Tech survey 1'26'16

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INSIDE THE BUY-SIDE® TECH SENTIMENT SURVEY | ISSUE DATE: JANUARY 26, 2016 2016 “I think there will be a sector rotation out of high growth, large-cap technology stocks into recent underappreciated sectors.”

In Corbin Perception’s quarterly Tech Sentiment Survey, we pulsed investor and analyst views heading into the fourth quarter earnings season.

Our survey, comprising 43 investors and analysts who follow the Tech sector, reveals a softening of growth expectations against a macro-driven global slowdown, even as tech largely remains a last bastion of growth in the investment world. Social, Mobile, Analytics, Cloud and IoT continue to expand though our survey reveals significant shifts in sentiment with this group. Tech executive tone is cautiously optimistic but that silver lining isn’t enough to completely shed the pall of broader bearish sentiment.

Inside The Buy-Side ®

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Par Participants Contributing buy side firms manage $1.4 trillion in total assets and have $57.8 billion invested in technology as of Sept. 30, 2015.3 Role Buy Side | 40% Sell Side | 60%

Sector Focus Technology | 86% Generalist | 14%

Region N. America | 58% Europe | 32% Asia/Pacific | 5% Other | 5% 1 2 3

Price Performance1 S&P Technology

S&P 500

Month-todate

(8.3%)

(8.6%)

4Q15

8.4%

6.5%

2015

3.6%

(0.7)%

About Corbin Perception Corbin Perception is a leading investor research and integrated IR advisory firm assisting publicly traded companies with creating long-term shareholder value.

We leverage our broad company and industry experience, knowledge of best practices and benchmarking capabilities to provide researchdriven counsel that enables our clients, mega-caps to micro-caps worldwide across diverse sectors, to differentiate their company as an investment.

Our industry-leading research, Inside The Buy-side®, which tracks investor sentiment, is covered by news affiliates worldwide and featured regularly on CNBC’s Squawk on the

Street.

CorbinPerception.com info@corbinperception.com (860) 321-7309 Follow us @CorbinResearch

As of Jan. 21, 2016 Timeframe: Dec. 23, 2015 to Jan. 13, 2016 Source: Thomson Reuters

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速

Our Tech Sentiment Survey Survey Yields Four Key Findings: Findings: #1: Tech Investors Taking Some Off The Table But Bears Have Yet To Infiltrate The Tech Frontier How Would You Describe Your Recent Investment Activity?

35% 28% 28%

23% 9%

28%

33%

14% 2%

0% Net Buyer

Net Seller

Rotating (within Tech) 3Q15

Holding

Liquidating

4Q15

Do You See The Following Improving, Worsening Or Staying The Same This Quarter?

Revenue

EPS

Inside The Buy-Side 速

51% 41%

44%

38%

31%

41% 33%

28%

42%

36%

18%

Staying the Same 2Q15

3Q15

Worsening

Improving

4Q15

Staying The Same 2Q15

3Q15

55% 40%

29%

29%

35%

12%

Staying The Same

Worsening

4Q15

59%

53% 33%

21%

3Q15

4Q15

40%

20%

2Q15

Worsening

FCF

53% 42%

30%

18%

Margins

Improving

46%

28%

18% 16%

Improving

41%

24% 24% 17%

14%

Improving

Staying The Same 2Q15

3Q15

Worsening

4Q15

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What Do You Expect For Tech Quarterly Earnings Versus Consensus?

Consensus?

54%

50% 40%

23% 14%

40%

23%

20%

Better Than

In Line 2Q15

•

36%

3Q15

Worse Than 4Q15

Further cost cuts to offset slowing top-line growth and bolster EPS are anticipated

#2: #2: Top Three Tech Investor Concerns: Growth, Growth And Valuations What Do Do You Anticipate The Direction Of 2016 Annual Guidance To Be Versus Consensus?

Inside The Buy-Side ®

Buy Side

Sell Side

12%

4%

41%

47%

32%

Higher

64%

About the Same

Lower

•

80% cite some degree of slowing growth as a top concern (unaided), including “global [economic] malaise” (30%), “China hard landing” (27%) and “top-line deflation” (20%)

•

In aggregate, 55% anticipate 2016 guidance to be lower than current consensus, including 64% of sell side analysts, indicating that estimates remain too high

For 2016, What Are Your Expectations For Tech Valuations?

Buy Side

24%

Sell Side

23%

Expand

•

35%

41%

54%

Remain Flat

23%

Contract

Valuations are also concerning, with 77% forecasting stocks to trade sideways or contract in 2016 3

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Representative Quotes Expand

“Depressed valuation against other sectors.” Sell Side | N.A. “Consolidation; superior fundamentals in Chips vs. Industrials.” Buy Side | N.A. “Growing into their valuations, multiples might contract somewhat but be offset by growth.” Sell Side | N.A. Remain Flat

“Some that have been out of favor may bounce back, others have already been re-rated so likely to stagnate and some may disappoint short term.” Sell Side | Europe “Valuations are at high end of market generally.” Sell Side | N.A. Contract

“Lower growth expectation in 2016 and decreased cash flows.” Buy Side | N.A. “Multiple contraction from unnaturally high levels.” Sell Side | Europe

Inside The Buy-Side ®

“Difficult macro conditions, China slowdown.” Buy Side | Asia “Market sentiment, geopolitical, lack of catalysts and increased volatility.” Buy Side Side | N.A.

