,441 0.85 0.52 1.04 0.0% (42.0%) (19.9%) Telecity Old 236 271 321 23.96 28.00 37.07 New 237 281 333 23.77 26.66 35.70 (0.8%) (4.8%) (3.7%) TomTom Old 1,236 1,232 1,231 0.32 0.35 0.40 New 1,236 1,153 1,146 0.32 0.21 0.20 0.0% (39.1%) (49.7%) Source: BofA Merrill Lynch Global Research estimates.


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Communications technology Telco spending a safe haven In the Q3 reporting season of 2008 following the Lehman’s bankruptcy, Alcatel and Ericsson saw very positive relief rallies on results, up 20% and 12% respectively on the day. Moving forward to today, the telco sector reversed 2 years of relative under-performance in the last month. Telco budgets are notoriously slow moving. Although US wireless spending accelerated in 2010 and 2011, most of the rest of the world has remained fairly stagnant. Alcatel, Ericsson, and NSN revenue growth only returned to positive in Q3 or Q4 2010. Back in 2010 the refinancing issue put more pressure on telco budgets than we are likely to see today.

In the spirit of prudence we are lowering ALU and Ericsson constant currency revenue growth to close to zero in 2012E and reining in ALU’s margin recovery somewhat, from 7% to 6% EBIT margin in 2012E.

Alcatel Lucent - Buy We lower constant-currency revenue growth in 2012E from 8% to 2%, following 9% (previously 10%) in 2011E, and lower 2012E EBIT margin from 7.2% to 6.0%, up from 5.2% in 2011E. The margin rise equates to €130m of operating profit. We would expect ALU’s cost-cutting in 2012 to be more like €200-400m so this looks achievable.

ALU’s high beta, net debt position, and the share price leverage created by its large (though surplus) pension fund makes it an underperformer in difficult markets. The stock price is however ahead of us. Even if we lower our valuation to 0.5x 2011E EV/sales (from 0.75x), implying no margin improvement compared to long term history) valuation would be €3.1, almost 30% upside potential. Hence, we are lowering our PO to €3.1 from €5.0.

ALU’s broad wireless and fixed sales mix makes it a reasonably proxy for global equipment sales. Organic constant currency growth has been 2007 0%, 2008 -2% 2009 -14%, 2010 1% and 2011E 9% (Q2 was up 10% YoY).

Ericsson upgrade to Buy from Underperform We were already relatively cautious on Ericsson’s estimates driven by currency so our EPS reduction is minor. Ericsson has a strong market position (albeit in a not particularly exciting and highly competitive market), is cash generative, and has net cash at 20% of MV. While Ericsson has not mentioned buybacks it would seem a sensible use of excess cash.

On the negative side, Q2 EBITA included SEK1.2bn of hedging profits (16% of total pre JVs) and this support will be gone by Q4. Ericsson’s relative share price has mostly tracked the SEK/$ as the chart below shows. The gap that opened up in the last 9 months made us nervous and although in relative terms Ericsson is still performing well, its absolute share price fall from SEK95 recent peak to close to SEK70 makes us upgrade the stock to Buy, as we did in October 2008. We already used a stretch-low fair value for Ericsson of SEK87, and on our new numbers this falls slightly to SEK86 today, almost 20% share price upside potential to a pessimistic price objective.

Chart 24: European telco sector relative to market since August 2008

Source: Bloomberg

Table 8: ALU: Estimate Changes €m Revenues EPS 2011E Old Estimates 16,558 0.21 New Estimates 16,435 0.20 Consensus Estimates 16,587 0.23 2012E Old Estimates 17,805 0.37 New Estimates 16,799 0.26 Consensus Estimates 17,394 0.33 Source: Bloomberg, BofA Merrill Lynch Global Research Estimates.

Chart 25: Ericsson relative to European market since August 2008

Source: Bloomberg


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Chart 26: Ericsson relative to Europe, and the SEK/$

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Chart 27: Analyzing our currency hedging model – good fit

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Ericsson missed Q2 expectations, we think driven by a sequential decline in its US networking equipment business. This diluted EBITA margins. Although we see high margin US CDMA spending weaker in H2 vs H1, we suspect most of this move happened in Q2 and Q3 will likely see flattish progress. More of a concern is Ericsson management’s warning of accelerating low-margin network modernization contracts in Europe. It is difficult to translate this into a quantitative impact. Ericsson does not guide or even give long term margin targets. After the recent share price fall our risk-reward assumption is on the upside. New PO of SEK86 down from SEK87, but point out that using Ericsson’s 15 year average EBITA margin ex handsets (12%), would lead to a SEK101 valuation, 40% upside potential and equivalent to 12x 2012E earnings ex cash.

Nokia- Buy After this year’s 51% share price decline, mostly before the recent market upheaval, Nokia must be one of the least macro-driven stocks in the sector. All depends on Nokia’s upcoming Windows Phone launch, and its ability to stem mid-price product share losses and accelerate WP models into the $100-250 ASP price range. Details in our report “First tango with Mango”.

Ericsson hedges revenue and costs to smooth the impact of its $-revenue SEK-cost base imbalance. It discloses cash flow hedging profit/loss each quarter (the solid line on this chart). We have attempted to model the effective FX rate Ericsson achieves using a trailing 4Q average rate, weighted to more recent quarters. It seems to work well. It implies hedging profits will halve in Q3 vs Q2, and likely be zero or even a slight loss by Q4. Although FX is a negative headwind, a weakening of the SEK would be a positive for Ericsson, and we think the combination of the share price fall and the defensive nature of telecom equipment makes Ericsson an attractive holding today.

Table 9: Ericsson: Estimate Changes SEKm Revenues EPS 2011E Old Estimates 229,786 6.38 New Estimates 228,396 6.29 Consensus Estimates 227,432 Na 2012E Old Estimates 242,735 7.00 New Estimates 235,029 6.69 Consensus Estimates 241,483 Na Source: Bloomberg, BofA Merrill Lynch Global Research Estimates. EPS is non-IFRS excluding intangible amortization. Bloomberg consensus EPS is not consistent, so omitted.

http://research1.ml.com/C?q=9IeKToF-g2I


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We are not changing our estimates for Nokia today but we are reducing out price-objective to our previously published break-up value of €6.4, from €8. In 2009, handset unit sales proved much more resilient than the market expected. Many investors at the start of that year expected at least -15% unit declines, but it ended up down just -6% That was before smartphone migration was having a material impact on the industry. In addition Nokia’s revenues are now even more focused on emerging markets. True, WP recovery will start in Europe, but with almost zero market share today in the $300+ ASP smartphone market in the US and Europe, we have no revenue to cut in our model

Monitise - Buy A UK small-cap investment on the structural changes in mobile money and mobile payments, and with losses expected until 2014, Monitise is little affected by macro concerns. Its mobile banking business is a cost-saver for customers, and mobile payments momentum continues, with its customer Visa Inc recently announcing further plans to accelerate a move to NFC based mobile payments.

Table 10: Nokia break up value €bn Per Share NSN 50% of 0.3x EV/sales 2.3 0.6 Less 50% NSN net debt -0.6 -0.2 0.5% royalty 6.4 1.7 Mobile Phones @ 10% op margin 7.3 2.0 Navteq 2.9 0.8 Enterprise Value 18.3 4.9 year end cash 4.4 1.2 Add back NSN consolidated net debt 1.2 0.3 Market value 23.9 6.4 Per share 6.4 Implied value-destruction -8.8 Source: BofA Merrill Lynch Global Research estimates


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Semiconductors The semiconductor sector remains the most economically sensitive of the technology subsectors under coverage.

Chart 28: Semiconductor revenue Y/Y % vs OECD leading indicator Y/Y %

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Semi Rev Grow th Y/Y% OECD Ldg Ind. Change Y/Y%

Source: Datastream, WSTS, BofA Merrill Lynch Global Research estimates

Performance in the 2008-2009 downturn The performance of the European semiconductor stocks so far in this correction has been relatively uniform with most stocks down broadly in line with the market (-14%). ASML has modestly outperformed (-9%) while Infineon has underperformed (-19%), due to its strong performance year to date and relatively high operating leverage. The declines relative to the performance seen in the last downturn (2008-2009), when European semiconductor shares fell between 32% and 94% in under six months, are still relatively modest but we do not anticipate a repeat of that event, mainly because corporate balance sheets are now much stronger and, having experienced the 2008-2009 downturn, and the paralysis of the credit markets and resultant abrupt stop in demand, we do not expect those issues to recur to the same extent.

In the last major downturn, after Lehman Brothers’ failure in September 2008, through to the market trough in March 2009, the performance relative to the market across the group was mixed with ASML and ARM outperforming (arguably a flight to quality) and Infineon, ASM International and ST the most notable underperformers. To a large extent, Infineon’s underperformance at the time reflected fears about its ability to refinance debt, something which should not be an issue today given the company’s strong positive net cash balance (30% of market value).

After the March trough, through to the anniversary of the Lehman collapse, all of the semiconductor stocks outperformed the market, led by Infineon as it resolved its financing issues and AIXTRON, driven by initial uptake of MOCVD systems for LED television backlighting.

Over the entire period, from a week post Lehman to the anniversary of the collapse, the best performers among the group were AIXTRON, CSR and ASML while ST and Infineon both underperformed.


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Positioning for weaker growth in 2012 We have lowered our forecasts for global semiconductor revenue growth in 2011 and 2012 to 0% and 4% (previously 6% and 12%) to model a weaker recovery and GDP outlook for 2012. 2011 continues to be impacted by low end demand and the effect of an inventory correction as companies work down excess inventory. We remain most negative on the Asian Logic IC players, with all but one stock rated Underperform, and on weak DRAM/NAND players. Large capex and falling utilization put semiconductor contract manufacturers and integrated device manufacturers at much higher margin risk than global fabless companies. Hence, in Europe and the US we are selectively positive with a strong bias towards technology plays rather than capacity plays where Asia is more leveraged.

Table 11: BofAML semiconductor: Industry forecast summary 2011E 2012E Units Y/Y % Billings Y/Y % Units Y/Y % Billings Y/Y % Analog 95,851 4% 43,579 3% 103,542 8% 45,029 3% Logic 61,341 3% 96,667 -1% 67,478 10% 102,041 6% MOS MPU 517 0% 42,592 7% 548 6% 43,448 2% Memory 22,891 9% 55,459 -9% 25,524 12% 57,825 4% Total ICs 194,867 5% 245,745 -2% 212,401 9% 255,678 4% Total Semiconductors 687,096 3% 298,184 0% 731,090 6% 309,823 4% Source: WSTS, BofA Merrill Lynch Global Research estimates

Inventory correction through Q1 2012 With inventory hitting peak-cycle levels in 2Q11, companies are in a position to reduce their production for at least two quarters in our view. We had previously forecast a shallow two-quarter inventory correction but now we think it should last 2-3 quarters. Given uncertain demand, we think chip companies will rely on inventory burn at a time where global electronics companies and retailers are reducing inventory as well.

Broader share price recovery in early 2012 Share price recovery in the group is contingent upon a recovery in unit shipments. Under our recovery scenario, YoY unit growth would accelerate from 3Q12 which should lend support to a broader share price rally in SOX some time in early 2012.

Chart 29: SOX vs. Integrated Circuit (ex memory) shipments YoY (%)

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http://research1.ml.com/C?q=YibeKZUlBmlLUfMD3vNWaQ


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European semis – earnings sensitivity We have run a downside analysis on 2012 earnings for all the semiconductor stocks under coverage (with the exception of the very early stage Nanoco, which we model losing money in 2012E). For the chip manufacturers, we have generally assumed a 10% revenue decline in 2012 from 2011, below our industry forecast of +4% growth, while for the equipment vendors we have modelled a 40% decline. In each case, we have then flexed gross margin and cost base assumptions to generate a downside scenario EPS.

The companies with the greatest earnings risk in this analysis are Wolfson, CSR and ST likely reflecting the low margins in these businesses at present. The most resilient companies are ASML and ARM. For ASML this is because we already model a weak sales outlook in 2012, so the downside scenario is not much worse while for ARM it is due to the positive y/y royalty growth modelled in the downside scenario.

Table 12: Earnings sensitivity to downside scenarios Curr 2012E EPS Downside EPS Downside EPS Δ 2012E EPS vs Cons Downside vs Cons Downside scenario AIXTRON € 1.94 1.14 -41% -4% -44% Sales -20% y/y, gross margin 44%, opex up 12% y/y ARM GBp 14.1 11.4 -19% 5% -15% Licensing -10% y/y, Royalties +10% y/y ASMI € 2.69 1.38 -49% -7% -52% Front-end sales -40%, gross margin 36% (group) ASML € 1.75 1.45 -17% -25% -38% Sales -40%, gross margin 40%, opex down 5% y/y CSR US$ 0.36 -0.03 -108% -8% -108% Sales -10% y/y, gross margin 45% Infineon € 0.64 0.28 -56% 1% -56% Sales -10% y/y, gross margin 36%, opex -2% ST US$ 0.70 0.18 -74% -20% -79% Sales -10% y/y, Gross margin 36%, 5% lower opex Wolfson US$ 0.07 -0.06 -188% -43% -150% Sales -10% y/y, gross margin 50%, opex -5% y/y Source: BofA Merrill Lynch Global Research estimates

Our downside scenario sales estimates are, in most cases, significantly higher than the 2009 trough sales. In the case of ARM, our more cautious scenario would still lead to modest revenue growth (given ARM’s royalties generally outperform the semiconductor industry). The ST, CSR and Wolfson downside scenarios are the ones closest to 2009 levels while the ones for ASML and AIXTRON are the ones furthest above the 2009 revenue level. Chart 30: 2012 Downside scenario revenue assumption (Indexed to 2011E)

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Source: BofA Merrill Lynch Global Research estimates, Companies ASM International front-end sales only

Maintain selective positive stance We are retaining Buy ratings on six of our semiconductor stocks, AIXTRON, ASML, Infineon, CSR, ASM International and Nanoco but lower our price objectives to between stretch lo and mid cycle across the coverage. We downgrade ARM to Underperform from Buy, STMicroelectronics to Neutral from Buy and retain our Underperform rating on Wolfson.


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Table 13: Summary changes to Ratings and Price Objectives New rating Old rating New PO Old PO AIXTRON Buy Buy 23.5 29.0 ARM Underperform Buy 420 660 ASMI Buy Buy 20.7 36.0 ASML Buy Buy 28.0 33.0 CSR Buy Buy 300 440 Infineon Buy Buy 7.0 9.0 Nanoco Buy Buy 100 140 ST Neutral Buy 4.9 8.5 Wolfson Underperform Underperform 120 150 Source: BofA Merrill Lynch Global Research

Given the weaker prospects for semiconductor growth in 2012 and greater uncertainty, we are moving our price objectives to stretch lo from mid cycle on our long term fair value model. The one exception is ARM Holdings which we move to mid cycle from stretch hi. Although we see ARM as vulnerable to modest earnings risk in the near term, we also see scope for positive news from Microsoft at its BUILD conference in September and around the potential launch of a 64-bit version of ARM’s architecture later in the year.

Table 14: European semiconductor fair value model summary AIXTRON ARM ASMI ASML CSR Infineon Nanoco ST Wolfson Stretch Hi 41.2 659.0 69.6 45.6 752.0 11.0 273.0 13.0 277.0 Mid 30.8 420.0 36.2 33.2 460.0 8.7 127.0 8.2 168.0 Stretch Lo 23.5 279.0 20.7 24.5 299.0 7.0 58.0 4.9 100.0 PO 23.5 420.0 20.7 28.0 300.0 7.0 100.0 4.9 120.0 Price 18.3 488.7 16.4 22.6 233.2 5.6 59.0 4.3 147.0 Upside/(downside) potential to PO 29% -14% 26% 24% 29% 25% 69% 13% -18% Source: Bloomberg BofA Merrill Lynch Global Research estimates

Our estimates, with the exception of ASM International which we update following the recent results, are unchanged today. Our growth expectations for ST, Infineon and CSR in 2012 are broadly in line with our revised global forecast. The stocks where we model higher growth (ARM and Wolfson) and where there may be greater risk to the outlook are both Underperform rated.

Chart 31: Revenue growth vs semiconductor industry

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Chart 32: Revenue growth vs semiconductor capex

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Top picks – ASML and Infineon Our top picks are both high quality names with strong balance sheets. ASML – favourable balance of risk – Buy (PO €28) As with all our Buy rated stocks, ASML trades at a discount to our stretch lo valuation (€25.4) and we think earnings expectations for 2012 are reasonable given we model sales down 29% in dollar terms. Within our coverage, ASML is one of the highest quality names, with a very high market share (80%) and highly defensible position. The company operates an asset light model and has mechanisms in place to manage its cost base at relatively short notice. Over the last five years, including the 2008-2009 recession, ASML has averaged an operating margin of 22%. At today’s price, the stock is discounting a future average operating margin below 15% in our view. ASML’s balance sheet is also strong with €1.2bn of net cash available (excluding €844m of customer prepayments) and it will generate an average 10% FCF yield per annum over the period 2011-2013. The business model is working capital rather than fixed capital intensive which means that in times of falling sales, cash flow remains healthy.

In a weak macro environment, we would expect ASML to benefit from any flight to quality and hence retain our Buy rating. We set our price objective of €28 between stretch lo and mid cycle earnings and equivalent to 11x mid cycle earnings.

Chart 33: ASML orders and share price

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Infineon – moderate earnings risk, term growth story – Buy (PO €7.0) The current market weakness is a chance for Infineon to prove to its doubters wrong. In the recent period of robust demand in the automotive and industrial markets, Infineon’s rerating and emergence as an accepted high quality company was capped by fears around how badly a downturn could impact it. In the medium term, we continue to believe Infineon can generate margins through the cycle of 16% and achieve high single digit top line growth. However, near term we see estimate risk if sales disappoint driven by a combination of the falling top line and increased depreciation cost from ongoing capacity expansion. We retain our Buy rating because, at current levels, Infineon is implying through cycle margins below 10%. That is a level the auto and industrial businesses were capable of before the major restructuring of the last two years and, with over €2bn of net cash on the balance sheet (30% of market value), the company is well positioned to ride out a downturn. Our price objective is set at our stretch lo valuation of €7, based on through cycle operating margins of 14% and 5% growth. At our price objective, Infineon would trade on 7x FY12E ex cash P/E.

