File 22

The Green
EQUITY RESEARCH
The Book
THE GREEN BOOK

Green Book
Our Guide to Growth Stock Investing in 2008

December 2007
TABLE OF CONTENTS
SECTION I: OVERVIEW
THE YEAR AHEAD ...............................................................................................3

THOMAS W. WEISEL, TWP CHAIRMAN & CEO
THE ECONOMY IN 2008 AND BEYOND: WILL WE WEATHER THE

STORM? ..................................................................................................................9
DR. MICHAEL J. BOSKIN, TWP SENIOR ADVISOR
THE MARRIAGE OF TECHNOLOGY AND RESOURCES ...............................37

JOHN GRANDY, MANAGING DIRECTOR & HEAD OF RESEARCH,
WESTWIND PARTNERS
SECTION II: BEST IDEAS FOR 2008 ...................................................................43

CONSUMER ..........................................................................................................49
HEALTHCARE .....................................................................................................57
December 2007
INDUSTRIAL GROWTH ......................................................................................63

MEDIA AND TELECOM .....................................................................................67
TECHNOLOGY ....................................................................................................71
SECTION III: TWP VALUATIONS ......................................................................85

TWP PRODUCT MANAGEMENT
Please see analyst certification and other important disclosures starting on page 96 and continuing through page 96.
Thomas Weisel Partners does and seeks to do business with companies covered in its research reports. As a result, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Customers of Thomas Weisel
Partners in the United States can receive independent, third-party research on the company or companies covered in this report, at
no cost to them, where such research is available. Customers can access this independent research at www.tweisel.com or can call
(877) 921-3900 to request a copy of this research. Investors should consider this report as only a single factor in making their
investment decision.
TWP Equity Research Analysts’ “Best Ideas for 2008” (see page 45 for selection criteria and individual write-ups):
Consumer (see pp. 49-55)
Large Cap (+ $10bn) Mid Cap ($1.5 - $10bn) Small Cap (< $1.5bn)
Company Ticker Company Ticker Company Ticker
The Western Union Co. WU Expedia, Inc. EXPE Wolverine World Wide, Inc. WWW
Abercrombie & Fitch Co. ANF Texas Roadhouse, Inc. TXRH
Penske Automotive Group, Inc. PAG
Healthcare (see pp. 57-62)
CVS Caremark Corp. CVS Masimo Corporation MASI Sciele Pharma, Inc. SCRX
Thermo Fisher Scientific, Inc. TMO Array BioPharma Inc. ARRY
Industrial Growth (see pp. 63-66)
MEMC Electronic Materials Inc. WFR Ixia XXIA
Rockwell Collins, Inc. COL
Media and Telecom (see pp. 67-70)
NII Holdings, Inc. NIHD GSI Commerce, Inc. GSIC
Regal Entertainment Group RGC
Technology (see pp. 71-84)
Research In Motion RIMM Flextronics International Ltd. FLEX Verigy Ltd. VRGY
Nvidia Corporation NVDA Amdocs Limited DOX ARRIS Group, Inc. ARRS
Affiliated Computer Services, Inc. ACS Netezza Corporation NZ
On Semiconductor Corporation ONNN O2Micro Interntational Ltd. OIIM
Digital River Inc. DRIV NetLogic Microsystems, Inc. NETL
Prices in this publication are as of the close, November 30, 2007.

SECTION I: OVERVIEW
SECTION I: OVERVIEW THE YEAR AHEAD
THE YEAR AHEAD
THOMAS W. WEISEL, TWP CHAIRMAN & CEO

We look for the year ahead to be characterized by positive GDP growth, slowing from current
levels in the first half, but reaccelerating in the second half. Although the market may already be
pricing in fears of a recession, we believe a recession is unlikely and remain upbeat on the
overall outlook for stocks, particularly growth stocks, in 2008. Our positive growth outlook is
based on positive, albeit slowing, U.S. consumer demand, bolstered by steady international
consumption, continued solid business investment and a positive export picture driven by the
weak dollar. Weakness in the U.S. real estate market is likely to continue, but arguably, this may
already be priced into the currently hard-hit consumer discretionary and financial sectors.
We expect interest rates to exhibit a downward bias as the Fed’s recent cuts demonstrate
modestly greater concern over the downside risk to growth versus the upside risk to inflation.
Our view is that the weak dollar is more a function of concerns over weakening U.S. growth and
the possibility of further credit shocks rather than inflation. With the monetary base at a
historically low 2% growth rate, the Fed is likely to come under increasing pressure to ease the
reins on liquidity. If this occurs, easing rates and increasing liquidity have historically been a
positive leading indicator for stocks.
Consumers continue to experience historically high employment rates as well as growth in real
wages and disposable income. We expect consumer spending to slow, however, from current
levels of 3% year over year down to approximately 2%, based on continued housing weakness,
tightening credit standards and historically high oil prices. On a positive note, we believe oil
prices will likely retreat from the $90-100 per barrel level to a more “normal” $75-80 range over
the course of the year. In addition, with the consumer discretionary sector already down 13% in
2007 and trading at a relatively low forward P/E of 15.7x, investors may already be assuming a
consumer recession that we believe is unlikely to materialize. The same can be said for the
financial sector, which is down 20.5% in 2007 and also trading at a historically low forward P/E
of 9.9x.
We expect high single-digit corporate earnings growth and solid balance sheets to continue to
fuel capital expenditures, maintain relative job stability, and drive growth-oriented acquisitions
and share repurchases. The tech earnings outlook continues to be positive with consensus
estimates for large- and small-cap tech earnings up over 20% in 2008. Overall, equipment and
software spending has remained strong registering year-over-year gains of 5-6% over the last
two quarters. Real government spending should also continue to serve as a steady demand
driver as increasing tax revenues should reduce the deficit by over $80 billion in 2007, and an
additional $100 billion in 2008.
The final driver of positive GDP growth is an improving net export position. The rise of an
increasingly affluent consumer class in emerging market countries, combined with massive
infrastructure needs, creates continuing strong demand for goods and services. The weak dollar
provides an additional silver lining, fueling further demand for U.S. goods and services that is
narrowing the trade deficit and finding its way to American income statements.
Against this backdrop, market appreciation of 6-8% over the coming year should be attainable,
in our view. Expectations for GDP growth of 2-2.5% represent a deceleration from 3.8% and
3.9% in 2Q and 3Q, but are certainly within a range that can sustain positive market
performance. S&P 500 operating earnings growth in the 7-9% range also appears to be
reasonable barring any major dislocations, such as a significant geopolitical event or further
significant credit losses. Moreover, on a comparative basis, a 7% forward earnings yield on the
S&P 500 is certainly attractive versus 10-year Treasury yields of 4%.
The Green Book: December 2007 3

Thomas Weisel Partners LLC
The Long-Term Trend Reverses: Growth Companies Outperform Value

Companies in 2007; We Favor Growth Over Value in 2008
Overall, stocks appear very reasonably valued, with the S&P 500 trading at approximately 14.3x
2008 earnings estimates. Based on relative valuations, we believe growth stocks have solid
appreciation potential in 2008, especially compared to value stocks. The Russell 2000 Growth
Index is currently trading at a P/E to growth rate of 1.2x, which represents a significant
discount to the Russell 2000 Value Index trading at a PEG of 1.44x. In fact, the consistent
outperformance of value over growth stocks, which started in late 2000, finally came to an end
in 2007. This was a disparity that we felt was not sustainable, and we believe may mark a period
of extended outperformance by growth stocks. Thus far in 2007, the Russell 2000 Growth
Index has outperformed the S&P by 1.4%, and the Russell 2000 Value Index by 14%.
Our investment bias has always been toward identifying long-term growth tailwinds and the
companies poised to exploit them. This is particularly true if we can find stocks that are trading
at a discount to larger, more-mature companies with lower growth rates. We believe the current
environment in particular favors growth over value. Growth stocks tend to be weighted more
toward the technology and healthcare sectors, which have low exposure to housing and
relatively low debt financing needs. This is in contrast to value stocks, which have greater
exposure to housing and greater credit needs.
We believe there are a number of significant tailwinds that can enable growth stocks to
overcome some of the headwinds currently affecting the economy. In technology, significant
drivers include the convergence of triple-play services, rapid growth in 3G and smartphone
handsets, and business demand for software services. The global demand for energy and
resources, combined with rising environmental concerns, is inexorably driving us toward an
inflection point in the demand for alternative energy and more efficient means of deriving
resources. The retirement of some 40 million baby boomers over the next decade is creating
enormous demand for healthcare services, pharmaceutical therapies and products and services
aimed at prolonging a healthy, productive quality of life. In addition, even in the battered
consumer sector, we see opportunities for leading brands that are globally diversified that may
be positioned to beat pessimistic expectations.
Some Winners for 2008 and Beyond
Technology
We expect technology spending to continue at a steady, solid pace in 2008 with year-over-year
worldwide growth of approximately 5-6%. Many of the growth drivers in tech are a
continuation of themes that should be sustainable over the next several years. Higher capacity,
smaller footprint hard disk drives, lucid LCD displays, more-powerful processors, the continued
proliferation of wireless data networks and lower selling prices are all driving strong demand for
mobile processors including notebook PCs, 3G handsets and smartphones. We estimate 27% growth
in mobile shipments in 2008, and expect the number of annual notebook shipments to exceed
desktop shipments by 2009. Storage needs will continue to accelerate with the digital content
invasion of social networks, digital networks, high-definition DVRs and digital music stores.
“Triple play” spending on voice, data and video by telco and cable operators should continue to
fuel demand for IP Networking and Communications Component Equipment and services
in 2008. Aggressive competition from telco and satellite operators touting faster broadband
speeds and expanded HDTV offerings will continue to put pressure on cable operators to
maintain healthy capital expenditure outlooks, especially for advanced services. Bigger, faster
networks require upgrades to faster routers, including the trend toward 10 GigE routers, with
more access points capable of supporting higher bandwidth. This positive virtuous cycle also
4 The Green Book: December 2007

drives demand for more-intensive digital content, including traditional broadcasts, mobile
applications, mobile games, on-demand video and on-demand TV functionality.
Strong demand for software as a service model should continue in 2008, on the heels of a very strong
2007. Such models enable telesales and indirect sales models, which in turn have enabled
penetration into small- and medium-sized markets. In addition, the offering of term- and
subscription-based licenses continues to be viewed very favorably by customers.
Internet
The secular shift to e-Commerce remains robust as more merchants expand their online
offerings and consumers become increasingly comfortable with online shopping. This shift
shows little sign of slowing down as U.S. e-commerce grew 19% year over year in 3Q07
compared to a 20% increase in 3Q06. We view this rapid growth as sustainable over the long
term as U.S. e-commerce sales still account for only 3.8% of total retail sales, up from 3.4% last
year. While the United States continues to be strong, international growth is still even more
robust as broadband and e-commerce in those markets are generally at an earlier growth phase
relative to that in the United States.
Consumer
Given macroeconomic headwinds and a forecast of a slowdown in consumer spending, we are
cautious overall on the consumer segment. There are, however, several themes that may
provide selective opportunities. In Softlines, we believe teen retailers will outperform, while we
expect women’s retailers and department stores to struggle. In Hardlines, we favor companies
offering differentiated services such as decorating services and entertaining consulting for the
home. We also favor diversified distribution platforms that seamlessly integrate retail selling space
with catalog and/or e-commerce offerings. In addition, we favor companies with globally
diverse profit streams with a track record of setting conservative expectations that consistently
deliver.
In e-Travel, a softer domestic economy could weigh on domestic travel demand, but we view
the e-Travel segment as better situated than the hotel or gaming groups based on the superior
secular trends favoring online distribution. We estimate that over $50 billion in sales are
researched online, yet booked offline—a huge opportunity. The group also derives 30% of its
sales outside of the United States, where growth is above 40%, and penetration in Europe and
Asia are only 30% and 15%, respectively.
Media and Telecom

In Telecom, wireless telecommunication services are evolving from luxury to essential
products and services. This trend is increasingly evident in Latin America, where penetration
levels are on the rise and are significantly greater than wireline penetration levels. Companies
providing Internet infrastructure appear well positioned for growth in 2008. As demand for
online services from businesses, particularly small- and medium-sized ones, increases, we expect
services such as application hosting, colocation and content acceleration will fuel growth in this
market segment.
In Media, a slowing U.S. economy has weighed on advertising growth in the second half of
2007, particularly among traditional advertising-driven companies exposed to local advertising.
As such, we favor sectors with less economic sensitivity or company-specific opportunities to
drive earnings growth. We are bullish on theatre operators given the 3-D opportunity and look for
growing 3-D film announcements in 2008 to benefit attendance and ticket pricing. Among
traditional media players, we believe TV broadcasters with Spanish-language demographic tailwinds
could fare well in 2008.

Healthcare
According to the U.S. Census Bureau, by 2020, the number of Americans over age 65 and age
85 is expected to increase over 40% and 30%, respectively.
Chronic disease and aesthetic companies will continue to outperform, along with those offering
products that increase profit to physicians or require direct payment from patients.
Pharmaceutical companies are generally defensive and non-cyclical. In a declining economy,
spending on treatments for serious medical conditions will be unaffected. Aesthetic companies
could be seen as vulnerable to declines in consumer discretionary spending, but we believe less-
expensive, non-invasive treatments on visible parts of the body will not be affected.
In Biotech, the average 2008E P/E multiple of large-cap biotechnology companies is 22x. This
is in comparison to an average P/E multiple of 30-35x over the past five years. Considering the
last two times (2003 and 2005) P/E multiples reached trough levels the biotechnology sector
recovered, we expect the average P/E multiple to approach the low end of the historical range
of 30-35x.
In Pharmaceutical Services, pharmacy benefit managers (PBMs), retail and mail-order pharmacies
continue to benefit from increasing generic utilization and conversions. Lower acquisition costs
help to drive margin expansion and overall profitability. As existing generics (from conversions
earlier in 2007) continue to gain traction and new generics come to market, we believe PBMs
should experience increasing generic dispensing rates and expanding operating margins.
The Medical Device sector will be at a crosscurrent of two macroeconomic forces. The first is
a lack of exposure to the economy or consumer spending, which may be a positive. The
second, a headwind, is the 2008 election cycle in which containment of healthcare costs may
come into focus. If the economy is headed into a downturn, we think medical device stocks will
be well positioned because the space is broadly counter-cyclical. Hospital pricing is accelerating,
which benefits all medical device players but especially the orthopedic companies, which are
highly sensitive to price. In Diagnostics, an aging population, better disease management and
pathogen detection will drive robust growth through 2008. The large Life Science and
Diagnostic companies are diversified by end markets and geography, spreading their revenue
base and protecting them from sector weakness. Four out of five key markets are growing
above their average pace; diagnostics, pharmaceuticals, industrial and environmental markets
show no signs of deceleration.
Industrial Growth and Alternative Energy

We continue to view solar as the best way to invest in Alternative Energy. The industry is fast
growing and profitable, and is a much lower commodity risk than most other sectors. It is our
view, however, that at current valuation levels many solar stocks are becoming over-extended.
In 2008, we move up the value chain seeking companies that are better shielded from the rapid
commoditization of the industry, namely polysilicon and equipment producers. We are also bullish
about the prospects for the demand response industry, particularly for aggregators of demand
response capacity in the Commercial and Industrial (C&I) segment (versus the residential
segment) in areas of constrained resources such as New England and California.
Test and measurement companies in our Applied Technologies universe are benefiting from: (1)
resilient and robust technology R&D spending growth (7-8% year over year for bellwether
companies in the last four quarters) despite volatile global macroeconomic conditions; (2) intact
drivers for next-generation communication technology rollouts; and (3) stronger international
macro conditions and a weaker U.S. dollar positioning U.S. Applied Technologies companies
favorably to leverage their leading-edge intellectual property investments into an even stronger
global market position.

Conclusion
The coming year should see positive GDP growth—slowing from current levels in the first half,
but reaccelerating in the second half. Expectations for GDP growth of 2.0-2.5% represent a
modest deceleration from recent quarterly rates of 3.9%, but are certainly within a range that has
fueled positive market performance over the last four years. S&P 500 earnings growth estimates
in the 7-9% range also appear to be reasonable barring any major dislocations, such as negative
geopolitical events or significant unforeseen credit losses. Therefore, market appreciation of 6-
8% should be attainable, in our view. Moreover, on a comparative basis, a 6-8% return on
stocks is certainly attractive versus 10-year Treasury yields of approximately 4%. As modest
growth continues, we look for strength in areas such as technology, healthcare and alternative
energy to continue, and still see niche opportunities in areas facing economic headwinds. May
2008 be a happy, healthy, prosperous New Year for all of us.

SECTION I: OVERVIEW THE ECONOMY IN 2008 AND BEYOND
THE ECONOMY IN 2008 AND BEYOND: WILL WE WEATHER THE STORM?

DR. MICHAEL J. BOSKIN, TWP SENIOR ADVISOR
Dr. Boskin is T.M. Friedman
The American economy is six years into an expansion following the 2001 recession. Growth
Professor of Economics and
was strong in mid-year, but is slowing as this piece is being written in late November. Primarily
Hoover Institution Senior
Fellow at Stanford University because of the sharp retrenchment in housing and its correlative effects, economic growth is
likely to decelerate sharply in 4Q07 and 1Q08 from the over 4% (over 5% excluding housing
construction) range of 2Q07 and 3Q07 and then reaccelerate in the second half of next year.
While it is likely that the U.S. economy will grow decently in 2008, for the first time since the
expansion began the probability of an outright recession taking hold has increased appreciably,
from the 10-20% range to over 30%.
The base-case outlook is for real gross domestic product (GDP) growth of 2-2.5% in 2008, with
growth strengthening the year after. There would be a commensurate small rise in
unemployment, continued benign core inflation, somewhat lower earnings growth and business
capital spending. This is in line with most private forecasters and the Federal Reserve (see
Figure 1).
Figure 1
November 2007 Blue Chip Consensus and FED

Forecast for U.S. Economy 2008
5.5 4.9
4.8
4.5
4.5
Percentage Growth Rates
3.5
2.6
2.4
2.0
2.5 2.0
1.5
0.5
-0.5
Real GDP inflation unemployment rate Real Non-Residential
Fixed Investment
Blue Chip FED (mid-point)
N.B. for inflation, Blue Chip is GDP deflator, FED is core PCE deflator
Source: Blue Chip Economic Indicators and the Federal Reserve
The biggest concern is that the sharp retrenchment (from an admittedly unsustainable bubble)
in housing construction not only continues, but spreads well beyond the obvious closely related
goods, such as appliances and other items, that go into new homes. With housing prices
declining from inflated levels, a negative wealth effect will hit consumer spending. To that is
added a series of related issues in financial markets, centered on but not confined to financial
services, due to the subprime mortgage situation. Fed Chairman Ben Bernanke is hoping these

sectors stabilize soon, preventing the need for a new series of continuous interest rate cuts.
Even in the best-case scenario, at least one more Fed rate cut is likely. If the economy slides
close to recession, expect several more such cuts, a Fed funds rate of 3% or so. Fortunately,
core (excluding energy and food) inflation is running below the upper end of the Fed’s 1-2%
target range, expectations are well-anchored, giving the Fed room to maneuver. The continued
rise in energy prices—and looking beyond the current short-run situation to a possible new era
of resource economics, given the rapid growth in demand for commodities from oil to metals
from China, India and other emerging markets at a time of slow growth of supply—is another
concern and another headwind for the American economy. With oil priced in dollars, the dollar
depreciating and the greater reliance on long auto commutes, the percentage impact of oil prices
on American consumers is far greater than that in Europe or Japan.
The base-case forecast depends on what might be called the “sector rotation gamble”: that a
pickup in net exports will cushion a likely slowdown in consumption. While there is potential
upside to our forecast (as the economy has proved quite resilient to other problems and there is
no guarantee that the current issues must exact a major toll soon), the possibility of a sharper
slowdown or even recession (the odds of which I place at 30%-plus) must also be considered.
Expansions do not just die of old age, or “run out of gas”. Fortunately, there are several strong
positive forces as well. First, the rapid growth abroad and the depreciation of the dollar are
finally turning the change in (at least non-oil) net exports in our favor. This sector rotation is
expected to provide crucial insurance to mitigate the risks from the expected slowdown from
the beleaguered consumer. Second, job growth remains good, if at a slower pace than 2006,
unemployment is low and real wages are rising; so, despite the widely hyped middle-class anxiety
trumpeted by the media, the labor market thus far appears in good shape for most workers.
Thus, a period of ambiguity and anxiety, with oscillating indicators week to week, month to
month and quarter to quarter, should be expected, but once through a period of slow growth,
we should return to trend growth of close to 3% or so (see discussion of productivity below) as
2008 progresses. In this base-case scenario, inflation pressures are contained and the Fed, after
another 25-50bp cut, need not reverse course on interest rates anytime soon.
In the base-case scenario, real private nonresidential investment will grow about 5-6%; corporate
profits on a National Income and Product Accounts basis would increase about 5-6% (S&P
operating earnings a couple of percentage points more). The unemployment rate would inch up
slightly, and core inflation would remain under control at below the upper end of the Fed’s
target 2% range. This base-case scenario of a relatively soft landing would likely be
accompanied at some point by a slightly steepening yield curve.
It is important to emphasize that there is a prospect of stronger growth next year as well as the
risk of slow growth or even recession. A quicker stabilization of housing construction and
prices, a more rapid improvement in the external (trade) deficit with solid growth abroad, a
pickup in consumer and/or business technology spending with new product cycles could all
strengthen growth above forecast.
It is useful to retain the perspective that forecasting turning points in business cycles is
notoriously difficult. Economists tend to follow the data down, and if it keeps going down, they
miss the onset of recession. Many economists give too little weight to problems in financial
markets. Recall the 1990-1991 recession was missed by many economists, including those at the
Fed, giving insufficient weight to the credit crunch accompanying the S&L resolution and new
bank capital rules (Basle I). Financial markets, discounting future outcomes, have a tendency to
overshoot. As the saying goes, “The stock market called nine of the last five recessions.” Recall
that the American economy grew for three years after the October 1987 stock market crash.
What does this mean for equity prices? Durable expansions tend to be accompanied and
reinforced by solid corporate earnings growth, which is pivotal to equity market performance.
This base-case outlook should be mildly constructive for equity prices, once the ambiguity of
the severity of the slowdown begins to resolve itself. Of course, the recent retreat in equity

prices suggests that the markets had underpriced macroeconomic as well as credit risk.
Continued depreciation of the dollar is expected. If gradual and modest, it is unlikely foreign
investors will abandon dollar assets wholesale. A falling value heightens concerns of further
decline, however, and investors will rebalance portfolios in response to expectations of lower
returns in their home currency.
The keys to the strength and durability of the economic expansion, to the risk of recession and
to opportunities for growth, which I have elaborated on episodically in various versions of The
Green Book (see The Green Book, January 2004, pp. 9-25; December 2004, pp. 9-26; and December
2007, pp. 7-30), have not changed. But the expansion now has progressed for six years; more
problems are evident, such as those in housing construction and home prices as well as credit
conditions and oil prices. The labor market was tightening, but now job growth is slowing, in
part due to demographics. The risks and concerns in various areas have changed considerably
over the last year. As one example, a year ago, crude oil futures had fallen to $60 per barrel and
it looked as though consumers might get some relief at the pump, a situation that quickly
reversed and dramatically worsened.
Eight Keys to Continued Expansion or Recession Risk

1) Inflation, interest rates, monetary policy and credit conditions: will core inflation stay
below the upper end of the Fed’s target range, making interest rate reductions more available?
Wage acceleration and unit labor costs; credit conditions and the financing of growth.
2) The consumer: employment and labor income growth a modest plus; negative wealth
effects from housing values; credit conditions; high energy prices; low saving rate likely to
increase to counteract negative wealth effects.
3) Investment, business capital spending and inventories: profits and economic outlook;
tax policy; the housing retrenchment— will it spread?
4) The current account deficit: foreign investors and the dollar, growth abroad; oil prices.
5) The productivity revival: can it continue? Investment in IT and further productivity
gains.
6) Oil prices and other commodities: a new era in resource economics?
7) Fiscal policy: taxes, spending and deficits; the presidential election of 2008 and its
potential effects in 2008 and beyond.
8) Terrorism; global instability
The biggest changes are the drag from the sharp curtailment of housing construction, higher
energy prices, the unwinding of the large, long-lived economic stimuli from monetary and fiscal
policy, the slowdown of job growth, the apparent containment of latent inflation pressure, the
financial market distress, and deterioration of credit conditions and asset values. A major
change in any one of these keys, and especially in several of their dynamics, could produce a
substantially revised outlook and tilt the economy to noticeably stronger or weaker growth.
Expansions tend to be self-sustaining, as positive economic forces reinforce each other
sufficiently to offset any minor drags, leading to continual growth in output, profits and
employment. When there is a very large shock (the oil shocks of 1973-1974 and 1979 are the
best examples since World War II) or when more modest retrenchments occur in several areas
(defense and real estate in the early 1990s and technology spending and a reversal of the wealth
effect of equity prices in the beginning of this decade are recent examples) recessions do,
however, occur.
Another force leading to recessions, or reinforcing and worsening slowdowns and turning them
into recessions, is inappropriate monetary policy. The Federal Reserve’s boom-bust, stop-go
policies of the late 1960s and 1970s clearly contributed to the successive waves of rising

inflation followed by recession, or boom-bust cycles of those periods. As Figures 2 and 3

demonstrate, recessions have become less frequent and less severe in the last quarter century.
Indeed, the 5% of time in recession is the best performance in history. Repeating that
performance should not be taken for granted.
Figure 2
U.S. Business Cycle in Different Periods (1949 – 2007)

(percent of contractions vs. expansions)
17% 5%
83% 95%
10/1949-11/1982 11/1982-11/2007
Source: Business Cycle Dating Committee, National Bureau of Economic Research
Figure 3
U.S. Real Gross Domestic Product Growth

8.0
7.0
Seasonally adjusted annual growth rates
6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007-I
2007-II
2007-III
Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts (NIPA)

Inflation, Interest Rates, Monetary Policy and Credit Conditions

The biggest risk to a continued expansion in 2008 is the small but real possibility of building
inflation pressure. While it appears likely that Fed Chairman Bernanke will continue to win on
his position that a relatively brief period of subpar growth will keep core (excluding food and
energy) inflation and inflation expectations below the upper 2% range of the Fed’s target, it is
no certainty. Core inflation earlier was running in the mid-2% range (see Figure 4), a bit above
the upper end of the Fed’s target range, but has recently subsided to just below 2%.
Headline inflation has surged well above 2%, running almost 3% in the 12 months to October
2007, due to the rise of energy and food prices, and there are other concerns, e.g., a weak
dollar. These worries eventually could include the potential for wage gains to exceed
productivity, driving up unit labor costs, and a falling dollar (discussed below). With labor
costs (wages and fringe benefits) running about two-thirds of total costs in the economy, if
productivity growth falls off substantially from the recent strong levels, and if the recent tight
labor market produces substantial wage gains, something has to give, some combination of
prices and profits.
Figure 4
Inflation and Unemployment Rates

16.00 12.0
14.00
10.0
change in core CPI over preceding 12 months
12.00
8.0
unemployment rate
10.00
8.00 6.0
6.00
4.0
4.00
2.0
2.00
0.00 0.0
Jan-60
Jul-61
Jan-63
Jan-66
Jul-82
Jul-85
Jul-94
Jul-67
Jan-69
Jul-70
Jan-72
Jul-73
Jan-75
Jan-78
Jul-79
Jan-81
Jan-84
Jan-87
Jan-90
Jul-91
Jan-93
Jan-96
Jul-97
Jan-99
Jan-02
Jul-06
Jul-03
Jan-05
Jul-64
Jul-76
Jul-88
Jul-00
Core CPI (12-month) Unemployment rate
Source: U.S. Department of Labor, Bureau of Labor Statistics (BLS)
Why is the Fed keeping such a nervous eye on inflation and inflation expectations as it tries to
cushion the potential fallout from the housing and related credit problems? Modern
economics and much historical evidence suggest it is very risky for the labor market to drive
the unemployment rate below the so-called NAIRU, or natural rate of unemployment. The
NAIRU is the level below which unemployment cannot go without accelerating inflation.
Worse yet, the lower unemployment rate will not persist, but even with the higher inflation,
will drift back up to the natural rate. The jump in core inflation in 2000 as the unemployment
rate hovered in the low 4% range is suggestive in this regard. The illusory permanent trade-off
between (higher) inflation and lower unemployment of the so-called Philip’s Curve turns out

to be brief and ephemeral. And, in any event, the Volcker and Greenspan Feds produced a
quarter-century of simultaneously falling inflation and unemployment thought by many
economists of the time (I was not one of them) to be impossible (see Figure 4).
History and Federal Reserve experience demonstrated the substantial lags in the effectiveness
of monetary policy. Since it takes a while for inflation to take hold and drive up inflation
expectations, which then feed back on actual inflation, and since it takes several quarters for
tighter monetary policy to have much effect on output and, usually only later, prices, the Fed
has to be forward-looking, concerned about where the economy, growth and inflation will be
over the next several quarters, at the least. If it waits to see actual evidence of rising inflation
and/or slowing output in the data, which are backward-looking and may be revised, it can find
itself well behind the curve and have to take far more draconian action.
In brilliantly engineering a sharp reduction in interest rates down to 1% in the aftermath of the
bursting stock market bubble, recession and terrorist attack, the Greenspan Fed took out
substantial insurance against a Japanese-style fall in prices—outright deflation. Historical
experience indicates that deflations are extremely difficult to reverse, because, among other
reasons, the falling prices make it impossible for the Fed to engineer negative real interest rates.
Once it was clear that the economy was through that problem, the Fed raised rates so slowly
over such a long period of time that it gave a booster shot to the housing price bubble. As I
said at the time, the Fed should have raised rates more quickly to 4% and then reconnoitered.
By turning the real rate of interest positive, it would lessen the incentive for massive
speculative activity, most notably but not only in real estate, fueled by initially very low interest
rates. Unfortunately, as it did not do so, we are now reaping a worse housing construction
retrenchment, housing price reversal and credit crunch.
As can be seen from Figure 4 above, unemployment eventually falls low enough late in
expansions that inflation starts to rise. For example, from 1986 to 1988, the unemployment
rate fell from 7.0% to 5.5%, and the core inflation rate went from 3.8% to 4.7%. (Although
these inflation rates seem high by today’s standards, at the time they were thought a relief from
the double-digit 1979-1980 rates. It is also worth remembering that President Nixon imposed
wage and price controls when inflation rose to 4%.) Analogously, from 1999 to 2000, the
unemployment rate continued a long decline down to 4.0%, but core inflation rose from 1.9%
to 2.6%.
The view of most economists is that the economy was operating beyond its potential in both
cases and that to try to keep unemployment at those levels (5.5% in 1988, 4.0% in 2000) would
have resulted in rising inflation. This last point is subtle but very important. It is not just that
the unemployment rate would have caused a small rise in inflation and that the economy could
continue with stable 4% unemployment and 2.6% inflation, but rather that an unemployment
rate below the NAIRU was creating pressure for inflation to keep rising, which in turn would raise
inflation expectations and feed back into yet higher actual inflation. Such a process caused, or
at least accommodated, the serious inflation from the late 1960s to the early 1980s; hence the
Fed’s concern with a core inflation rate running one-half of one percentage point above its
target range. (For more on the natural rate of unemployment and the economy’s potential, see
The Green Book, December 2006.)
It is more likely that the Fed will be lowering rates in 2008 than raising them or keeping them
on hold. While there is a risk of the onset of higher inflation, causing the Fed to raise rates, I
believe this is less likely than the softness in the economy causing the Fed to stay on hold or
lower rates through mid-year. The Fed would like to cease lowering rates as soon as it is
confident the economy is stable.
While the attention of economists usually focuses on monetary policy and interest rates, credit
conditions also matter. An economy with readily available credit to potential borrowers—from
home buyers to private equity firms—will be more robust at similar interest rates than one with
lenders calling loans and imposing tighter covenants to comply with new regulations and

market conditions. Every so often—at least once a decade recently—a sharp credit tightening
throws sand in the gears of the financial side of the economy. This happened in the 1980s’
Third World debt crisis, and the savings and loan fiasco that culminated in the early 1990s, and
is now evident in subprime mortgages. In each case, an exuberant market chased good returns
and financial institutions borrowed short and lent long. The Third World debt crisis clobbered
money center banks, some of which appeared almost insolvent marked to market. The banks
thought they had a soft put via the U.S. government’s relationship with the Latin American
countries and were indeed following explicit American foreign policy in their lending. In the
case of the S&Ls, there was a hard put, via deposit insurance, on the U.S. Treasury (i.e.,
taxpayers). Make risky loans. If they pay off, you win; if not, taxpayers lose. In the subprime
case, collateralized subprime mortgages, originating increasingly with no income verification,
little if any down payment and very low starting teaser rates, were marketed as relatively safe
bundles. Consider a potential subprime borrower. Housing prices are rising rapidly. You are
being told—not just by potential lenders, but by your colleagues at work and your spouse–that
if you do not get in to a house now, you will never be able to afford it. Some of your work
colleagues tell you they made more on their home last year than they did in their job. And with
no money down and no income verification, if housing prices continue to rise, you win; if not,
return the keys.
The financial firms failed to adequately identify, price and hedge the risk. Complex structures
were used. In one case, a German bank loaned off-balance sheet with no reserves required to
an offshore entity to purchase collateralized debt obligations (CDOs). The chairman of the
Executive Committee of Citibank said this summer that he had not even heard of some of
these arrangements before they went bad. Once the problems started to occur, financial
markets could not readily identify who was liable for what. So much more of the lending was
unregulated and some of the banks had transformed themselves from relying 70% on deposits
to 70% on the commercial paper market to fuel growth that rumors were rampant and lots of
double, triple and quadruple counting occurred. For example, while the losses are the loans
less any recoveries, we were hearing about subprime losses, then losses from collateralized debt
obligations (CDOs), then from hedge funds or other vehicles, and then from the banks, as if
they were additive. Of course, the banks lent to the vehicles to buy the CDOs, which were the
packaged subprimes. So we are tracing the same loss through this chain. How big is the loss?
As in previous episodes, it is both difficult to say and will depend upon the state of the
economy and other factors over the next several years. The $300 billion estimate by the
OECD seems as good as any, however, deriving from both direct measures of losses (grossed
up to add losses outside subprimes) and estimates of the decline in equity value of the financial
firms involved. Back in the S&L crisis, the original estimates were around $100 billion, with
some headline seekers estimating $1 trillion, whereas the final cost to taxpayers to cover the
losses was roughly $200 billion. Expect more wild estimates of the losses in the current mess.
And this time, the costs will be borne, appropriately, primarily by the equity holders of the
lenders. In a $14 trillion economy, such losses can be absorbed, but if in the process of doing
so, much other financing is delayed (commercial and industrial lending and commercial paper
outstanding are both down sharply), the harm can spread to the general economy and its firms
and workers. That is what the Fed, and other central banks abroad, will act to try to prevent.

16
SECTION I: OVERVIEW
3-month libor and treasury Percent
0.00
0.50
1.00
1.50
2.00
2.50
3.00
7/2/2007
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan-86
Figure 6
Figure 5
7/9/2007 Sep-86
May-87
7/16/2007
Jan-88
Sep-88
7/23/2007
May-89
7/30/2007 Jan-90
Sep-90
8/6/2007
May-91
Jan-92
8/13/2007
Source: Federal Reserve Statistical Release
Sep-92
8/20/2007 May-93
Jan-94
8/27/2007 Sep-94
May-95
Source: Federal Reserve and British Banking Association

9/3/2007
Jan-96
Sep-96
9/10/2007
May-97
9/17/2007 Jan-98
Sep-98
9/24/2007
May-99
Jan-00
10/1/2007
Sep-00
10/8/2007 May-01
Jan-01
10/15/2007 Sep-02
Monthly Interest Rates for Federal Funds
May-03
10/22/2007
Jan-04
Spread Between 3-Month Libor and Treasury Yields
10/29/2007
Sep-04
May-05
11/5/2007 Jan-06
Sep-06
11/12/2007
May-07

The Green Book: December 2007
THE ECONOMY IN 2008 AND BEYOND
Figure 7
Asset Backed Commercial Paper Outstanding

1.25
1.2
1.15
1.1
1.05
trillions
1
0.95
0.9
0.85
0.8
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07
Source: Federal Reserve Statistical Release
The Consumer
Consumption is two-thirds of GDP and, while consumer spending is far less volatile than
business capital spending, even modest swings up or down reverberate throughout the
economy (see Figure 8). After all, much business capital spending is for capacity expansion to
meet consumer demand. Consumption was given a booster shot in recent years by the wealth
effect of higher housing and equity values. At its peak, well over one-half-trillion dollars a year
was taken out of homes through mortgage refinancings, home equity loans and the like. The
good news on the consumer front is that the labor market has remained relatively strong (see
Figure 9). Employment gains averaged about 100,000 per month in 2007, and while down
from a year ago, they are still likely to be positive, though they may slow further. And of
course, real disposable incomes continue to rise (see Figure 10). The value of household real
estate grew from $12.5 trillion in 2001 to $21.0 trillion in 2Q07. Even adjusting for inflation,
this is more than a 50% real increase. Fueled by exceptionally low short-term interest rates that
promised to stay low for quite a while, entry-level mortgages were remarkably attractive,
including subprime lending and speculative buying of multiple homes. The mortgage
originators pushed through all the products they could, as historically have occurred in housing
booms. As new starts and permits plunge, housing prices, which have risen far beyond
incomes and rents, are falling and have some additional falling to do (see Figure 11).

Figure 8
Growth by Type of Personal Consumption Expenditure
15
Percent Change from a Year Earlier

10
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007-I
2007-II
2007-III
-5
Durables Non-Durables
Figure 9
Monthly Growth of Non-Farm Employment
0.30%
0.25%
percentage change from previous month
0.20%
0.15%
0.10%
0.05%
0.00%
May-05
Nov-05
May-06
Nov-06
May-07
Nov-07
Jan-05
Mar-05
Jul-05
Sep-05
Jan-06
Mar-06
Jul-06
Sep-06
Jan-07
Mar-07
Jul-07
Sep-07

Figure 10
Growth of Real Disposable Personal Income
6.0
5.0
4.0
% change
3.0
2.0
1.0
0.0
1999
2000
2001
2002
2003
2004
2005
2006
2007-I
2007-II
2007-III
Figure 11
Percent Change in Housing Price Index
20.0%
15.0%
% change from 12-month earlier
10.0%
5.0% rising
0.0%
-5.0%
falling
-10.0%
1996-IV
1999-IV
2002-IV
2005-IV
1998-II
2001-II
2004-II
2007-II
1996-I
1997-III
1999-I
2000-III
2002-I
2003-III
2005-I
2006-III
Source: S&P/Case-Shiller home price index
So far, the spillovers from the housing bubble collapse have been modest. Not all consumers
have marked to market and adjusted their consumption accordingly. Even with the substantial
decline, and the likely additional decline to come, some consumers still have substantial
unrealized capital gains, as the data above suggest. Those who entered the market late are
suffering capital losses. Worse yet, the long period of very low short-term interest rates has left
a sizeable number of households (estimates center around two million) with subprime
adjustable rate mortgages (ARMS) vulnerable to interest rate resets eating into their budgets,

and for some, foreclosure. These resets will continue for another couple of years. Thus, we
have gone from housing wealth effects giving a booster shot to consumer spending to housing
prices and interest costs moving to the negative side of the ledger. Add increased foreclosures
to this list. How large is this effect likely to be? Even if two million modest income
consumers reduce their spending a sizeable 25%, the result is only about 0.3% of consumption.
The consumption drag must extend far more broadly (e.g., though general negative wealth
effects from housing prices) to be a major macroeconomic event as opposed to distress
confined to a narrow group and a small subset of products. Of course, subprime mortgages
are unlikely to be the end of the story. For example, the same people who will struggle with
mortgage interest resets have credit cards, the receivables from which are also collateralized.
And some prime mortgages and other lending are troubled.
The removal of the strong positive wealth effects of housing in favor of what is a negative
wealth effect was offset by the strong performance of equities in 2006 through mid-2007. The
last couple of months have reversed that picture as well, removing one shock absorber from
some household balance sheets. Recall, however, that ownership of equities, while widespread,
is far more concentrated in upper income groups than is home ownership, which suggests that
it is the broad middle class, and especially the lower middle class that recently moved from
renter to owner, who will have its consumption affected most.
The traditionally measured household saving rate has been quite low for several years, in part
due to the capital gains in housing and equities that allowed consumers to avoid saving out of
their paychecks. The National Income and Product Accounts measures saving as income
minus spending (i.e., as a residual). So measurement errors in income or spending spill over,
dollar for dollar, into measurement errors in the much smaller saving number. This likely
understates true household saving, on average, over time however.
Figure 12
Saving as a Percentage of Disposable Income
(n.b. NIPA measures understate saving)
%
12.0
10.0
8.0
6.0
4.0
2.0
0.0
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2007-III
2007-I

The biggest problem is that real capital gains are not included in the saving rate, when in fact
they constitute wealth accumulation. Real capital losses are not deducted, either. Recall also that
the saving rate is actual positive saving minus borrowing. Hence, with housing values declining
and equity markets off their highs, we might expect consumers to raise their savings out of their
paychecks, or just stop borrowing as much, although the exact timing of this adjustment
remains to be seen.
Energy prices have risen appreciably, more than retracing their decline of 2006. While the full
rise in crude oil prices has not been seen at the pump (witness the decline in refining margins at
major oil firms), the rise has been substantial nonetheless. Some consumers will have to spend
less on other goods and services.
It is not clear how much of disposable income will be spent, how much will be saved or how
much will be used to pay down debt. It is likely that until consumers become convinced that
the risks surrounding the economy, housing values and equity prices are reduced, a sizeable
portion will go to strengthen consumer balance sheets. Look for real consumer spending
growth to slow to the 2-2.5 % range.
Investment, Business Capital Spending and Inventories

Investment makes up about one-sixth of total spending in the economy, but it is far more
volatile than consumption, surging in booms and tanking in recessions (see Figure 13). While
residential investment, as noted in Figures 13 and 14 on housing starts and permits, has fallen
substantially from booming peaks, nonresidential fixed investment is another story. It has
generally been solid since the recession, with occasional periods of temporary weakness.
Figure 13
Real Private Fixed Investment: Housing Downturn

35
25
Annual Growth Rates
15
-5
-15
-25
1989
1990
1991
1993
1994
1996
1997
1998
2000
2001
2003
2004
2005
1988
1992
1995
1999
2002
2006
2007-III
2007-I
2007-II
residential structures equipment & softw are
Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product

Figure 14
Housing Starts and Permits
1 ,8 00
1 ,7 00
1 ,6 00
1 ,5 00
1 ,4 00
1 ,3 00
1 ,2 00
1 ,1 00
Aug-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Apr-07
Jun-07
Jul-07
Aug-07
Sep-07
Mar-07
May-07
ho us ing s ta rts , in t ho us a nd s p erm its in th ou s an ds
Source: U.S. Census Bureau
The keys to business capital spending for the next few quarters and into 2009 is the continued
growth, and expected productivity growth, of corporate profits, which itself depends on decent
economic growth. The economic outlook in the United States and abroad is closely correlated
with investment opportunities and the interest rate and capital markets environment. Corporate
profits should continue growing at decent, if unspectacular, rates (see Figure 15). After several
years in a row of double-digit S&P 500 earnings growth, which brought the corporate profit
share of GDP to multi-decade highs (see Figure 16), top-line revenue growth is weakening and
earnings growth will be down a notch in late 2007 into 2008. With the slowing economy, expect
earnings growth estimates for next year to be revised downward. In any event, many
corporations continue to be in strong cash positions. Corporate cash flow will slow somewhat
from the pace of recent years, when corporate profits as a share of GDP were the highest since
the mid-1960s. Businesses will have plenty of internal cash to finance investment, which is the
source of financing for the majority of business investment. Note that equity values have grown
less rapidly than profits, in contrast to the late 1990s bubble (see Figure 17).
Figure 15
NIPA Corporate Profit Growth
30%
Annualized percent change from preceding period
25%
20%
15%
10%
5%
0%
-5%
-10%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007-I
2007-II
2007-III

Figure 16
Profit Share of GDP
14 .0 %
12 .0 %
10 .0 %
8 .0 %
6 .0 %
4 .0 %
2 .0 %
0 .0 %
2006-I
1966-I
1968-I
1970-I
1972-I
1980-I
1982-I
1984-I
1986-I
1996-I
1998-I
2000-I
2002-I
1960-I
1962-I
1964-I
1974-I
1976-I
1978-I
1988-I
1990-I
1992-I
1994-I
2004-I
Figure 17
Corporate Profits and the Stock Market
3000
2500
2000
Q1 1960 = 100
1500
1000
500
corp. profit (NIPA)
S&P 500 index
0
2005-I
2006-III
1960-I
1961-III
1963-I
1964-III
1966-I
1967-III
1969-I
1970-III
1972-I
1973-III
1975-I
1976-III
1978-I
1979-III
1981-I
1982-III
1984-I
1985-III
1987-I
1988-III
1990-I
1991-III
1993-I
1994-III
1996-I
1997-III
1999-I
2000-III
2002-I
2003-III
Source: U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Accounts
(NIPA); Standard & Poor’s
The manufacturing sector has certainly been slowing, especially in the United States and Japan,
albeit less so in Europe, although the strong euro will tilt that relative profile somewhat. With
residential construction and related sectors plus domestic autos in difficulty, manufacturing
activity in the United States has been weakening.
Likewise, there has been a boom/bust cycle in durable goods orders (see Figure 18) following
big swings in transportation, especially aircraft, orders. We can expect continued sluggishness
in the short run.

