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INDUSTRY SURVEYS

Technology Hardware, Storage
& Peripherals
April 2015

ANGELO ZINO, CFA
Equity Analyst

www.spcapitaliq.com

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April 2015
INDUSTRY SURVEYS
Technology Hardware, Storage & Peripherals

PERFORMANCE

Sector Overview

Industry Overview
Revenues
Expenses
Profits & Margins
Valuation
Capital Markets

INDUSTRY PROFILE
Trends

CONTACTS
INQUIRIES & CLIENT SUPPORT
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877.219.1247
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How The Industry Operates

Key Ratios And Statistics

How To Analyze This Industry

Glossary

Industry References

Comparative Company Analysis

MEDIA
Michael Privitera
212.438.6679
michael.privitera@spcapitaliq.com
S&P CAPITAL IQ
55 Water Street
New York, NY 10041

All of the views expressed in these research reports accurately reflect the research analyst’s personal views regarding any and all of the subject securitiesor issuers. No part of the analyst’s compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed in this research report. For important regulatory information, go to www.standardandpoors.com and click on Regulatory Affairs and Disclaimers. Copyright © 2015
Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial. All rights reserved.

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April 2015
INDUSTRY SURVEYS
Technology Hardware, Storage & Peripherals

TOPICS COVERED BY INDUSTRY SURVEYS
Aerospace & Defense

Household Products

Airlines

Insurance

Automobiles

Internet Software & Services

Banks

Information Technology Services

Beverages

Life Sciences Tools & Services

Biotechnology

Machinery

Capital Markets

Media

Chemicals

Metals & Mining

Commercial Services & Supplies

Multiline Retail

Communications Equipment

Oil, Gas & Consumable Fuels

Consumer Finance

Paper & Forest Products

Electric Utilities

Pharmaceuticals

Electrical Equipment

Real Estate Investment Trusts

Energy Equipment & Services

Road & Rail

Food & Staples Retailing

Semiconductors & Equipment

Food Products

Software

Gas Utilities

Specialty Retail

Health Care Equipment & Supplies

Technology Hardware

Health Care Providers & Services

Telecommunications

Hotels, Restaurants & Leisure

Textiles, Apparel & Luxury Goods

Household Durables

Thrifts & Mortgage Finance

CONTRIBUTORS
GARY ALBANESE
Senior Director, Global Markets Intelligence
RICHARD PETERSON
Director, Global Markets Intelligence
TODD ROSENBLUTH
Director, ETF Research
BETH PISKORA
Content Director

All of the views expressed in these research reports accurately reflect the research analyst’s personal views regarding any and all of the subject securitiesor issuers. No part of the analyst’s compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or views expressed in this research report. For important regulatory information, go to www.standardandpoors.com and click on Regulatory Affairs and Disclaimers. Copyright © 2015
Standard & Poor’s Financial Services LLC, a part of McGraw-Hill Financial. All rights reserved.

Appropriately.4 April 2015 INDUSTRY SURVEYS Technology Hardware. inclusive of data. IPOs). For important regulatory information. a part of McGraw-Hill Financial. or will be. This new approach provides a direct connection between the data and insights provided in our upgraded reports. related to the specific recommendations or views expressed in this research report. directly or indirectly. go to www. specifically: All of the views expressed in these research reports accurately reflect the research analyst’s personal views regarding any and all of the subject securitiesor issuers. such as Exchange Traded Funds (ETFs). trend and deal analysis. . is.com and click on Regulatory Affairs and Disclaimers. Copyright © 2015 Standard & Poor’s Financial Services LLC. you will notice an entirely new Performance section in addition to our traditional coverage of key industry statistics and trends that are now contained in the Industry Profile portion of our publication. We have also added a new Sector Overview portion at the beginning of each report that is designed to summarize the fundamental sector-level backdrop in which the specific industry in-focus operates and competes on a peer-group basis. and many stock market indices and index-based securities. according to the most current financial reporting metrics available to the marketplace. First of all. The new and innovative Performance section is predominantly driven and empowered by S&P Capital IQ company fundamental data that is aggregated and market capitalization index weighted according to Global Industry Classification Standards (GICS) methodology. Coverage of capital market activity (M&A and.standardandpoors. By taking this customized proprietary approach to data collection and analysis we are now able to provide our clients with a unique. has also been significantly enhanced as part of our upgraded service offering. the specific industry titles covered by our Industry Survey report service offering have now also been aligned to the widely recognized and accepted GICS format. Storage & Peripherals To our valued Industry Survey clients: S&P Capital IQ is pleased to inform you of many insightful enhancements and modifications to our product offering. contemporary and highly relevant perspective on the financial performance of entire sectors and related specific industries representing groupings of multinational corporations included in the S&P 1500 index. All rights reserved. The sector and industry level data. No part of the analyst’s compensation was. observations and analysis are presented in a deliberate ordered fashion where the cumulative insights flow in a logical and decision-supportive progression.

but decelerating growth. Despite this. S&P Capital IQ predicts that the wearables space will be a major growth engine for the industry in the coming years. storage & peripherals industry. smartphone landscape is likely to continue to support higher revenue for the technology hardware. while both Apple and Samsung will remain the key innovators of next generation devices. In addition. growth should persist driven by new innovative product launches from Apple. S&P Capital IQ anticipates operating margin expansion as manufacturers benefit from higher volume and tight cost controls. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. PC and tablet chain.  While pricing pressure is likely to remain across the industry. while the high-end should be less exposed to price sensitivity. storage & peripherals industry will need to contend with decelerating growth across a number of key end-markets and intense competitive pressures.  Participants in the technology hardware. robust cash positions and healthy free flow generation should result in greater shareholder return via share repurchases and dividend increases. Consumers in Asia and emerging markets will see rising penetration for smartphones.  Companies in the hardware industry appear more inclined to increase debt levels given their strong balance sheets and low interest rate environment. constraining gross margin expansion. as well as from opportunities to expand into new emerging categories like wearables. S&P Capital IQ forecasts stabilization in the PC space but expects growth to remain elusive. while tablets are more inclined to experience a low-to-mid single-digit growth environment given the maturation of the market.EXECUTIVE SUMMARY  A steadily improving. among others. as these consumers are more likely to spend for next generation and better performing devices. STORAGE & PERIPHERALS / APRIL 2015 5 . Competition is likely to be greatest at the low end of the smartphone. based on our leverage analysis.

The software & services industry is the largest of the three main industry groups in terms of enterprise value (debt plus equity market capital less cash). There are three main industry groups in this sector: software & services (i.3% for the fourth quarter of 2014. In addition. The sector accounts for 44% of the information technology sector. according to profit projections as of March 9. as of March 9. INFORMATION TECHNOLOGY BREAKDOWN BY MARKET CAP Semiconductors & Semiconductor Equipment 12.0% Source: S&P Capital IQ.2% net income margin for 6 TECHNOLOGY HARDWARE. application. From a profit perspective. while the 27.7% in 2015. The software & services industry is projected to have a 36.8% average for the S&P 500. the information technology sector is expected to rise 17. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . which is above the projection for the information technology sector. computer hardware.e.9% of the S&P 500 and 19.1% average for the S&P 500. S&P 500 earnings are expected to increase 7. the 18. networking and communication equipment. according to projected fourth quarter 2014 figures.4% gain for the S&P 500 technology hardware & equipment industry group exceeded both. the information technology sector is expected to rise 17. 2015. technology hardware & equipment (i. above the 7.7% Software & Services 55. From a stock price perspective.8% average for the S&P 500. the software & services industry possesses the highest net income margin in the sector since 2009. also above the 1. above the 7. These industry groups are composed of 16 sub-industries. system and Internet software)..6%.3% for the fourth quarter of 2014. Meanwhile.3% Technology Hardware & Equipment 32.SECTOR OVERVIEW The information technology sector makes up 19. the information technology sector is poised to generate a profit growth of 6.7% of the S&P 1500.e. 2015. 2015. For fiscal year 2015. storage and peripherals).2% increase in 2014 for the information technology sector outperformed the 11. Excluding the impact of energy stocks. as of March 9.4% rise in the S&P 500. and semiconductors & semiconductor equipment.

the fourth quarter of 2014 (as of March 5. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. INFORMATION TECHNOLOGY SECTOR NET INCOME MARGIN BY INDUSTRY GROUP* Percent 40 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Software & Services Index S&P Composite 1500 Technology Hardware & Equipment Index S&P Composite 1500 Semiconductors & Semiconductor Equipment Index *Values as of March 5. The environment for IT spending remains robust. The accompanying chart shows that IT spending quickly recovered after the decline in 2009 and has grown since. WORLDWIDE IT SPENDING (aggregate data. STORAGE & PERIPHERALS / APRIL 2015 7 . although semiconductor & semiconductor equipment have exhibited higher volatility. Source: S&P Capital IQ. in $ billions) 4000 3500 3000 2500 2000 1500 1000 500 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Statista.1% for the semiconductor & semiconductor equipment industry. Spending is projected to grow further in 2014 and 2015. 2015). All industries under the information technology sector have seen improving net income margins since 2009. 2015. which tops the projected 34.0% for the technology hardware & equipment and the 20.

as well as additional sale volumes or new contracts. $) 300 Percent 20 275 15 250 225 10 200 175 5 150 125 0 100 75 (5) 50 25 (10) 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Revenue per Share . economic conditions or a structural change in the market for certain products and service. REVENUE AND REVENUE GROWTH (aggregate value weighted per share. Upon strengthened demand. which may help to explain its share performance in 2014 and its earnings growth expectations in 2015. 2015 show that in the fourth quarter of 2014. the environment appears to be encouraging for the information technology sector. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .Overall. lagging only health care’s 9. 8 TECHNOLOGY HARDWARE. Demand may shift due to seasonality.0%. The average is market-weighted.Information Technology Sector of S&P 1500 (left scale) Historical Average Revenue (left scale) Revenue per Share Growth (right scale) Source: S&P Capital IQ.  Revenue growth is important because it can illustrate the demand and supply shifts. Sector Revenue Revenue and Revenue Growth  Revenue is the amount of money that a firm. The information technology’s projected revenue growth rate for the four quarter of 2014 is the second highest among other sectors.  Projections as of March 6. industry or sector generates through product or service sales to its customers. revenue reflects the average revenue per share within the information technology sector as a component of the S&P 1500 constituent universe. there must also be adequate supplies or available employee capacity to meet this demand. It is important because it reflects the level of demand for its products and services.3%—the highest increase over the two years. which should help drive revenue growth. which means that larger companies are more influential than smaller ones. last twelve months (LTM) revenue growth was 7.  Heightened demand could also allow for pricing power.  As shown in the accompanying revenue chart. with the expectations for continued IT spending and rising margins.

9 per share in the fourth quarter of 2009. In the case of the information technology sector. when its revenue increased 17. The information technology sector’s highest revenue growth was recorded during the first quarter of 2011. STORAGE & PERIPHERALS / APRIL 2015 9 . Sector Profit Margins Gross Margin  One of the primary financial metrics that we focus upon is gross margin. it shows how much the sector is spending in terms of its direct production and manufacturing costs as a function of the revenue generated. which incorporated a portion of the 2008–2009 recession in the US. which is 640 bps below the information technology sector’s projected gross margin.  The information technology sector’s gross margin since the first quarter of 2009 increased 400 basis points (bps) to 43. economies of scale are realized. up significantly from its trough level of $162.  Average LTM revenue per share was projected to be $245.5% in the fourth quarter of 2014. About 43% of the IT executives who participated in INDUSTRY SURVEYS TECHNOLOGY HARDWARE. As productivity improves. and 470 bps below the sector average since 2009.5 per share in the fourth quarter of 2014. GROSS MARGIN Percent 45 43 41 39 37 35 33 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Source: S&P Capital IQ. and where pricing power is available. S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology)  A potential positive catalyst for the sector’s gross margins could be the increased business spending for information technology.1% for the fourth quarter of 2014.  Comparatively.3% through the last completed quarter (third quarter of 2014) and is likely to expand to 43.7%. according the S&P Capital IQ estimates.  As with other financial metrics. the gross margin of the S&P 1500 is projected to reach 37. The projected fourth quarter 2014 gross margin would be the highest for the sector since 2009. gross margins can increase. the sector’s revenue has improved significantly since the 2008– 2009 recession.

general and administrative expenses (SG&A).7% peak in the second quarter of 2012 through the fourth quarter of 2012. is a measure of profitability. the EBIT margin remained slightly below the 18. the trend has been in a positive direction for over a year. which could either maintain gross margins or continue the multi-year margin expansion trend. EBIT MARGIN Percent 20 18 16 14 12 10 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Source: S&P Capital IQ. depreciation and amortization (D&A) and other operating expenses. the environment appears positive for the sector’s gross margins. 10 TECHNOLOGY HARDWARE. EBIT Margin  Another important financial metric is the earnings before interest and income taxes (EBIT) or operating margin. The primary difference between gross margin and EBIT margin is that the EBIT margin incorporates the effects from selling. like gross margin and EBIT margin. but it also considers the impact of taxation.  Overall. EBIT margin was projected to be 18. Net Income Margin  Net income margin. exceeding the 17.5% margin for the S&P 1500 in the fourth quarter of 2014. but also support sector pricing.  Compared with the gross margin. For the fourth quarter of 2014. the EBIT margin incorporates the costs of operating as a business and the cost of selling or marketing the product or service. Thus.6%. the increased spending should not only expand revenue. Still. S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology)  The information technology sector’s EBIT margin trend is similar to the gross margin trend. While the gross margin looks at the costs of producing goods or services. the EBIT margin is a more comprehensive measure of a company’s costs.Computerworld’s annual IT forecast (released November 4. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . 2014) expect to have higher IT budgets in 2015. and this should push the EBIT margin toward new highs if the trend continues. If realized.0% historical average since 2009 and outperforming the projected 12.

the sector’s net income margin has stayed above this level since the fourth quarter of 2010. and financials (12.17 per share. growing materially in 2010 after the 2008–2009 recession.1% net income margin for the S&P 1500. With an average net income margin of 10. the net income per share is expected to reach a new high of $28. Since 2009.  For the completed third quarter of 2014.5% in the fourth quarter of 2014.  Compared with the other sectors. the average net income per share has been $22.6%).04. industry or sector. net income per share growth has been volatile.  The higher net income margins helped provide the sector with earnings growth. which was a new high since 2009.3% and is expected to rise modestly to 11.6%). excluding telecom due to a change in the sector its index constituents. 2014 was projected to end with a net income growth rate of 11. when the margin was 7. Higher net income growth is usually rewarded with higher valuation multiples.2%. STORAGE & PERIPHERALS / APRIL 2015 11 .  While the growth has been somewhat volatile. lagging only industrials (14.  Since 2009. the net income per share was $27.2% is the fourth highest.  The sector’s net income margin in the third quarter of 2014 was 11. Sector Earnings Net Income per Share and Net Income per Share Growth  Net income per share growth is important because it can be a vital factor in the valuation multiple applied to a company. The projected net income margin fourth quarter 2014 is 340 bps higher than the projected 8. For the fourth quarter of 2014. the information technology’s fourth quarter growth rate of 11.5% since 2009.8%. NET INCOME MARGIN Percent 14 12 10 8 6 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology) Source: S&P Capital IQ. materials (13.8%). INDUSTRY SURVEYS TECHNOLOGY HARDWARE. The net income margin of the information technology has increased considerably since the third quarter of 2009.08. and then contracting in 2013.

if the adverse impact of the energy sector is not included. which would be above the information technology sector. However. the S&P 500 is likely to grow 7.NET INCOME PER SHARE & NET INCOME PER SHARE GROWTH (aggregate value weighted per share.7%. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . the information technology sector was the leading sector. Over the 10-year period.  Additionally. 12 TECHNOLOGY HARDWARE. the information technology sector performed relatively well in 2014 compared with the S&P 500. the sector’s 11. it will likely exceed again in the fourth quarter of 2014. the information technology sector is projected (as of March 9) to rise 6.7%).0%. the sector’s earnings on a compound annual growth rate (CAGR) basis. $) 30 Percent 60 27 50 24 40 21 18 30 15 20 12 9 10 6 0 3 0 (10) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Net Income per Share . Over the last five years.1% expected growth of the S&P 500. rising 9.7% CAGR outperformed the S&P 500’s 5.6% per year compared with S&P 500’s 8. including the 2008–2009 recession.4%. Although the sector’s growth estimate recently lagged that of the S&P 500.6% in FY15 compared with the 1. In the 10 year-period ending in 2014.  From a year-over-year perspective that illustrates the earnings volatility over the past decade. Historical Earnings Growth for the Information Technology Sector Versus the S&P 500 From an earnings perspective.Information Technology Sector of S&P 1500 Historical Average Net Income Net Income Growth Source: S&P Capital IQ. outperformed. the information technology sector mostly exceeded the growth of the S&P 500. followed by health care (8.9%) and the consumer discretionary sector (8.