Table 15: ASML summary fair value 07-13E 2015E 2020E Stretch Sales Growth 5.7% 9.0% 7.0% 2.0% Operating Margin 17.9% 20.0% 20.0% 5.0% Tax Rate 12.2% 15.0% 28.0% 0.0% W/Cap % Sales 22.4% 15.0% 15.0% 0.0% Capex % Sales 5.5% 3.0% 3.0% 0.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 35% 27% 33% 40% FV (EUR) 24.5 33.2 45.6 Up/(Down)Side 8% 47% 102% Source: BofA Merrill Lynch Global Research estimates

Table 16: Infineon summary fair value 07-13E 2015E 2020E Stretch Sales Growth -7.8% 7.0% 7.0% 2.0% Operating Margin 7.9% 16.0% 16.0% 2.0% Tax Rate -11.8% 28.0% 28.0% 0.0% W/Cap % Sales 2.8% 3.0% 3.0% 0.0% Capex % Sales 14.1% 10.0% 10.0% 0.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 6% 21% 24% 27% FV (EUR) 7.0 8.7 11.0 Up/(Down)Side 25% 55% 97% Source: BofA Merrill Lynch Global Research estimates


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Chart 34: Infineon Auto and industrial operating margins compared with Logic (incl wireline, wireless, chipcard)

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Source: Infineon, BofA Merrill Lynch Global Research estimates

ARM – high quality earnings risk – Underperform (PO 420p) We downgrade ARM from Buy to Underperform. Our positive stance on ARM has been based on the long term scope for royalty growth driven by a richer mix of ARM processors carrying higher percentage royalties than the historical 1% level. In addition, Microsoft’s decision to support both ARM and Intel’s x86 architecture with its next generation Windows 8 operating system means that the addressable market for ARM based processors is expanding. Strong growth in royalties (at 100% margin) drives overall margin expansion for the business.

In the 2008-2009 downturn, ARM’s shares rerated due to the resilience of its income stream. While royalties declined, albeit less than overall semiconductors, licensing income remained strong as customers continued to invest in R&D and future product development. However, in the current market, we see less scope for positive surprises from licensing, already very strong, and modest risk to royalty and margin estimates. While the long term thesis for ARM may be intact, near term pressure on estimates may make it difficult for the stock to perform.

We set our price objective at mid cycle fair value (previously stretch hi) as, despite the earnings risk, we see potential for positive news around Microsoft’s September BUILD conference and a possible 64-bit architecture from ARM later in the year.

ST – vulnerable to consumer weakness – Neutral (PO €4.9) Our 2012 EPS estimate of USD0.70 is 20% lower than current consensus. While ST’s core business remains attractively valued on a long term view, a deteriorating macro environment will put pressure on the consumer segments of the business and delay the potential for recovery at ST Ericsson. We value ST Ericsson at zero in our mid cycle fair value but in the near term, ST and Ericsson will have to continue to fund the business. We estimate ST Ericsson’s losses at US$906m in 2011 and $731m in 2012. We prefer Infineon over ST because of a clearer margin profile, lower consumer exposure and the stronger balance sheet. ST’s net cash position at the end of Q2 was US$1.1bn (20% of market value).

We set our revised price objective in line with our stretch lo valuation of €4.9, down from €8.5, which implies a through cycle operating margin of 6% and medium term revenue growth of 4%, still above our margin estimates for 2011 and 2012 (1.1% and 2.7%).

Table 17: ARM summary fair value 09-15E 2017E 2021E Stretch Sales Growth 18.1% 14.0% 7.0% 7.0% Operating Margin 37.2% 60.0% 67.0% 7.0% Tax Rate 24.0% 28.0% 28.0% 0.0% W/Cap % Sales 27.4% 25.0% 25.0% 0.0% Capex % Sales 2.7% 2.0% 2.0% 0.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 26% 32% 39% 47% FV (GBp) 278.8 419.6 659.2 Up/(Down)Side -43% -14% 35% Source: BofA Merrill Lynch Global Research estimates

Table 18: ST summary fair value 07-13E 2015E 2020E Stretch Sales Growth 2.7% 6.0% 6.0% 2.0% Operating Margin -0.4% 8.0% 8.0% 2.0% Tax Rate 13.7% 18.0% 18.0% 1.0% W/Cap % Sales 13.3% 15.0% 15.0% 1.0% Capex % Sales 9.5% 8.0% 8.0% 1.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 2% 5% 7% 10% FV (EUR) 4.9 8.2 13.0 Up/(Down)Side 12% 88% 199% Source: BofA Merrill Lynch Global Research estimates


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Chart 35: ST divisional operating margins

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AIXTRON – long term growth driver in LED – Buy (PO €23.5) We are retaining our Buy rating on AIXTRON but lower our price objective to €23.5, from €29, in line with our stretch lo valuation and equivalent to a P/E of 12x 2012E. AIXTRON remains attractive to us given the long term growth prospects of the LED market as lighting adoption begins. However, unlike ASML, where we can be confident that its competitive position is secure, AIXTRON is facing aggressive competition from Veeco and the timing of strength and weakness in the LED market remains uncertain. We model revenues at the low end of the 2011 guidance range of €800-900m and our EPS estimates are 7% below consensus for 2011 and 5% below for 2012.

Chart 36: AIXTRON vs Veeco order growth q/q (US$)

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Table 19: AIXTRON summary fair value 07-13E 2015E 2020E Stretch Sales Growth 25.6% 10.0% 10.0% 2.0% Operating Margin 25.0% 30.0% 30.0% 5.0% Tax Rate 30.3% 31.0% 31.0% 0.0% W/Cap % Sales 2.3% 5.0% 5.0% 0.0% Capex % Sales 4.5% 5.0% 5.0% 0.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 56% 50% 59% 68% FV (EUR) 23.5 30.8 41.2 Up/(Down)Side 28% 69% 125% Source: BofA Merrill Lynch Global Research estimates


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ASMI– cyclical risk in back-end, front-end cheap – Buy (PO €20.7 from €36) We are lowering our price objective to our stretch lo valuation (previously mid cycle) and lowering estimates to reflect model changes post the recent Q2 results. EPS decreases 15% for 2011E and 29% for 2012E as we factor in a more cautious scenario for front-end equipment spending and incorporate our colleague, Dan Heyler’s latest assumptions for ASM Pacific. We now model front-end sales up 46% in 2011E and down 17% in 2012E. Table 21: Estimate changes - ASM International

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% change 11

% change 12

Front end sales 457,549 429,195 454,343 354,615 -6% -22% Back end sales 1,240,654 1,286,187 1,321,256 1,338,728 4% 1% Revenues 1,698,203 1,715,382 1,775,599 1,693,343 1% -5% Cost Of Sales -1,043,990 -1,077,742 -1,039,340 -1,044,860 3% 1% Gross Profit 654,213 637,640 736,259 648,483 -3% -12% Other Revenue 2,996 1,787 2,575 5,944 nm nm S,G&A -162,572 -175,617 -166,471 -182,924 8% 10% R&D -109,073 -115,100 -104,082 -98,285 6% -6% Amort of intangibles -300 -200 -400 -400 -33.3% 0.0% Restructuring costs 0 0 0 0 Operating Income 385,264 348,511 467,882 372,818 -10% -20% Front-end operating income 74,787 58,215 75,467 28,669 -22% -62% ASMPT operating income 310,477 290,296 392,414 344,149 -7% -12% Net interest expense -11,460 -11,679 -11,396 -12,202 2% 7% Foreign currency transaction gains -2,797 -4,603 0 0 Pre-Tax Profit 361,945 323,336 451,758 355,889 -11% -21% Taxation -51,723 -52,027 -65,049 -57,255 1% -12% Minorities -123,431 -113,219 -155,690 -136,198 -8% -13% Net Earnings from continuing ops 186,792 158,090 231,019 162,435 -15% -30% FD EPS 3.09 2.62 3.78 2.68 -15% -29% FD EPS ex restructuring 3.16 2.69 3.79 2.69 -15% -29% Source: BofA Merrill Lynch Global Research estimates

With the stock continuing to trade at a substantial discount to the market value of its stake in ASM Pacific (implied front-end enterprise value of €-600m), we retain our Buy rating given the front-end business has now reported five quarters of double digit operating margins and should be much more resilient to a slow down in semiconductor capital spending than in prior cycles.

Table 20: ASM summary fair value 07-13E 2015E 2020E Stretch Sales Growth 10.9% 11.0% 9.5% 5.0% Operating Margin 16.1% 22.0% 21.0% 5.0% Tax Rate 12.9% 28.0% 28.0% 0.0% W/Cap % Sales 21.4% 22.0% 22.0% 0.0% Capex % Sales 5.4% 6.0% 6.0% 0.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 34% 32% 39% 46% FV (EUR) 20.7 36.2 69.6 Up/(Down)Side 27% 121% 325% Source: BofA Merrill Lynch Global Research estimates


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Chart 37: ASM International implied front-end enterprise value

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At our price objective, ASM would trade on 8x 2012E P/E.

CSR – strong cash balance, still waiting for combos – Buy (PO 300p) We lower our price objective for CSR to 300p from 440p, in line with our stretch lo fair value which implies zero medium term growth and a 5% through the cycle operating margin. In the near term, we think the Zoran acquisition should be around 18% accretive to earnings in 2012 if CSR can execute successfully on its cost savings. Despite the strong valuation upside and cash balance (61% of market value), CSR is not one of our top sector picks for three reasons.

(1) Cash balance will fall to 37% of combined market value once the Zoran deal goes through. Still high relative to other stocks in the sector but not as compelling.

(2) The high consumer exposure in CSR’s business puts estimates at risk relative to other stocks. In particular we would note that Zoran’s guidance for 24% q/q revenue growth in Q3 looks demanding when compared with our industry outlook and commentary from other companies.

(3) Product and design win traction continues to rely on the successful launch of combo products which will not ship in volume until H2 2012.

Table 22: CSR summary fair value 07-13E 2015E 2020E Stretch Sales Growth 2.9% 5.0% 5.0% 5.0% Operating Margin 4.2% 10.0% 10.0% 5.0% Tax Rate 71.3% 28.0% 28.0% 0.0% W/Cap % Sales 6.6% 7.0% 7.0% 0.0% Capex % Sales 3.4% 4.0% 4.0% 0.0% Required Return - - 11.0% 1.0% Lo Mid Hi Implied ROOC 15% 5% 10% 16% FV (GBp) 298.6 459.5 752.3 Up/(Down)Side 28% 97% 223% Source: BofA Merrill Lynch Global Research estimates


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Table 23: Pro forma accretion from Zoran acquisition 2011E (US$m) CSR Zoran Synergies/Acqn related Combined AccretionRevenues 761.5 362.2 1123.6Gross profit 369.0 183.6 15.0 567.6Operating expenses 329.2 260.0 -85.0 504.2Operating income 39.8 -76.4 100.0 63.4Interest income 0.2 3.0 -1.7 1.4Profit before tax 40.0 -73.4 98.3 64.8Net income 33.1 -75.4 98.3 55.9Reported EPS 0.19 0.28Underlying net income 53.0 -75.4 75.8Underlying EPS 0.31 0.38 21%Share count (m) 171.0 52.1 201.7Gross margin 48% 51% 51%Operating margin 5% -21% 6%

Net cash position 388.0 241.5 -348.0 281.5

2012E (US$m) CSR Zoran Synergies/Acqn related Combined AccretionRevenues 815.9 387.5 1203.4Gross profit 392.2 201.5 593.7Operating expenses 346.0 175.0 521.0Operating income 46.2 26.5 72.7Interest income 4.6 3.0 -4.2 3.4Profit before tax 50.8 29.5 -4.2 76.1Net income 38.1 27.5 -3.8 61.8Reported EPS 0.22 0.31Underlying net income 60.8 27.5 84.5Underlying EPS 0.36 0.42 18%Share count (m) 169.6 52.1 200.3Y/Y revenue growth 7% 7%Gross margin 48% 52% 49%Operating margin 6% 7% 6%

Net cash position 388.4 241.5 -348.0 281.8

Pro forma valuation metrics 2011 2012P/E 18.9 16.8Ex cash P/E 15.2 13.5

Source: CSR, Zoran, BofA Merrill Lynch Global Research estimates

Wolfson – high cost base, consumer exposure – Underperform (PO 120p) Our chief concern with Wolfson remains its ability to grow into the cost base, something which looks increasingly challenging given the deterioration in the medium term demand outlook for semiconductors and particularly ongoing weakness in consumer demand. Mapping positive design win momentum to, so far, disappointing revenue growth remains difficult. We lower our price objective to 120p from 150p, between stretch lo and mid cycle fair value and equivalent to 10x adjusted 2013 P/E. While the fabless operating model and the company’s recent moves to address its cost base should help moderate operational gearing, we see meaningful risk to our forecast for 18% revenue growth in 2012.

Table 24: Wolfson summary fair value 07-13E 2015E 2020E Stretch Sales Growth 1.0% 7.0% 6.0% 3.0% Operating Margin 0.2% 10.0% 10.0% 5.0% Tax Rate 29.1% 28.0% 28.0% 1.0% W/Cap % Sales 10.6% 10.0% 10.0% 1.0% Capex % Sales 4.3% 4.0% 4.0% 1.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC 9% 5% 10% 16% FV (GBp) 99.6 167.6 277.1 Up/(Down)Side -32% 14% 88% Source: BofA Merrill Lynch Global Research estimates


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Chart 38: Wolfson long term revenue trends

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Nanoco – innovative material play on LED growth – Buy (PO 100p) We are retaining our Buy rating on Nanoco but lower our PO to 100p from 140p, between stretch lo and mid cycle fair value. The company remains on track to meet its milestones in the second half of the year and we would expect it to ship the kilogramme of green quantum dots needed to complete its major joint development agreement around the end of September. Meanwhile the major television customer may start to show models featuring quantum dot based LED back lights at trade shows in Q4 and further customer engagements in Korea are progressing. While a high risk stock in some respects, given the early stage nature of the business, being essentially pre revenue means Nanoco is less vulnerable to short term demand fluctuations. The company is well capitalised, having completed a secondary offering earlier in the year, and so in a good position to continue to develop the business. We set our price objective between our stretch lo and mid cycle fair values equivalent to 21x 2014E P/E.

Table 25: Nanoco summary fair value 08-14E 2016E 2021E Stretch Sales Growth na 26.0% 2.0% 10.0% Operating Margin -38.0% 50.0% 50.0% 10.0% Tax Rate 25.6% 28.0% 28.0% 1.0% W/Cap % Sales -16.5% 10.0% 10.0% 1.0% Capex % Sales 40.1% 10.0% 5.0% 1.0% Required Return - - 10.0% 1.0% Lo Mid Hi Implied ROOC na 51% 76% 112% FV (GBp) 58.4 127.4 273.3 Up/(Down)Side -1% 116% 363% Source: BofA Merrill Lynch Global Research estimates

12 August 2011

European Technology

33

Stock price and earnings momentum charts Chart 39: Individual Stock performance Charts

Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European market

Amadeus

Aixtron

Alcatel-Lucent

-40%-20%

0%20%40%60%80%

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05

10152025303540


0

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Source: Datastream, BofA Merrill Lynch Global Research

12 August 2011

European Technology

34 Chart 40: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketARM

ASMI

ASML

-50%

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101520253035


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101520253035


-1.00

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12 August 2011

European Technology

35

Chart 41: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketAtos

Autonomy

Aveva

0%

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12 August 2011

European Technology

36 Chart 42: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketCap Gemini

CSR

Ericsson

0%20%40%60%80%

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01234567


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02468

1012


0.00

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12 August 2011

European Technology

37

Chart 43: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketIndra

Infineon

Logica

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Aug-08 Aug-09 Aug-10 Aug-11-0.60-0.40-0.200.000.200.400.600.80


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12 August 2011

European Technology

38 Chart 44: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketLogitech

Misys

Nokia

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12 August 2011

European Technology

39

Chart 45: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketSage Group

SAP

Software AG

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020406080

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12 August 2011

European Technology

40 Chart 46: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketSTMicroelectronics

Telecity

Temenos

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Aug-08 Aug-09 Aug-10 Aug-11-0.50

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12 August 2011

European Technology

41

Chart 47: Individual Stock performance Charts Price (EUR) , 12M Fwd EPS (EUR/Share) Relative to European Tech sector Relative to European marketTieto

TomTom

Wolfson

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011223344


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42

1 page company overviews

Chart 48: Amadeus Company Overview USDm Dec Group Distribution IT Solutions Opodo & OtherSales 2010 2,594 1,992 601 0

2011e 2,664 2,056 599 9.62012e 2,664 2,052 683 -23.0

EBITDA and 2010 1,015 39.1%EBITDA margin % 2011e 1,022 38.4%

2012e 1,032 38.8%2010 air bookings Western Europe 48% Central Europe & MEA 23%by region Asia-Pac 14% Americas 16%

Distribution IT Solutions Opodo

Products and Services

Amadeus runs a GDS (Global Distribution Sy stem) w hich distributes tickets, mainly for

airlines but also for hotels and rail.

Airlines outsource their back end IT to Amadeus, cov ering booking and reserv ation

sy stems, ticketing and departure control.

Opodo is an online trav el agent.

Market share and characteristics

Amadeus is the market leader w ith 37% share of bookings. This is an oligopolistic market w ith tw o main riv als - Sabre (30%

Amadeus is the market leader w ith 28%. This is a fairly fragmented market w ith no

other v endor hav ing a share >10%.

This is a relativ ely fragmented market, and Amadeus has a number of competitors. It

sees this a s a non-core operation.

Demand drivers1) Ov erall increase in air trav el. 2)

Particularly cy clical rebound in biz trav el (more likely to go thru GDS). 3) Grow th in

Structural mov e from airlines to outsource non-core IT solutions to a third party w hich

can y ield greater economies of scale.

More end-user activ ity being done online.

TargetsIn IT Solutions Amadeus thinks it can reach 600 passengers boarded by 2013 on the basis of signed deals, up from 238 in 2009. It

ex pects contribution margins in this business to be impacted by inv estment in the near-term. The company is targeting a 30-40% div idend pay out ratio.

Competition Trav elport, Sabre Sabre, HP/EDS, Nav itaire, ITA, Trav elport Ex pedia, Orbitz

Upside opportunity

If Amadeus signs additional customers for its IT Solutions business this could lead to higher passenger v olumes and more rev enue. Amadeus is also ex posed to an ov erall cy clical rebound, leading to more airline trav el w hich w ould help the distribution business.

Downside risk

Amadeus is ex posed to obv ious macro risk/double dip (although passenger v olumes hav e prov en relativ ely resilient in recent y ears despite the recession). A key risk is customers buy ing tickets directly from w ebsites and not going through a GDS (currently half of ticket

v olunmes go v ia GDS). A similar is ticket prov iders try ing to by pass the GDS e.g. American Airlines has made a lot of noise in recent y ears about w anting to by pass GDSs.