Figure 18
Manufacturers' New Orders for Durable Goods

16.0
11.0
6.0
annualized % change
1.0
2007 Year to Date
-4.0 8
-2
-9.0 -4
-6
-8
-10
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07
-14.0
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: U.S. Census Bureau
The good news in this glass half-full/ glass half-empty story is on the demand side. It appears
that demand growth continues to be decent, if unspectacular, for manufacturing output,
including strong growth abroad (see below). In the meantime, however, with the retrenchment
in residential construction, the manufacturing adjustment and problems in autos, some goods-
producing industries will continue to experience weakness well into 2008. As mentioned
above, one unexpected bright spot has been Europe. Although the actual data (net of timing
quirks) are mixed and there are some signs of slowing, business capital spending remains
decent in Europe and in much of the rest of the world.
The substantial depreciation of the dollar will increase dollar-denominated earnings for U.S.
multinationals with sizeable sales abroad, which will help curtail the decline in S&P operating
earnings growth, in addition to tilting demand toward U.S. exports.
As noted above, we see a relatively benign interest rate environment, barring the unexpected
case of rising inflation. The yield curve may steepen somewhat once growth accelerates.
The picture in growth abroad, outside of Japan, looks reasonable, if not as strong as the past
year. Europe has been in an upswing despite the strengthening euro, but is now slowing.
Expect world GDP growth (including Europe and Japan) to slow from its golden era of the
past five years of record strong growth, however. All these puts and takes lead to a base-case
outlook of real (inflation-adjusted) nonresidential business investment spending, increasing
about 5-6% in 2008.

The Current Account Deficit

The U.S. trade and current account deficits have soared in recent years, running over 6% of
GDP (see Figure 19). The trade deficit usually declines in a recession but did not do so in
2001. For the first time in some years, modest changes in the relative growth rates (see Figure
20), and the depreciated dollar will tend to lead to improvement in the current account deficit.
Figure 19
Balance on Current Account
(% of GDP)
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
-5.0%
-6.0%
-7.0%
-8.0%
2005-III
1981-III
1984-III
1987-III
1989-I
1990-III
1992-I
1993-III
1995-I
1996-III
1998-I
1999-III
2001-I
2002-III
2004-I
2007-I
1980-I
1983-I
1986-I
Figure 20
La test Rea l GDP Grow th Rates fo r Se lec ted Co un tries
La s t 1 2 Mo nths to 3 rd Q ua rter, 2 00 7
12.0% 11.5%
10.0% 9 .3 %
8.8 %
8 .7 %
8.0%
6.0% 5.4 % 5 .3 %
5.2 %
3.9 %
4.0% 3. 3% 3 .6 %
3.2 % 3.2%
2 .6 % 2 .9 % 2. 8%
2 .5 % 2 .5%2 .8%
2. 1% 1 .9% 2 .1 %
2.0% 1. 5% 1 .4 %
0.0%
UK
Italy
India (Q2)
Canada
Germany
France
Argentina
US
China
South Korea
Brazil (Q2)
Mexico (Q2)
Japan
(Q2)
la st 1 2 mo nths to Q3, 20 07 Q3 , 2 00 7
Source: Various national accounts

Figure 21
November 2007 Blue Chip International Consensus Forecast
(Real GDP Growth, 2007 & 2008)
12 .0
1 1. 3
10 .2
10 .0
8 .0
percentage change
6 .0
4. 8 5 .0 4. 7
4 .4
4 .0
3 .3
3 3. 0
2. 4 2 .5 2 .5 2 .6
2 .1 2. 2 2 .1
1 .9 2 .0 2 .0 2 .0
2 .0
0 .0
Canada
Germany
Brazil
Japan
Mexico
United States
France
China
South Korea
United Kingdom 2 00 7 2 00 8
Source: Blue Chip Economic Indicators
There does seem to be a structural imbalance, however. In recent years, the United States has
had roughly twice the propensity to consume imported goods as income grows as have our
trading partners had the propensity to consume our exports as their incomes grow. Whether
this is a permanent fact of life due to the product composition in trade or something that is
likely to reverse anytime soon is pure guesswork at this stage. The dollar depreciation should,
however, lead to some improvement in our (non-oil) external imbalance. It would, however,
be wise to be cautious about the extent of any likely reversal, given the stubborn persistence of
a large trade imbalance in the United States. This in part reflects the desire of the rest of the
world to be holding safe, liquid dollar-denominated assets, and some of their excess saving
being invested in the United States (i.e., the capital flows have in part driven trade flows). In
any event, the sizeable subtraction from GDP growth in recent years of the growing trade
imbalance should attenuate, offsetting some of the drag from housing and consumption.
Concerns continue about foreign investment in the United States, as foreign assets in this
country now exceed U.S. assets abroad. Since the returns on U.S. assets abroad have exceeded
those on foreign assets in the United States, the income flows are much closer to balance.
Recent and expected future depreciation of the dollar (see Figure 22) has decreased the rate of
return in home currency terms and that decreases the incentive for foreign investment here.
The United States cannot fund a decent rate of investment from its low domestic national
saving, and it will eventually be difficult to attract enough foreign capital to fill the gap without
raising domestic interest rates, but so far that has not occurred.

Figure 22
Trade Weighted Dollar Indexes
140
130
120
110
indexes
100
90
80
70
60
1/4/1995
7/4/1995
1/4/1996
7/4/1996
1/4/1997
7/4/1997
1/4/1998
7/4/1998
1/4/1999
7/4/1999
1/4/2000
7/4/2000
1/4/2001
7/4/2001
1/4/2002
7/4/2002
1/4/2003
7/4/2003
1/4/2004
7/4/2004
1/4/2005
7/4/2005
1/4/2006
7/4/2006
1/4/2007
7/4/2007
source: FED of San Louis
major currencies all currencies
Source: Federal Reserve
The flow of foreign investment, positive or negative, increasing or decreasing, depends on the
economic outlook for the United States, dollar interest rates and expected exchange rates, and
the economic and profit outlook abroad. There have been rumblings of some major holders
of dollar assets in Asia and the Middle East seeking to rebalance their portfolios to be less
reliant on dollar assets.
If foreigners feel there are insufficient investment opportunities in their home countries, the
high saving rate countries will still want to invest somewhere, and while at the margin more is
likely to flow elsewhere, I do not see the flows into the United States collapsing. But some
savvy people, such as Robert Rubin, are deeply concerned about this issue and seem to believe
that the twin deficits—the federal budget deficit and the trade deficit—have a fairly high
probability of causing a currency crisis-induced financial and economic panic and/or collapse.
While this is certainly possible, my own view is that the likelihood of such an event is not high.
More likely is a slowing in the rate of net foreign flows of capital to the United States.
Moreover, while forecasting exchange rates is what economists do least well, one would
conjecture that over the longer term, there will be net continued dollar depreciation. It is also
worth remembering that markets, especially the foreign exchange markets, are prone to
“overshooting”, an overadjustment in rates that must subsequently be adjusted.
Oil prices are part of the recurring current account deficit outlook. The rise in prices to over
$90 per barrel certainly worsens the current account balance (the U.S. imports about 60% of its
oil). There are many puts and takes, and I will discuss the economic risk from higher oil prices
below, but it is worth mentioning that substantial inventories of crude oil did not lead to prices
falling in 2007.
Unless oil rises still further, however, it is likely that the net impact of the trade balance on
economic growth will improve in 2008.

The Productivity Revival: Continuing Rebound?

U.S. productivity has gone through several episodes in the post-World War II period. After
the golden era of the 1950s-1960s, productivity growth slowed in the late 1960s, collapsed in
the 1970s to early 1980s, staged a mild recovery (net of cyclical conditions) in the late 1980s-
early 1990s, and then rebounded solidly in the late 1990s. Productivity growth, which usually
collapses in recessions, remarkably continued to be solid through the 2001 recession.
Productivity growth slowed in 2006 and early 2007, however, and then rebounded strongly in
mid-2007 (see Figure 23). There is no more fundamental question to the medium-term
performance of the economy, from the rate of economic growth to inflation, to eventual real
income gains for workers, than the rate of productivity growth.
Figure 23
7.0
Non-Farm Productivity Growth
6.0
annualized percent change from preceding peirod
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2007-I
2007-III
In fact, productivity growth not only continued during the recent recession, but boomed to its
highest level in 50 years early in the recovery. The pace of productivity gains will determine
the future path of U.S. economic growth, given that labor force growth is slowing (more on
that below), and hence profit growth over the medium and longer term. Long-term potential
GDP expands at the rate of labor force plus productivity growth. Labor force growth is
primarily demographically determined, although it can be affected by tax and welfare policies.
However, 2008 is also the first year the baby boom generation reaches 62, an age when more
people collect their first Social Security check than do so at age 65, and labor force growth will
slow considerably thereafter, by a quarter of a percentage point or more per year.
The deep conceptual question about the improvement in productivity growth in the late 1990s,
through the recession and early recovery, is the extent to which this was permanent or
transitory. The computer and Internet revolutions (and other factors) can be viewed as having
shifted the economy from one level of productivity to a higher level. The earlier level is
consistent with a slower underlying rate of productivity growth, and after the transition to the
higher level would then revert to the old rate of productivity growth. There is a long transition
period when the new technology is deployed, adopted and leads to transformation in how
businesses are organized, processes accomplished, labor freed up for other uses, and capital

deployed more efficiently. The rate of productivity growth will be high during the transition,
equal to the slope of the line connecting the two levels.
So the big question—how much of this is temporary and how much is permanent—reflects
how much of the transition has already occurred and what new developments occur. That in
turn reflects: (1) how far along are the deployments in existing firms (certainly further than six
or eight years ago, but many large firms have been rolling the new technologies through
different plants or divisions and smaller firms are adopting later); (2) the spread of the new
technology to new firms (indeed, the new technology enabling the growth of the new firms);
and (3) the development of new applications of the new technology or improvements in the
technology that lead to additional productivity improvements, e.g., next-generation Web
services.
On all of these, the best anyone can do is speculate. My view is that we are likely to have an
era of 2% productivity growth, down from the boom in the late 1990s, recession and early
recovery, but still well above the paltry levels of the 1970s through early 1980s, and a bit above
the levels of the 1980s through early 1990s. This is partly because the prospects of
productivity growth will fuel business capital investment, which leads to investment in R&D
and the actual productivity enhancement. It also provides the wherewithal for profit growth,
even as wages rise, without triggering inflation; and lays the groundwork for gains in labor
income which, except at the top, has grown slowly in the last two decades, primarily because of
the addition of huge pools of labor to the global labor force with the opening of China and the
former Soviet sphere. An eventual more rapid rise in wages to reflect productivity growth is
good in itself, of course, and it would help take some of the pressure off of potentially
economically damaging legislation to over-tax and over-regulate capital.
Finally, in the very short run, productivity growth tends to reflect cyclical movements in output
to some degree. Thus, productivity growth was strong in mid-2007 when output grew rapidly,
but is likely to decline as output growth decelerates in the next quarter or two, before
rebounding again.
Oil Prices and Other Commodities: Stabilization, Slide or Increase? A New Era
in Resource Economics?
Oil still plays a large role in all economies. While the United States uses only about one-half as
much oil per dollar GDP than it did in the 1970s, we now import about 60% of our oil, and
Japan virtually all of its oil. Hence the sharp run-up in crude oil (and also natural gas) prices,
which in inflation-adjusted terms (see Figures 24-25) reached the levels of the first oil shock in
1973-1974, created a large transfer of income to oil-producing countries, acting like a tax on
the American economy, knocking perhaps one percentage point off of growth. As supply
increasingly comes from geopolitically difficult areas (Iraq, Iran, Russia, the Caspian Sea,
Nigeria, Venezuela, etc.), a large supply disruption risk premium was built into crude oil prices.
The 2006 decline from the high $70s to about $60 per barrel of crude oil and concomitant
large decline in retail gasoline prices at the pump in the United States were like a tax cut, raising
real personal income. The sharp reversal to $90 is now a big tax on the economy. Because the
economy uses roughly one-half as much oil per dollar of GDP as it did in the 1970s, the
economic impact of this rise has thus far not been as disruptive. The flexibility of the
economy and better monetary policy have also helped mitigate the impact. Budgets have to
bind eventually, however, and if such high prices continue or worsen, they will add
considerably to the recession risk. There is still some risk of a terrorist act damaging oil
supplies or transportation routes, or of a severe enough geopolitical disruption potentially
raising prices considerably, even from this level, but a more likely scenario is that oil prices will
decline modestly through 2008 and 2009 as the futures market predicts. There is even a risk
that they will fall abruptly in response to some combination of warm weather and accelerated
supply additions, slower demand and OPEC’s limited ability to enforce “reductions”.

Figure 24
NYMEX Crude Oil Futures
Dec 1, 2006 – Dec 5, 2007

Source: New York Mercantile Exchange
Figure 25
Commodity and Gasoline Price Index
180 300
175 250
170 200
index (1982=100)
index (1982=100)
165 150
160 100
155 50
150 0
May-06
May-07
Nov-06
Jan-06
Feb-06
Mar-06
Apr-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
all commodities gasoline
There is increasing talk of a new era in resource economics—of a prolonged period of growing
scarcity of oil, metals, some crops, etc., as demand grows rapidly and supply slowly, driving up
prices. While this has certainly been the case lately, and on balance is probably correct, recall
that higher prices often lead, after a lag, to new supply and, depending on timing of any short-
run swings in demand, could lead to periods of falling prices, as happened when oil plunged to
$10 per barrel a decade ago.

Fiscal Policy: Taxes, Spending and Deficits, the New Congress and the Next
President
Fiscal policy provided a much-needed stimulus early in the recession, from Defense and
Homeland Security spending and tax cuts, augmented by acceleration of the tax cuts and the
dividend and capital gains tax cuts in the second half of 2003. Combined with temporary
bonus depreciation and higher expensing limits for small businesses, these tax cuts helped
underpin decent capital spending early in the recovery and gave a much-needed boost in 2003
when the economy finally achieved high enough growth to be self-sustaining.
The combination of the increased spending (see Figure 26)—including substantial increases
outside of defense and homeland security spending—and tax cuts have heightened concern
about the medium- and longer-term impact of the budget deficits (see Figure 27) (although, in
the short term, while deficits were large in 2001-2003, this was one of the best-timed uses of
counter-cyclical fiscal policy in history). The fiscal policy substantially reinforced the aggressive
monetary response and the economy’s impressive natural flexibility, dynamism and resilience in
the face of recession and other shocks). Focusing on the headline dollar value of deficits can
be quite misleading. In a $14 trillion economy, even a $140 billion deficit only amounts to 1%
of GDP, a primary surplus (the deficit net of interest payments). In the last fiscal year, 2007,
the deficit was 1.2% of GDP, a level consistent with a slightly declining debt-GDP ratio. The
CBO baseline shows the debt-GDP ratio declining, although it predicts substantial spending
restraint, along with the expiration of the 2001 and 2003 tax cuts. In any event, the debt-GDP
ratio is below the historical average and far below that of Euroland and Japan.
Figure 26
Real Government Spending
(inflation-adjusted)
10
8
Percentage change from preceding period
-2
-4
-6
-8
1980
1981
1982
1985
1986
1987
1988
1989
1991
1992
1993
1994
1995
1998
1999
2000
2001
2004
2005
2006
2007-III
1983
1984
1990
1996
1997
2002
2003
2007-I
2007-II
Government consumption expenditures and gross investment Federal State and local

Figure 27
Projected Position of the U.S. Federal Budget
(CBO Baseline Estimates, % of GDP)
1.00
0.50
0.00
% of GDP -0.50
-1.00
-1.50
-2.00
-2.50
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: U.S. Congressional Budget Office, August 2007
Figure 28
National Debt as Percentage of GDP
120.0
100.0
80.0
Percent
60.0
40.0
20.0
0.0
1940
1943
1949
1952
1955
1964
1967
1970
1973
1979
1982
1985
1994
1997
2000
2003
2006
2009
2012
2015
1946
1958
1961
1976
1988
1991
Source: U.S. Congressional Budget Office, U.S. Office of Management and Budget

The change in control of both Houses of Congress has substantially altered the balance of
power toward a desire for more domestic spending and less defense spending, a likely attempt
to reorient the tax cuts more toward lower- and middle-income people and to raise taxes on
those at the upper end of the income ladder and on capital income. Despite the rhetoric,
Congress did not deliver on these goals. Much of the gains the Democrats made were by
conservative to moderate Democrats defeating moderate Republicans, and the new leadership
has had a very modest populist agenda. Even that more moderate agenda, of course, will have
to get through both houses of Congress (and therefore must generally garner 60 votes in the
Senate) and a potential Presidential veto. While President Bush has been unable to do much
other than sustain his policy in Iraq, he and Congressional Republicans have thus far thwarted
attempts to move aggressively on an agenda to raise taxes or spend on social programs.
Much of the Democrats’ story line in the last election was the “middle-class squeeze”, the
notion that only the rich have become better off in recent years and that wages have stagnated.
And while this claim is exaggerated, it is true that the before-tax incomes of the wealthiest
Americans have grown more rapidly than that of other groups, although their taxes went up by
a larger percentage than their incomes did. IRS data reveal that in 2005, the top decile’s share
of federal income taxes had risen to 70.3% from 64.9% in 2001, whereas their income share
had risen by a smaller percentage (continuing a long-standing trend), thereby making the
federal income tax slightly more progressive despite the rhetoric.
Democrats reinstituted the pay-go budget rules that expired in 2002, and that were put in place
originally in 1990 by the first President Bush and the Democratic-controlled Congress and
renewed under President Clinton. These rules require that any tax cuts or discretionary
spending increases and new entitlements be offset elsewhere in the budget. Many Republicans
objected to these rules once the budget position improved because they made tax cuts more
difficult; some members of both parties objected because of the spending restraint they
imposed. The tax share of GDP, already somewhat above the historical average, rises
automatically, and in fact will reach about 20% by the end of the decade and about 24% a
decade or two later, because of real bracket creep, the alternative minimum tax and other
factors. Since the pay-go rules make legislating tax cuts more difficult, tax increases are
virtually preordained, at about $3 trillion over the next 10 years between the expiration of the
Bush tax cuts and the growth of the Alternative Minimum Tax (AMT). My own view is that
sound public policy requires far more stringent control of spending growth and legislated tax
reduction and reform that stabilizes the federal tax share of GDP close to the historical average
of around 18.2%. The pay-go advocates do have a point: had they still been in force, the new
Medicare Part D prescription drug program would have been more targeted, affordable and
financed. In general, however, the divided government is most likely to lead to some
reorientation on the margins and much debate as we head into the 2008 elections, not much
new tax and spending legislation or even specific proposals.
One exception is the proposal by House Ways and Means Committee Chairman Charles
Rangel (D-NY) to eliminate the AMT and raise tax rates on the “wealthy”. Figure 29 shows
the effect of the Rangel plan plus the proposal by many leading Democrats to “uncap” the
earnings subject to Social Security payroll taxes (as is done with Medicare). The result is very
substantial—a $3-4 trillion hike relative to current tax rates; tripling the federal taxes on
dividends, almost doubling the tax on capital gains, with the potential to sharply reduce work
and investment incentives. The long boom of the last quarter century was underpinned by low
inflation and low tax rates. Further, the Europeans’ mediocre performance attests to the
dangers of high taxes and bloated social spending.
Chairman Rangel’s plan not only allows the Bush tax cuts to expire, which would raise the top
marginal tax rate on income and dividends to 39.6% and capital gains to 20%, but would add
an extra 4.6% on adjusted gross (not taxable) income. Thus, the higher (Rep. Rangel calls
them “replacement”) rates exclude all deductions and include capital gains. Plus, phase-outs of
deductions would be reinstated on the regular rates. So, higher-income taxpayers whose

deductions throw them into the Alternative Minimum Tax pool with a top rate of 28% will
now find themselves with a rate of 44.2% with deductions limited. When combined with the
proposal to uncap the earnings limit on Social Security payroll taxes and state income taxes
(currently fully deductible) are factored in, the combined top marginal tax rate reaches almost
70%, which is back to levels of the 1970s.
On the corporate side, Rep. Rangel would lower the corporate rate to 30.5% from 35%; a great
idea, but take that back with a variety of provisions, some focused on particular industries.
When combined with the increases in personal rates on dividends and capital gains (some
Democrats want to hike capital gains rates still further), the return per dollar of corporate
source income would decline by about one-third. I believe this would be an impediment to
capital formation and economic growth, and hence future wages. It would also increase
incentives for debt versus equity and for share repurchases versus dividends.
Figure 29
T he E ffec t of T ax P lans on Inc entives

I. Top Marginal Tax Rate Current Rangel/Democrats
(A) Top Federal Rate 35.0% 44.2%
(B) Top State (Calif.) Rate 10.3% 10.3%
(C) Combined Top Rate 41.7% 54.5%
(D) Additional 2.9% Medicare On Earnings 44.6% 57.4%
(E) Additional 12.4% Social Security On Earnings 69.8%
After tax Return to Working Per Dollar Earned 55.4% 30.2%
Percent Change -45.5%
II. Double Taxation of Dividends

(F) Personal Tax on Dividends (Capital Gains) 15.0% (15.0%) 44.2% (24.6 - 28.0%)
(G) Top State (Calif.) Rate 10.3% (10.3%) 10.3% (10.3%)
(H) Tax on Corporate Income 35.0% 30.5%
(I) Total Tax on Dividend Income (Capital Gains) 49.1% (49.1%) 68.4% (54.8 - 57.1%)
After tax Return on Dividends (Capital Gains)
Per Dollar 50.9% (50.9%) 31.6% (45.2 - 42.9%)
Percent Change -37.9% (-11.2 - 15.7%)
Source: Dr. Michael Boskin’s calculations
Finally, the long-run deficits in Social Security (see Figure 30) and Medicare are projected to be
enormous. These programs could be made far more efficient and effective with little or no
additional taxes, but the divided government is both an opening to reform (which is not
possible in such large, important and political popular programs in a purely partisan way) and a
recipe for likely paralysis and delay, which makes the eventual reforms more likely to be abrupt
and to require substantial tax increases, as each year that passes raises the ratio of voters who
are (net) recipients of government transfers to (net) taxpayers.

Figure 30
Social Security Income & Cost
(% of taxable payroll, historical and projected)
20
19
OASDI Trust Fund

18 exhausted by 2041
As a percentage of taxable payroll

17
16
Operating deficit
15
14
13
12 Operating surplus SSA begins

redeeming Treasury
bonds in 2017
11 Surplus starts to
shrink
10
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
2053
2056
2059
2062
2065
2068
2071
2074
2077
2080
2083
Income Cost Source: SSA Trustees Report, 2007
Source: Social Security Administration (SSA) Trustees Report, 2007
Terrorism; Global Instability; Oil Disruption

Terrorism, here in the United States or elsewhere, could seriously damage the world economy.
It is, unfortunately, fairly easy to imagine a scenario in which air travel is severely disrupted for
a considerable length of time (yes, far beyond the delays we have all experienced the past few
years!), which would have harsh consequences for the economy. It is perhaps more likely that
terrorist incidents in and to the economies of the United States, Europe and Japan will be
minor (barring a major oil price problem), but we will continue to have to make expenditures
to try to decrease the vulnerability of our societies and economies to such attacks.
Finally, because of oil’s large role in all economies, instability in one or more of the major
producers, or terrorism at major facilities or blocking supply routes, if it caused a severe
enough supply disruption, could drive crude oil prices even higher. This would damage the
world economy, but especially that of the United States, because of our large consumption and
because the crude price is a larger percentage of the retail price at the pump than in countries
with much larger gas taxes. Likewise, a return of crude oil prices toward— not necessarily all
the way to—more historically normal levels, perhaps due to a combination of speedier
additions to supply, slower demand growth, even warm weather would boost growth
considerably, perhaps a quarter point for every $10-12 per barrel.
2008
The year 2008 will be an important year for many reasons. First, the earlier dalliance with
possibly below-NAIRU unemployment rates, the risk of wage inflation accelerating and the
Bernanke Fed’s balancing act should all be even more clarified as we move through the year.
So far, of course, core inflation has abated. Next, the first baby boomers reach age 62 in 2008.
In recent decades, more people have collected their first Social Security check at age 62 than
they have at age 65, accepting reduced annual benefits in exchange for earlier retirement. But

so large was the baby boom that, starting with the retirement of the first cohort in 2008, the
rate of labor force expansion will start to decelerate, thereby slightly reducing the economy’s
potential GDP in subsequent years by perhaps one-quarter of one percentage point, growing
to one-half of one percentage point as time moves on. This will have to be factored into
everything from our estimates of likely GDP growth to Fed monetary policy to the NAIRU,
and beyond. Further, 2008 is the first year the Social Security budget surplus, which has been
used to finance general government, will begin to shrink, and hence the first small step toward
pressure for reform.
The pace of housing price decline, the eventual stabilization of residential construction, the
improvement in net exports, all should come into greater focus. This in turn will guide
business capital spending and hiring decisions, corporate profits and asset returns.
And, of course, 2008 is a presidential election year and another battle over control of Congress.
We can expect a lot of hyperbole about the economy, some silly legislative proposals and,
perhaps, increased anti-business, anti-globalization and anti-capital rhetoric. Barring a big
change in the composition of Congress (e.g., a 60-vote Democratic Senate), however, this
should mostly be digestible. Some activity will likely be accelerated into late 2008 (e.g.,
realizing capital gains or other income), though, to hedge against possible higher taxes in 2009
and beyond.
But if the base-case outlook generally plays out in 2008, we should see a cyclical pickup back to
trend growth of around 3% as we head into 2009.

SECTION I: OVERVIEW THE MARRIAGE OF TECHNOLOGY AND RESOURCES
THE MARRIAGE OF TECHNOLOGY AND RESOURCES
JOHN GRANDY
MANAGING DIRECTOR & HEAD OF RESEARCH
WESTWIND PARTNERS
Introduction
The global resource sector appears to be at the beginning of a multi-decade, technology-driven
revolution in productivity. This revolution is likely to be characterized by a shift in focus in
resource extraction technologies from improvement in discovery processes into enhancements
in recovery processes. These investments are likely to improve yields, reduce the marginal cost
of extraction, enhance the financial position of resource companies and generate sustainable,
and substantial, investment returns. We view this as a classic secular investment cycle, or more
precisely, a long-term series of cycles, in which investment in technology drives down marginal
costs, generates substantial returns and, in turn, attracts additional investment capital.
The marriage of technology and new industries has been repeated throughout modern economic
history, creating major, multi-decade productivity revolutions and enormous investment
opportunities. From textiles in the early 1800s, to farming in the 1830s, to manufacturing in the
late 19th century to the transportation, communication and data processing revolutions of the
20th century, technology has transformed what were previously viewed as mundane, high
marginal cost industries—or created entirely new industries. These disruptive declines in
marginal costs and new revenue opportunities have also created large profit opportunities,
which have subsequently attracted major inflows of investment capital and generated abnormal
positive returns.
Over the last 40 years, global demand for resources has increased dramatically. During this
same period, there have been no major petroleum, mineral or metal discoveries. Recovery
technology has seen incremental improvements, but they have not been nearly enough to enable
supply to keep pace with demand. This combustible combination has fueled (so to speak) a
corresponding spike in resource prices of historic proportions, and is generating enormous
profits for resource providers. Thus, we have in place all the ingredients for the next
technology-driven productivity revolution—a revolution that we believe will attract enormous
amounts of capital, significant investment in technology and the opportunity for outstanding
investment returns.
The Marriage of Technology and Resources: From a Counter-Cyclical Play to a

Revolution in Advanced Technology Integration
One of William Blake’s best known works is The Marriage of Heaven and Hell. For those of us who
have worked in the capital markets over the last decade, the volatile swings between market
euphoria and despair for resource and technology stocks have at times been akin to moving
between Paradise and Hades, depending on which of the two sectors is on the upswing and how
our portfolios are positioned.
We suggest there may be an alternative approach to these swings: a marriage between
technology and resources. Is it possible that these two sectors are not, in fact, opposites, but
share common characteristics that may offer investors interesting investment opportunities at all
points in the economic cycle?

The reasons why technology and resource stocks appear to be counter-cyclical seem
straightforward:
• Resource stocks generally require large amounts of capital; they therefore tend to be in favor
when money is cheap and bank and stock market financing is readily available. In contrast,
technology stocks are often cash-flow positive from day one, with the initial public offering
being the only liquidity event for the company.
• Resource stocks tend to be more profitable in periods of increasing inflation, whereas
deflationary periods encourage a greater investment in technology.
• By the same token, technology stocks are more recession resistant.
We might argue, however, that there are greater synergies between the technology and resource
sectors than this conventional viewpoint would recognize. No longer are resource companies
dumb “hewers of wood and drawers of water.” The global resource sector is rapidly becoming
one of the most sophisticated users of advanced technology. Consider the following:
• Three-dimensional geophysical seismic mapping is now a standard requirement in all major
mining as well as oil and gas extraction projects.
• Experimental hydrometallurgical processes are under development to extract mineral ore
from a number of previously uneconomical mines in North and Central America.
• The use of fiberoptic and satellite technologies are now standard practice in the energy
industry, relaying data from oil and gas wells back to central locations, where the data are then
consolidated and uploaded into Web-based analysis programs.
• Development of the massive Canadian oil sands and similar heavy oil resources worldwide
will require new carbon sequestration technology and potentially the use of nuclear
technology to heat underground oil reservoirs.
• The emerging alternative energy industry, focused on renewable and low-carbon emissions
technologies, spans pure technology stocks and resources (wind, water, nuclear and geomass).
Without advanced technology, the alternative energy industry would not exist.
In short, resource industries today are far more dependent on advanced technology than ever
before. Communications and data processing technologies, together with advanced chemical
and physical processes, are required to capitalize on increasingly marginal resources worldwide.
We expect this trend to intensify. Consider that in 2006, Exxon Corporation alone spent $733
million on research and development.
This conclusion does not negate the fact that resource and technology stocks tend to be
counter-cyclical. It does, however, suggest that there are synergies to be had in the two sectors.
It is impossible today to be an educated investor in resource stocks without being able to assess
advanced technologies.
We noted above that technology stocks tend to outperform resource stocks in a recession. In
the current environment, there is some urgency to review this observation, as the U.S. economy
stands on the brink of a potential new recession. Will history repeat itself? We think not.
While the United States remains by far the largest national economy, and will continue to be for
the foreseeable future, it is no longer the largest driver of global economic growth, a role it has
played since 1914. This mantle has been taken over by Southeast Asia. The International Energy
Agency (IEA) estimates that between today and 2030, China and India alone will account for
45% of the entire global increase in demand for energy, contributing to a 1.8% annual rate of
growth in real demand (see “World Energy Outlook 2007 – China and India Insights”). China
will replace the United States as the largest user of energy in the world shortly after 2010. By
2030, the number of automobiles in China is expected to grow by seven times, with the number
of new vehicle sales exceeding those in the United States by 2015. The implications of this

growth for demand not only for energy, but also for steel, aluminum, nickel, copper and heavy
metals are obvious. The average passenger vehicle contains 260 pounds of aluminum, 44
pounds of copper and 44 pounds of nickel. The steel used in each vehicle’s construction
requires 2,200 pounds of iron ore and 880 pounds of coking coal. (Source: BHP Billiton;
reference courtesy of U.S. Global Investors Inc.) China cannot meet its internal demand for
these resources; therefore, imports of energy and of coal are forecast to increase rapidly. China
and India combined already account for 49% of global iron ore consumption.
The IEA notes that the picture for India is essentially identical to that of China. The growth
projections for these two countries will ensure that even in the event of consumer-driven
recessions in North America or Europe, global demand for resources will remain solid. As
shown in Figure 1, the World Bank’s most recent forecast (which takes into account the recent
U.S. housing slowdown) looks to China to maintain close to its current 11% growth rate next
year.
Figure 1: East Asia Economic Growth (in %)
Source: World Bank East Asia Region, October 2007. Consensus

Forecasts for NIEs. Regional averages are GDP weighted. The
World Bank East Asia & Pacific Update, November 2007, “Will
Resilience Overcome Risk?”
Whether these short-term economic forecasts prove out or not, it is clear that over the next few
decades, solid demand for commodities is reasonably assured as China and India rapidly
improve their per-capita living standards. It is doubtful that the planet contains enough
resources to permit these countries ever to achieve North American standards of living, but if
they fail, it will not be for lack of trying.
This long-term trend of growth in demand is currently being obscured by volatility in metals
prices, which are now coming off the historically high levels achieved over the last year. For
example, the price of zinc on the London Metal Exchange has fallen exactly 50% from its high
achieved in November 2006. Prices of other base metals have been under similar pressure.
Despite their recent declines, however, the prices of copper and nickel have each increased
200% since 2004, while zinc has risen approximately 300%.
As shown in Figure 2, one of the key drivers for long-term strength in commodity prices is the
marginal cost of extraction and dwindling global supplies. The “easy” discoveries have all been
made; new mines are typically more expensive to exploit and contain less resource than has
historically been the case. This trend is well-known in relation to crude oil; its relevance to base
and precious metals is perhaps less well understood.

Figure 2: Correlation Between Resource Discoveries and the Price of Copper

Number of Copper Price
Discoveries $US/lb
12 1.4
1.2
10
1.0
8
0.8
6
0.6
4 0.4
2 0.2
0 0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995
Years of Reserves % Copper Grade
55 1.00
0.95
50
0.90
45 0.85
40 0.80
0.75
35 0.70
30 0.65
0.60
25
0.55
20 0.50
1980 1985 1990 1995 2000
Source: International Copper Study Group
Similar charts could be prepared for almost any other base metal as well as for gold, silver and
platinum group metals.
Precious metal prices are driven by factors other than the fundamentals of the real economy.
Rather, it is the lack of confidence in the U.S. currency that is the primary driver of today’s
record (in nominal terms) price of gold. Whether this trend reverses will depend more on
actions taken by the U.S. Congress and current and future Administrations than on any external
factors. Nonetheless, the same cost pressures we have reviewed in relation to base metals will
also affect the prices of precious metals. So, long as demand for gold continues to be solid,
rapid increases in the marginal cost of gold extraction worldwide—based on cost pressures
similar to those noted above for copper—will continue to support the current price of this
metal.
Gold mine production fell 3% in 2006 to a 10-year low (Source: GFMS Limited, Gold Survey
2007). This decline was certainly not due to a low price for the metal; rather, it was driven by
scarcity. The average cash costs per ounce of gold produced increased $45… in a single year.
No end to this trend is in sight. These statistics tell us that the price of gold must remain high;
otherwise, the metal will be impossible to produce at a profit.
It is these increasing costs, and the diminishing returns, from mining and petroleum extraction
worldwide that drive the need to invest in technology. The most extraordinary example of this
to date is perhaps undersea mineral extraction, which is being pursued by a handful of
innovative companies.

To achieve this, we are witnessing the use of revolutionary technology, including remotely
operated submersible vehicles and electromagnetic survey equipment. Exploration is conducted
using side-scan sonar bathymetry and mapping, deep tow magnetic and electrical geophysical
methods, and sea bottom gravity methods.
Few, even 20 years ago, would have imagined that the world’s needs for metals would become
so extreme that it would become economical to extract these resources from the ocean floor.
Yet this is the world in which we find ourselves today. The future will, with near certainty,
demand more resources and require even greater investment in advanced technology.
A marriage is taking place between technology and resources. Investors will find many
opportunities to profit.

