Tech Sentiment Survey - December 2016 by Corbin Advisors

IF IT’S CORBIN, IT’S ACTIONABLE.

Tech Sentiment Survey Year-end 2016 Review

CORBINADVISORS.COM 1

Issue Date: December 15, 2016

Inside The Buy-side® Tech Sentiment Survey 2016 Year-end Review  We survey institutional investors and sell-side analysts quarterly to

Market Performance

gauge and track sentiment on topics pertaining to the earnings season, global economy and market drivers  We share our research broadly with corporate executives, investor

relations (IR) professionals and investors  Survey scope: 25 investors globally managing nearly $100 billion

in assets

1Q16

2Q16

3Q16

YTD

S&P 500

0.8%

2.0%

3.3%

12.9%

S&P Technology

2.2%

(3.3%)

12.4%

15.6%

1To

date as of 12’13’16

 Survey timeframe: November 13 to December 8, 2016  All references to our prior survey represent findings obtained from

June 22 to July 25, 2016 Sector Focus

Role

20%

By Region 68%

North America

48% 52%

28%

Europe

80% Asia

Buy Side

Sell Side

Tech

Generalist

CORBIN ADVISORS 2

Word Cloud: Frequency Of Occurrence

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Key Findings

2016 Year-end Review #1

Positive Investor Sentiment Has Stabilized; Awaiting The Next Catalyst



Investor sentiment and management tone largely characterized as neutral to bullish



Most KPIs (revenue, EPS, and FCF) anticipated to have improved during 4Q16 with a notable uptick in those believing FCF and revenue will actually improve



More than 50% of respondents expect the Tech IPO market to show signs of life 1H17, up from 35% in June

Investors Selectively Accumulating Tech Stocks And Find Value Within Promising Sectors And Themes



55% describe their recent buying activity as holding or rotating within Tech; net buyers continue to increase



Sentiment on Software remains strong (aided and unaided) while Semiconductors saw the greatest increase in bullish sentiment; Computer Hardware and Office Equipment remain out-of-favor



Views toward Analytics improve, now second to Cloud as most attractive theme; investors log out of Mobile/Social

Fear Or Cheer? Following Initial Positive Market Reaction, Trump Presidency Expected To Bring Mixed Results



Inside The Buy-side® 3Q Earnings Primer reported 75% of respondents expected a Trump presidency to have a negative or very negative effect on the markets



Surveyed investors expect negative impact on tech valuations and global trade driven by higher interest rates and trade barriers, positive impact on equity markets driven by fiscal spending and tax cuts and neutral impact on the U.S. Economy and U.S. Innovation due to uncertainty

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Expectations

Look Ahead To 4Q Earnings, KPIs Largely Expected To Remain The Same Or Improve Revenue

EPS 56% 50%

46%

51% 48%50% 33%

32%

42%

40% 33% 30%

22% 16%

28%

40%42% 30%

26% 18%20%

21% 18%

Improving

Staying the Same

Worsening

Improving

Cash Flow 44%

48%

53%

Staying the Same

Worsening

Operating Margins

57% 48%

37% 30%

63% 33% 36% 30% 25% 20%

19% 13%

14%

48% 40%40%

40% 30% 16% 12%

Improving

Staying the Same

Improving

Worsening

Dec '15

Mar '16

Prior

Staying the Same

Worsening

Current

CORBIN ADVISORS 5

Sentiment

Sentiment Remains Neutral To Bullish Amid Global Capex Concerns With An Optimistic Eye Toward Future Tax Reform Prior Survey

Current Survey

Bullish “I am cautiously optimistic that fiscal and tax policy can help future earnings power of companies; although the timing is likely 2H17 into 2018 and not immediate.” Buy Side, N.A.

16%

21%

Neutral “There are a lot of unknowns and anticipation in the market with the new regime coming into play.” Sell Side, N.A.

41%

56%

“Lack of growth worldwide.” Sell Side, N.A.

Neutral to Bullish

46%

50%

Neutral Neutral to Bearish Bearish

Neutral to Bearish

Side, N.A.

17%

Bullish

“Historically high valuations.” Buy Side, Europe

“Still a lot of caution on IT spending – and for semi sector; most end markets still mixed.” Sell

18%

12%

28%

27%

10%

Investor Sentiment

Management Tone

24% 21% 4% Management Tone

Investor Sentiment

Expectations For 4Q16 Earnings Relative to Consensus In Line: 50% Better Than: 25% Worse Than: 25% CORBIN ADVISORS 6

Expectations

Mixed Results Expected From A Trump Presidency: So Far So Good For Equity Markets

How Will A Trump Presidency Impact The Following Over The Next 12 Months?