43

Chart 49: Aixtron Company Overview EURm Dec Group Compound Semiconductor Equipment Silicon Equipment ServicesSales 2010 784 728 7 48

2011E 810 747 2 602012E 850 786 4 602010 276 35.2%2011E 273 33.7%2012E 275 32.3%

2010 rev enue Europe 4% North America 5%Asia/Pacific 91%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Operating profit and margin %

Compound Semiconductor EquipmentAIXTRON’s MOCVD Equipment is based on the Planetary Reactor or

Show erhead concept and includes sy stems for high-temperature applications and research sy stems. MOCVD is the key tool in the production of LEDs. The tools are able to incorporate substrates from 2" to 8" in diameter. The latest G5

tools can process up to 56 2", 14 4" or 8 6" w afers per batch and aim to reduce batch processing times to improv e cost of ow nership for customers.

Veeco is the primary competitor w ith around a 40% market share. Applied Materials and Jusung Engineering are both looking to enter the market w hile

Nippon Sanso has modest share in Japan.

Rev enues of EUR750m in 2010 and EBIT margin of c. 35%

Competes w ith Applied Materials and ASM International in ALD applications.

Silicon EquipmentAIXTRON’s semiconductor product portfolio offers Atomic Lay er Deposition (ALD), Atomic Vapor Deposition (AVD) and Chemical

Vapor Deposition (CVD) sy stems.

AIXTRON retains a relativ ely modest share in the silicon equipment market. The ALD market is becoming more interesting as more steps in adv anced semiconductor manufacturing require the precision of ALD to deposit v ery thin lay ers of material. ASM

International is the market leader in that segment.

AIXTRON holds a 50-60% market share in the compound semiconductor market ahead of Veeco (US), Nippon Sanso, Applied Materials and Jusung Engineering. Market share has held reasonably steady in recent y ears but AIXTRON has lost

some share recently to Veeco driv en by product cy cles and the strength of Veeco's business in China.

Demand for MOCVD tools is driv en by the uptake of LEDs. At present the key high v olume applciation is backlighting for LCD telev isions but in the nex t few

y ears LEDs are ex pected to show strong grow th in general lighting applications. Near term, the up front cost of an LED replacement lamp is high, despite the

longer life span and low er operating pow er meaning that total cost of ow nership is comparable or below incandescent lamps. As the cost of the lamps comes

dow n, demand should ramp.

The key demand driv er for the silicon busness is the adoption of smaller technology nodes in leading edge semiconductor

production. As a greater proportion of process steps require the precision of ALD, this should stimulate demand.

More rapid uptake of MOCVD tools to driv e stronger LED capacity grow th and share gains for the higher throughput of AIXTRONs new G5 machines relativ e to competitiv e solutions. If satisfactory production y ields for LEDs stay low but die sizes increase, that w ould accelerate

demand.

If LED customers are able to improv e y ields significantly w hile maintaining relativ ely stable die sizes, that w ould act as a brake on demand for MOCVD tools.



44

Chart 50: Alcatel-Lucent Company Overview Service Unalloc

EURm Dec Group IP Optics Wireless Wireline Elimination Enterprise NetworkSales 2010 15,996 1,464 2,655 4,064 1,548 -88 1,205 794 3,743 631

2011E 16,435 1,760 2,775 4,576 1,451 -51 1,183 828 3,654 2752012E 17,121 1,978 2,866 4,772 1,438 -53 1,227 934 3,708 284

Operating profit 2010 288 1.8% 95 2.5% -12 nmand op margin % 2011E 848 5.2% 185 5.1% -26 nm

2012E 1,019 6.0% 231 6.2% nm

2010 sales W Europe 28% USA 33% APAC 18%E Europe 4% Other America 9% ROW 8%

Ent. Apps NW Apps Service


Genesy s cal-centre softw are, VoIP/PBX for Enterprise

SW for multi-dev ice serv ice,

and serv ice management

Rollout, professional and

managed serv ices to operators


Genesy s market leader. #2/3 in VoIP.

Alliance to cross-sell w ith

HP.

#2 in real time rating/charging. >50 multimedia,

>60 IMS customers

#3 in managed serv ices, market

grow ing high single digit

Demand drivers

Genesy s: automisation of

call centers. Enterprise spending

Increasing netw ork

complex ity .

Increased outsourcing of operator opex .

Targets

CompetitionCisco, Siemens-Com, Av ay a

Numerous large and small.

Ericsson, NSN

Upside opportunity

HP partnership. Cross sell router/sw itch.

Taps into new serv ice prov ision

for operators

Margin ex pands as w ith scale

Downside risk

ALU fails to solv e the scale

issue of enterprise

Still small.Increased

competition for contracts

Greater than 5% in 2011

Pension note: ALU has a ~€25bn pension liability and mostly matching assets. See our research for further details.

Technology race w ith Cisco and Juniper

Historically late w ith new technology - needs to

capitalise in strong 100G start

#4 globally is not good enough for sustainable

profitability

Heav y price competition in access, loses share.

ALU cross sells to all its operator customer and into

enterprise v erticals

Increasingly bundle optics w ith IP equipment offfering

better COO.

Strong LTE start, and disruptiv e LightRadio

product catching attention

Gov t subsidy for optical access accelerates this

segment around the w orld

Cisco, Juniper, Huaw eiHuaw ei, Ciena (TE

Electronics (Ty co) in submarine)

Ericsson, Huaw ei, NSN, ZTE

Ericsson, Huaw ei, NSN, ZTE

Increasing netw ork complex ity and data traffic

Volume driv en business, likely grow w ith customer

rev enues in total. ALU cross selling w ith IP

Telecom operator rev enue grow th and capex /sales.

Telecom operator rev enue grow th and capex /sales.

#2 share and grow ing in IP edge routers. High

margin.

#1/#2 optics w ith Huaw ei ex cept Submarine w here

#1

#4 ov erall, #2 in CDMA. Strong LTE trial traction.

Low margin. Highly competitiv e. Strong IP

position helps in LTE/4G

#2 in DSL. #1 outside China in nascent optical access.

High competition. Low margin

IP routers ex panding from serv ice edge to also cellsite and backhaul

Submarine, DWDM (grow ing), and legacy

SDH/Sonet

GSM, CDMA, WCDMA and LTE end-to-end w ireless

infra plus radio components

Access (x DSL, optical) CO equipment (softsw itch, IMS),

legacy sw itch equipment

IP Optics Wireless Wireline

Carrier

187 1.9%604 5.7%665 6.0%

Applications

18 0.9%85 4.3%

123 5.8%



45

Chart 51: ARM Company Overview GBPm Dec Group PD licensing PIPD licensing PD royalty PIPD royalty Dev Sys ServicesSales 2010 407 106 27 189 28 36 20

2011E 468 132 32 219 28 33 242012E 537 129 35 280 35 34 242010 164 40.4%2011E 202 43.2%2012E 258 48.0%

2010 rev enue Europe 14% North America 34% Japan 11%Asia/Pacific 35% Other 5%

Services


Support, maintenance and training serv ices supplied under

licence agreements.


Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Physical IP Division (PIPD)ARM entered the phy sical IP market in 2004 through the acquisition of Artisan

Components. Phy sical IP describes small functional groupings of transistors (IP

blocks) w hich can be built up to form more complex designs.

Dev SysSupplies softw are dev elopment tools and hardw are platforms that help confirm the

function of a dev ice before it is manufactured in silicon.

ARM targets rev enue CAGR in the range 10-20% and margin ex pansion abov e 40%.

Sy nopy s (acq Virage Logic w hich acq phy sical IP assets from NXP), TSMC

Fragmented - third party dev elopment tool prov iders.

Faster uptake of smartphones and roy alties/dev ice maintained or increased. Acceleration in adoption in

non-mobile applications including consumer, automotiv e and microcontrollers. Success of tablet form factors and penetration of low -end notebooks, particularly if Microsoft port Window s 7 to the ARM

architecture.

More rapid adoption of ARM's PIP offering by top tier semiconductor v endors.

Intel gaining share in mobile (3-5 y ear v iew ). Roy alties per smartphone decreasing as phone ASP

and chip prices fall offset by v olume.

Slow er than projected uptake of ARM's cell library offerings by major chip v endors.

ARM pro forma operating profit and margin %

Processor Division (PD)ARM supplies microprocessor intellectual property to its customers in return for an up-front licence fee and a roy alty of approx imately 1% on ev ery chip sold based on the technology . The company offers a range of processor cores targeted at difference

performance points and end applicaitons.

Internal R&D teams at customers, Intel (x 86 architecture), Sy nopsy s (acq Virage Logic w hich acq

ARC), MIPS

ARM's share of dev elopment sy stems is low er as the company encourages third

party tool dev elopers to offer solutions for the ARM architecture.

PIPD is less mature than the processor div ision. ARM competes primarily w ith cell library design teams at customers. Other competitors include foundries (eg TSMC)

try ing to lock customers into their manufacturing platforms and third party v endors like Sy nopsy s, an EDA tool

v endor w hich acquired phy sical IP prov ider Virage Logic.

ARM's architecture is v ery strong in the mobile segment (90% share) and is grow ing in other

segments (consumer, embedded and enterprise) as customers seek to reuse IP and low er costs. The company primarily competes w ith internal design

teams at customers as w ell as riv al processor architectures including x 86 (Intel) and MIPS.

Success in the mobile market and the large softw are libraries dev eloped for the architecture help driv e

adoption in other markets. Roy alties follow licensing w ith a lag of around 3-4 y ears. Increasing v alue of ARM technology per dev ice (eg smartphones) is

another key driv er as is ex pansion into other technology opportunities (MCU, graphics, v ideo IP).

Similar to the processor div ision, customers face a make or buy decision w ith phy sical

IP. By licensing off the shelf technology from ARM rather than dev eloping bespoke libraries in house, customers are able to reduce R&D costs around a part of the

design that is non-differentiating.

As more chip designs are based on the ARM architecture, the demand for

dev elopment tools w ill increase. Softw are dev elopment tools enable code

dev elopment to start in parallel w ith hardw are dev elopment, reducing time to

market for products.



46

Chart 52: ASMI Company Overview EURm DecSales 2010

2011E2012E

Operating profit 2010and op margin % 2011E

2012E2010 rev enue Europe 6% US 15% Japan 7%

Asia Pacific 77%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Customer w ins in ALD and low k PECVD. Share grow th w ithin capital spending for ALD and low k PECVD. Market share gains in furnaces,

PECVD and epitax y .

Primarily deposition equipment based on a standard w afer handling platform w ith different reaction chambers. Segments include v ertical furnaces (20% of front-end sales), PECVD (20%), Epitax y (20%) and ALD (35%). ALD and low k PECVD are the higher grow th segments w hile epitax y , furnaces and

PECVD are more mature.

ASM is the market leader in ALD w ith a robust patent portfolio and has a strong position (along w ith AMAT) in low k PECVD. Share in the other segments is low er making it difficult for the business to generate strong

returns. The company supplies Intel w ith ALD tools and low k PECVD and is w inning new customers as they shrink process technology below

40nm.

80% of rev enues come from equipment and 20% from leadframes (materials). ASMPT is market leader in die bonders and handling equipment. The company is a top 2 w ire bonder supplier (w ith

Kulicke & Soffa) and is grow ing its flip chip bonder business. ~30% of sales come from the LED market (bonders and sorters). Other

products include encapsulation, singulation, ball placement and, follow ing the acquisition of SEAS from Siemens in January 2011,

Surface Mount Technology .

Share gains in LED, share gains in flip chip bonding, LED market grow th. Improv ing profitability in the acquired SMT business.

Share loss in mature technologies, new entrants in low k PECVD or ALD. Replacement of w irebonding w ith flip chip w here share is low er. Share loss in ex isting product segments.

ASMPT is the largest back-end (package & test) semiconductor equipment company ahead of Kulicke & Soffa in the US. The

company is able to lev erage its high share through a low -cost and flex ible structure. SEAS (SiPlace) is #3 in SMT sy stems behind

Fujitsu and Panasonic.

New customer w ins in ALD and low k PECVD and increasing share of budget as feature sizes shrink. Semiconductor capital spending recov ering

(BofAMLe: +50% in 2010). In the mature segments the focus is on customer share gains and max imising profitability .

ASM Pacific Technology1,2231,715

293 930429 1,286

Group Front-end

1,693 355 1,339313 33.8%16 5.4%329 26.9%

349 20.3%373 22.0%

Front-end ASM Pacific Technology

290 22.6%344 25.7%

58 13.6%29 8.1%

Recov ering back-end spending at IDMs and outsource assemby and test companies (OSATs). Share gains in leadframe and grow th of the flipchip bonding business. Ramping ex posure to the high grow th LED

market.

Toky o Electron, Hitachi Kokusai (Furnaces); Applied Materials, Nov ellus (PECVD); Applied Materials (Epitax y ); Toky o Electron MOCVD solution

(ALD)

Kulicke & Soffa, ESEC, TOWA, Shinkaw a, BE Semiconductor, Suss Micro Tec. Fujitsu and Panasonic in SMT.

Targets double digit q/q grow th in Q4 2010 at constant currency . Solid performance from back-end operations. No specific targets.



47

Chart 53: ASML Company Overview EURm Dec Group New tools (Revs) New tools (Units) New tools (ASP) Used tools (Revs) Used tools (Units) Used tools (ASP) ServicesSales 2010 4,508 3,707 154 24 187 43 4 613

2011E 5,625 4,828 204 24 137 28 5 6642012E 3,967 3,185 133 24 192 32 6 5902010 1,251 27.7%2011E 1,669 29.7%2012E 797 20.1%Europe 4% North America 14% Japan 9%Korea 32% Taiw an 32% Other 9%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Operating profit and margin %2010 equipment sales

ASML has gained significant share in the lithography market ov er the past fiv e y ears and now has around a 80% share. Going forw ard the company 's grow th w ill be linked to ov erall grow th in semiconductor capital spending, further small market share gains and shifts in the proportion of capital spending allocated to lithography . Ov er time, lithography

has increased its share of semiconductor capex due to its importance in reducing feature sizes on chips and the associated cost sav ing for the semiconductor manufacturer. ASML supplies all the major chip makers. In 2010, its customer base comprised 66% memory companies, 10% integrated dev ice manufacturers (logic and microprocessors) and

24% foundries. Semiconductor capital spending is now dominated by a handful of companies including Intel, Samsung, Toshiba, Hy nix and TSMC. ASML supplies all of these companies but has a relativ ely low er share at Intel.

Demand for lithography tools depends on tw o factors, the pace of technology shrinks and the addition of w afer capacity . In dow nturns, customers tend not to build new w afer capacity . Spending focuses on shrinking feature sizes on chips to low er cost. In this scenario customers buy leading edge lithography machines to add to ex isting fabs

(semiconductor factories). When demand strengthens customers may build new w afer capacity . In that case, they w ill buy both leading edge and less adv anced non-critical machines. The number of tools w ill be higher but the blended ASP w ill be less. Demand is broadly a function of semiconductor capital spending w hich is highly cy clical.

ASML is the w orld's largest supplier of lithography equipment to the semiconductor industry . Lithography is one of the key processes in the industry , accounting for 15-20% of total fab equipment spend. The tools are used to transfer circuit patterns onto silicon w afers, analagous to a slide projector. Laser light is shone through a mask carry ing the circuit

pattern and the image is reduced in size by a complex lens. The resulting image is ex posed in a light senstiv e coating on the w afer (photoresist). As feature sizes in semiconductor manufacturing continue to shrink (w ith some chips carry ing features as small as 22nm today ), the complex ity of the lithography tools increases. The performance of the tools depends on three primary features: Throughput (the number of w afers printed per hour), resolution (the feature size that can be printed) and ov erlay (the accuracy of

mapping one lay er in the chip onto the one below ).

Lithography

Rev enues of more than EUR5bn in 2011, gross margin of 45%, gross cash betw een EUR1.0-1.5bn.

Nikon (15-20% market share), Canon (2-3% market share). Canon has ex ited leading edge lithography tool dev elopment. Nikon is continuing but is heav ily reliant on Intel and Toshiba as customers. Nikon has paused dev elopment of nex t generation EUV (ex treme ultrav iolet machines). ASML w ill ship 6 beta tools in 2010/11.

Faster than ex pected grow th in semiconductor capital spending (ex pected to be +15% in 2011), further market share gains (eg Intel) and margin ex pansion as customers adopt v alue added features on lithography tools quicker than ex pected. ASML acquired a company called Brion in 2007 w hich offers softw are enhanced lithography features for this.

Constraints in ASML's supply chain could giv e competitors an opportunity to take some share. A strong Euro against the Yen, w eakens ASML's pricing position. Slow er capital spending if memory pricing falls and utilisation at foundry customers declines.



48

Chart 54: Atos Company Overview EURm Dec Group France Benelux UK Germany Worldline OtherSales 2010 5,021 1,133 938 904 475 867 705

2011e 6,754 1,113 983 1,157 1,682 900 9192012e 8,526 1,111 1,046 1,437 2,855 945 1,132

Operating profit 2010 200 4.0%and op. margin 2011e 381 5.6%

2012e 466 5.5%2010 revenue Consulting 4% Managed ops 61%splits Sy stems integrati 35%

France Benelux UK Other SiemensProducts and Services

Primarily managed serv ices (both infrastructure mgmt and applications mgmt) and sy stems integration. Some consulting capability ,

IT Serv ice arm of Siemens


Leading v endor in French

market, along

Top-3 position in Benelux ;

traditionally

Top-5 in the UK. Has solid

medical BPO as

Lacks scale in regions,

especially

Highly conc. mkt w here

Siemens is top-3

Demand drivers Sy stems integration business ex posed to cy clical corporate IT capex . Managed serv ices also benefits from structural shift to outsourcing, especially in Benelux .

Targets For 2011 ex pects group rev enues slight organic increase but less than last y ear and and 7.2 - 7.7% operating margins for legacy Atos. In has past has said Worldine is a 15% margin businsess. SBS targets w ill be giv en w hen deal closes.

Competition IBM, Accenture, Capgemini, Logica, Steria,

IBM, Accenture, Capgemini,

Logica, KPN


Logica, KPN,


Logica

IBM, T-Sy stems, Accenture,

Upside opportunity

Ov erall IT Serv ices is a fairly mature market, but some scope for cy clical rebound. Atos also a potential M&A target for new entrants looking to gain pan-Euro footprint.