 The sector’s $91.12 S&P 500 8.59 6.69 7. Sector Balance Sheet Cash  Cash and short-term investments represent the amount of liquid cash or securities that a company can use to pay either immediate operating needs or to help finance business expansion opportunities. STORAGE & PERIPHERALS / APRIL 2015 13 .65 11.15 3.40 9.  Since 2009. values as of March 9.65 8.32) Health Care Sector Index Industrials Sector Index Information Technology Sector Index Materials Sector Index 7. 3.41 *Includes projections for 2014 fourth quarter earnings. Source: S&P Capital IQ. 2015.13 per share of cash projected for the fourth quarter 2014 more than offsets the $66.85 5.91 6. ANNUAL EARNINGS GROWTH—INFORMATION TECHNOLOGY vs S&P 500 Percent 50 40 30 20 10 0 (10) (20) (30) 2004 2005 2006 2007 2008 S&P 500 2009 2010 2011 2012 2013 2014 2015* Information Technology Sector Index *Projected.28 2. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. the information technology sector’s cash and short-term securities has risen from under $50 per share to over $90 per share.81 Utilities Sector Index 1.24 8.55 per share of total debt for the sector (also expected for the fourth quarter 2014). which places the sector in a strong credit position because it has enough cash and short-term securities to pay off its entire debt.56 (4.COMPOUND ANNUAL GROWTH RATES S&P 500 TOTAL AND BY SECTOR* (values are in percent) SECTOR 5-YEAR 10-YEAR Consumer Discretionary Sector Index Consumer Staples Sector Index Energy Sector Index Financials Sector Index 11.58 8.67 3.22 11.83 Telecommunication Services Sector Index 10.02 Values as of March 6. 2015.22 5.73 5. Source: S&P Capital IQ.

S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology)  From an operational perspective. Too little inventory can lead to potential missed sales. the 34.Information Technology Sector of S&P 1500 Historical Average Cash Cash Growth Source: S&P Capital IQ. Inventory Days  Inventory days illustrate how many days it takes for a company. AVERAGE INVENTORY DAYS Days 48 46 44 42 40 38 36 34 32 30 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Source: S&P Capital IQ. industry or sector to turn its inventory into sales.CASH AND SHORT-TERM INVESTMENTS (aggregate per share. In addition. since the metric remained stable over the past few years.1 inventory days projected for the 14 TECHNOLOGY HARDWARE. the sector’s inventory days are not a significant concern. except for growth) Percent 30 100 90 25 80 70 20 60 50 15 40 10 30 20 5 10 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Cash per Share . while too much inventory may lead to writedowns or product discounts. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . It measures the efficiency of a sector in using part of its working capital. $.

A lower ratio indicates lower credit risk whereas a higher ratio indicates a higher credit risk. Interest Coverage  Interest coverage is typically viewed in conjunction with a leverage metric. debt as a percent of capitalization rose from its trough of 21. S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology)  While the sector’s debt-to-capitalization ratio rose over the past few years.2%) for the fourth quarter of 2014.  In summary.2. STORAGE & PERIPHERALS / APRIL 2015 15 . hence. it is still considerably lower than the S&P 1500’s projected debt-to-capitalization of 50.8%. we do not view the sector’s recent inventory days ratio as problematic. the average number of inventory days for the information technology sector was 33. or against the company’s cash flow generation.3 days. DEBT-TO-CAPITALIZATION Percent 70 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Source: S&P Capital IQ.2%. which are significantly lower compared with the S&P 1500’s 45. A sector’s credit strength may depend upon the amount of debt in relation to other balance sheet items. Debt-To-Capitalization  Debt-to-capitalization is a credit-focused metric that measures the amount of debt as a percentage of the capital structure. we do not view this as a material increase in credit risk due to the sector’s conservative debt usage. industry or sector to service its debt through regular interest payments. A higher interest ratio indicates a greater ability to INDUSTRY SURVEYS TECHNOLOGY HARDWARE. although its debt-to-capitalization ratio is higher than a few years ago. the debt-to-capitalization for the sector was 26. but under control.1% during the first quarter of 2014 to what is projected to be its highest level (27. which could hurt profits. should allow for more agility from a working capital perspective. Investors should monitor this metric because weaker credit could increase borrowing costs. because interest coverage measures the ability of a company. such as equity or capital. such as debt-to- capitalization. as well as its significant cash holdings. For the third quarter of 2014.fourth quarter of 2014 for the information technology sector.  Since 2009. The information technology sector has the lowest debt-to-capitalization ratio among all the other sectors.  On the balance sheet.

it also has a higher interest coverage ratio. recorded in the third quarter of 2011. 16 TECHNOLOGY HARDWARE.0x forward P/E multiple of the S&P 1500. with the ramp up in share prices.4x. these financial metrics are positive for the information technology sector.pay regular debt obligations. the sector is projected to have a forward P/E of 16.  From a valuation perspective. Although interest coverage is computed using income statement items. the information technology sector has been valued at a significant premium to its 14. Sector Valuation Forward P/E  Forward price-to-earnings ratio (P/E) is one of the most popular valuation metrics.  The projected forward P/E for the fourth quarter of 2014 would be its highest level since the first quarter of 2010.4x average since 2009. the information technology sector is expected to have 31. The sector’s trough level was 11. With these solid metrics.3x coverage for the S&P 1500. Nevertheless. S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology) Overall. the information technology sector performed well from an investing perspective. For the fourth quarter of 2014.3x.8x interest coverage. which would be a discount to the projected 17.  Since the sector has a relatively low debt-to-capitalization. because it measures an investment based on a forward-looking perspective rather than on past performance. INTEREST COVERAGE Multiple 45 40 35 30 25 20 15 10 5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Source: S&P Capital IQ. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . For the fourth quarter of 2014. the information technology sector is valued at a high multiple relative to its recent history. well above the 12. this metric will be discussed in this section due to its proximity to the debt-to-capitalization ratio.

5 6.0 9. and thus adds back non-cash expenses during the period. STORAGE & PERIPHERALS / APRIL 2015 17 . as a function of cash flow (not earnings).0 8.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology) Source: S&P Capital IQ.5 8. Enterprise Value-To-Forward EBITDA Ratio  Another popular valuation metric. is Enterprise Value (EV) to forward EBITDA.FORWARD PRICE-TO-EARNINGS RATIO Multiple 18 17 16 15 14 13 12 11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P 1500 Information Technology Sector of S&P 1500 Historical Average (Information Technology) Source: S&P Capital IQ.0 6. and one that is often used in acquisition valuation. such as depreciation.0 7. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. ENTERPRISE VALUE-TO-FORWARD EBITDA RATIO Multiple 10. This ratio incorporates debt and equity while discounting cash.5 9.5 10.5 7.

12  There is no dedicated technology hardware ETFs. ETFS WITH MEANINGFUL TECHNOLOGY HARDWARE.1x in the third quarter of 2014.792 13. although the run up in share prices created a high valuation. For comparison.  In 2014.3 billion out of technology ETFs. the greater the likelihood of either enhanced volatility or underperformance. while benefiting from the ability to make intra-day trades —not to mention ETF’s low-cost. ETF Market Flows and Investing Landscape  Investors have increasingly been using exchange-traded funds (ETFs) in a tactical manner to gain exposure to industries.1x in the fourth quarter of 2014. In 2014. STORAGE & PERIPHERALS EXPOSURE NAME PowerShares QQQ Trust Technology Select Sector SPDR Vanguard Information Technology iShares US Technology SPDR Morgan Stanley Technology First Trust NASDAQ-100 Technology Fidelity MSCI Information Technology Source: S&P Capital IQ ETF Report March 5. information technology had the fifth highest EV to EBITDA multiple in the third quarter of 2014. passive nature.9x). $41 billion was added to all sector ETFs. However.20 0.35 0. and is projected to be 9. the EV to forward EBITDA for the S&P 1500 was 9.12 0. PowerShares QQQ Trust (QQQ).60 0. The three largest. the sectors with the highest EV to forward EBITDA multiples were consumer staples (11. Overall. market-cap weighted products. excluding financials.135 381 367 324 NET EXPENSE RATIO 0. Technology Select Sector SPDR (XLK).9x for the fourth quarter of 2014.8x).369 3. investors put $16. 2015.  Among the sectors. were telecom and energy. the EV to forward EBITDA ratio has expanded significantly. These elevated valuations could expand even further.4 billion of fresh money into US sector ETFs. Since 2011. ASSETS UNDER MANAGEMENT (in millions) 40.  From 2010 to 2013.5 billion of fresh money.  In comparison. investors pulled $2. but the higher the multiples. In the first two months of 2015. 18 TECHNOLOGY HARDWARE.8x. QQQ and XLK experienced outflows. may be a concern to investors. all have 16% or more of assets.7x in the third quarter of 2011 to its projected peak of 10.223 7. In December. In the third quarter of 2014. and Vanguard Information Technology Index (VGT). which was in place for the entire 2014. both at 5.7x. These trends continued in the first two months of 2015. the industry is the largest in many diversified technology oriented ETFs. moving from a low of 6.4x). while the sectors with the lowest forward multiple.45 0.15 0. health care (10. The current premium. the multiple stood at 9. with approximately $460 million in information technology ETFs. and industrials (10. while VGT gathered approximately $1. the sector’s EV to forward EBITDA valued the sector at a discount to the S&P 1500. the information technology sector appears to be strong. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .

has grown to more than $300 million.501 (46) 1. which was launched in October 2013. in millions) SECTOR 2014 1QTR 2015 Consumer Discretionary Consumer Staples Energy 4.212 3.440 (1.428 4.427 227 5.685 (5. Meanwhile.018) Health Care Industrials 6.019 2.222) Source: BlackRock.752 Financial Services 3. STORAGE & PERIPHERALS / APRIL 2015 19 . Fidelity MSCI Information Technology (FTEC).966 (1.836) Materials (1. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.429 Telecommunications Services Utilities 478 4. SECTOR ETF INFLOWS (total inflows for the month and for the year ended.104 (1.701) Information Technology 2.654) 11.871) REITs 7.094 132 (2.

7% Apple 78. Google’s Android and Apple’s iOS platforms accounted for over 90% of the total market share in 2014.  Growth began to accelerate in late 2013 following the launch of the iPhone 5s in September 2013 and stabilization in the PC market. quarterly sales growth decelerated in 2012 and went negative for a brief period in 2013. Super Micro Computer.0% SanDisk 1. STORAGE & PERIPHERALS CONSTITUENTS Seagate Technology 2. but growth prospects remain bleak. Apple will be the key constituent to watch within the group. This was largely due to a resurgence of growth from a macroeconomic perspective. Diebold. In terms of operating systems. storage & peripherals space trended upwards from 2009 to the end of 2011. Source: S&P Capital IQ. which we expect to persist in the coming years. specifically greater adoption of smartphone devices. for the technology hardware supply chain. Apple’s entry into the large screen phone space (iPhone 6 and iPhone 6 Plus) in late 2014 added to the momentum.0% Hewlett-Packard 6.  The mobile phone market is by far the most important category.INDUSTRY OVERVIEW The technology hardware. 3D Systems.0% Western Digital 2. in terms or revenue and shipments. which had a trickle-down impact of hard disk drive manufacturers and other key vendors that sell directly to the PC supply chain. Lexmark International. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . Industry Revenues  Revenue within the technology hardware. Qlogic. Electronics for Imaging. We attribute this to secular headwinds within the PC space given the emergence of tablets.8% Others* 3.4% EMC 6. storage & peripherals industry is benefiting from secular trends within the mobility space.2% *Others: NetApp.  However. comprising more than three-fourth of the industry group. The PC market appears to be stabilizing following a notable decline in 2012 and 2013. 20 TECHNOLOGY HARDWARE. NCR. S&P 1500 TECHNOLOGY HARDWARE.

500 50 40 1. $) 200 Percent 30 180 25 160 20 140 15 120 10 100 5 80 0 60 40 (5) 20 (10) 0 (15) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Revenue per Share .Technology Hardware. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. the industry has benefited from the global adoption of smartphones. TOTAL REVENUES (aggregate value weighted per share. STORAGE & PERIPHERALS / APRIL 2015 21 . as compared with 55% in 2013 and less than 20% in 2010.000 70 60 1.000 30 20 500 10 0 0 2010 2011 2012 Non-Smartphones (left scale) 2013 2014 2015 Smartphones (left scale) 2016 2017 2018 Penetration Rate (right scale) Source: IDC. WORLDWIDE MOBILE PHONE SHIPMENTS Millions 2. which contains significantly more content than traditional non-smartphones.  In recent years.and we see little that can change the dominance of these two companies in the category over the next several years. Smartphone penetration reached 66% of total mobile phones in 2014.500 Percent 90 80 2. Storage & Peripherals Industry of S&P 1500 (left scale) Revenue Growth (right scale) Source: S&P Capital IQ.

000 800 30 600 20 400 10 200 0 0 2010 2011 2012 2013 Shipments (left scale) 2014 2015 2016 2017 2018 Growth Rate (right scale) Source: IDC. it has a trickle-down effect on the entire technology space.800 70 1. GLOBAL SMARTPHONE SHIPMENTS Millions 2.  Samsung and Apple remain the clear market share leaders on the hardware side. consumers have been migrating to larger screen devices over the last two years. the greater availability of lower-priced devices should continue to drive smartphone penetration in Asia and other emerging regions for years to come. witnessed significant share loss in 2014. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . This was a deceleration from the increase of 39% in 2013 and 47% in 2012. Apple revealed both a 4. Apple rolled out its iPhone 6 and iPhone 6 Plus devices. In September 2014.  Samsung. making it the most important geographic region for smartphones.  Global smartphone shipments grew 29% in 2014.000 Percent 80 1. Not only is the iPhone success important for Apple. storage & peripherals industry in terms of revenue and earnings potential. We expect Asia to represent over half of total smartphone shipments in 2015. 22 TECHNOLOGY HARDWARE. In September 2014. the lower growth rates reflect a much more mature and penetrated industry. which catapulted the company into the large screen smartphone category. Nonetheless. but Apple appears to have all the momentum for the time being. Given market share data figures.600 60 1. but also by emerging competitors like Xiaomi taking market share at the low end of the market.400 50 1.3 billion units. Smartphones will likely comprise over 80% of total mobile phone shipments by 2018.5 inch (iPhone 6 Plus) display phone. on the other hand.7 inch (iPhone 6) and 5. with Asia and emerging markets being the biggest contributors given the maturation of smartphones within the US and European regions.200 40 1. exceeding 1.  Apple’s iPhone is by far the single most important product offering for the technology hardware. While we still anticipate healthy growth between 10% and 15% for both 2015 and 2016. hurt not only by Apple’s success on the high-end.

APPLE IPHONE REVENUE
$, Billions
60

Millions
80
70

50

60
40

50
40

30

30

20

20
10

10
0

0
Q4 Q1 Q2
2009 2010

Q3

Q4

Q1 Q2
2011

Q3

Q4

Units Sold (right scale)

Q1 Q2
2012

Q3

Q4

Q1 Q2
2013

Q3

Q4

Q1 Q2
2014

Q3

Q4

Sales (left scale)

Source: S&P Capital IQ.

 Apple’s move to large screen iPhones helped the company reach its highest revenue and

shipment level ever by a wide margin. It also helped the company recapture share lost in prior
years. During the completed December quarter in 2014, iPhone sales accounted for 69% of
Apple’s revenue versus 56% in the prior year.
 While selling prices for smartphones have come down, Apple has been able to sustain it prices.

However, we note the iPhone 6 and the 6 Plus version have different memory storage than prior
models (16/64/128 GB compared with 16/32/64 GB in prior releases). The iPhone 6 is priced at
$199, $299, and $399 based on the memory selection while the larger iPhone 6 Plus is currently
selling for $299, $399, and $499, respectively.
 The PC industry witnessed a steep correction that began in the second half of 2011 and lasted

through most of 2013, before beginning to stabilize last year. In 2014, the PC space benefited
from the expiration of Windows XP support (April 2014), which resulted in the commercial space
upgrading PCs and migrating to Windows 7. The pull-ins that occurred last year as a result of this
is likely to have an adverse effect on 2015 shipments, and we see a mid-single-digit shipment
declines for this year.
 While we anticipate a mixed picture in the PC market going forward, shipments are likely to

remain fairly steady in the coming years (an annualized growth of flat to down 3%). Overall, the
cooling of the tablet market, new innovative product offerings on the horizon, and an aging PC
landscape should all support some corporate spending for PCs. However, the launch of Windows
10 this summer will likely have a minimal impact on PC sales.
 While the commercial space has clearly supported the PC space, we are finally beginning to see

some signs of life from the consumer arena. New portable devices will further assist with
stabilizing the consumer end of the PC market, in our view. In addition, we expect the US to
outperform in 2015 relative to other regions, such as Europe and Japan.

INDUSTRY SURVEYS

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS / APRIL 2015

23

WORLDWIDE PC SHIPMENTS, REVENUES, AND GROWTH RATES
(shipments in millions, revenues in $, billions)
400

Percent
15

350

10

300

5

250

0

200

(5)

150

(10)

100

(15)
2010

2011

2012

Shipments (left scale)

2013

2014

2015

Revenue (left scale)

2016

2017

2018

Revenue Growth (right scale)

Source: IDC.

 The tablet market still represents a relatively new category, as it emerged in 2010 after the

launch of the iPad. Since then, the market has seen unprecedented growth before grinding to a
halt in 2014. Consensus expectations heading into 2014 were that tablets would grow 50%;
however, the space witnessed growth of less than 5%.
TABLET SHIPMENTS
Millions
400

Percent
350

350

300

300

250

250

200

200
150

150

100

100

50

50

0

0
2010

2011

2012

2013

Shipments (left scale)

2014

2015

2016

2017

2018

Growth Rate (right scale)

Source: IDC.

 The stabilization in the PC market and consumer preference toward larger screen “Phablet”

devices is having a negative impact on tablet sales, in our view. A “base” case scenario for tablets
is now one where shipments are likely to rise at an annualized pace between 5% and 10% over
24

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS / APRIL 2015

INDUSTRY SURVEYS

the next three years. However, we note that tablets witnessed their first ever year-over-year
decline in the fourth quarter of 2014; this trend is clearly pointing to the downside at the moment.
 Apple has been the clear leader with its iPad Air and mini devices, but sales for the company in

this category have also been challenged. While new product refreshes are likely for Apple in the
coming quarters, we question whether this will be enough to accelerate growth in the tablet arena.
We note that iPad sales declined about 15% in calendar year 2014.
APPLE IPAD AND MAC SHIPMENTS
(in million units)
6.0

30

5.5

25

5.0
20

4.5
4.0

15

3.5

10

3.0
5

2.5
2.0

0
Q4 Q1 Q2
2009 2010

Q3

Q4

Q1 Q2 Q3 Q4 Q1 Q2
2011
2012
Mac (left scale)

Q3

Q4

Q1 Q2 Q3 Q4 Q1 Q2
2013
2014
iPad (right scale)

Q3

Q4

Source: S&P Capital IQ.