82% Equity Markets Technology Valuations 59%

U.S. Economy 47%

U.S. Innovation

50%

47% 40%

Global Trade

37% 35% 29%

24% 16% 10%

12%

6% Negatively

6% Neutral

Positively

CORBIN ADVISORS 7

Participant Quotes

Negative

Neutral

Positive

Equity Markets

“A pick-up in growth usually leads to a pick-up in inflation and interest rates, which are negative for equity valuations as they adversely impact the WACC.”

“Depends on what he actually does, how he works with Congress and who he selects as advisors.”

“Nobody expected it to impact equity markets so positively. Perhaps having a businessman in charge is a great thing. I don’t know yet. I have been surprised at how positively it’s been received so far.”

Technology Valuations

“A more inflationary environment will drive interest rates up (having the impact of hurting valuation multiples).”

“Tech is still the most dynamic sector of the economy.”

“Freeing up offshore cash, either for mergers or buybacks.”

U.S. Economy

“There will be a learning curve.”

“‘U.S. First’ is a positive but protectionism is a negative.”

“The ‘hope’ that fiscal spending and tax policies can drive earnings higher.”

Global Trade

“There's risk of de-globalization as countries (U.K., U.S., etc.) become more inwardly focused.”

“There’s talk that he wants to get rid of NAFTA and TPP. If he puts tariffs in place with Asian countries, prices would go up and people would buy less. That’s the big question.”

U.S. Innovation

“There is room for improvement in the patent system that would encourage more innovation.”

“Lower taxes, less regulation and less lobbying by special interests provides a better environment for innovation over the long run.”

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Sentiment

Investors Most Bullish On Software And All Things Semi; Hardware Hibernates Software Semiconductor Equipment & Testing Semiconductors IT Services & Consulting Communications Equipment Office Equipment

Computer Hardware

Prior

60%

Current

79%

Prior

50% 59%

Current Prior

17%

Current Prior

Current

22% 50%

11% 21%

45%

30%

19% 21% 10%

Current Prior

12%

26%

Current Prior

37% 37% 30% 50%

11%

47% 53%

Bullish

Bearish

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Industry Insights

Software

Semiconductor Semiconductors Equipment & Testing

Bullish

“We are interested in the software services side of things like ADP, Paychecks, Salesforce and big providers like SAP. Those are names that we are interested in and are positive on their outlook.”

“Everything related to automotive at the moment with the whole autonomous stuff.” Buy Side,

“Mega data centers drive demand.” Sell Side, N.A.

Europe

Neutral

Buy Side, Europe

“Manufacturers are aggressively building up new capacity.” Sell Side, Asia

“IoT shifts, apps become trillion dollar markets.” Sell Side, N.A. “New SaaS platform shift.” Sell Side, N.A.

Neutral “Application software looks good but IT infrastructure software is likely to struggle with the move to public cloud IT infrastructure.”

“Semiconductor companies like NEXP and Qualcomm are getting squeezed. It’s a consolidation market. Markets are looking for scale economies and efficiencies for innovation and new technologies. It is a real challenge and the market is difficult. We see upside in IoT and chip set for autonomous vehicles but we are talking a few years out.” Sell Side, N.A. “Advanced manufacturing can expand top line but profitability is not certain. Also, China is rapidly expanding.” Sell Side, Europe

Buy Sidee, N.A.

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Industry Insights

IT Services

Communications Equipment

Computer Hardware

Bullish

Neutral

“Growth will continue; we are expecting to see more uptick.”

“Transmission speed is still one of the key bottlenecks.” Sell Side,

Sell Side, N.A.

Asia

“Legacy hardware is in trouble but cloud-based IT infrastructure companies can grow by multiples of their current size.” Buy Side,

“Demand should pick up with continuous high growth of Cloud.”

Neutral

N.A.

Sell Side, N.A.

“2017 is premature but as the markets migrate to 5G, we expect to see capex pick up at major operators. We are seeing early trials and do not expect major deployments until 2020 or 2021. It’s an area that will have some consolidation and be challenged in the next two years.”

“Can it be worse?” Sell Side, Asia

Bearish “Significant OUS revenue and potentially tougher visa/ immigration rules/regulations.” Buy Side, N.A.

“The offshore IT services vendors are struggling with growth and margins.” Buy Side, N.A.

Sell Side, N.A.

“Big changes in mega data center computing.” Sell Side, N.A. “Capital spending on hardware is a neutral investment as capex has been flat. Most of the smart phone profits are coming from Apple. Notebooks and large systems are also flat.” Sell Side,

Office Equipment

N.A.

Neutral

“Flat to negative. We are not seeing big centralized operations investing a lot in part due to the migration to home offices.” Sell

“Hardware not on premise with cloud.” Sell Side, N.A.