SECTION II: BEST IDEAS FOR 2008
To be included in this Green Book as a “Best Idea for 2008”, a stock must be rated Overweight. When an analyst rates a stock
Overweight, he/she is advising our clients to carry a position in the stock that is in excess of its weighting relative to the stocks
either in that analyst’s coverage or an index identified by the analyst that includes, but is not limited to, stocks covered by that
analyst.
In selecting one name for 2008 from all Overweight-rated stocks in his/her coverage for inclusion in this publication, the analyst is
suggesting that, at this time, this stock represents his/her most attractive Overweight-rated stock in the context of the industry
theme or trend described in the accompanying write-up for the year ahead.
Best Idea for 2008 Page

Sector/ Industry Analyst Company Ticker No.
Consumer 49
Business Services Mark Sproule The Western Union Company WU 50
Interactive Market Services Jake Fuller Expedia, Inc. EXPE 51
Lifestyles/Sports Retailers Jim Duffy Wolverine World Wide, Inc. WWW 52
Restaurants Matthew J. DiFrisco Texas Roadhouse, Inc. TXRH 53
Retailing: Hardlines Matt Nemer Penske Automotive Group, Inc. PAG 54
Retailing: Softlines Liz Dunn Abercrombie & Fitch Co. ANF 55
Healthcare 57
Biotechnology Ian Somaiya Array BioPharma Inc. ARRY 58
Life Science and Diagnostics Peter Lawson Thermo Fisher Scientific, Inc. TMO 59
Medical Devices Robert C. Faulkner Masimo Corporation MASI 60
Pharmaceutical Services Steven P. Halper CVS Caremark Corp. CVS 61
Pharmaceuticals: Specialty Donald B. Ellis Sciele Pharma, Inc. SCRX 62
Industrial Growth 63
Alternative Energy Jeff Osborne MEMC Electronic Materials Inc. WFR 64
Applied Technologies Ajit Pai Ixia XXIA 65
Defense & Security David Gremmels Rockwell Collins, Inc. COL 66
Media and Telecom 67
Internet Services Christa Quarles GSI Commerce, Inc. GSIC 68
Media & Entertainment Lloyd Walmsley Regal Entertainment Group RGC 69
Telecom Services James D. Breen, Jr. NII Holdings, Inc. NIHD 70
Technology 71
Communications Components Jeremy Bunting NetLogic Microsystems, Inc. NETL 73
Communications Equipment: Core & Wireless Hasan Imam Research In Motion RIMM 74
Communications Equipment: IP Networking Jason Ader ARRIS Group, Inc. ARRS 75
Electronic Supply Chain Matt Sheerin Flextronics International Ltd. FLEX 76
Enterprise Hardware Kevin Hunt Netezza Corporation NZ 77
Information & Financial Technology Services David Grossman Affiliated Computer Services, Inc. ACS 78
Semiconductor Capital Equipment Douglas G. Reid Verigy Ltd. VRGY 79
Semiconductors: Analog & Mixed Signal Tore Svanberg O2Micro International Ltd. OIIM 80
Semiconductors: Multimedia & Specialty Heidi T. Poon Nvidia Corporation NVDA 81
Semiconductors: Processors & Components Kevin Cassidy On Semiconductor Corporation ONNN 82
Software: Applications & Communications Tom Roderick Amdocs Limited DOX 83
Software: Infrastructure Tim Klasell Digital River Inc. DRIV 84

TWP Best Ideas for 2008

CY07 and CY08 Revenue Estimates and Enterprise Value/Revenue Ratios
11/30/07 Enterprise Revenue '07E-'08E EV/Rev
Company Ticker Analyst Industry Price Value (mn) CY07E CY08E Growth CY07E CY08E
Expedia, Inc. EXPE Fuller Interactive Market Services $32.60 $9,374 $2,633 $2,949 12.0% 3.6 3.2
Wolverine World Wide, Inc. WWW Duffy Lifestyles/Sports Retailers $24.77 $1,293 $1,203 $1,261 4.8% 1.1 1.0
Texas Roadhouse, Inc. TXRH DiFrisco Restaurants $12.59 $1,003 $742 $933 25.8% 1.4 1.1
Penske Automotive Group, Inc. PAG Nemer Retailing: Hardlines $20.00 $4,183 $12,941 $13,599 5.1% 0.3 0.3
Abercrombie & Fitch Co. (Jan YE) ANF Dunn Retailing: Softlines $82.04 $6,882 $3,806 $4,362 14.6% 1.8 1.6
The Western Union Company WU Sproule Specialty Finance and Business Services $22.60 $18,551 $4,875 $5,486 12.5% 3.8 3.4
Array BioPharma Inc. (Jun YE) ARRY Somaiya Biotechnology $11.07 $369 $33 NE NE 11.2 NE
Thermo Fisher Scientific, Inc. TMO Lawson Life Science and Diagnostics $57.64 $25,567 $9,625 $10,325 7.3% 2.7 2.5
Masimo Corporation MASI Faulkner Medical Devices $36.96 $1,965 $250 $277 10.5% 7.9 7.1
CVS Caremark Corp. CVS Halper Pharmaceutical Services $40.09 $68,186 $75,773 $85,928 13.4% 0.9 0.8
Sciele Pharma, Inc. SCRX Ellis Pharmaceuticals: Specialty $22.32 $916 $384 $455 18.4% 2.4 2.0
MEMC Electronic Materials Inc. WFR Osborne Alternative Energy $77.58 $16,318 $1,926 $2,373 23.2% 8.5 6.9
Ixia XXIA Pai Applied Technologies $10.33 $12,586 $173 $202 16.6% 72.7 62.3
Rockwell Collins, Inc. (Sep YE) COL Gremmels Defense & Security $72.12 $11,949 $4,511 NE NE 2.6 NE
GSI Commerce, Inc. GSIC Quarles Internet Services $26.12 $1,289 $748 $942 25.9% 1.7 1.4
Regal Entertainment Group RGC Walmsley Media & Entertainment $19.79 $4,620 $2,656 $2,754 3.7% 1.7 1.7
NII Holdings, Inc. NIHD Breen Telecom Services $55.16 $10,090 $3,270 $4,327 32.3% 3.1 2.3
NetLogic Microsystems, Inc. NETL Bunting Communications Components $29.25 $522 $109 $142 30.5% 4.8 3.7
Research In Motion (Feb YE) RIMM Imam Communications Equipment: Core & Wireless $113.82 $62,384 $5,039 $8,373 66.2% 12.4 7.5
ARRIS Group, Inc. ARRS Ader Communications Equipment: IP Networking $10.43 $836 $1,000 $1,136 13.6% 0.8 0.7
Flextronics International Ltd. (Mar YE) FLEX Sheerin Electronic Supply Chain $11.96 $7,791 $23,946 $34,505 44.1% 0.3 0.2
Netezza Corporation (Jan YE) NZ Hunt Enterprise Hardware $13.22 $634 $121 $160 32.8% 5.3 4.0
Affiliated Computer Services, Inc. (Jun YE) ACS Grossman Information & Financial Technology Services $41.96 $6,370 $5,962 NE NE 1.1 NE
Verigy Ltd. (Oct YE) VRGY Reid Semiconductor Capital Equipment $25.33 $1,088 $796 NE NE 1.4 NE
O2Micro Interntational Ltd. OIIM Svanberg Semiconductors: Analog & Mixed Signal $14.22 $459 $165 $201 21.6% 2.8 2.3
Nvidia Corporation (Jan YE) NVDA Poon Semiconductors: Multimedia & Specialty $31.54 $15,670 $4,078 $4,687 14.9% 3.8 3.3
On Semiconductor Corporation ONNN Cassidy Semiconductors: Processors & Components $9.19 $3,516 $1,565 $1,690 8.0% 2.2 2.1
Amdocs Limited (Sep YE) DOX Roderick Software: Applications & Communications $33.09 $6,201 $2,885 NE NE 2.1 NE
Digital River Inc. DRIV Klasell Software: Infrastructure $38.67 $1,116 $348 $416 19.5% 3.2 2.7
TWP Best Ideas for 2008 Medians: 16% 2.6 2.3
CY07E-CY08E Revenue Growth Rates
120%
100%
80%
60%
40%
20%
0%
RGC
WWW
PAG
TMO
ONNN
MASI
EXPE
WU
CVS
ARRS
ANF
NVDA
XXIA
SCRX
DRIV
OIIM
WFR
TXRH
GSIC
NETL
NIHD
NZ
FLEX
RIMM
Source: FactSet, Standard & Poor’s and Thomas Weisel Partners LLC

TWP Best Ideas for 2008

CY07 and CY08 EPS Estimates and P/E Ratios
11/30/2007 Enterprise EPS '07E-'08E P/E
Company Ticker Analyst Industry Price Value (mn) CY07E CY08E Growth CY07E CY08E
Netezza Corporation (Jan YE) NZ Hunt Enterprise Hardware $13.22 $634 0.07 0.24 243% 188.86 55.08
NII Holdings, Inc. NIHD Breen Telecom Services $55.16 $10,090 2.01 3.68 83% 27.44 14.99
Research In Motion (Feb YE) RIMM Imam Communications Equipment: Core & Wireless $113.82 $62,384 1.85 3.10 68% 61.52 36.72
Ixia XXIA Pai Applied Technologies $10.33 $503 0.30 0.50 67% 34.43 20.66
O2Micro Interntational Ltd. OIIM Svanberg Semiconductors: Analog & Mixed Signal $14.22 $459 0.71 0.98 38% 20.03 14.51
MEMC Electronic Materials Inc. WFR Osborne Alternative Energy $77.58 $12,586 3.32 4.27 29% 23.37 18.17
Expedia, Inc. EXPE Fuller Interactive Market Services $32.60 $9,374 1.25 1.59 27% 26.08 20.50
Texas Roadhouse, Inc. TXRH DiFrisco Restaurants $12.59 $1,003 0.54 0.68 26% 23.31 18.51
Sciele Pharma, Inc. SCRX Ellis Pharmaceuticals: Specialty $22.32 $916 1.63 2.04 25% 13.69 10.94
Flextronics International Ltd. (Mar YE) FLEX Sheerin Electronic Supply Chain $11.96 $7,791 0.92 1.13 23% 13.00 10.58
CVS Caremark Corp. CVS Halper Pharmaceutical Services $40.09 $68,186 1.91 2.32 21% 20.99 17.28
Digital River Inc. DRIV Klasell Software: Infrastructure $38.67 $1,116 1.87 2.27 21% 20.68 17.04
NetLogic Microsystems, Inc. NETL Bunting Communications Components $29.25 $522 1.19 1.43 20% 24.58 20.45
GSI Commerce, Inc. GSIC Quarles Internet Services $26.12 $1,289 0.31 0.37 19% 84.26 70.59
The Western Union Company WU Sproule Specialty Finance and Business Services $22.60 $18,551 1.12 1.33 19% 20.18 16.99
ARRIS Group, Inc. ARRS Ader Communications Equipment: IP Networking $10.43 $836 0.86 1.02 19% 12.13 10.23
Thermo Fisher Scientific, Inc. TMO Lawson Life Science and Diagnostics $57.64 $25,567 2.57 3.00 17% 22.43 19.21
On Semiconductor Corporation ONNN Cassidy Semiconductors: Processors & Components $9.19 $3,516 0.79 0.92 16% 11.63 9.99
Abercrombie & Fitch Co. (Jan YE) ANF Dunn Retailing: Softlines $82.04 $6,882 5.20 6.05 16% 15.78 13.56
Nvidia Corporation (Jan YE) NVDA Poon Semiconductors: Multimedia & Specialty $31.54 $15,670 1.53 1.73 13% 20.61 18.23
Regal Entertainment Group RGC Walmsley Media & Entertainment $19.79 $4,620 0.82 0.92 12% 24.13 21.51
Penske Automotive Group, Inc. PAG Nemer Retailing: Hardlines $20.00 $4,183 1.51 1.69 12% 13.25 11.83
Wolverine World Wide, Inc. WWW Duffy Lifestyles/Sports Retailers $24.77 $1,293 1.65 1.83 11% 15.01 13.54
Masimo Corporation MASI Faulkner Medical Devices $36.96 $1,965 0.63 0.47 -25% 58.67 78.64
Affiliated Computer Services, Inc. (Jun YE) ACS Grossman Information & Financial Technology Services $41.96 $6,370 3.29 NE NE 12.75 NE
Amdocs Limited (Sep YE) DOX Roderick Software: Applications & Communications $33.09 $6,201 2.16 NE NE 15.32 NE
Array BioPharma Inc. (Jun YE) ARRY Somaiya Biotechnology $11.07 $369 -1.62 NE NE -6.83 NE
Rockwell Collins, Inc. (Sep YE) COL Gremmels Defense & Security $72.12 $11,949 3.49 NE NE 20.66 NE
Verigy Ltd. (Oct YE) VRGY Reid Semiconductor Capital Equipment $25.33 $1,088 2.07 NE NE 12.24 NE
S&P 500 SPX -- -- $1,481.14 N/A 92.52 102.69 11% 16.01 14.42
S&P 400 Mid-Cap MID -- -- $860.74 N/A 47.58 54.80 15% 18.09 15.71
S&P 600 Small-Cap SML -- -- $398.77 N/A 21.02 25.27 20% 18.97 15.78
TWP Best Ideas for 2008 Medians: 21% 20.4 17.0
CY07E-CY08E EPS Growth Rates
75%
65%
55%
45%
35%
25%
15%
5%
-5%
MASI
WWW
S&P 500
PAG
RGC
NVDA
S&P 400 Mid-Cap
ANF
ONNN
TMO
ARRS
WU
GSIC
S&P 600 Small-Cap
NETL
DRIV
CVS
FLEX
SCRX
TXRH
EXPE
WFR
OIIM
XXIA
-15%
-25%
Source: FactSet, Standard & Poor’s and Thomas Weisel Partners LLC

SECTION II: BEST IDEAS FOR 2008 CONSUMER
BUSINESS SERVICES........................................................................................................................................................................... 50
Emerging Market Returns in Money Transfer and Continued Penetration of Cards Globally to Drive Service
Volumes
The Western Union Company (WU)
2007 May Have Been Premature, But 2008 Appears Likely to Benefit from International Growth in Revenue and
Income While Mexico Stability Lessens Overall Pressure
INTERACTIVE MARKET SERVICES ..............................................................................................................................................51
e-Travel – Continue to See Healthy Global Growth Prospects as Travel Moves Online
Expedia, Inc. (EXPE)
Top Pick in e-Travel with Recovery Gaining Steam and New Focus on Building Ad-Based Biz
LIFESTYLES/SPORTS RETAILERS ................................................................................................................................................52
Mounting U.S. Consumer Spending Headwinds to Keep Pressure on the U.S. Dollar, Internationally
Wolverine World Wide, Inc. (WWW)
A Globally Diversified Entity with Strong Return Metrics, Positioned to Benefit from U.S. Dollar Weakness
RESTAURANTS.........................................................................................................................................................................................53
Expect Continued Pressure on Casual Dining Demand into 2008
Texas Roadhouse, Inc. (TXRH)
Expect TXRH to Gain Share in Difficult Environment
RETAILING: HARDLINES...................................................................................................................................................................54
Macro Headwinds and Frothy 2008 Estimates Leave Us Cautious; Differentiation Will Be Key
Penske Automotive Group, Inc. (PAG)
Recent Trends Remain Very Strong; Multiple Catalysts in 2008
RETAILING: SOFTLINES ....................................................................................................................................................................55
We Expect the Difficult Macroeconomic Environment to Continue into 2008 and Believe the Street Estimates Are too
Bullish on a Turn in the Environment
Abercrombie & Fitch Co. (ANF)
The Safest Place To Be in Retail, in Our View, Due to Its Solid Growth and Ability to Manage Expenses

BUSINESS SERVICES Neutral

Emerging Market Returns in Money Transfer and Continued Penetration of Cards Globally to Drive Service
Volumes
• Expansion of income from “new” international remittance locations: Historical focus on the contributions of the
Mexican remittance corridor ($21bn annually) has neglected to recognize the opportunity in emerging locations (India, China
and Russia). Unlike at credit processors, where income generation in emerging locations may be delayed (card development),
we expect material near-term benefits from growth in money transfer. For example, penetration of the India market ($26bn
annually) and China by WU has helped to significantly diversify the revenue contribution (India and China now 5% of revenue
versus Mexico at 7%; 2004 India and China less than 1%).
• Continued global adoption of electronic payments: Credit adoption has increased 11% per year since 1980 to roughly 673mn
cards in service globally. We expect international transition from cash/check to electronic payments at points of sale (POS) to
remain robust with 20% y/y electronic transaction growth in Asia-Pacific while U.S. growth is likely to temper to 9% y/y. While
concerns of consumer softness may affect the space, the transition from cash/check at the POS will drive volume growth.
• Opportunity for technology advancements to create new revenue streams for service platforms: New products may
present an opportunity for processors to attack previously under-targeted groups. We highlight near-term opportunities in
prepaid cards (unbanked) and longer-term potential within mobile/contactless payment options. Beneficiaries include
processors (transaction growth), remittance players (retention, volume, compliance) and issuers/networks.
Catalysts/Milestones: Penetration of the business-to-business channel (shift from check payments to electronic) may present a
significant opportunity long term for transaction growth.
Risks: Tightened credit availability may dampen consumer spending and slow transaction growth. Increased fee focus from
banking groups may raise the cost of electronic adoption and delay cash-electronic migration. Weakened U.S. economic outlook
may have a greater impact on remittance funds flows. The pending presidential election may create concerns around immigration
reform domestically.
The Western Union Company (WU: $22.60) Mkt. Cap.: $17,343.2mn Overweight
2007 May Have Been Premature, But 2008 Appears Likely to Benefit from International Growth in Revenue
and Income While Mexico Stability Lessens Overall Pressure
• International expansion leading revenue growth: WU growth to emerging locations (especially India) continues to drive
overall volumes. India volume growth (in excess of 69% each of the last four quarters) has significantly outpaced overall market
expansion (20% in 2006 to $25.7bn—largest global market). Other growing markets such as Russia (increased inflows of over
125% since 2003) and the Philippines (estimated that 25% of Filipino workforce is working abroad) represent significant
growth opportunities within money transfer space.
• Margin “mix shift” issue significantly smaller than expected: Prior expectations that international margin pressure would
dampen net returns has subsided (somewhat) as management noted international margins in mid-20s and growing. The
diminished gap between the return from domestic/Mexico volumes and international business will eliminate concerns that fast
growth may result in reduced profitability. Additional benefits from improved Vigo or domestic volumes will likely help boost
margin expectations versus bearish prognostications.
• Mexico “issues” stabilizing and lessening drag effect: Expectations of small domestic growth (low single digits) and
merging between Mexican-based transactions and revenue growth (starting 4Q) should help remove
immigration/economy/pricing overhang from channel.
Catalysts/Milestones: Emerging market strength and Mexican stabilization (at least for 2H07) coupled with a leading market
presence in a growing money transfer market will drive WU in 2008. Additional benefit from continued weak U.S. dollar as over
60% of revenue is a result of non-U.S. business.
Risks: Pricing pressure from competition/technology shifts may affect revenue on a channel-specific basis. Mexico-based
pressures (economy, immigration) may dampen returns in the channel while any negative immigration or transfer legislation may
temporarily dampen volume flows.
Valuation: We are reiterating our 12-month price target of $28 per share based on a blended analysis of discounted cash flow, free
cash flow and P/E valuations. Our price target implies a 2008E EPS multiple of 21.1x versus current trading levels of 17.0x and
processing comparables at 20.4x. We believe that long-term market concerns (technology shift) do not properly acknowledge the
benefits of WU’s agent network and ability to access the lower income market.
Estimates: Dec. '07 Rev.: $4875.5mnE EPS: $1.12E Dec. '08 Rev.: $5486.2mnE EPS: $1.33E
Price is as of the close, November 30, 2007. Mark Sproule 212.271.3839

INTERACTIVE MARKET SERVICES Neutral
e-Travel – Continue to See Healthy Global Growth Prospects as Travel Moves Online
• We maintain a favorable bias on e-Travel based on three themes: (1) a strong secular growth argument in the domestic market;
(2) the emergence of international markets has provided a new leg to the story; and (3) a wave of innovation could spark
evolution of new advertising-based models. While a softer domestic economy could weigh on domestic travel demand, the
e-Travel group is better situated than the hotel or gaming groups based on the superior secular trends favoring online
distribution.
• Although penetration in the domestic market should hit 50-55% this year, we still expect online sales to outpace the underlying
industry (five-year CAGR 10-15% versus 3-5%). There are still big opportunities to drive above-industry growth. Agency sites
convert less than 5% of traffic and we estimate that over $50bn in sales are researched online and closed offline. Better
understanding of the customer and use of that knowledge to improve merchandising should help address those opportunities.
• The group derives 30% of sales outside of the United States, where growth is above 40%. International markets are less mature
with penetration in Europe under 30% and in Asia Pacific at 15%. At comparable penetration, sales in Europe and Asia Pacific
could be to two times the size of the domestic market. Look for further consolidation as penetration rises.
• The ability to monetize research activity represents an untapped revenue opportunity. Agency sites may only convert 5% of
traffic, but the research done by the other 95% has potentially great value. Look for sites to pursue alternative advertising-based
revenue models more aggressively over the next 12-24 months.
Catalysts/Milestones: (1) New technology platforms could lead to material near-term conversion and upside relative to top-line
expectations; and (2) there are several potentially material acquisition opportunities that could surface over the next year.
Risks: In addition to the demand-side risk presented by a slower domestic economy, we see top-line risk in the group’s exposure
to booking fees in the face of recent no fee sales.
Expedia, Inc. (EXPE: $32.60) Mkt. Cap.: $10,399.4mn Overweight

Top Pick in e-Travel with Recovery Gaining Steam and New Focus on Building Ad-Based Biz
• EXPE should benefit from channel growth, but is also gaining share with improved marketing and innovative products. Based
on 10-12% bookings growth and the current 29% EBITDA margin, we get to 2008E EBITDA of $866mn versus a consensus
of $819mn. At the current 20% growth rate and a 32% margin (2005 level), EBITDA could be in excess of $1bn.
• EXPE has significant excess balance sheet capacity and a willingness to use it. With $857mn of cash and $1bn of debt, EXPE
has just $143mn of net debt and that amounts to less than 0.2x EBITDA. If EXPE were to take leverage to three times
EBITDA, we estimate that it could buy back over 20% of its outstanding shares accretively.
• Perhaps most appealing and under-appreciated is EXPE’s aggressive push into advertising with the ramp of TripAdvisor, a
string of acquisitions targeting content, implementation of a pay-for-placement hotel ad product and a deal with
Intercontinental that integrates pay-per-click revenue. High-margin ad revenue is growing rapidly and could be a source of
upside to top-line expectations and potentially multiple.
Catalysts/Milestones: We see no immediate catalysts for the stock, other than an expectation that consensus estimates should
generally trend higher over the next several quarters.
Risks: Risks include exposure to domestic leisure demand in a slowing economy, downward pressure on airline booking fees and
aggressive competition among the top site operators.
Valuation: Our 12-month price target is $37 per share, based on a multiple of 12.5x a 2009 EBITDA estimate of $955mn. Risks to
achieving our price target and estimates include pressure on commissions, fees and markets, the ability to obtain attractive
inventory, competition among key OTA and supplier-direct sites.
Price is as of the close, November 30, 2007. Jake Fuller 212.271.3821

LIFESTYLES/SPORTS RETAILERS Neutral
Mounting U.S. Consumer Spending Headwinds to Keep Pressure on the U.S. Dollar, Internationally
• Headwinds for the U.S. consumer stiffen into 2008: Recent inflection points and resulting directional trends in job growth,
wage growth, mortgage delinquencies and revolving credit usage point to mounting pressures on consumer discretionary
spending and U.S. GDP into 2008.
• Expect the dollar to remain under pressure: Election-year political influences could inspire policy that delays the economic
consequence but exacerbates the systemic issues creating headwinds for consumer spending. Given this, we expect the dollar to
remain weak through 2008.
• Multiples remain closer to the median than the trough: Excluding young growth companies, approximately 50% of stocks
in our universe are currently trading closer to the historical median forward P/E than to the historical trough. Amidst concerns
about the resilience of the consumer, we expect increased investor attention to free cash flow.
Catalysts/Milestones: We suspect uninspiring holiday sales and the manifestation of the impact of the mortgage fallout in
macroeconomic numbers in coming months will make consumer spending headwinds more tangible.
Risks: Benign inflation, further rate cuts and policy protecting homeowners could buttress consumer spending and stock
multiples into 2008.
Wolverine World Wide, Inc. (WWW: $24.77) Mkt. Cap.: $1,342.5mn Overweight
A Globally Diversified Entity with Strong Return Metrics, Positioned to Benefit from U.S. Dollar Weakness
• Appropriate characteristics for the current macro environment: Given the mounting pressures on U.S. consumers and our
expectations for lingering weakness in the U.S. dollar, we favor companies that both (1) have globally diverse profit streams,
and (2) set conservative expectations and consistently deliver. In our universe, Wolverine World Wide is a standout in both
categories.
• Diversified revenue stream, positioned to benefit from U.S. dollar weakness: At 36.7% of the total in 2006, Wolverine
World Wide’s international revenue contribution continues to grow as a percentage of the mix. What is lost on many investors,
however, is that international contributes approximately 60% of operating profit behind a consistent stream of international
distributor license royalties.
• Improving return metrics and strong free cash flow remain WWW hallmarks: Behind (1) a mix shift to higher-margin
businesses, (2) ongoing margin benefits from U.S. dollar weakness and (3) ongoing improvements in working capital efficiency,
Wolverine World Wide is both improving return metrics (ROIC from 19.1% in 2006 to 22.2% in 2008E) and free cash flow
(we estimate $1.85 per share representing a 7.5% free cash flow yield).
Catalysts/Milestones: Continued growth of international as a percentage of the mix and ongoing health of fundamentals is
likely to lead investors to view Wolverine World Wide as a safe haven in a challenging domestic consumer spending environment.
Risks: Slowing job growth in the U.S. housing industry could be a headwind for the Wolverine franchise (high teens as a
percentage of revenue).
Valuation: Our 12-month price target of $31.50 represents the straight average of the peer group CY08E P/E using WWW 2008
estimates and our five-year discounted cash flow (DCF) analysis. There are always risks that the price target for any security will not
be realized. In addition to general market and macroeconomic risks, for WWW, these risks include, among other things, regulatory
risk, risk related to government contracts, increasing competition and failure to achieve growth targets.
Price is as of the close, November 30, 2007. Jim Duffy 415.364.5974

RESTAURANTS Neutral
Expect Continued Pressure on Casual Dining Demand into 2008
• Heading into 2008, gasoline and energy costs are ascending amid a weakening housing market, which should mute discretionary
spending and potentially alter consumer behavior.
• Commodity and labor cost pressures will require slightly higher than normal same-store sales (SSS) gains to maintain margins.
On the heels of 2007’s large menu price increases, we do not see much more headroom for further increases.
• We see most risk in the bar & grill space given exposure to the low- to middle-income consumer and relative dependence on
the lunch day part, which has seen increased competition from quick serve restaurant (QSR) and fast casual chains. While
valuations look inexpensive on historical ranges, we think for the most part the correction was warranted as it reflects the
maturity and slower growth ahead for certain subcategories in the restaurant space. Accordingly, we expect many “cheap”
restaurant stocks to remain “cheap.”
Catalysts/Milestones: Greater consolidation and reinvestment into existing stores in place of expansion. Macro relief for the
consumer historically has been a near-term catalyst, such as a drop in gasoline prices.
Risks: Aggressive pricing and overexpansion remain the greatest controllable risks for the restaurant sector. A consumer
recession would put current 2008 top-line expectations at risk and compressed multiples further.
Texas Roadhouse, Inc. (TXRH: $12.59) Mkt. Cap.: $966.8mn Overweight

Expect TXRH to Gain Share in Difficult Environment
• We expect TXRH to gain market share in the difficult consumer environment given its superior value proposition, dinner focus
and reduced competition as large competitors either slow growth or close stores.
• While other casual diner chains are pulling back growth, TXRH is maintaining growth given continued strong performance by
new stores. TXRH’s 20% expansion pace, coupled with the recent opportunistic franchise acquisitions, should put TXRH on
pace for a fourth consecutive year of 20% operating week growth in 2008.
• In our view, TXRH has created an entrepreneurial culture that will lead to operational outperformance during the ongoing
challenging consumer environment.
Catalysts/Milestones: A drop in the cost for beef is not factored into the guidance and would drive margin upside. Continued
strong new store volumes and positive traffic guidance for 2008 would confirm that TXRH is winning share, which should in
turn support a higher multiple.
Risks: Risks include an encroachment into the lower-priced steak category by a competitor that was recently acquired, has
historically featured a higher-price steak offering and has been dominant in TXRH’s untapped markets of Florida and Georgia
while absent from TXRH’s biggest market of Texas.
Valuation: At 19x our 2008 EPS estimate, we view TXRH as one of the most undervalued restaurant concepts in our universe.
Based on the relative strength in SSS and the steadfast new store performance, we believe that the shares should trade at a healthy
premium to the company’s projected 20%-plus growth rate. Our 12-month price target of $18 assumes a current fair value of 25x
our 2008 EPS estimate and is coupled with an annualized growth rate of 9.2%.
Price is as of the close, November 30, 2007. Matthew DiFrisco 212.271.3673

RETAILING: HARDLINES Neutral
Macro Headwinds and Frothy 2008 Estimates Leave Us Cautious; Differentiation Will Be Key
• It is easy to be bearish on retail as we exit 2007, with a number of macro issues exerting pressure on the U.S. consumer, most
notably the deceleration in housing turnover (down 15% y/y on a trailing six-month basis and down 26% on a two-year trend),
declining home prices, disruption in the credit markets, rising energy and commodity prices, the weak dollar, and a volatile
equity market. Positive catalysts have become increasingly scarce as the private equity boom winds down, although this
provides an opening for an increase in strategic M&A transactions going forward.
• Street estimates for 2008 remain frothy, in our view. Our analysis of over 100 retailers shows that 2008 earnings estimates have
declined about 11% since the beginning of the year, but still call for 14.8% y/y growth (compared to 6.1% estimated for 2007).
While an acceleration of this magnitude would be surprising given the headwinds mentioned above, this may be somewhat
reflected in current valuations with the group trading at a median PEG ratio of only 0.86 (versus the S&P at 1.28).
• When times are tough in retail, we think it is important to focus on subsectors and companies with structural advantages. This
might include: (1) differentiated consumer services, which increase store productivity and create brand loyalty (in our coverage
universe this means grooming and hotels for pets, and decorating tips and entertaining consulting for the home); and (2) a
multi-channel distribution platform that seamlessly integrates retail selling space with catalog and/or e-commerce. In addition,
companies with non-U.S. exposure and clean balance sheets are more likely to emerge from a slowdown unscathed.
Catalysts/Milestones: The 2007 holiday season will be a key gauge for the health of the U.S. consumer, and so far things are off
to a decent (but highly promotional) start. In 2008, we will continue to closely monitor commodity and product prices, unit labor
costs, energy prices, interest rates, exchange rates and weather patterns (particularly after two mild winters in a row). In addition,
2008 is a presidential election year, which brings added potential for disruption and certainly higher marketing expense.
Risks: Risks include a sharp decline in consumer spending based on the macro issues mentioned above.
Penske Automotive Group, Inc. (PAG: $20.00) Mkt. Cap.: $1,892.3mn Overweight
Recent Trends Remain Very Strong; Multiple Catalysts in 2008
• Recent data points show continued strength: Penske Automotive’s growth has accelerated in recent quarters, and we are
encouraged by recent data that its premium luxury brands remain strong. In October, premium luxury brand vehicle sales
increased 6% in the United States (up from rises of 3% and 1% in August and September, respectively) and 14% in the United
Kingdom (versus up 5% in both August and September).
• Multiple catalysts bring potential upside to 2008 estimates: Our 2008 EPS estimate of $1.69 (10.5% growth) does not
account for a number of potential catalysts in the upcoming year: (1) the smart car launch, which will hit showroom floors in
early 1Q; (2) improving profits at refurbished Inskip and Turnersville campuses; and (3) the recent acquisition of Rallye Motors,
which adds $700mn in annualized revenue. Furthermore, we estimate gross capital expenditures will decline to $139mn versus
the trailing five-year average of $212mn, driving a significant increase in free cash flow.
• Relative insulation from U.S. consumer issues: In our view, PAG is uniquely positioned to weather the storm: (1)
international operations account for 38% of total revenue and 40% of operating profit year to date; and (2) the vehicle brand
mix is weighted toward marques that are gaining share (95% foreign and high-line import brands).
Catalysts/Milestones: We will continue to monitor the smart car launch, acquisition announcements, progress at Inskip and
Turnersville, as well as industry sales and inventory trends in both the United States and the United Kingdom.
Risks: Risks to Penske Automotive include general market and macroeconomic risks, a less successful than expected launch of
smart cars in the United States and foreign currency exposure.
Valuation: Our 12-month price target for PAG shares of $25 is based on a two-tier framework utilizing: (1) relative 2008E P/E
valuation versus peers and (2) relative 2008E EV/EBITDA valuation versus peers. PAG is currently trading at 13.3x our 2007E
EPS versus its peers at 9.7x and 11.8x our 2008E EPS. On an adjusted 2007 EV/EBITDA basis, the shares trade at 8.1x versus the
peer group average of 7.0x, and 7.7x our 2008 estimate. We believe that PAG deserves a premium to the peer group based on its:
(1) foreign brand mix (95% import/65% luxury); (2) potential for margin expansion; (3) diversified geographic footprint with
international exposure (38% of revenues); and (4) smart car distributorship. We also calculate that the current stock price implies an
approximate 9% free cash flow yield, using our 2007 estimates. Risks to our price target include, but are not limited to, general
market and macroeconomic risks, a less successful than expected launch of smart cars in the U.S. and foreign currency exposure.
Price is as of the close, November 30, 2007. Matt Nemer 415.364.5901

RETAILING: SOFTLINES Neutral

We Expect the Difficult Macroeconomic Environment to Continue into 2008 and Believe the Street
Estimates Are too Bullish on a Turn in the Environment
• We expect the difficult macroeconomic environment to continue into 2008. 2007 has been a difficult year for retail
stocks, especially for women’s retailers and department stores, in large part, because of the macroeconomic environment. We
are below consensus on almost all of our coverage for 2008 EPS and believe the Street is too bullish on a turn in the
environment. We are hesitant to get in front of stocks in which we believe consensus estimates need to come down. We
expect the environment to remain challenging at least through the first half of 2008.
• Within the Softlines industry, we believe teen retailers should continue to outperform, while we expect women’s
retailers and department stores to struggle. We believe women are the first to cut back in a slowing economy. In 2007, we
have noted women cutting back on basic purchases, and retailers have not supplied her with enough fashion items to excite her.
As women’s apparel is the largest merchandise category in department stores, we expect this group to also feel the pressure of
women cutting back. In addition, department stores are being pressured by the housing slowdown, which is limiting big-ticket
home merchandise purchases. We note that retailers in the women’s and department store segments are beginning to cut back
on capital spending. We believe this is a rational approach that should preserve returns, although it will limit top-line growth in
2008.
Catalysts/Milestones: We will be focusing on the housing market, energy prices and credit trends in 2008. In our view,
consumer spending in the past has been boosted by consumers’ impressions about their “paper wealth” tied to the value of their
homes. Now that home values are falling, spending is slowing. Spending patterns appear to be slowing most where the housing
market is in most trouble. Several retailers have called out California and Florida as being particularly weak. Rising energy prices
are also pressuring spending. We believe the consumer is stretched with a near historical low savings rate and increasingly
concerning credit card delinquency trends.
Risks: We believe that we are in for at least two more quarters of sluggish sales and earnings trends. If the macro environment
improves, however, we believe our below-consensus estimates could prove conservative.
Abercrombie & Fitch Co. (ANF: $82.04) Mkt. Cap.: $7,476.6mn Overweight
The Safest Place To Be in Retail, in Our View, Due to Its Solid Growth and Ability to Manage Expenses
• Our top pick for 2008 is teen retailer Abercrombie & Fitch. We see credible 10% square-footage growth, which could be
even higher if new concepts are successful. We also see Abercrombie’s international and flagship real estate strategy driving
higher returns, productivity and profitability. Comp trends at the core Abercrombie division turned positive in 3Q07, and we
expect Hollister to follow in 4Q07 or 1Q08.
• ANF has one of the highest and the most stable operating margins in the softlines group. We see 300-400bp of
additional operating margin opportunity over time at ANF due to improvements in the company’s use of technology. The
company has driven sales and earnings strictly on the strength of its product and is behind competitors in terms of systems.
Merchandise optimization, store replenishment systems and visual merchandising system are among the systems being
implemented. We see the benefit of these systems in 2008 and beyond.
• In addition, ANF’s balance sheet is strong and we expect returns to increase in 2008. Inventories are in great shape,
down 15% per foot y/y at the end of 3Q07 as the company aggressively takes markdowns to clear merchandise. As of 3Q07,
ANF had $361mn in cash and equivalents and no debt. We believe the strong balance gives ANF flexibility, including the
ability to opportunistically repurchase shares.
Catalysts/Milestones: In 2008, we expect ANF to successfully launch its fifth concept and open at least one additional flagship
store. We expect the company to continue to report solid earnings, while others in the group continue to be affected by
macroeconomic headwinds.
Risks: In addition to general market and macroeconomic risks, for Abercrombie & Fitch, risks include, among other things,
customer reaction to fashion trends, the risk of new competition, the risk associated with new ventures, the risk of management
departures and the company’s ability to find attractive retail locations.
Valuation: Abercrombie & Fitch shares are trading at 15.8x our FY07 EPS estimate of $5.20 and 13.6x our FY08 EPS estimate of
$6.05. This is well below the group average multiple of 20.3x FY07E and a discount to our five-year growth rate estimate of 17%.
The stock is trading at a discount to its historical multiple of 15.7x. The shares are trading at 7.7x FY07E EBITDA and 6.7x FY08E
EBITDA as well as 9.5x FY07E EBIT and 8.2x FY08E EBIT. We have established a 12-month price target of $100, based on
16.5x FY08E EPS, or 1.0x our long-term growth rate estimate.
Estimates: Jan. '08 Rev.: $3804.0mnE EPS: $5.20E Jan. '09 Rev.: $4358.7mnE EPS: $6.05E
Price is as of the close, November 30, 2007. Liz Dunn 212.271.3806

SECTION II: BEST IDEAS FOR 2008 HEALTHCARE
BIOTECHNOLOGY.................................................................................................................................................................................58
Strong Fundamentals and Attractive Valuations Could Drive Recovery in 2008
Array BioPharma Inc. (ARRY)
Robust Pipeline and Favorable Partnership Environment Key to Success in 2008
LIFE SCIENCE AND DIAGNOSTICS ..............................................................................................................................................59
Robust End Markets and M&A Environment to Provide Tailwinds in 2008
Thermo Fisher Scientific, Inc. (TMO)
Exposure to the Brightest End Markets; Margin Upside with Strong Cash Flow Generation
MEDICAL DEVICES................................................................................................................................................................................60
Counter-Cyclical at 10,000 Feet; Technology Specific in Close-Up
Masimo Corporation (MASI)
High-Quality, High-Visibility Name with Big Product Cycle and 2008 Catalyst
PHARMACEUTICAL SERVICES........................................................................................................................................................61
Continued Generic Conversions Should Drive Profitability for the PBM Industry in 2008
CVS Caremark Corp. (CVS)
CVS Remains the Best-Positioned Business Model in the PBM Industry for 2008
PHARMACEUTICALS: SPECIALTY .................................................................................................................................................62
Aging Baby Boomers Benefit Industry; Democratic President Could Result in Sweeping Changes
Sciele Pharma, Inc. (SCRX)
Sular Generic Concern Set to Disappear in Early 2008; Deep Pipeline to Drive Growth in 2008 and Beyond

BIOTECHNOLOGY Favorable
Strong Fundamentals and Attractive Valuations Could Drive Recovery in 2008
• Large-cap biotechnology valuations near all-time lows: The average 2008E P/E multiple of large-cap biotechnology
companies is 22x. This is in comparison to an average P/E multiple of 30-35x over the past five years. Considering the last two
times (2003 and 2005) P/E multiples reached trough levels the biotechnology sector recovered, we expect the average P/E
multiple to approach the low end of the historical range of 30-35x.
• M&A activity expected to continue: In the back half of 2007, M&A activity in the sector has picked up with a number of
acquisitions initiated by large-cap biotechs (Celgene/Pharmion, Biogen Idec exploring strategic alternatives) and major pharmas
(Glaxo/Reliant Pharmaceuticals). We believe this is the result of historically low valuations coupled with the large sums of cash
available on the balance sheets of large-cap biotechnology and pharmaceutical companies. In addition, pharmaceutical
companies need to augment their pipelines as patents on existing products expire, which we believe will continue to drive this
trend into 2008.
Catalysts/Milestones: Strong 4Q07 earnings and continued M&A activity are expected to drive recovery of the biotechnology
sector into 2008.
Risks: Healthcare is expected to be a major issue in the 2008 presidential election, which could put downward pressure on drug
prices as well as increase pressure to develop a clear regulatory path for generic biologics.
Array BioPharma Inc. (ARRY: $11.07) Mkt. Cap.: $522.0mn Overweight

Robust Pipeline and Favorable Partnership Environment Key to Success in 2008
• Emerging pipeline with Phase II data on lead candidate ARRY-866 in mid-2008: Array possesses an emerging pipeline
of oncology and inflammation candidates against both first-in-class and well-characterized drug targets. The company
anticipates having 10 drugs in clinical development by the end of CY08. ARRY-886 (AZD6244) is a first-in-class MEK
inhibitor that is currently in four Phase II trials being run by partner AstraZeneca in melanoma, pancreatic cancer, NSCLC and
colorectal cancer. Phase I data demonstrated ARRY-866 was well tolerated and Phase II data are expected at ASCO, May 30 to
June 3, 2008.
• Favorable partnership environment: Excluding the two MEK inhibitors (AARY-886 and ARRY-704) partnered with
AstraZeneca, Array owns 100% of the development rights to all of its clinical development programs. Management has
maintained that it intends to fully maximize the value of each of the company’s clinical assets and the strength of the company’s
cash position should allow Array to realize this goal by continuing to keep the development of its clinical pipeline in-house. We
believe the current partnership landscape remains very attractive, with smaller firms possessing both economic and strategic
leverage in their negotiations with both large pharmaceutical firms and biotechnology firms. Given the strength of Array’s
pipeline, we believe the company is well positioned to capitalize on this favorable partnership environment.
• Proven discovery platform with strong R&D collaborations: Array possesses a number of collaborative R&D partnerships
(including Celgene and Genentech). Array has exhibited proven research and development capabilities and possesses a
proprietary and highly productive drug discovery platform. The company continues to demonstrate its proficiency for
producing highly selective, orally available small molecule inhibitors that possess favorable pharmacokinetic profiles. These
R&D collaborations continue to fund Array’s drug discovery activities and essentially provide what we believe is a free call
option on Array’s in-house research and development programs.
Catalysts/Milestones: (1) Phase Ib MAD data of ARRY-162 in RA by year-end 2007; (2) Phase II data for ARRY-866 at ASCO
mid-2008; (3) Phase II data for ARRY-797 in acute inflammatory dental pain mid-2008; (4) complete enrollment of Phase Ib/II
trials of ARRY-543 in mBC and mCRC mid-to-late 2008.
Risks: Clinical and regulatory risks associated with the early developmental stage of its pipeline and inability to enter into
partnerships to finance its advancing pipeline.
Valuation: Our 12-month price target is $16 per share, based on a discounted cash flow valuation of the company’s clinical
pipeline. We attach a 5.0x revenue multiple to projected peak sales and risk-adjust those revenues with a 40% discount rate to arrive
at an implied valuation of $685mn. We then add $85mn of FY08 net cash to derive an implied equity valuation of $16 per share.
Estimates: Jun. '08 Rev.: $34.6mnE EPS: ($1.87)E Jun. '09 Rev.: $45.0mnE EPS: ($2.04)E
Price is as of the close, November 30, 2007. M. Ian Somaiya 212.271.3761

LIFE SCIENCE AND DIAGNOSTICS Favorable
Robust End Markets and M&A Environment to Provide Tailwinds in 2008
• Multiple data points suggest primary end markets will be robust in 2008: Pharma and biotech R&D spending growth
through 3Q was 12.9%, matching the robust growth of 2006 and without indication of a slowdown. In India, biotech and
pharmaceuticals outsourcing of research and clinical trials are driving international growth for the life science market. In
energy, oil and gas, capital expenditures are growing over 20% y/y. In environmental testing, stricter regulation for imports
and lower-cost sourcing is driving demand. In diagnostics, an aging population, better disease management and pathogen
detection will drive robust growth through 2008. Geographically, China continues to demonstrate strong production growth,
with industrial production growth averaging 17.5% year to date.
• Diversified companies are accelerating with strength in multiple end markets: The large life science and diagnostic
companies are diversified by end markets and geography, spreading their revenue base and protecting them from sector
weakness. Four out of five key markets are growing above their average pace: diagnostics, pharmaceuticals, industrial, and
environmental markets show no signs of deceleration. Basic research, outside international markets, awaits reacceleration.
• M&A will play an integral part in shaping the market place: Life science technology companies with strong balance sheets
will continue their bolt-on acquisition strategies. Both the life science and diagnostic markets continue to be fragmented, and large
multinational companies such as GE, Siemens and Danaher are moving into the market, creating further tailwinds for growth.
The early to mid-stage diagnostic industry is the most fragmented. We expect further convergence of life science and diagnostics.
Catalysts/Milestones: Catalysts include industrial production and GDP data from emerging nations, R&D spending from
pharmaceuticals and the uptake of new diagnostic tests.
Risks: Asia-Pacific has been fueling a significant portion of growth; a slowdown will hamper the revenue and earnings growth.
Declines in energy and pharmaceutical spending could also affect the industry.
Thermo Fisher Scientific, Inc. (TMO: $57.64) Mkt. Cap.: $24,588.1mn Overweight
Exposure to the Brightest End Markets; Margin Upside with Strong Cash Flow Generation
• Thermo’s diversified end markets are working: Thermo Fisher’s end-market exposure enables it to benefit from the current
growth in the pharma, industrial, energy and diagnostic end markets. Furthermore, Thermo’s diversification hedges it from
downside risk. Thermo will benefit from heightened environmental regulations, particularly in the areas of water and air
testing. Thermo also benefits from growth in China, which is experiencing strong trends in industrial production and QA/QC
testing. As well, pharmaceutical spending is a tailwind as pharmaceuticals consolidate their suppliers, expand overseas
capabilities and need new, innovative technologies.
• Margin expansion and cash generation: We believe multiple expansion will come from operating margin leverage as it
drives EPS growth. Operating margin grew 150bp in the most recent quarter, and we feel the company is on track to reach its
long-term operating margin goal of 19-20% with at least 100bp in improvement per year. Furthermore, we expect Thermo to
generate over $1bn in cash, to fuel share repurchases and industry consolidation as well as reduce debt.
• Tuck-in acquisitions and further consolidation synergies: Fisher Scientific remains a mostly separate business unit; we
believe a significant source of margin leverage will come from the consolidation of Fisher’s prior acquisitions. Furthermore, we
expect Thermo to start driving consolidation in the fast-growing, fragmented industries such as the diagnostic space, cellular
screening and anatomical pathology.
Catalysts/Milestones: We expect Thermo to post organic growth of 5-7% with operating margin expansion leveraging EPS
through 2008. We anticipate management will continue to explore internal and external consolidation, which could provide
higher visibility to our estimates.
Risks: A slowdown in demand from China and the Asia-Pacific region will hamper growth. There may be pricing pressure in the
United States and Europe. Consolidation in the pharma and biotech industries could lead to disruptions in research and
development funding.
Valuation: We view price to earnings as the relevant trading metric for diversified life science technology companies. Our 12-
month price target of $63.00 is based on 21.0x our 2008 EPS estimate of $3.00. There are always risks that the price target for any
security will not be realized. In addition to general market and macroeconomic risks, for Thermo Fisher these risks include, among
other things, a deceleration in R&D spending in the life science and industrial end markets, and unforeseen difficulties in the
integration of Fisher.
Price is as of the close, November 30, 2007. Peter Lawson, Ph.D. 212.271.3859