 The iPad is the market share leader within the tablet space, but has witnessed year-over-year

declines for several quarters now. In the fourth quarter of 2014, iPad sales declined more than 20%
from the prior-year period. This softness partly reflects the introduction of the larger iPhones screens.
 While traditional Window-based PCs account for about 90% of the total market, Apple’s Mac

products have outperformed the total space. Given the Mac’s higher selling prices and margins,
making it Apple’s most profitable businesses, it remains an important business for the company.
 The declines being seen for iPad’s largely reflects the challenges in the overall tablet space and

the recent stabilization in the PC market. Going forward, new product releases should help
improve iPad shipments, but growth projections are likely to be much more tempered than that
witnessed over the last several years.
 The next major growth category for the hardware space is likely to be the emergence of

wearable devices, and we see 2015 being a major inflection point for the category. The wearables
space is likely to more than double and could potentially triple this year, albeit from low levels
(about 20 million units sold in 2014).
 While health and fitness trackers dominated the wearables market in the past, smart wearables

(i.e., the Apple watch) are likely to drive the segment to relevance. We think the Apple watch will
help drive consumer interest into the category and will also lead to other device manufacturers
following suit with similar launches.

INDUSTRY SURVEYS

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS / APRIL 2015

25

as well as the corporate world holding onto systems longer because of tighter budgets and the shift toward more efficient storage devices. the potential for wearables is never-ending. bands.  We expect the biggest headwind within the storage space to be the increasing adoption of the cloud within the enterprise space. QUARTERLY GLOBAL EXTERNAL STORAGE REVENUE $. While wrist products (watches. the industry has to cope with economic uncertainty in regions like Europe. led by market share leader EMC Corp. revenue growth has been muted ever since. In addition. After witnessing robust growth after the 2008–2009 economic downturn. Billions 8 Percent 20 7 15 6 10 5 4 5 3 0 2 (5) 1 0 (10) Q1 2011 Q2 Q3 Q4 Q1 Q2 2012 Revenue (left scale) Q3 Q4 Q1 Q2 Q3 Q4 Q1 2013 2014 Revenue Growth (right scale) Q2 Source: IDC. We also expect eyewear and clothing to be important contributors over time. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . and others) will likely garner most of the attention and revenue early on.  The storage arena. bracelets.. WORDLWIDE WEARABLES SHIPMENTS Percent 300 Millions 120 100 250 80 200 60 150 40 100 20 50 0 0 2013 2014 2015 2016 Shipments (left scale) 2017 2018 Growth Rate (right scale) Source: IDC. has had its share of challenges in recent years. 26 TECHNOLOGY HARDWARE.

Industry Profit Margins  Limited upside potential to industry gross margins are likely in the foreseeable future.  Solid-state drives (SSDs) are likely to significantly outgrow the HDD market over the next five years. a no growth environment for HDDs is likely in the foreseeable future. as well as greater penetration into the enterprise market should drive strong growth. should post quarterly margins modestly above the industry average (in the high 30% to low 40% range). both portable and desktops. which will put downward pressure on prices. ongoing SSD price declines will make SSDs appear more attractive in comparison with HDDs.  We expect price points to decline for both HDDs and SSDs in 2015 and 2016. While data centers and hybrid storage systems are positives. We expect storage providers EMC and NetApp to command the highest margins in the space (in the low 60% range). Increased SSD adoption in PCs.  Gross margins are likely to remain in the mid-30% range. However.  While the hard disk drive (HDDs) space benefited from a better-than-expected PC landscape in 2014. as higher volume and new product launches are offset by pricing pressure. We expect competitive pressures to remain intense. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. but less than that witnessed over the past decade. STORAGE & PERIPHERALS / APRIL 2015 27 . The PC and HDD vendors (Hewlett Packard. A flat to low single-digit growth environment is likely the best case scenario for storage providers in 2015 and 2016. we expect the cloud and slower growth for consumer storage solutions to act as notable headwinds. the biggest constituent. given end-market dynamics and the increasing penetration of solid-state drives. Western Digital and Seagate Technology) are likely to continue to post below-average metrics (in the mid-to-high 20% range). HARD DISK vs SOLID-STATE SHIPMENTS AND GROWTH Millions Percent 90 700 80 600 70 500 60 50 400 40 300 30 20 200 10 100 0 (10) 0 2010 2011 2012 2013 HDD (left scale) HDD Growth (right scale) 2014 2015 2016 2017 SSD (left scale) SSD Growth (right scale) 2018 Source: IDC. Apple.

 EBITDA margins are likely to widen in 2015 and 2016. driven by increasing volume and tight cost controls. The company recently posted the best EBITDA margin (33. highly dependent on seasonal factors and the timing of new product ramps. Storage & Peripherals Index Source: S&P Capital IQ.GROSS MARGIN Percent 37 36 35 34 33 32 31 30 29 28 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Technology Hardware.9% in the December 2014 quarter end) in the space. These factors should drive earnings leverage.  Apple’s EBITDA margin will likely widen modestly to the mid-30% range over the next two years. Storage & Peripherals Index Source: S&P Capital IQ. EBIT MARGIN Percent 28 26 24 22 20 18 16 14 12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Technology Hardware.   Quarterly margins will continue to see some volatility. 28 TECHNOLOGY HARDWARE.  PCs. and smartphones are all likely to witness pricing pressure as consumers remain price sensitive and as Asia/emerging markets see greater shipment representation in the coming years. tablets. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .

which included $3 billion in floating- rate notes. STORAGE & PERIPHERALS / APRIL 2015 29 .  Given Apple’s iPhone product ramps in the past (next generation releases typically occur in September). Apple issued $12 billion in long-term debt (we also note that it launched a commercial paper program. which is not treated as long-term debt). as corporations are looking to take advantage of historically low interest rates ahead of a potential rise.9 billion in long-term debt. This event was a change in the company’s capital structure. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. which we note is when treasury yields reached their lowest point..  We anticipate greater focus on share repurchases. In 2014.5 billion in long-term debt in June 2013.Industry Earnings  Operating EPS is likely to increase. with rising smartphone sales and greater leverage being the key drivers. debt for hardware manufacturers has been increasing ever since. Not surprisingly. aiding earnings growth. $) 40 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Technology Hardware. Apple issued $16. as it had not held long-term debt in prior years. followed Apple’s path by issuing $5. albeit with periods of lumpiness. among others. Industry Balance Sheet  Long-term debt has been on the rise since early 2013. as revenue growth begins to decelerate given more challenging comparables over the next twelve months. OPERATING EARNINGS PER SHARE (aggregate value weighted per share. Storage & Peripherals Index Source: S&P Capital IQ. EMC Corp.  In early 2013. quarterly EPS is expected to reach peak levels during the fourth quarter of each calendar year.

We also note that this industry has received scrutiny from active investors in recent years. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . We expect cash levels to remain healthy in the foreseeable future.DEBT PROFILE (aggregate value weighted per share. However.  Both hardware and storage manufacturers are likely to remain active in the debt markets given the still low interest rate environment.  Historically. cash has been an important line item because behemoth technology companies have so much of it and generate a significant amount of free cash flow. $) 90 80 70 60 50 40 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Technology Hardware. manufacturers will likely look to sustain cash at stable or flat levels while focusing on returning more excess cash to shareholders. and others have typically avoided leveraging their balance sheets. EMC. rather than focus on increasing their cash position. CASH AND CASH EQUIVALENTS (aggregate value weighted per share. $) 110 Percent 40 100 35 90 80 30 70 60 25 50 40 20 30 20 15 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 Long Term Debt (left scale) Debt-to-Capital (right scale) Source: S&P Capital IQ. as Apple. Storage & Peripherals Index Source: S&P Capital IQ. 30 TECHNOLOGY HARDWARE.

 Free cash flow is likely to remain attractive and improve from current levels. Storage & Peripherals Index Source: S&P Capital IQ. HP announced its intent to acquire Aruba Networks for $3. we anticipate that a significant amount of the free cash flow generated will come overseas. to use excess cash more toward share repurchases. high activist interest. UNLEVERED FREE CASH FLOW MARGIN Percent 22 20 18 16 14 12 10 8 6 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 2012 2013 2014 S&P Composite 1500 Technology Hardware. and opportunistic acquisitions.0 billion. STORAGE & PERIPHERALS / APRIL 2015 31 . S&P Capital IQ thinks this is an important metric for investors to consider. and healthy free cash flow generation will all help support greater cash usage by hardware/storage manufacturers. as we see an increasing portion of free cash flow being returned to investors via share repurchases and dividends.  While we expect free cash flow margins to continue to improve.  We think that decelerating growth rates. As a result.  We note that Apple’s free cash flow alone was over $40 billion during the 2014 calendar year. more than triple the cash flow in 2010. corporations will be limited to some extent on how cash is used. Hewlett Packard. dividend increases. companies are likely to focus on a mix of more aggressive share repurchases. as corporate profits outpace top-line growth. Industry Valuation  The industry P/E multiple saw significant margin expansion in 2014 following compression for much of 2012 and 2013. shoring up its balance sheet following some disastrous acquisitions. Given the ample amount of cash on hand that the industry possesses. In March 2015. We expect Apple. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. appears to be more likely to take the merger and acquisition (M&A) approach. iPhone sales will likely drive free cash flow for the company over the next two years. with nearly $180 billion in cash.

0 2.5 1.0 6.6 8. 32 TECHNOLOGY HARDWARE.4 4.8 5.0 1.5 2. and improvement in the overall equity markets.0 1.5 2.0 6. PRICE-TO-TANGIBLE BOOK VALUE AND PRICE-TO-SALES RATIOS (values are in multiples) 8.  With the industry P/E rising toward the higher end of its five-year historical range. stabilization in the PC market following significant contraction. We attribute the recent expansion to Apple’s launch into the large screen smartphone space. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . Storage & Peripherals Index Source: S&P Capital IQ. the trend is similar to that of the industry P/E. Not surprisingly. which has led to greater than expected earnings growth. have been expanding since the second half of 2013.5 1.2 4.5 1. we see limited multiple expansion over the next twelve months and instead expect earnings growth to be the primary contributor toward stock performance. specifically price-to-sales and price-to-book.  Other multiples. PRICE-TO-EARNINGS PER SHARE RATIO Multiple 19 18 17 16 15 14 13 12 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2013 2014 2015 S&P Composite 1500 Technology Hardware.0 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2010 2011 2012 2013 2014 2015 Price-To-Sales (left scale) Price-To-Tangible Book Value (right scale) Source: S&P Capital IQ.4 7.6 5.2 7.5 2.0 3.

given its acceleration of growth in recent quarters. printers.7 billion purchase of WhatsApp Inc. Apple has seen significant multiple expansion. STORAGE & PERIPHERALS / APRIL 2015 33 . That said. accounted for approximately 18% of the deal value for announced IT M&A deals involving S&P 1500 companies.  Deal multiples based on a multiple of the target’s revenue fell to 4. Facebook. continued low borrowing costs.8 billion in 2013. Despite that decline.e. or seller. HDDs. and elevated equity prices contributed to the acceleration in the number of announced IT M&A transactions involving S&P 1500 companies. up from $60.  The combination of growing cash balances.  Similar to P/E metrics. Inc. PCs. on average. when transaction value topped $158 billion. we see limited multiples expansion as valuations currently reside toward the high end of the range. Capital Markets  Announced information technology M&A activity involving S&P 1500 companies as a target.7x in 2013. benefited from expansion.4x for transactions announced in 2013. INDUSTRY SURVEYS TECHNOLOGY HARDWARE..  Last year’s results marked the strongest period for IT M&A deal activity since 2011. as a worst-case scenario appears to have been averted.  S&P Capital IQ data indicated that. buyer or seller saw $110 billion in deal value in 2014. INFORMATION TECHNOLOGY M&A TRANSACTIONS* $. like Hewlett Packard. Billions 180 160 140 120 100 80 60 40 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.3x in 2014 from 5. announced in February 2014. buyers became less aggressive in their bidding as valuations based on a target’s EBITDA retreated in 2014 to 29. Last year’s count of 572 deals marked a 21% increase from the previous year’s total.9x from 42. buyer. and others) if manufacturers can prove to be successful with adjacent market expansion. ratios are not likely to widen for low multiple areas (i. We also think that low multiple names in the PC space.’s $19. last year’s valuation marked a multi-year high. Source: S&P Capital IQ.

buyer. Sources: S&P Capital IQ. INFORMATION TECHNOLOGY M&A TOTAL ENTERPRISE VALUE-TO-REVENUE MULTIPLE* 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.INFORMATION TECHNOLOGY M&A DEAL COUNT* 600 550 500 450 400 350 300 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target. or seller. Source: S&P Capital IQ. or seller. buyer. 34 TECHNOLOGY HARDWARE. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .

or seller. Sources: S&P Capital IQ.  The completion rate for IT M&A deals involving S&P 1500 companies announced and completed in the same calendar year. buyer. LLC along with the Ontario Teachers’ Pension Plan entered into a definitive agreement to acquire INDUSTRY SURVEYS TECHNOLOGY HARDWARE. or seller. Chicago-based private equity firm Thoma Bravo. dipped to 88% in 2014.5 billion in deals occurred. buyer. STORAGE & PERIPHERALS / APRIL 2015 35 .INFORMATION TECHNOLOGY M&A TOTAL ENTERPRISE VALUE-TO-EBITDA MULTIPLE* 45 40 35 30 25 20 15 10 5 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target. up from $17 billion in 2013. Sources: S&P Capital IQ.  Technology hardware M&A activity saw an improvement in 2014 as $29. That represents the first sub-90% completion rate since 2004 when it was 82%. INFORMATION TECHNOLOGY M&A COMPLETION RATE* Percent 100 95 90 85 80 75 70 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.

or seller.  M&A results in 2014 represented the best year for aggregate deal value since 2011.  The trend in technology hardware M&A has been choppy in recent years. or seller. Source: S&P Capital IQ. buyer. with the tally of 167 deals involving S&P 1500 companies in 2014. for $3. Billions 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target. 36 TECHNOLOGY HARDWARE. when $52 billion in transactions occurred. or seller. higher than 154 in 2013. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .Riverbed Technology.3 billion in cash on December 14. TECHNOLOGY HARDWARE. TECHNOLOGY HARDWARE. buyer. representing the largest announced technology M&A deal of last year with the involvement of a S&P 1500 company as a target. 2014. STORAGE & PERIPHERALS M&A TRANSACTIONS* $. but below 190 in 2012. buyer. Source: S&P Capital IQ. STORAGE & PERIPHERALS M&A DEAL COUNT* 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target. Inc.

5 3.0 0. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. buyer. Sources: S&P Capital IQ. STORAGE & PERIPHERALS M&A TOTAL ENTERPRISE VALUE-TO-EBITDA MULTIPLE* 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.5 4. TECHNOLOGY HARDWARE.0 2.  Technology hardware M&A transaction valuations based on a target’s revenue saw a modest reduction in 2014 to 2.0 3. the last time annual technology hardware M&A deals topped 200 was in 2007.5 2.7x in the previous year. Based on transactions involving S&P 1500 companies. Sources: S&P Capital IQ. buyer. from 2.5x.0 1. or seller. TECHNOLOGY HARDWARE.5 0. or seller. STORAGE & PERIPHERALS M&A TOTAL ENTERPRISE VALUE-TO-REVENUE MULTIPLE* 4.5 1. STORAGE & PERIPHERALS / APRIL 2015 37 .0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.

STORAGE & PERIPHERALS M&A TRANSACTIONS COMPLETION RATE* Percent 92 90 88 86 84 82 80 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 *Includes S&P 1500 companies as target.  IBM Products United States. based upon transactions announced and completed in the same calendar year. sunk to under 81% in 2014.9 billion on January 29. the company entered into a definitive asset purchase agreement to acquire the server hardware and related maintenance services businesses of International Business Machines Corporation for $2. which operates as a subsidiary of Chinese technology firm Lenovo Group Limited. based on revenue.4x. average technology hardware M&A valuation dropped to 14. 2014.  After soaring to nearly 62x EBITDA in 2013. ranked as the biggest buyer among S&P 1500 companies in the technology hardware arena during 2014 with $5. Over the past five years.22 billion in acquisitions..  Sunnyvale. or seller. the average annual transaction multiple. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . 38 TECHNOLOGY HARDWARE. In addition.4x in 2014. for $2. Inc. TECHNOLOGY HARDWARE. the lowest level over the time span under review. entered into the acquisition agreement to acquire Motorola Mobility Holdings LLC from Google Inc. the lowest multiple since 2008 when it was 10. Inc. Source: S&P Capital IQ. IBM Products United States.3 billion in cash and stock on January 23. according to S&P Capital IQ data. buyer. fell under 2x only once in 2012. 2014. California-based Trimble Navigation Limited was the most active buyer among S&P 1500 technology hardware companies with 10 deals.  The calculated completion rate for technology hardware M&A deals.