#3: No “Soft”ware Landing Here…Data Here…Data Is Almighty And Every Cloud Has A Silver Lining

What Investment Themes Are Most Attractive?4

Cloud Analytics IoT

Mobile Social 2Q15

4

3Q15

4Q15

Weighted average 4

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How Would You Characterize Your Sentiment On The Following Tech Industries?

Software

68%

IT Services & Consulting

41%

Communications Equipment

26%

Semiconductors

26%

Semi Equipment & Testing Computer Hardware

44% 36%

6%

38% 23%

38%

13%

38% 81%

59%

Bullish

8% 15%

51%

24%

Office Equipment 3%

Inside The Buy-Side ®

24%

Neutral

38%

Bearish

More Bullish Software IT Services & Consulting

3Q15 62% 39%

4Q15 68% 41%

∆ 6 pts 2 pts

More Bearish Computer Hardware Semiconductors

3Q15 44% 15%

4Q15 81% 38%

∆ 37 pts 23 pts

•

Software continues to dominate and remains the leading area expected to sustain growth with 68% bullish, the highest level in the last three quarters

•

Analytics and the Cloud are still the most popular investment themes with big data and cloud computing services the most favored areas

•

Computer Hardware saw the most dramatic negative shift in sentiment on softening demand and declining capex

Representative Quotes Software Bullish

“Digital transformation and Cloud driving growth.” Sell Side | Europe “Investment in security and mobile Software.” Sell Side | Europe “Capital expenditures will increase (in Software) – good demand.” Sell Side | N.A. “Cloud and Internet still driving growth.” Buy Side | N.A.

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IT Services & Consulting

Bullish “Need to make all that software work together.” Buy Side | N.A. “There is a need for external skills.” Sell Side | Europe “Further need for outsourced talent.” Sell Side | N.A. Communications Equipment

Bullish “Bullish on Optical Equipment; somewhat bearish on rest.” Sell Side | N.A. “Data usage strength.” Buy Side | N.A. Neutral “Overall challenging, despite industry consolidation but pockets of growth and should see better pricing environment.” Sell Side | Europe “Spending will be limited from a capex perspective.” Sell Side | N.A. N.A Bearish “Pricing pressure.” Buy Side | Europe “Tough buyers in slow demand environment.” Buy Side | N.A.

Inside The Buy-Side ®

Semiconductors

Bullish “Moderate worldwide growth and competitive hardware drives units.” Buy Side | N.A. “M&A and a few good stories.” Buy Side | N.A. Semiconductor Equipment & Testing

Bullish “Advanced Packaging will be strong. Front-end spend hopefully troughing soon.” Sell Side | N.A. Bearish “There are few big buyers.” Buy Side | N.A. Computer Hardware Neutral

“Ongoing shift to cloud services acts as a negative.” Sell Side | Europe “Consolidation and increased pressure on margins.” Sell Side | N.A. Bearish

“Too competitive.” Buy Side | N.A. “There is pricing pressure.” Buy Side | Europe “Slower demand and cloud services.” Buy Side | N.A. Office Equipment

Neutral “There are no particular standout growth features.” Sell Side | Europe Bearish “Declining capex.” Buy Side | N.A. 6

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#4: Take Advantage Of Moderating Pace And Challenging Environment: Invest For Growth For Tech Generally, What Is Your Preferred Primary Use Of Excess Cash?

59% 58% 42%

34%

26% 16%

10%

15%

0% Reinvestment

M&A

Debt Paydown 2Q15

•

0%

3Q15

7% 8%

Share Repurchase

7%

13% 0%

Dividend Growth

4Q15

The enthusiasm for M&A has not dimmed following a record year in 2015 as growth through acquisition is favored by 26%, up from 16% last quarter

Inside The Buy-Side ®

Closing Thoughts Thoughts Our broad-based research reveals that investors are placing more emphasis on balance sheet strength when making an investment decision -- from 53% in October to 88% in December. Tech investors who prefer companies pay down debt are small but growing – from 0% in June to 15% today; a theme likely to intensify should concerns around slowing global growth and tightening monetary policy continue to become a reality. As such, we continue to recommend executives address balance sheet strength, specifically liquidity and leverage.

For companies with strong financial profiles who are contemplating M&A, it is critical that transactions are well received and appreciated. As such, we recommend the following best practices: •

Clarify M&A strategy and provide acquisition criteria, including strategic and financial parameters; investors are acutely focused on: -

Accretion

-

Financial returns

-

Strategic fit

-

Synergy potential and realization

-

Appetite for size

-

Likely funding strategy

-

Management track record

•

When a relevant/sizeable transaction is announced, host a conference call to discuss the aforementioned aspects; be sure to leave adequate time for Q&A

•

Provide conservative targets and timelines; update financial community periodically on integration progress, actual performance vs. communicated targets and any challenges arising along the way

•

In the investor presentation, include an M&A scorecard outlining key benchmarks such as forecasted/actual synergies (if appropriate) and cash returns

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