MEDICAL DEVICES Favorable
Counter-Cyclical at 10,000 Feet; Technology Specific in Close-Up
• Medical device stocks will be at a cross-current of two macroeconomic forces. The first is a lack of exposure to the economy
or consumer spending, which may be a positive. The second, a headwind, is the 2008 election cycle in which containment of
healthcare costs may come into focus.
• If the economy is headed into a downturn, medical device stocks may be well positioned because the space is broadly counter-
cyclical. Hospital pricing is accelerating, which benefits all medical device players but especially the orthopedic companies,
which are highly sensitive to price.
• The focus of the election campaign trail could turn to containment of healthcare spending, which would be a headwind for the
entire industry. In this case, we expect technology selection to play a key role in supporting valuations. Stocks of companies
entering big product cycles with differentiated technologies can outperform, which should benefit the likes of Masimo (MASI),
among others.
Catalysts/Milestones: The tenor of election-related rhetoric toward the healthcare industry will be important through the
November 2008 presidential election. The direction of the broader economy will be a factor as well, and could benefit the
counter-cyclical, med-tech space on a relative basis.
Risks: The impact of a potential election-driven focus on healthcare cost containment could be stronger than we expect, which
could cause multiples to contract even in the face of coming product cycles. If a downturn in the U.S. economy reduces demand
for U.S. equities, the counter-cyclical nature of the space may be insufficient to support and drive valuations.
Masimo Corporation (MASI: $36.96) Mkt. Cap.: $2,128.6mn Overweight

High-Quality, High-Visibility Name with Big Product Cycle and 2008 Catalyst
• We believe that Masimo can become the dominant provider in the more than $1bn pulse oximetry market. Masimo has a
product that has been proven superior in over 100 published studies, and barriers to competitive entry are high. After many
years of IP litigation, Masimo’s patents were upheld in court, leading to a cessation of sales for Nellcor, the market leader, as
well as $263mn in damages and a substantial ongoing royalty payment.
• Visibility on growth for Masimo is uncommonly high. With approximately 20% share of disposables (“blades”) and 40% of the
new socket placements (“razors”), visibility on 40% share of disposables is high. Assuming no further share gains in socket
placements, this implies at least a doubling of revenues over the next six or seven years, or 20% annual growth.
• Announcement of a hemoglobin monitoring parameter could be a catalyst in the near to medium term. The company is
currently developing the ability to non-invasively monitor hemoglobin, which today can only be measured via a blood test. If
successful, we believe the market for this application could be equal in size to the $1bn pulse oximetry market. Conversion of
20% of Masimo’s existing oximetry business to a hemoglobin sensor (roughly four times the price of a standard oximeter)
would lead to a 60% increase in revenues—at very high margins. The company has stated that it intends to commercialize a
hemoglobin application within the next two years, however, we believe that the announcement of the intention to launch could
come much sooner and that it will be a meaningful catalyst for the stock.
Catalysts/Milestones: Hemoglobin announcement as early as 1Q08.
Risks: Failure or delays in the commercialization of a hemoglobin parameter could remove some of the upside in the stock.
Price pressure, which could become a factor as Nellcor—the dominant market player—loses share, could present downside to
our estimates. As with all medical device companies, recalls, product failures and litigation are all risks that could cause us to
reevaluate our stance on the stock, all else being equal.
Valuation: Our 12-month price target of $38 is based on the comparable group 5x 12-month forward EV/sales multiple on an
average of our 2011 and 2012 product revenue estimates of $449mn, discounted back at 20% for one year and 12% for two years,
for a 2008E value of $1.64bn. To this we add the Nellcor royalty as cash, which we discount back at 10% for a present value of
$102mn, for a total value of $1.74bn, or $28 per share. We have quantified the potential announcement of the hemoglobin
parameter as worth $10 to the share price.
Price is as of the close, November 30, 2007. Robert Faulkner 212.271.3760

PHARMACEUTICAL SERVICES Neutral
Continued Generic Conversions Should Drive Profitability for the PBM Industry in 2008
• Pharmacy benefit managers (PBMs), retail and mail-order pharmacies continue to benefit from increasing generic utilization
and conversions. Lower acquisition costs help to drive margin expansion and overall profitability. As existing generics (from
conversions earlier in 2007) continue to gain traction and new generics come to market, PBMs should experience increasing
generic dispensing rates and expanding operating margins. After a lull in 2008, 2009 and 2010 are expected to be big years for
new generics.
• The PBMs have historically experienced greater profitability from their mail-order business, rather than retail claim processing.
The continued adoption of mail-order and specialty pharmacies should result in increasing EBITDA per script.
• The hybrid combination of a large drug retail chain with a PBM (i.e., CVS/Caremark) has the potential to redefine both the
drug retail and PBM industries. The hybrid model allows for diversification across retail, mail and specialty operations and can
offer many different services to consumers and health plans. The combination allows for a higher degree of customization and
flexibility for employers and health plans to better serve their constituencies. It remains to be seen if the first major retail/PBM
combination will result in further consolidation. The other major retail chains have smaller PBM, mail-order and specialty
pharmacy operations.
Catalysts/Milestones: It will take at least another year before we see the effects of the hybrid model in the market place. While
generic conversions are likely to moderate next year, we expect increasing utilization coupled with declining sourcing costs to
drive profitability. The years 2009 and 2010 are expected to be very strong for new generic conversions. We believe the PBMs
were expecting a light year in 2008, and renewed many of their contracts early to lock in profits. Upon contract renewal, margins
decline as pricing is lower than previous contracts, but margins expand over time as sourcing costs decline for mature generics.
Risks: Risks for the PBM industry include: declining pharmaceutical utilization, the transition to AMP-based Medicaid
reimbursement and greater legislative restrictions and regulatory regulations (after the 2008 Presidential election).
CVS Caremark Corp. (CVS: $40.09) Mkt. Cap.: $60,996.9mn Overweight

CVS Remains the Best-Positioned Business Model in the PBM Industry for 2008
• While some investors may view moderated revenue growth in the company’s PBM segment negatively, it is important to note
that generic conversions are helping to drive overall profitability. In addition, from a retail perspective, CVS indicated that there
has been no change in reimbursement from payers since the beginning of 2007. This is unique, as other retail pharmacies,
notably Walgreen, attributed a recent earnings disappointment to falling generic reimbursement and profitability. We have not
seen this issue surface at CVS/Caremark and its large PBM competitors.
• CVS Caremark’s retail/PBM hybrid model is likely to combine the best elements of each business model to afford PBM
customers greater flexibility to CVS customers. Over time, it should enable the company to offer payers unique benefit
structures. Specifically, the company can probably extract more favorable sourcing terms from drug distributors. CVS is also
benefiting from better generic purchasing trends from manufacturers. In addition, when dealing with smaller PBM’s, CVS has
been more aggressive in its reimbursement negotiations, forcing these companies to maintain higher reimbursement levels to
CVS retail pharmacies. This is due to the need for smaller PBMs to include CVS’s 6,250 retail stores in the PBM networks.
• From a valuation perspective, CVS shares trade a discount to the peer group on a year-end 2008 basis. CVS shares currently
trade at 17.3x our 2008 EPS estimate of $2.32, which is below its PBM competitors at 22.5x.
Catalysts/Milestones: Any positive indications concerning the integration of the Caremark acquisition should strengthen our
long-term confidence in the company. In addition, CVS indicated that it will provide 2008 guidance during its 4Q07 conference
call on January 31, 2008, which could be a significant near-term catalyst for the shares.
Risks: Risks for CVS include: the successful integration of the Caremark acquisition; competition from traditional PBMs and
drugstores; the failure to retain clients and win new contracts; and the macroeconomic risks to front-store business.
Valuation: Our year-end 2008 price target for CVS shares is $51. This estimate is based on our discounted cash flow model,
assuming normalized growth of 3%, and a discount rate of 8.7%.There are always risks that a price target for any security will not
be realized. In addition to general market and macroeconomic risks, for CVS Caremark these risks include, among other things,
declining pharmaceutical utilization, increased regulatory scrutiny, contract cancellations and the success of its recent merger.
Price is as of the close, November 30, 2007. Steven Halper 212.271.3807

PHARMACEUTICALS: SPECIALTY Favorable

Aging Baby Boomers Benefit Industry; Democratic President Could Result in Sweeping Changes
• Demographic trends benefit the industry: According to the U.S. Census Bureau, by 2020 the number of Americans over age
65 and age 85 is expected to increase over 40% and over 30%, respectively. The aging of the population has pressured the
government to adopt more comprehensive health benefit plans. Chronic disease and aesthetic companies will continue to
outperform, along with those offering products that increase profit to physicians or require direct payment from patients.
• Relatively immune from declining economic conditions: Pharmaceutical companies are generally defensive and non-
cyclical. In a declining economy, spending on serious medical conditions will be unaffected. Aesthetic companies could be
vulnerable to decreases in consumer discretionary spending, but we believe less expensive, non-invasive treatments on visible
parts of the body will continue to grow. Breast implants are at risk, as procedures are expensive and result in lost work days.
Laser companies could be affected as physicians resist $100,000 plus equipment purchases with reduced consumer confidence.
• Result of presidential election significant: The 2008 presidential election is significant for the pharmaceutical industry. The
best outcome would be a Republican victory, and the worst outcome likely would be if Hillary Clinton succeeded. Democratic
control of both Congress and the White House provides opportunity for sweeping and likely disastrous changes in the U.S.
drug industry, including drug re-importation, generic topical drug approvals, follow-on biologic legislation, and Medicare price
negotiations. The best outcome would be opposing political parties in the White House and Congress and legislative deadlock.
Catalysts/Milestones: The specialty pharmaceutical industry is immune to most economic factors. As we get closer to the
presidential election, polls indicating a Democratic president are likely to result in bearish forecasts for the drug industry. In the
event of a Republican victory, we do not expect any significantly damaging legislation to be passed.
Risks: Pharmaceutical sales are relatively inelastic and will be driven in the near term by an aging population and a willingness to
pay for the latest and most effective products. The fundamentals of the specialty pharmaceutical industry are not affected
materially by growth in the overall economy and have historically been defensive investments. The specialty pharmaceutical
investment risk is more a function of investor interest in cyclical stocks as the U.S. economy improves.
Sciele Pharma, Inc. (SCRX: $22.32) Mkt. Cap.: $813.9mn Overweight

Sular Generic Concern Set to Disappear in Early 2008; Deep Pipeline to Drive Growth in 2008 and Beyond
• Stock overhang set to disappear in early 2008: Sular loses patent protection on June 8, 2008. Sciele filed an sNDA for a new
formulation and has a PDUFA date of January 2, 2008. We expect the product to launch in early 2008, which should allow
sufficient time to switch patients to the new formulation before generics could potentially enter the market. No generics of
Sular 40mg can be approved prior to June 2008, but we do not expect approval until late 2008. If a generic receives approval
before patients can be switched, it would likely only be for the 40mg strength, which accounts for only 15% of Sular sales.
• Deep pipeline sets stage for continued growth: Sciele has three products under FDA review (new Sular formulation,
PrandiMet, head lice asphyxiatior) and five products in Phase III (glycopyrrolate, pravastatin/fenofibrate combination, Clonibid
for hypertension, PSD502 for premature ejaculation, and Clonicel for ADHD). Sciele also plans to pursue an NDA for Rondec
in hopes of returning exclusivity to the product, and management has indicated that it has FDA support on the initiative.
• Shares undervalued: SCRX currently trades at a significant discount to its peers. We believe this discount is primarily due to
concerns regarding generic competition for Sular, Sciele’s lead product. We believe that the threat of generic competition is
overblown and that Sciele will be able to protect the Sular franchise, resulting in the shares being significantly undervalued.
Catalysts/Milestones: Near-term catalysts for SCRX include the uptake of Prandin (marketing begins Jan. 1) and fenofibrate
(launch early 2008), FDA decisions on the new Sular formulation (PDUFA date Jan. 2) and head lice asphyxiatior (PDUFA date
April 15), NDA filings for Clonibid (1H08), Clonicel (end of 2008), and PSD502 (end of 2008), Phase III results for glycopyr-
rolate (1H08), continued prescription and sales growth of key products, and potential execution of additional licensing deals.
Risks: We see the possibility that Sciele will not launch the Sular line extension with enough time to transfer patients before a
generic competitor is approved as the primary risk to owning SCRX.
Valuation: Our 12-month price target of $37 is based on our 2007E EPS of $1.84 (excluding stock compensation and a $0.04 in-
process R&D charge) and a P/E multiple of 20x. There are always risks that the price target for any security will not be realized. In
addition to general market and macroeconomic risks, for Sciele, these risks include, among other things: (1) the possibility that
Sciele will not launch the Sular line extension with enough to transfer the market before a generic competitor is approved; (2)
internal factors (i.e., poor clinical results of pipeline drugs and decreased demand for products); and (3) overall risk for
pharmaceutical stocks, including patent, FDA and manufacturing risks.
Price is as of the close, November 30, 2007. Donald B. Ellis, PharmD 415.364.7038

SECTION II: BEST IDEAS FOR 2008 INDUSTRIAL GROWTH
ALTERNATIVE ENERGY ....................................................................................................................................................................64

Solar Remains at the Top of the List for Alternative Energy Investors in 2008; Moving Up the Value Chain
MEMC Electronic Materials, Inc. (WFR)
Favorably Positioned in Value Chain; 300mm and Solar Drivers of Margin Expansion and Revenue Growth
APPLIED TECHNOLOGIES................................................................................................................................................................65
Resilient End-Market R&D Spending; Intact Drivers for Next-Generation Communication Rollouts
Ixia (XXIA)
Focused on the Right Communications Opportunities with Tremendous Margin Expansion Potential
DEFENSE & SECURITY .......................................................................................................................................................................66
Defense & Aerospace Cycles Aren’t Done Yet, and Record Backlogs Provide Exceptional Visibility; Homeland
Security Remains Hit or Miss
Rockwell Collins, Inc. (COL)
High-Quality Supplier a Great Way to Invest in Both Defense & Aerospace Cycles

ALTERNATIVE ENERGY Neutral

Solar Remains at the Top of the List for Alternative Energy Investors in 2008; Moving Up the Value Chain
• We continue to view solar as the best way to invest in alternative energy. The industry is fast growing, profitable and a much
lower commodity risk than most other sectors. It is our view, however, that at current valuation levels many solar stocks are
becoming over-extended. In 2008, we move up the value chain seeking companies that are better shielded from the rapid
commoditization of the industry, namely polysilicon and equipment producers. We are bullish about the prospects for the
demand response industry, while we continue to stay on the sidelines with the fuel cell and biofuel companies. Alternative
energy as a whole is likely to see continued regulatory and public support stemming from rising energy costs and global climate
concerns, which should continue to be a boon to the industry in 2008.
• In the past 12-18 months, there have been a large number of polysilicon capacity expansion announcements (the raw feedstock
for a solar cell), especially from China. There are more than 50 proposed polysilicon plants with roughly 20 having already
broken ground. We have visited several facilities in China and are wary of the timing of the ramps. It is our view that the
supply/demand imbalance in polysilicon plaguing the industry will shift to equilibrium in 2009, later than the consensus view,
with many players calling another shortage in the 2012 time frame based on announced capacity expansion programs. This is
likely to mean continued strong results for the polysilicon producers in 2008.
• While the regulatory backdrop for solar demand remains strong, we believe demand will be extraordinarily high in 1H08 as
demand will likely be pulled in from 2009, ahead of a feed in tariff reduction in Germany and the expiration of the one-year
window when Spanish customers are grandfathered into the old feed in tariff in September 2008. We see the evolution of the
Italian and U.S. markets as imperative for support of the industry in 2H08 and 2009, although that remains uncertain at this
point without further clarity on regulatory developments.
Catalysts/Milestones: Regulatory developments in key end markets, additional polysilicon production from new entrants.
Risks: Rapid commoditization, low barriers to entry particularly down the value chain, pricing of key raw materials, emerging
technologies, and heavy reliance on regulatory support to be economically viable.
MEMC Electronic Materials, Inc. (WFR: $77.58) Mkt. Cap.: $18,022mn Overweight
Favorably Positioned in Value Chain; 300mm and Solar Drivers of Margin Expansion and Revenue Growth
• Despite the significant stock price appreciation over the past two years, we continue to believe that there is upside to near-term
estimates for MEMC, in particular for 2008. We see upside from the change in mix from semiconductor wafers toward solar
wafers and continued strength in polysilicon sales. We believe investors are underestimating the impact this mix shift will have
on the financial profile of the company. We believe the pace of migration toward 300mm wafers from 200mm is offsetting any
pricing pressure the wafer market is facing and will lead to a slow improvement in semiconductor wafer gross margins from an
estimated 35-40% to 38-43%. The improvement in semiconductor-related margins coupled with tightness in the polysilicon
market through mid-2009 should lead to strength in spot polysilicon pricing, which should continue to drive margin expansion.
• MEMC is in the midst of an aggressive capacity expansion as it prepares for acceleration in demand for 300mm and solar.
Current expansion plans take year-end polysilicon capacity to 8,000mt in 2008 and 15,000mt in 2010, and can accommodate
another solar wafer supply contract of $3-4bn over 10 years, which could provide further upside.
• MEMC has been producing polysilicon since 1959 and is a cost leader. Although there has been a slew of new entrants into
polysilicon with the first product slated to come online in 2008/2009, solar wafer supply deals prove that polysilicon
production is complex, and experienced incumbents can extract a premium to risky new entrants.
Catalysts/Milestones: Long-term solar wafer contract wins, continued industry migration to 300mm, sustained strength in spot
polysilicon pricing and the progress of new entrants into the polysilicon will continue to be the focus going into 2008.
Risks: If a significant amount of the new entrant capacity is built before we anticipate, it is likely to lead to a greater supply of
polysilicon on the market, lowering prices and hurting the current high margins of the incumbent polysilicon producers, such as
MEMC. In addition, the solar industry is heavily tied to government support; a sudden shift in favor away from alternative
energy or solar energy is likely to have a negative impact on the entire sector.
Valuation: Our 12-month price target is $81.00. Our price target is based on a P/E of 19x our 2008 EPS estimate of $4.27. This is
at the high end of the range for traditional semiconductor capital equipment stocks, which typically trade in the low teens to 20x
and within the traditional range of 15x to 25x for most solar-related equities. We would expect to see investors value MEMC as a
blend of a solar and semiconductor company longer term as a greater percentage of its profits emanate from solar. There are
always risks that the price target for any security will not be realized. In addition to general market and macroeconomic risks, for
WFR, these risks include, among other things, capacity expansion, pricing of key raw materials, delays in expansion of key
customers for semiconductors and solar wafers and a high concentration of customers.
Price is as of the close, November 30, 2007. Jeff Osborne 212.271.3577

APPLIED TECHNOLOGIES Favorable
Resilient End-Market R&D Spending; Intact Drivers for Next-Generation Communication Rollouts
• Several near- and long-term positives: Test and measurement companies in our Applied Technologies universe are
benefiting from: (1) resilient and robust technology R&D spending growth (7-8% y/y for bellwether companies in the last four
quarters) despite volatile global macroeconomic conditions; (2) intact drivers for next-generation communication technology
rollouts with accelerating global interest in FTTx and IP convergence, proliferation of triple-play/multimedia/video as well as
burgeoning consumer and enterprise broadband capacity requirements; and (3) stronger international macro conditions and a
weaker U.S. dollar positioning U.S. Applied Technologies companies favorably to leverage their leading-edge intellectual
property investments into an even stronger global market position and drive exports (that already comprise almost 60% of sales
for T&M companies in our coverage).
• Leading T&M companies appear well positioned to benefit from robust R&D spending, ongoing and imminent
technology upgrade cycles, demand for higher-margin products, an improving competitive environment, streamlined costs
structures, more balanced product portfolios, and stronger balance sheets and cash flows relative to prior cycles. While current
T&M gross margins have already expanded above prior cyclical peaks, significant potential for operating margin expansion
remains.
• T&M stocks currently trade with valuations below or close to historical averages despite lower sales and margin
volatility, improved financial metrics (margins, cash flows, balance sheets), and more sustainable end-market drivers of demand.
Catalysts/Milestones: Bellwether technology company R&D spending growth in the coming quarters across communications,
computer and storage and semiconductor OEMs; telecom service provider spending trends and outlook; foreign exchange trends;
global PMI data.
Risks: Potential cutbacks in consumer and enterprise spending resulting from soft housing markets (in the United States) and
tightening credit globally could result in a slowdown in technology spending or delays in technology upgrade cycles; a reversal in
currently favorable foreign exchange trends.
Ixia (XXIA: $10.33) Mkt. Cap.: $718.7mn Overweight

Focused on the Right Communications Opportunities with Tremendous Margin Expansion Potential
• Well positioned to benefit from growing network complexity and bandwidth requirements: As a leading provider of
high-performance IP network and equipment testing solutions to leading global wireline NEMs, XXIA appears well positioned
to address performance, reliability, and interoperability testing in enterprise and service provider deployments of increasingly
complex IP-based/converged networks and roll-out of advanced services and applications, including triple play, IPTV/video,
VoIP, wireless and security as well as provide network monitoring solutions addressing the same networks. With its strong
focus on enhancing its product portfolio, XXIA is driving increasing share and record sales from carrier pre-deployment testing
as well as from software applications, thus expanding its revenue base beyond XXIA’s traditional wireline NEM R&D lab sales
that continue to benefit from solid R&D spending growth (11-14% y/y for selected wireline NEMs in the last four quarters).
With 71% of 3Q07 revenue from the United States, XXIA has significant opportunity to expand its international presence.
• Solid margin expansion potential: Over the past several years, XXIA has focused on investing in its engineering, sales and
operating infrastructure that are now positioned to drive solid sales growth while delivering material operating leverage. While
remaining substantially below prior cyclical peaks, we expect pro forma operating margin to expand to more than double 2006
and 2007 levels over the next couple of years, driving industry-leading EPS growth.
• Attractive valuation: XXIA’s stock currently trades at 17x our 2009 EPS estimate of $0.60 relative to our 2008 EPS growth
estimate of 66% and XXIA’s recently announced $50mn share buyback improves the risk/reward ratio for the stock, in our
view.
Catalysts/Milestones: Wireline NEM R&D spending; XXIA’s service provider customer wins; enterprise IT and service
provider network spending outlook for 2008; XXIA’s December quarter results with a focus on carrier, software and
international growth; T&M peer commentary on market trends.
Risks: A slowdown in technology upgrade cycles or delays in next-generation communications network rollouts; volatility in
demand from the largest customer (about 26% of XXIA’s 3Q07 sales); intensified competitive pressure from key competitors.
Valuation: Our 12-month price target of $14 is based on 28x our 2008 EPS estimate of $0.50 relative to our 2008 EPS growth
estimate of 66% for XXIA.
Price is as of the close, November 30, 2007. Ajit Pai 212.271.3695

DEFENSE & SECURITY Neutral

Defense & Aerospace Cycles Aren’t Done Yet, and Record Backlogs Provide Exceptional Visibility;
Homeland Security Remains Hit or Miss
• Defense budgets (and defense stocks) tend to do well in presidential election years. We see continued growth in base budgets at
least through the FY10 budget, which will be the last to be formulated under the Bush administration. Even under the new
administration, “perception of threat” will remain elevated while defense spending as a percentage of GDP will remain near 60-
year trough levels, supporting continued growth in modernization funding.
• We expect the Army to continue to increase budget share at the expense of the Navy and Air Force, driven by: (1) “reset” of
Army equipment deployed in Iraq/Afghanistan; (2) the influence of ground forces-centric “lessons learned” on future spending
plans; and (3) investment in new equipment to support the Army’s planned addition of 74,000 soldiers by 2010.
• The year 2007 marked the commercial aerospace industry’s third consecutive year of record orders, providing backlog visibility
supporting our outlook for a sustained up-cycle. We believe orders peaked in 2007 but deliveries will not peak before 2012. The
resumption of buying by domestic mainline carriers in 2008 could further extend the up-cycle and prove a catalyst for the
aerospace sector.
• In our coverage, the soft spot remains homeland security. Funding is available, but large technology initiatives have been slow
to move forward. We blame continued organizational changes, shifting requirements and rapidly evolving technology. We see
“rifle shot” investment opportunities among our small- and mid-cap coverage, but remain wary of the timing of the promised
inflection points.
Catalysts/Milestones: On the defense side, the next major catalyst should be passage of the FY08 supplemental budget in
December or January, followed by the FY09 budget submittal in early February, which we expect to be in line with or better than
consensus expectations. On the commercial aerospace side, catalysts are likely to include economic data and Boeing’s progress
toward 787 development and production milestones.
Risks: Defense risks include: a change in budget priorities that would shift funding away from defense; a faster-than-expected
decline in operating tempo in Iraq and Afghanistan; and potential policy changes under a new administration. Commercial
aerospace risks include economic growth, high fuel prices and successful development of new aircraft like the 787.
Rockwell Collins, Inc. (COL: $72.12) Mkt. Cap.: $12,166.6mn Overweight

High-Quality Supplier a Great Way to Invest in Both Defense & Aerospace Cycles
• Collins is a very well-managed company that is taking market share in the both the government business (beneficiary of
platform upgrades plus strong positions on next-generation programs like FCS and JTRS) and commercial business (more
standard positions, successful new product introductions and benefiting from weak dollar).
• We expect continued margin expansion throughout the up-cycle driven by operating leverage, productivity initiatives and lower
pension expense. Collins’ commercial business generates incremental pre-R&D margins above 50%.
• Collins is successfully leveraging common technology across both government and commercial markets. Combined with robust
cash flow and aggressive share repurchases, we expect the company to maintain its exceptional return characteristics (peer high
ROIC of 29% in FY07).
Catalysts/Milestones: On the government side, competitive contract opportunities (JTRS AMF, KC-X tanker). On the
commercial side, A350 supplier decisions (avionics, cockpit upgrade) and additional Proline wins.
Risks: Risks include: (1) aerospace cycle’s exposure to economic slowdown; (2) DoD spending plans; and (3) execution on both
commercial and government programs.
Valuation: Our 12-month price target for COL is $85. This price target is based on a 2008E P/E of 18.8x applied to our CY09
EPS estimate of $4.53. We believe the premium multiple is warranted by a revenue mix that includes both defense and commercial
aerospace (which is currently being valued at a premium to defense), consistent execution, market share gains and exceptional
return characteristics. We anticipate three- to five-year EPS growth of 15% or better.
Estimates: Sep. '08 Rev.: $4814.8mnE EPS: $3.95E Sep. '09 Rev.: $5176.4mnE EPS: $4.45E
Price is as of the close, November 30, 2007. David Gremmels, CFA 212.271.3787

SECTION II: BEST IDEAS FOR 2008 MEDIA AND TELECOM
INTERNET SERVICES ..........................................................................................................................................................................68

Healthy and Growing U.S. E-Commerce Market with Secular Shift Remains Strong
GSI Commerce, Inc. (GSIC)
International Expansion, Marketing Services and Recent Acquisitions Should Drive Above Industry Growth
MEDIA & ENTERTAINMENT ..........................................................................................................................................................69
Weak Macro Advertising Environment Makes Stock-Specific Selection Critical in 2008
Regal Entertainment Group (RGC)
3-D Could Be Game-Changer for Cinema Operators; National CineMedia Stake Provides Kicker
TELECOM SERVICES ............................................................................................................................................................................70
International Wireless and Domestic Internet Infrastructure Remain Focus
NII Holdings, Inc. (NIHD)
Increasing Latin American Wireless Penetration and Network Expansion Should Drive Near-Term Growth

INTERNET SERVICES Favorable
Healthy and Growing U.S. E-Commerce Market with Secular Shift Remains Strong
• E-commerce growth remains robust as secular trends remain strong: U.S. e-commerce grew 19% in 3Q07, which
compared to a 20% increase in 3Q06 and a 23% advance in 3Q05, showing remarkable stability of growth. As more merchants
expand their online offerings and consumers become increasingly comfortable with online shopping, e-commerce continues to
take share from the traditional retail channel. According to the U.S. Department of Commerce and factoring in eBay’s U.S.
gross merchandise volume (GMV), e-commerce sales totaled $39bn in 3Q07, and accounted for approximately 3.8% of total
retail sales, up from 3.4% in 3Q06, 3.0% in 3Q05, and 2.6% in 3Q04.
• Multi-channel retailing trends: Multi-channel e-commerce continues to outpace even the rapid growth of general
e-commerce as more retailers develop solutions to take advantage of their existing retail footprints while offering the
convenience of an online shopping environment. Forrester estimates that 16% of all retail sales, or $400bn, are influenced by
online activities, and research suggests an investment in these strategies should pay dividends.
• International expansion: Although the trends in the United States continue to be strong, international growth continues to be
even more robust as broadband and e-commerce are generally at an earlier growth phase of adoption relative to that of the
United States. Specifically, we estimate U.S. e-commerce should grow 19% in 2007, while international e-commerce should
grow 25% over the same period.
Catalysts/Milestones: At 3.8% of share of total commerce, e-commerce is still much less penetrated relative to other Internet
categories. As consumers get more comfortable buying more online particularly in high ASP categories, such as LCD TVs and
diamond jewelry, the robust growth curve should continue.
Risks: With a prevailing credit crunch crisis, a tighter labor market and high oil prices, any major economic downturn may
further weaken the U.S. economy and drain consumer confidence, causing e-commerce sales growth to slow down. An early read
on the holiday trends for 4Q suggests, however, that the customer’s resilience may continue to be strong, staving off concerns
that consumer spending may be slowing down.
GSI Commerce, Inc. (GSIC: $26.12) Mkt. Cap.: $1,360.0mn Overweight

International Expansion, Marketing Services and Recent Acquisitions Should Drive Above Industry Growth
• GSIC grew its 3Q07 gross merchandise volume (GMV) 36% y/y, which was nearly double the growth rate of U.S. e-commerce
over the same time period. GSIC’s strong core domestic business growth stems from both organic growth and the addition of
new partners as multi-channel trends continue to benefit the company.
• GSIC’s expansion outside the United States started with the development of a core platform in Barcelona based on a small
acquisition of Aspherio in 2006. GSIC started to show success internationally in 2H07 by signing two international deals
(iRobot and Casual Male). We believe GSIC should be able to leverage its e-commerce success in the domestic market to build
a strong international presence, and we view its global initiative as an important growth driver.
• In addition to its e-commerce offerings, GSIC is further expanding into interactive marketing services including website design,
online buying and planning, interactive e-mail, content development, and catalog services. The company plans to grow this
business both organically and through acquisition. Marketing services should also serve as a helpful sales channel for the full
end-to-end, e-commerce offering given that the marketing services RFP sales cycle is much shorter and could drive cross-
marketing opportunities within the firm.
Catalysts/Milestones: GSIC continued revenue growth, and margin expansion should be the primary driver of upside in the
stock as opposed to multiple expansion. In addition, as GSIC integrates the Accretive Commerce and Zendor acquisitions, the
company could see additional cost and revenue synergies in 2008.
Risks: In addition to general market and macroeconomic risks, GSI Commerce is exposed to general e-commerce trends, retail
seasonality, category concentration, partner concentration, expansion into international markets, its ability to develop new
products and services, as well as acquisition and integration risk.
Valuation: GSI Commerce shares trade at 15.9x 2008E EV/EBITDA, which is in line with other e-commerce players. Comparing
GSIC to the direct competitors in its space is difficult, because of a lack of other pure-plays and different business models. As
GSIC builds capacity to handle new partners, the company’s capital expenditures are making the free cash flow valuations less
attractive. On an EV/EBITDA less capex basis, GSIC trades at 208.0x in 2008E. Our 12-month price target for GSI Commerce is
$33, based on our discounted cash flow (DCF) analysis that assumes a 10x 2012E EBITDA exit multiple, a 21% 2007-2012E
revenue CAGR and a 12% weighted average cost of capital (WACC). Our price target equates to 20x our 2008E EBITDA.
Price is as of the close, November 30, 2007. Christa Quarles, CFA 415.364.7154

MEDIA & ENTERTAINMENT Neutral
Weak Macro Advertising Environment Makes Stock-Specific Selection Critical in 2008
• A slowing U.S. economy has weighed on domestic advertising growth in 2H07, particularly among traditional advertising-
driven companies. With recent downgrades in the 2008 macroeconomic outlook, we believe visibility in domestic advertising
plays has become less clear. As such, we direct investors to names with less economic sensitivity or company-specific
opportunities to drive earnings growth.
• We are bullish on theatre operators given the 3-D opportunity. Among advertising-supported businesses, we are more
sanguine on cinema advertising and online advertising. Among traditional media players, we believe TV broadcasters with
retransmission consent payment opportunities as well as Spanish-language demographic tailwinds could fare well in 2008.
• Theatre operators stand to benefit from increased attendance and ticket pricing surrounding 3-D technology. We look for
growing 3-D film announcements in 2008. In cinema advertising, U.S. prices trail those of foreign peers and do not yet reflect
the value delivered to marketers, thus, we expect dollars to continue to flow into the medium despite macro-related headwinds.
Online advertising, while not immune from any economic slowdown, may be better protected against a downturn than more
traditional ad-supported media, given that online ad spending often directly drives revenue. We focus on online properties with
stronger end markets, such as the videogame advertising space, which should benefit from increased penetration of next-
generation gaming consoles, as well as PC end markets, in which ad dollars are shifting online.
Catalysts/Milestones: In 3-D cinema, catalysts include upcoming films in 3-D and studio announcements surrounding 3-D. For
cinema advertising, we believe the consolidation of screens in June 2008 may be a catalyst for higher prices.
Risks: Broad economic weakness could lead marketers to reduce ad budgets. The ongoing Hollywood writers strike, if not
resolved soon, could end up reducing new TV and film content and/or content quality slated for 2008 and 2009.
Regal Entertainment Group (RGC: $19.79) Mkt. Cap.: $3,176.9mn Overweight

3-D Could Be Game-Changer for Cinema Operators; National CineMedia Stake Provides Kicker
• We believe 3-D cinema could be a game-changer for the cinema industry. We believe 3-D technology restores an experience
premium for theatergoers likely to drive increased attendance and higher ticket prices for cinema operators. We believe theatre
operators could see 15%-plus cash flow increases in 2009 and beyond from 3-D cinema, where revenue per screen has
historically been triple that of 2-D screens on opening weekend and even higher on total box office.
• The cinema exhibition industry has weathered economic slowdowns well historically, and we see Regal’s 6.2% dividend yield as
increasingly attractive in an environment of rising bond prices and falling yields. In the 2000-2002 period, which included a
recession, U.S. box office admissions and ticket prices grew at a compound rate of 7.1% and 3.8%, respectively, driving box
office growth up 11% annually over the period. The previous recession saw box office grosses decline 1.5% annually between
1990 and 1992, before posting 5.2% annual growth the following two years.
• Regal’s ownership stake of 22.6% in National CineMedia provides upside from the fast-growth, high-margin cinema advertising
business. We look for NCM’s top line to grow 17% annually and adjusted EBITDA to grow 18% annually between 2007 and
2009, contributing to Regal’s cash flow growth over the same period.
Catalysts/Milestones: Upcoming potential catalysts for Regal shares include 3-D films, including U2-3D in January 2008, and a
Hannah Montana concert tour film in February 2008, as well as further announcements surrounding the 3-D film slate.
Risks: In addition to general market and macroeconomic risks, for Regal Entertainment, risks include, among other things,
demand for movies or the theatergoing experience, competition, possible prolonged guild strike(s), shifts to the theatrical
window, higher-than-expected costs, a limited ability to influence corporate governance due to multiple classes of stock, the
ability to raise additional capital, the performance of National CineMedia and NCMI shares and the deployment of digital cinema,
which is required to support the 3-D experience, as well as general business model execution risks.
Valuation: Our 12-month price target on Regal Entertainment shares is $29, based on a 2008E EV/EBITDA multiple of 11x
2008E, which is toward the high end of a historical range of 4x to 12x, but warranted in light of the potential for cash flow growth
from 3-D. Our $29 price target represents a 32x P/E on 2008E and a 20x multiple of unleveraged, fully taxed free cash flow
(UFCF).
Price is as of the close, November 30, 2007. Lloyd Walmsley 415.364.2584

TELECOM SERVICES Neutral
International Wireless and Domestic Internet Infrastructure Remain Focus
• Wireless telecommunications services are evolving from luxury products and services to essential products and services. This
trend is increasingly evident in Latin America, where penetration levels are on the rise and are significantly greater than wireline
penetration levels. This compares to the United States, where wireless usage is overtaking wireline usage.
• In the United States, we see increasing penetration through services catering toward younger or credit-challenged customers.
Companies specializing in prepaid or youth-oriented services should continue to expand the U.S. wireless market. Both prepaid
and post-paid ARPUs should get a boost as 3G data services become more prevalent and enter the mainstream.
• Companies providing Internet infrastructure are well positioned for growth in 2008. As demand for online services from
businesses, particularly small- and medium-sized ones, increases, services such as application hosting, colocation and content
acceleration will fuel growth in this market segment.
Catalysts/Milestones: Within the United States, user acceptance of increased wireless data speeds and content packages.
Increasing wireless penetration, continued stability and economic prosperity in Latin America.
Risks: An economic slowdown in the United States would prevent subscribers from adding to their monthly wireless spending
and more significantly affect lower-end wireless subscribers, in addition to reducing business spending. Worsening economic
trends in Latin America could also slow subscriber growth, which would, in turn, pressure top-line growth in the region.
NII Holdings, Inc. (NIHD: $55.16) Mkt. Cap.: $10,127.4mn Overweight

Increasing Latin American Wireless Penetration and Network Expansion Should Drive Near-Term Growth
• The relatively low wireless penetration of approximately 50% in Latin America, combined with fewer competitors, provides
NIHD with better relative organic growth potential versus U.S. carriers, in our view. In addition, NIHD’s low penetration of
its core corporate/post-paid addressable market, along with its value-added Push-to-Talk product, should lead to future share
gains. Furthermore, we believe the company’s ability to gain subscribers will be enhanced by its current expansion plans.
• With its expansion in Mexico recently completed, NIHD will continue to move into Brazil, increasing GDP coverage from
50% to approximately 80% over the next two to three years with associated capital expenditures of $300mn. NIHD plans to
expand its coverage in Brazil from 65mn to 95mn pops.
• Chile will entail $80-90mn in capital expenditures and startup costs over the next 12-18 months for an additional 9-10mn pops.
At this point management has not decided whether to use the Melody system for its network deployment in Chile, which could
further reduce the capital required. Under its current network configuration, the company has about 43mn target users covered.
The ongoing expansions in Brazil and Chile will add coverage for 10mn and 3mn target users, respectively.
Catalysts/Milestones: The upcoming Brazil and Chile market expansions could represent a significant opportunity over the
next several years. Stabilization in Mexico’s competitive environment and continued stock buybacks should also help the stock
move higher.
Risks: The primary risks related to the stock are tied to the emerging markets in which the company operates as well as increased
competition. The recent lack of confidence in these markets related to the interest rate environment in the United States, the
effects on foreign direct investment, currencies and the political risk have all affected NIHD’s stock price in the last year.
Valuation: NIHD remains our top pick in the wireless sector as we believe the growth prospects for Latin American wireless
markets, combined with the company’s targeted build-out plans, focus on high ARPU, low churn post-paid business customers and
a healthy balance sheet, position the company for solid top- and bottom-line growth. NIHD trades at 6.8x and 4.9x our 2008 and
2009 EBITDA estimates. Based on our five-year discounted cash flow (DCF) analysis using a 10.1% weighted average cost of
capital (WACC) and an 8.0x terminal multiple, we arrive at a 12-month price target of $120.00 for NIHD shares. The primary risks
to this price target are increased wireless competition, a weakening Mexican economy and Latin America country risk. We view the
valuation as attractive at current levels based on our 2008 estimated subscriber growth rate of 28% and our 2008 estimated
EBITDA growth rate of 58%, both higher than the sector average.
Price is as of the close, November 30, 2007. James D. Breen, CFA 617.488.4107

SECTION II: BEST IDEAS FOR 2008 TECHNOLOGY
COMMUNICATIONS COMPONENTS ...........................................................................................................................................73

IPTV, Triple-Play Services and 3G
NetLogic Microsystems, Inc. (NETL)
Increased Service Provider Demand for IPTV and VoIP; Increasing Market and Customer Diversification
COMMUNICATIONS EQUIPMENT: CORE & WIRELESS....................................................................................................74
Handset Shipments Appear Likely to Achieve 15% Growth in 2008 on Emerging Market Strength and 3G/3.5G
Upgrades
Research In Motion (RIMM)
Casting Berries and Pearls, RIMM Is Leveraged to the Secular Growth Trends in the Smartphone Sector with
One of the Strongest Growth Profiles in Large-Cap Technology
COMMUNICATIONS EQUIPMENT: IP NETWORKING.......................................................................................................75
Telco and Satellite Footsteps Leave Cable with No Choice But to Spend on Advanced Services
ARRIS Group, Inc. (ARRS)
Leveraged to Cable Spending Imperatives, in Our View; Competition Driving Cable’s Need to Spend
ELECTRONIC SUPPLY CHAIN.........................................................................................................................................................76
While Component and IT Disty Environments Will Likely Be Choppy, Continued Outsourcing and Technology
Consolidation Should Favor Disciplined, Well-Executing EMS Players
Flextronics International Ltd. (FLEX)
Poised to Become Strategic EMS Leader with Shares Trading at Historical Lows, We Favor FLEX
ENTERPRISE HARDWARE.................................................................................................................................................................77
Expect Mobile PC Demand and Higher Storage Capacity Needs to Trigger IT Spending
Netezza Corporation (NZ)
Disruptive Appliance Should Gain Significant Traction in the Datawarehouse Market as the Space Becomes More
Aware of Its Major Speed, TCO and Maintenance Benefits
INFORMATION & FINANCIAL TECHNOLOGY SERVICES...............................................................................................78
Moderating IT Spend and Higher Offshore Delivery Cost Offset by Continuing Migration to Global Delivery in 2008
Affiliated Computer Services, Inc. (ACS)
Controversy Sets Up Compelling Risk/Reward Opportunity
SEMICONDUCTOR CAPITAL EQUIPMENT..............................................................................................................................79
Expect 4Q08 Recovery in Fab Equipment Orders Following Prolonged Memory Capacity Digestion Period
Verigy Ltd. (VRGY)
Expect Multiple Expansion as Flexible Operating Model Validated and Market Share Gains Continue
SEMICONDUCTORS: ANALOG & MIXED SIGNAL.................................................................................................................80
Consumer Product Cycle and Developing Emerging Markets Appear Likely to Sustain Growth of HPA/MS
O2Micro International Ltd. (OIIM)
Riding on International Consumer Strength and Emerging Markets Growth
SEMICONDUCTORS: MULTIMEDIA & SPECIALTY ..............................................................................................................81
Demand for Interactivity and Multimedia Content in Mobile Consumer Electronics to Drive Innovation
NVIDIA Corporation (NVDA)
Sole Merchant Graphics Chip Player Well Positioned to Benefit from New Graphics Processing Demand
SEMICONDUCTORS: PROCESSORS & COMPONENTS........................................................................................................82
Demand for More Energy Efficient Products Should Increase Product Replacement Cycle Time Rewarding
Companies with Innovative Power Management Solutions
On Semiconductor Corporation (ONNN)
ONNN’s New Lineup of Power Management Products Along with Its Low Cost Production Should Continue to
Drive Gross Margins Up in 2008
SOFTWARE: APPLICATIONS & COMMUNICATIONS...........................................................................................................83
Convergence Likely to Finally Come to Roost Amid Intensifying Competition
Amdocs Limited (DOX)
Trough Multiple Combines with Potential Deal Catalysts to Make Amdocs a Compelling Story in 2008