STORAGE & PERIPHERALS / APRIL 2015 39 .866 Zebra Technologies 3.276 American Tower 1.144 SanDisk 1.9mm Less than $100mm Undisclosed 9 3 17 39 99 *S&P 1500 companies involved as buyer.International Investments 3.300 TE Connectivity 2.866 Thoma Bravo 3.9mm $100 .491 434 2 14 31 Greater than $1 billion $500 .$999.050 MERGER & ACQUISITION STATISTICS NUMBER OF DEALS BY TRANSACTION RANGES 29.220 Ontario Teachers' Pension Plan 3.866 Ontario Teachers' Pension Plan . seller. or target for a transaction involving a company in the technology hardware & equipment industry group.450 NetScout Systems 2. Source: S&P Capital IQ.$499.619 Facebook 2. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.TRANSACTION SUMMARY* MOST ACTIVE BUYERS/INVESTORS BY TOTAL TRANSACTION SIZE BY NUMBER OF TRANSACTIONS COMPANY NAME DEALS Trimble Navigation Limited 10 3D Systems 8 Apple 8 EMC 7 Cisco Systems 6 Ametek 5 TE Connectivity 5 Electronics for Imaging 4 Hewlett-Packard 4 QUALCOMM 4 VALUATION SUMMARY Total Deal Value ($M): Average Deal Value: Average TEV/Revenue: Average TEV/EBITDA: Average Day Prior Premium (%): COMPANY NAME TOTAL SIZE ($M) IBM Products United States 5.

651 190 Arrow Electronics - Cobham.Thoma Bravo 69 157 3. United Technical Publishing Division 02/12/15 - 02/12/15 02/12/15 02/11/15 - 02/09/15 2. Enterprise and Wireless Business CommScope Holding 01/26/15 01/22/15 01/26/15 01/22/15 Network Power Systems Division Innovative Techncial Solutions Unipower Corning 01/21/15 01/14/15 01/05/15 12/23/14 12/31/14 01/14/15 01/05/15 12/23/14 Amphenol Semtech 3D Systems Trimble Navigation 12/22/14 - 12/19/14 01/22/15 Baicheng City Gold-Star Electric Systems EnVerv botObjects IRON Solutions Ingram Micro. SteelApp Business RD Trading FARO Technologies Newport Brocade Communications Systems Arrow Electronics 84 01/28/15 - Data Modul Arrow Electronics 38 01/28/15 - TE Connectivity. Two Facilities in Plainfield and 29 acres in AllPoints Midwest Business Park Arlon 12/15/14 - Riverbed Technology 5.193 3.866 Source: S&P Capital IQ.S&P 1500 INVOLVEMENT–2014 (for the past six months) ANNOUNCED DATE CLOSED DATE TARGET TOTAL TRANSACTION VALUE ($M) BUYERS / INVESTORS 03/05/15 03/05/15 Linear project Trimble Navigation 03/03/15 03/03/15 03/02/15 03/02/15 03/03/15 03/03/15 - EAI Design Services kubit Aruba Networks immixGroup ViaSat FARO Technologies Hewlett-Packard Arrow Electronics 02/26/15 02/24/15 02/18/15 02/03/15 02/24/15 - National Technical Systems iNovex Information Systems TE Connectivity 02/17/15 02/17/15 Trace Laboratories iNapogee Information Systems AdvancedCath Hearst Business Media Corporation.Ontario Teachers' Pension Plan International Investments. Telecom. 40 TECHNOLOGY HARDWARE. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .059 10 - Granite Real Estate Investment Trust Rogers Ontario Teachers' Pension Plan. STORAGE & PERIPHERALS M&A . PXI Modular Instruments Hardware Product Line National Instruments - Emergency CallWorx Motorola Solutions - ATM Electronic Arrow Electronics - - Voltage Security Hewlett-Packard - 02/06/15 - Exelis Harris 02/05/15 02/05/15 02/05/15 02/02/15 02/05/15 03/04/15 02/02/15 ARAS 360 Technologies FEMTOLASERS Produktions Riverbed Technology.TECHNOLOGY HARDWARE.

Comcast Ventures. Riverbed Technology. Ventech ARRIS Group. STORAGE & PERIPHERALS / APRIL 2015 41 . Seagate Technology TOTAL TRANSACTION VALUE ($M) 30. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.7 15. Index Ventures. Metamorphic Ventures. Jerusalem Venture Partners.com InterCloud Société par Actions Simplifiée Benu Networks Reduxio Systems BUYERS / INVESTORS EMC.0 3.5 5. Sequoia Capital Israel QUALCOMM.1 27.TECHNOLOGY HARDWARE. Intel Capital. STORAGE & PERIPHERALS PRIVATE PLACEMENT (for the past six months) ANNOUNCED DATE CLOSED DATE 1/28/15 1/15/15 1/28/15 1/15/15 1/9/15 1/9/15 10/31/14 10/22/14 10/22/14 10/16/14 10/16/14 10/6/14 10/21/14 10/6/14 10/6/14 TARGET Adallom WorldVu Satellites Shanghai Ketong Information Technology PowerbyProxi Encoding.Liberty Global Ventures.Société de Gestion.0 Source: S&P Capital IQ. TR Manufacturing Corning Trident Datacom Technologies Neohapsis Tripwire Nexala Motorola Solutions Cisco Systems Belden Trimble Navigation Cimatron 3D Systems TCL Communication Technology Holdings Electro Scientific Industries Taiwan Semiconductor Manufacturing Trimble Navigation TOTAL TRANSACTION VALUE ($M) 710 97 18 85 - - TECHNOLOGY HARDWARE. STORAGE & PERIPHERALS M&A .006 - Eyeon Software Eucalyptus Systems Manzanita Systems Blackmagic Design Pty Hewlett-Packard DTS - 9/12/14 9/12/14 9/11/14 9/11/14 9/11/14 Source: S&P Capital IQ. QCL Business Riverbed Technology. Spark Capital Partners. Sutter Hill Ventures Carmel Ventures. Shaw Ventures. Virgin Group Holdings Cisco Systems Movac. SteelStore Product Line EMC Corporation Thorlabs Quantum Electronics NetApp 80 10/22/14 10/22/14 10/13/14 1/2/14 10/28/14 Corning Laser Technologies VCE Company The Cloudscaling Group Corning EMC EMC 50 - 10/7/14 10/3/14 9/23/14 10/7/14 10/1/14 9/23/14 Injazat Data Systems Observatory Crest Australia Pty Prss Mubadala Development Arrow Electronics Apple 9/22/14 9/18/14 9/17/14 9/15/14 10/13/14 9/29/14 9/15/14 Viasystems Group Memoir Systems Metacloud DiMS! organizing print TTM Technologies Cisco Systems Cisco Systems Electronics for Imaging 1..S&P 1500 INVOLVEMENT–2014 (for the past six months. Zelkova Ventures CapHorn Invest .0 30. continued) ANNOUNCED DATE CLOSED DATE TARGET BUYERS / INVESTORS 12/15/14 1/9/15 12/15/14 12/10/14 12/9/14 12/1/14 11/18/14 1/2/15 12/1/14 11/24/14 2/9/15 11/14/14 10/31/14 Palm 11/13/14 11/12/14 11/11/14 1/19/15 11/19/14 11/11/14 11/6/14 11/6/14 Wi-Lan - 10/29/14 10/28/14 10/29/14 10/28/14 Wuhan Topwin Optoelectronics Technology QUALCOMM Panel Manufacturing Amtech Group Hewlett-Packard. Portfolio of Patents Related to Lighting and Building Systems Technologies Yamei Electronics Technology Maginatics Astrata (Group) EMC Corporation - 10/28/14 10/27/14 10/24/14 10/28/14 10/27/14 10/24/14 Spanning Cloud Apps Corning Inc. TE Connectivity Harmonic.

498 Apple 2/2/15 2/2/15 Fixed-Income Offering Corporate Debt (Non-Convertible) 1. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .050 Seagate Technology Keysight Technologies Zebra Technologies Apple 2/10/15 2/25/15 Fixed-Income Offering Corporate Debt (Non-Convertible) 929 Keysight Technologies Western Digital 10/6/14 11/5/14 10/6/14 - Fixed-Income Offering Shelf Registration Corporate Debt (Non-Convertible) Common Stock 600 543 NetApp 11/25/14 - Shelf Registration Common Stock 533 Riverbed Technology 2/23/15 2/27/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 525 Western Digital 11/5/14 11/6/14 Follow-on Equity Offering Common Stock 522 2/2/15 2/2/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 500 10/6/14 10/6/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 500 12/10/14 11/19/14 12/10/14 11/19/14 Fixed-Income Offering Fixed-Income Offering Corporate Debt (Non-Convertible) Corporate Debt (Non-Convertible) 498 397 Apple Keysight Technologies Ingram Micro Trimble Navigation Apple 2/10/15 2/25/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 395 Arrow Electronics 2/23/15 2/23/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 347 Source: S&P Capital IQ.528 1.250 Apple 2/2/15 2/2/15 Fixed-Income Offering Corporate Debt (Non-Convertible) 1.BUYBACK TRANSACTIONS* (for the past six months) ANNOUNCED DATE CLOSED DATE TARGET SIZE ($M) 3/9/15 - QUALCOMM 3/4/15 2/20/15 2/18/15 - Plantronics Itron Plantronics 15.747 10/31/14 10/21/14 - Shelf Registration Shelf Registration Common Stock Common Stock 1. STORAGE & PERIPHERALS COMPANIES PUBLIC OFFERINGS (for the past six months) ISSUER Cisco Systems REGISTRATION FILED OFFER DATE PRIMARY TRANSACTION FEATURES SECURITIES ISSUED SIZE ($M) 12/5/14 - Shelf Registration Common Stock 4.749 Apple 11/4/14 11/4/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 1.500 30 15 25 - 10/16/14 Qlogic *Cancelled transactions are not included in the results. no domestic technology hardware initial public offerings have been completed.000 50 - 2/11/15 2/6/15 1/29/15 1/26/15 - Insight Enterprises FLIR Systems Coherent Sanmina 75 25 - 1/21/15 1/8/15 12/12/14 - Amphenol Park Electrochemical Arrow Electronics 12/8/14 12/4/14 12/3/14 - Benchmark Electronics Tech Data Corning 11/17/14 10/30/14 10/29/14 10/23/14 - Plexus Digi International Insight Enterprises Netgear 200 100 100 1.982 Apple 11/4/14 11/4/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 1.508 Apple 2/2/15 2/2/15 Fixed-Income Offering Corporate Debt (Non-Convertible) 1. Initial Public Offerings In the past six months. 100 LEADING TECHNOLOGY HARDWARE. Source: S&P Capital IQ.247 9/25/14 9/30/14 Fixed-Income Offering Corporate Debt (Non-Convertible) 1.166 Apple 2/2/15 2/2/15 Fixed-Income Offering Corporate Debt (Non-Convertible) 1. 42 TECHNOLOGY HARDWARE.

Acer Inc.2% in 2014 to 15. in our view.7% in the prior-year period). Moreover.9% CAGR from 1. As noted in IDC’s January 2015 report. on a -1.0% CAGR from 827. which we think will lead to greater adoption of the cloud.0%. In 2015. flat to slightly positive growth is expected in 2015.1% (5. Slower corporate profit growth in 2015 could drive more customers toward cost-saving solutions.2% in 2014 and are expected to rise 1. shipments declined 2. This was followed by Hewlett-Packard Co. ultra-slim PCs. In the fourth quarter of 2014. spurred by the slowdown in the tablet market. Worldwide PC shipments declined 2.1% in the prior-year period). Bing. while smartphones are expected to grow 12.7% (16. Feature Phones and Smartphones Over the last few years. Competition Personal Computers The worldwide personal computer (PC) market has been showing signs of recovery. a maturing smartphone market. at 7. smartphones have gradually been replacing traditional mobile phones (feature phones).9% in 2015. US shipments increased 5. vendor.7% (7.2% in 2014 and are anticipated to drop an additional 4. Lenovo outpaced the market in the US and was closer to the market growth in other regions. the growth of Chrome.9 billion in 2018. (up from 18. all-in-one PCs.0%/72. according to S&P Capital IQ Equity Research. and replacement of older PCs. Going forward.8% in the prior-year period). including ongoing declines in personal computer (PC) spending.9% (year over year) to 561.0 billion in 2013 to 1. For the US PC market.4% by 2018. Solid expansion of channels and increase in demand during holidays in Europe.0 million.9% in 2015. although this could be hampered by factors such as the end of XP support transitions. and original equipment manufacturer (OEM) efforts to rejuvenate the market. slowing tablet demand. IDC predicts that feature phone shipments will decline at a 16. convertibles.5% in the fourth quarter of 2013). at 13. US shipments are expected to decline on a 0.9% market share in the fourth quarter of 2014. In addition. we expect enterprise software.INDUSTRY TRENDS A mixed global technology hardware environment is expected in the near term.5% (12. the launch of Window 10.2% (year over year) to 1. and data centers to witness healthy growth rates due to improving business confidence in developed economies. Meanwhile.2 million in 2018. whereas smartphone shipments will grow at a 12.4 billion. with a 19. Dell Inc. the gap between feature phones and smartphones is expected to widen to 28.2 million in 2013 to 346.8%/66.4%year over year—the 11th consecutive quarter of contraction. The ratio of feature phones to smartphones could change from 33. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.1% compound annual growth rate (CAGR) through 2014–2019. and the evolution of the cloud cannibalizing software. Lenovo Group Ltd. and touch systems could help spur the worldwide PC market in 2015. and Apple Inc. cloud. according to IDC. which can be seen through software upgrades in big data. However. telecom services. the Middle East and Africa (EMEA) helped Lenovo capture a higher market share. emerged as the top player. A number of factors can contribute to this. mobility devices. In 2015.3% in the prior-year period). and we expect this trend to continue. and mobile technologies. with the magnitude of recent declines contracting. STORAGE & PERIPHERALS / APRIL 2015 43 . uneven software spending.1% CAGR for the five-year period ending 2019. feature phone shipments are expected to decline 14.6%/84. (HP) at 19. at 7. shipments are expected to remain nearly flat through 2019.

By 2018. 1.5%.3% for North America. while those with an above-eight-inch screen size will grow at an 11. the launch of Microsoft’s Windows 10 is likely to be well received. As per IDC data.IDC reported that in the fourth quarter of 2014.3%. These factors will likely contribute to an overall increase in the demand for smartphones.7% in North America.. 42. Samsung. 6.4%.0%. as demand is largely driven by replacements by current users and first-time users. This device category appears to be squeezed by the surge of large smartphones.9% for APAC. Over the next several years.4% for EMEA.6% in APAC.3% in 2015.8% CAGR. and others. 14. 25. Samsung accounted for 20. 4. 26. Xiaomi. IDC projects that shipments of devices with a sub-eight-inch screen size will decline at a 1.4% by 2018.5% in 2014 and 27. 44 TECHNOLOGY HARDWARE. we expect shipments to grow by a low-to-mid single-digit annualized pace. Apple accounted for 19.6% in 2015. 15.8% in ROW. APAC (excluding Japan). Japan. The ratio of consumer/commercial tablet shipments will shift from 87.5% for Latin America.9%/14. In IDC’s estimation. 18.9%. EMEA. and 53. and Asia Pacific (APAC) 52.e.5%. albeit at a slower pace than in previous years.6% of global tablet shipments in 2014. or a 4. 4. tablet shipments could grow at a 2.4% increase from the 219. 10.5% for APAC. in 2014.9% of global smartphone shipments. Between 2013 and 2018. shipments are expected to be 11. a broad selection of models for end users. Between 2013 and 2018.0% in 2014 and 25. according to IDC. 26. 6.9 units shipped the prior year. Apple accounted for 27. and 9. Huawei. growth of connected tablets and cellular capable tablets (phablets) is expected to continue in 2015. 10. Lenovo. with the vendor losing the most share in the last 12 months but still having the largest share. Most mobile phone suppliers are turning their focus to smartphones.6% for EMEA. 26. Consumers are gearing toward tablets with larger screen sizes.6% in EMEA. as it did with the initial launch of iPad.3% CAGR between 2013 and 2018.6% for North America. followed by Western Europe. 10. and others.4%. smartphone shipments are projected to grow at a CAGR of 3.4%.6 million units in 2014. The tablet market continues to post growth in 2014. ASUStek.6%. Meanwhile. 6. and the rest of the world (ROW).6%.5% in 2015. North America accounted for 12.2% in Latin America. 17.9% of global tablet shipments in 2014 and 24. Amazon.6%/17.4% in 2014 and 3. 5. i. Lenovo (includes Motorola acquisition). and longer user ownership cycles. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .9% in APAC (excluding Japan).1% for Latin America. with expected higher in-place upgrade rates. Tablets IDC projects that worldwide tablet shipments grew to 229.1% in 2015.0% of worldwide smartphone shipments. 3. the geographic shipment distribution is expected to shift to 9.8% in 2015.1% CAGR in the US.2% in 2014 and 18. and to 82. 24.3%/12.43. emphasizing the importance of portfolio strategy for vendors offering both tablets and phablets. according to IDC.9%. and 13.8% in 2015. and prices that fit nearly every budget. 3. In addition. larger than eight inches. Apple’s potential launch of a larger iPad could spur widespread commercial adoption of tablets and redefine the market. 1.7% in Japan. By region.7% in 2014 to 85. The use of tablets has also been increasing in the commercial and enterprise arena.2%. Latin America.9%. and 52. For 2015.1% in Western Europe. This year. the US accounted for 25.