Downside risk Indian IT Serv ices v endors grow ing in Europe could be a dampener on price. Currently consolidating big Siemens acqns w hich present big merger ex ecution risk.

WorldlinePay ment processing for banks, loy alty cards, Euronex t trade

In-house, First Data, ADP

Attractiv e margins and returns attracts US competitors or new

Consolidate other Euro pmt hubs & lev erage fix ed costs. Cross-sell

Dominant market share in its core markets (UK, France, Benelux )

Structural grow th in online pay ment v olumes. Increasd



49

Chart 55: Autonomy Company Overview USDm Dec Group Products Deferred/Maintenance ServiceSales 2010 871 574 255 42

2011e 1,019 709 272 392012e 1195 849 305.00 40.74


2012e 479 55.0%2010 revenue Americas 68%splits ROW 32%

Protect Power Promote


Email archiv ing and E-Discov ery (Zantaz, CA,

Meridio)

Audio/v ideo analy tics (Virage), OEM search (IDOL), file filters (from Verity ), , healhcare diagnostics

(Auminence)

Call centre mgmt and analy tics, content management, on-the-fly w ebsite optimisation softw are, augmented

reality (Aurasma)


Autonomy is the leading v endor in Enterprise search w ith a high market share. In the adjacent markets it has a good market share in the compliance market but is more a second Tier play er in the other adjacent markets. The search market is dominated by Autonomy (on the

high end) and Google (in the low end). The adjacent markets are much more competitiv e.

Demand driversEx ponential grow th in data v olumes is a structural driv er and traditional structured search methods are being increasingly ineffectiv e. Increasing compliance and regulation for corporates (particularly financial serv ices) is also creating demand for Autonomy products

Targets Ex pects 15% EPS accretion from recent Iron-Mountain acqn. Believ es can grow 15-20% longer-term.

Competition Microsoft (through the acquisition of Fast Search), Google, IBM and then many other play ers in the adjacent markets

Upside opportunity

New products for searching structured data potential open up new addressible markets. If Autonomy suceeds in being a platform prov ider for unstructured data this could create a netw ork effect that locks in ex isting customers and makes Autonomy the default choice for new

customers.

Downside riskA platform strategy could potentially bring Autonomy into conflict w ith larger v endors such as Microsoft, Google or IBM. Corporate

disclosure and regular M&A means it is hard to get an understanding of the underly ing financial lev ers. M&A led strategy also means grow th is partly dependent on AUTN being able to find new acqns and ex ecute on the integration.



50

Chart 56: Aveva Company Overview USDm Mar Group Asia-Pacific Europe America'sSales 2011 174 66 77 31

2012e 179 71 79 292013e 192 81 79 31

Operating profit 2011 51 29.1%and op margin % 2012e 48 26.6%

2013e 53 27.6%Sales by industry Oil & Gas 45% Marine 25%

Pow er 15% Other 15%CAD (Computer Aided Design) PLM (Product Lifecycle Management)


Softw are package used to design plants or ships. Av ev a PDMS is a 2D/3D plant design tool

Softw are to maange the end-to-end lifecy cle of a project from design to construction and ongoing maintenance


Strong share in marine v ertical -~60% (Intergraph purchased by Hex agon is #2) 30-35% share in oil and gas. C.35% in pow er. Weaker in US, but strong in

South America and China.

Still a relativ ely new product, so market share is low v s. v endors such as Dassault, Parametric, UGS.

Demand driversUltimately a deriv ativ e of manufacturing/commodities demand and energy

consumption - particularly from AsiaStructural increase in the uptake for PLC w ith increasing complex ity of

projects, increasing integration of supply chain.

TargetsManagement cautiously optimistic w ith a depression in the marine business hav ing bottomed out, and strong grow th in emerging markets

Competition Hex agon (Intergraph), Bentley , Autodesk Dassault Sy stemes, Parametric, Siemens, UGS

Upside opportunity

Build out of nuclear pow er stations Cross-sell opportunity on ex isting customer base

Downside riskMarine market recov ery slow ing, and slow dow n of grow th in emerging markets resulting in cutback in infrastructure projects



51

Chart 57: CapGemini Company Overview EURm Dec Group North America UK France Benelux OtherSales FY10 8,697 1,665 1,912 1,931 1,314 1,875

FY11e 9,543 1,704 1,995 2,141 1,279 2,424FY12e 9,722 1,739 1,974 2,312 1,214 2,483

Operating profit FY10 489 5.6%and op. margin FY11e 614 6.4%

FY12e 653 6.7%2010 revenue Consulting 6% Local prof. serv ices 16%splits Technology serv ice 40% Outsourcing 37%

North America UK Benelux France Other CPM BraxisProducts and Services

Capgemini has four main product offerings. High end consulting, Technology Serv ices (breaad & butter sy stems integration), Local Professional Serv ice (project based w ork operated on a more

Brazilian IT; outsourcing focus


Cap is the only European v endor

to hav e a significant

presence in US,

Strong presence in public sector, due largely to Inland

Rev enue contract.

Cap is #1 in France, its home

market. Also v ery strong in the mid-market due to its

Strong position here. High

customer conc means this is

normally higher

Material presence in Germany and Southern Europe, although lack of

scale holds back

Brazil IT Serv ices mkt c$10.8bn

grow ing >10%. Brax is strong in

Financial Serv ices

Demand drivers With its high ex posure to project based w ork, Capgemini's rev enues are highly geared to corporate demand. In the UK it is also particularly ex posed to the public sector because of its large Inland

Resources-driv en BRIC demand

Targets Capgemini currently ex pects 9-10% reported rev enue grow th in 2011 (>5% organic) and 50-100bp margin ex pansion.

Competition IBM, Accenture and HP (EDS) are Capgemini's main global competitors. Without Europe they also compete against local v endors such as Atos, Logica, Tieto, Indra and Steria. Indian firms such as TCS and Wipro are also becoming

Upside opportunity

Ov erall IT Serv ices is a fairly mature market, w ith some scope for increased outsourcing demand from Continental Europe. Flattening headcount py ramid offers margin upside. Cap looking to acquire to grow rev s in higher grow th ex -

Downside risk Indian IT Serv ices v endors grow ing in Europe could be a dampener on price. Also in the near-term Capgemini is ex posed to slow public sector business (especially in UK and Benelux ) as gov ernments take action to cut deficits.



52

Chart 58: CSR Company Overview USDm Dec Group HandsetsSales 2010 801 339

2011E 761 2732012E 816 290

Operating profit 2010 60 7.5%and op margin % 2011E 41 5.4%

2012E 51 6.3%2010 rev enue EMEA 15% Americas 12%

Asia Pacific 74%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

HandsetsCSR's merger w ith SiRF has giv en the

company a leading position in GPS w ith the SiRFatlas and SiRFprima platforms. This

builds on CSR's lead in Bluetooth for in-car.

CSR is one of the market leaders in the handset segment supply ing most top tier v endors. The

company is recov ering share at Nokia but has lost share in the broader smartphone market w here

competitors w ith more integrated combination chips hav e gained share, impacting CSR's grow th. The

handset market is v ery price competitiv e and margins are below corporate av erage.

Cov ers the headset, gaming and PC markets. Headset share is v ery high

but the market is v olatile. Gaming market share is more stable as CSR

is in the PS3 platform. Share in the PC segment is relativ ely low due to

Broadcom's strong softw are stack but recent partnerships w ith Ralink and Intel may help CSR capture some

share.

CSR has ov er 50% market share in the automotiv e connectiv ity and location market. Customers include BMW, Ford, Toy ota and

Continental. The market can be div ided betw een PND (fast mov ing consumer) and

automotiv e in-dash w here reliability is key and product lifecy cles are much longer.

CSR offers a range of connectiv ity solutions targeted at the handset market. Focus has shifted

from standalone Bluetooth to connectiv ity platform/combination chips including Bluetooth+FM,

Bluetooth+WiFi and GPS.

Platforms combine connectiv ity and audio processing w ith embedded

DSP.

238 223266 223

More rapid decline in PND v olumes. Problems in integrating SiRF and legacy CSR products.

Integration of SiRF and CSR roadmaps. More rapid uptake of in-dash GPS and connectiv ity

solutions.

Audio & Consumer Automotive & PND

Audio & Consumer Automotive & PND

*Business units formed in 2009 post merger w ith SiRF220306

Transition to smartphones is driv ing demand for more connectiv ity and combination solutions. CSR

is w orking to integrate its ex isting combo technology w ith the GPS solutions acquired w ith

SiRF.

Headset market grow th driv en by legislation (hands-free in cars) and

stereo w ireless demand. PC grow th for Bluetooth achiev ed by partnering

w ith WiFi v endors in Taiw an (Realtek, Ralink).

Grow th in demand for infotainment in cars is driv ing this market. Longer term question

marks remain around the PND segment w ith nav igation functionality increasingly built in or

included on handsets.

Gross margin 45-50%, R&D 20%, SG&A 10%, Operating margin 15-20%.

Faster smartphone grow th driv es more rapid adoption of combination technology . Share gains at

Nokia through faster uptake of CSR's Bluetooth/combos in new platforms.

Broadcom, Tex as Instruments, STMicroelectronics, Marv ell, Mediatek, Qualcomm

Share gains w ithin the PC segment, grow th in demand for stereo

headsets.

Share loss to larger competitors. Risk of integration of connectiv ity features w ith baseband in handsets,

w hich w e consider unlikely .

Share loss in headsets.



53

Chart 59: Ericsson Company Overview

EURm* Dec GroupNetwork

EquipNetwork Rollout

Prof services

Managed services Multimedia Unalloc

Amort of purch itang.

Sony Ericsson ST Ericsson Other eq.

Sales 2010 21,173 11,735 2,248 3,895 2,199 1,095 - -2011E 25,329 15,616 2,602 3,819 2,190 1,102 - -2012E 26,298 16,000 2,807 3,984 2,317 1,192 - -

Clean 2010 3,056 14.4% 2,089 17.8% 33 3.0% -73 -526 -2.5% 90 -155 -8EBITA 2011E 3,448 13.6% 2,825 18.1% 36 3.3% -104 -505 -2.0% 58 -257 28EBITA margin % 2012E 3,518 13.4% 2,732 17.1% 109 9.2% -72 -496 -1.9% 120 -209 72010 rev enue W Europe 21% N America 13% China 23% Other APAC 4%

EEMEA 24% L America 10% India 5%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

* Ericsson reports in Sw edish Krona, but to aid comparison w ith other companies w e quote in EURm

Ericsson sells its stake to Sony .

ST-E capitalises on its position as the main

alternativ e to Qualcomm

new "box " business adds to future grow th but is initially low margin.

Chinese competition.

More competitors enter the market - esp Huaw ei and

ZTE w ho hav e been largely absent.

Difficult to model, recent margin w eakness driv en by MEA billing sy stem

sales decine.

SEMC's mov e to smartphones is using 3rd

party OS w here competition is intense.

Product release speed is essential - late products (eg quad core apps processor)

means missed market.

There is a grow th/margin trade-off. More upgrade

business is higher margin.

Acceleration of outsourcing as operators concentrate on

differentiating business.

Netw ork complex ity and proliferation of operator serv ices driv e grow th.

Huaw ei, NSN, Alcatel-Lucent, ZTE, Cisco

Huaw ei, NSN, Alcatel-Lucent, ZTE, Cisco

Nokia-Siemens Netw orks (NSN), Alcatel-Lucent

Various including the main equip v endors, Sy base,

Amdocs, Comv erse

Nokia, Samsung, LG, RIM, Apple, Motorola.

Qualcomm, Tex as Instr, Broadcom, Intel, Nv idia,

Mediatek

#5 unit #7 v alue share and falling. Ov erall market ex grow th. SEMC failed to

adapt w hen competitors old and new mov ed into music

and smart phones.

#2 w ireless chip supplier after QCOM. Main customers Nokia,

Samsung. Low smartphone share hurting

near term.

SEMC is aiming to be a top Android v endor - v ery competitiv e and likely

v olatile driv en by age of portfolio.

ST-Ericsson needs socket w ins in smarphones and

tablets. Likely tied to Nokia's smartphone

recov ery .

Breakev en mid 2012

These are largely softw are div isions and represent faster grow th nascent businesses. IPX is a serv ice business for

internet and operators.

Ericsson does not prov ide financial targets

Equity stakes (S-E and ST-E 50% ow ned)

663 7.7%742 8.1%

Telecom operator grow th and capex /sales. Capex

mix . Acquired Nortel CDMA to inc. high margin

US ex posure.

Stable business grow s w ith telecom operator grow th (ie

single digit).

Operators increasingly outsourcing netw ork

operations as they push to low er costs.

High share in MEA billing SW coupled w ith operator consilidation in the region

led to recent losses.

~70% w ireles equipment. Wireline includes

softsw itches, routers, trunk optical. NW rollout is

the installation of this equipment.

#1 35-40% share in w ireless infrastructure.

Netw ork rollout is the low -margin serv ice element of

nw equip sales.

Ov erall higher margin than mgd serv ices, maintenance

in particular is high (15-20%) margin. Grow s w ith the netw orks business.

Initially low margin but grow s as operators add on

to the original contract scope. Higher grow th than prof serv so likely slow ly

diluting margins

1,017 12.2%

High margin w arranty serv ice business.

Consultancy serv ices.

Ericsson takes ov er the employ ees of its customers and the asociated serv ices

w hich can range from spare parts management, to

site maintenance to full netw ork operations.

Networks Prof services Managed servicesBilling softw are (incl LHS),

IPTV and compression softw are apps (Tandberg

TV), SMS brokering (IPX), application deliv ery platform softw are.

Mobile phone 50:50 JV w ith Sony .

Equity income not included in group operating profit

Mobile phone semiconductor 50:50 JV w ith STMicroelectornics,

merging the assets of Ericsson Mobile Platforms,

ST, and NXP.

Multimedia Sony Ericsson ST Ericsson



54

Chart 60: Indra Company Overview EURm Dec Group Trans./Traffic Telecom & Media Public/Health Financials Energy/Industry DefenceSales FY10 2,557 555 321 357 368 363 594

FY11e 2,569 592 384 355 378 377 483FY12e 2,569 592 384 355 378 377 483

Operating profit FY10 285 11.2%and op margin % FY11e 267 10.4%

FY12e 268 10.4%2010 rev enue splits Solutions 71%

Serv ices 29%

Trans./Traffic Telecom & Public/Health Financials Energy/Industr DefenceProducts and Services

Air traffic control, ground traffic

mgmt

Logistics, sy stems

integration w ork

e-gov t, online tax , e-

prescriptions,

Core banking sy stems, SI

Sy stems integration

Simulators, av ionics & radar


Number one position in the Spanish market w ith particular domain ex pertise in defence, public sector and transport. Has relativ ely low market share in international business, but does not necessarily get squeezed

on price as solutions are often highly differentiated.

Demand drivers Solutions business in energy , financial serv ices and telco ex posed to cy clical recov ery . Public sector and defense v ery dependent on w hether gov ernments are spending on new projects - debatable in current

Targets This y ear Indra ex pects rev enue grow th of at least 2% and margins of at least 10.5%.

Competition Accenture, IBM, Capgemini, Logica, Thales (defence)

Upside opportunity

Spanish market is maturing so the main opportunity is to ex pand ov erseas, particularly in South America and the US. M&A is an option. Also opportunities to cross-sell repeatable solutions (e.g. selling air traffic

control sy stems to control high-speed trains).

Downside risk Margins are already v ery high so earnings grow th from margin ex pansion limited. Spanish public sector and defence business may come under pressure as gov t looks to cut back on spending.



55

Chart 61: Infineon Company Overview EURm Sep Group Automotive Chipcard/Security OtherSales FY2010 3,244 1,268 407 172

FY2011E 4,004 1,547 419 213FY2012E 4,250 1,630 429 155

Segment profit FY2010 482 14.9% 198 15.6% 22 5.4% -29and margin % FY2011E 801 20.0% 285 18.4% 52 12.4% 1

FY2012E 851 20.0% 315 19.3% 52 12.1% -31FY2009 rev enue Germany 18% Other Europe 18% North America 13%

Asia/Pacific 45% Japan 5% Other 1%Chipcard/Security Other


Chip card and security ICs Wireline (pre Dec-09), foundry rev enues post

disposal, corporate ov erheads


Market leader ahead of Samsung, ST. Strong

position in pay ment cards, electronic passports, SIM

cards. Customers are Gemalto, Giesecke &

Dev rient, Oberthur, US Gov t.

Mainly foundry serv ices to Lantiq (former Wireline

business). Income includes central

ov erheads.

Demand drivers

High v olume applications supplemented by project

ty pe rev enues (eg ePassports). Increasing

emphasis on high security (pay TV, SIM, bank cards).

Foundry business w ith Lantiq w ill run for a

limited period.

Targets

CompetitionAtmel, NXP, Renesas,

Samsung, ST, TI

Upside opportunity

Ex panding applications for security chips to driv e

grow th. Further cost control to improv e profitability in

div ision.

Downside risk

Price pressure from more commoditised areas of the

business.

Top 3 position in pow er supplies, pow er generation and distribution, motor control.

Grow th driv en by need for improv ed energy efficiency in distribution and end dev ices.

Customers include Siemens, Delta, Av net, WPG Holdings.

Fragmented market w ith broad range of application specific and standard products.

Grow th driv en by improv ing energy efficiency and recov ering industrail production.

Pow er semiconductors, silicon discretes, secure ASICs

Fragmented competitiv e env ironment leads to share loss. High European cost base impacts

profitabilty .

Fairchild, International Rectifier, Mitsubishi, NXP, ON Semi, Renesas, ST, TI

IMM1,3971,8252,036

291 20.8%463 25.4%516 25.3%

Industrial Multisegment (IMM)AutomotivePow er semiconductors, sensors

and microcontrollers, silicon discretes

Market leader w ith strong position in pow er train, safety and telematics. Long design

cy cles and stringent reliability requirements make this a relativ ely stable segment. Customers Av net, Bosch,

Continental, Delphi.

Increasing electronic content in cars including safety ,

infotainment, fuel efficiency . Recov ering production v olumes.

Shift back to feature rich cars after mov e to low er end in 2009

Shift to hy brid v ehicles w ith higher semicondcutor content. Consolidation of automotiv e

semiconductor market. Shift of production to low er cost regions

(Kulim)

Shift to low er priced and featured cars. Low er production after gov ernment subsidies are

remov ed.

Group targets medium term rev enue grow th of 10% and operating margins of 20%, av eraging abov e 15% through the cy cle.