SOFTWARE: INFRASTRUCTURE.....................................................................................................................................................84
Cheaper Bandwidth Drives Internet-Centric Solutions: Endpoint Proliferation Drives Demand for Systems
Management While “Winner(s) Takes All” in Growing Datacenters Squeezes Enterprise Vendors
Digital River Inc. (DRIV)
Outsourced Sales and Marketing on the Internet: More Bandwidth and End-Points Enlarge the Overall
E-Commerce Market

COMMUNICATIONS COMPONENTS Favorable
IPTV, Triple-Play Services and 3G

• IPTV rollout imminent: Delays in IPTV deployments appear to be close to a resolution and issues such as quality of service
(QoS) on multicast video streams and system management seem to be settled. Due to the imminent resolution of IPTV delays,
some service providers have indicated they intend to ramp IPTV in 1H08.
• Triple-play services ramping: In 2008, we expect the voice/video/data service providers to increase their subscriber base. We
believe the upgrade to faster routers, including the trend toward 10 GigE routers, indicates an increasing number of access
points capable of supporting higher bandwidth, better QoS and triple-/quadruple-play services.
• Ramp in 3G handsets and smartphones: In 2008, as the price of 3G handsets continues to decline, we expect subscriber
uptake to increase. In our view, this has two effects on our sector: (1) increased RF content in handsets and (2) increased
spending in 3G infrastructure.
Catalysts/Milestones: Lower-cost 3G handsets stimulating demand for 3G service, an acceleration of IPTV subscriber adds and
increased VoIP services offered by cable operators.
Risks: Lack of a ramp in 3G, delays in IPTV deployments and push-outs of triple-play services.
NetLogic Microsystems, Inc. (NETL: $29.25) Mkt. Cap.: $652.5mn Overweight

Increased Service Provider Demand for IPTV and VoIP; Increasing Market and Customer Diversification
NetLogic to benefit from long-term trends: We maintain our confidence that NetLogic is well positioned to benefit from the
nascent ramp in IPTV, the migration to IPv6 and the increasing adoption of 10Gbps Ethernet.
• IPTV: The increasing demands of packet-based processing in the delivery of IPTV and triple-play services, including VoIP, by
service providers are driving the demand for routing products designed with NetLogic processors—capable of enabling QoS
packet prioritization, which is essential to these services.
• IPv6: The number of IP addresses added through IPv6 contributes to the complexity of routing as more devices require unique
addresses—NetLogic benefits as its products enable complex and high-speed routing.
• 10 Gig Ethernet: We believe 2008 will begin to see greater adoption of 10 GigE in both enterprise switching and service
provider markets, driving the demand for the increased routing performance that NetLogic provides.
Expanding into new markets: Historically, NetLogic has sold into the enterprise market; however, its addressable market is
expanding—now selling into the small but growing IPTV deployments. Also, cable infrastructure equipment is using NetLogic
processors, driven by additional service offerings such as VoIP, as cable operators aim to compete against traditional telecom
providers. In addition, the cellular infrastructure market is requiring more IP-based routing and throughput to deliver new
multimedia mobile services, benefiting NetLogic.
Diversification among customers: Although we believe business will stabilize and grow in 2008 as NetLogic’s NL8000 product
begins to generate meaningful revenue at its leading customer, we are encouraged by the company’s gains with customers other
than the leader (20% q/q into 3Q07). Even within its leading customer, NetLogic processors are gaining increased design wins
within a variety of product segments, including cable infrastructure, layer-7 processing, IPTV, desktop switching and 10 GigE,
according to management. European IPTV deployments are driving the demand for routing products designed with NetLogic
processors—we expect this trend to continue. More important, we expect to see full deployment of IPTV in Japan with OEMs
that are supplied by NetLogic. The company is also positive on its opportunities with wireless infrastructure deployments that
enable IP-based services.
Catalysts/Milestones: We believe increased IPTV and VoIP subscribers will drive NetLogic in 2008 as service providers
increase investment in equipment to deliver these services. We expect top-customer revenues, having declined through 2007, to
return to growth in 1Q08 and thereafter. Quad-play wireless infrastructure build-outs could also contribute to growth.
Risks: In addition to general market and macroeconomic risks, specific risks to NETL include the potential delays in carrier
deployments of triple-play services, the possibility that its new products are not designed into its customers’ platforms, and the
potential that competitors will make technological advances sooner than we expect.
Valuation: We believe that NetLogic has the technological leadership, product pipeline and customer traction to grow at a pace
faster than the overall communication IC market. With the shares trading at a 2008E P/E of 20.5x and 2008E TEV/sales of 3.9x,
and the prospects for accelerated growth in 2008, we believe the shares are attractively valued. Our 12-month price target of $44 is
based on a target P/E of 31x our 2008E EPS.
Price is as of the close, November 30, 2007. Jeremy Bunting, Ph.D. 415.364.2610

COMMUNICATIONS EQUIPMENT: CORE & WIRELESS Favorable

Handset Shipments Appear Likely to Achieve 15% Growth in 2008 on Emerging Market Strength and
3G/3.5G Upgrades
• We estimate that handset shipments will be about 1.33bn units in 2008 as growth in emerging markets and 3G/3.5G upgrades in
mature markets drive unit sales. This estimate represents 15% y/y growth on an estimated 1.15bn units sold during 2007.
• Rapid growth in emerging markets during 2008 will continue to pressure average selling prices (ASPs), but vendors will look to
offset ASP compression with sales of smartphones and high-end multimedia music and camera-phone handsets.
• A niche pocket within the handset sector lies in the large, fast-growing and profitable smartphone opportunity. Addressing the
enterprise customer’s need to have all of his/her communications and office/PDA applications in one mobile device, and the
retail consumer’s desire to consume multimedia content “on the go”, the smartphone market is experiencing rapid growth. We
estimate smartphone unit size will grow from 95mn in 2007 to 135mn in 2008, translating to a 42% y/y increase—triple that of
the overall handset sector unit growth. Unlike the broader handset market, in which unit growth for most vendors come at the
price of margins, the smartphone market will continue to maintain high margins despite high growth as smartphone ASPs are at
the premium end of the overall handset market and our 7-8% projected ASP decline is moderate relative to the overall handset
market.
Catalysts/Milestones: Select emerging markets are leapfrogging technologies, skipping over technologies to roll out 3G/3.5G
networks to cope with hyper-growth and to differentiate services. This could drive additional upside to our estimates as well as
China 3G licenses.
Risks: A global macroeconomic slowdown may have a negative impact on the sale of handsets, particularly replacement sales that
are discretionary. In addition, the adoption of 3G/3.5G handsets depends on operator subsidies, and any declines in these levels
may have a negative impact on high-end sales.
Research In Motion (RIMM: $113.82) Mkt. Cap.: $65,123.8mn Overweight

Casting Berries and Pearls, RIMM Is Leveraged to the Secular Growth Trends in the Smartphone Sector
with One of the Strongest Growth Profiles in Large-Cap Technology
• Growing penetration of the North American enterprise: Given the Blackberry brand recognition in North America—it is
the most recognized smartphone in the United States and Canada—RIMM is benefiting from the “viral” effect in networking.
This essentially means that as increasingly more subscribers use a certain device or service, newer subscribers are attracted by
word-of-mouth or brand recognition.
• Targeting international customers: Based on our proprietary estimates, 79% of smartphone demand exists outside of North
America. For RIMM, therefore, the international markets represent a large opportunity. We believe RIMM will see its revenue
shift to international markets, as growth in Europe and Asia-Pacific will outweigh demand in North America.
• Targeting the “prosumer” (professional consumer) with the Pearl: A key finding of ours is that the smartphone market is
bifurcating into two distinct segments: (1) a PDA-centric segment that appeals primarily to enterprise customers and (2) a
multimedia-centric segment that appeals mostly to retail consumers. In the past, RIMM has targeted primarily the enterprise
segment with its Blackberry platform. As the size and importance of the multimedia-centric smartphone segment grow, however,
the space offers an important and large growth opportunity for RIMM.
Catalysts/Milestones: Strong replacement demand, driven by high product velocity targeting an expanding subscriber base will
drive unit growth, with customers buying the Curve, the Pearl and the 8800 Blackberry devices to replace their older 7200, 7100
and 8700 series models.
Risks: (1) Failure to maintain product velocity; (2) inability to reduce COGS on an ongoing basis; and (3) increased competition
from diversified handset vendors or other peripheral players.
Valuation: Appears attractive relative to growth: (1) P/E — With a secular earnings growth rate of 45–50%, RIMM can
conservatively support a 40–45x FTM earnings multiple, implying a $135–150 stock price range. (2) DCF — Our 10-year DCF
analysis yields a fair value range of $125 to $155. Taking a conservative approach, we hold a 12-month price target of $130.
Estimates: Feb. '08 Rev.: $5927.6mnE EPS: $2.20E Feb. '09 Rev.: $9159.2mnE EPS: $3.37E
Price is as of the close, November 30, 2007. Hasan Imam, Ph.D. 212.271.3698

COMMUNICATIONS EQUIPMENT: IP NETWORKING Neutral
Telco and Satellite Footsteps Leave Cable with No Choice But to Spend on Advanced Services
• Competition forcing cable operators' hands: With cable MSO stocks under fire due to slowing revenue generating unit
(RGU) growth, it is clear that telco and satellite competition is taking its toll. DTV has been aggressively marketing a 100-
channel HDTV offering (versus the typical cable operator with 25-30 linear HD channels), while Verizon has been touting its
faster broadband speeds (symmetrical 20Mbps service with FiOS). MSOs are thus faced with the delicate balance of satisfying
Wall Street’s opposing demands: greater free cash flow generation and preservation of current revenue and RGU growth trends.
• Fighting back by rolling out advanced services: Rather than cause cable MSOs to pull back, however, we are confident that
the rising competition will only drive spending on key strategic initiatives that will help MSOs retain subscribers and support
RGU growth. We expect operators to accelerate efforts around (1) switched digital video (SDV) to free up bandwidth for new
HD channels, (2) higher broadband speeds via DOCSIS 3.0 upgrades, (3) commercial services, which go after the highly
lucrative SMB market dominated by telcos, and (4) more aggressive marketing for triple-play subscribers (which churn much
less) along with more double-play options.
• Cable capital expenditure (capex) can still grow in 2008, while declining as percentage of revenue: Many of the MSOs
are trying to soothe Wall Street concerns over capex by claiming that 2007 will be the peak year in terms of capex as a percentage
of revenue. While we do not disagree with this, we still believe that overall capex could grow in the 5-10% range next year for
the top-five MSOs to an estimated $13bn (and drop as a percentage of revenue) if we exclude roughly $500-600mn in 2007
capex related to one-time events such as the 707 set-top mandate and the Adelphia rebuild.
Catalysts/Milestones: We will be looking for signs that the telco and satellite operators are getting more aggressive with respect
to their marketing and rollout of advanced services. We also expect that MSOs will provide preliminary 2008 capex guidance on
their respective 4Q calls with guidance likely reflecting a healthy variable capex outlook, especially for advanced services.
Risks: There are two key risks: (1) if 2008 capex for the top-five MSOs comes in below our expectations and (2) if the MSOs
continue to struggle with subscriber additions, which could negatively affect spending on customer premise equipment.
ARRIS Group, Inc. (ARRS: $10.43) Mkt. Cap.: $1,169.0mn Overweight

Leveraged to Cable Spending Imperatives, in Our View; Competition Driving Cable’s Need to Spend
• ARRS leveraged to key spending areas: ARRS plays directly into most of the priority spending areas for cable. ARRS is one
of two vendors supplying edge QAMs for Comcast’s rollout of SDV (Cox, TWC, Rogers and CVC are also trialing). ARRS has
also been rapidly expanding its CMTS footprint, which should help reignite ARRS’ CMTS business as operators ramp DOCSIS
3.0 deployments in 2008. Last, we expect ARRS to be a major beneficiary of multi-line EMTA spending as operators expand
their commercial services rollout and with ARRS currently enjoying little competition in this segment.
• CCBL merger could pack more punch than expected: CCBL brings to the table: (1) additional business lines (e.g., optical
nodes, video on demand software and network management tools) that should help diversify ARRS’ revenue; (2) gross margin
accretion with CCBL running at roughly 45% gross margin (ARRS at 28%); and (3) more scale to go after international
opportunities. We expect the deal to close in mid-December and to be neutral to EPS by 2H08 on a non-GAAP basis.
Catalysts/Milestones: Key milestones include: (1) the close of the CCBL deal with little disruption to ARRS’ and CCBL’s
existing businesses and (2) a healthy cable capex picture, particularly in advanced services areas.
Risks: (1) Integration difficulties with CCBL, (2) a less-robust cable capex picture and (3) softness in cable triple-play additions,
which could slow residential EMTA demand (although we have flat residential EMTA revenue for ARRS in 2008).
Valuation: With ARRS trading at a two-year trough multiple, we find the shares compelling at 10x our 2008 EPS estimate relative
to expected pretax earnings growth of 18% in 2007 and 22% in 2008. Our 12-month price target remains at $18 based on an 18x
multiple to our 2008 non-GAAP EPS estimate of $1.02, which would value ARRS closer to its peers. Key risks to our price target
include: (1) greater-than-expected competition in key product areas, especially EMTAs; (2) a pause in spending by customers such
as CMCSA (42% of 3Q sales); (3) gross margin pressure due to product mix or greater-than-expected price erosion; and (4) an
inability to close the CCBL deal.
Price is as of the close, November 30, 2007. Jason Ader, CFA 617.488.4621

ELECTRONIC SUPPLY CHAIN Neutral

While Component and IT Disty Environments Will Likely Be Choppy, Continued Outsourcing and
Technology Consolidation Should Favor Disciplined, Well-Executing EMS Players
• EMS—Outsourcing and consolidation to continue; we favor FLEX in choppy environment: Despite questions around the
global economy, worldwide technology spending continues at a solid pace, particularly overseas. Also we anticipate technology
outsourcing should continue to provide a nice catalyst for large electronics manufacturers. With the FLEX-SLR merger, much-
needed industry consolidation has begun and, in our view, could continue near term with further M&A and the winding down of
multi-year restructuring programs. Given (1) the highly competitive nature of the industry, (2) significant exposure to certain choppy
end markets and (3) multi-year restructuring programs, we favor proven performers with the most diverse customer base, end-
market exposure and geographic footprint.
• Outlook mixed for components suppliers, distributors: In the component space, we remain cautious given choppy end-market
demand, enterprise IT spending weakness and an uncertain macroeconomic climate. That said, with the multi-quarter inventory
correction largely complete, in our view, we anticipate the typical inventory build from component distributors in 1H07, which
should bode well for passive suppliers.
• IT distributors/resellers to see growth from Europe and Asia as U.S. likely remains stagnant: We expect North American
IT spending to have another year of mid-single-digit growth with mixed results in enterprise spending. In this environment, we
expect distributors to see most of their sales growth from Europe and Asia.
Catalysts/Milestones: For the component sector, we believe distributors may build inventories ahead of the typical March and
June quarter pickup in the industrial markets. For EMS, we believe continued consolidation and additional large OEM
outsourcing contracts could be catalysts.
Risks: The biggest risk for the overall universe is the macroeconomic environment, as an overall recession could continue to hurt
the consumer and enterprise sectors, thereby hampering demand for commercial and consumer IT products and their respective
components. For EMS, the multi-year restructuring activity at the tier-one players presents significant execution risk.
Flextronics International Ltd. (FLEX: $11.96) Mkt. Cap.: $7,372.3mn Overweight

Poised to Become Strategic EMS Leader with Shares Trading at Historical Lows, We Favor FLEX
• Acquisitions position FLEX as strategic EMS leader in U.S.: We believe FLEX will have a competitive advantage in the EMS
sector, boasting the broadest offering, most diverse customer base, leading vertical capabilities and a wide reaching global footprint.
Plus, with (1) the integration of Solectron tracking well ahead of schedule and (2) the company aggressively targeting new industries
such as the Taiwanese-dominated notebook industry, FLEX is poised to see above-market sales and profitability growth. In 2008,
we believe FLEX should become one of the most diverse EMS companies, with expansive vertical capabilities and a wide range of
end-to-end solutions to offer its OEM customers, providing incremental cross-selling and higher-margin opportunities.
• FLEX continues to execute nicely and targets remain achievable, in our view: Since closing the Solectron acquisition,
FLEX’s aggressive consolidation program is already yielding exceptional results, closing 90% of the intended SLR facilities in just
two weeks. Also, management (1) confidently noted FLEX should achieve a run rate of more than $200mn in after-tax savings in
merely 6 months (well ahead of the originally projected 18-24 months), (2) is targeting FY09 operating margin of 3.8%, above its
U.S. peers and (3) maintains a bullish organic sales growth target of 10-15% for FY09, achievable, in our view.
• Despite solid execution, valuation depressed and attractive: FLEX shares remain attractive, trading at historical lows of
roughly 10x CY08E EPS and almost 10x LTM EV/EBITDA. This is especially true given the solid performance in its core business
and solid execution of its integration of SLR so far, in our view. We recommend investors build positions in the next few months.
Catalysts/Milestones: (1) Achieving the $200mn in after-tax synergies from the Solectron acquisition within the previously
targeted six-month period; (2) accomplishing the company’s financial goals, such as 3.8% operating margin and 12% ROIC by
FY09; (3) successfully leveraging its expansive portfolio of vertical capabilities to win additional OEM contracts in new markets,
especially in the newly targeted end markets such as the notebook PC market.
Risks: (1) While FLEX looks to be executing quite well so far with the Solectron acquisition, significant risk still remains
especially given the size of the acquisition; (2) a slowdown in the global handset market; (3) general pricing pressure in the
electronics outsourcing industry; (4) the loss of a significant customer; and (5) the ability to successfully penetrate the highly
competitive, Taiwanese-dominated PC manufacturing market that it has begun to target.
Valuation: We believe FLEX shares are attractive, trading at slightly less than 10x our FY08E EPS of $1.22. Our 12-month price
target of $16 is based on 13x our FY09E EPS of $1.22. The target valuation is below the company’s five-year historical average
price to two-fiscal-year-out estimated earnings of 17x, but fair given the added risk of integrating Solectron while executing on its
double-digit core business growth strategy.
Estimates: Mar. '08 Rev.: $27074.1mnE EPS: $0.95E Mar. '09 Rev.: $35550.4mnE EPS: $1.22E
Price is as of the close, November 30, 2007. Matthew Sheerin 212.271.3753
ENTERPRISE HARDWARE Neutral
Expect Mobile PC Demand and Higher Storage Capacity Needs to Trigger IT Spending
• Higher-capacity 2.5-inch HDDs, lucid LCD displays, powerful processors, the continued proliferation of wireless data networks,
and lower ASPs are rendering notebook PCs viable desktop replacements in both the consumer and commercial spaces. We
estimate that CY08 mobile shipments will grow 27% y/y on strong demand, which will positively benefit a number of spaces. By
2009, we estimate that the number of annual notebook shipments will exceed desktop shipments.
• Storage needs will continue to accelerate with the digital content invasion of social networks, digital videos and digital music
stores. One-terabyte drives will become a standard in the data center, and the storage of high definition video on DVRs should
catalyze the growth of consumer electronics HDDs, specifically DVRs.
• While virtualization was the major theme for 2007, deduplication will be a major theme for 2008 as corporations focus on more
efficient storage of their high capacity digital content.
Catalysts/Milestones: Over 34.2% y/y notebook growth is expected to be achieved for 2007, and that momentum should carry
over into 2008. A leading hard drive company announced a 320GB notebook HDD, and 1TB 3.5-inch drive is being configured
for both commercial and consumer use to handle the influx of digital content.
Risks: Falling ASPs could lead to a price war, which would lower the revenue impact from accelerating mobile growth.
Netezza Corporation (NZ: $13.22) Mkt. Cap.: $893.1mn Overweight

Disruptive Appliance Should Gain Significant Traction in the Datawarehouse Market as the Space Becomes
More Aware of Its Major Speed, TCO and Maintenance Benefits
• Truly disruptive technology provides big performance edge at reduced cost for the customer: Although traditional data
warehouses are implemented by using server, storage and database management software from separate vendors, Netezza
provides all three products in one appliance called the Netezza Performance Server (NPS), which offers superior performance
and significantly lower TCO. With 8 patents (15 pending), the NPS should be able to maintain its lead over competitors in
terms of performance, ease of use and power savings.
• Large growing market shifting Netezza’s way equals big share gains and top-line growth: The overall datawarehouse
market is not that “sexy,” but it is solid and expected to grow at a 7% CAGR (when including hardware costs) to $13bn by 2009.
This substantial market size and expected share gains by Netezza should provide opportunity for rapid top-line growth (35%-
plus) for at least three to five years.
• Differentiated technology leads to strong financial model: Netezza’s “secret sauce” includes expertise in software as well as
hardware design, a combination that we believe provides unique, highly defensible technology, which when combined with low-
cost components should allow for steady 60% gross margin, providing the ability to leverage operating margin into the 10-15%
range over time. This should result in a long-term top- and bottom-line CAGR of over 35%.
Catalysts/Milestones: With new customer wins, the Netezza Performance Server is building the reputation that it offers
tremendous advantages over using solutions from its leading competitors (which are shedding the reputation of being a datamart
to being an enterprise datawarehouse solution).
Risks: Netezza’s average deal size comprises a significant portion of quarterly revenue, which may lead to lumpiness.
Valuation: Our DCF suggests a 12-month price target of $18. Risks to our price target include competitive response from
incumbent vendors, slower-than-expected growth of the datawarehouse market and push-outs of larger deals beyond the current
fiscal year.
Price is as of the close, November 30, 2007. Kevin Hunt, CFA 617.488.4162

INFORMATION & FINANCIAL TECHNOLOGY SERVICES Neutral

Moderating IT Spend and Higher Offshore Delivery Cost Offset by Continuing Migration to Global
Delivery in 2008
• Concerns about economic growth and dislocation in the financial services sector will continue to weigh on perceptions about
global IT spending growth in 2008.
• Given the prospects for slowing economic growth, particularly in the United States, we favor those companies with more
defensive business models. We consider certain outsourcing business models (BPO versus ITO) and those services companies
focused on global delivery as more defensive given their focus on shifting existing business processes to an outside vendor to
lower costs. Multi-national IT service organizations will also benefit from stronger economic growth outside of the United
States and a relatively weak U.S. dollar.
• Slowing economic growth aside, we continue to believe those service providers with the most evolved global delivery model
will continue to gain share in 2008. While the first phase of growth was dominated by the migration of applications
development and maintenance to offshore pure-plays, we believe there is a window of opportunity for the legacy players to
regain some lost share as global delivery migrates to higher value market segments and the legacy offshore firms grapple with
the challenges associated with an appreciating rupee, scale, increasing competition and commoditization at the lower end of the
market.
Catalysts/Milestones: Changing perceptions relative to economic growth and IT spending, depreciation of the rupee relative to
the western currencies, and continued sector weakness combined with the weak U.S. dollar could result in an acquisition by a
large service provider outside of the United States.
Risks: While these trends are secular, in our view, factors that may cause near-term disruptions to these trends include shifts in
the relative value of currencies and slowing economic growth globally.
Affiliated Computer Services, Inc. (ACS: $41.96) Mkt. Cap.: $4,237.4mn Overweight
Controversy Sets Up Compelling Risk/Reward Opportunity
• While ACS appears well-positioned to benefit from the broader industry trend of cost-cutting through global delivery (the
company has 27% of its employee base located in global delivery centers), the main catalysts for this stock over the next 12
months will be the reacceleration of bookings following the resolution of the change in control and recent boardroom
dissention.
• The boardroom drama and its related impact on new business signings aside, the internal operations are healthier today than
any other time in the past 2-3 years as the company is at the tail end of completing an 18-month overhaul of problem contracts
(two large HR outsourcing contracts, Dept of Education, etc.), recently anniversaried client losses from the Mellon acquisition
and certain restructuring initiatives have been implemented to lower costs.
• Despite potentially weak bookings (down 20% in FY07, down 8% in FY08 and flat in FY09), the company is still capable of
generating 4% internal growth with these assumptions, given its recurring revenue base (85% of revenue), contract duration
(five years on average) and relatively robust customer retention (over 90%), which implies annual free cash flow of $360-400mn
over the next two years.
Catalysts/Milestones: We view the recent change in board members and the execution of the recently authorized share
repurchase program ($200mn authorized and a total of $1bn endorsed) as two key catalysts for the stock. The board issue is
particularly important as it helps curtail the negative headlines and should facilitate management’s efforts to stabilize the company
and reaccelerate growth in new business signings.
Risks: The risks to our thesis include successful execution of the portfolio of contracts, the ability to reaccelerate bookings
growth now that the uncertainty around the buyout is diminished and the ability to maintain margins.
Valuation: The stock is trading at 11.2x our CY08 FCF estimate of approximately $380mn (a 9% FCF yield), which is an 18%
discount to its peer group at 13.7x. Our $60 12-month price target is 15.0x our FY09 (June) free cash flow estimate and is based on
5% and 4% earnings growth in FY08 and FY09, respectively. There are always risks that the price target for any security will not be
realized. In addition to general market and macroeconomic risks, for ACS, these risks include, among other things, successful
execution of the portfolio of contracts, the ability to grow bookings given the uncertainty around the buyout and the ability to
maintain margins.
Estimates: Jun. '08 Rev.: $6099.7mnE EPS: $3.34E Jun. '09 Rev.: $6343.6mnE EPS: $3.66E
Price is as of the close, November 30, 2007. David Grossman 415.364.2541

SEMICONDUCTOR CAPITAL EQUIPMENT Neutral
Expect 4Q08 Recovery in Fab Equipment Orders Following Prolonged Memory Capacity Digestion Period
• We expect semiconductor industry capex to decline 21% y/y in 2008 following a modest 6% y/y increase in 2007. While we
observe evidence of broad-based strength in semiconductor end markets (PCs, handsets, GPS systems), we believe that
declining capacity requirements in the memory segment (60% of 2007 industry capex) will dominate in 2008 over modest
increases in the foundry and logic capex (40% of total). Following a slower-than-expected ramp of MS Vista and healthy fab
yield ramps, oversupply in the DRAM market has led to 83% erosion in DRAM ASPs) from January-December 2007 and
prompted 2008 capex cuts at several DRAM makers. As lower pricing drives higher DRAM content per PC (from 1.4GB in
4Q07 to 2.0MB by 4Q08, we believe), we expect DRAM-related capex to lead a recovery in orders beginning in 4Q08. While
investor sentiment in the space normally improves two to three quarters ahead of an expected trough in orders, we believe
continued uncertainty around consumer spending in 2008 will leave cycle-sensitive stocks in the group range-bound in 1H08.
• We believe bulls in the semiconductor equipment space are misreading evidence of high fab utilization levels at TSMC and
UMC (95% in 4Q07, we estimate) leading competitors as evidence of an impending 1H08 order bonanza for equipment
vendors. While several key logic device manufacturers (TI, Sony) have in 2007 announced plans to abandon captive
manufacturing and technology development for 45nm (and below) and to source wafers at foundry partners, our analysis
suggests that the related increased demand for foundry capacity will be minimal in 2008 but contribute to 15% y/y foundry
capex growth in 2009. We note that 65nm development activity has lagged expectations, resulting in excess leading edge
capacity. Also, early expectations for 45nm design activity appear weak, thus, further depressing demand for leading-edge
equipment in 2009.
• 2008 consensus estimates for semi equipment vendor revenue growth is currently down 2% y/y, suggesting to us that revenue
and EPS estimates will see downward revisions of 15-20% and 25-30%, respectively, over the next 6-12 months. Buy-side
expectations for EPS in the group, we estimate, are more realistic but will also be trimmed by 5-10% from current levels.
Catalysts/Milestones: We expect 2008 capex guidance in 1H08 will support our cautious expectations for equipment orders in
2008. We look for new DRAM demand drivers (e.g., Win 7.0) to drive memory capex growth of 10-20% capex growth in 2009.
Risks: Robust holiday sales of consumer electronics may lead to DRAM price stability earlier than we anticipate (1H08 vs. 2H08),
triggering related capex growth in 2008 (vs. 2009). Penetration of NAND-based PC notebooks also represents potential upside.
Verigy Ltd. (VRGY: $25.33) Mkt. Cap.: $1,532.0mn Overweight

Expect Multiple Expansion as Flexible Operating Model Validated and Market Share Gains Continue
• We expect VRGY to increase market share in the $4bn automated test equipment (ATE) industry from 16% in 2006 to 25% in
2011. The key driver is the move to outsourcing of the test and assembly activities of integrated circuit (IC) manufacturing from
approximately 44% of total ICs, we estimate, to 60% by 2011. VRGY is favorably leveraged to this trend as test houses focus
capacity investment on a small number of test platforms capable of performing a wide range of test activities for multiple
customers at unpredictable volumes. Specific applications for VRGY growth include RF, NAND and high-speed DRAM.
• Our checks suggest VRGY’s 93k test platform offers maximum flexibility, scalability and road map extendibility for IC test
customers, suggesting to us that VRGY will emerge as a leading ATE supplier as industry consolidation reduces from six to
seven players to two to three players by 2011. We expect VRGY to deliver 2007-2011 revenue CAGR of 15% versus the peer
average of 8%.
• VRGY went public in 2006 with an outsourcing-targeted model that we believe removes much of the cycle risk that weighs on
semi-cap peers. We expect the gross margin to increase from 46% in F3Q07 to 48% by FY09 and for the operating margin to
average 15-20% during 2007-2012. VRGY delivered a LTM ROIC of 24% and has $424mn ($7.01 per share) in net cash.
Catalysts/Milestones: As VRGY continues to exceed expectations each quarter (every quarter since IPO, guidance has
exceeded expectations), we expect investors to become increasingly comfortable with VRGY’s growth through the cycle strategy.
Risks: Consumer weakness may create oversupply in IC test capacity in 2008, delaying a recovery in equipment demand. VRGY
price target risks include: (1) cyclical risk related to the semiconductor industry; (2) threat of product introductions from
competitors; (3) price competition; (4) potential negative impact of new test technologies; and (5) risk of product obsolescence.
Valuation: Our $35 12-month price target reflects a 17x multiple on our CY08 EPS estimate of $2.04. VRGY currently trades at
12.4x our CY08 EPS estimate, above the 10.7x median for test equipment vendors, but well below key comparable TER at 15.5x.
The 17x P/E multiple associated with our price target compares to a five-year EPS CAGR for VRGY that we estimate will be 20%.
Estimates: Oct. '08 Rev.: $761.6mnE EPS: $1.97E Oct. '09 Rev.: $875.6mnE EPS: $2.77E
Price is as of the close, November 30, 2007. Douglas G. Reid, CFA 212.271.3841

SEMICONDUCTORS: ANALOG & MIXED SIGNAL Favorable
Consumer Product Cycle and Developing Emerging Markets Appear Likely to Sustain Growth of HPA/MS
• Expect consumer and computing market strength to continue and industrial to remain sluggish: We believe many
consumer products—LCD TVs, smartphones, GPS, 802.11n, etc.—could be reaching their respective inflection points for
mass adoption. We also expect demand for notebook computers to remain strong as desktops are increasingly replaced by
notebooks. As such, certain aspects of notebooks may receive added attention than previously given, including better interface
for a plethora of peripherals and improved battery life for multimedia/entertainment applications. One industry source
forecasts the LCD TV and notebook markets to both grow in excess of 20% CAGR from 2007-2011.
• Era of the emerging markets: World market boundaries are diminishing and trade globalization is in full swing. While the
U.S. market may be slowing, we believe demand growth in Asia (more specifically, China) could remain robust. Progress is
brisk in that region, and consumers continue to develop greater sophistication and taste for higher end products. In addition,
due to scarcity of resources, more attention is given to power management and energy efficiency than in the U.S. or Europe.
Thus, we believe companies active overseas, especially those participating in power management, can effectively differentiate
themselves from their peers and could outperform players that mainly serve the North American and European markets.
• Impact from potential slowdown of the U.S. and European market: Traditional analog mixed signal (AMS) companies sell
into a broad array of end markets, and therefore, a slowing U.S. economy with a greater emphasis than Asia and industrial
market segments could have an impact on them. But nimble and smaller players tackling the right end market could experience
above-market or even accelerated growth over the next two to three years.
Catalysts/Milestones: We believe catalysts for the analog and mixed signal industry include the 2008 Olympics in Beijing,
China; continuing demand strength in emerging markets; and stabilization of the U.S. economy and housing market.
Risks: Risks to the analog and mixed-signal industry include global economic downturn that thwarts demand for new innovative
products and increases in geopolitical stability that add to business risks.
O2Micro International Ltd. (OIIM: $14.22) Mkt. Cap.: $557.6mn Overweight

Riding on International Consumer Strength and Emerging Markets Growth
• Addresses key growth markets: O2Micro is best known for being a supplier of display backlighting solutions for LCD TVs
and notebook displays (approximately 60% of sales). With retail prices of LCD TVs having declined dramatically, we believe
the LCD TV market could be at the cusp of mass adoption, not only in the United States and Europe but also in developing
countries such as China and India. China, in particular, potentially could be entering a growth cycle ahead of the 2008 Olympics
in Beijing. Less known is O2Micro’s technology and market leadership in multi-cell (4-15) Lithium-ion battery management.
The company targets China’s high-volume, e-bike market with intelligent Li-ion battery management solutions. In addition, we
believe O2Micro is a leading component supplier to growing electric vehicles (EVs) markets. Finally, O2Micro has been
developing and marketing a SOHO VPN firewall solution for the Greater Pacific Rim market. We believe this market has not
received much attention from U.S.- and European-based players and could be an excellent opportunity for the company.
• Focuses on emerging markets: In contrast to traditional analog companies that address diverse end markets and mainly
service the North American and European markets, O2Micro targets emerging markets, especially China, with 100% of sales
overseas and 0% exposure to the U.S. domestic market. Over time, the company has built one of the largest corporate
technology R&D staff in China with 400-plus engineers (600-plus overall).
• Operating leverage remains: Finally, we believe O2Micro’s legal strategy, while not always popular with investors, has been
successful. The company has reached settlements with several firms. The settlements have opened up new opportunities, and
with litigation expenses expected to come down, we believe significant leverage remains in the company’s operating model.
Also, the company recognizes revenues as customers/OEMs draw parts from its hub system, which reduces O2Micro’s
exposure to the part of the semiconductor cyclicality that is attributable to supply chain inventory fluctuation, and O2’s revenue
recognition policy, which is equivalent to sell-through, reflects the company’s conservative stance in accounting.
Catalysts/Milestones: 2008 Olympics in Beijing, accelerated adoption of Li-ion battery technology and growth in PacRIM.
Risks: Risks to our thesis include global economic slowdown, increase in participation from traditional analog players in the
Pacific Rim, change in consumers’ taste/preference, and delay in the adoption of products in O2Micro’s target markets.
Valuation: Our 12-month price target of $25 is based on 25.6x our 2008E non-GAAP EPS, in line with peer group average.
Price is as of the close, November 30, 2007. Tore Svanberg 650.688.5261

SEMICONDUCTORS: MULTIMEDIA & SPECIALTY Neutral
Demand for Interactivity and Multimedia Content in Mobile Consumer Electronics to Drive Innovation
• The user experience goes mobile: The Apple iPhone and the promise of the Google Android platform illustrate that the
convergence of the 3Cs—computing, consumer, communications—has really kicked off. The current push is to incorporate
technologies that would drive more usage of revenue-generating services and applications by delivering richer multimedia
content, more sophisticated applications, and higher interactivity. The smartphone segment of the handset market is forecasted
to grow from 10% of the market in 2007 to more than 25%, or more than one in four handsets or 1.5bn units by 2012 (IMS
Research). The increasing popularity of mobile gaming and a new crop of gaming-friendly handsets offering high-quality 3D
graphics are expected to drive end-user generated revenues from mobile games to nearly $10bn by 2009 (Juniper Research). We
believe these trends would bring market growth opportunities for semiconductor companies with products that enable this user
experience, including delivering processing power for high-def video recording, mobile gaming, and touch-screen interface.
• Rapid time-to-market requires strong execution: The relentless pace of the consumer electronics product cycle is driving
shorter and more frequent design cycles for semiconductor companies. We believe this not only favors more focused merchant
chip suppliers over captive players, but also those companies with the capital to sustain the ongoing R&D investment and a
track record of solid execution.
• Emerging market demand growth brings new market realities and competitors: The growth in disposable spending in
developing economies has created more opportunities for the consumer electronics industry. For instance, more than 460mn
mobile users are expected to download games by 2009, double the current number, according to Juniper Research, with much
of this growth from emerging markets such as India. However, these regions often demand lower price points. In addition, the
market growth provides fertile ground for low-cost Asian semiconductor suppliers to compete effectively with U.S. and
European players because of their faster and responsive customer support. In our view, only companies with well-established
supply chain relationships and efficient operating structures can remain competitive in this market environment.
Catalysts/Milestones: Catalysts include: continued investment in overseas R&D and support infrastructure; more platform
offerings for mobile computing by semiconductor companies; and integration to drive weaker players out of the market.
Risks: Risks include: consumer demand weakness; increased competition worldwide; potential severe pricing erosion; and
potential disappointing holiday sell-through, which could lead to inventory build in 1Q08 or longer.
NVIDIA Corporation (NVDA: $31.54) Mkt. Cap.: $18,768.1mn Overweight

Sole Merchant Graphics Chip Player Well Positioned to Benefit from New Graphics Processing Demand
• Drivers for more intense graphics and processing remain in play: We believe demand drivers for higher performance
graphics processing capabilities such as Vista, HD video and next-generation gaming have yet to be played out as the market
has been slow to adopt these applications in 2007. In our view, 2008 would be the year when these applications begin to see
broader reception and Nvidia will be one of the key beneficiaries as a provider of envelop-pushing processing capabilities.
• Market expansion initiatives represent multi-year growth opportunities: In our view, Nvidia continues to innovate and
execute on growing its PC share, addressing a 40mn unit opportunity with its motherboard GPUs in 2008 and Hybrid SLI
solutions. While the Tesla supercomputing and consumer initiatives may take more than a year to develop and see significant
results, we believe Nvidia is ahead of the curve in broadening its addressable market, creating new opportunities for itself as its
core market undoubtedly matures. While some investors see this as a bear case focusing on a zero-sum game in a mature
market, we believe Nvidia’s track record of innovation and execution would give it an advantage in succeeding in its evolution.
• Favorable competitive dynamics: Despite expectations for resurgence by its arch rival with its new platforms, we believe
continued losses there make it difficult to sustain the high R&D costs required for discrete GPUs. While we agree that 32nm
multi-core design represents a longer-term threat to Nvidia’s high-performance computing platform, we believe it remains to be
seen whether competitors could execute on the rapid product refresh cycle in enthusiast graphics.
Catalysts/Milestones: Catalysts include: (1) benefits from higher Vista penetration, which requires greater graphics capabilities to
optimize performance; (2) incremental chipset share gain opportunities; (3) ongoing technology leadership; and (4) Tesla traction.
Risks: Our assumptions include: (1) a healthy PC environment; (2) continued technology leadership and execution; (3) a
reasonable pricing environment; and (4) ongoing share traction in notebooks, workstations and chipsets.
Valuation: Our 12-month price target of $43 is based on 25x our CY08 non-GAAP EPS estimate of $1.73. We believe the 25x
multiple, which is at the high end of historical forward multiple range, is justified based on NVDA’s track record of gross margin
expansion and its new product pipeline’s potential for longer term top-line growth.
Price is as of the close, November 30, 2007. Heidi T. Poon, CFA 415.364.2505

SEMICONDUCTORS: PROCESSORS & COMPONENTS Favorable

Demand for More Energy Efficient Products Should Increase Product Replacement Cycle Time Rewarding
Companies with Innovative Power Management Solutions
• Demand for notebook PCs outpacing desktop PCs: We believe demand for mobile PCs will continue to outpace demand
for desktop PCs in 2008, benefiting companies with the most energy-efficient processors, highest power density and solutions
for extending battery life. In 2008, we expect the ultra-mobile PC (UMPC) product segment to begin shipping in significant
volumes as higher-speed wireless Internet interfaces become more available. On the other end of the PC spectrum, it is now
recognized that powering and cooling data centers are becoming a high percentage of overall operating cost. We believe the
need for improved performance/watt/dollar ratio will drive new demand for energy-efficient servers in 2008.
• Energy efficiency needs to expand total available market for semiconductors: The worldwide increase in energy costs
along with various government power regulations should drive demand for new more energy-efficient products in non-
traditional semiconductor market segments such as white goods, lighting, and industrial automation, in our view. Highly
integrated microcontrollers and power management solutions could replace more traditional electro-mechanical solutions
particularly within OEMs with few or no resources for semiconductor design. Semiconductor companies providing turnkey
solutions and support giving its customers a faster time to market should benefit the most from this trend.
• Innovative products pushing gross margins up: Meeting this new demand for higher energy efficiency, many of the
traditional commodity component players have evolved their product portfolios up the semiconductor value chain. These
unique new products are commanding higher ASPs based on value in the design rather than on manufacturing costs, thus,
increasing gross margin. Also, we believe the supply chain has become more efficient through manufacturing cycle time
reductions and improved demand forecasting. As a result, there is leaner inventory in the channel and on customer shelves
helping to flatten out the semiconductor cycle.
Catalysts/Milestones: Continued adoption of Microsoft Vista OS in consumer along with early adoption in enterprise segment.
Risks: Consumer demand weakness related to macroeconomic environment, increased competition worldwide, potential severe
pricing erosion, and potential disappointing holiday sell-through, which could lead to inventory build in 1Q08 or longer.
On Semiconductor Corporation. (ONNN: $9.19) Mkt. Cap.: $2,920.6mn Overweight

ONNN’s New Lineup of Power Management Products Along with Its Low Cost Production Should
Continue to Drive Gross Margins Up in 2008
• Turnaround story unfolding through debt reduction, revenue growth, growth margin expansion and positive cash
flow: ON Semi’s management team has orchestrated a rather extraordinary turnaround based on debt reduction and higher
valued product introductions, which we believe the Street is only beginning to acknowledge. We believe the company’s full
pipeline of new products and design wins will continue to expand the gross margins to the 45% range from today’s 38%. ON’s
recent acquisition of ADI’s voltage regulation products should provide an immediate foothold in key power management
designs in NB and server platforms.
• ON Semi’s acquisition of LSI’s Gresham fab should allow margins to continue to trend higher and position the company
uniquely at the 0.13um processing node giving the company leading-edge internal manufacturing, which we believe will give
ON both a cost and technology edge over its competitors.
• ON Semi is undervalued relative to its peer group, in our opinion. The shares are trading at roughly 8.9x our 2008E GAAP
earnings while the peer group is trading at an average of 15.9x. We note that investors have a buying opportunity as, in our
opinion, the ON turnaround story is far from over.
Catalysts/Milestones: Gresham fab transition from foundry to internal product production expected in 2H08 and transition of
newly acquired ADI products to Gresham fab.
Risks: Risks include weakening market demand, fab utilization, market acceptance for new products and currency exchange rate.
Valuation: We believe ONNN shares will continue to benefit from a pipeline of new high-profile design wins in growth markets
allowing for a richer mix of proprietary products expanding gross margins. We believe the Gresham fab will provide internal
leading-edge technology and products beginning in 2008, solidifying the company as an industry leader in the power management
segment of the semiconductor industry. ONNN’s gross margin has expanded to roughly 85% of that of its comp group’s, justifying
a P/E multiple of 85% of the group’s 15.9x, in our opinion; therefore, we base our 12-month $15 price target on 16x our 2008
GAAP EPS estimate of $0.92.
Price is as of the close, November 30, 2007. Kevin Cassidy 650.688.5264