Operations Server Market to Witness Slow Growth In our view. and help excite the market and educate consumers on the benefits of wearable devices. and other functions. S&P Capital IQ expects the concept of the “Internet of Things” to contribute to a much more expansionary market. and the iPad in tablets). where Internetenabled consumer products will include jewelry. the way tablets initially affected PCs and their manufacturers). IDC expects this spending to grow at a 1. The most anticipated wearable device that will come to market is the Apple watch. if any. downloading apps.. and challenging macroeconomic conditions across the globe will continue to affect the server market in an adverse way. The launch should not only benefit Apple. In 2015. For instance.7 billion in 2014 and is expected to reach $54. being dominated by fitness-related products such as the Fitbit. and cameras. as wearables will result in a greater amount of information technology dollars being spent versus cannibalizing any particular segment or company (i. or PC). where collected data is transported to another device (such as a smartphone. and pioneering and perfecting new categories (i. We forecast that wearable device shipments will more than double in both 2015 and 2016 compared with a projected 20 million shipments in 2014 (based on most recent IDC data). STORAGE & PERIPHERALS / APRIL 2015 45 . wearables have had limited success. ongoing server consolidation. The watch is expected to set the stage for the market in 2015.e. such devices are unlikely to gain traction until 2016 or 2017. S&P Capital IQ predicts that there will be few. However.1 billion in 2015. given the initiatives of Apple and Samsung. We also see many new offerings powered by Google’s Android operating system. Worldwide spending on servers totaled $53. the hardware supply chain should be aided as these devices will serve as another growth driver for chipmakers and other suppliers. Apple has proven itself a visionary leader with regard to releasing new products. technology transitions. which allows users to check email. This product will mark Apple’s entry into the wearable category and will be a key driver for consumers migrating to the new market.. true losers. hence. ideally a smartphone. the iPod in portable music players. Samsung unveiled its first 4G/LTE smartwatch.Wearables–the Next Big Thing in Hardware Until now. the iPhone in smartphones. according to IDC (October 2014). S&P Capital IQ expects most wearables to be able to connect to an Internet-enabled device.3% INDUSTRY SURVEYS TECHNOLOGY HARDWARE. In addition. clothing. Although consumers will start seeing wearables that can connect to the Internet on a stand-alone basis. in the fall of 2014. the Gear S. S&P Capital IQ sees notable opportunity and potential. we anticipate that other hardware makers will release products to become early players in this dynamic category. among other things. Watches will clearly take center stage for the wearables segment in 2015. answer phone calls. but also other hardware makers as adoption ramps up.e. a compatible Samsung smartphone is still needed for activation. with the ability to add software and apps. Hardware manufacturers that do not want to miss the next “big thing” in technology may look to carry out related acquisitions. In addition. tablet. Although S&P Capital IQ expects Apple and Samsung to lead the market initially and benefit the most in 2015 from the emergence of wearables. The Apple watch started pre-orders on April 10th and begins shipping April 24th. and use the Internet without a separate smartphone (a data plan is required).

8% CAGR. During this period. The spending for high-end enterprise servers will continue to decline as users continue to migrate to lower-cost modular systems. resulting in faster analysis and lower production costs. implying a decline in selling prices.0 1. the demand for microservers will continue to be driven by the ongoing buildup of scale-out data centers running multiple workload applications. server unit shipments are expected to grow at a 3. Business processes that used to be done on paper are being computerized.6% in 2015. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . In addition.0 2009 2010 2011 2012 External 2013 2014 2015 2016 2017 2018 Internal Source: IDC's March 2015 forecast report.5 2. The share of bladed server revenue to total server revenue is expected to grow from 17. S&P Capital IQ thinks that increasing pressure on IT budgets will drive IT organizations to leverage the operational benefits of the blade platform.5 0. microservers are used largely in cloud data centers. but will slow down to 17.CAGR between 2013 and 2018. as both blade and density-optimized servers outperform the general market.0% by 2018. improved performance. Regulation Drive Enterprise Data Storage The amount of data that enterprises generate is growing at an exponential rate. 46 TECHNOLOGY HARDWARE. Digitization. These modular form factors are expected to gain adoption with virtualized environments focusing on blades and with large-scale homogeneous environments in data centers focusing on density-optimized servers. The Internet. all modern airplanes are designed using computer-aided design (CAD) software. intending to reduce unutilized processing capacity for lightweight workloads. For example. by migrating from a complex heterogeneous legacy server environment to a managed blade environment. There is an increasing trend toward form factor specialization in the market. according to IDC estimates. The growth in the cloud computing market is expected to drive growth in microservers. This software enables testing to be done in a computer simulation rather than the traditional method of building physical prototypes. PRICE PER GIGABYTE OF DATA STORAGE (in $) 3.0 0. and greater cost efficiency.0 2.3% in 2014 to 17.5 1. With lower space requirements.

Consequently. air conditioning. thus enabling more data to be stored on the same amount of physical space. and video. and retrieval technologies. Most critical data are stored on HDDs. networks. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. Web traffic. Departments and other subgroups could purchase them and develop applications outside the control of a centralized IT environment. as is the case with the enactment of the Japanese version of Sarbanes-Oxley. which established the model of distributed computing. In addition to the pervasive use of computing technology. It was common to find mainframes with peak utilization rates of more than 90%. During the 1970s and 1980s. there are several other drivers for the data storage explosion. we think the growth of the Internet and e-commerce has increased the need to record data. the dominant computing platform was the mainframe computer. 2008. STORAGE & PERIPHERALS / APRIL 2015 47 . well organized. It generally includes redundant or backup power supplies. we think the growth in emerging markets is also driving the increased need for regulation and oversight. Globally. information needs to be stored for at least seven years.” Companies ran multiple applications on a single mainframe machine to maximize their return on investment. Due to new developments in HDD technology. Since all of the computing was done at a central location. it will certainly force IT managers to reevaluate their ability to handle the potential inflow of large quantities of vital information. A data center is a facility used to house computers. the aerial density of disk storage devices has increased dramatically. The requirements for J-Sox. Mainframes were the most powerful computers available. such as perpendicular recording. the servers were moved into formal data centers. It also contains automated systems that constantly monitor server activity. PCs were cheap and could be deployed anywhere. graphics. The protection aspect is a key component of the new law: It requires that records be stored in an unalterable way in order for them to be certified. The mainframe computers were displaced in the late 1980s and early 1990s with the rise of PCs and low-cost servers. Under Sarbanes-Oxley. We also think the increased usage of rich media content. which includes broadcast and shared audio. unaltered. archival. will be modeled on the US version in many ways and will therefore require many of the same data storage. has been a major factor for increased demands on data storage. As applications become more mission critical. and storage systems. information must be protected. S&P Capital IQ thinks that these requirements will boost overall interest in storage-related products because existing levels of capacity are likely to be insufficient to hold ever-expanding quantities of data. In addition. which requires firms to submit internal control reports on a consolidated basis starting with the fiscal years commencing on or after April 1. redundant data communications connections. similar to Moore’s law in computing hardware. Although the overall impact of compliance with these measures is still being determined. and easily accessible. and fire suppression and security devices. They also required a special environment in which to operate. The Evolution of the Data Center The way we compute has evolved through the years. as it is popularly known. but were expensive. and network performance. Partially offsetting the rapid growth in the demand for enterprise data storage is the price decline in the cost per gigabyte of storage. it was also called “centralized computing.In our view. most software applications were developed without any standard process and followed a one-application-to-oneserver model.

Many data centers have simply run out of space. More would be required if a company planned to develop and test each application on a separate server. The task of managing a data center has become increasingly difficult. We see increased usage of SSDs in devices in which the advantages of SSDs. Data center operators describe the condition of having a large number of servers running at very low utilization as “server sprawl. They also generate less heat and have lower power consumption. which typically account for 40% of the cost of operating a data center. in turn. SSDs have faster read/write speeds. but not enough to prevent growth of HDDs. WORLDWIDE SOLID-STATE DRIVE SHIPMENTS AND REVENUES Millions of Units $. Billions 25 200 180 20 160 140 15 120 100 10 80 60 5 40 20 0 0 2009 2010 2011 2012 Shipments (left scale) 2013 2014 2015 2016 2017 2018 Revenues (right scale) Source: IDC's December 2014 forecast report. store. as more software applications are written. and retrieve digital data using integrated circuits (ICs) rather than magnetic. such as lower power 48 TECHNOLOGY HARDWARE. all running on a single hardware platform.The number of servers has proliferated. this. which store data magnetically on rotating rigid platters on a motordriven spindle. These benefits are consistent with the drive to be “green. In our view. Another problem has been rising energy costs. The growth in the number of servers has accelerated due to the rise of the Internet. These two issues have been exacerbated by the fact that most servers are using only a fraction of their processing power. SSDs record. reduces cooling and ventilation requirements.” Virtualization can alleviate server sprawl by consolidating many different types of workloads and operating systems onto virtual environments.” or environmentally friendly. However. offer several key advantages over other forms of electronic data storage. along with relative high-speed performance. Using servers more efficiently involves fewer processing cycles. along with energy usage. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . SSDs will hurt sales of HDDs over time. They can provide high storage capacity at relatively low costs. Hard Disk Drives Versus Solid-State Drives Hard disk drives (HDDs). SSDs are currently much more costly per GB and are available in much lower capacity points than hard drives. Each new application would require at least one additional server. Because they do not have any moving parts. SSDs can come in smaller form factors than HDDs. Solid-state drives (SSDs) are an alternative to hard disk drives (HDDs).

and other mobile consumer electronic devices. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. where the value proposition is based on cost per transaction or cost per I/O (input/output). we think SSDs will make inroads in PCs. gaming consoles. We also see SSDs targeting enterprise applications. set-top boxes. and personal/digital video recorders because power consumption and form factor are not major considerations for these devices. smartphones. STORAGE & PERIPHERALS / APRIL 2015 49 . tablet computers. Thus. However. its price. we think HDDs will remain the preferred choice of storing data on desktop computers. rather than on cost per megabyte. outweigh its main disadvantage.consumption and smaller form factors.

global navigation system (GPS). which was revolutionized by the launch of the first iPhone in 2007. and government markets. Assemblers. to name a few) and applications have been replacing traditional mobile phones. “blade” or rack-optimized servers. small.) The high consumer appetite for tablets has essentially eliminated the netbook market following the boom of 2009 and early 2010. Android is the dominant operating system for the smartphones. Apple scored a hit in the tablet category with the introduction of its iPad product. They allow customers to create standardized.HOW THE INDUSTRY OPERATES Computer Form Factors Just about every kind of computer comes in a variety of “form factors”—physical designs that play a large role in determining the computer’s potential uses and markets. Tablet computers are a form factor somewhere between netbooks and laptops. and demonstrate the unique solutions that are available on its products.and medium-sized businesses (SMBs). media player. Distribution. a laptop or portable PC typically meant a notebook-sized computer. Among the promising devices in recent years are wearables. Some hardware manufacturers. These companies also employ a variety of indirect distribution channels. and not as a tablet PC. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . education. have become popular with corporations and other enterprises. including IDC. mobile payment. followed by iOS. PC-like operating system. such as third-party cellular network carriers. and Manufacturers Technology hardware customers are primarily in the consumer. such as reduced power usage and heat generation. like Apple. Laptops contain similar electronics as desktops. which has a more robust. The most common form factor distinction in the PC market is that between desktop and laptop (or portable) computers. look to build and improve their distribution capabilities by expanding the number of their own retail stores worldwide. (Note that many market researchers. a smaller “ultraportable” form factor—often called a mini-notebook or netbook—began to emerge as another type of laptop that allows users to connect to the Internet while on the go. Servers and workstations also come in a variety of form factors. and value-added resellers. Over the last few years. In the past decade. Most smartphones now have touchscreen interface. These devices can be used as accessible extensions of other consumer devices such as smartphones. Marketers. tablets. which are simply circuit boards designed to standard specifications. The most anticipated wearable to be launched in the market is the Apple watch. or PCs. These companies sell their products and resell third-party products in most of their major markets directly to consumers and SMBs through their retail and/or online stores and/or their direct sales force. smartphones or mobile phones with increased functionalities (Internet access. These retail stores are 50 TECHNOLOGY HARDWARE. enterprise. Hardware manufacturers look to sell innovative and differentiated products and to employ knowledgeable salespeople who can convey the value of the hardware and software integration. count devices like the iPad as a media tablet. but they must also meet a unique set of requirements. expandable computer racks and easily add or remove individual servers. wholesalers. In 2010. Historically. but in recent years. retailers.

The fear of forfeiting large cash bonuses usually results in a sales surge during the fourth quarter. managers often seek to deplete their capital spending budgets for fear of funding cutbacks the following year. In addition. Second. By operating its own stores and locating them in desirable high-traffic locations. as well. services. STORAGE & PERIPHERALS / APRIL 2015 51 . the retail cycle. Technology hardware companies also sell their hardware and software products to enterprise and government customers in different geographic segments. and they have designed a range of products. sales of hardware through retail outlets—including manufacturers’ retail locations as well as mass merchandisers. the fourth quarter is traditionally the most significant revenue and earnings period.typically located at high-traffic locations in quality shopping malls and urban shopping districts. because most businesses close their books in December. Most vendors have adjusted their business models and expectations to reflect the longer sales cycles and uneven demand patterns during the summer period in Europe. Manufacturers like Apple and Microsoft sell their products to the education market through their direct sales force. These customers often choose products based on performance. For example. select third-party resellers. many US-based computer hardware vendors derive more than 40% of their revenues from international markets. First. Seasonal Sales Can Make or Break the Year Hardware manufacturers face a variety of seasonal influences on their sales. Achieving the proper balance between direct and indirect sales initiatives can be problematic. computer superstores. Direct sales can lower costs. Most vendors make substantial advertising and marketing outlays during the third and fourth quarters to capitalize on these important seasons. Growth in this area has come at the expense of other distribution channels. Companies like Apple and Microsoft are also committed to delivering solutions to help educators to teach and students to learn. but maintaining a strong partnership with distributors is critical to computer hardware vendors serving the enterprise market. With shipments to consumers accounting for a number approaching half of the worldwide total. These factors include differences in customs and business practices in other parts of the world. ease of use. the consumer market also plays a role in the seasonality of the hardware industry. and the year-end sales push for corporate hardware. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. and office products stores—have accelerated as consumer purchases have accounted for a growing percentage of hardware sales. vendors often put significant financial incentives in place to spur the industry’s legions of sales representatives to meet year-end sales goals. warehouse clubs. For vendors. These manufacturers believe that effective integration of technology into classroom instruction can result in higher levels of student achievement. This has a significant seasonal impact on sales. In addition. and programs to address the needs of education customers. Apple is well positioned to ensure a high quality customer buying experience and attract new customers. Manufacturers now focus on gearing up for the back-to-school selling season and the later push for holiday purchases. and seamless integration into information technology environments. and through their online and retail stores. This is due to a number of factors. productivity. European businesses typically experience a summer slowdown in business activity. consumer electronics retailers.

9%). The growth in the number of instant messages and weblogs (or blogs) has only added to this phenomenon. with storage vendors addressing ways in which they can reduce the energy requirements of data centers by making storage more efficient. Software has numerous advantages over hardware.  Storage area network (SAN). These systems are used for a variety of functions.7%). making them complementary storage solutions. Our discussion focuses on the following categories: storage systems. disk drives. Products in this arena serve the entire market spectrum. (which accounted for 20. rather than attached directly to a server. Certain operating environments use both technologies. multimedia content on the Internet. EMC garnered a 31. flash memory. HP (14. including less labor-intensive manufacturing and higher 52 TECHNOLOGY HARDWARE. thereby improving overall performance and creating a central hub for storage management. Many companies have looked to software to supplement their existing product lines. multimedia devices. software has become an increasingly relevant offering for storage vendors. This explosion of data has increased the complexity involved in managing secure access to information. We attribute this to the expansion of a variety of data-intensive applications (including online transactions).4%). and Hitachi (7. particularly. prioritization.4% share in the third quarter of 2014.2%).  Network-attached storage (NAS). from low-end applications up to and including the enterprise segment. leading to increased emphasis on storage software solutions. components (host bus adapters and switches). A NAS setup converts the block data to files and delivers them over a LAN to servers or PCs. The storage area network exists as a complementary network to the local area network (LAN): The creation of the SAN allows the LAN to offload some of its data-intensive traffic. Environmental concerns also have become a key economic driver. This architecture is attached directly to the network through a high-end server.6%).5%). and Net App (8.9%). Networked devices may be based on storage area network (SAN) architecture or network-attached storage (NAS) architecture (both described above). and tape products. Product Overview: Storage The computer storage industry is a broad and dynamic market. Dell (10. including the storing. A growing portion of the systems market is focused on devices that are networked. trillions of e-mails are generated on an annual basis. and disposal of critical pieces of information. software. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . followed by NetApp (12. the volume of data being created has exploded. IBM (10. fast and reliable data storage has become ever more vital. Within the total external disk storage market (NAS and SAN combined). For example. IBM (9. and. HP (9. Software In recent years.Demand for Data Storage Exploding Over the past decade. This architecture involves the creation of a private network that moves data in block format directly to servers. backup. As a result.8% of the market in the third quarter of 2014). Disk Storage Systems The storage systems market is broad. management.6%). IDC reported that leading providers of worldwide disk storage systems include EMC Corp.