Freescale, International Rectifier, Mitsubishi, ON Semiconductor,

ST, TI

Rev enue grow th upside through demand for improv ed energy efficiency .



56

Chart 62: Logica Company Overview GBPm Dec Group UK Benelux France Nordic Int'lSales FY10 3,824 703 473 850 1,178 562

FY11e 3,936 696 465 876 1,307 590FY12e 4,081 696 442 945 1,379 618

Operating profit FY10 272 7.1% 60 8.6% 14 3.0% 68 8.0% 86 7.3% 43 7.7%and op. margin FY11e 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

FY12e 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%2010 rev enue C&SI 57% Infrastructure Management 19%splits Applications Management 26% BPO 3%

UK Benelux France Nordic Int'lProducts and Services

Logica has traditionally been strong in consulting & sy stems integratoin and industry -specific solutions. In recent y ears it has also grow n its outsourcing portfolio w ith major corporates. It has a

significant global deliv ery netw ork w ith >20% of heads in offshore or low er cost regions.


Very strong in public sector, 60% of UK; Energy & utilities second largest v ertical.

High % T&M w ork (80% of mkt

means margins v . cy clical. Big

financials & gov t.

Strong in industrials and

financials.

Large business acquired w ith WM-Data, stronger in

infra. mgmt

Material presence in Germany and Southern Europe, but limited scale

Demand drivers With its high ex posure to C&SI, Logica has the highest gearing to corporate demand amongst the European Serv ices v endor. In the UK it is also highly ex posed to the public sector, particularly

central gov ernment.

Targets For 2011 Logica ex pects abov e market sales grow th and modest, H2-w eighted margin ex pansion.

Competition IBM, Accenture, Capgemini and Atos and HP (EDS) compete w ith Logica across Europe. Within certain countries they also compete against local v endors such as Tieto, Indra and Steria. Indian

firms also competitiv e.

Upside opportunity

Ov erall IT Serv ices is a fairly mature market, but some scope for increased outsourcing from the Continent.

Downside risk Indian IT Serv ices v endors grow ing in Europe could be a dampener on price. Also in the near-term Logica is ex posed to slow public sector spend (esp. UK/Benelux ) as gov ts combat deficits.



57

Chart 63: Logitech Company Overview USDm Mar Group Pointing Keyboards Video & LifeSize Audio Gaming Digital Home OEMSales 2011 2,363 618 390 389 467 104 277 224

2012e 2,252 570 393 428 428 109 270 2232013e 2,441 593 409 495 450 117 325 241

Operating profit 2011 143 6.0%and op margin % 2012e 63 2.8%

2013e 175 7.8%2008 revenue Europe 47% Asia-Pacific 15%

North America 38%Video & LifeSize Audio Gaming Digital Home OEM


Webcams, remote w ebcam serv ices

(WiLife), v ideo conf. (LifeSize)

iPhone docks, PC speakers in-ear headphones (Ultimate Ears)

Joy sticks, steering w heels control pads & other console peripherals

Univ eral remote controls

(Harmony ), Google TV set-top box es & peripherals

Mics for singing games, OEM key boards &

mice


#1 in market, ahead of Creativ e

Top-5 position in market

#1 in market #1 in market na

Demand drivers

Targets

Competition Creativ e, Microsoft Altec Lansing, Bose, Creativ e,

Razer, Saitek, Microsoft

Gemini, TCA, Speedlink

Asian ODMs

Upside opportunity

Downside risk

Microsoft, Apple, Belkin, Chicony , Kensington

Opportunities to ex pand into new markets, particularly by M&A e.g. recent acquisition of LifeSize accessing enterprise market for v ideo conferencing. New technology may also driv e sales cy cles, e.g. ubiquitious w i-fi in home creates market for connected dev ices such as streaming media play ers.

Grow th strategy w ith significant M&A element alw ay s has ex ecution risk. Consumer electronics are inherently deflationary so Logitech needs to continue to produce product innov ation to defend its premium price point from low er cost competition.

PointingMice and trackballs

Clear market leader w ith ov er 50% more sales than

MSFT (#2)

Cy clical consumer demand is the most important driv er for Logitech. Product cy cles are also important in some areas e.g. iPhone accessories, console cy cle for Gaming.

KeyboardsKey boards

Clear market leader w ith more than double sales of MSFT (#2)

Microsoft, Apple, Belkin, Chicony , Kensington

Long-term company sees group rev enue grow th of mid-teens and 13-15% operating margin, 11-13% net margin;.



58

Chart 64: Misys Company Overview GBPm May Group Core Banking Capital MarketsSales 2011 370 167 185

2012e 446 173 1972013e 477 181 212

EBITA 2011 59 15.8% 32 19.0% 42 22.9%and op margin % 2012e 99 22.1% 34 19.3% 47 23.8%

2013e 107 22.5% 35 19.3% 51 23.8%2011 rev enues UK 6% Asia-Pacific 6% Middle East and Africa 6%

Rest of Europe 17% Americas 35%Core Banking Capital Markets Healthcare


Midas Plus (commerical banking), Equation, Bankmaster, BankFusion (univ ersal banking), LoanIQ (lending)

Opics (corebanking), Risk Vision (risk management), Summit (trading)

Misy s focuses on solutions for doctor's practices (as opposed to hospitals). Key products are Allscripts My Way

(smaller practices), Allscripts Professional, Allscripts Enterprise. Tiger is a practice management soln.


Misy s is the market leader in terms of installed base, although the market is relativ ely fragmented w ith many banks still using in-house solutions. This presents an

opportunity , although ov er recent y ears Misy s has been losing share to Temenos in new customer w ins.

Misy s has a strong position w ith its Summit trading product, although Opics is now starting to age. Risk Vision is a w ell-

regarded product.

Misy s is a top-5 v endor by rev enues in US healthcare. It is particularly strong in doctors' practices w ith the third largest installed base in the sector. Healthcare is a structural grow th

market, and is likely to remain strong in the medium-term.

Demand drivers

The macro cy cle is important, as financial serv ices profitability and ultimately capex is closely tied to the cy cle. Healthcare reform in the US is one structural driv er. In the long-term the ageing of the baby -boomer generation is

another driv er to increase the productiv ity of healthcare (by inv esting in IT). Cy clical driv ers are limited.

Targets In the long-term Misy s is aiming for 5-8% rev enue grow th and 18-20% adjusted group operating margin.

Competition Temenos, Oracle (I-Flex ), Caly pso, TCS (Finacle), SAP (Corebanking), Fidelity National Cerner, GE (IDX), Eclipsy s, McKesson, WebMD, Sage

Upside opportunity

Many banks still use in-house sy stems. With increasing complex ity there is a structural driv er to sw itch to a third-party solution. Increasing regulation is also a driv er for banks to sw itch to a third party solution w hich supports all the latest

changes.

Healthcare stimulus spending should start to come through late in calendar 2010. Bey ond there recent US Healthcare

Reform could be a cataly st for further softw are spending as

Downside riskCompetition is fierce w ith Temenos being aggressiv e in the space. Many of Misy s' customers are on legacy products and it is hard to make them sw itch; new products such as BankFusion are taking time to come through. Misy s lacks a

third party integration channel so ultimately it is capacity -constrained on the implementation side.

It is still unclear how much of the stimulus money w ill be spent, and w hat w allet-share w ill go on HER (electronic

health record) and practice management softw are Source: BofA Merrill Lynch Global Research


59

Chart 65: Nanoco Company Overview GBPm Jul GroupSales 2010 2.9

2011E 2.42012E 8.92010 -1 -48.6%2011E -4 -150.6%2012E -1 -9.9%

2010 rev enue UK 2% Europe 4% Asia 94%USA 1%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

At this stage, Nanoco is mainly influenced by the pace of uptake of its products by its key customers and less by the w ider macro trends of its markets. Demand for quantum dots w ill depend on successfully meeting the v arious technical criteria (lifespan, emission w av elength (colour) of

light, quantum efficiency etc. Further demand grow th w ill depend on gaining share w ithin ex isting customers product portfolios and w inning

new customers.

Quantum dot suppliers including QD Vision, Nanosy s, Incumbent YAG phosphor suppliers, Alternativ e display technologies such as OLED

Nanoco aims to complete the milestones w ith its LED partner by end H1 2011 w hich depend on the company deliv ering 1kg of red and 1kg of green quantum dots to the customer that meet its specifications.

Delay s in achiev ing customer milestones or unforeseen difficulties in ramping to v olume production. Slow uptake by customers or more

aggressiv e competition from incumbent phosphor suppliers.

Difficulties achiev ing satisfactory lev els of energy conv ersion making the materials too ex pensiv e to produce profitably . Delay s in JDA w ith Toky o Electron or failure of TEL

to commercialise the technology .

Additional JDAs w ith leading customers, including penetration of the Korean market; Dev elopment of direct driv e (OLED ty pe) quantum dot display s; Faster than ex pected uptake by ex isting customers driv ing grow th in

percentage of telev ision market addressed.

Potential for ex tension of ex isting relationship w ith Toky o Electron into a material supply agreement. Scope for additional solar JDAs w ith potential material end

customers.

Ex isting thin film and cry stalline solar companies.

Operating profit and margin %

Quantum dotsQuantum dots are tiny particles (2-10nm in diameter) of semiconductor

material, eg CdSe or ZnS. They display optical and electrical properties that differ to those of the corresponding bulk material including the emission of light under ex citation. The colour of the light emitted depends not on the

material from w hich the quantum dot is made, but its size. Nanoco is in the process of ramping production of quantum dots and solv ing the challenges

of manufacturing them in high v olume.

Very early stage product so no meaningful market share statistics but Nanoco has signed joint dev elopment agreements w ith major Japanese

LED and consumer electronics companies. Dev elopment milestones are on track w ith v olume material production ex pected in 2011. The initial

application for quantum dots w ill be replacing YAG phosphor in the production of w hite LEDs for telev ision backlighting applications. LEDs offer low er pow er consumption than incumbent cold cathode fluorescent lamp backlights w hile replacing the phosphor w ith quantum dots may lead to

improv ed colour quality and a further reduction in pow er needs.

Currently inv olv ed in an early stage joint dev elopment programme w ith leading semiconductor equipment v endor, Toky o Electron. Solar material production is

potentially less challenging than the quantum dots for LED backlighting but as a result pricing and margin structure w ill be low er and w ill depend heav ily on the conv ersion

efficiency of the product and the v olume required to cov er a giv en area.

Demand w ill depend on the success of the initial JDA w ith Toky o Electron and subsequent uptake of Nanoco's material. The key driv er is likely to be the efficiency

Nanoco achiev es w ith the material combined w ith the cost of the deposition equipment from TEL.

0.24.9

Nanoco’s adv anced photov oltaic based quantum dots are being dev eloped to form printable inks in a v ariety of solv ents, enabling low er cost production methods. Long

term pricing and uptake w ill depend on efficiency of the inks relativ e to competing solar panel solutions.

Solar materials

0.00.00.0

JDA Material sales Royalty2.92.24.0

0.1



60

Chart 66: Nokia Company Overview EURm Dec Group Navteq Devices & Services Proportionate NSN Corp & ElimSales 2010 42,446 1,002 29,134 6,331 -351

2011E 40,371 1,094 24,427 7,582 -3132012E 45,172 1,182 27,810 8,291 -402

Operating profit 2010 3,132 7.4% 265 26.4% 3,090 10.6% 48 0.8% -318and op margin % 2011E 1,282 3.2% 272 24.9% 861 3.5% 193 2.5% -237

2012E 2,274 5.0% 301 25.4% 1,625 5.8% 326 3.9% -3032010 rev enue Europe 34% China 18% North America 5%

MEA 13% Asia Pacific 21% Latin America 9%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

*NSN is 100% consolidated in group numbers, w e show the 50% proportionate ow nership in the div isional data

Disappearance of PNDs and failure of the Window s Phone and RIMM platforms.

Structural share loss continues in mobile phones and smartphones nev er recov er. Becomes a declining 5%

margin business plus an IPR roy alty stream.

NSN loses the scale battle y et continues to inv est as if it w ere a larger play er, leading to permanently low /zero profitability .

TomTom (TeleAtlas), Google Samsung, LG, RIM, Apple, Motorola, Sony Ericsson, HTC, small v endors supplied w ith Mediatek (semiconductor)

platform technology

Ericsson, Huaw ei, Alcatel-Lucent, ZTE, Cisco.

Migration of non-TomTom PND customers from TeleAtlas. But the main

v alue of this technology w ill be sold through the dev ices and serv ices div ision

Margin and top line recov ery - the market does not appreciate that Nokia's share in the $300+ ASP smartphone

market is now minimal w ith little dow nside and material upside if the WP initiativ e is a success.

A third-party inv ests in 20-30% of NSN, allow ing Nokia to deconsolidate, rev ealing a leaner, stronger handset balance sheet.

Pending acquisition of Motorola's infrastructure business brings profitable CDMA in N America and S Korean markets.

Approx 40% market share of ex ternal market. High margin and likely low

grow th. Rise in Bing search share and use on Window s Phone and RIM

handsets means inv estment in map w ill continue

Mid 30's % unit share and 20's % v alue share. Approx half of rev enue from old-sty le Sy mbian smartphones w hich are being phased out in fav our of Window s Phone OS starting Q4 2011. Smartphone share loss in the transition period.

Remaining trad phones business profitable but Nokia raising R&D to add w eb-connectiv ity to low est end phones.

Approx 20% w ireless infra share, 5-10% in w ireline and #2/3 play er in serv ices. Infra market grow ing w ith telco serv ice

rev enue, shift aw ay from radio to core. Disruptiv e price competition from Huaw ei and ZTE. Serv ices grow ing faster (high

single digit)

- Q2 11 pre-announcement guided to "significantly below " prev ious €6.1-6.7bn sales and as low as break-ev en op profit (from prev ious clean 5% guidance). Post-transition target >10% op margin and €1bn cut in opex (3% sales).

2011 faster than market grow th and op margin abov e breakev en.

Consumer demand v ia PND (personal nav igation dev ices) and in-car nav igation.

Internal transfer pricing to handset div ision.

Consumer confidence driv es replacement rates. Smartphone penetration grow th has led to substantial market share shiftts, and Nokia has been on the losing side of this. Hence the 2010 CEO change and 2011 change of strategy

Telecom operator rev enue grow th and capex /sales cy cles. Operator opex outsourcing is likely to continue to increase in

coming y ears leading to faster grow th for serv ices.

Handsets, smartphones. Serv ices such as nav igation are bundled into the handset price.

50% infrastructure equipment of w hich c70% w ireless. Also small trunk optics business, partnering w ith Juniper routers. Other 50%

is serv ice.

Digital maps and nav igation licenses. Internal and ex ternal sales including to

Microsoft's Bing Maps

Devices & Services NSN (50% JV with Siemens, consolidated)Navteq



61

Chart 67: Sage Company Overview GBPm Sep Group UK North America Europe Rest of WorldSales FY10 1,435 248 550 511 126

FY11 1,475 257 551 523 145FY12 1,522 267 559 537 159

EBITA FY10 366 25.5% 89 35.8% 122 22.1% 124 24.1% 32 25.3%and op margin % FY11 377 25.5% 91 35.5% 117 21.2% 132 25.3% 37 25.4%

FY12 389 25.6% 95 35.5% 120 21.5% 134 25.0% 40 25.1%FY10 rev enues Softw are & softw are-related 35%

Subscription 65%US Healthcare UK North America Europe Rest of World


Intergy EHR (electronic health records), Medical Manager

(practice management)

Line 50/100/200/1000, Sage MMS, Tas, SageCRM, Saleslogix

Peachtree, Accpacc, MAS 90/200/500, Sage CRM, SalesLogix , Timberline

Sage, Ciel, Cogestib, PC-Kaufmann

Accpac, Pastel, SageCRM, Saleslogix

SMB softw are is generally seen as defensiv e. Globally Sage is the #1 v endor w ith 21% share, ahead of Microsoft 12% and Oracle on 9%.Sage is the dominant play er in the

UK, its home market.Sage is #2 behind Intuit in the US

w ith c20% market share.Sage is top-3 in most of its main

European markets. Sage has a strong position in

Australia (v ia its legacy business) and South Africa (from its Softline

acquisition).

Demand drivers

Healthcare reform in the US is one structural driv er. In the long-term the ageing of the baby -boomer generation is another driv er to increase the productiv ity of

healthcare (by inv esting in IT).

SMB softw are is less cy clical than larger ERP softw are, although in a sev ere dow nturn there is undoubtedly some impact. Cloud computing is a potential structural driv er for SMBs.

TargetsCurrent conditions hav e stabilised but Sage still not seeing a general recov ery in its markets.

CompetitionCerner, GE (IDX), Eclipsy s, McKesson, WebMD, Misy s

Microsoft, SAP, Kashflow Intuit, Microsoft, Oracle Microsoft, SAP, local v endors Microsoft, Oracle, SAP, local v endors

Upside opportunity

Healthcare stimulus spending should start to come through late in

calendar 2010. Bey ond there recent US healthcare reform could be a cataly st for further spending.

The rise of cloud computing is an important potential driv er for the market, as SMBs are likely to be more amenable to this technology than large enterprises as their sy stems are less complicated and easier to mov e into the cloud. The US business has had problems ov er recent y ears so

there is an opportunity for turnaround/restructuring to be a short-term driv er for profitability . Sage has a healthy balance sheet so there are opportunities to do opportunistic M&A.

Downside risk

It is still unclear how much of the stimulus money w ill be spent, and

w hat w allet-share w ill go on Sage's softw are.

Cloud computing is a potentially disruptiv e technology so could prov ide an opportunity for new entrants to take share e.g. Salesforce.com in CRM.


SAP is the #1 play er in w hat is effectiv ely a duopoly market w ith

Oracle.



62

Chart 68: SAP Company Overview EURm Dec Group Licence Maintenance & subs Services & otherSales 2010 12,463 3,263 6,530 2,646

2011e 13,912 3,640 7,245 3,0072012e 15,386 4,001 8,162 3,183

Operating profit 2010 4,019 32.2%and op. margin 2011e 4,473 35.9%

2012e 5,188 41.6%2010 rev enue EMEA 50% Asia-Pacific 12%splits America 36%

ERP SMB accounting software Infrastructure Database Business intelligenceProducts and Services

SAP Business Suite (ERP, CRM PLM, SCM)

Business By Design, Business One, All In One

Netw eav er Sy base ASE, Sy base IQ BusinessObjects 4.0


SAP is the #1 play er in w hat is effectiv ely a duopoly market

w ith Oracle.