SOFTWARE: APPLICATIONS & COMMUNICATIONS Favorable
Convergence Likely to Finally Come to Roost Amid Intensifying Competition
• While the convergence of wireless, broadband, video and voice within the communications space is by no means a new
development, the release of the iPhone as a potential game-changer earlier this year appears to have intensified the competition
among carriers, which were already seeing heightened competition from cable MSOs encroaching into their territory. Telcos, in
turn, are threatening cable’s traditional pillar of strength in video. Although consolidation and leadership changes at some of
the leading telcos and wireless providers contributed to a more cautious spending environment in 2007, we believe that the
trend of service providers venturing out of their core businesses is likely to benefit broader communications software vendors.
• On-demand software companies have provided much of the excitement for software investors in 2007, with enterprises
embracing the lower-cost Web delivery model, and with high-growth, on-demand vendors being rewarded with multiple
expansion. Lost in all the hype, however, is the fact that traditional communications software multiples have contracted by
about 30% since the beginning of the year on a forward calendar year P/E basis and about 20% on a forward calendar year
TEV/sales basis, which we believe makes for attractive risk/reward scenarios within the communications software space.
• Given the uncertain spending environment, we believe that the market is not currently pricing in any assumed pickup in capital
expenditures in 2008 and that any positive data points should provide a boost to the stocks at currently depressed multiples.
Catalysts/Milestones: We continue to look to carrier commentary on capital spending plans as the key indicator for future
communications software revenue, as it has been the most important indicator in the past, although other metrics such as ARPU,
churn reduction and increased multi-play uptake are also important metrics that could prove to trigger software spending.
Risks: As traditional communications software stocks exit a very difficult 2007, the primary risk for these companies is that
service providers continue to tighten their belts on transformation projects. In addition, the entrance of non-traditional
competitors in hardware and advertising pose potentially significant threats to telecoms and cable providers.
Amdocs Limited (DOX: $33.09) Mkt. Cap.: $7,413.3mn Overweight

Trough Multiple Combines with Potential Deal Catalysts to Make Amdocs a Compelling Story in 2008
• Amdocs 7.5 could prove to be a company-specific catalyst even if uncertain spending environment continues: We
believe that Amdocs’ next product release, v7.5 (likely due for general release in 1H08), will more tightly integrate and enhance
some of the modular components of Amdocs 7 and could spur action by both telcos and cable companies that have been
holding off on upgrades until now. In particular, we believe that Amdocs 7.5 will be well suited for cable MSOs and that the
company will achieve significant wins in this vertical in 2008.
• Margins likely to show some improvement as Sprint and AT&T managed services contracts are absorbed: With the
Sprint migration in its final stages heading into 2008 and the AT&T contract heading into its third quarter, we think that
Amdocs is likely to see some margin improvement as the front-end costs of the contracts are absorbed and as revenues
associated with the projects increase. We do note, however, that any additional managed services contract wins could offset the
margin benefit of the maturation of the Sprint and AT&T deals, although we see modest margin expansion in 2008.
• Valuation on a price/earnings basis attractive compared to historical multiples: We remind investors that Amdocs has
historically traded at an average forward calendar year multiple of about 19.0x compared to its current multiple of 13.6x. We
believe that Amdocs’ current valuation represents an attractive entry point for value-oriented investors with a longer-term time
horizon, with potential earnings upside and margin expansion in CY08 outweighing the downside risks from these levels. We
also note that earnings are likely to benefit from the $350mn remaining in the company’s stock buyback in CY08.
Catalysts/Milestones: We think that cable and satellite deals in the pipeline in conjunction with the release of Amdocs 7.5 will
prove to be the primary catalysts for Amdocs stock in 2008. We look for the company’s OSS division, Cramer, to continue to
perform well and for geographic strength in Europe to help offset North American weakness.
Risks: The primary risks associated with Amdocs involve slowdowns in carrier spending, any unexpected deployment costs
associated with large-scale projects, and a slower-than-expected adoption of the company’s next upgrade cycle.
Valuation: We hold a 12-month price target of $47.50 on shares of Amdocs. Our price target is based on three valuation
techniques: our discounted cash flow (DCF) analysis, our CY08E price/earnings/growth (P/E/G) multiple and our CY08E P/E
multiple. Amdocs currently trades at 2.1x CY08E TEV/sales and 13.6x P/E based on our CY08 estimates versus its comparable
group, which trades at means of 2.5x and 17.6x, respectively.
Estimates: Sep. '08 Rev.: $3090.0mnE EPS: $2.37 Sep. '09 Rev.: NE EPS: NE
Price is as of the close, November 30, 2007. Tom Roderick 415.364.5952

SOFTWARE: INFRASTRUCTURE Favorable

Cheaper Bandwidth Drives Internet-Centric Solutions: Endpoint Proliferation Drives Demand for Systems
Management While “Winner(s) Takes All” in Growing Datacenters Squeezes Enterprise Vendors
• The decline in bandwidth pricing is allowing IT departments to deploy more resources in large, centralized datacenters, gaining
efficiency and reliability. Recent strength in mainframe offerings, as well as the accelerating adoption of x86 server
virtualization, reflects the appeal in large datacenter offerings. In contrast, traditional large enterprise sales into smaller
departmental datacenters have slowed.
• Meanwhile, increasing IT complexity and demands for cost reduction have made outsourcing, in the form of Software-as-a-
Service (SaaS) and hosting companies, more attractive to the enterprise. Here, too, lower bandwidth pricing enables on-demand
delivery of IT resources. In order to gain scale across varied customer environments, outsource providers are standardizing on
leading vendors, accelerating the “winner takes all” effect.
• Finally, ubiquitous bandwidth and emerging endpoint devices (smartphones) should continue to drive demand for endpoint
management and security. We note that PC growth continues to surprise to the upside with IDC increasing its 2008 PC unit
growth estimates from 10.8% to 11.1%.
Catalysts/Milestones: Although software companies have by and large continued to report solid earnings, software stocks have
capitulated to a market downturn in recent weeks as macro concerns overwhelm sector performance. Given the budget lag, we
think 2008 guidance is a much anticipated reflection of IT spending health.
Risks: Software spending is very closely tied to corporate budgets and capital expenditures. We believe the tight budget discipline
that corporations have subjected their IT departments to over the past five years makes it unlikely that a mild slowdown in the
economy will seriously disrupt IT and software expenditures. Any sharp slowdown, however, will limit the upside.
Digital River Inc. (DRIV: $38.67) Mkt. Cap.: $1,755.1mn Overweight

Outsourced Sales and Marketing on the Internet: More Bandwidth and End-Points Enlarge the Overall
E-Commerce Market
• With little or no competition, Digital River is a unique provider of outsourced sales and marketing for consumer software on
the Web, allowing small companies to effectively address global markets by removing the complexities of international payment
and tax transactions, as well as compliance standards, such as the recent Payment Card Industry Data Security Standards (PCI
DSS). Its scalable e-commerce platform drives enhanced margins for both Digital River and its customers compared to
traditional solutions.
• We view Digital River as a play on lower-cost bandwidth and endpoint growth, as it supports the secular trend toward
e-commerce.
• Recent sell-off enhances attractive valuation: Since reporting in-line 3Q07 results and maintaining organic guidance on October
25, shares of Digital River have declined 14.3% compared to a 3.3% decline in the NASDAQ. We are estimating 19.5%
revenue growth in 2008 and see potential for upside to our current operating margin estimate of 28.6%. At 17x our 2008 EPS
estimate of $2.27, a discount to the peer group at 22x, we think shares are attractive.
Catalysts/Milestones: 2007 proved to be somewhat of a transition year for the company, with 2008 poised to benefit from
ramping sales of Microsoft Office 2007 and the international Symantec business, with potential for upside from the newer
consumer electronics and gaming verticals.
Risks: Risks to our outlook include: (1) dependence on Symantec business for 38% of revenue; (2) the move from soft goods to
hard goods, which represents a challenge and the outcome is uncertain; and (3) the company strategy that relies on acquisitions,
which decreases organic growth transparency and increases execution risk and/or the risk that the company overpays for acquired
assets.
Valuation: Our 12-month price target of $55 for Digital River is based on the average implied value per share from two valuation
techniques: a P/E of 22x our 2008 EPS estimate of $2.27, which is a discount to the peer group at 25x 2007E; and a multiple of
20x our 2008 free cash flow estimate of $2.96 per share, which is a discount to the peer group at 24x 2007E. There are always risks
that the price target for any security will not be realized. In addition to general market and macroeconomic risks, for Digital River,
these risks include, among others, revenue concentration from a few large customers and the ability to sign new customers to
maintain growth.
Price is as of the close, November 30, 2007. Tim Klasell 415.364.2949

SECTION III: TWP VALUATIONS
TWP Research Universe
"FactSet" is utilized to calculate Op Mgns, BV, Cash, Debt, CFO, NI, FCF, Capex, Depreciation Expense, Capitalization, Consensus EPS, ROC and ROE.
Return on Total Capital (ROC) = (Pretax Income + Interest Exp.) / (Total Assets - Cur. Liabilities) x 100 Tangible Book Value = (Book Value - Goodwill & Intangible Assets)
Return on Equity (ROE) = (Latest 12 month EPS / BV per shr) x 100 Debt / Total Cap = Total Debt / (Total Debt + Shareholders Equity).
FCF = Net Cash Flow from Ops - Capex + Common & Preferred Cash Dividends FCF = Net Cash Flow from Ops - Capex + Common & Preferred Cash Dividends
Current FY Oper.
Cons EPS Margin
Rev Change Most EV/ LTM EV/ Price/ Price/ Debt / Bridge
11/30/07 YTD % P/Rev Growth EPS Since P/E EPS Growth 2007E Recent ROC ROE Div. LTM FCF/ LTM Tang. Net Total Mkt
Company Ticker Rating Price Chg FY08E 2008E FY07E FY08E 1/1/2007 FY07E FY08E FY07E FY08E PEG Quarter % % Yield EBITDA Share FCF Book Cash Cap Cap ($mn)
Consumer

Financial Products: Mark Sproule
Advance America AEA O $9.12 (37.7) 0.9x 5% $0.89 $1.03 ($0.16) 10.2x 8.9x -2% 16% 1.5x 11.1 15.4 21.0 5.5% 5.3x $1.81 5.3x 4.4x Neg 28% $698

Discover Financial Services DFS O $17.37 NA 1.9x 5% $1.74 $1.91 NA 10.0x 9.1x -22% 10% 6.5x NA NA 14.7 0.4% 2.6x $1.47 6.7x 1.6x 2.6x 50% $8,295
Global Payments, Inc. GPN M $43.22 (7.4) 2.8x 15% $1.76 $1.93 ($0.17) 24.6x 22.4x 14% 10% 1.3x 21.6 16.4 15.1 0.2% 11.8x $2.03 19.6x 10.7x 12.5x 0% $3,410
H&R Block HRB O $19.68 (15.5) 1.4x 10% $1.12 $1.39 ($0.28) 17.6x 14.2x 24% 24% 1.2x (68.8) 12.4 36.9 2.9% NA ($2.67) Neg NA Neg 67% $6,389
Heartland Payment Systems HPY U $32.28 10.9 0.8x 17% $0.99 $1.18 ($0.02) 32.6x 27.4x 30% 19% 0.6x 5.5 19.8 22.4 1.0% 17.1x $0.68 43.2x 12.9x 19.8x 0% $1,210
Jackson Hewitt JTX U $32.25 (8.4) 3.1x 7% $1.97 $2.02 ($0.15) 16.4x 16.0x 18% 3% 1.4x (639.4) 10.5 21.1 2.3% 10.0x $1.58 25.5x NA Neg 58% $972
MasterCard MA M $200.65 105.0 6.0x 10% $5.39 $6.19 $1.47 37.2x 32.4x 55% 15% 1.2x 32.6 27.6 25.4 0.3% 20.7x $5.87 29.4x 10.1x 8.7x 7% $26,434
MoneyGram MGI O $15.44 (52.9) 0.8x 16% $1.54 $1.80 ($0.04) 10.0x 8.6x 13% 17% 0.6x 15.1 14.8 25.1 1.4% 1.2x ($3.64) Neg 24.0x 1.4x 42% $1,276
Nelnet NNI M $13.79 (51.2) 1.1x 1% $1.87 $2.06 ($0.57) 7.4x 6.7x -18% 10% 0.4x 4.9 0.0 1.5 2.1% 20.7x $5.14 NM 2.1x Neg 98% $682
Net 1 UEPS Technologies, Inc. UEPS M $30.96 3.1 6.2x 18% $1.08 $1.32 $0.13 28.7x 23.5x 5% 22% 1.6x 43.0 25.4 20.0 - 12.5x $1.98 13.4x 8.5x 7.5x 1% $1,620
QC Holdings QCCO M $13.89 (14.5) 1.2x 4% $0.90 $1.15 $0.01 15.4x 12.1x 100% 28% 1.0x 2.9 13.4 13.9 2.9% 6.8x $0.71 17.7x 3.0x 34.5x 13% $268
SLM Corporation SLM O $38.08 (24.2) 4.3x 21% $2.53 $3.28 ($1.04) 15.1x 11.6x -12% 30% 1.1x (18.2) 0.6 16.3 - 29.2x $2.97 NM 4.2x Neg 97% $15,765
The First Marblehead Corp. FMD M $30.01 (48.2) 2.8x 16% $3.92 $4.26 $0.24 7.7x 7.0x 66% 9% 0.1x 74.0 44.5 40.2 3.9% 3.0x ($0.37) Neg 2.7x 9.4x 9% $2,806
The Western Union Company WU O $22.60 3.1 3.1x 13% $1.12 $1.33 ($0.00) 20.2x 17.0x -5% 19% 2.0x 26.3 27.5 NM 0.0% 13.6x $1.49 16.5x NA Neg NM $16,971
Gaming & Lodging and Interactive Market Services: Jake Fuller

Ambassadors International AMIE O $12.02 (74.5) 0.4x 9% ($0.12) $1.10 ($1.84) NA 10.9x NA NA 0.9x 5.9 Neg Neg - NM ($1.97) Neg 1.3x Neg 60% $130
Boyd Gaming BYD M $38.72 (16.2) 1.6x 2% $3.43 $1.73 ($0.30) 11.3x 22.4x 164% -50% 0.7x 14.8 4.0 10.7 1.6% 11.4x ($0.15) Neg 7.8x Neg 62% $3,397
Coinstar CSTR M $26.13 (17.2) 1.2x 10% $1.02 $1.11 ($0.26) 25.6x 23.5x 4% 9% 4.7x 11.8 3.7 5.8 - 7.6x ($0.14) Neg 7.6x Neg 39% $731
Collectors Universe CLCT M $14.00 4.5 2.7x 8% ($0.09) $0.04 ($0.40) NA 350.0x NA NA 17.5x (5.6) Neg Neg 7.1% Neg ($0.33) Neg 2.7x 2.8x 0% $119
Expedia, Inc. EXPE O $32.60 56.6 3.1x 12% $1.25 $1.59 $0.06 26.1x 20.5x 15% 27% 2.1x 23.7 4.9 5.6 - 14.9x $2.65 12.6x NA Neg 17% $9,275
Harrahs Entertainment HET S $88.07 6.1 NA NA NA NA ($0.56) NA NA NA NA NA 12.8 3.4 9.4 1.8% 10.9x ($2.50) Neg 18.0x Neg 66% $16,520
HouseValues, Inc. SOLD M $3.42 (39.3) 1.8x -23% ($0.09) ($0.11) ($0.10) NA NA NA NA NA (1.0) Neg Neg - Neg ($0.10) Neg 1.0x 1.2x 2% $84
LoopNet LOOP M $15.36 1.8 7.1x 20% $0.50 $0.58 $0.08 30.7x 26.5x 25% 16% 1.3x 41.5 21.0 18.0 - 17.1x $0.63 19.9x 6.0x 5.9x 0% $597
Marriott International MAR M $37.50 (22.4) 1.0x 9% $1.91 $2.18 $0.02 19.6x 17.2x 35% 14% 1.7x 6.0 16.6 42.8 0.8% 13.3x ($0.55) Neg NM Neg 64% $13,791
MGM Mirage MGM M $86.50 47.4 3.2x 6% $2.14 $2.67 ($0.07) 40.4x 32.4x -2% 25% 2.2x 21.6 4.1 16.0 - 19.2x NM Neg 8.6x Neg 76% $25,896
Morgans Hotel Group MHGC O $18.49 8.7 1.9x 9% ($0.12) $0.32 ($0.27) NA 57.8x NA NA NA (3.2) Neg Neg - 16.8x ($0.66) Neg 7.1x Neg 78% $643
Orbitz Worldwide OWW O $8.00 NA 0.7x 8% $0.66 $0.66 NA 12.1x 12.1x 500% 0% 0.5x 8.6 NA Neg - 12.5x $1.92 7.8x NA Neg 44% $664
Pinnacle Entertainment PNK M $27.45 (22.1) 1.4x 23% $0.88 $0.65 ($0.08) 31.2x 42.2x -23% -26% 4.2x 3.2 0.8 1.1 - 17.5x ($3.89) Neg 1.6x Neg 42% $1,642
Priceline.com ** PCLN M $113.80 162.8 2.7x 16% $3.60 $5.25 $1.45 31.6x 21.7x 76% 46% 2.2x 18.2 14.0 26.1 - 25.6x $2.79 47.4x 53.8x Neg 68% $4,363
Red Lion Hotels RLH O $9.60 (25.2) 1.0x 0% $0.24 $0.36 ($0.03) 40.0x 26.7x 2300% 50% NA 18.2 1.7 0.4 - 9.9x ($0.30) Neg 1.2x Neg 38% $184
Starwood HOT M $53.68 (14.5) 2.5x 0% $2.63 $2.54 $0.18 20.4x 21.1x -3% -3% 1.4x 16.0 10.4 22.4 1.7% 10.8x $2.04 32.5x 35.5x Neg 55% $10,690
TRX, Inc. TRXI M $1.70 (74.8) 0.4x -11% ($0.47) ($0.17) ($0.93) NA NA NA NA NA (17.3) Neg 5.7 - 1.6x $0.24 4.7x 6.3x 3.8x 13% $31
Wyndham Worldwide WYN O $29.17 (9.7) 1.1x 9% $2.12 $2.30 $0.25 13.8x 12.7x 16% 8% NA 12.2 6.0 11.0 0.6% 9.9x ($0.90) Neg NA Neg 50% $5,190
Wynn Resorts WYNN M $126.94 28.6 4.4x 23% $2.31 $3.23 $0.56 55.0x 39.3x -63% 40% NA 13.2 3.1 7.6 - 23.5x NM Neg 7.5x Neg 58% $14,512
ZipRealty ZIPR M $5.06 (34.2) 1.0x 15% ($0.37) ($0.19) ($0.33) NA NA NA NA NA (8.7) Neg Neg - Neg ($0.09) Neg 1.4x 1.3x 0% $118
Lifestyles/Sports Retailers: Jim Duffy

Bare Escentuals BARE O $21.05 (35.1) 3.0x 25% $0.92 $1.18 $0.07 22.9x 17.8x 42% 28% 0.7x 31.0 65.5 NM - 13.3x $0.65 36.3x NA Neg NM $1,918
Cabelas Inc. CAB M $16.54 (33.5) 0.4x 19% $1.40 $1.62 ($0.08) 11.8x 10.2x 9% 16% 0.7x 3.9 7.0 11.1 - 8.4x ($4.50) Neg 1.4x Neg 49% $1,089
Columbia Sportwear COLM M $48.01 (15.0) 1.2x 7% $3.70 $3.95 $0.08 13.0x 12.2x 10% 7% 0.8x 19.7 15.5 14.6 1.4% 6.8x $2.00 21.3x 2.0x 14.8x 0% $1,734
Crocs, Inc. CROX O $39.03 92.2 2.8x 39% $1.97 $2.70 $0.97 19.8x 14.5x 146% 37% 0.6x 30.5 50.9 37.5 - 14.4x ($0.26) Neg 9.5x 44.8x 0% $3,218
Dicks Sporting Goods DKS M $31.26 29.3 0.8x 16% $1.30 $1.52 $0.11 24.0x 20.6x 27% 17% 1.0x 2.6 15.3 19.1 - 12.2x $0.68 51.8x 7.6x Neg 39% $3,470
G-III Apparel Group GIII O $14.37 (22.5) 0.5x 20% $0.94 $1.01 ($0.22) 15.3x 14.2x 62% 7% 0.7x (1.6) 10.0 13.9 - 6.7x $0.91 16.6x 2.2x Neg 14% $236
Garmin Ltd. GRMN M $107.35 86.9 6.1x 28% $3.57 $4.20 $1.19 30.1x 25.6x 52% 18% 1.5x 29.4 43.8 36.8 0.7% 27.4x $1.02 NM 12.4x 29.6x 0% $23,282
Nike, Inc. NKE O $65.65 35.3 1.8x 10% $2.62 $3.35 $0.24 25.1x 19.6x 13% 28% 1.3x 13.9 23.0 22.7 1.4% 12.2x $2.56 24.0x 4.9x 15.0x 7% $32,742
NutriSystem NTRI M $25.15 (60.0) 1.1x 4% $2.93 $2.78 ($0.12) 8.6x 9.0x 28% -5% 0.3x 18.3 84.4 73.5 - 4.1x $2.76 7.9x 5.7x 7.4x 0% $862
Quiksilver, Inc. ZQK M $10.60 (36.0) 0.5x 8% $0.52 $0.90 ($0.38) 20.4x 11.8x -29% 73% NA 0.9 2.9 5.9 - 10.1x ($0.43) Neg 8.3x Neg 53% $1,327
Timberland Company TBL M $16.28 (49.4) 0.7x -4% $0.82 $1.04 ($0.79) 19.9x 15.7x -49% 27% 1.0x 12.0 8.1 9.1 - 6.8x $0.76 20.1x 2.1x Neg 8% $997
Under Armour, Inc. UA O $49.68 (2.7) 3.1x 29% $1.01 $1.30 $0.05 49.2x 38.2x 28% 29% NA 18.1 19.8 18.4 - 26.2x ($1.04) Neg 9.4x Neg 5% $2,414
VF Corp VFC M $74.79 (9.6) 1.0x 11% $5.35 $6.01 ($0.22) 14.0x 12.4x 13% 12% 1.2x 15.1 12.8 17.4 3.1% 9.2x $2.23 38.7x 12.2x Neg 34% $8,230
Volcom Inc. VLCM O $26.97 (11.5) 2.0x 20% $1.37 $1.64 ($0.08) 19.7x 16.4x 17% 20% 0.7x 25.3 23.3 20.5 - 10.2x ($0.38) Neg 3.9x 7.9x 0% $657
Wolverine World Wide WWW O $24.77 (12.2) 1.0x 5% $1.65 $1.83 $0.03 15.0x 13.5x 12% 11% 0.9x 14.3 17.7 18.6 1.4% 8.4x $1.21 20.3x 3.1x N/M 4% $1,294
Zumiez Inc. ZUMZ O $27.80 (0.7) 2.1x 30% $0.73 $0.94 $0.06 38.1x 29.6x 55% 29% 1.0x 5.7 22.1 17.7 - 16.4x $0.09 NM 7.5x 22.4x 0% $798
O = Overweight; M = Market Weight; U = Underweight; N = Not Rated; S = Suspended Rating

** Substituted Cash EPS for EPS
87
Source: First Call, Baseline, FactSet and Thomas Weisel Partners LLC estimates
88
Current FY Oper.
Cons EPS Margin
Restaurants: Matthew DiFrisco
Burger King BKC O $26.30 24.4 1.5x 7% $1.09 $1.29 $0.06 24.1x 20.4x 354% 18% 1.3x 15.9 9.6 20.7 1.0% 11.0x $0.61 52.7x NA Neg 55% $3,556
The Cheesecake Factory CAKE M $23.29 (5.9) 1.0x 15% $1.08 $1.33 ($0.13) 21.6x 17.5x 6% 23% 1.0x 7.4 11.4 13.1 - 10.1x ($0.84) Neg 2.8x Neg 20% $1,661
Caribou Coffee Company CBOU M $4.60 (47.8) 0.3x 5% ($0.92) ($0.69) ($0.65) NA NA NA NA NA (15.9) Neg Neg - 8.2x ($0.42) Neg 1.2x 15.5x 0% $89
CBRL Group CBRL M $33.46 (26.8) 0.3x 4% $2.50 $2.96 ($0.19) 13.4x 11.3x NA 18% 0.9x 9.1 7.3 62.5 2.2% 7.2x $5.83 11.5x 7.5x Neg 88% $794
O'Charley's CHUX U $14.91 (29.9) 0.3x 4% $0.88 $0.97 ($0.17) 16.9x 15.4x 2% 10% 1.5x 2.7 2.2 3.0 1.6% 5.0x $0.58 35.9x 1.3x Neg 29% $331
Brinker International EAT M $23.03 (24.8) 0.7x 1% $1.49 $1.68 ($0.30) 15.5x 13.7x 1% 13% 0.8x 7.5 NA 28.7 1.9% 6.3x $0.10 NM 4.3x Neg 58% $2,424
Kona Grill KONA O $15.75 (23.6) 1.1x 27% ($0.05) $0.04 ($0.04) NA 393.8x NA NA NA 2.1 Neg Neg - 22.6x ($1.20) Neg 2.8x 12.2x 7% $103
McDonald's MCD O $58.47 35.0 3.0x 0% $2.86 $3.16 $0.28 20.4x 18.5x 24% 10% 1.7x 26.7 7.7 12.0 2.5% NA $1.55 41.3x 5.6x Neg 34% $69,156
McCormick & Schmick's MSSR O $14.66 (40.3) 0.5x 21% $0.99 $1.14 ($0.09) 14.8x 12.9x 8% 15% 0.6x 2.8 8.4 8.4 - 7.2x ($0.66) Neg 1.4x Neg 9% $216
Peet's Coffee PEET M $26.72 0.1 1.3x 18% $0.66 $0.80 ($0.05) 40.5x 33.4x 5% 21% 1.9x 4.2 5.4 5.2 - 16.6x ($2.55) Neg 2.6x 28.3x 0% $371
P.F. Chang's PFCB M $25.59 (33.0) 0.5x 15% $1.19 $1.40 ($0.19) 21.5x 18.3x -4% 18% 1.1x 2.8 8.3 9.8 - 6.8x ($0.68) Neg 2.2x Neg 11% $665
Red Robin Gourmet RRGB M $39.56 6.7 0.7x 17% $1.87 $2.15 $0.05 21.2x 18.4x 3% 15% 1.0x 7.7 7.7 10.9 - 8.5x $0.45 NM 3.7x Neg 37% $664
Starbucks SBUX O $23.39 (35.6) 1.5x 18% $0.87 $1.03 ($0.06) 26.9x 22.7x 19% 18% 1.1x 8.6 20.8 28.1 - 12.1x $0.29 79.8x 8.2x Neg 36% $17,084
Sonic SONC M $24.40 (0.6) 1.8x 10% $0.95 $1.11 ($0.03) 25.7x 22.0x 8% 17% 1.2x 24.7 10.8 NM - 10.0x $0.17 NM NA Neg NM $1,483
Texas Roadhouse TXRH O $12.59 (6.4) 1.0x 26% $0.54 $0.68 $0.00 23.3x 18.5x 23% 26% 0.8x 9.1 10.5 11.3 - 10.4x ($0.27) Neg 3.7x Neg 17% $942
Retailing: Hardlines Matt Nemer

Asbury Automotive ABG M $16.74 (29.3) 0.1x 5% $2.13 $2.29 $0.09 7.9x 7.3x 10% 8% 0.9x 3.1 3.4 9.6 5.4% 7.6x ($3.14) Neg 4.4x Neg 65% $529
AutoNation AN M $16.50 (22.9) 0.2x -2% $1.50 $1.62 ($0.23) 11.0x 10.2x -2% 8% 2.0x 0.4 6.0 8.1 - 8.2x ($0.68) Neg 7.7x Neg 52% $3,035
AutoZone AZO M $111.63 (6.7) 1.1x 6% $8.50 $9.94 $0.15 13.1x 11.2x 13% 17% 1.3x 18.9 25.5 NM - 8.4x $9.56 16.5x 69.6x Neg 83% $7,246
CarMax KMX M $22.87 (14.6) 0.6x 12% $0.93 $0.98 ($0.11) 24.6x 23.3x 35% 5% 1.4x 2.0 15.6 15.7 - 12.7x ($0.24) Neg 3.5x Neg 8% $4,984
Copart, Inc. CPRT O $37.36 23.6 4.4x 33% $1.46 $1.70 $0.06 25.6x 22.0x 21% 16% 1.7x 35.0 16.1 15.0 - 12.8x $1.19 29.2x 4.7x 16.3x 0% $3,301
CSK Auto CAO O $9.75 (47.1) NA NA NA NA ($0.80) NA NA NA NA NA 5.3 1.2 4.9 - 7.2x $0.51 41.0x NA Neg 75% $429
Group 1 Automotive GPI M $26.88 (49.1) 0.1x 2% $3.48 $3.81 ($0.85) 7.7x 7.1x -5% 9% 1.5x 3.2 4.3 10.8 2.1% 9.3x NM Neg NA Neg 69% $612
Lithia Motors Inc. LAD O $15.60 (47.3) 0.1x 9% $1.65 $1.86 ($0.44) 9.5x 8.4x -14% 13% 1.3x 3.7 2.6 7.0 3.7% 9.4x NM Neg 2.3x Neg 64% $308
US Auto Parts Network PRTS M $8.30 NA 1.3x 16% $0.07 $0.14 NA 118.6x 59.3x -68% 100% 2.9x 3.0 2.6 2.2 - 17.2x $0.18 38.5x 4.7x 6.1x 1% $248
Pep Boys PBY U $10.93 (27.4) 0.3x 2% $0.15 $0.35 $0.13 72.9x 31.2x NA 133% 2.6x 3.1 0.4 Neg 2.5% 8.5x ($0.38) Neg 1.1x Neg 51% $564
PetSmart, Inc. PETM O $28.48 (2.7) 0.7x 8% $1.63 $1.87 $0.06 17.5x 15.2x 23% 15% 0.9x 5.3 18.0 29.4 0.4% 7.8x ($0.08) Neg 4.0x Neg 40% $3,664
Select Comfort SCSS M $10.64 (40.0) 0.5x 7% $0.77 $0.82 ($0.29) 13.8x 13.0x -9% 6% 2.1x 9.0 42.2 NM - 5.5x $0.42 25.0x 22.4x Neg 51% $475
Tractor Supply Company TSCO M $41.02 (9.1) 0.5x 13% $2.38 $2.73 ($0.32) 17.2x 15.0x 7% 15% 1.0x 4.7 15.0 15.9 - 7.9x $0.64 66.1x 2.7x Neg 14% $1,581
Penske Auto Group PAG O $20.00 (16.4) 0.1x 5% $1.51 $1.69 ($0.06) 13.2x 11.8x 10% 12% 1.2x 2.8 3.7 9.3 1.8% 11.6x ($0.36) Neg NA Neg 66% $1,900
Williams-Sonoma WSM O $29.11 (8.7) 0.7x 7% $1.82 $2.03 ($0.13) 16.0x 14.3x 3% 12% 1.4x 5.0 16.3 17.2 1.6% 7.0x $0.43 67.9x 2.9x Neg 8% $3,160
Retailing: Softlines Liz Dunn

Abercrombie & Fitch ANF O $82.04 16.0 1.6x 15% $5.20 $6.05 ($0.09) 15.8x 13.6x 13% 16% 0.8x 19.2 34.9 32.7 0.9% 7.9x $1.97 39.1x 5.0x 19.4x 0% $7,110
American Eagle Outfitters AEO U $22.89 (26.5) 1.4x 13% $1.86 $2.10 ($0.02) 12.3x 10.9x 9% 13% 0.9x 20.3 29.8 28.6 1.7% 5.9x $0.56 34.8x 3.5x 7.7x 0% $4,919
AnnTaylor Stores ANN M $30.45 (4.3) 0.7x 6% $2.09 $2.46 ($0.31) 14.6x 12.4x 6% 18% 0.9x 11.1 12.6 13.7 - 6.1x $1.07 28.0x 3.4x 16.5x 0% $1,895
Bebe Stores BEBE U $13.50 (34.1) 1.6x 12% $0.81 $0.81 ($0.38) 16.7x 16.7x NA 0% 1.0x 12.6 16.2 15.2 1.5% 7.0x $0.35 26.8x 2.5x 3.6x 0% $1,196
Charming Shoppes CHRS O $5.53 (60.6) 0.2x 6% $0.27 $0.50 ($0.67) 20.5x 11.1x -67% 85% 0.8x (0.8) 5.8 7.2 - NA $0.19 41.2x 1.4x Neg 35% $678
Coach COH O $37.14 (15.3) 4.3x 21% $1.69 $2.06 $0.06 22.0x 18.0x 42% 22% 0.9x 35.3 42.1 34.0 - 10.5x $1.85 17.5x 7.6x 10.9x 0% $13,673
Coldwater Creek CWTR M $8.25 (66.8) 0.6x 15% $0.16 $0.35 ($0.81) 51.6x 23.6x -73% 119% 1.2x 4.8 16.5 9.1 - 7.0x $0.04 NM 2.2x 10.8x 3% $772
J.C. Penney Company JCP M $44.12 (43.5) 0.5x 3% $4.73 $4.75 ($0.70) 9.3x 9.3x -3% 0% 0.8x 8.7 14.4 24.9 1.8% 5.2x ($0.11) Neg 2.2x Neg 46% $9,779
Koh'ls KSS O $49.28 (28.1) 0.8x 11% $3.54 $3.90 ($0.27) 13.9x 12.6x 7% 10% 0.8x 8.7 15.8 19.6 - 7.7x $0.02 NM 2.8x Neg 28% $15,661
Lululemon Athletica LULU M $36.67 NA 4.6x 43% $0.42 $0.72 NA 87.3x 50.9x 180% 71% 0.8x 17.9 NA 26.3 - NA ($0.23) Neg 20.4x 50.0x 0% $1,709
Macy's M O $29.65 (22.0) 0.5x 2% $2.25 $2.55 ($0.71) 13.2x 11.6x 0% 13% 0.8x 3.4 4.4 8.4 1.7% 7.4x $0.53 NM NA Neg 53% $12,854
Nordstrom JWN M $33.54 (31.0) 0.9x 6% $2.79 $3.19 ($0.04) 12.0x 10.5x 9% 14% 0.7x 9.6 24.1 51.6 1.6% 7.3x ($1.25) Neg 6.6x Neg 62% $8,191
Pacific Sunwear of California PSUN M $16.38 (18.7) 0.8x -4% $0.47 $0.83 ($0.65) 34.9x 19.7x -41% 77% 1.5x (10.1) Neg Neg - 14.4x $0.35 45.8x 2.3x 80.3x 5% $1,147
Polo Ralph Lauren RL M $68.98 (11.5) 1.5x 12% $3.75 $3.60 ($0.53) 18.4x 19.2x 29% -4% 1.1x 14.8 14.5 16.9 0.3% 8.5x $5.51 12.3x 7.5x Neg 21% $7,003
Urban Outfitters URBN O $26.20 12.7 2.4x 22% $0.89 $1.11 ($0.02) 29.4x 23.6x 29% 25% 0.9x 16.2 19.9 18.1 - 16.2x $0.23 NM 5.4x 22.6x 0% $4,344


Current FY Oper.
Cons EPS Margin
Healthcare
Biotechnology: Ian Somaiya
Affymax AFFY O $25.46 (26.6) 2.1x 263% ($3.28) ($1.88) NA NA NA NA NA NA (132.3) Neg Neg - NA ($2.50) Neg 4.0x 1.8x 0% $384
Amgen, Inc. AMGN M $55.25 (19.4) 4.2x -1% $4.23 $4.01 ($0.18) 13.1x 13.8x 8% -5% 2.1x 27.2 11.5 17.9 - 11.3x $3.40 19.4x 27.9x Neg 52% $60,092
Amylin Pharmaceutical AMLN M $38.19 2.7 5.1x 32% ($1.01) ($0.30) ($0.24) NA NA NA NA NA (25.2) Neg Neg - Neg ($2.68) Neg 8.2x 46.5x 61% $5,148
Biogen Idec BIIB M $74.12 50.1 6.0x 15% $2.69 $3.26 $0.08 27.6x 22.7x 20% 21% 1.2x 20.9 8.1 9.8 - 19.7x $2.31 32.9x 16.7x Neg 24% $21,745
Celgene Corp. CELG O $61.55 4.8 10.6x 64% $1.06 $1.71 ($0.03) 58.1x 36.0x 100% 61% NA 25.1 8.5 7.2 - 55.7x $0.77 70.2x 9.9x 13.4x 24% $23,750

deCODE genetics DCGN M $4.32 (3.1) 6.7x 6% ($1.32) ($1.30) $0.12 NA NA NA NA NA (204.0) Neg NM - Neg ($1.33) Neg NA Neg NM $267
Genentech, Inc. DNA O $76.25 (9.4) 5.7x 19% $2.88 $3.51 $0.27 26.5x 21.7x 29% 22% 0.7x 20.8 21.8 23.4 - 16.4x $1.78 40.5x 8.7x N/M 17% $80,298
Genzyme Corp GENZ O $74.93 19.4 4.6x 16% $3.50 $4.09 $0.31 21.4x 18.3x 26% 17% 1.1x 22.1 1.9 2.1 - 17.8x $1.99 37.5x 5.4x Neg 19% $19,930

Gilead Sciences, Inc. GILD O $46.54 41.5 8.3x 23% $1.82 $2.15 $0.37 25.6x 21.6x 33% 18% 1.3x 51.7 Neg Neg - 20.1x $1.77 26.7x 15.0x Neg 47% $43,318
Metabasis Therapeutics MBRX M $2.87 (62.8) 1.5x 586% ($1.31) ($0.44) ($0.07) NA NA NA NA NA (482.0) Neg Neg - Neg ($1.19) Neg 2.1x 1.9x 13% $88
Neurocrine Bioscience NBIX M $13.02 23.1 11.5x 4054% ($2.95) ($1.84) ($0.40) NA NA NA NA NA (5,338.1) Neg Neg - Neg ($1.91) Neg 2.0x 6.5x 17% $495
Rigel Pharmaceuticals RIGL O $7.16 (40.4) 4.3x 206% ($1.99) ($1.46) ($0.72) NA NA NA NA NA NA Neg Neg - Neg ($1.80) Neg 2.3x 2.0x 2% $222
Telik, Inc. TELK M $3.35 (26.9) NA NA ($0.88) ($1.01) $0.72 NA NA NA NA NA NA Neg Neg - Neg ($1.07) Neg 1.7x 1.7x 0% $176
Theravance THRX O $24.09 (21.3) 21.9x 115% ($2.19) ($1.40) ($0.42) NA NA NA NA NA (613.1) Neg NM - Neg ($1.79) Neg NA 10.8x -1% $1,467
Cubist Pharmaceuticals CBST O $21.24 12.6 3.1x 32% $0.88 $1.00 $0.22 24.1x 21.2x NA 14% 0.7x 19.4 11.1 49.5 - 29.3x $1.44 18.2x 16.6x Neg 88% $1,191
Human Genome Sciences HGSI O $10.41 (17.0) 7.6x 374% ($1.57) ($0.62) $0.03 NA NA NA NA NA (591.8) Neg Neg - Neg ($1.16) Neg 19.9x Neg 95% $1,401
InterMune, Inc. ITMN M $16.24 (48.7) 19.4x -52% ($2.09) ($2.65) ($0.78) NA NA NA NA NA (192.9) Neg NM - Neg $0.19 91.9x NA Neg NM $633
Medarex, Inc. MEDX M $12.70 (18.6) 14.6x 131% ($0.25) ($1.07) $1.28 NA NA NA NA NA (401.4) Neg Neg - Neg ($1.25) Neg 3.1x 13.9x 37% $1,616
MGI Pharma MOGN M $34.61 88.7 5.0x 36% $0.78 $1.08 $0.18 44.4x 32.0x NA 38% 1.1x 11.4 Neg Neg - NM $0.29 NM NM Neg 78% $2,790
Progen Pharmaceuticals Ltd. PGLA O $2.31 (53.4) 82.2x -29% ($0.39) ($0.32) NA NA NA NA NA NA (2,851.5) NA Neg - Neg ($0.29) Neg 4.2x 1.0x 0% $94
ViroPharma, Inc VPHM M $8.94 (41.6) 3.4x -11% $1.21 $0.84 $0.03 7.4x 10.6x 27% -31% NA 54.9 16.7 19.8 - 2.2x $1.60 2.5x 1.7x 2.0x 35% $625
Diagnostics: Peter Lawson

Becton, Dickenson BDX M $82.73 15.9 2.9x 8% $3.85 $4.25 $0.13 21.5x 19.5x 18% 10% 1.3x 20.8 15.9 19.6 1.4% 11.4x $1.82 45.2x 6.3x Neg 21% $20,178
Beckman Coulter BEC O $70.73 16.6 1.5x 7% $3.20 $3.65 ($0.00) 22.1x 19.4x 11% 14% 1.3x 10.5 10.3 16.2 0.9% NA $0.36 NM 12.6x Neg 52% $4,437
Cepheid CPHD O $21.63 149.4 7.3x 31% ($0.40) ($0.15) ($0.16) NA NA NA NA NA (15.4) Neg Neg - Neg ($0.46) Neg 16.6x 28.5x 0% $1,200
Celera Genomics CRA M $15.12 12.4 9.1x 205% ($0.25) ($0.04) $0.20 NA NA NA NA NA (35.9) Neg Neg - NA ($0.29) Neg 1.6x 2.3x 0% $1,200
Genomic Health, Inc. GHDX M $24.22 21.2 6.2x 77% ($1.05) ($0.15) ($0.17) NA NA NA NA NA (51.0) Neg Neg - Neg ($0.93) Neg 8.5x 9.3x 7% $682
Gen-Probe Inc. GPRO O $66.89 24.8 7.9x 13% $1.52 $1.72 $0.14 44.0x 38.9x 35% 13% 2.6x 20.9 13.4 12.1 - 25.2x $1.28 44.3x 5.8x 8.9x 0% $3,598
Luminex Corporation LMNX O $16.01 26.0 6.2x 27% ($0.23) $0.15 ($0.18) NA 106.7x NA NA 7.1x (12.7) Neg Neg - Neg ($0.31) Neg 18.0x 58.2x 3% $586
Monagram Biosciences MGRM M $1.24 (30.3) 2.3x 69% ($0.25) ($0.15) ($0.09) NA NA NA NA NA (73.5) Neg Neg - Neg ($0.21) Neg NA Neg 98% $164
Qiagen QGEN O $21.07 46.2 4.6x 39% $0.61 $0.75 ($0.03) 34.5x 28.1x 11% 23% NA 16.3 3.3 5.1 - 32.2x $0.30 84.9x NA Neg 43% $4,060
Ventana Medical Systems VMSI M $88.82 105.7 8.6x 21% $1.32 $1.85 $0.13 67.3x 48.0x 47% 40% 3.2x 14.6 18.3 17.4 - 45.9x $1.08 80.7x 17.4x 75.1x 1% $3,079
Healthcare Technology and Pharmaceutical Services: Steve Halper

