TECHNOLOGY SECTOR UPDATE

Spring 2014

Apple Inc. (AAPL): Bought: $494.50, Target: $629.87, Last: $530.44 Apple performed a $14 billion buyback after a price decrease following last quarters earnings release. This buyback may have given the price a boost, as we have seen it make a return to where it was prior to the failed earnings. Tim Cook, CEO, said that he was surprised at the pullback and saw it as a good time for Apple to bring a return to shareholders. Apple also announced CFO Peter Oppenheimer would retire September of 2014 and that Luca Maestri, vice president of finance and corporate controller, would take over for him. CarPlay, a product designed to ease iPhone use while driving, was launched this past month as well. This product will allow users to see their smartphone screen on their display in their vehicle. For 2014, Ferrari, Mercedes-Benz, and Volvo will offer this product capability in their cars. It is expected that nearly every other major car manufacturer will adopt this product in the coming years as well. CarPlay should help fend off competitors by widening Apples moat in the smartphone segment. Overall, we bullish on CarPlay move and the buyback, but recognize that iPhone sales are what ultimately moves Apple. We expect Apple to have a new product release sometime in the second half of 2014. EMC Corp. (EMC) Bought: $23.92, Target: $33.33, Last: $27.04 Barrons and Motley Fool have given favorable reviews of EMC as of late. They both cite EMCs diversification as the reason it should thrive in 2014. With the help of VMware and Pivitol, EMC brings in revenue from data storage, security, and software and cloud services. Both Barrons and Motley Fool have cited this diversification as a key advantage that EMC has over its competitors, especially with the cloud and security markets growing at a rapid pace. Motley Fool also highlights EMCs ability to grow revenue at 11% while competitors struggle for 1% growth and the rapid buybacks that EMC has put in place. In other news, EMC declared a dividend equal to that of the previous quarter. Overall, we agree with the initial coverage report that EMCs diversification and entrance into high growth markets will bring returns to shareholders. Corning Inc. (GLW) Bought: $17.04, Target: $20.52, Last: $19.64 Corning plans on releasing its Gorilla Glass NBT into the tablet market. Obviously this can bring great growth for GLW since it specializes in glass screens. On the negative side, GT Advanced Technologies, the company that supplies the glass for Apple smartphone camera lenses, has been gaining popularity with Apple and there are rumors that Apple could want its sapphire technology to be on the front screen as well. Corning plans to combat this pressure with continued innovation with Gorilla Glass. Corning announced an accelerated buyback program of $1.25 billion. This buyback is part of the $2 billion program enacted after the closing of the Samsung Corning deal. This repurchase is expected to be completed in the second of quarter of 2014 and will be financed with cash on hand. Overall, we like the buyback program and we believe that Cornings continued innovation with Gorilla Glass will fend off any competition in the smartphone market.

William C. Dunkleburg

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TECHNOLOGY SECTOR UPDATE

Spring 2014

IBM Corp. (IBM) Bought: $192.25 Target: $235.72, Last: $187.68 IBM and SYNNEX completed the initial closing of the sale of IBM's customer care process outsourcing business. Although this is appears to be a divestiture, it is actually a partnership with Concentrix, a subsidiary of SYNNEX. This deal aims to push IBM into the software and cloud technology segment. A manager for IBM was quoted saying, This partnership between IBM and SYNNEX will provide our clients with the innovation they have come to expect from IBM through our deep capabilities in advanced analytics, social business, cloud and smarter commerce. IBM acquired Cloudant this month as well. Cloudant is a database-as-a-service (DBaaS) provider that enables developers to easily and quickly create next generation mobile and web apps. IBM was also recognized as the #1 consulting company when it comes to Thought Leadership. Overall, we like seeing IBM attempting to make the transition out of hardware and into cloud computing. This transition was one of the original catalysts in the initiating coverage report. Verizon Communications (VZ) Bought: $46.825, Target: $53.95, Last: $47.15 The biggest news from Verizon has been the successful acquisition of Vodafones stake in Verizon Wireless. Verizon Communication now has full control of the wireless segment and will begin to receive 100% of the earnings from the segment. The street has reacted positively to the acquisition, and several analyst have released buy recommendations that have driven the stock up. Recently Verizon approved a 100 million share buyback and reinstated its 4.5% dividend. It seems unlikely, however, that Verizon will perform this share buyback anytime soon because of the debt that the company has taken on due to the Vodafone acquisition. We expect Verizon to use its cash to pay down its debt before it initiates the buyback.

William C. Dunkleburg

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