SAP w ould be a top-5, stronger in the mid-market but w ith little presence at the low -end. It is w eak in on-demand, w here its BusinessBy Design

The increasing complex ity of modern enterprise softw are sy stems creates structural

demand for integration products, so this is likely to

Sy base has 3% global share in databases. How ev er this is

v ery concentrated in a few v erticals such as financial

serv ices, w here it is strong.

This is still a grow ing but now mainly consolidated market

w ith the large v endors selling the functionality into their relev ant installed base.

Demand drivers1) Cy clical business spending, particularly capex on new products. 2) Product cy cles - ex isting customers tend to upgrade w hen SAP has a new business

proposition to sell to them.

Targets SAP believ e it can generated mid-term grow th of around 10%. Management hav e talked about a longer-term target of bring operating margins up to 35%.

CompetitionOracle Oracle, Microsoft, Sage,

Netsuite, Law son, Oracle, IBM, Microsoft Oracle, IBM, Microsoft Oracle (Hy perion), IBM

(Cognos)

Upside opportunity

The mov e to cloud computing w ill mean a fundemental rethinking of corporate IT infrastructure - clearly an opportuntiy to driv e an upgrade cy cle for SAP. SAP's high profitability and cash generation means it generates ample capital to reinv est in strategic M&A

Downside riskCloud could also open the door for competition as SAP seems to be lagging behind some of the other v endors on its products to address this market. SAP's

dominant market share and installed base means it has a big legacy business to defend w hich may restri



63

Chart 69: Software AG Company Overview EURm Group Licence Maintenance Service & otherSales 2010 1,117 366 369 335

2011e 1,146 359 409 3872012e 1,224 392 405 410


2012e 282 25.2%2010 rev enue ETS 38% IDS Scheer 18%splits BPM 45%

ETS BPM IDSProducts and Services

Mainframe database and related dev elopment tools Middlew are softw are (w ebmethods), Business Process Management (Aris), distributed caching

SAP integation and consulting business


Softw are AG is in a monopoly position. It is the only v endor that offers ETS products. How ev er this means

in the long run it is a declining market as people sw itch to more modern products

Softw are Ag is the No 3 play er in the market, although w ith a large gap to the top tw o play ers, IBM and

Oracle. The market is still v ery competitiv e

Niche play er, w ith operatins in Germany and

in US

Demand drivers Demand is driv en by capacity upgrades. There is a low lev el of cy clicality as customers try to defer

This is a cy clical market. New themes like SOA are driv ing demand once finally being adapted.

Cy clical market driv en by enterprise capex cy cles.

Targets Softw are Ag aims to maintain high lev el of profitability and ex tend the life cy cle of the offering. For the group it sees rev enue in ex cess of EUR1bn at margins in

the mid to high tw enties

Softw are Ag aims to gain a leading position as a strong independent play er beside IBM and Oracle

w hile improv ing the profitability

n/a

Competition Only replacement IBM, Oracle, Tibco, SAP, Progress Softw are Cap, Accenture, IBM etc.

Upside opportunity

Better than ex pected grow th for longer. Strong grow th as the company is achiev ing its desired position as the independent v endor of choice and

resulting better profit margins due to the scale effect.

Cross-sell SAP into legacy ETS customer

base.

Downside risk Faster than ex pected decline in mainframe database usage.

Softw are AG could be squeezed out of the market by the larger competitors w ho are offering the same functionality as part of a greater product offering.

Smaller than most competitors; margins

ex posed to any cy clical Source: BofA Merrill Lynch Global Research


64

Chart 70: STMicroelectronics Company Overview USDm Dec Group ACCI AMM/PDP ST Ericsson Flash and otherSales 2010 10,346 4,168 3,899 2,220 59

2011E 10,196 4,291 4,336 1,513 552012E 10,698 4,377 4,470 1,790 60

Operating profit 2010 581 5.6% 409 9.8% 428 17.5% -483 -21.8% 227and op margin % 2011E 242 2.4% 381 8.9% 705 16.3% -813 -53.7% 675

2012E 289 2.7% 367 8.4% 684 15.3% -721 -40.3% 6442010 rev enue EMEA 25% America 13% Japan and Korea 18%

China and SE Asia 44%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Group targets 9%-12% operating margin, 1.3-1.4x asset turns, 12% to 18% RONA (Pre-tax ). Double digit net operating cash flow (FCF) as a percentage of sales. Long term rev enue target is to achiev e sales of USD2.9-3.0bn per quarter.

Roadmap integration of EMP, NXP and ST takes longer than planned. Disruption at major

customers (Nokia).

#2 w ireless chip supplier after Qualcomm Main customers Nokia, Samsung, LG, Sony

Ericsson.

End market low grow th in total, product range and market share likely main driv ers.

Qualcomm, Infineon, Broadcom, Tex as Instruments, Intel

Share gains including sales of thin modems (Samsung), recov ering share at Nokia in

second generation Window s Phone dev ices.

Grow th of integrated telev ision solutions post acquisition of Genesis combined w ith higher semiconductor content in set top box es due to high definition and multi channel decode.

Stronger grow th driv en by new 32-bit MCU family and uptake of MEMS. Maintain

margins abov e 20%.

Market share loss in PC peripherals (HDD) as integrated competitor solutions take share.

Strong market share positions in automotiv e and consumer (STB MPEG decoders).

Market grow th driv en by higher chip content in cars, shift to HD and 3D in consumer.

Leadership position in pow er conv ersion and pow er discrete, non-v olatile memory

(ex cluding flash) and strong market positions in microcontrollers and analog. Grow th

driv en by increasing semiconductor content in a w ide range of applications.

High lev els of competition in the industrial segment lead to market share loss.

Automotiv e: pow er efficiency , safety , infotainment. Consumer: Shift to high

definition content, multimedia conv ergence.

Ex panding markets bey ond traditional industrial, automotiv e, consumer

applications. Grow ing opportunities in MEMS, automation, healthcare and energy efficiency .

Infineon, Tex as Instruments, Broadcom, Marv ell, LSI, Freescale

Tex as Instruments, Infineon, NXP, Fairchild, ON Semiconductor, Renesas, Mitsubishi

ST EricssonWireless platforms including baseband, RF,

pow er management and applications processors. Joint v enture w ith Ericsson.

Standard products for industrial and multi segment. Analog, pow er, MEMS (70%), Microcontrollers, non-flash memories,

smartcard (30%)

Application specific semis. Automotiv e (30%), Computer and comm (27%), Home

entertainment/display s (43%)

IMSACCI



65

Chart 71: Telecity Company Overview GBPm Dec Group Co-location Valute-added servicesSales 2010 196 161 35

2011e 237 194 432012e 281 231 51


2012e 86 36.5%2010 rev enue UK 53%splits Rest of Euro 47%

Co-location Value-added servicesProducts and Services

Rents space, pow er and access to a range netw ork prov iders w ithin Telecity 's centrally -located data-centres.

Miscellaneous add-on serv ices including technical support, data backup, monitoring sy stems, supply ing additional hardw are.


Largest European-listed data-centre prov ider w ith top-3 presence in London, Amsterdam, Paris, Milan, Stockholm.

Demand drivers Structural grow th in broadband penetration, and IP-deliv ered serv ices such as streaming media (iPlay er) is the key driv er. Shortage of supply and strong demand is a driv er for strong pricing. Mov e to cloud computing in long-term means more IT spending shifts from desktop to centralised data-cetnres.

Targets Telecity ex pects rev enue grow th in-line w ith market ex pectations in 2010 and margin grow th. Plans to add 6MW of new capacity from ex pansion in Frankfurt, 21MW in the UK and 2.6MW in Stockholm.

Competition In UK principal competitor is Telehouse (ow ned by KDDI). In Amsterdam & Paris Interx ion (priv ate) and Equinix (listed in US) are the main competitors. Little competition in Milan and Stockholm.

Upside opportunity

Additional capex likely to be announced later in the y ear prov ides upside to estimates. Supply /demand imbalance is likely to persist through this y ear w hich is a positiv e for pricing. Stronger demand for cloud serv ices means that current grow th trends could be more sustainable than the market ex pects.

Downside risk In the long-run pricing pow er likely to be competed aw ay , although high barriers to entry means this may take many y ears. Cloud competitors such as Google or Amazon may also take share from Telecity by offering serv ices hosted on their ow n data-centres.



66

Chart 72: Temenos Company Overview USDm Dec Group Licence Maintenance ServicesSales 2010 426 150 147 128

2011e 463 152 163 1152012e 579 202 229 148

Operating profit 2010 74 17.3%and op.margin 2011e 62 14.6%

2012e 128 30.0%2010 licence Asia Pacific 17% Middle East & Africa 23%splits Americas 13% Europe 47%

Core Banking software Products and Services

Temenos has tw o main products. T24 is Temenos' key solution, prov iding real-time corebanking and CRM functionality . TCB (Temenos CoreBanking) is the solution for high-end retail banks.


Temenos has a large installed base of ov er 600 customers. The company has been in the top 2 in terms of number of customers one for sev eral y ears now . The market is still fragemented in the low end of the market w ith many local v endors. For large deals there are only v ery few prov iders, w ith Temenos

hav ing a strong market position. The other main competitor is in-house dev elopments, w hich still dominate the market.

Demand driversTemenos is a cy clical company . It is also driv en by the mov e to replace in-house built sy stems w ith third party applications. New regulations are usually a small positiv e as they are an insentiv e to hav e a fresh look at ex isting old sy stem. Many deals are also driv en by regulators demanding an upgrade of the

insufficient ex isting sy stem. These cases happen often in emerging markets.

TargetsThe company has not communciated new 5 y ear targets y et, w e w ould see $1bn rev enue in the foreseeable future as a likely target. The company in the

past talked about operating margins at 25%.

Competition The main competitors are Oracle/I-flex , Infosy s, TCS, Misy s and SAP. I-Flex is seen as the closest riv al w ith Infosy s also shw oing strong momentum.

Upside opportunity

75% of the market are still in-house dev eloped core banking sy stem, this means there is still plenty of scope for the addressable market for Temenos to continue its dramatic grow th.

Downside riskBanks w ill continue to dev elop in-house sy stems and hence Temenos' market is only show ing normal market grow th w ith normal cy clicallity . Larger

v endors could make a more aggressiv e push into this market w ihich w ould be an issue giv en the larger resources



67

Chart 73: Tieto Company Overview EURm Dec Group Finland Sweden InternationalSales FY10 1,714 904 479 410

FY11e 1,743 889 559 411FY12e 1,700 705 571 423

Operating profit FY10 109 6.4% 100 11.1% 36 7.5% 14 3.5%and op. margin FY11e 98 5.6% 82 9.3% 43 7.7% -8 2.0%

FY12e 104 6.1% 81 11.5% 46 8.0% 13 3.0%2010 rev enue Telecom 33% Industry solns 31%splits Financial Serv ices 21% Enterprise solns 11%

Other 46% Mged serv ice & transformatio 38%Product Engineering solns 20%

EURm Dec Finland Sweden InternationalProducts and Services

Mainly IT Serv ices, focused more on outsourcing than sy stems integration. Also some solutions w ork, including outsourced R&D in the telco space.

Solutions in the UK, focused more on


#1 v endor in Finland (c25% share) and national

High single-digit share in Sw eden; strong share in

Sub-scale outside core Scandi markets.

Demand drivers Sy stems integration business ex posed to cy clical corporate IT capex . Need to cut costs in the dow nturn also a driv er for more use of outsourcing

Targets Ex pects 2011 sales to grow inline w ith market grow th of 2-4%, and FY EBIT to increase YoY.

Competition IT Serv ices: Accenture, Capgemini, HP, IBM, Logica (Sw eden), EDB. Outsourced R&D: Aricent, Capgemini,

Upside opportunity

Ov erall IT Serv ices is a fairly mature market, but some scope for increased outsourcing demand as companies seek to cut costs in dow nturn. Also geared to cy clical recov ery in financials.

Downside risk Indian v endors hav e been a negativ e for pricing, particularly in outsourced R&D. Scandi telco hardw are v endors increasingly challenged by US and Chinese competitors w hich may hav e indirect impact on

spending w ith Tieto.Source: BofA Merrill Lynch Global Research


68

Chart 74: TomTom Company Overview EURm Dec Group PND & Other Automotive LicensingSales 2010 1,517 1,158 179 131

2011e 1,236 798 246 1272012e 1,153 592 281 118

Operating profit 2010 188 12.4%and op margin % 2011e -455 -36.8%

2012e 29 2.5%2010 rev enue W Europe 70% RoW 5%

N America 20%In-Dash Tele Atlas Other


In-Dash sy stems built into cars, primarily w ith Renault and Fiat

Digital maps sold to PND v endors, in-dash manufacturers,

gov ts/corporates and softw are companies

Nav igation apps for iPhone, fleet management sy stems


New business so low single digit share. Fairly ev en market share betw een Tele Atlas and Nav teq. Stronger in

PND than in in-dash.

New business in iPhone; top-2 along w ith CoPilot in rev enue

terms

Demand drivers Consumer autos demand. Adoption of low er-cost in-dash dev ices by car

manufacturers.

Deriv ativ e of demand for PND and in-dash.

Consumer uptake of satnav ads on smartphones.

Targets

Competition Dentso, Blaupunkt, Siemens VDO Nav teq, Google, OpenStreetMap CoPilot, Nav man, Sy gic

Upside opportunity

Potential to take share from traditional ex pensiv e in-dash sy stems

Closer partnership w ith Microsoft or Apple, w hich lack their ow n map

offering

Subscription based serv ices e.g. liv e traffic.

Downside risk More ex pensiv e incumbents may cut prices to compete w ith Tom2. High

customer concentration also giv es the auto manufacturers a lot of bargaining pow er.

Google's map dilutes Tele Atlas' scarcity v alue, as Google unlikely to

be price sensitiv e.

Material threat of disintermediation from free turn-by -turn Satnav (e.g.

Android handsets)

Garmin, Mio/Mitac

Subscription based serv ices e.g. liv e traffic.

Material threat of disintermediation from free turn-by -turn Satnav (e.g. Android handsets)

PND box es sold to consumers

Clear #1 in Europe w ith c50% mkt share. #2 in US (behind Garmin) c20% share

New customer penetration topping out. Replacement cy cle could be a new demand

driv er.

For FY09 ex pects European and North American PND markets 15m and 17m units respectiv ely . Long-term targets a 40% gross margin / 20% operating margin business model for the group.

PND



69

Chart 75: Wolfson Company Overview USDm Dec Group Handset*Sales 2010 157 42

2011E 166 662012E 197 88

Operating profit 2010 -6 -3.8%and op margin % 2011E -8 -5.1%

2012E 11 5.7%2009 rev enue Europe/RoW 9% Americas 5%

Asia Pacific 69% Japan 17%



Demand drivers

Targets

Competition

Upside opportunity

Downside risk

Penetration of new markets including flat panel telev ision, notebook PC. Ex panding product range w ith enhanced audio solutions, silicon microphones and pow er management. Market share gains and w inning new customers. Penetration of ex isting customers (eg share at

Samsung, LG in handsets is relativ ely high but the recent w in w ith Nokia creates an opportunity there).

Cirrus Logic, AKM, Tex as Instruments, NXP, STMicroelectronics, Analog Dev ices, Dialog Semiconductor

*BoFA Merrill Ly nch Global Research estimates

Wolfson is a fabless supplier of high performance mix ed signal chips w ith a focus on data conv erters but it has also dev eloped amplifiers and other mix ed signal products. Through its AudioPlus product range, Wolfson is try ing to increase its semiconductor content per dev ice

by offering pow er management features, audio enhancement and silicon microphones.

Wolfson's audio solutions are in an estimated 5% of handsets and tend to be used in mid to high end handsets requiring adv anced audio performance. Market grow th benefits from smartphone penetration but the life of a design w in can be short and Wolfson lost its design w ith

Apple in the iPhone 3G S. A recent w in w ith Nokia is positiv e but limited to a relativ ely low v olume CDMA handset for the US market. The company 's solutions are also included in a range of consumer dev ices including media play ers and telev isions as w ell as multi

function printers. Key customers include Samsung, LG, Apple, TomTom, Microsoft, HP.

Gross margin around 50%, R&D 20% of sales, SG&A 15% of sales, operating profit 15% of sales.

More rapid penetration of new end markets, acceleration in design w ins for new products. Wolfson achiev ed more than 250 design w ins in 2009 w hich w ill start to ship through 2010 and bey ond and has continued that progress in 2010.

Further customer design losses as products become mainstream. Limited rev enue grow th leads to pressure on margins giv en 2011E operating cost base of $98m including amortisation and share based compensation. Share loss to competitors offering higher lev els of

integration (eg. Dialog Semiconductor at LG).

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Other*Flat panel*83

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Investment thesis ARM ARM's high near term P/E multiples reflect scope for strong medium term growth and margin expansion as the revenue mix shifts further towards royalties. A large part of ARM's revenues remains defensive as it is driven by chip customers' research and development budgets but with strong licensing there is limited scope for increases near term and royalty growth may disappoint in a weaker semiconductor demand environment.

Atos Origin Atos-Origin ia company-specific turnaround story, as it seeks to integrate the massive Siemens IT Services acquisition. If they can succeed in this the company can deliver significant upside to earnings expectations, even without having to show meaningful organic revenue growth. Atos' current management has a good track record so far, successfully steering the company through the recent recession and taking cost out of the business. We think this bodes well for making the Siemens deal work.

Capgemini Capgemini is a high quality, globally diversiifed IT Services player. However whiles its business mix is geared to do well in a recovery, in a softening macroeconomic environment it may find business more challenging. If the global economy were to decelerate again it would be hard to raise prices. Also Capgemini may find margins coming under pressure if volumes decline, given it has already taken out a lot of the low-hanging cost-cuts out of the business (particularly in subcontractors).

Software AG Software Ag's legacy mainframe business ETS continues to outperform expectations of structural decline.IBM's mainframe business is likely to be sustinable for some time yet. On the middleware side it has an interesting vision around connecting its BPM tool Aris with webMethods. We think there is a real market opportunity to sell business process automoation software into customers. The challenge facing Software Ag is to execute on this opportunity.

STMicroelectroni ST is benefiting from decent product momentum in its core divisions but the ST Ericsson wireless business is under significant pressure. In addition, slower demand in the consumer segment and low utilisation as inventory is worked down is limiting margin expansion near term. ST is a broad line semiconductor business so would be impacted by weaker GDP forecasts and electronics demand.