and the number of devices and servers that can be attached. It typically transmits data at speeds of up to four gigabits per second.2% market share). and expansion of this technology into consumer electronics equipment. Director-class switches offer 32 or more ports. on the other hand. From a host storage interface perspective. they typically required customers to purchase both the storage hardware and software in a bundled package.2%). Switches and HBAs both use a networking technology known as Fibre Channel. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. which is the storage capacity per square inch on the recording surface of a disk. Components Components are parts used in the configuration of networked storage architectures. (including acquired McData Corp.  Switches. and Symantec (12. Drive sizes range from 0. the move to distribute software makes sense. The disks are the sites at which data are retrieved and stored. A storage company that develops its own hardware/software solution can seize the opportunity to satisfy all of the customer’s requirements. server. a customer that wants to use EMC’s hardware has the option to use another company’s storage software if it chooses. according to a report by IDC. One or more hard disks are attached to a spindle assembly. The two main categories within this field are host bus adapters (HBAs) and switches. provides more flexibility in terms of distance. the increase in file sizes. the digitization of printed information. which is powered by a spindle motor that rotates the disks at a constant speed around a hub. Today.) and Cisco Systems Inc. and they are deployed at the edge of a SAN. and they are installed within the SAN. IBM (14. Fibre Channel. There are two primary types: fabric and director class. growth in emerging economies. Fibre Channel was the first networking technology to be widely adopted by the major industry participants. STORAGE & PERIPHERALS / APRIL 2015 53 . Switches are devices that filter packets of information between LAN segments. Hardware providers have incorporated the “open system” concept—configuring their software so it can run on other companies’ machines—into their software portfolios. Demand for HDDs is influenced by a number of factors. the Internet small computer interface (iSCSI) protocol is becoming increasingly popular as a SAN interconnect technology. including improvements in computing price-to-performance ratios. or mainframe. which combined. flexible topologies. Hard Disk Drives Despite their multitude of uses.gross-margin potential. The two major providers in this field are Brocade Communications Systems Inc.  Host bus adapters. which facilitates the transmission of data between computer devices. Introduced in 1994. Of late. all hard disk drives (HDDs) employ the same basic technology. In the past. HBAs are cards that fit into a computer. HDD performance is often measured in terms of aerial density. and QLogic Corp.85 inches to 3. and that are linked to a storage device or storage network to allow servers to connect to storage networks.5 inches. The two principal competitors in this industry segment are Emulex Corp. iSCSI tends to be less expensive.8%).. Intuitively. meaning the customer had to use the same vendor for both. The top providers of storage software in the third quarter of 2014 were EMC (27. dominate the market. Customers that are interested in purchasing a particular hardware product often need software to run the necessary applications. depending on the application. Fabric switches typically provide fewer than 32 ports.

which primarily is used for storing large quantities of data. tax incentives. and supply chain logistics. and it has increased greatly since mid-2006. while improving. offers faster read speeds and is more suitable for applications such as cellular phones. announced the availability of a 240 GB solid-state drive (SSD) for PCs. The following section details what we think are some of the most important considerations for firms in this industry. The advantage to using tape is that it is typically less expensive and more energy efficient than disk storage. Because SSDs are based on flash memory technology. with its growing economies. The second. In January 2009. depending on the costs. As a result. and well-educated work force. like perpendicular magnetic recording (PMR). 54 TECHNOLOGY HARDWARE. Tape storage is sometimes combined with a disk-based backup system to provide an additional layer of protection and replication. HDD manufacturers Western Digital Corp. Tape Products Tape-based storage is another option for customers in need of information management solutions. people. tape’s speed and functionality. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . customer requirements. Flash Memory/Solid-State Drives Other products receiving more attention today are devices based on flash memory technology—a type of nonvolatile memory in which the memory pattern is erased by very large arrays of bytes. This process involves reading data and then writing the data onto tape. are responsible for increasing drive capacities. Compared with conventional platter HDD technology. and Seagate Technology dominate about 86% of the total market. Storage capacity can vary widely. There are two main kinds of flash memory.Consolidation over the last few years has caused the disk drive industry to become more concentrated. Today. We think that recent pricing declines have now made SSDs a serious threat to conventional HDDs. SanDisk Corp. it has broadened the storage industry’s addressable market. Tape-based storage tends to be used for data that are less relevant to the ongoing operations of a business and need to be accessed infrequently. the SSD has no moving parts and consumes less power. Operational Factors The operations of a technology hardware company are influenced by a variety of factors. they provide faster access times and generate less heat—both of which are seen as differentiating advantages. Asia has become a particularly attractive manufacturing location. SSDs allow laptop battery charges to last longer and the laptop battery’s useful life to be extended (due to fewer charging cycles and the longer intervals between recharges). New technologies. They may manufacture their products internally or by outsourcing. Technological innovation has also reduced the number of components used in making HDDs. depending on the product offering and end market being served. equipment. are generally not as robust as those of similar disk-based products. and real estate. lower labor and materials costs. Production Requirements Successful companies in the hardware/storage industry must make significant investments in components. The first is NAND. Because flash memory has been incorporated into a host of consumer-related products. which significantly lowers their cost and increases their reliability. and they can operate in locations throughout the world. On the down side. NOR.

established companies typically have experienced management teams who can develop successful business strategies and stave off upstart companies. The level of technical expertise required and the amount of money that must be allocated toward R&D make it exceedingly difficult for new entrants to gain traction in this market. The biggest firms have the ability to initiate and/or weather price reductions because of their more efficient operating structures.  Scale. reliability. to pricing pressures. in our estimation. The industry has high barriers to entry. This defensive strategy eroded profitability by pressuring gross margins. Pricing Trends Pricing trends differ based on what area of the technology hardware arena a company is exposed to. Companies were forced to offer their products at drastic discounts in order to stimulate customer interest. In addition. pricing is typically biased to the downside in almost all cases. but at a fraction of the price. as well as state-of-the-art capabilities with respect to efficiency. the industry’s product segments have many similarities in terms of competition. In the past. and can cost as much as several hundred thousand dollars. Company research teams are usually characterized by an abundance of engineers. price competition grew vicious in many parts of the space as demand evaporated with very little warning. the price of disk storage systems decreased about 30% per year in the past. Many existing companies have developed multiple patents in order to protect their intellectual property. More recently. the sector is in a state of perpetual motion. STORAGE & PERIPHERALS / APRIL 2015 55 . In addition. to research and development (R&D). companies must hire workers with highly specialized backgrounds and skill sets in order to develop state-of-the-art offerings and stay competitive.  Barriers to entry. there are still pockets of the industry that are experiencing intense pricing battles. makers of HDDs tended to experience more abrupt price swings than other areas of the storage market. First. given the breadth of their product lines and devotion to investing in R&D. While the severity of price discounting has largely subsided. new product introductions. For these reasons. These manufacturing efficiencies are attributable not only to economies of scale. many of whom possess PhDs. Customer Base Traditionally. Products for this market offer massive amounts of capacity. but also to cost-reduction initiatives implemented after the bursting of the Internet bubble. the industry has enhanced its focus on the middle and lower tiers of the market by presenting products that offer many of the same high-end features. From evolving technologies. size matters. During the market downturn in 2000 and 2001. Competition A variety of factors influences the competitive landscape of the technology hardware arena. and speed. Despite inherent differences. by implementing major cost-reduction efforts and lowering corporate operating expenses.Given the complex nature of the space. and the industry’s entry barriers are high. many of the larger hardware/storage providers have focused their resources on the so-called enterprise market: large organizations. For instance. though. The leading companies are able to meet the changing needs of their customers. size matters. but this level can be higher depending on supply/demand imbalances. However. companies typically offer ongoing training to ensure that employees stay abreast of current marketplace trends. We think this resulted from the difficulty in anticipating INDUSTRY SURVEYS TECHNOLOGY HARDWARE. and individual company strategies. such as corporations and government agencies. Proactive companies were able to offset some of this shortfall.

and collaboration on product design and technologies. EMC has been able to take advantage of Dell’s world-renowned production capabilities and to expand its global reach by leveraging Dell’s customer base. In turn. keeping inventory levels too low can result in missed opportunities. Customers tend to watch these cycles closely. depending on the level of competition. There is considerable risk in shipping too many products based on the assumption that demand is likely to improve in the near term. the company risks declining revenues and the ceding of market share to peers with more formidable offerings. Their agreement involves joint product manufacturing. including directly to OEMs and through various partner and channel relationships. One example is the ongoing relationship between EMC and Dell. Product cycle times can vary from just a few months to several years. however. At the same time. Inventory Inventory levels are an important consideration when determining product demand and the success of a company’s sales strategies. If a company or one of its channel partners incorrectly forecasts demand trends. should demand patterns exceed expectations. companies’ emphasis on R&D. We. it may have to cut prices in order to stimulate purchases and to reduce product levels to avoid obsolescence. Distribution and Alliances Storage systems and components are sold through multiple outlets. but expect an updated version to be released soon. 56 TECHNOLOGY HARDWARE. Conversely. and consumer demand. note that consolidation has moderated annual price declines. if they are interested in purchasing a new device. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . they may decide to wait in order to take advantage of the newer offering. marketing.near-term demand and the limited lead times often associated with the production process. If a product is allowed to stay in the marketplace for an excessive period. partnerships create “win-win” opportunities for the affiliated companies. Product Cycles The ability to determine the life cycle of a particular product is a key management consideration. Dell has been able to build out its storage product portfolio by relying on EMC’s broad experience and technical expertise. In most instances. pulling a product too quickly in favor of an updated version may result in unnecessary expenses and the cannibalization of a company’s wares.

when consumer confidence is low. this metric measures the number of smartphones/PCs/tablets that manufacturers expect to ship on a worldwide basis during the year. the broadest measure of aggregate economic activity. First. a research firm specializing in the IT and communications industries. is of great importance. The multinational nature of the computer hardware industry means that the value of the dollar. This category concerns the amount of money allocated to initiatives related to information technology (IT) on a worldwide basis. which fall under the IT spending umbrella.  Consumer confidence. with 1985 as a base year (1985=100). and vice versa. IDC also provides projections by individual regions and for future periods. the data show which companies were able to gain or lose market share. is the market value of all goods and services produced by labor and capital in the US. These statistics track the performance of the disk storage systems portion of the data storage market. a rising forecast generally indicates greater business confidence. These data points describe how this subsector of the data storage market performed during the quarter and give an indication of the strength of underlying demand trends. Growth in the economy is measured by changes in inflation-adjusted (or real) GDP.  Real growth in gross domestic product (GDP). people are more likely to postpone nonessential outlays.  External disk storage systems revenue and market share data. It polls 5. In addition. This statistic may give the best indication of demand for storage products. A high level of consumer confidence generally signals that people feel good about the economy. The combined shipment forecasts offer a good barometer as to the overall level of demand for IT products. over the course of the year. Consumer spending accounts for only about 10% of total IT spending directly. The Conference Board conducts the most widely followed consumer confidence survey.  Smartphone/PC/tablet shipment forecasts. Projected and actual data are broken out by vertical market and individual product line and are reported by IDC. and future earnings ability. The data are compiled by IDC and published on a quarterly basis. It is particularly relevant to the hard disk drive segment of the industry. businesses must invest more in their IT infrastructure to handle increasing demand for e-commerce transactions and other high-tech services. GDP. since hard disk drives are installed inside PCs. Conversely. These data points also indicate the overall attitude of corporations toward spending on IT-related products and services.KEY INDUSTRY RATIOS AND STATISTICS  IT spending. Reported on a quarterly basis by IDC. High or rising confidence is usually accompanied by increased spending and borrowing—necessary ingredients for the purchase of relatively bigticket items like PCs. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. STORAGE & PERIPHERALS / APRIL 2015 57 . but it is also an important factor for the computer industry on an indirect basis. it is reported quarterly by the US Department of Commerce.000 representative households each month to gauge consumer sentiment. consumer confidence is an important element in corporate profitability. compared with that of other currencies. which in turn drives business capital spending. This measure of consumer attitudes is expressed as an index. their job prospects.  Currency exchange rates. In addition. as PC penetration in the home increases.

To limit the financial risk associated with currency swings.. they are affected by changes in the dollar’s value versus other currencies. which have helped them limit foreign currency impacts on financial results. currency swings also affect the expense side of their ledgers. The increasing level of global exposure often causes wide variations in these companies’ reported results. and HP generate a significant proportion of their sales and profits from outside the US. companies are increasing their use of hedging techniques. 58 TECHNOLOGY HARDWARE. For US computer hardware companies that have a significant operating presence in international markets. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . thus. Dell Inc. it is important to understand both the net impact of currency swings on reported financial statements and the true level of business activity on a constant currency basis.Companies like IBM. Still.

and how well a company manages this variable can determine whether it emerges as an industry leader. and more functional products. given the trend seen for overall market demand. Comparative Analysis Is Critical An analyst must identify a company’s competitive advantages—and its disadvantages. (IBM) all dominated key segments of the computer hardware industry. and the credibility and potential of a company’s management team. and decide which of its peers compare most closely. To assess an individual company’s situation within this environment. Digital Equipment Corp. it is important to consider both qualitative and quantitative factors affecting its condition. Peer Comparisons An important consideration when looking at relative valuation measures—such as price to earnings (P/E). INDUSTRY SURVEYS TECHNOLOGY HARDWARE. and how do they both compare with the strategies of competitors? Has management been able to articulate strategy. cheaper. business and marketing strategies. and how does it differentiate itself from its peers? How does its current strategy compare with its plans for the future. (DEC). What are the company’s key products and markets. or any other metric that involves comparing a company with its peers—it is important to find the best like-for-like comparison. To be sure.or third-tier player. becomes a second. and does its past performance indicate it will be successful in executing its plans? Does the company have an edge over its competitors? If so.HOW TO ANALYZE A TECHNOLOGY HARDWARE COMPANY Rapid technological changes make it imperative for analysts and investors to go beyond traditional quantitative methods in assessing a computer hardware company’s outlook. it is important to consider the makeup of its revenue and earnings. However. qualitative judgments must also be made about technology. or fails to make the grade. financial statement analysis is a critical ingredient in determining the future prospects of any company. STORAGE & PERIPHERALS / APRIL 2015 59 . Knowledge of general economic conditions affecting business in general and the computer industry in particular is essential in determining conditions within the data storage industry. Apple Inc. is it likely to maintain that edge? An analyst needs to understand how each company has positioned itself concerning these factors and whether the strategy makes sense. The history of the computer industry contains vivid examples of companies with dominant franchises that failed to keep up with technological shifts away from their core markets. Again. rapid changes are key characteristics of the industry. Analysis of the quantitative and qualitative aspects of a computer hardware company should be considered within the context of the omnipresent threats and opportunities posed by new technology. price to sales (P/S). as well as prospects for the industry as a whole. A key indicator within the overall economic picture is the level of spending by enterprise customers. In order to ascribe a multiple based on relative valuation to a particular vendor in the storage group. only to see their positions deteriorate as the market shifted toward faster. but an analyst attuned to industry dynamics would have been alerted by earlier clues. as detailed below.. and International Business Machines Corp. which determines the near-term flow of dollars to the storage industry. Their declining positions eventually showed up on the companies’ financial statements. competition.

another might be the overall breadth of its product line. Quantitative Analysis: Looking at Financial Statements Analyzing a company’s principal financial documents—the income statement and the balance sheet—provides an important base for assessing its overall performance. and what are its particular advantages? One possible advantage is size. A further qualitative point to research is management ability. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . comparing performance and financial ratios with those of its peers is critical. tax rates typically head lower as more operations occur outside the US. Who are its major competitors? Are there many small competitors or a few large firms wielding significant resources? How does the company stack up against them. For example. Why did the company underperform? Similarly. Is that above-average growth rate sustainable? The next step is to consider the growth rate for the particular industry segments in which the company participates. The outlook for mainframe computers. What are the overall growth expectations for those markets? It is also important to determine the level of competition in a company’s particular market segments. Companies that are unable to do so risk losing market share and may face additional expenses related to obsolete inventory. it is clearly a cause for concern if a company achieved revenue growth of 5% in a year in which the average industry growth rate was 10%. the financial results of a company should always be considered within the context of the markets it serves. companies with the same product focus and addressing common target markets tend to be valued similarly. An analyst can gauge the fundamental strength of a storage vendor by identifying the markets in which it competes and understanding their dynamics. for example. Growth Is Relative How does a company’s financial performance compare with others in its peer group? Again. to create shareholder value. Does the company primarily serve the consumer or corporate market for PCs? In which geographic areas does it participate? What is the company’s growth relative to its competition in these geographic areas and the market’s overall growth potential? A company’s geographic footprint can affect its effective tax rate. as well as revenue potential and production cost levels. differs from the higher growth prospects for PCs and servers. while absolute numbers are an important part of the financial assessment of any company. if a company’s growth outpaces the average. Clues about a company’s management team can be obtained by looking at its history. This helps to ensure that they have the incentive to do what is best for the shareholders—that is. it is critical that a company respond proactively to deliver those products in a timely manner. vendors within the industry can often differentiate themselves from competitors by their approach to satisfying storage-related compliance issues. As faster and more efficient products pique the interest of customers. what have they done previously? It is also preferable for managers to own stock or options in the company. The ability to adapt quickly to technological change is another key factor. What is its track record? How long have the high-ranking managers been with the company? If they recently took control.Barring major structural or fundamental differences. analysts will want to uncover the reasons. 60 TECHNOLOGY HARDWARE. Finally. Somewhat related to technological change is the effect of regulatory issues placed on the business needs of the customer base. More specifically. absent a standard or technical specification.

and minimize interest expense. their expenses can rise faster than sales. which should be evaluated relative to industry norms. A drop in gross margin may reveal that a vendor has changed its bidding policies to use price as a competitive weapon to win contracts. if the company participates in a high-growth industry. Ideally. pricing pressures.  Sales trends. These include selling. and overhead) can be affected by a number of variables. Moreover. inventories. net profit margins have improved in recent periods. Although price cuts reduce a contract’s profitability. current assets. including sales mix. Long-term debt as a percentage of total capital varies widely among computer makers. and maintaining lean inventory levels.  Ratio of long-term debt-to-capital. and research and development (R&D) costs. Revenues derived by data storage vendors tend to follow a seasonal pattern. This is the bottom line and is calculated as net income divided by total sales. In addition. technology companies with high-growth prospects sometimes must expand their workforce rapidly to support sales growth and/or new product development. in which the last quarter of the calendar year is often the strongest. improving their manufacturing efficiency. STORAGE & PERIPHERALS / APRIL 2015 61 . as pricing competition has intensified. An analyst should determine the components and trends of a company’s profits. general. expenses should increase more slowly than sales. and then compare these results with those of its competitors. Ideally. or if it is in the early stage of a new product cycle. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. Gross margins (the percentage of sales remaining after subtracting the cost of goods sold or costs such as materials. sales in the current period should show growth from the year-earlier period. Successful companies have been able to counter margin pressure somewhat by adding a higher-margin mix of products.Key Elements on the Income Statement A company’s income statement shows its operating results over a specific period and thus is a key part of any analytical endeavor.  Gross profit margin. and administrative (SG&A) costs.  Net profit margin. Balance Sheet Provides Clues to Future Results How strong is a company’s financial position? The balance sheet offers a snapshot of the company’s financial position at a specific moment in time. Significant gross-margin pressure has been the norm in the computer hardware industry in recent years. such as interest income and interest expense.  Expense line items. sales growth should be compared with that of direct competitors and against the overall industry rate. though seasonal factors should also be considered. it reflects a company’s taxes and its nonoperating income and expense items. analysts should look at short-term and long-term growth trends in revenues. Low debt levels give a company the financial flexibility to acquire emerging technologies or other technology companies. However. and component costs. the current ratio. they often increase the company’s overall business volume. Along with operating performance. This is arguably one of the most important profitability measures to consider in assessing a computer hardware company. In such years. labor. sales volumes. sequential growth (from one quarter to the next) would be expected. Beginning at the top of the income statement. As many companies have reduced debt levels and improved operating efficiencies. Some factors to study include the ratio of long-term debt-to-capital. We think this is largely the result of corporate information technology (IT) departments accelerating their level of spending late in the year in order to use up allotted funds—a process often referred to as a budget flush. and accounts receivable.