Allion Healthcare ALLI M $5.86 (23.2) 0.3x 16% $0.21 $0.30 ($0.11) 27.9x 19.5x 11% 43% 1.3x 2.2 2.5 2.5 - 7.1x $0.52 7.5x 2.6x 3.1x 0% $95
Allscripts Healthcare Solutions MDRX M $17.69 (33.5) 2.8x 24% $0.48 $0.67 ($0.57) 36.9x 26.4x 33% 40% 1.3x 9.3 4.7 5.8 - 23.1x $0.22 90.5x 18.0x Neg 34% $1,005
AmerisourceBergen ABC M $45.37 0.9 0.1x 5% $2.63 $2.85 $0.09 17.3x 15.9x 16% 8% 1.1x 1.1 10.3 15.6 0.7% 8.5x $5.13 8.7x NM Neg 28% $7,620
AMICAS Inc AMCS M $2.50 (15.0) 1.9x 12% ($0.02) $0.00 ($0.02) NA NA NA NA NA (3.9) Neg Neg - Neg $0.15 5.6x 1.6x 1.5x 0% $112
Cardinal Health CAH M $60.55 (7.2) 0.2x 6% $3.43 $3.93 ($0.11) 17.7x 15.4x 11% 15% 1.2x 2.3 7.7 11.4 0.8% 9.5x $1.10 60.3x 17.4x Neg 35% $21,893
Cerner Corporation CERN O $59.75 29.0 2.7x 16% $1.74 $2.15 $0.04 34.3x 27.8x 25% 24% 0.9x 13.2 11.3 12.5 - 13.2x $0.82 69.8x 6.8x 45.4x 16% $4,777
Eclipsys ECLP M $23.20 14.3 2.3x 13% $0.47 $0.73 ($0.03) 49.4x 31.8x 47% 55% 2.1x 6.2 10.6 9.6 - 26.9x $0.68 30.7x 7.2x 8.4x 0% $1,245
eHealth EHTH M $30.99 57.1 6.7x 27% $0.50 $0.69 ($0.01) 62.0x 44.9x 85% 38% 2.2x 21.1 32.3 22.8 - 39.4x $0.65 40.5x 6.9x 6.8x 0% $751
Emageon Inc. EMAG M $4.76 (73.3) 0.9x 10% ($0.25) $0.09 ($0.81) NA 52.9x NA NA 2.6x (19.8) Neg Neg - 22.0x $0.24 14.8x 2.6x 5.0x 0% $102
Express Scripts ESRX M $67.75 96.8 0.9x 8% $2.32 $2.85 $0.34 29.2x 23.8x 41% 23% 1.6x 5.8 22.5 NM - 17.6x $2.88 27.3x NA Neg 79% $17,076
IMS Health, Inc. RX O $23.35 (15.4) 1.9x 9% $1.53 $1.75 ($0.07) 15.3x 13.3x -1% 14% 0.9x 21.7 25.4 NM 0.5% 9.5x $1.69 16.3x NA Neg NM $4,530
McKesson MCK M $66.73 29.3 0.2x 8% $2.89 $3.35 $0.20 23.1x 19.9x 18% 16% 1.3x 1.4 12.9 15.0 0.4% 10.1x $6.55 9.2x 7.4x 12.4x 23% $19,311
Medco Health Solutions MHS O $99.99 86.7 0.5x 9% $3.58 $4.35 $0.44 27.9x 23.0x 29% 22% 1.5x 3.5 10.6 13.4 - 14.1x $5.75 18.3x NA Neg 24% $26,744
Merge Technologies MRGE M $1.31 (80.3) 0.5x 20% ($0.30) $0.13 ($0.88) NA 10.1x NA NA 0.5x (60.4) Neg Neg - Neg ($0.82) Neg 1.2x 1.1x 0% $42
Omnicare OCR M $25.48 (34.8) 0.5x 4% $1.90 $2.25 ($1.10) 13.4x 11.3x -29% 18% 0.8x 7.9 3.3 6.3 0.4% 11.1x $2.26 25.1x NA Neg 56% $3,101
Omnicell OMCL O $26.37 39.6 3.3x 29% $1.00 $0.87 $0.26 26.4x 30.3x 56% -13% 2.0x 9.5 21.4 16.2 - 35.7x $0.56 37.3x 4.0x 5.1x 0% $909
Pharmaceutical Product Devel. PPDI O $42.34 26.1 3.4x 15% $1.38 $1.70 ($0.16) 30.7x 24.9x 4% 23% 1.2x 14.8 16.0 14.9 1.0% 15.5x $0.69 54.1x 5.4x 10.9x 0% $5,034
Phase Forward PFWD O $24.40 65.8 6.3x 24% $0.59 $0.56 $0.11 41.4x 43.6x 34% -5% 2.2x 11.8 13.8 11.2 - 42.6x $0.67 29.8x 6.3x 5.6x 0% $1,032
Quality Systems QSII O $29.59 (22.0) 4.3x 20% $1.21 $1.41 ($0.08) 24.5x 21.0x 42% 17% 0.8x 32.1 34.1 32.1 3.4% 13.5x ($0.14) Neg 8.0x 10.9x 0% $809
TriZetto Group TZIX M $15.43 (18.4) 1.4x 9% $0.47 $0.61 ($0.18) 32.8x 25.3x 42% 30% 1.7x 9.7 6.4 16.0 - 12.2x $0.58 36.5x NA Neg 75% $704
Visicu EICU M $8.38 (26.5) 6.9x 8% $0.26 $0.19 ($0.04) 32.2x 44.1x 44% -27% 2.9x 27.7 8.3 7.6 - 16.4x $0.16 25.2x 2.4x 2.1x 0% $278
Vital Images VTAL M $18.04 (48.8) 3.3x 31% $0.11 $0.38 ($0.48) 164.0x 47.5x -76% 245% 2.4x (5.3) 3.6 2.7 - 50.2x $0.62 13.6x 1.6x 1.8x 0% $309

89
90
Current FY Oper.
Cons EPS Margin
Life Science Technology: Paul Knight
Affymetrix AFFX M $20.85 (10.5) 3.6x 7% $0.27 $0.30 ($0.02) 77.2x 69.5x NA 11% 3.5x 0.1 1.3 1.6 - 27.8x ($0.07) Neg 3.6x N/M 29% $1,439
Applied Biosystems ABI O $34.16 (7.3) 2.6x 7% $1.41 $1.60 $0.07 24.2x 21.4x 13% 13% 2.1x 15.6 NA 24.7 0.5% 13.2x $2.18 15.6x NA N/M 20% $5,745
Array BioPharma ARRY O $11.07 (12.4) 15.1x -6% ($1.36) ($1.87) ($0.32) NA NA NA NA NA (314.2) Neg Neg - Neg ($0.37) Neg 5.9x 3.5x 14% $522
Caliper Life Sciences CALP M $5.47 (3.0) 1.9x 1% ($0.24) NA ($0.01) NA NA NA NA NA (7.2) Neg Neg - Neg ($0.39) Neg 13.9x 52.4x 8% $260
Dionex Corp. DNEX M $84.47 48.8 4.4x 9% $2.31 $2.62 $0.08 36.6x 32.2x 22% 13% 1.6x 19.4 24.5 24.8 - 19.2x $3.30 25.3x 10.3x 30.7x 9% $1,576
Harvard Bioscience ** HBIO M $4.24 (23.0) 1.4x 12% $0.30 $0.35 $0.03 14.1x 12.1x 15% 17% 0.5x 10.3 9.4 9.3 - 8.6x $0.18 18.8x 2.9x 11.1x 4% $131
Invitrogen IVGN M $97.01 69.4 3.3x 6% $4.00 $4.40 $0.61 24.3x 22.0x 29% 10% 1.5x 13.3 Neg Neg - 19.7x $5.99 22.0x NA Neg 57% $4,517
Metabolix MBLX M $21.52 9.3 17.4x 2538% ($1.33) ($0.65) ($0.06) NA NA NA NA NA (5,434.4) Neg Neg - Neg ($0.55) Neg 4.9x 4.1x 0% $483
Mettler Toledo MTD O $116.36 46.9 2.2x 7% $4.55 $5.20 $0.50 25.6x 22.4x 26% 14% 1.5x 14.4 17.6 29.8 - 16.5x $5.06 24.6x NA Neg 41% $4,196
Milipore ** MIL M $81.88 20.9 2.7x 7% $3.35 NA $0.03 24.4x NA 17% NA NA 15.5 4.6 10.3 - 16.8x $1.86 61.1x NA Neg 63% $4,469
PerkinElmer ** PKI O $27.28 22.3 1.7x 10% $1.27 NA ($0.03) 21.5x NA 14% NA NA 10.2 6.8 7.6 1.0% 13.4x $0.93 29.3x NA Neg 14% $3,234
Symix Technology SMMX M $7.66 (65.7) 1.6x 37% ($0.30) ($0.10) ($0.42) NA NA NA NA NA (12.0) 11.4 10.8 - 8.6x $0.19 7.3x 1.1x 1.3x 0% $256
Thermo Electron ** TMO O $57.64 26.5 2.3x 7% $2.40 NA $0.18 24.0x NA 26% NA NA 10.9 5.7 4.0 - NA $2.36 26.6x NA Neg 18% $24,213
Varian VARI O $70.05 58.5 2.2x 7% $2.34 $2.72 $0.24 29.9x 25.8x 24% 16% 1.3x 10.1 10.4 10.1 - 16.1x $2.93 22.0x 5.5x 12.6x 4% $2,132
Medical Devices: Rob Faulkner

American Medical Systems AMMD O $13.67 (26.2) 2.0x 10% $0.42 $0.59 ($0.32) 32.5x 23.2x -30% 40% NA 16.3 3.0 9.0 - 18.4x $0.13 NM NA Neg 76% $987
Boston Scientific BSX U $12.63 (24.3) 2.2x 1% $0.32 $0.61 ($0.40) 39.5x 20.7x NA 91% NA 13.7 1.0 1.6 - 12.2x $0.41 41.7x NA Neg 34% $18,829
Hansen Medical HNSN M $29.49 157.0 17.7x 300% ($1.64) ($1.30) ($0.53) NA NA NA NA NA (312.9) Neg Neg - Neg ($1.42) Neg 9.9x 10.5x 5% $642
LeMaitre Vascular LMAT O $7.11 16.7 2.2x 20% ($0.17) ($0.04) ($0.05) NA NA NA NA NA (4.8) Neg Neg - NA ($0.17) Neg 3.0x 4.2x 0% $110
Masimo MASI O $36.96 NA 7.3x 11% $0.63 $0.47 NA 58.7x 78.6x NA -25% NA 27.1 NA 31.1 - 28.6x ($0.15) Neg 15.9x Neg 47% $2,020
Medtronic MDT O $50.85 (5.5) 4.3x 9% $2.41 $2.55 ($0.15) 21.1x 19.9x 10% 6% 1.7x 25.8 16.7 24.8 1.0% 14.4x $1.94 28.4x 10.0x Neg 49% $57,670
NuVasive NUVA M $42.57 81.9 6.9x 41% $0.08 $0.54 ($0.10) 532.1x 78.8x NA 575% NA (9.3) Neg Neg - Neg ($0.63) Neg 8.9x 16.7x 0% $1,495
NxStage Medical NXTM O $12.86 54.2 3.4x 143% ($1.66) ($0.58) ($0.56) NA NA NA NA NA (142.5) Neg Neg - Neg ($1.69) Neg 7.5x 17.2x 8% $471
Insulet PODD NA -- No data provided due to regulatory quiet period
St. Jude Medical STJ O $39.75 7.9 3.3x 10% $1.72 $2.13 $0.08 23.1x 18.7x 17% 24% NA 24.5 15.0 21.3 - 15.2x $1.30 33.3x 23.7x Neg 34% $13,609
Stryker SYK O $72.63 31.7 4.5x 13% $2.40 $2.88 ($0.01) 30.3x 25.2x 20% 20% 1.3x 21.1 20.4 18.3 0.3% 19.3x $1.84 37.0x 7.0x 14.5x 0% $29,813
TomoTherapy TTPY O $18.60 NA 3.0x 39% $0.18 $0.34 NA 103.3x 54.7x NA 89% NA 2.2 NA 6.9 - 53.8x ($0.41) Neg 4.4x Neg 48% $922
Wright Medical WMGI O $26.98 16.0 2.3x 11% $0.77 $0.96 $0.01 35.0x 28.1x 20% 25% 1.9x 4.9 1.5 1.4 - 19.5x $0.05 NM 2.9x 17.5x 0% $976
Zimmer Holdings ZMH O $64.73 (17.3) 3.7x 8% $3.92 $4.06 $0.01 16.5x 15.9x 14% 4% 1.3x 33.0 14.7 14.2 - 10.0x $2.53 25.4x 7.8x 71.6x 2% $15,194
Pharmaceuticals: Specialty: Don Ellis

Alkermes ALKS M $14.26 7.3 6.0x 1% $0.10 $0.14 $0.07 142.6x 101.9x 150% 40% NA 11.2 6.2 9.4 - 33.6x $0.11 NM 6.1x 7.4x 40% $1,452
Allergan AGN M $67.04 11.0 4.8x 11% $2.15 $2.56 ($0.00) 31.2x 26.2x 17% 19% 1.3x 22.1 9.6 13.3 0.3% 24.9x $2.00 34.5x 37.9x Neg 40% $20,616
Auxilium Pharma AUXL O $28.05 92.9 9.7x 23% ($1.07) ($0.81) $0.08 NA NA NA NA NA (31.2) Neg Neg - Neg ($1.01) Neg 15.8x 13.8x 0% $1,131
Axcan AXCA S $22.58 56.7 NA NA $1.48 NA $0.36 15.3x NA 87% NA NA 31.5 11.1 11.4 - 9.3x $1.98 10.0x 4.2x 8.6x 16% $1,250
Cephalon, Inc. CEPH M $74.92 5.8 2.6x 7% $3.96 $4.37 ($0.12) 18.9x 17.1x -18% 10% 0.9x 15.5 Neg Neg - 12.7x $3.12 27.2x NA Neg 54% $5,024
Corcept Therapeutics CORT M $2.95 131.7 NA NA ($0.33) ($0.37) $0.40 NA NA NA NA NA NA Neg Neg - Neg ($0.44) Neg 6.1x 5.5x 0% $117
Eurand N.V. EURX NA -- No data provided due to regulatory quiet period
Forrest Labs FRX M $38.55 (26.0) 3.2x 10% $2.88 $3.05 $0.05 13.4x 12.6x 23% 6% 1.6x 28.2 16.5 15.1 - 8.1x $2.39 13.6x 3.7x 7.4x 0% $12,022
ISTA Pharmaceuticals ISTA O $5.17 (29.0) 2.1x 44% ($1.32) ($0.48) ($0.33) NA NA NA NA NA (48.7) Neg Neg - Neg ($1.06) Neg 22.4x Neg 92% $170
King Pharma KG M $10.59 (33.5) 1.5x -20% $1.91 $1.30 $0.47 5.5x 8.1x 10% -32% NA 16.6 6.4 7.3 - 2.8x $2.23 4.1x 1.7x 9.3x 25% $2,589
Medicis MRX O $26.90 (23.4) 3.0x 13% $1.22 $1.40 ($0.18) 22.0x 19.2x 15% 15% 0.8x 24.0 6.6 11.2 0.4% 16.2x $2.60 11.3x 4.4x Neg 61% $1,514
Obagi Medical Products OMPI O $18.40 87.2 3.1x 21% $0.77 $0.99 NA 23.9x 18.6x 126% 29% 0.7x 25.5 NA 44.6 - 15.5x $0.61 31.4x 21.6x Neg 19% $398
Salix Pharma SLXP M $11.36 (5.8) 1.7x 22% $0.88 $1.00 $0.03 12.9x 11.4x 31% 14% 0.6x 22.2 14.0 13.5 - 9.6x $0.96 11.0x 5.0x 9.9x 5% $541
Santarus SNTS O $2.54 (65.8) 0.7x 98% ($1.01) ($0.40) ($0.07) NA NA NA NA NA (28.8) Neg Neg - Neg ($0.44) Neg 8.3x 2.8x 0% $130
Sciele Pharma SCRX O $22.32 (6.9) 1.8x 18% $1.63 $2.04 $0.11 13.7x 10.9x 36% 25% 0.5x 22.3 8.0 12.2 - 9.9x $1.29 22.9x NM Neg 53% $796
Somaxon Pharmaceuticals SOMX O $5.81 (60.9) NA NA ($1.35) ($1.48) $0.78 NA NA NA NA NA NA Neg Neg - Neg ($1.48) Neg 2.6x 2.5x 0% $107
Syneron Medical ELOS M $14.67 (45.3) 2.5x 17% $1.36 $1.95 ($0.61) 10.8x 7.5x -5% 43% 0.4x 18.4 18.6 19.7 - 8.3x $1.44 6.9x 1.8x 3.0x 0% $404
Thermage THRM O $6.33 (10.4) 1.9x 22% $0.08 $0.33 $0.05 79.1x 19.2x NA 313% NA (1.7) 9.6 5.9 - 91.5x $0.19 21.5x 2.6x 2.9x 0% $148


Current FY Oper.
Cons EPS Margin
Industrial Growth
Alternatve Energy and Environmental Services: Jeff Osborne
Aventine Renewable Energy AVR M $9.85 (56.9) 0.2x 42% $0.75 $0.22 ($1.02) 13.1x 44.8x -54% -71% 2.3x (3.0) 9.2 12.8 - 8.0x ($2.06) Neg 1.3x 19.1x 47% $414
Ballard Power Systems BLDP M $4.50 (23.7) 6.6x 22% ($0.57) ($0.58) $0.08 NA NA NA NA NA (85.3) Neg Neg - Neg ($0.41) Neg 2.5x 3.1x 0% $516
Comverge COMV O $31.48 NA 5.1x 116% ($0.26) $0.26 NA NA 121.1x NA NA NA (57.5) NA Neg - NA ($0.32) Neg 23.0x Neg 37% $614
EnerNOC ENOC O $45.77 NA 8.0x 81% ($1.38) ($0.99) NA NA NA NA NA NA (21.8) NA Neg - Neg ($1.37) Neg 8.9x 13.5x 19% $873
Evergreen Solar ESLR M $13.17 69.0 14.2x 38% ($0.24) ($0.15) ($0.05) NA NA NA NA NA (34.6) Neg Neg - Neg ($0.49) Neg 3.4x 76.3x 32% $1,335
Hoku Scientific Inc. HOKU U $8.27 200.0 38.1x -32% ($0.14) ($0.71) ($0.34) NA NA NA NA NA (529.3) Neg Neg - Neg ($0.29) Neg 5.3x 14.3x 23% $139

JA Solar Holdings JASO O $59.34 NA 3.3x 168% $1.49 $2.54 NA 39.8x 23.4x 126% 70% 0.2x 20.0 25.4 10.3 - NA $0.29 NM 8.3x 38.7x 9% $2,972
PowerSecure International POWR M $13.74 7.3 1.5x 23% ($0.23) $0.84 ($0.27) NA 16.4x NA NA NA 6.5 Neg Neg - 28.1x $0.54 22.0x 5.6x 8.4x 0% $231
Plug Power Inc. PLUG M $3.62 (8.7) 13.2x 57% ($0.76) ($0.80) ($0.19) NA NA NA NA NA (390.9) Neg Neg - Neg ($0.59) Neg 1.6x 1.8x 2% $318

SunPower Corporation SPWR M $124.44 243.1 8.6x 57% $1.22 $2.04 $0.36 102.0x 61.0x 139% 67% 2.8x 2.9 1.8 2.2 - NM ($3.19) Neg 17.7x N/M 34% $10,430
Suntech Power Holdings STP O $79.17 139.0 4.7x 82% $1.27 $2.68 ($0.12) 62.3x 29.5x 87% 111% NA 14.5 11.8 20.2 - NM ($0.70) Neg 17.4x Neg 54% $11,912
MEMC Electronic Materials WFR O $77.58 93.5 7.5x 23% $3.32 $4.27 $0.75 23.4x 18.2x 62% 29% 0.6x 42.3 42.3 34.6 - 18.8x $2.65 26.1x 10.3x 14.7x 2% $17,775
Verasun Energy VSE M $11.81 (39.2) 0.6x 133% $0.15 $0.55 ($0.80) 78.7x 21.5x -90% 267% 3.2x 4.9 3.8 13.2 - 11.8x ($1.08) Neg 2.0x Neg 55% $1,097
Applied Technologies: Ajit Pai

Agilent ** A O $37.83 8.3 2.5x 7% $1.82 NA ($0.02) 20.8x NA 7% NA NA 13.1 12.2 18.5 - 18.2x $2.17 17.6x 5.8x Neg 39% $14,623
Brady BRC M $40.03 3.1 1.4x 11% $2.10 $2.38 ($0.22) 19.1x 16.8x 1% 13% 1.9x 15.3 8.5 11.8 1.6% 9.8x $0.99 44.4x 39.6x Neg 34% $2,176
Checkpoint Systems CKP M $23.76 12.3 1.0x 12% $1.36 $1.60 $0.08 17.5x 14.9x 48% 18% 1.7x 9.0 10.1 9.6 - 8.9x $1.39 12.9x 2.9x 5.8x 3% $944
Corning, Inc. GLW O $24.29 31.4 5.7x 15% $1.40 $1.52 $0.13 17.4x 16.0x 27% 9% 0.8x 24.7 21.7 23.7 0.8% 20.7x $0.47 49.9x 4.6x 21.0x 14% $38,277
Danaher DHR M $86.82 19.0 2.4x 6% $3.88 $4.45 $0.10 22.4x 19.5x 19% 15% 1.2x 17.0 13.2 15.1 0.1% 20.5x $4.32 21.7x NA Neg 24% $27,475
Exfo** EXFO O $5.22 (9.8) 0.9x 16% $0.25 NA ($0.10) 20.9x NA 32% NA NA 21.2 18.9 16.8 - 2.0x $0.36 3.4x .8x 1.3x 0% $169
Intermec Inc. IN O $21.47 (14.0) 1.4x 10% $0.38 $0.85 ($0.42) 56.5x 25.3x 6% 124% 1.0x 2.2 2.3 3.0 - 34.8x $0.09 NM 2.9x 11.2x 18% $1,310
IPG Photonics IPGP O $20.35 (15.4) 3.8x 25% $0.69 $0.88 NA 29.5x 23.1x 15% 28% 0.8x 26.7 NA 10.7 - 15.3x ($0.94) Neg 4.7x 96.8x 16% $891
Itron ITRI M $77.55 51.5 1.3x 28% $2.72 $3.39 ($0.01) 28.5x 22.9x 32% 25% 1.5x 6.7 Neg Neg - 26.9x $2.01 69.2x NA Neg 74% $2,373
Ixia** XXIA O $10.33 5.1 3.5x 17% $0.30 NA ($0.16) 34.4x NA 25% NA NA 0.4 2.3 2.4 - 21.2x $0.51 13.6x 2.4x 3.4x 0% $709
Keithley KEI M $9.50 (30.1) 1.0x 7% $0.05 $0.38 NA 190.0x 25.0x -91% 660% 2.1x (0.7) Neg Neg 1.6% 37.1x ($0.01) Neg 1.3x 3.4x 1% $155
LeCroy Corporation** LCRY M $8.69 (21.8) 0.7x 8% $0.28 NA ($0.76) 31.0x NA -75% NA NA 3.1 Neg Neg - 21.7x ($0.14) Neg 17.5x Neg 58% $108
National Instruments NATI O $33.37 21.5 3.1x 14% $1.17 $1.43 $0.04 28.5x 23.3x 26% 22% 1.3x 13.3 14.5 13.8 1.2% 19.4x $1.14 27.5x 5.0x 9.5x 0% $2,656
Newport Corporation NEWP M $13.26 (37.3) 1.0x 10% $0.67 $0.86 ($0.31) 19.8x 15.4x -14% 28% 1.3x 4.7 6.0 7.6 - 9.9x $0.31 46.8x 3.1x Neg 33% $492
Scansource SCSC M $35.28 11.3 0.4x 14% $1.86 $2.16 $0.08 19.0x 16.3x 22% 16% 1.4x 4.6 10.1 13.2 - 10.8x ($1.19) Neg 3.0x Neg 30% $913
Zebra Technologies ZBRA O $38.57 7.5 2.8x 11% $1.64 $1.85 ($0.15) 23.5x 20.8x 5% 13% 1.5x 17.0 10.9 10.6 - 13.0x $2.02 16.5x 3.6x 8.5x 0% $2,623
Defense & Security: David Gremmels

AeroVironment AVAV M $24.09 NA 2.2x 25% $1.22 $1.00 NA 19.7x 24.1x 63% -18% 1.2x 9.8 25.6 17.0 - 10.5x $0.65 28.3x 3.3x 4.6x 0% $467
Alliant Techsystems ATK M $116.83 50.0 0.9x 16% $5.32 $6.40 $0.47 22.0x 18.3x 29% 20% 1.8x 10.2 10.1 33.0 - 13.3x $2.77 67.5x NA Neg 79% $3,821
Applied Signal APSG M $12.77 (9.0) 0.9x 7% $0.50 $0.57 ($0.03) 25.5x 22.4x 39% 14% 1.5x 4.1 4.3 4.6 3.9% 8.8x $0.52 20.3x 1.7x 5.6x 6% $158
Argon ST STST O $18.22 (14.1) 1.2x 20% $0.65 $0.94 ($0.24) 28.0x 19.4x -25% 45% 1.3x 8.9 5.4 5.3 - 10.6x $1.11 15.5x 4.1x 17.8x 0% $399
Boeing Company BA M $92.54 3.3 1.0x 5% $5.25 $6.17 $0.47 17.6x 15.0x 85% 18% 1.2x 9.1 22.2 61.4 1.5% 9.7x $9.29 9.6x 45.6x 80.5x 57% $71,724
DRS Technologies DRS O $59.21 13.2 0.8x 13% $3.12 $3.26 ($0.12) 19.0x 18.2x 17% 4% 1.8x 11.8 3.8 8.2 0.2% 12.1x $3.82 28.4x NA Neg 57% $2,440
EDO Corporation EDO S $55.82 134.9 0.7x 49% $1.80 $3.42 $0.28 31.0x 16.3x 190% 90% 1.6x 7.1 4.0 10.2 0.2% 21.1x $0.91 90.2x NA Neg 64% $1,191
Flir Systems Inc. FLIR O $68.73 118.0 4.4x 36% $1.78 $2.50 $0.26 38.6x 27.5x 35% 40% 1.4x 27.1 18.9 23.9 - 23.4x $0.80 90.7x 13.2x Neg 43% $4,666
Force Protection FRPT M $10.81 (44.8) 0.7x 90% $0.52 $1.19 $0.02 20.8x 9.1x 33% 129% 0.5x 8.8 27.6 18.5 - 12.3x ($1.53) Neg 2.7x 9.1x 0% $738
General Dynamics GD O $88.78 19.7 1.2x 8% $5.13 $5.80 $0.33 17.3x 15.3x 22% 13% 1.3x 11.7 15.0 17.9 1.3% 11.5x $4.49 20.4x 37.2x Neg 20% $35,722
L-1 Identity Solutions ID M $18.58 17.8 2.5x 37% ($0.07) $0.11 ($0.16) NA 168.9x NA NA 8.4x 5.8 Neg Neg - 36.7x $0.18 NM NA Neg 21% $1,395
L-3 Communications LLL O $110.65 37.2 1.0x 3% $5.96 $6.55 $0.31 18.6x 16.9x 41% 10% 1.1x 10.8 7.2 12.0 0.9% 11.8x $7.95 18.7x NA Neg 47% $13,947
Lockheed Martin LMT O $110.67 19.2 1.1x 2% $7.00 $7.30 $1.08 15.8x 15.2x 21% 4% 1.5x 10.5 24.3 39.3 1.5% 9.6x $6.40 17.8x NA Neg 42% $45,723
Northrop Grumman NOC M $78.79 19.7 0.8x 5% $5.14 $5.60 $0.28 15.3x 14.1x 16% 9% 1.4x 10.2 8.3 10.6 1.8% 8.7x $3.75 24.5x NA Neg 21% $26,660
Raytheon Company RTN M $61.85 17.1 1.2x 6% $3.20 $3.87 $0.23 19.3x 16.0x 30% 21% 1.3x 8.9 8.5 10.4 1.7% 10.2x $2.55 24.0x 52.1x N/M 17% $26,553
Rockwell Collins COL O $72.12 14.4 2.4x 9% $3.45 $3.95 $0.39 20.9x 18.3x 26% 14% 1.2x 18.7 36.0 36.6 0.9% 12.7x $2.30 31.3x 13.4x N/M 12% $11,750
Media & Telecom

Internet Services and Publishing: Christa Sober Quarles
Autobytel ABTL M $3.22 (12.9) 1.3x 9% ($0.23) ($0.40) $0.23 NA NA NA NA NA (28.0) Neg Neg - Neg ($0.38) Neg 3.4x 4.7x 0% $141
eBay, Inc. EBAY O $33.53 9.6 5.1x 17% $1.49 $1.72 $0.26 22.5x 19.5x 42% 15% 0.4x 24.0 1.5 1.4 - 16.4x $1.52 19.3x 11.0x 8.9x 0% $45,384
FindWhat.com MIVA U $2.88 (17.2) 0.7x -4% ($0.91) ($0.48) ($0.49) NA NA NA NA NA (7.2) Neg Neg - NA ($0.25) Neg 3.3x 3.9x 1% $98
Getty Images ** GYI M $29.15 (32.7) 1.9x 6% $2.29 $2.15 ($0.58) 12.7x 13.6x -6% -6% 0.9x 21.0 7.9 9.2 - 6.9x $3.31 10.3x 46.8x Neg 30% $1,736
Gmarket, Inc. GMKT M $23.26 (4.0) 3.5x 35% $0.66 $0.86 ($0.02) 35.2x 27.0x 61% 30% 1.1x 8.1 23.5 25.7 - 28.1x $0.55 33.4x 8.2x 5.4x 0% $1,152
Google GOOG O $693.00 48.0 12.9x 42% $15.68 $20.50 $1.75 44.2x 33.8x 48% 31% 0.7x 31.1 22.7 19.3 - 36.6x $9.28 69.3x 11.7x 16.3x 0% $216,798
GSI Commerce GSIC O $26.12 36.9 1.3x 26% $0.31 $0.37 $0.36 84.3x 70.6x -9% 19% 2.4x (8.4) 15.9 24.9 - 46.5x $0.01 NM 10.3x Neg 57% $1,220
Marchex, Inc. MCHX O $12.31 (10.0) 2.3x 12% $0.34 $0.41 ($0.22) 36.2x 30.0x -28% 21% 1.2x (6.6) Neg 1.5 0.7% 12.7x $1.05 10.2x 4.6x 10.1x 1% $362
Monster Worldwide ** MNST O $33.77 (31.1) 2.8x 14% $0.98 $1.70 ($0.19) 34.5x 19.9x -16% 73% 0.9x 18.1 12.7 11.9 - 12.2x $1.44 18.9x 8.2x 6.6x 0% $4,320
ValueClick VCLK M $23.64 1.5 3.1x 17% $0.71 $0.84 ($0.05) 33.3x 28.1x 15% 18% 1.9x 16.8 11.6 10.7 - 13.3x $1.36 15.0x 10.3x 9.4x 0% $2,321
Yahoo YHOO M $26.81 4.2 6.1x 16% $0.43 $0.48 ($0.16) 62.3x 55.9x -17% 12% 1.9x 8.5 7.7 7.7 - 24.2x $0.69 37.5x 6.8x 49.9x 14% $35,830

91
92
Current FY Oper.
Cons EPS Margin
Media & Broadcasting: Lloyd Walmsley
CNET Networks CNET O $7.58 (18.4) 2.5x 12% $0.07 $0.15 $0.92 108.3x 50.5x -53% 114% 1.4x 2.6 Neg Neg - 19.5x $0.15 48.5x 9.6x N/M 19% $1,152
Digital Theater Systems DTSI M $24.75 2.3 7.5x 16% $0.40 $0.65 ($0.14) 61.9x 38.1x 21% 63% 1.5x 15.1 0.1 0.1 - 41.9x ($0.62) Neg 3.3x 5.0x 0% $436
Entravision EVC O $7.48 (6.4) 2.0x 7% $0.12 $0.15 ($0.11) 62.3x 49.9x -29% 25% 1.7x 19.5 2.1 3.1 - 10.6x $0.55 21.8x NA Neg 41% $617
Gaiam GAIA O $23.55 68.8 1.6x 13% $0.33 $0.50 $0.03 71.4x 47.1x 50% 52% 1.6x 6.0 4.3 4.2 - 30.1x $0.78 23.9x 3.8x 5.5x 0% $457
Infospace INSP M $17.81 (11.9) 4.5x -45% ($0.92) $0.10 ($1.19) NA 178.1x NA NA 11.9x (33.7) Neg Neg - Neg NM Neg 1.4x 2.8x 0% $592
Lamar Advertising LAMR M $52.01 (20.2) 3.8x 6% $0.38 $0.50 ($0.15) 136.9x 104.0x -10% 32% 5.2x 22.2 1.4 4.8 - 14.9x ($2.07) Neg NA Neg 75% $4,914
Lions Gate Entertain LGF O $9.23 (12.2) 0.9x 25% $0.25 ($0.80) ($1.01) 36.9x NA 2400% NA NA (15.7) Neg Neg - 7.3x $0.26 67.2x NA Neg 88% $1,111
National CineMedia NCMI O $27.68 NA 2.9x 19% $0.56 $0.80 NA 49.4x 34.6x 40% 43% 1.4x 55.1 NA NM 2.2% 16.2x NM Neg NA Neg NM $1,163
Netflix, Inc. NFLX O $23.10 (8.0) 1.1x 11% $0.80 $0.85 $0.08 28.9x 27.2x 13% 6% 1.4x 6.5 16.1 14.8 - 4.0x $0.38 46.4x 4.9x 4.0x 0% $1,519
Regal Entertainment RGC O $19.79 (3.6) 1.1x 4% $0.82 $0.92 ($0.09) 24.1x 21.5x 15% 12% 1.4x 12.1 19.3 NM 5.8% 8.8x $1.41 22.2x NA Neg NM $3,032
Time Warner TWX O $17.26 (21.3) 1.3x 2% $0.98 $1.10 ($0.04) 17.6x 15.7x 13% 12% 0.8x 16.4 5.0 7.8 1.5% NA $0.78 34.5x NA Neg 39% $62,388
Westwood One WON M $1.91 (73.5) 0.4x 1% $0.30 $0.30 ($0.08) 6.4x 6.4x -27% 0% 0.6x 19.5 Neg Neg - 5.2x $0.63 9.2x NA Neg 62% $167
Telecom Services: James Breen

America Movil, S.A de C.V. AMX O $61.66 38.8 2.1x 21% $2.91 $3.85 $0.20 21.2x 16.0x 34% 32% 0.4x 25.1 NA 40.6 0.6% 7.3x $6.60 10.5x 7.5x Neg 41% $70,578
AT&T T U $38.21 7.1 1.8x 8% $2.76 $3.21 $0.20 13.8x 11.9x 18% 16% 7.9x 8.4 8.3 10.5 3.7% 7.9x $1.17 40.5x NA Neg 35% $231,734
BCE Inc BCE S $39.20 44.9 1.9x 1% $2.11 $2.77 ($0.04) 18.6x 14.2x 23% 31% 1.4x 21.7 8.2 16.1 4.1% 6.8x $1.63 33.7x 4.9x Neg 47% $31,552
Cbeyond CBEY O $41.37 43.1 3.3x 26% $0.45 $0.55 $0.03 91.9x 75.2x 55% 22% NA 4.1 13.7 12.1 - 27.5x $0.30 NM 11.2x 24.4x 0% $1,172
Centennial Comm CYCL O $8.90 21.1 1.0x 10% $0.02 $0.36 ($0.09) 445.0x 24.7x NA 1700% NA 25.7 1.3 NM - 8.1x $0.42 63.1x NA Neg NM $956
Cogent Communications CCOI O $20.78 21.9 4.4x 24% ($0.67) ($0.18) ($0.00) NA NA NA NA NA (16.9) Neg Neg - 34.1x $0.12 NM 6.5x Neg 66% $1,001
Internap Network Services INAP O $9.95 (50.6) 1.6x 25% $0.29 $0.74 ($0.44) 34.3x 13.4x 7% 155% 0.3x 2.5 Neg Neg - 16.4x ($0.03) Neg 4.7x 10.6x 6% $487
Leap Wireless International LEAP M $34.71 (41.6) 1.1x 26% ($0.26) $0.87 ($0.46) NA 39.9x NA NA NA 9.4 Neg Neg - 13.5x NM Neg NA Neg 53% $2,368
Level 3 Communications LVLT M $3.36 (39.6) 1.1x 8% ($0.77) ($0.33) ($0.29) NA NA NA NA NA (5.4) Neg Neg - 21.1x ($0.29) Neg NA Neg 89% $5,164
NaviSite NAVI O $9.31 27.5 1.9x 38% ($0.85) $0.12 NA NA 77.6x NA NA NA 3.0 Neg NM - 22.2x $0.03 NM NA Neg NM $323
NII Holdings, Inc. NIHD O $55.16 (15.5) 2.2x 32% $2.01 $3.68 ($0.57) 27.4x 15.0x 20% 83% 0.4x 18.5 11.6 21.7 - 12.2x ($0.01) Neg 7.0x Neg 61% $9,555
Qwest Comm Q U $6.63 (20.1) 0.9x 0% $0.54 $0.65 $0.14 12.3x 10.2x 86% 20% 5.1x 5.2 20.2 NM - 5.7x $0.78 18.0x NA Neg 98% $11,966
RCN Corp RCNI M $14.52 (50.5) 0.8x 4% ($3.90) ($2.35) ($1.70) NA NA NA NA NA (14.1) Neg Neg - 10.6x NM Neg 8.9x Neg 81% $546
RRSat Global Communications RRST O $21.10 64.2 5.0x 24% $0.66 $0.92 $0.08 32.0x 22.9x 14% 39% 0.9x 19.3 23.1 14.2 - 21.4x $0.15 NM 5.1x 7.7x 0% $364
Sprint S O $15.52 (16.1) 1.1x 2% $0.89 $0.94 ($0.47) 17.4x 16.5x -30% 6% 3.3x 5.2 0.2 0.3 0.6% 7.4x $0.80 37.7x NA Neg 46% $44,140
TELUS Corp TU O $45.19 (1.1) 0.8x 4% $3.44 $3.36 NA 13.1x 13.4x 22% -2% 0.7x 25.6 9.6 15.1 4.3% 3.4x $6.20 11.7x NA Neg 40% $7,021
Time Warner Telecom TWTC M $22.43 16.9 2.7x 11% ($0.29) $0.13 ($0.21) NA 172.5x NA NA 12.1x 3.3 Neg Neg - 15.6x ($0.10) Neg 35.3x Neg 76% $3,275
Verizon VZ M $43.21 15.7 1.3x 4% $2.39 $2.66 ($0.08) 18.1x 16.2x -5% 11% NA 17.7 6.9 11.7 4.0% 5.1x $0.35 NM NA Neg 39% $124,891
Virgin Mobile USA VM O $7.28 NA 0.2x 18% ($0.06) $0.78 NA NA 9.3x NA NA NA 8.1 NA NM - 18.9x $0.16 NM NA Neg -739% $387
Technology
Communications Components: Jeremy Bunting
Applied Micro Circuits AMCC M $2.51 (31.2) 2.8x -17% $0.11 ($0.01) ($0.21) 22.8x NA 83% NA NA (24.0) Neg Neg - Neg ($0.07) Neg 2.2x 4.8x 0% $685
Atheros ATHR M $29.49 34.6 3.4x 18% $1.06 $1.26 $0.16 27.8x 23.4x 47% 19% NA 8.8 8.7 7.8 - 30.0x $1.17 20.4x 6.3x 7.6x 0% $1,675
Broadcom BRCM O $26.74 (16.3) 3.3x 15% $1.14 $1.20 ($0.22) 23.5x 22.3x -16% 5% NA 0.7 4.2 4.1 - 90.9x $1.37 16.2x 5.6x 6.2x 0% $14,461
Cavium Networks CAVM M $25.65 NA 11.8x 61% $0.12 $0.46 NA 213.8x 55.8x NA 283% NA 1.3 NA Neg - NM $0.09 NM 9.0x 40.5x 40% $1,019
Centillium CTLM M $1.38 (36.9) 0.9x 56% ($0.50) ($0.22) ($0.24) NA NA NA NA NA (57.1) Neg Neg - Neg ($0.41) Neg 2.6x 1.4x 6% $57
Hittite Microwave Corp. HITT M $43.19 37.2 7.4x 15% $1.77 $1.73 $0.25 24.4x 25.0x 20% -2% NA 45.9 29.3 25.2 - 16.1x $1.54 25.0x 6.8x 8.5x 0% $1,339
Ikanos Communications IKAN M $5.93 (36.1) 1.3x 23% ($0.42) $0.26 ($0.19) NA 22.8x NA NA NA (39.1) Neg Neg - Neg ($0.45) Neg 1.5x 1.6x 0% $173
Marvell MRVL O $14.94 (21.3) 3.1x 26% $0.56 $0.39 ($0.28) 26.7x 38.3x -11% -30% NA (0.8) Neg Neg - Neg ($0.11) Neg 10.7x 71.4x 11% $8,822
Mellanox Technologies MLNX M $17.74 NA 4.8x 32% $0.78 $0.90 NA 22.7x 19.7x 255% 15% NA 26.5 21.8 14.0 - NA $0.62 24.6x 3.4x 10.0x 38% $530
Mindspeed MSPD M $1.40 (31.4) 1.1x 17% ($0.09) $0.06 ($0.02) NA 23.3x NA NA NA (1.1) Neg Neg - Neg ($0.14) Neg 22.0x Neg 86% $163
NetLogic Microsystems NETL O $29.25 32.1 4.4x 31% $1.19 $1.43 $0.07 24.6x 20.5x 1% 20% NA 6.0 5.8 5.6 - 52.8x $1.24 18.7x 5.3x 6.1x 0% $620
PMC Sierra PMCS M $7.02 1.8 2.9x 17% $0.23 $0.37 ($0.06) 30.5x 19.0x -15% 61% NA 6.9 Neg Neg - 61.8x $0.29 24.8x NA Neg 44% $1,524
RF Micro Devices RFMD O $5.78 (15.5) 1.1x -2% $0.51 $0.30 ($0.19) 11.3x 19.3x 132% -41% NA 3.2 11.3 16.8 - 8.9x $0.43 14.5x 1.7x Neg 52% $1,130
Silicon Labs SLAB O $37.14 8.1 5.3x 16% $1.23 $1.54 ($0.03) 30.2x 24.1x 3% 25% NA 11.8 4.4 3.8 - 61.9x $0.11 NM 3.0x 3.2x 0% $2,047
SiRF Technology SIRF O $24.09 (5.8) 3.2x 36% $1.05 $1.40 $0.00 22.9x 17.2x 22% 33% NA (1.3) Neg Neg - 52.5x $0.64 36.5x 7.7x 12.5x 1% $1,446
Skyworks Solutions, Inc. SWKS M $9.08 22.7 1.8x 11% $0.48 $0.59 ($0.11) 18.9x 15.4x 118% 23% NA 9.5 5.6 7.3 - 17.2x $0.21 47.4x 4.8x Neg 38% $1,468
TranSwitch Corp TXCC U $1.02 (30.9) 2.8x 47% ($0.13) $0.01 ($0.10) NA 102.0x NA NA NA (57.5) Neg Neg - Neg ($0.10) Neg 18.2x 8.6x 57% $136
Vitesse VTSS S $0.95 9.8 NA NA NA NA NA NA NA NA NA NA (22.7) Neg NM - Neg ($0.15) Neg 32.1x Neg 45% $210