TomTom TomTom faces structural challenges in its core PND business which contributes over half of group revenues. GPS-equipped smartphones offer a cheap or free alternative and threaten to disintermediate much of the casual PND market. The company is attempting to diversify into newer areas such as in-dash navigation and subscription traffic services, however these remain a minority of the mix. In a weaker macro environment the PND business is likely to come under further margin pressure.


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Price objective basis & risk AIXTRON (AIXXF / AIXG) Our price objective of EUR23.5 (US$34/ADR) is set in line with our stretch lo fair value (EUR23.5) on our longer-term returns based valuation framework. The stock would trade at 12x 2012E P/E at our PO. Stretch lo is EUR23.5, mid cycle is EUR30.8 and stretch hi is EUR41.2. Mid cycle is based on medium term revenue growth of 10%, average operating margin of 30% and WACC of 10%. After 10 years, we assume a return fade to WACC over 30 years. Our stretch lo/hi valuations use 5% lower/higher margin and 2% lower/higher growth assumptions as well as a 1% higher/lower required return. The major risk to our price objective is a prolonged downturn in the global economy driving lower investment in LED production and delays in the ramp of LED usage in general lighting applications. Other risks are loss of market share to competitors or the loss of a major customer.

Alcatel-Lucent (ALALF / ALU) Our Price Objective is EUR3.1 (USD4.3/ADR), based on a stretch-lo EV/sales multiple of 0.5x. This implies the market discounts ALU achieving it's historic EBIT margin of 5% and we use this pessimistic target because ALU's net-debt balance sheet, high beta, and large pension fund make it a less attractive investment during difficult market conditions. Our long term fair value remains EUR5 or 0.75x EV sales on the assumption that ALU will reach a 7.5% through the cycle EBIT margin thanks to material restructuring and refocusing under new management. Long term it is possible the market will revert to the 1x EV/sale we saw in the mid 2000's, which would value ALU at EUR7. We back this u p with an EVA model which shows stretch-lo, mid-cycle, and stretch-hi EVA scenarios are EUR2.7/4.7/6.9 (USD3.8/6.7/9.9). Stretch scenarios: 2011-2013 existing estimates, followed by 2014-2021 stretch-lo 3% top line growth, 5% operating margin. Mid: 7.5% operating margin 4% top line growth Stretch-hi: 5% top-line growth, 10% operating margin assumption. Downside risks: Competition and mix shifts within ALU's business portfolio. ALU's unfunded healthcare liability moves with interest rates. Upside risks: in the past the market has discounted over-optimistic future margin expansion for ALU leading to it trading at a premium to the market on forward earnings for extended periods.

Amadeus IT Holding SA (ADUSF) Given the stable nature of Amadeus cashflows, DCF and EVA-based models are also good valuation approaches, in our view. They allow investors to sensitise their assumptions to the long-term shape of the business model. Out mid-cycle value of EUR14.4 is based on a DCF model which assumes a 9% WACC (beta of 1.0), a 35% terminal margin and a 2% terminal growth rate. At our PO Amadeus would trade on 13x 2012e P/E and 8.2x EV/EBITDA. We apply a 10% discount to this to arrive at our price objective. We are using a discount of between 10-25% on all the Software & IT Services names to reflect macro uncertainty. We think Amadeus deserves a discount at the lower end of the rnage to reflect its relatively resilient GDS cashflows and the high growth IT Solutions business. Upside risk to our PO is that airline volumes are more resilient than we expect and bounce back faster in the upturn. Also further customer signings in the IT Solutions business could drive higher estimates and valuation as more customers migrate on Amadeus' Altea platform. Downside risks are that a macro slowdown in Europe and/or the ongoing impact


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of the volcanic ash-cloud have more of an impact on European traffic, where Amadeus is disproportionately exposed. On the IT Solutions side the risk is that large expected signings such as United do not come through, or migrating customers to the new system takes longer than expected.

ARM (ARMHF / ARMH) Our price objective is 420p (USD20.5/ADR), set at our EVA based ROOC model mid cycle fair value and equivalent to 25x 2013E normalised BofAML pro forma EPS. Our mid cycle valuation is based on average revenue growth of 17% over 10 years, with rising royalty rate and mix leading to operating margins rising from 30% in 2010 to 67% in 2020E and we flex margin assumptions and revenue growth by 7% in the stretch scenario. ARM benefits from relatively defensive revenue streams and strong growth characteristics but we see downside risk to consensus earnings for the near term given the deterioration in demand growth expectations. The company generates licence revenue from its customers' R&D budgets, which tend to be less cyclical than semiconductor industry revenues but have been very strong recently. Its royalty revenues are subject to cyclical factors but benefit from secular growth as ARM's customers introduce more products based on the company's technology. Other than the economic cycle which drives the semiconductor industry, the risk to our price objective is a loss of confidence in the semiconductor sector leading to lower R&D spend and a delayed take-up of ARM technology. There is a risk to operating margins if the dollar weakens materially relative to sterling. On the upside, ARM would benefit from more rapid adoption of its technology in new applications and a material weakening of sterling relative to the US dollar.

ASM Intl (XLMSF / ASMI) Our price objective of EUR20.7/US$30 is in line with our stretch lo EVA valuation. Our EVA framework implies a mid cycle theoretical fair value of EUR36.2, stretch lo of EUR20.7 and stretch hi of EUR69.6. The EVA mid cycle is based on 10 year revenue growth of 10%, average operating margin of 21% and WACC of 10%. After 10 years, we assume a return fade to WACC over 30 years. The stretch lo valuation assumes 5% lower through the cycle growth, 5% lower operating margins and a 1% higher required return. At our PO the stock would trade on 8x 2012 P/E. The risks to our price objective are a prolonged downturn in the global economy driving lower semiconductor demand and hence lower capital spending, loss of market share to competitors and the loss of a major customer.

ASML (ASMLF / ASML) Our price objective of EUR28 (US$40/ADR) is set between our stretch lo valuation (EUR24.5) and our mid cycle fair value estimate (EUR33) on our longer-term returns-based valuation framework reflecting some risk to consensus EPS for 2012 in the near term. The stock would trade at 8x 2011E P/E and 16x 2012E P/E at our PO. Stretch lo is Stretch hi is EUR45.6. Mid cycle is based on medium term revenue growth of 8.5%, average operating margin of 20% and WACC of 10%. After 10 years, we assume a return fade to WACC over 30 years. Stretch lo and stretch hi assume 2% lower/higher revenue growth, 5% lower/higher operating margins and 1% higher/lower required returns. The risks to our price objective are a prolonged downturn in the global economy driving lower semiconductor demand and hence lower capital spending for a longer period than we currently model, loss of market share to competitors or the loss of a major customer.


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Atos Origin (AEXAF) We estimate the fair value of Atos to be EUR41 based on our DCF model which assumes 2-3% long-term growth and a 7.7% operating margin. However, given investor risk appetite in the current macro environment, we take a 10% discount to the DCF-based fair value for our EUR37.80 price objective. The risks to our price objective are better/worse than expected revenue growth and/or margin improvement/deterioration. Also, if the company were to achieve its blue-sky objectives of cross-selling services from its Worldline payments processing business, we believe this could generate significant upside potential to the share price.

Autonomy (AUTNF) Out mid-cycle valuation for Autonomy is GBP19.8. This equates to roughly 20x our 2012 EPS estimates. It is based on a DCF which has 11% revenue growth for the next three years and 6-7% growth further out. We assume EBIT margins peak at 45% before fading to 37% in the longer term. We apply a WACC of 9.3%. Applying a 10% discount to this fair value to account for macro uncertainty (the lower end of the range of discounts applied given the improved communication and consistent results) we arrive at our price objective of ₤17.8. Looking at our assumptions, we suspect our margin assumption is more on the bullish side, but if Autonomy can deliver on its structural opportunities then growth expectations could prove conservative. The risk to our investment case and price objective is a slowdown in the economy and hence in IT spending. There is also execution risk over recent or future acquisitions.

Aveva (AVEVF) Our mid-cycle valuation for AVEVA is 1180p on a 10-year DCF valuation and assumes a WACC of 9.7%, terminal growth of 2% and Beta of 1.1. We apply a 20% discount to this to arrive at our price objective of 944p. We are using a discount of between 10-25% on all the Software & IT Services names to reflect macro uncertainty. We think Avevadeserves a discount at the higher end of the rnage given its exposure to cyclical industries such as manufacturing. Upside risks to our Price Objective are rising oil prices leading to continued aggressive investment in oil exploration, resilient emerging markets demand for its products, and success in penetrating US market. Downside risks are a further fall in the oil price, greater-than-expected fall in demand from emerging markets, management not adjusting company cost base appropriately to a lower growth environment, and competition gaining traction in its key geographies.

Capgemini (CAPMF) We estimate the fair value of Capgemini to be EUR40 based on our DCF model which assumes 4-5% long-term revenue growth and operating margins rising from 7.4% to 10%. However, given investor risk appetite in the current macro environment, we take a 15% discount to the DCF-based fair value for our price objective of EUR34. We rate Capgemini Neural with a EUR34 PO (from EUR48 previously). Upside to our model assumption is possible as the model sensitivity to input factors is very high. The downside risk is a deterioration of the economy and increased competition from Indian offshore IT services players.


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CSR (CSRXF) Our price objective on CSR is 300p, in line with our returns based stretch lo fair value. Mid cycle (460p) assumes 5% medium term growth and 10% operating margins with a cost of capital of 10%. This valuation assumes that CSR's new Bluetooth/GPS products enjoy some level of success and that the company's market share at key customers improves. Our stretch lo valuation of 299p assumes 5% lower average growth and 5% lower operating margins and our stretch hi assumes 5% higher average growth and 5% higher operating margins. At our PO the stock would trade on 10x ex-cash 2012E P/E. The risks to CSR are loss of share at major customers, missing product design windows and a prolonged economic slowdown. Bluetooth and GPS are mostly used in mobile phones, cameras, navigation devices and wireless headsets which are economically sensitive segments. Longer term worries persist about integration of Bluetooth with other technology features. If CSR is unable to offer competitive technology combinations at the right time, it could lose market share. The completion or otherwise of the Zoran acquisition is also a risk factor.

Ericsson L.M. (ERIXF / ERIC) Our SEK86 (US$13.1/ADR) is based on 13x 2012E PE, the upper end of the large-cap lower growth tech-hardware range but equivalent to 10x ex cash, We choose the higher end because of Ericsson's perceived defensiveness as a play on mobile data driven telco capex growth, and also because our longer-term EVA model work points to a higher valuation. SEK86 equates to our stretch lo EVA valuation. Our longer-term EVA model range of SEK86-101-116 $13,3/15.5/17.9 (lo-mid-hi) is based on revenue growth of 4-5-6%, operating margin (before equity income) of 10-12-14%, WACC of 9% and JV's (Sony Ericsson and ST-Ericsson) valued at BV of SEK9bn ($1.3bn) or SEK3 per share. Mid-cycle fair value of SEK101 would equate to a 2012 PE of 15x or 12x ex cash. Ericsson's 15 year average EBIT margin ex JVs/handsets was 12% excluding the 2001-2002 downturn years and has been above this level every year since 2004. Upside risk comes from Ericsson's business mix shifting to higher margin upgrade revenues compared to lower margin new-network build. Downside comes higher than expected price pressure from disruptive Chinese competition, and margin pressure as Ericsson changes its business mix. Ericsson's SEK cost base means its profit margins rise in a strong dollar environment, and fall in a weak dollar environment, with a lag of about 1 year due to hedging.

Indra (ISMAF) Our mid-cycle fair value for Indra is EUR13/share, which is based on our DCF valuation scenario. This is based on a DCF which assumes mid cycle operating margin of 11.0% and medium term revenue growth of 6%. We assume a WACC of 9.5%. We apply a 20% discount to this to arrive at our price objective of EUR10.4. We are using a discount of between 10-25% on all the Software & IT Services names to reflect macro uncertainty. We think Indra deserves a discount at the lower end of the rnage to reflect its exposure to uncertainties in its Spanish business, partiuclarly in the public sector. Downside risks to our price objective are that the decline in the Spanish economy has more of an impact on Indra than we expect, that Indra is not successful in growing its business in international markets, and that demand in its defensive divisions slows. Upside risks are if Indra is faster at expanding overseas and produces better profitability or cash conversion than our model suggests.


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Infineon Technologies (IFNNF / IFNNY) We set our EUR7.0 (US$10.0/ADR) price objective in line with our returns-based stretch lo fair value estimate. We model average revenue growth of 7% and average operating margins of 16% in our mid-cycle calculation, generating a theoretical fair value of EUR8.7. Our stretch lo valuation assumes 14% operating margins, 5% growth and 11% required return while our stretch hi (EUR11.0) assumes 18% margins and 9% growth, At our price objective, the stock would trade on 7x FY12E ex cash P/E. We see three downside risks to our price objective. A deterioration in the macroeconomy would adversely affect demand for the end products manufactured by Infineon's customers, leading to a decrease in the company's sales and profitability. A further strengthening of the Euro would negatively affect the underlying profitability of the business due to the mismatch in currency between revenues and costs, while a strengthening of the dollar would be beneficial. The company could use the proceeds from the sale of the wireless business in value destructive acquisitions. Upside risks are stronger economic recovery than currently forecast and the positive impact of buybacks below fair value.

Logica (LGIAF) Our 142p mid-cycle fair value price objective is based on our 10-year DCF model. This assumes 3-4% revenue growth and 7% margins in the near term and 3.5% revenue growth/7.5% long-term operating margin. All margins are including restructuring. We assume a WACC of 9.1% with a beta of 1.3. We apply a 20% discount to this to arrive at our price objective 113.6p. We are using a discount of between 10-25% on all the Software & IT Services names to reflect macro uncertainty. We think Logicadeserves a discount at the higher end of the rnage to reflect the risk of margin compression if the IT Services industry goes into a cyclical downturn. Upside risk to our model assumption is possible as the model sensitivity to input factors is very high. The downside risk is a deterioration of the economy and increased competition from Indian offshore IT services players.

Logitech Intl-R (XLGKF / LOGI) Valuation: Our USD13 mid-cycle valuation scenario implies a 12x P/E on March 2013E EPS, and assumes an 8% operating marrgin, falling to 6.5% at terminal, with mid-single digit revenue growth. Given near-term uncertainty around around a) global macro and particularly consumer demand and b) the threat of tablet cannibalisation we have applied a 25% discount to our mid-cycle to arrive at our price objective of CHF9.80 (USD100/ADR). We have applied a discount of 10-25% to the names under our coverage and use the higher of the range for Logitech given the structural and cyclical challenges facing the business. Downside risks to our valuation are a slower than expected consumer rebound, structural challenges (e.g. new devices such as iPads or netbooks) eroding Logitech's core PC market, and poor execution on acquistions (such as LifeSize). Upside risks are long-term profitability coming in above our estimates, a quick consumer rebound or new opportunities in markets such as China or with Google TV.

Misys (MUSJF) Our mid-cycle fair value is 350p which is based on a DCF which assumes 5-7% mid-term 2011-2016) growth for group revenues, 2-5% long-term growth and 1% terminal growth. We have margins of 22-23% in the medium-term. This compares to Misys medium-term targets of 5-8% revenue growth and 20-23% operating margins. We assume a WACC of 9.1% for the group.


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Given current macro uncertainty we apply 10% discount to our fair value to arrive at our 315p price objective. Across our coverage we are currently applying a 10-25% valuation discount due to the current macro situation. We apply a discount towards the lower end of the range on Misys, reflecting the resilient qualities of its ongoing maintenance stream. The downside risks to our investment case and price objective include the failure of the new BankFusion project in the banking division or a weaker than expected macro recovery. Upside risks are that Financial Services demand rebounds stronger than we think, or that the pure-play Misys banking business participates in sector consolidation.

Monitise (MONIF) Our price objective of 44p is based on an assumption that Monitise achieves 0.5% market share of our estimate 2020 $72bn global mobile payments and associated revenue market for the banked market (meaning for end-customers who have a bank account). We do not yet assume any value for Monitise's potential in the unbanked market. Our base base is that Monitise can achieve at least 1% market share given its already announced agreements with large financial institutions, but recognise the stock may not discount this within the next 12 months. The reason the share is not higher is that we expect many of today's payment network companies, some of which are Monitise customers, to continue to take the bulk of interchange fees which make up a part of this market, along with advertising and marketing sourced revenue. A 25% EBIT margin or more is typical for payments/processing companies. With a 33% tax rate we create a normalised 2020 EPS which we put on a sector 17x multiple then discount back to today at 10%. THis implies an IRR out to 2020 of 15% and margin normalised PV PE in 2014--16 of 33x, 25x, 20x, which seen reasonable for such a high -growth company compared to European technology high quality peers which trade on 20x or above PE multiples, often with lower growth characteristics. Upside could come from faster adoption of mobile payments around the world. Downside from industry inertia in mobile payments, or from the emergence of another global competitor.

Nanoco (NNOCF) We set our PO at 100p between stretch lo and mid cycle fair value on our longer term fair value model. At this stage of its development (essentially pre-revenue), we think it most appropriate to frame Nanoco's potential value based on a range of possible outcomes. In the near term, the stock is driven more by news of achieving customer milestones than financial results but this should change as volume production ramps from FY2012. Our summary fair value model is driven by our estimates for 2010 through to 2014. Beyond the estimate period, we model a growth period from 2015 to 2021 before fading returns back to the required return. After strong growth in the period through 2014 driven by initial material shipments we model growth fading from 26% to 2% in our mid cycle fair value with operating margins averaging 50%. Our mid cycle fair value is 127p using this model with stretch lo of 58p and stretch hi of 273p. For our mid cycle assumption, we apply a required return of 10%. Our stretch lo assumes 10% lower margins and 10% lower growth while stretch hi applies 10% higher margins and growth rates. The risks to our price objective are delays in hitting development milestones,


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slower uptake of the material by customers in end products and the risk that key personnel could leave. In addition, while the joint developments Nanoco has with its customers carry substantial value to Nanoco they are relatively small compared with the customers' overall R&D budgets.