Is the company headed for a potential cash crunch? The level of cash and marketable securities is usually a good starting point for assessing a company’s shortterm liquidity.  Current ratio. A healthy working capital ratio helps to ensure that the company can adequately meet its current liabilities. most companies require a reasonable level of cash and cash equivalents for emergency liquidity and growth needs. Alternatively.. Another check on liquidity is the current ratio (the ratio of current assets to current liabilities). and/or pay dividends. it could be a red flag signaling that existing products are not selling well. When inventory levels increase faster than the rate of sales growth. Cash and investments. as the computer hardware industry becomes more global. Although many technology companies experience this type of sales trend (sometimes described as a “hockey stick”). the level and health of a company’s inventory position must be constantly monitored. as many data storage vendors have looked to expand their product lines by making strategic acquisitions. Because the computer hardware industry is subject to wide swings in profitability. One way to track accounts receivable is by measuring the days’ sales outstanding (DSOs). Simply divide accounts receivable by sales for a given quarter and multiply by 91. Such revenue is classified as a liability on the balance sheet until the product or service is provided to the customer. A rise in the level of accounts receivable may indicate that a significant portion of sales was made in the last few weeks of the quarter. as it offers a peek into a company’s revenue potential. which measures the average speed at which inventories move to sales. also called the working capital ratio. it can signal either potential opportunity or potential trouble. Any meaningful change in inventories or turnover rates should be investigated. make acquisitions. Given the computer hardware industry’s tendencies toward rapid price declines and inventory obsolescence. This metric indicates a company’s ability to meet near-term debt obligations. This metric encompasses revenue that has been received by the company for work that it has not yet performed.  Deferred revenue. Product sitting on a shelf in a warehouse ties up assets that could be better deployed (e. repurchase stock. However. For example. This line item has become more of a focal point in recent years. an important measure is free cash flow—the amount of excess cash the company has available after paying off its obligations. How fast is the company turning over its inventory? This is a critical question companies are increasingly asking themselves on two levels: as a clue to manufacturing efficiency and as a tool for cash-management optimization.  Accounts receivable. Also important in the analysis of a technology company is a careful examination of current assets.  Inventories. An analysis of accounts receivable can provide insight into how well a company’s products are selling. Free Cash Flow When valuing a data storage firm. such as in the early stages of a new product cycle. Any meaningful degradation in the current ratio from previous reporting periods should be closely examined. We think that this category is useful to investors. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .  Current assets.g. this ratio should be greater than one. it could signal that price concessions or generous payment terms had to be extended to pump up sales. it may be that the company is gearing up for heightened business activity. accounts receivable could generally trend higher as a matter of logistics. The analyst should determine how 62 TECHNOLOGY HARDWARE. A key measure to watch is the inventory turnover ratio (the annualized cost of goods sold divided by the value of average inventory). put toward investments in future growth).

and the company posted losses through 1993. For a forward projection. two important measures of a company’s overall financial performance are return on assets and return on equity. In this environment. one can use the forecasted earnings for the next year. These measures. and divide it by the sum of the current year’s forecasted cash flow.g. The analyst should compare valuation ratios with the company’s own historical ratios and with those of peer companies and the overall stock market. Although the data storage industry is no longer viewed as a fast growing sector. Any financial statement analysis would be incomplete without some discussion of return on investment. data storage companies are valued based on their profitability. Both ratios measure management’s ability to earn a reasonable profit on the assets and capital entrusted to them.  P/E and PEG. This ratio is derived by dividing the current share price of the company by its projected revenues for the current year on a per-share basis. Since then. price/sales. along with growth projections. In our view. reinvesting the cash in the business. paying dividends to shareholders. which can be used to weigh the strength of earnings growth as part of valuation assessments for a given company relative to its peers. of which the two most popular measures are return on assets (ROA) and return on equity (ROE). the company is operating at a loss). or when earnings forecasts are in question. The most commonly used proxy for a company’s cash INDUSTRY SURVEYS TECHNOLOGY HARDWARE.  ROA and ROE. take the company’s stock price.the company expects to use its free cash flow. This ratio is used in times when earnings are not available (e.. IBM struggled with these metrics in the early 1990s as customers transitioned away from the old-style mainframe platform to the more popular PC. Mature companies that do not earn a high enough return on their invested capital may elect to pay out the cash to their shareholders through dividends or share repurchases. Thus. STORAGE & PERIPHERALS / APRIL 2015 63 . reflecting its higher growth potential. when the economic environment is relatively stable or on an uptrend. a company in a growth stage will pump its cash back into the business to fuel further growth. simply take the stock price and divide by the current year’s projected earnings. we estimate that the average P/E ratio for the data storage industry should be above that of the overall market. or pursuing acquisitions.  Price/cash flow. provide key indicators for a valuation analysis.  Price/sales. ROA (net income divided by average total assets) measures a company’s operating efficiency or the return earned on assets under management’s discretion. Performance and Valuation Metrics to Consider Drawing from both the income statement and the balance sheet. we project that it will outpace the rest of the IT industry and the overall market. Generally. and price/cash flow. performance metrics and growth rates should be considered alongside price-related valuation ratios such as price/earnings. In evaluating the relative attractiveness of a company’s current stock price. newer IBM products and a strategy that emphasized higher growth opportunities in software and services have generated steady improvement in the company’s ROA and ROE measures. or the P/E divided by the company’s projected average five-year earnings growth rate. To calculate this ratio. A variation of this ratio. The term P/E refers to the price-to-earnings ratio of a stock. Possible strategies include repurchasing shares of the company’s common stock. ROE (net income divided by average total shareholders’ equity) measures the return earned on shareholders’ capital. To arrive at this figure. the most common valuation metrics used are P/E ratio and multiples of operating profits. is referred to as the PEG ratio.

flow is EBITDA (earnings before interest. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . 64 TECHNOLOGY HARDWARE. and depreciation and amortization). The real-world use of this ratio is generally derived using the forecast of EBITDA for the next year. Price/cash flow is typically used in cases where a company’s earnings are penalized by high capital intensity. taxes.

and information are provided to computers and other devices on demand. which themselves are tied together. satellite systems. GB—One gigabyte. Disk drive—An internal or peripheral device on which data can be stored and retrieved. and mini notebooks (also known as netbook computers) are gaining popularity. Tablet computers.e. Aerial density—A measure of storage capacity per square inch on the recording surface of a disk. Channel—The group of distributors and resellers used by an original equipment manufacturer (OEM) to sell its product. in contrast. as opposed to the software that makes the system or its applications run.. Database—A computer-based collection of information or data files. a unit by which computer memory and data transfer speeds are measured. a closed architecture. as distinct from sales made directly to end users. Broadband—A class of Internet connections. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. like the electricity grid. It is the primary connection type used in a storage area network (SAN). Form factor—The physical form in which a computer’s components are packaged.000 megabytes. Blade servers. laptops have recently overtaken desktop computers as the predominant form factor. are also seeing new interest. software. enabling SAN traffic to be natively transported over Ethernet networks. it governs the interrelations between the operating system and the physical hardware. organized and presented to serve a specific purpose. digital subscriber lines (DSLs).GLOSSARY Advanced technology attachment (ATA)—A standard interface for connecting storage devices such as hard disk drives inside personal computers (PCs). which are often used to create computer clusters. retailers or other marketers) may buy from the OEM directly or from a distributor. has a proprietary design. Fibre Channel over Ethernet—A standard for using the Fibre Channel protocol over Ethernet networks. whereby shared resources. Apple Macintosh computers. less robust netbooks. Client/server—A model of computer networking in which one computer (the server) acts as a central storage area for data and software programs that can be accessed and manipulated by other computers (the clients. STORAGE & PERIPHERALS / APRIL 2015 65 . used in all sizes of computers. “Open architecture” allows other manufacturers to design compatible devices. Cloud computing—Internet-based computing. Architecture—The overall design of the computer. usually referred to as Standard Intel Architecture. which are positioned between traditional laptops and the smaller. save space in computer rooms and allow for easy mounting or removal. including cable modems. or 1. and Sun servers running UNIX each have different architectures. usually PCs or workstations). IBM mainframes. that offer higher capacity and faster data transfer speeds than those available through a modem using ordinary telephone lines. Channel partners (i. Intel-compatible computers all have the same architecture. while protecting and extending the investment enterprises have made in Fibre Channel technology. Flash memory—A type of nonvolatile memory in which the memory pattern is erased by very large arrays of bytes. Blade server—A circuit board containing all the elements of a server that is built to a standardized size for mounting on a rack or chassis. In the PC market. and Wi-Fi. Fibre Channel—A networking technology used to transmit data between computer devices. Hardware—The physical components of a computer system. Hard disk drive—A device that reads and writes data on a hard disk. It is used for information storage and retrieval.

Most PCs run on the same operating system. or static (SRAM). Local area network (LAN)—Interconnected workstations sharing the resources of a single processor or server within relatively close proximity. an electronic storage area used by a computer to hold the information it is currently working on. of users simultaneously. RAM can be dynamic (DRAM). and controlling peripheral devices. and keyboards. disk drives. Network-attached storage (NAS)—Storage attached directly to the network through a high-end server. Server—A computer or a device on a network that manages network resources. Peripherals—External devices attached to a computer. or even thousands. and maintaining the capacity to expand later. including UNIX. and software that gives computers access to shared resources (e. databases) and peripheral devices (e. or CPU. and control functions that a computer needs to process data. Linux. (See UNIX. Hypervisor—Sometimes referred to as a virtualization manager.) Mainframe—A large. Network—A collection of hardware. which must be refreshed periodically. while increasing resource sharing and utilization. Data stored in RAM is lost when the flow of electricity stops. 66 TECHNOLOGY HARDWARE. It performs basic housekeeping chores such as recognizing input from the keyboard. Microsoft Windows. examples include printers. Small computer system interface (SCSI)—A short-range protocol designed to link host computers with storage devices. Internet—A public network connecting many computer networks and based on a common addressing and communications system called TCP/IP (transmission control protocol/Internet Protocol). logic. Linux is increasingly popular for running corporate servers. A print server is a computer that manages one or more printers. Operating system—Software that controls the inner workings of the computer.g. but servers use a variety of different operating systems. a file server is a computer and a storage device dedicated to storing files. server. any user on the network can store files on the server. display monitors. RAM—Random access memory. For example. communications facilities.. consisting of one or more chips that perform the basic arithmetic. to share a single hardware processor. ROM—Read-only memory. in addition to Windows. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS . this term usually refers to a vendor that assembles computer systems with components made by other suppliers. which does not need refreshing and is faster (but larger and more expensive) than DRAM. Programs or data stored in ROM do not disappear when the power is shut off. or mainframe and is linked to a storage device or storage network. processors. and operating systems) from server users. Server virtualization—The masking of server resources (including the number and identity of individual physical servers. and others. which can include different operating systems or multiple versions of the same operating system. Software—Computer programs that either direct the operation of a computer (system software) or accomplish user tasks (application software).Host bus adapter (HBA)—A card that fits into a computer.g. memory that a user cannot alter.” meaning that users can freely modify it. expensive computer capable of supporting hundreds. a hypervisor is a program that allows multiple operating systems. Original equipment manufacturer (OEM)—In the computer industry. Linux—A variant of the UNIX operating system that is “open source. but is a lesser force in desktop computing. The user is spared from having to understand and manage complicated details of server resources. printers and modems). Microprocessor—A central processing unit. keeping track of files and directories..

UNIX—An operating system developed by AT&T’s Bell Laboratories that has multiuser. and networking capabilities. it features a high-performance microprocessor and graphics capabilities. a server. INDUSTRY SURVEYS TECHNOLOGY HARDWARE. (See Linux. STORAGE & PERIPHERALS / APRIL 2015 67 . significant storage capacity. Storage area network (SAN)—A dedicated network providing storage and backup solutions.) Value-added reseller (VAR)—A vendor that assembles hardware components into a computer system. and networking facilities. Virtualization—The creation of a virtual (rather than actual) version of something. The complete package is then sold to the final purchaser. Switches—Network devices that connect and filter pieces of a message (or “packets”) between LAN segments. Wi-Fi—Short for wireless fidelity.Solid-state drive (SSD)—A storage device that stores persistent data using integrated circuits (ICs) rather than magnetic or optical media. The network establishes a connection between storage devices and the back end of a server. The vendor adds value to it by installing software (often customized). a storage device. or network resources. multitasking. refers to a set of wireless communications standards that provide broadband networking connections over short distances using unregulated radio waves. such as an operating system. Workstation—A single-user system for engineers and other technical professionals.

gov Cabinet-level department responsible for a variety of government agencies that monitor and regulate US commerce. a provider of technology media and business information.sec.htm Site maintained by the Securities and Exchange Commission. such as 10-Ks and 10-Qs.crn. and Storage Decisions conferences and seminars. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .investors. news on the financial markets with an emphasis on technology. IDC http://www. Investor’s Business Daily http://www. covers computer hardware and software.pcmag.forrester.com Weekly.com/?setccpref=US Bimonthly.techtarget. analysis. http://www.gov/edgar/searchedgar/webusers. covers news in the PC industry. InfoWorld http://www. and software downloads. computer systems and peripherals.infoworld. Gartner.com/news Daily news coverage. websites. SearchStorage http://searchstorage.com Storage-specific technical advice for IT professionals. product reviews.networkcomputing.idc.com Leading provider of information technology data.gov Agency within the US Department of Commerce. US Department of Commerce http://www. PC Magazine http://www.computerworld. CRN http://www. CNET News http://www.com Weekly.com Weekly. computer hardware and software industry news.com Part of UBM TechWeb. InformationWeek http://www. including semiconductors. communications. and consulting.com Provides worldwide market coverage on various sectors of information technology. also gives advice about technology’s impact on business. and services.informationweek. buyers.gartner.com Daily.cnet.INDUSTRY REFERENCES PERIODICALS ONLINE RESOURCES Computerworld http://www. document management. which provides access to corporate documents. Inc. news and features on the computer hardware and software industries. and marketers via Storage magazine. EDGAR Database http://www.com Leading market research firm with expertise in technology. Network Computing http://www.com Weekly. this online magazine addresses the major technological issues IT managers face GOVERNMENT AGENCIES US Bureau of Economic Analysis http://www. software. MARKET RESEARCH COMPANIES Forrester Research http://www.commerce. computer hardware and software news. 68 TECHNOLOGY HARDWARE. its mandate is to collect economic data.bea.