Side, N.A CORBIN ADVISORS 11

Investment Themes

Cloud Still “Reigning” While Analytics Recovers

Cloud

Prior

45%

Current

Analytics

39%

Prior

14% 29%

Prior

16%

Current

Mobile

Prior

16%

24%

12%

Prior Current

32%

21%

Current

Social

18%

Current

Internet Of Things

29%

14%

44%

Most Attractive

Least Attractive

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Investment Themes

Sentiment Shifts In Favor Of Large-Caps What Investment Theme Is Currently Most Appealing? 56%

31%

32%

31%

36%

31% 22%

11%

11% 0%

Micro-Cap

Small-Cap Mar '16

Mid-Cap Prior

Large-Cap

Current

Small-Cap

Mid-Cap

Large-Cap

“Small-caps tend to have greater U.S.-based revenue streams which benefit from fiscal and tax policy changes.” Buy Side, Europe

“Higher organic growth and less international exposure.” Buy Side,

“Large-caps can provide liquidity which is suitable for an environment with high uncertainty.”

N.A.

Buy Side, N.A.

“Large-caps and Industrials seem to be getting a boost from President-elect Trump.” Buy Side,

“Lower potential taxes and reduced regulation will drive smallcaps higher.” Buy Side, N.A.

N.A. CORBIN ADVISORS 13

Sentiment

Tech Investors Largely Staying Put; Closing Out 2016 With Incremental Buying What Has Been Your Recent Activity In Tech?

23%

26% 29%

33%

33% 33% 14% 11%

Net Buyer

29%

33%

28% 26% 29%

9% 12%

2% 4% 4% 0%

Net Seller

Holding Dec '15

22%

Mar '16

Rotating Prior

Liquidating

Current

Net Buyer

Rotating

“I’m very upbeat on tech-related stocks such as the sharing economy. The internet provides for innovation and almost instant exposure to consumers, which is good. In five years, I think Technology will still be riling up.” Sell Side, N.A.

“Refocusing the portfolio on areas that will benefit from potential fiscal and tax policy changes.” Buy Side, N.A.

“Lower corporate tax rates in the future as a result of the election outcome.” Buy Side, N.A. CORBIN ADVISORS 14

Industry Outlook

IPO Market Recovery Either Now Or Never; Apple Falls Far From The Tree When Do You Expect The Tech IPO Market To Show Signs Of Life?

Which Tech Heavyweight Do You Expect To Outperform In 2017?1

53% vs. 35% in Prior Survey 41%

35% 12%

10%

Alphabet

28% 35%

Amazon

22% 20%

Microsoft

12%

10% 5%

Cisco 1Q17

2Q17

2H17

Not Anytime Soon

10% 10%

Facebook

“That’s already happened. There were several successful IPOs late summer. Snapchat has filed. Some of the big private unicorns like Dropbox and Palantir are beginning to look at IPOs more seriously. I expect 2017 to be better than last year.” Sell Side,

6% 5% 6%

Intel Netflix IBM

N.A. Twitter

0% 6% 0% 6% 0% 6%

“There is a backlog of IPOs, so 2Q17.” Buy Side, N.A. Apple

“The pro-business agenda of President-elect Trump and Congress will boost confidence.” Buy Side, N.A.

15% 0%

Prior 1Prior

Current

reflects views for outperformance in 2016

CORBIN ADVISORS 15

Industry Outlook

The Way To A Tech Investor’s Heart…Growth Where Do You See Opportunities For Growth In 2016? (unaided)

12%

Cloud

IoT

Software

Semiconductors

60% AMOLED Data Analytics Drones E-commerce Infrastructure Medical Devices Robots Other

“The cycle ebbs and flows. There is a reasonable spurt in some sectors and we expect the cycle to continue.” Sell Side, N.A. “It’s not so much a segment of Tech but I think the small-cap market space in particular over the last few years has been super difficult in valuation and performance. The pendulum has to swing back sometime. You look at valuation in the under $500M market space and compare them to either private valuations or larger companies in the same space and the discrepancies are pretty ridiculous. If there is a space that is undervalued and needs to play catch-up, that’s the one. That’s across everything, not just Tech.” Sell Side, N.A. “Mobile Ad/Tech will have better than expected numbers and the shopping season is holding up well. Advertising will be fine and mobile advertising will be very strong. Earnings will come in better than expectations.” Sell Side, N.A. “I’m excited about the trends that connect everything like the IPO stuff. There will be a lot of innovation around wearables, particularly smart glasses. Lots of innovation around connected cars, I don’t follow anything there but that’s one.” Sell Side, N.A.

“There is opportunity for growth in Cloud as markets embrace VPO outsourcing and more cloud based services in general.” Sell Side, N.A. CORBIN ADVISORS 16

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