Nokia (A) (NOKBF / NOK) We set our Nokia price objective at our EUR6.4 (US$9/ADR) break-up value. - Mobile Phones - EUR2.0 /share. We assume a 20% decline in revenue out to 2013 and then apply a Gordon Growth formula assuming 5% per annum decline on a 10% EBIT margin business (it was 17% in 2010) going forward at 8% required return, yielding a EUR7.3bn valuation or 8x 2011 earnings normalised at 10% operating-margin. - IPR royalty - EUR1.7 /share. We assumes the smartphone business is shut down and Nokia asserts rights to IP royalties on 90% of handset market revenues out to 2030 assuming a fixed $200bn per annum handset market over that period. We assume a 0.5% royalty rate taxed at 30%. - NSN - EUR0.7 /share. After having raised the valuation of NSN in our last report to 0.5x EV/sales we now reduce it to 0.3x and deduct Nokias share of NSNs EUR1.2bn net debt. We also add back the NSN net debt to Nokias reported net cash in order to be consistent. - Navteq - EUR0.8 /share. Navteq remains valued at half what Nokia paid for it. - Net cash - EUR1.2 /share Risks: Nokia continues to lose market share and its associated scale advantage, subscriber growth and upgrade cycles are lower than we expect and lead to slower overall handset market growth. Upside would come from the company seeing its low-end smartphone push resulting in market share gains amplified by it being the highest-growth segment of the market, success in high-end smartphones, and from its low cost base driving competitive advantage.

Sage Group (SGGEF) Our mid-cycle fair value for Sage is 290p. This is based on our DCF fair value with long term revenue growth assumptions of 6%, adjusted operating margins of around 26%, 1% terminal growth and 9.1% WACC. Given near-term uncertainty around around global macro we have applied a 10% discount to our mid-cycle to arrive at our price objective of 261p. We have applied a discount of 10-25% to the names under our coverage and use the lower of the range for Sage given its resilient nature and recurring subscription revenues. The risk to our price objective is a worse than expected slowdown in the economy, a significant increase in the cost of borrowing, which would limit the company's ability for further acquisitions, and competition from competitors with new business models like salesforce.com. Upside risk to our investment case comes from better than expected operational performance and a quicker turnaround in the Global economies.

SAP A.G. (SAPGF / SAP) Our mid-cycle fair value for SAP is EUR51. It is based on a long term DCF model that assumes licence revenue growth for the next five years of 10% (CAGR) followed by a normalised growth phase (7%). We model rising margins, driven partly by greater contribution of high-margin maintenance revenue. We model peak non-IFRS margins of 34%. Our WACC is 9.3% and we model terminal growth of 1%. Given near-term uncertainty around around global macro we have applied a 10% discount to our mid-cycle to arrive at our price objective of EUR45.6


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(US$64.82/ADR). We have applied a discount of 10-25% to the names under our coverage and use the lower of the range for SAP gives its high quality and resilient maintenance revenues. Downside risks to our investment case and price objective are a weaker than expected economy and increased competition from Microsoft, Oracle and IBM. Upside risks are better than expected cost cutting and a faster recovery in enterprise spending.

Software AG (SWDAF) Our mid-cycle valuation of EUR39 is based on a DCF which assumes 5-6% mid-term revenue growth and 25-26% EBIT margins. Although macro distress maybe a headwind for ETS and BPE licences in the near-term we believe this scenario is still well achievable. We apple a 10% macro discount to this to arrive out our EUR35.1 price objective, implying 13.9x 2012E P/E. The risks to our price objective are from weaker-than-expected end demand, further integration issues and a faster-than-expected decline in the mainframe division. The upside risk to our PO is from a quicker recovery in end demand.

STMicroelectroni (STMEF / STM) Our EVA based mid cycle fair value for ST is EUR8.2 while the stretch lo is EUR4.9 and stretch hi is EUR13.0. Mid-cycle is based on medium-term revenue growth of 6%, average operating margin of 8% and WACC of 10%, while the stretch lo assumes 2% lower growth rates and margins and 1% higher required return.Stretch hi is based on 2% higher growth rate and margins and 1% lower required return. After 10 years, we assume a return-fade to WACC over 30 years. Our sum of the parts valuation (EUR8.7) is near mid cycle on the EVA model and is underpinned by the core ACCI and IMS divisions with a zero valuation for ST-Ericsson. We set our EUR4.9 (US$7.0/ADR) price objective in line with our EVA stretch lo given the current demand uncertainty. At our price objective the stock would trade on a P/E of 10x 2012E. Risks to our price objective are, upside strengthening of the US dollar vs. the euro or a stronger economic recovery leading to upside to semiconductor demand. Downside risks are weakening of the US dollar vs. the euro, integration risks of recent handset chip acquisitions and a slower economic recovery leading to a semiconductor correction.

Telecity (TLCTF) Our price objective of 580p is based on a conventional DCF which assumes 19% revenue CAGR out to 2013 driven by ongoing capex investments, 5% growth from 2012 to 2019 and zero terminal growth. We have EBITDA margins rising from 38% currently to 52% at peak and 40% at terminal. We use a WACC of 9%. Upside risks are that price increases are sustained longer than we assume or that Telecity makes further capital investment. Downside risks are that new entrants come into the market and compete away excess returns, or that Telecity in unable to find further investment opportunities as quickly as we forecast.

Temenos (TMNSF) Our DCF model suggests a fair value of CHF 27.3 for the Temenos stock, assuming high single-digit revenue growth, operating margins rising to 32% in the long-term and a 9.5% WACC. Applying a 20% discount to this fair value (the higher end of the range of discounts applied given the beta for the stock) we arrive at our price objective of CHF21.8. The risk for our investment case is that the core banking market for Tier 1+2 banks does not take off as expected. Furthermore, given Temenos' small size and the large ASP, business is likely to be lumpy on a quarterly basis.


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Tieto (TCYBF) Our mid-cycle value for TietoEnator is EUR10.9, which is our mid-cycle DCF which assumes mid-cycle margins of 7% and medium term revenue growth of 3%. We apply a WACC of 9.4% and a termianl growth rate of 1%. During the last cycle TietoEnator averaged margins of approximately 10%. However, we do not believe this will be achievable going forward given the structural change in the industry with increased competition from low-cost Indian companies. Given near-term uncertainty around around global macrowe have applied a 20% discount to our mid-cycle to arrive at our price objective of EUR8.70. We have applied a discount of 10-25% to the names under our coverage and use the higher of the range for Tieto given the structural and cyclical challenges facing the business. Risks to our price objective are that margins deteriorate further which would lead to downside to our price objective, or that the company is able to achieve margins closer to historical levels which would lead to upside to our price objective.

TomTom (TMOAF) We value TomTom using an EVA model which assumes that revenue decilnes stabilise but margins declines continue. We assume zero revenue growth and 6% long-term margins versus 12% in 2010. In the long-run we assume ROOC fades to our 9% WACC over a 20-year period.This model implies a EUR2.8 mid--cycle valuation for the shares, our price objective. Given near-term uncertainty around around a) global macro and particularly consumer demand we have applied a 25% discount to our mid-cycle to arrive at our price objective. We have applied a discount of 10-25% to the names under our coverage and use the higher of the range for TomTom given the structural and cyclical challenges facing the business. Upside risks are more success than we anticipate in the in-car market or that the PND market declines less than the double-digit rate we currently forecast. Downside risks are failure of in-car products and competition from smartphone alternatives such as Google on Smartphones eroding revenues and margins in the core PND business faster than we assume.

Wolfson (WLFMF) Our price objective is based on our EVA based valuation framework which implies a mid cycle fair value of 168p, stretch hi of 277p and stretch lo of 100p. Mid cycle is based on medium term revenue growth of 6.5%, average operating margin of 10% and WACC of 10%. After 10 years, we assume a return-fade to WACC over 30 years. The stretch lo valuation assumes 3% lower through the cycle growth, 5% lower operating margins and a 1% higher required return. Wolfson should benefit from its high net cash position equivalent to 20% of the market value. We set our PO of 120p between stretch lo and mid cycle and equivalent to10x underlying 2013E P/E. Risks to our price objective on Wolfson are a market slowdown driven by weaker demand for electronics from the consumer. Wolfson's end market exposure is concentrated in the mobile phone, home entertainment and PC markets, which account for almost half of sales. If consumer spending were to increase significantly it would positively affect our earnings estimates and possibly our price objective for the company. A negative risk would be if the company lost business with one of its key customers which include Hewlett Packard, Microsoft, Sony, Samsung and LG Electronics and which could lead to material earnings downgrades.


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Technology Click here for definitions of commonly used terms. Analyst Certification We, Andrew Griffin, Jonathan Crossfield and Jonathan Tseng, CFA, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. Special Disclosures BofA Merrill Lynch is currently acting as financial advisor to Politec Tecnologia da Infarmacao SA in connection with its proposed sale to Indra Sistemas SA, which was announced on July 29, 2011.

EMEA - Technology Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst BUY AIXTRON AIXG AIXG US Jonathan Crossfield AIXTRON AIXXF AIXA GR Jonathan Crossfield Alcatel Lucent-A ALU ALU US Andrew Griffin Alcatel-Lucent ALALF ALU FP Andrew Griffin Amadeus IT Holding SA ADUSF AMS SM Jonathan Tseng, CFA ASM Intl XLMSF ASM NA Jonathan Crossfield ASM Intl ASMI ASMI US Jonathan Crossfield ASML ASMLF ASML NA Jonathan Crossfield ASML ASML ASML US Jonathan Crossfield Atos Origin AEXAF ATO FP Jonathan Tseng, CFA Autonomy AUTNF AU/ LN Jonathan Tseng, CFA CSR CSRXF CSR LN Jonathan Crossfield Ericsson L.M. ERIC ERIC US Andrew Griffin Ericsson L.M. ERIXF ERICB SS Andrew Griffin Infineon Technologies IFNNF IFX GR Jonathan Crossfield Infineon Technologies IFNNY IFNNY US Jonathan Crossfield Logica LGIAF LOG LN Jonathan Tseng, CFA Misys MUSJF MSY LN Jonathan Tseng, CFA Monitise MONIF MONI LN Andrew Griffin Nanoco NNOCF NANO LN Jonathan Crossfield Nokia (A) NOK NOK US Andrew Griffin Nokia (A) NOKBF NOK1V FH Andrew Griffin SAP A.G. SAPGF SAP GR Jonathan Tseng, CFA SAP A.G. SAP SAP US Jonathan Tseng, CFA Software AG SWDAF SOW GR Jonathan Tseng, CFA Telecity TLCTF TCY LN Jonathan Tseng, CFA Temenos TMNSF TEMN SW Jonathan Tseng, CFA NEUTRAL Capgemini CAPMF CAP FP Jonathan Tseng, CFA Logitech LOGI LOGI US Jonathan Tseng, CFA Logitech Intl-R XLGKF LOGN VX Jonathan Tseng, CFA Sage Group SGGEF SGE LN Jonathan Tseng, CFA STMicroelectroni STMEF STM FP Jonathan Crossfield

http://research1.ml.com/C?q=q2kgl3P0V!1ymThnBcj7-Q

http://research1.ml.com/C?q=3xsRKLJCYbJymThnBcj7-Q

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EMEA - Technology Coverage Cluster Investment rating Company BofA Merrill Lynch ticker Bloomberg symbol Analyst STMicroelectroni STM STM US Jonathan Crossfield UNDERPERFORM ARM ARMH ARMH US Jonathan Crossfield ARM ARMHF ARM LN Jonathan Crossfield Aveva AVEVF AVV LN Jonathan Tseng, CFA Indra ISMAF IDR SM Jonathan Tseng, CFA Tieto TCYBF TIE1V FH Jonathan Tseng, CFA TomTom TMOAF TOM2 NA Jonathan Tseng, CFA Wolfson WLFMF WLF LN Jonathan Crossfield RSTR Micro Focus MCFUF MCRO LN Jonathan Tseng, CFA


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Important Disclosures Investment Rating Distribution: Electrical Equipment Group (as of 01 Jul 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 19 48.72% Buy 7 38.89% Neutral 15 38.46% Neutral 6 46.15% Sell 5 12.82% Sell 3 60.00% Investment Rating Distribution: Machinery/Diversified Manufacturing Group (as of 01 Jul 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 39 52.00% Buy 21 56.76% Neutral 25 33.33% Neutral 8 38.10% Sell 11 14.67% Sell 2 20.00% Investment Rating Distribution: Technology Group (as of 01 Jul 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 130 51.59% Buy 63 52.50% Neutral 51 20.24% Neutral 27 55.10% Sell 71 28.17% Sell 17 27.42% Investment Rating Distribution: Telecommunications Group (as of 01 Jul 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 90 50.28% Buy 43 58.90% Neutral 53 29.61% Neutral 28 62.22% Sell 36 20.11% Sell 14 46.67% Investment Rating Distribution: Global Group (as of 01 Jul 2011) Coverage Universe Count Percent Inv. Banking Relationships* Count Percent Buy 2024 53.94% Buy 935 50.68% Neutral 944 25.16% Neutral 442 51.64% Sell 784 20.90% Sell 273 37.24% * Companies in respect of which BofA Merrill Lynch or one of its affiliates has received compensation for investment banking services within the past 12 months. For purposes of this distribution, a stock rated Underperform is included as a Sell.

FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst’s assessment of a stock’s: (i) absolute total return potential and (ii) attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). There are three investment ratings: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm’s guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst’s view of the potential price appreciation (depreciation). Investment rating Total return expectation (within 12-month period of date of initial rating) Ratings dispersion guidelines for coverage cluster*

Buy ≥ 10% ≤ 70% Neutral ≥ 0% ≤ 30%

Underperform N/A ≥ 20% * Ratings dispersions may vary from time to time where BofA Merrill Lynch Research believes it better reflects the investment prospects of stocks in a Coverage Cluster.

INCOME RATINGS, indicators of potential cash dividends, are: 7 - same/higher (dividend considered to be secure), 8 - same/lower (dividend not considered to be secure) and 9 - pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock’s coverage cluster is included in the most recent BofA Merrill Lynch Comment referencing the stock.

Price charts for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them mailed. MLPF&S or one of its affiliates acts as a market maker for the equity securities recommended in the report: AIXTRON, Alcatel-Lucent, ARM, ASM Intl, ASML,

Aveva, CSR, Ericsson L.M., Infineon, Logica, Logitech, Nanoco, Nokia (A), SAP A.G., Software AG, STMicroelectroni, Telecity, Wolfson. MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: Amadeus Global, Nanoco. The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: Alcatel-Lucent, Amadeus Global,

Capgemini, Ericsson L.M., Infineon, Logica, Logitech, Nanoco, Nokia (A), Sage Group, SAP A.G., STMicroelectroni, Tomtom. MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: AIXTRON,

Alcatel-Lucent, Amadeus Global, ARM, Atos, Autonomy, Capgemini, Ericsson L.M., Indra, Infineon, Logica, Logitech, Nanoco, Nokia (A), Sage Group, SAP A.G., Software AG, STMicroelectroni, Temenos, Tieto, Tomtom.

The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: AIXTRON, Alcatel-Lucent, Amadeus Global, ARM, Atos, Autonomy, Capgemini, Ericsson L.M., Indra, Infineon, Logica, Logitech, Nokia (A), Sage Group, SAP A.G., Software AG, STMicroelectroni, Temenos, Tieto, Tomtom.

In the US, retail sales and/or distribution of this report may be made only in states where these securities are exempt from registration or have been qualified for sale: AIXTRON, Alcatel-Lucent, Amadeus Global, ARM, ASM Intl, ASML, Atos, Autonomy, Aveva, Capgemini, CSR, Ericsson L.M., Indra, Infineon, Logica, Logitech, Misys, Monitise, Nanoco, Nokia (A), Sage Group, SAP A.G., Software AG, STMicroelectroni, Telecity, Temenos, Tieto, Tomtom, Wolfson.


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MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: Alcatel-Lucent, Amadeus Global, Capgemini, Ericsson L.M., Infineon, Logica, Logitech, Nanoco, Nokia (A), Sage Group, SAP A.G., STMicroelectroni, Tomtom.

MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company within the next three months: Alcatel-Lucent, Amadeus Global, ASM Intl, Atos, Autonomy, Capgemini, Ericsson L.M., Indra, Infineon, Logica, Monitise, Nanoco, Nokia (A), Sage Group, SAP A.G., Software AG, STMicroelectroni, Tieto.

MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 8th day of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 8th day of a month reflect the ownership position at the end of the second month preceding the date of the report: Alcatel-Lucent, Aveva, Infineon, Nokia (A), SAP A.G.

MLPF&S or one of its affiliates is willing to sell to, or buy from, clients the common equity of the company on a principal basis: AIXTRON, Alcatel-Lucent, ARM, ASM Intl, ASML, Aveva, CSR, Ericsson L.M., Infineon, Logica, Logitech, Nanoco, Nokia (A), SAP A.G., Software AG, STMicroelectroni, Telecity, Wolfson.

The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates: Autonomy, Infineon, Logica, Nanoco, Nokia (A), Sage Group, Tomtom.

BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall profitability of Bank of America Corporation, including profits derived from investment banking revenues.


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Other Important Disclosures

The company is a corporate broking client of Merrill Lynch International in the United Kingdom: Logica, Nanoco.

Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.

BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at http://www.ml.com/media/43347.pdf. "BofA Merrill Lynch" includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates. Investors should contact their BofA

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This report may contain a short-term trading idea or recommendation, which highlights a specific near-term catalyst or event impacting the company or the market that is anticipated to have a short-term price impact on the equity securities of the company. Short-term trading ideas and recommendations are different from and do not affect a stock's fundamental equity rating, which reflects both a longer term total return expectation and attractiveness for investment relative to other stocks within its Coverage Cluster. Short-term trading ideas and recommendations may be more or less positive than a stock's fundamental equity rating.

BofA Merrill Lynch is aware that the implementation of the ideas expressed in this report may depend upon an investor's ability to "short" securities or other financial instruments and that such action may be limited by regulations prohibiting or restricting "shortselling" in many jurisdictions. Investors are urged to seek advice regarding the applicability of such regulations prior to executing any short idea contained in this report.

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Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related investments.


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MLPF&S or one of its affiliates is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. MLPF&S or one of its affiliates may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.

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Team Page Communications Tech Andrew Griffin >> +44 20 7996 1414 Research Analyst MLI (UK) [email protected] Semiconductors Jonathan Crossfield >> +44 20 7996 2288 Research Analyst MLI (UK) [email protected] Software & IT Services Jonathan Tseng, CFA >> +44 20 7996 3598 Research Analyst MLI (UK) [email protected] Chandramouli Sriraman >> 020 7996 2602 Research Analyst MLI (UK) [email protected] London specialst sales Christian Nikolay +44 20 7996 2467 Specialist Sales MLI (UK) [email protected] >> Employed by a non-US affiliate of MLPF&S and is not registered/qualified as a research analyst under the FINRA rules. Refer to "Other Important Disclosures" for information on certain BofA Merrill Lynch entities that take responsibility for this report in particular jurisdictions. >

recession handbook #2 lynch_0.pdftomtom neutral u/p €4.0 €2.8 tieto u/p u/p €11.8 €8.7...

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