889.9 A 2004 125.6 9.0 6.1 5.5) (0.9) (4. End TECHNOLOGY HARDWARE.4) Note: Data as originally reported.478.033.905.This year's data reflect a major merger resulting in the formation of a new company.6 20.0 5.1 14.510.013.7 290.823.4 170.713.7 AAPL [] APPLE INC SEP 182.1) (6.9 4.612.508.0 2.4 25. STORAGE & PERIPHERALS / APRIL 2015 69 .5 42.0 40.0 871.761.5 1.3 140.6 NA NA NA NA NA NA 139 70 110 NA NA 141 69 102 396 81 151 72 96 396 85 159 79 91 390 98 158 79 81 321 104 14. H .Includes excise taxes.6 A 156.6 DEC 6.1 (2.9 12.1 33.Includes sale of leased depts.229.609.0 637.162.395.8 9.6) 109.6 5. CAGR-Compound annual grow th rate.1 470. D .857.051.8 11.0 721.727.2 16.2 2013 7.6 276.0 261. 18.9 3.3 27.0 320.4) (14. ‡S&P 1500 index group.382.6 39.4 NM 20.0) 400.0 A 6.0 2.1 21.4 9.0 1.0) 16.1 181.0 A DEC 3.0 505.0 21.627. B .113.443.9 A 120.8) (3.3 D 401.065 370 97 ** 480 488 304 NA 913 Note: Data as originally reported.8 8.660.454.9 1.0 6. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.8) (60.991.467.461.7 5.3 14.3 73.0 A 3.224.2 7.7 (17.Some or all data are not available.1 37.0 378 297 ** 1.245.6) (1. #Of the follow ing calendar year.7 19.This year's data reflect an accounting change.1 (73.0 1.5 2.1 460.0 340.0 126.6 D 597.9 41.0 23.069 391 347 ** 648 157 541 ** 1.222.013.900.235.0 2.0 NA 3.1 8.4 373 221 ** 497 347 231 ** 504 284 240 ** 410 319 176 ** 313 272 183 NA 323 13.0 417.6) 154.803.879.521 NM 44 219 314 1. due to a fiscal year change.0 A DBD † DIEBOLD INC DEC 3.8 504.4 A 108.325.8) 1.1 6.0 73.025.0 505.0 3.351. §Company included in the S&P SmallCap 600. **Not calculated.0 A 5.086.0 44.2 1.724.939.3 14.0 79.9 3.1 A 4.570.212.3 2.383 NM 79 72 283 OCT DEC DEC # APR # MAR 5.4 1.0 1.722 NM (99) 287 332 1.0 568.1 1.0 1.890 126 165 264 184 1.777.This year's data reflect an acquisition or merger.8 38.1 2.2 (1.052.0 1.351.6 15.5 127.2 15.4 2.0 17.123.7 NM (69.0 987.733.662.9 50.308 119 150 243 128 788 119 128 207 3.1 EFII § ELECTRONICS FOR IMAGING INC DEC 790.0 415.0 36. G .177.5) 7.0 (181. 5-Yr.2) 12.0 A 2.9 1. **Not calculated. End 2014 2013 2012 2011 CAGR (%) 2010 TECHNOLOGY HARDWARE.612.8 9.8 5.2 1.6) 6.683. E .5) NM NA NA (2.0 (20.088.0 513.732.6 HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP 112.6 83.7 Index Basis (2004 = 100) 10-Yr.5 6.862.5 7. data for base year or end year not available.6 7.0 144.1 2.Includes other (nonoperating) income.0 29.4 EMC [] EMC CORP/MA DEC 24.6 3.7 13.0 A 2.826.8 452.4 549.6 A 8.9 A 394.6 14.4 (4. CAGR-Compound annual grow th rate.4) 26. †Company included in the S&P MidCap 400.0 183.0 3.4 8.971.007.007.313.0 2.233.249.1) 454 NM 62 89 312 1.0 111.617. 5-Yr.718. []Company included in the S&P 500. F .0 61. 2014 2013 2012 2011 2010 764 NM (11) 20 218 11.015.1 79.795. Net Income Million $ Ticker Com pany Yr.013.4 NM 27.037.1 8.4 484.838.279.0 2009 112.0 942.0 A.6 7.380.819.9 (33.0 225.2 27.0 266.0) NA NA 143 14 62 ** ** 146 46 156 282 (12) (362) 19 48 224 47 202 56 17 268 76 251 60 38 298 88 DEC JUN JUN JUN 1.0 1.0 114.8 A 42.3 2.7 2.922.5 14. 1-Yr.3 NM (4.3 (3.0 NA 151.6) NA NA (8.6 2. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC AAPL [] APPLE INC SEP DBD † DIEBOLD INC DEC EFII § ELECTRONICS FOR IMAGING INC DEC EMC [] EMC CORP/MA DEC HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP 2014 2013 2012 2011 CAGR (%) 2010 2009 2004 Index Basis (2004 = 100) 10-Yr.0 7. A . §Company included in the S&P SmallCap 600.300.8 157.0 (3.0 673.0 4.1 10.170.225.7 23.5) (0. #Of the follow ing calendar year.0 54.1 571.0 159.2 A 5.332.042.5 727.931.598.591.3 36.7 1.074.497.850.0) (69.2 NA 17.984.0 A # APR NA # MAR NA DEC JUN JUN JUN 6.0 511.3 19.7 2014 2012 2011 2010 521 2.0 26.7 652.Data exclude discontinued operations.453. []Company included in the S&P 500.6 35. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC 653.5 (18.566.730.4 33.0 14.9 4.130.4 28.0 5.7 15.2) 1.1 7.6 558.1 139.526.8 591.0 353.9 A 65.552.910.COMPARATIVE COMPANY ANALYSIS Operating Revenues Million $ Ticker Com pany Yr.0 6.5 11.0 145.3 7.0 605.064 120 184 282 282 1.4 7.3 980.5 65.805.4 119.0 A 1.2 SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP OCT 111. †Company included in the S&P MidCap 400.4 54.650.440.046.905.0 NA NA 5. ‡S&P 1500 index group.9 A 230.0 38.1) (11.C 4.6 529.122.298. data for base year or end year not available.2 726.4 (0.0 1.0 D 6.208 128 200 297 409 2.835.0 3.0) 106.0 81.4 8.714.2 11.5 A 114. 1-Yr.3) (12.357.2 11. C .5 NA 26.

7 0.2 1.6 5.8 30.7 16.5 4.2 58.7 52.7 3.8 0.2 5.1 1.9 8.1 1.7 22.0 319.0 HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP Note: Data as originally reported.4 0.9 8.5 2.6 19.0 2.9 5.3 4.0 1.0 12.8 NM 1.0 63.0 2.2 99.3 14.4 20.2 0.6 7.2 9.4 0.3 19.6 0.1 23.6 21.8 1. 70 TECHNOLOGY HARDWARE.0 8.2 21.4 0.3 76.2 2.9 10.7 15.1 1.4 136.2 72.4 19.4 10.5 1.5 2.8 4.2 2.9 49.3 11.9 1.6 1.0 250.6 5.7 62.0 0.6 2.9 Note: Data as originally reported.8 45.9 12.5 55. ‡S&P 1500 index group.4 0.0 5.0 5.1 27.8 10.8 28.9 100.0 1.7 14.1 0.6 6.6 21.0 0.4 1.0 0.0 0.7 2.5 14.9 19.5 34.9 49.0 548.9 13.6 7.0 2.0 10.3 19.9 1.1 2.4 7.2 7. []Company included in the S&P 500.8 NA NA 35.1 2.4 11.9 10.8 89.4 43.5 1.6 26.1 2.0 33.3 4.6 9.8 2.3 2.7 22.6 2.9 6.4 0.2 7.9 2.8 21.2 15.2 2.7 NM 15.0 5.0 9.0 2.5 51.6 8.0 12.3 35.3 18.0 47.7 14.6 NM 15.0 HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP OCT DEC DEC # APR # MAR 1.5 27.6 6.0 31.7 14.0 0.7 2.4 17.1 1. §Company included in the S&P SmallCap 600.0 5.0 35.0 42.8 2.9 14.0 0.0 19. STORAGE & PERIPHERALS / APRIL 2015 INDUSTRY SURVEYS .0 13.6 10.Return on Revenues (%) Ticker Com pany Return on Assets (%) Return on Equity (%) Yr.8 2.4 8.0 NM 59.0 9.3 0. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC AAPL [] APPLE INC SEP DBD † DIEBOLD INC DEC EFII § ELECTRONICS FOR IMAGING INC DEC EMC [] EMC CORP/MA DEC 3.4 5.4 12.6 15.8 12.4 4.0 0.9 84.3 41. #Of the follow ing calendar year.4 2.1 20.3 12.9 5.5 23.0 6.8 135.1 3.4 6.3 36.0 0.0 NM NM 8.4 11.8 4. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC AAPL [] APPLE INC SEP DBD † DIEBOLD INC DEC EFII § ELECTRONICS FOR IMAGING INC DEC EMC [] EMC CORP/MA DEC 1.2 6.0 2.7 0.9 0.3 341.7 10.7 89.9 2.9 6.2 18.9 59.7 116.4 62.4 5.6 4.3 15.5 35.2 1.6 2.6 1.5 6.2 0.1 6.5 8.8 0.5 3.7 0.6 21.0 5.2 30.4 0.3 47.7 18.7 14.0 68.7 11.7 1.3 NM 1.0 0.5 NA NA 1.1 7. Current Ratio Ticker Com pany Debt as a % of Net Working Capital Debt / Capital Ratio (%) Yr.9 2.9 4.5 19.3 6. End 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 TECHNOLOGY HARDWARE.6 10.0 25.1 29.8 9.6 3.0 46.1 NA NA 342.3 4.3 41.6 1.3 6.2 4. †Company included in the S&P MidCap 400.9 22.2 1.4 58.7 16.8 75.1 5.0 0.1 NM NM 2.0 1.7 4.0 35.7 44.6 4.9 17.9 2.0 0. §Company included in the S&P SmallCap 600.7 12.2 9.4 1.6 64.9 12.9 23.4 8.2 21.0 41.2 7.1 63.8 2.9 5.0 18.9 9.8 2.9 15.0 2.5 1.6 29.3 2.2 47.7 1.1 8.1 3.8 7.7 21.0 17. End 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 TECHNOLOGY HARDWARE.2 NM NM 3.0 1.8 44.9 0.0 98.1 2.8 7.6 9.5 24.3 0.9 NA NA 20.1 2.2 26.5 DEC JUN JUN JUN 15.9 18.0 9.3 7.8 20.1 4.7 NA NA 4.6 12.6 28.5 3.0 15. #Of the follow ing calendar year.0 15.2 1.0 19.6 42.4 3.0 3.3 4.6 0.6 10.3 21.2 44.3 9.1 1.6 21.8 17.1 17.1 570.0 31.0 34.1 4.0 60.0 19.3 NM 10.2 NA NA 4.7 0.7 16. ‡S&P 1500 index group.7 2.3 3.9 1.2 112.8 1.8 7.2 18.8 1.4 10.7 1.6 113.5 11.0 0. †Company included in the S&P MidCap 400.0 0.9 14.5 5.1 26.9 10.1 4.7 0.7 0.5 OCT DEC DEC # APR # MAR 4.8 1.0 SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP DEC JUN JUN JUN 1.7 17.2 1.1 2.8 13.6 60. []Company included in the S&P 500.8 96.0 65.5 NM 1.3 12.7 13.4 18.6 20.0 13.8 1.0 26.6 2.0 66.9 0.0 99.7 12.8 1.4 54.0 8.3 7.1 1.7 33.9 9.4 23.5 57.7 3.2 11.5 15.3 13.0 1.2 1.1 1.6 12.5 16.8 6.

50 4.38 4.83 22. Earnings per Share ($) Ticker Com pany Yr.6 10 .0 2.32 1.69 4.91 2.24 9.0 1.34 25.0 1.01 2.77 37.73 1.05 17.NM NM25 30 33 24 - NM 10 19 19 11 15 . STORAGE & PERIPHERALS / APRIL 2015 71 .13 1.24 0.50 27.9 0.45 47.17 8. $) 2014 2013 2012 2011 2010 2014 2013 TECHNOLOGY HARDWARE.6 66 .0 NA NA 3.8 5.97 61.20 16 .77 0.90 27.49 7.0 0.43 27.59 19.10 31 .10 11.9 24 .05 11.54 20. S&P Capital IQ Equity Research has no access to nonpublic information received by other units of Standard & Poor’s.41 4.51 32.40 39.34 1.1 0.36 7.0 0.08 NA NA 2.00 - 9.29 30.0 0.89 21.91 28.3 27 .8 0.0 0.97 21.41 4.88 55.0 0.6 2. and the opinions based on such information.12 8.50 25.29 80.44 - 27.28 2. #Of the follow ing calendar year.0 0.52 5.26 9.7 0.2 26 .21 7.0 0.29) NA NA (3.06 23.93 57.90 9.0 0.00 11. J-This amount includes intangibles that cannot be identified.5 2.70 12.0 - 0.0 0.4 - 0.83 - 21.0 3.0 0.07 16.95 6.70) 10.0 0.0 0.0 0.62 53.55 (2.48 40.88 4.0 1.47 4.0 0.0 1.74 9.45) 8.24 1.4 7.30 41.65 6.34 - 27.4 0.99 46.80 7.21 11 .51 28. †Company included in the S&P MidCap 400.5 0.0 - 0.33 0.0 0.45) 14.0 4.87 1.72 (2.17 28. The analysis and opinion set forth in this publication are provided by S&P Capital IQ Equity Research and are prepared separately from any other analytic activity of Standard & Poor’s.77 69.20 16 .0 - 1.87 15.72 0.18 18. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC AAPL [] APPLE INC SEP DBD † DIEBOLD INC DEC EFII § ELECTRONICS FOR IMAGING INC DEC EMC [] EMC CORP/MA DEC 2012 2011 2010 0.0 0.92 4.85 28.23 6.44 4.0 0.88 1.16 2.73 45.47 17.39 26.74 1.4 0.87 23. ‡S&P 1500 index group.0 0.4 7.0 0.92 14.06 19.56 10.9 - 0. End Tangible Book Value per Share ($) 2014 2013 2012 2011 2010 Share Price (High-Low. #Of the follow ing calendar year.0 1.14 19.84 8.0 0.0 1.0 0.71 18.48 6.90 - 14.29 5.40 22.00 38.0 0.26 9.23 84.18 5.21) (6.88 (8.55) 6.25 4.52 4.62 23.71) 8.13 22.66 1.0 2.2 4.06 Note: Data as originally reported.32 22.40 37.51 9.0 0.52 (2.0 4.0 0.20 0.0 1.64 52.35 16.0 4.65 12.12 19.0 Note: Data as originally reported.0 5.89 5. ‡S&P 1500 index group.43 46.0 3.0 0.63 44.02 18.0 2.45 41.3 0.30 SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP DEC JUN JUN JUN 4.11 28.96 22.66 97.0 - 0.34 0.0 11 .10 11 .9 0.3 - 0.73 7.0 0.59 1.18 21 .64 1.0 2. In this regard.67) 13. §Company included in the S&P SmallCap 600.13 0.10 14 11 23 31 17 - 10 6 16 15 11 23 108 0 NA NA 21 29 0 32 NM NM 74 0 0 0 12 6 0 0 0 8 0 0 0 0 2.72 6.44 - 24. End 2014 2013 TECHNOLOGY HARDWARE.07 1.6 3.10 30.93 (6.4 2.40 0.8 16 .16 0.59 3.85) 2.28 1.52 44.73 - 8.70 28.92 - 27.0 0.0 0.87 (0. []Company included in the S&P 500.39 0.63 49.0 - 1.0 - 0.6 34 .38 1. []Company included in the S&P 500.24) 9.0 1.0 0.40 82.01 27.23 11.10 16.31) 0.11 6.71 19.65 100.78 70.6 0.39 40.64 4.7 0.45 35.7 9.49 1.79 3.1 1.47 95.96 13.0 0.0 3.0 - 0.00 - 11.80 19.0 0.28 33.12 1.18 16.07 17.16 35.93 10.0 1.17 NM.0 0.96 37.9 2.87 - 32.60 19.87 45.31 0.32 25.31 21.74 21.0 0.93 19.41) 1.8 19 .0 0.6 3.28 9.6 10 .3 0.7 3.83 33.24 6.27 34.4 23 36 0 18 10 28 0 25 0 13 0 0 0 16 0 0 0 0 0 0 1.69 1.00 57.0 2.80 48.16 0.7 0.71 6.64 31.95 54.87 27.7 23 .0 0.55 2. STORAGE & PERIPHERALS‡ DDD † 3D SYSTEMS CORP DEC AAPL [] APPLE INC SEP DBD † DIEBOLD INC DEC EFII § ELECTRONICS FOR IMAGING INC DEC EMC [] EMC CORP/MA DEC NM18 23 66 23 - NM 11 18 51 18 NM14 NM17 20 - HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP OCT DEC DEC # APR # MAR 15 40 35 NA NA - 10 27 21 NA NA SNDK STX SMCI WDC [] [] § [] SANDISK CORP SEAGATE TECHNOLOGY PLC SUPER MICRO COMPUTER INC WESTERN DIGITAL CORP DEC JUN JUN JUN 24 15 30 17 - 15 10 13 12 62 10 NM 8 15 2012 2011 Dividend Payout Ratio (%) 2010 Dividend Yield (High-Low.0 0.70 - 44.34 8.82 1.66 12.2 0.0 0.00 114.68 7.5 2.30 5.41 (12.26 8.14 5.6 4.60 18.29 1.2 0.36 24.17 3.5 0.72 1.78 4.40 - 37.5 0.48 37 .08 18.Price / Earnings Ratio (High-Low) Ticker Com pany Yr.9 0.72 42.6 0.16 41 15 17 32 24 - 18 11 11 22 17 40 21 NM93 25 - 12 12 NM 57 18 0 28 65 0 41 0 28 NM 0 14 0 6 88 0 0 0 0 50 0 0 0 0 NM 0 0 0.5 - 1. INDUSTRY SURVEYS TECHNOLOGY HARDWARE.31 53.0 0.0 5.58 19.69 - 66.8 0.72 6.1 0.0 0.4 13 .20 - 3.55 0.30 30.97 0.11 13 .05 36.11 7.21 16.20 (0.5 0.53 (1.0 0.46 70.73 6.75 41.45 HPQ LXK NCR NTAP QLGC [] † † [] § HEWLETT-PACKARD CO LEXMARK INTL INC -CL A NCR CORP NETAPP INC QLOGIC CORP OCT DEC DEC # APR # MAR 2.36 24.29 (3.67 35. %) 2014 2013 2012 2011 2010 2014 2013 2012 2011 2010 74 .0 0.95 51.66 1.04 3.42 7.34 (3.70 41.75 48.0 - 0.0 0.6 0. are not guaranteed.66 1.0 NA NA - 1.99 16. §Company included in the S&P SmallCap 600.82 58.60 24.9 1.2 0.52 23.8 0.0 0.0 16 .72 7.68) 10.9 0.5 15 .0 0.6 0.0 0.38 8.08 35.0 2.20 41. The accuracy and completeness of information obtained from third-party sources.0 3.90 4.0 0.0 4.71 6.59 18.28 119.45 5.65 25.79 1.84 11.37 108.75 30.55 47.56 60.27 8.9 33 .0 2.63 2.0 0.1 0.20 14.0 0.94 - 30.0 - 0.0 0.0 - 0. †Company included in the S&P MidCap 400.10 8.28 0.

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