Current FY Oper.
Cons EPS Margin
Communications Equipment: Core & Wireless Equipment: Hasan Imam
Ciena CIEN O $43.98 53.8 3.8x 28% $1.35 $1.66 $0.27 32.6x 26.5x 366% 23% 0.2x 7.2 3.5 8.2 - 60.4x $0.66 71.2x 7.4x Neg 73% $3,781
Ericsson ERIC O $24.46 (38.0) 1.2x 13% $2.02 $2.44 ($0.39) 12.1x 10.0x -10% 21% 1.0x 8.9 18.5 20.3 2.1% 7.6x $0.72 30.7x 2.9x 13.3x 17% $35,675
Infinera INFN M $21.81 NA 5.0x 24% $0.21 $0.28 NA 103.9x 77.9x NA 33% 1.7x (13.5) NA Neg - NA ($0.38) Neg 10.3x Neg 63% $1,869
Motorola MOT O $15.97 (25.0) 0.9x 11% $0.24 $0.70 ($1.30) 66.5x 22.8x -78% 192% 3.1x (0.1) 1.5 2.0 1.3% 18.4x ($0.07) Neg 3.4x 8.3x 22% $36,481
Nokia NOK M $39.33 98.0 2.1x 14% $1.84 $2.02 $0.43 21.4x 19.5x 44% 10% 1.9x 14.4 52.3 41.4 1.0% 12.9x $1.11 32.5x 12.4x 14.0x 6% $159,208
Nortel Networks NT M $16.84 (37.7) 0.6x 7% $0.67 $1.20 ($0.13) 25.1x 14.0x NA 79% 2.8x 4.5 Neg Neg - 18.4x ($1.03) Neg 49.8x Neg 68% $7,358

Novatel NVTL O $15.54 58.4 1.0x 23% $1.37 $1.55 $0.94 11.3x 10.0x 661% 13% 0.2x 12.0 18.1 15.7 - 7.4x $0.25 45.9x 2.5x 4.0x 0% $505
Palm PALM M $6.97 (52.6) 0.5x -4% $0.70 $0.13 ($0.58) 10.0x 53.6x -23% -81% NA (0.6) 3.7 3.7 - .5x $1.35 .3x .8x 1.1x 0% $731
Qualcomm QCOM O $40.78 5.7 6.7x 13% $2.01 $2.11 $0.06 20.3x 19.3x 23% 5% 0.9x 33.7 22.6 20.7 1.4% 17.8x $1.30 27.0x 4.5x 9.5x 1% $66,736

Research In Motion RIMM O $113.82 145.9 10.7x 95% $1.11 $2.20 $0.64 102.5x 51.7x 13% 98% 1.1x 28.6 33.7 28.5 - 44.9x $0.98 NM 20.9x 43.9x 0% $63,719
Sonus Networks SONS O $6.58 (3.8) 4.1x 33% $0.11 $0.25 ($0.30) 59.8x 26.3x -48% 127% 0.9x (12.2) 9.0 8.7 - Neg ($0.02) Neg 3.8x 5.2x 0% $1,766
Starent Networks STAR NA -- No data provided due to regulatory quiet period
Sycamore Networks, Inc. SCMR M $3.85 (1.9) 6.2x 13% $0.08 $0.15 $0.01 48.1x 25.7x -43% 88% 2.6x (5.5) 1.1 0.9 - Neg $0.06 8.6x 1.1x 1.2x 0% $1,090
UTStarcom, Inc. UTSI S $2.90 (67.9) NA NA NA NA ($0.81) NA NA NA NA NA (8.6) Neg Neg - Neg ($1.43) Neg .5x Neg 50% $352
Zhone Technologies Inc. ZHNE NR $1.25 (2.3) 0.9x 15% ($0.12) $0.00 ($0.05) NA NA NA NA NA (15.4) Neg Neg - Neg ($0.11) Neg 2.4x 22.5x 22% $187
Communications Equipment: IP Networking: Jason Ader

ADC Telecom ADCT M $16.56 11.9 1.4x 3% $1.11 $1.12 $0.22 14.9x 14.8x 21% 1% 3.0x 7.5 12.7 16.7 - 12.3x $0.82 21.0x 3.0x Neg 44% $1,946
Adtran ADTN M $21.69 (6.3) 2.7x 11% $1.20 $1.41 ($0.12) 18.1x 15.4x 5% 18% 1.5x 24.3 15.8 17.9 1.7% 11.7x $0.90 21.4x 3.5x 11.6x 11% $1,439
Arris Group, Inc. ARRS O $10.43 (16.9) 1.0x 14% $0.89 NA $0.07 11.7x NA -16% NA NA 10.7 21.2 22.6 - 8.8x $0.55 17.8x 2.0x 28.8x 44% $1,149
Cisco Systems CSCO O $28.02 0.9 4.2x 16% $1.34 $1.61 $0.07 20.9x 17.4x 24% 20% 1.2x 24.8 21.9 23.5 - 13.8x $1.58 15.2x 8.7x 9.2x 16% $169,996
Extreme Networks ** EXTR M $3.64 (14.3) 1.2x 6% $0.03 $0.16 $0.06 121.3x 22.8x -79% 433% 3.8x 1.7 Neg Neg - Neg $0.02 NM 1.8x 2.4x 0% $419
F5 Networks, Inc. FFIV M $26.42 (27.5) 3.3x 29% $0.91 $0.97 ($0.50) 29.0x 27.2x 14% 7% 1.1x 22.6 11.1 10.2 - 16.8x $1.48 16.0x 4.3x 8.8x 0% $2,243
Foundry Networks, Inc. FDRY O $17.63 19.1 3.8x 16% $0.75 $0.92 $0.15 23.5x 19.2x 44% 23% 1.3x 20.6 6.9 6.6 - 20.3x $0.63 19.6x 2.6x 3.6x 0% $2,650
Harmonic HLIT O $10.37 43.2 2.8x 14% $0.49 $0.68 $0.20 21.2x 15.3x 172% 39% 1.0x 11.6 14.6 12.5 - 26.3x $0.13 70.5x 8.4x 9.8x 0% $968
Juniper JNPR M $29.72 60.3 4.5x 24% $0.85 $1.14 ($0.02) 35.0x 26.1x 16% 34% 1.0x 14.7 5.2 5.6 - 28.2x $1.23 23.5x 11.3x 19.3x 13% $15,502
NETGEAR, Inc NTGR M $33.89 26.9 1.4x 20% $1.70 $1.91 $0.20 19.9x 17.7x 22% 12% 1.0x 9.7 14.9 13.5 - 12.0x $1.63 17.0x 4.0x 6.6x 0% $1,192
Occam Networks OCNW M $3.87 (76.4) 1.0x 12% ($0.10) ($0.26) ($0.54) NA NA NA NA NA (35.1) Neg Neg - 13.8x ($0.18) Neg 1.2x 1.5x 0% $76
Plantronics PLT M $26.85 24.1 1.5x 8% $1.26 $1.55 $0.11 21.3x 17.3x -30% 23% 1.7x 9.3 11.2 10.7 0.8% 12.3x $1.42 16.6x 3.5x 9.1x 0% $1,305
Polycom ** PLCM O $24.27 (22.5) 2.1x 15% $1.34 $1.65 $0.12 18.1x 14.7x 24% 23% 1.0x 9.8 6.8 6.5 - 13.5x $1.19 16.2x 5.0x 6.7x 0% $2,203
Riverbed Technology RVBD O $28.28 (8.4) 5.6x 56% $0.64 $0.80 $0.41 44.2x 35.4x NA 25% 0.6x 3.1 4.4 3.3 - NM $0.45 54.4x 8.4x 8.6x 0% $2,000
Scopus Video Networks SCOP O $4.97 20.0 1.0x 15% ($0.06) $0.17 $0.05 NA 29.2x NA NA NA (4.8) Neg Neg - NA $0.00 NA 1.6x 2.0x 0% $66
Electronic Supply Chain: Matt Sheerin

Agilysys AGYS O $13.89 (21.1) 0.5x -46% $0.78 $0.44 ($0.84) 17.8x 31.6x -29% -44% 2.6x (1.8) 0.0 Neg 0.9% NA ($4.65) Neg 1.5x 2.1x 0% $367
Amphenol APH M $43.35 40.8 2.5x 11% $1.90 $2.20 $0.15 22.8x 19.7x 29% 16% 1.0x 19.5 19.5 29.2 0.1% 13.7x $1.22 37.8x 48.0x Neg 39% $7,728
Arrow Electronics ARW O $37.01 14.9 0.3x 8% $3.25 $3.70 $0.10 11.4x 10.0x 11% 14% 0.7x 4.0 9.7 12.3 - 7.9x $6.44 7.1x 2.7x Neg 27% $4,543
Avnet AVT M $34.50 32.4 0.3x 13% $2.78 $3.28 $0.71 12.4x 10.5x 43% 18% 0.7x 4.0 9.5 12.2 - 8.1x $4.33 9.5x 2.3x Neg 30% $5,176
AVX AVX M $14.33 (4.7) 1.5x 10% $0.89 $0.91 $0.02 16.1x 15.7x 93% 2% 1.3x 10.2 9.5 9.0 1.1% 7.7x $0.75 13.4x 1.6x 3.5x 0% $2,457
Celestica, Inc. CLS M $5.87 (26.4) 0.1x 6% $0.24 $0.52 ($0.51) 24.5x 11.3x -41% 117% 0.8x 1.9 Neg Neg - 4.5x $0.72 6.4x .9x 5.6x 26% $1,169
Flextronics FLEX O $11.96 4.6 0.4x 44% $0.80 $0.95 ($0.02) 15.0x 12.6x 16% 19% 0.6x 2.7 6.1 7.3 - 12.9x $0.48 27.6x 3.2x Neg 25% $9,951
Ingram Micro IM M $19.90 (4.5) 0.1x 8% $1.74 $1.94 $0.03 11.4x 10.3x 12% 11% 0.9x 1.3 6.9 7.9 - 7.1x $0.28 69.4x 1.3x Neg 16% $3,434
Insight Enterprises NSIT M $19.81 (0.3) 0.2x 6% $1.52 $1.87 ($0.21) 13.0x 10.6x 8% 23% 0.9x 1.7 7.1 8.8 - 5.8x $0.84 24.5x 2.4x Neg 18% $959
Jabil Circuit, Inc. JBL O $16.95 (33.4) 0.3x 8% $0.95 $1.52 ($0.65) 17.8x 11.2x -38% 60% 0.6x 2.9 2.3 2.9 1.7% 8.1x ($0.85) Neg 2.9x Neg 34% $3,527
Kemet KEM M $6.20 (15.6) 0.6x 33% $0.43 $0.55 ($0.06) 14.4x 11.3x 115% 28% 0.9x 4.7 2.3 2.9 - 7.3x ($0.30) Neg 1.1x Neg 31% $521
Merix Corp MERX M $5.86 (39.4) 0.3x 0% $0.52 ($0.13) ($1.11) 11.3x NA 27% NA NA (0.4) Neg Neg - 7.2x $0.31 38.7x 1.2x Neg 53% $117
Molex MOLX M $27.56 (13.3) 0.8x 1% $1.42 $1.40 ($0.58) 19.4x 19.7x 7% -1% 1.3x 9.5 8.4 8.5 1.6% 4.2x $2.37 10.2x 1.2x 8.7x 5% $2,725
Multi-Fineline Electronix MFLX M $18.27 (12.5) 0.7x 34% $0.31 $0.78 ($0.68) 58.9x 23.4x -80% 152% 1.2x 1.8 1.2 1.2 - 14.5x ($0.49) Neg 1.7x 11.7x 0% $449
Nu Horizons NUHC O $6.75 (35.1) 0.2x 11% $0.41 $0.34 ($0.67) 16.5x 19.9x 116% -17% 1.0x 2.0 4.1 5.8 - 9.1x $0.47 19.9x .9x Neg 27% $124
Sanmina-SCI SANM M $1.77 (50.4) 0.1x -1% $0.04 $0.17 ($0.23) 44.3x 10.4x -78% 325% 1.0x 1.1 Neg Neg - 7.8x $0.29 13.7x 1.4x Neg 64% $938
Tech Data TECD M $37.61 0.3 0.1x 9% $1.39 $2.38 $0.30 27.1x 15.8x -33% 71% 1.6x 1.0 4.5 4.9 - 9.5x $1.22 34.7x 1.1x Neg 29% $2,077
TTM Technologies TTMI O $12.09 4.0 0.7x 7% $0.74 $1.10 ($0.26) 16.3x 11.0x -11% 49% 0.7x 9.3 7.9 8.9 - 6.6x $0.96 13.7x 3.1x Neg 26% $512
Tyco Electronics TEL M $37.39 NA 1.3x 7% $2.14 $2.44 NA 17.5x 15.3x NA 14% 1.3x 13.5 NA Neg 1.5% 8.5x $2.82 14.1x 5.1x Neg 23% $18,590
Vishay VSH O $12.49 (11.2) 0.8x 6% $1.02 $1.25 ($0.02) 12.2x 10.0x 3% 23% 0.8x 8.9 4.1 4.7 - 6.4x $0.73 21.6x 1.5x Neg 27% $2,327

93
94
Current FY Oper.
Cons EPS Margin
Enterprise Hardware: Kevin Hunt
Apple Computer Inc. AAPL M $182.22 110.8 4.9x 36% $4.13 $5.30 $1.70 44.1x 34.4x 72% 28% 1.7x 17.1 28.5 24.3 - 30.1x $5.41 30.0x 11.1x 10.2x 0% $159,541
Compellent Technologies CML O $12.90 NA 5.1x 59% ($0.30) $0.02 NA NA 645.0x NA NA 25.8x (15.5) NA NM - Neg ($0.42) Neg 31.1x Neg 83% $395
Cray CRAY O $5.83 (50.8) 0.8x 30% $0.02 $0.25 ($0.59) 291.5x 23.3x NA 1150% 1.6x 7.9 3.7 5.3 - 11.8x $0.34 18.4x 2.3x Neg 52% $190
Data Domain DDUP NA -- No data provided due to regulatory quiet period
DELL DELL M $24.54 (4.6) 0.9x 7% $1.22 $1.47 $0.01 20.1x 16.7x -16% 20% 1.4x 5.3 50.0 43.7 - 9.6x $1.31 13.9x 7.7x 4.5x 10% $54,868
EMC Corporation EMC O $19.27 44.2 2.7x 13% $0.80 $0.94 $0.07 24.1x 20.5x 29% 18% 1.0x 13.8 10.7 12.9 - 16.4x $0.99 19.8x 8.8x Neg 37% $40,433
Emulex ELX M $16.75 (15.3) 2.7x 9% $1.13 $1.17 $0.01 14.8x 14.3x 13% 4% 1.6x 10.7 3.6 4.2 - 9.0x $1.31 10.0x 3.4x 5.0x 0% $1,400
Hewlett-Packard HPQ M $51.16 22.5 1.2x 7% $2.84 $3.27 $0.47 18.0x 15.6x 19% 15% 1.6x 9.2 16.1 18.6 0.6% 11.1x $2.02 24.6x 10.3x 44.8x 18% $131,894
Hutchinson Technology HTCH M $26.31 9.3 0.9x 10% $0.29 $1.26 ($0.17) 90.7x 20.9x -61% 334% 2.1x 3.0 0.7 1.2 - 10.4x ($1.45) Neg 1.1x Neg 56% $686
Immersion Corporation IMMR U $13.13 83.0 9.0x 29% ($0.02) $0.19 $4.53 NA 69.1x NA NA 5.8x (30.9) 183.8 99.8 - Neg $3.17 3.0x 3.1x 3.4x 12% $396
Intevac, Inc. IVAC O $15.70 (42.4) 1.7x -6% $1.27 $0.91 ($0.08) 12.4x 17.3x -43% -28% 1.2x 16.0 33.4 28.2 - 3.1x $2.37 3.7x 1.8x 2.5x 2% $339
Netezza NZ O $13.22 NA 6.3x 52% ($0.15) $0.07 NA NA 188.9x NA NA 5.4x 1.9 NA Neg - NA $0.08 NM 5.6x 28.4x 43% $757
Network Appliance Corp. NTAP M $24.71 (37.2) 2.7x 18% $1.10 $1.22 ($0.15) 22.5x 20.3x 49% 11% 1.0x 10.1 13.6 17.2 - 20.7x $2.04 11.1x 9.6x 11.4x 16% $8,792
Qlogic QLGC O $13.52 (37.0) 3.2x -1% $0.95 $0.87 ($0.24) 14.2x 15.5x 32% -8% 0.9x 20.5 12.4 12.5 - 8.6x $1.36 8.1x 3.5x 4.8x 0% $1,851
Rackable Systems RACK O $10.65 (66.4) 0.5x 25% ($0.58) $0.23 ($1.35) NA 46.3x NA NA 1.9x (3.1) Neg Neg - Neg ($0.45) Neg 1.3x 1.7x 0% $213
Seagate Technology STX O $25.79 (3.7) 1.1x 12% $1.68 $2.64 $0.06 15.4x 9.8x -16% 57% 0.9x 12.2 17.2 25.1 1.6% 7.6x $1.56 17.7x 5.7x Neg 34% $13,721
Sun Microsystems, Inc. JAVAD M $20.78 (2.4) 1.2x 3% $0.78 $1.20 $0.40 26.6x 17.3x NA 54% 1.4x 5.5 8.6 9.6 - 10.7x $0.72 25.7x 5.5x 9.4x 24% $17,218
Voltaire VOLT O $7.50 NA 2.2x 34% ($0.13) $0.25 NA NA 30.0x NA NA 1.2x 1.2 NA Neg - NA ($0.46) Neg 2.4x Neg 51% $154
Western Digital WDC O $27.63 35.2 0.8x 33% $2.03 $3.10 $0.60 13.6x 8.9x 19% 53% 0.9x 10.4 25.6 30.4 - 8.6x $1.34 21.7x 3.8x Neg 36% $6,081
Information and Financial Technology Services: David Grossman

Affiliated Computer ACS O $41.96 (12.4) 0.7x 6% $3.19 $3.34 ($0.47) 13.2x 12.6x 4% 5% 1.0x 9.7 5.9 12.1 - 6.6x $2.91 22.4x NA Neg 53% $4,217
Automatic Data Processing ADP O $45.06 2.2 2.7x 12% $1.84 $2.18 ($0.38) 24.5x 20.7x 27% 18% 1.4x 11.6 18.4 19.5 2.6% 12.9x $1.44 29.3x 12.3x 15.5x 1% $23,710
BearingPoint BE M $3.65 (62.6) 0.3x 0% ($1.10) ($0.51) ($0.88) NA NA NA NA NA (2.8) Neg NM - Neg ($0.93) Neg NA Neg NM $738
Bottonline Technologies EPAY M $12.60 11.5 2.4x 12% $0.43 $0.60 $0.16 29.3x 21.0x 5% 40% 1.4x (6.4) Neg Neg - 79.7x $0.27 37.8x 5.4x 4.9x 0% $313
Computer Sciences CSC O $52.82 (1.7) 0.6x 6% $3.80 $4.12 ($0.12) 13.9x 12.8x 14% 8% 1.3x 10.0 5.1 6.5 - 4.5x $5.13 10.6x 5.0x Neg 20% $9,190
Electronic Data Systems EDS M $20.26 (27.5) 0.5x 2% $1.55 $1.66 $0.13 13.1x 12.2x 58% 7% 1.2x 6.4 6.7 8.8 1.0% 5.5x $2.08 10.4x 3.3x Neg 32% $10,375
ExlService Holdings EXLS O $23.97 13.3 3.3x 16% $0.84 $0.90 $0.26 28.5x 26.6x 56% 7% 0.9x 10.0 20.7 14.6 - 20.3x $0.18 NM 4.7x 7.5x 0% $687
IBM IBM O $105.18 8.9 1.4x 6% $6.96 $7.96 $0.40 15.1x 13.2x 15% 14% 1.1x 12.9 17.7 45.6 1.5% 9.7x $7.09 17.3x 32.1x Neg 63% $144,933
Infosys Technologies INFY M $42.15 (23.7) 5.7x 37% $1.45 $1.97 $0.21 29.1x 21.4x 45% 36% 0.9x 27.5 37.8 30.2 0.7% 19.7x $0.87 44.4x 7.4x 12.9x 0% $24,077
KBW KBW M $26.40 (11.5) NA NA $1.30 NA ($0.09) 20.3x NA -34% NA NA 13.7 9.3 11.2 - 7.8x $0.66 42.2x 1.7x Neg 41% $773
Nasdaq NDAQ O $43.36 41.3 5.7x 7% $1.41 $2.06 ($0.16) 30.8x 21.0x 48% 46% 1.4x 12.9 19.5 28.4 - 11.2x $1.31 30.5x 8.0x 13.0x 33% $4,934
Paychex PAYX M $39.00 (0.6) 6.9x 12% $1.35 $1.61 ($0.03) 28.9x 24.2x 11% 19% 1.6x 37.5 31.4 31.9 3.1% 12.9x $0.66 44.0x 12.9x 3.7x 0% $14,614
Sapient Corp. SAPE O $7.24 32.6 1.4x 20% $0.12 $0.30 ($0.15) 60.3x 24.1x NA 150% 1.2x 4.5 2.2 2.1 - 30.0x $0.24 24.8x 4.6x 6.2x 0% $902
Startek SRT M $9.77 (30.9) 0.5x 11% $0.04 $0.45 ($0.83) 244.3x 21.7x -90% 1025% 1.3x 1.0 Neg Neg - 7.0x ($0.16) Neg 1.2x 6.8x 10% $144
Semiconductor Capital Equipment: Doug Reid

Applied Materials AMAT O $18.83 (1.4) 2.8x -5% $1.27 $1.16 ($0.32) 14.8x 16.2x 20% -9% 0.8x 23.8 22.7 21.5 1.3% 8.2x $1.18 14.0x 3.9x 11.6x 3% $25,950
ASML Holding NV ASML M $34.75 22.3 9.5x 2% $2.01 $1.87 $0.27 17.3x 18.6x 19% -7% 1.2x 22.4 28.5 34.9 - 30.7x $0.64 49.4x 19.9x 19.7x 28% $49,738
ChipMOS IMOS O $5.07 (27.0) 0.4x 16% $0.63 $0.87 ($0.44) 8.0x 5.8x -39% 38% 0.4x 16.1 NA 13.6 - 9.9x $0.00 NA .7x Neg 59% $356
Cymer CYMI M $41.07 (7.6) 2.3x 3% $2.54 $2.65 ($0.23) 16.2x 15.5x 2% 4% 1.1x 21.2 13.1 16.4 - 8.7x $3.71 10.9x 2.7x N/M 36% $1,255
FEI Co. FEIC O $24.91 (5.8) 1.4x 11% $1.24 $1.43 $0.12 20.1x 17.4x 70% 15% 0.7x 9.2 7.8 12.2 - NA $0.77 38.4x 2.2x Neg 58% $904
FormFactor FORM O $37.94 1.2 3.4x 17% $1.57 $1.60 ($0.08) 24.2x 23.7x 23% 2% 0.9x 21.6 11.1 10.8 - 11.3x $0.83 32.9x 2.5x 3.4x 0% $1,844
KLA-Tencor Corp KLAC M $48.08 (3.5) 3.4x -6% $3.12 $2.81 $0.12 15.4x 17.1x 68% -10% NA 25.6 14.1 14.7 1.2% 8.5x $2.87 14.2x 3.4x 6.8x 0% $8,758
Lam Research LRCX O $45.85 (9.7) 2.5x -5% $4.67 $4.31 $0.26 9.8x 10.6x 95% -8% 0.5x 29.1 39.9 32.7 - 6.6x $4.08 9.2x 3.9x 5.9x 13% $6,193
Micron Technology MU M $8.32 (40.5) 1.0x 17% ($0.39) $0.10 ($1.13) NA 83.2x NA NA 4.6x (9.9) Neg Neg - 5.1x ($3.51) Neg .9x Neg 34% $6,327
Novellus Systems NVLS M $26.01 (24.6) 2.2x -14% $1.63 $1.19 ($0.27) 16.0x 21.9x -12% -27% NA 16.7 10.5 10.5 - 6.1x $3.28 5.9x 1.9x 4.2x 7% $3,021
SanDisk Corp. SNDK O $37.44 (11.9) 1.7x 29% $1.65 $2.57 ($1.07) 22.7x 14.6x -34% 56% 0.7x 10.5 1.4 1.5 - 15.3x $2.03 18.5x 2.3x Neg 33% $8,577
Semi Manufacturing SMI M $4.80 (25.9) 1.0x 13% ($0.21) ($0.03) ($0.12) NA NA NA NA NA (5.1) Neg Neg - 3.3x $1.20 5.4x .6x Neg 26% $1,770
SimpleTech, Inc. STEC M $9.32 (25.2) 2.1x 19% $0.21 $0.42 ($0.45) 44.4x 22.2x -52% 100% 1.5x 1.3 8.3 11.5 - 14.8x $0.17 43.3x 2.6x 4.5x 0% $468
SMART Modular Tech SMOD O $8.40 (40.8) 0.7x -13% $0.81 $0.83 ($0.23) 10.4x 10.1x 19% 2% 0.7x 8.2 21.3 26.3 - NA $0.29 23.7x 2.3x 7.7x 27% $510
Staktek Holdings STAK U $2.57 (50.5) 2.0x 44% $0.02 $0.07 ($0.25) 128.5x 36.7x -89% 250% 1.8x (21.6) Neg Neg - 30.6x $0.20 6.4x 1.6x 2.1x 0% $121
Ultratech, Inc. UTEK M $11.98 (5.4) 2.1x 14% ($0.03) $0.42 $0.11 NA 28.5x NA NA 1.3x (10.5) Neg Neg - Neg ($0.18) Neg 1.6x 2.7x 4% $280
Varian Semi VSEA O $41.51 38.0 3.0x 0% $2.24 $2.40 $0.88 18.5x 17.3x 124% 7% 1.0x 26.9 21.4 24.2 - 12.9x $1.78 22.2x 5.7x 16.3x 1% $3,150
Veeco Instruments VECO M $16.78 (13.4) 1.2x 9% $0.14 $0.59 ($0.94) 119.9x 28.4x -81% 321% 1.9x (3.7) Neg Neg - 21.5x $1.09 21.6x 4.4x Neg 56% $533
Verigy VRGY O $25.33 48.9 2.0x 0% $1.80 $1.97 $0.19 14.1x 12.9x 7% 9% 0.6x 17.2 21.9 19.5 - 9.5x $3.16 5.9x 3.2x 3.7x 0% $1,490


Current FY Oper.
Cons EPS Margin
Semiconductors: Analogy & Mixed Signal: Tore Svanberg
Advanced Analogic Tech. AATI O $10.77 98.5 3.7x 22% $0.16 $0.40 $0.04 67.3x 26.9x 60% 150% 1.3x 6.8 Neg Neg - Neg $0.13 58.3x 3.6x 4.3x 0% $485
Intersil ISIL M $24.94 6.4 3.6x 19% $1.04 $1.43 ($0.02) 24.0x 17.4x -2% 38% 0.7x 21.0 5.8 5.8 1.6% 16.4x $1.31 16.6x 4.0x 6.5x 0% $3,265
Linear Technology Corp. LLTC M $30.46 1.4 5.7x 11% $1.39 $1.67 $0.07 21.9x 18.2x 0% 20% 0.9x 48.6 24.6 NM 2.3% 16.9x $1.17 36.6x NA Neg NM $6,807
Monolithic Power Systems MPWR O $19.08 68.6 3.9x 20% $0.71 $1.00 $0.20 26.9x 19.1x 65% 41% 0.6x 24.8 0.3 0.3 - 29.3x $0.33 46.6x 5.1x 6.1x 0% $628
Microsemi Corp. MSCC O $22.88 12.8 3.4x 18% $1.01 $1.31 ($0.09) 22.7x 17.5x -1% 30% 0.9x 8.0 1.9 1.7 - 15.0x $0.05 NM 5.1x 16.4x 1% $1,769
Maxim Integrated Prdcts MXIM M $23.19 (26.3) 3.3x 12% $1.19 $1.41 ($0.13) 19.5x 16.4x -31% 18% NA 30.0 16.9 16.8 3.3% 10.2x $1.05 22.1x 2.6x N/M 0% $7,437
O2Micro International OIIM O $14.22 65.5 2.7x 22% $0.71 $0.98 $0.47 20.0x 14.5x 1320% 38% 0.6x 18.3 9.5 9.6 - 24.8x $0.02 NM 2.8x 6.5x 0% $542

Texas Instruments TXN O $31.57 9.6 2.9x 11% $1.81 $2.08 $0.09 17.4x 15.2x 7% 15% 0.8x 27.7 22.1 22.3 1.3% 9.4x $1.98 14.7x 4.4x 12.0x 0% $44,141
Volterra Semi VLTR M $12.38 (20.3) 3.4x 17% $0.15 $0.42 ($0.52) 82.5x 29.5x -65% 180% 1.5x 2.0 2.9 2.8 - NM $0.31 31.5x 4.1x 5.6x 0% $297

Semiconductors: Broadline: Kevin Cassidy

Advanced Micro Devices AMD M $9.76 (34.0) 0.9x 7% ($3.36) ($1.75) ($3.96) NA NA NA NA NA (13.8) Neg Neg - NM ($3.62) Neg NA Neg 56% $5,892
Fairchild Semi FCS O $15.86 4.1 1.1x 9% $0.88 $1.38 ($0.13) 18.0x 11.5x -2% 57% 1.0x 7.5 2.2 3.2 - 9.3x $0.50 35.9x 2.7x Neg 40% $1,973
Intel Corporation INTC M $26.08 35.8 3.6x 11% $1.10 $1.52 $0.07 23.7x 17.2x 28% 38% 1.1x 22.5 15.5 15.3 1.7% 11.8x $0.80 31.1x 4.3x 16.4x 8% $153,429
Microchip Technology MCHP M $28.79 0.7 6.0x -2% $1.48 $1.48 ($0.16) 19.5x 19.5x 17% 0% 0.8x 31.9 17.6 17.5 4.2% 12.2x $0.51 49.9x 3.3x 7.6x 0% $6,168
Omnivision OVTI M $18.62 57.8 1.2x 60% $0.93 $1.68 $0.72 20.0x 11.1x -41% 81% 0.9x 9.7 7.0 6.8 - 22.8x ($0.87) Neg 1.9x 3.3x 5% $1,019
Semiconductors: Multimedia & Specialty: Heidi T. Poon, CFA

Cirrus Logic CRUS M $5.70 (13.7) 2.8x 0% $0.41 $0.26 ($0.19) 13.9x 21.9x 41% -37% 1.3x 4.1 4.7 4.5 - 18.6x $0.39 7.1x 1.8x 2.1x 0% $508
Genesis Microchip GNSS M $5.04 (38.9) 1.0x -8% ($0.24) ($0.74) ($0.81) NA NA NA NA NA (16.5) Neg Neg - Neg $0.12 .6x .9x 1.0x 0% $189
nVIDIA Corporation NVDA O $31.54 53.6 4.3x 33% $1.00 $1.53 $0.37 31.5x 20.6x 72% 53% 1.0x 22.2 32.6 29.1 - 18.6x $1.90 15.1x 8.4x 9.6x 0% $17,523
Sigmatel SGTL M $1.96 (47.0) 0.5x 10% ($0.88) ($0.76) ($0.41) NA NA NA NA NA (12.7) Neg Neg - .1x ($0.81) .2x .8x .9x 0% $71
Silicon Image SIMG M $4.70 (60.8) 1.3x -1% $0.34 $0.38 ($0.39) 13.8x 12.4x -56% 12% 0.4x 12.7 13.6 12.3 - 3.3x $0.16 12.6x 1.4x 1.7x 0% $396
Synaptics SYNA O $55.54 105.0 4.7x 37% $1.31 $2.02 $0.82 42.4x 27.5x 52% 54% 1.8x 16.5 10.5 16.1 - 39.6x $0.68 79.7x 8.1x N/M 54% $1,713
Trident Micro TRID M $6.28 (61.8) 1.3x 5% $1.12 $0.95 ($0.37) 5.6x 6.6x 87% -15% 0.2x 13.5 15.2 13.8 - 3.3x $0.65 3.9x 1.7x 1.8x 0% $375
Zoran ZRAN O $21.82 69.4 2.0x 12% $1.35 $1.47 $0.37 16.2x 14.8x 31% 9% 0.9x 7.4 Neg Neg - 18.4x $1.39 10.7x 2.8x 3.2x 0% $1,120
Software: Applications & Communications: Tom Roderick

Amdocs ** DOX O $33.09 (16.2) 2.2x 9% $2.13 NA ($0.09) 15.5x NA 15% NA NA 13.0 12.9 14.2 - 12.6x $1.39 22.5x 8.4x 24.6x 26% $6,941
Blackbaud BLKB M $28.46 9.7 4.2x 18% $0.83 $1.02 ($0.03) 34.3x 27.9x 9% 23% 1.9x 20.4 30.9 31.3 1.2% 21.2x $1.04 26.5x NM N/M 11% $1,259
Blackboard BBBB O $39.00 24.9 3.7x 16% $0.88 $1.12 $0.47 44.3x 34.8x 1367% 27% 1.2x 6.7 3.5 5.2 - 22.4x $1.34 27.0x 46.2x 23.3x 48% $1,014
Business Objects BOBJ M $60.78 54.3 3.4x 13% $2.03 $0.98 $0.13 29.9x 62.0x 25% -52% 5.2x 5.2 3.5 3.6 - 22.6x $2.24 25.9x 95.8x 17.8x 25% $5,817
Cognos COGN S $57.28 34.8 4.4x 11% $1.78 $2.08 $0.03 32.2x 27.5x 25% 17% 1.8x 10.7 19.3 21.4 - 23.4x $2.09 24.9x 15.6x 10.8x 0% $4,771
Comverse Tech CMVT O $16.20 (24.2) 1.5x 15% $1.14 NA ($0.02) 14.2x NA 43% NA NA 9.2 5.0 NM - NA $0.00 NA 1.7x 3.6x 33% $3,275
Constant Contact CTCT O $19.04 NA 6.4x 64% ($0.39) $0.06 NA NA 317.3x NA NA NA (5.8) NA NM - NA ($0.19) Neg NM Neg 100% $526
Convergys ** CVG M $16.31 (31.0) 0.7x 4% $1.18 $1.39 ($0.04) 13.8x 11.7x 1% 18% 1.2x 9.4 9.3 10.7 - 5.8x $0.98 17.7x 3.7x Neg 15% $2,124
CSG Systems ** CSGS M $16.57 (39.1) 1.3x 10% $1.49 $1.63 ($0.03) 11.1x 10.2x 12% 9% 1.4x 20.0 13.5 43.9 - 9.0x $2.95 8.3x 34.4x Neg 79% $588
DealerTrack Holdings TRAK O $42.54 42.9 6.3x 22% $1.05 $1.33 $0.04 40.5x 32.0x 22% 27% NA 10.9 7.9 6.8 - 23.9x $1.08 34.1x 14.5x 18.3x 0% $1,808
Informatica ** INFA M $17.15 38.6 3.4x 15% $0.70 NA $0.14 24.5x NA 15% NA NA 12.9 10.0 17.0 - 26.1x $0.73 23.6x 14.7x Neg 62% $1,504
Openwave ** OPWV M $2.75 (72.7) 0.9x -14% ($0.33) $0.07 ($0.38) NA 39.3x NA NA 2.6x (23.1) Neg Neg - Neg ($1.48) Neg 2.9x Neg 65% $229
Nuance Communications NUAN O $20.18 77.4 4.4x 46% $0.57 $0.80 $0.21 35.4x 25.2x 50% 40% NA 5.1 Neg Neg - 47.8x $0.55 43.4x NA Neg 50% $3,904
Rightnow RNOW M $18.15 2.9 4.2x 30% ($0.39) $0.09 ($0.73) NA 201.7x NA NA 4.5x (15.5) Neg Neg - Neg $0.32 46.1x 19.4x 6.6x 0% $606
Salary.com SLRY O $13.40 NA 6.2x 54% ($0.60) ($0.33) NA NA NA NA NA NA (35.1) NA Neg - NA $0.16 74.2x 10.3x 8.1x 21% $220
SAP SAP M $51.22 (2.4) 4.1x 12% $2.21 $2.53 $0.09 23.2x 20.2x 13% 14% 2.0x 23.6 34.1 31.7 1.2% 15.2x $0.97 50.5x 10.0x 18.1x 0% $64,836
Synchronoss Tech SNCR O $32.92 165.8 6.5x 35% $0.76 $0.97 $0.27 43.3x 33.9x 111% 28% NA 27.7 20.4 18.5 - 32.0x $0.43 77.2x 10.3x 14.0x 0% $1,070
Vocus, Inc. VOCS O $31.40 92.3 7.6x 27% $0.49 $0.63 $0.13 64.1x 49.8x 88% 29% 1.7x 1.5 1.7 1.5 - NM $0.79 37.4x 13.6x 9.4x 1% $553
Infrastructure Software: Tim Klasell

Akamai Technologies AKAM O $38.06 (30.0) 7.9x 28% $1.28 $1.62 $0.09 29.7x 23.5x 49% 27% NA 22.2 7.1 6.9 - 33.0x $0.52 70.1x 7.6x N/M 24% $6,324
BEA Systems ** BEAS M $15.83 25.6 4.2x 8% $0.56 $0.62 $0.03 28.3x 25.5x 37% 11% 2.6x 16.7 1.8 2.1 - 21.2x $0.08 NM 5.0x 5.1x 1% $6,305
BMC Software BMC M $33.08 3.0 3.8x 8% $1.48 $1.81 $0.18 22.4x 18.3x 44% 22% 3.7x 22.2 25.1 24.8 - 12.3x $3.14 8.5x 60.8x 4.9x 1% $6,477
CommVault Systems** CVLT O $22.27 6.8 4.9x 29% $0.47 NA $0.01 47.4x NA 88% NA NA 9.8 99.7 64.8 - 38.2x $0.54 35.5x 9.3x 11.7x 0% $967
Double-Take Software DBTK O $24.80 94.0 5.4x 20% $0.61 $0.66 NA 40.7x 37.6x 53% 8% 1.9x 21.7 NA 23.1 - 31.4x $0.81 26.6x 9.0x 8.1x 0% $541
Digital River DRIV O $38.67 (32.4) 3.8x 19% $1.87 $2.27 ($0.27) 20.7x 17.0x 4% 21% NA 17.7 8.4 10.4 - 14.0x $2.59 12.1x 4.3x 6.1x 38% $1,563
McAfee MFE M $38.95 34.9 4.4x 9% $1.74 $1.84 $0.25 22.4x 21.2x 25% 6% 2.1x 18.1 11.7 10.1 - 18.9x $2.12 15.7x 4.9x 7.2x 0% $6,213
Microsoft MSFT O $33.60 10.2 5.3x 16% $1.43 $1.80 $0.12 23.5x 18.7x 19% 26% 1.7x 43.3 43.6 45.4 1.3% 13.2x $1.43 21.3x 15.2x 14.3x 0% $314,343
Oracle Corporation ORCL O $20.18 18.1 4.8x 18% $1.01 $1.19 $0.11 20.0x 17.0x 26% 18% 1.7x 27.9 19.8 24.7 - 13.3x $1.22 16.2x NA 68.9x 26% $103,348
Quest Software QSFT O $16.17 8.0 2.3x 13% $0.79 $0.92 $0.05 20.5x 17.6x 13% 16% 1.4x 6.6 5.9 NM - 12.1x $0.69 18.9x 7.5x 6.0x 0% $1,642
RedHat, Inc. RHT O $20.02 (13.7) 7.5x 28% $0.55 $0.71 $0.04 36.4x 28.2x 38% 29% 1.4x 14.0 5.0 8.0 - 44.7x $0.86 24.6x 8.3x Neg 56% $3,881
Symantec Corporation SYMC M $17.80 (16.0) 2.7x 11% $1.01 $1.18 ($0.09) 17.6x 15.1x 1% 17% 1.0x 10.9 2.4 2.8 - NA $1.59 12.8x NA Neg 27% $15,438
Tibco ** TIBX M $7.83 (22.8) 2.3x 16% $0.39 NA ($0.05) 20.1x NA 15% NA NA 2.5 6.2 6.5 - 12.8x $0.37 17.8x 5.0x 7.9x 6% $1,492

95
SECTION IV: TWP’S PROPRIETARY LEADING INDICATORS
ADDITIONAL INFORMATION IS AVAILABLE UPON REQUEST.

ANALYST CERTIFICATION AND IMPORTANT DISCLOSURES:
The Research Analyst(s) principally responsible for the analysis of any security or issuer included in this report certifies that the
views expressed accurately reflect the personal views of the Research Analyst(s) about the subject securities or issuers and certifies
that no part of his or her compensation was or is or will be, directly or indirectly, related to the specific recommendations or
views expressed by the Research Analyst(s) in this report.
Please go to the following web address for detailed disclosure information: http://www.tweisel.com/disclose/110800.
This report contains statements of fact relating to economic conditions generally and to parties other than Thomas Weisel
Partners. Although these statements of fact have been obtained from and are based on sources that Thomas Weisel Partners
believes to be reliable, we do not guarantee their accuracy and any such information might be incomplete or condensed. All
opinions and estimates included in this report constitute Thomas Weisel Partners LLC's judgment as of the date of this report and
are subject to change without notice. This report is for information purposes only. It is not intended as an offer or a solicitation
with respect to the purchase or sale of a security, and it should not be interpreted as such. This report does not take into account
the investment objective, financial situation or particular needs of any particular investor. Investors should obtain individual
financial advice based on their own particular circumstances before making an investment decision based on the
recommendations in this report.
In the United Kingdom, this document is intended only to be directed at market counterparties and intermediate customers. It is
not intended to be directed at private customers, and it may not and is not intended to be distributed to or passed on, directly or
indirectly, to private customers. The investments and/or services detailed in this document are available only to market
counterparties and intermediate customers. Only market counterparties and intermediate customers may rely on this document.
Private customers should not rely on the contents of this document.
Thomas Weisel Partners International Limited, authorized by the FSA, has approved this document for the sole purpose of the
financial promotion regime under Section 21 of the Financial Services and Markets Act of 2000.
© Thomas Weisel Partners LLC, 2007. All rights reserved. Any unauthorized use, duplication or disclosure is prohibited by law
and will result in prosecution.

E Q U I T Y R E S E A R C H D I R E C T O R Y
Stephen J. Buell • Director of Research • sbuell@tweisel.com • 212.271.3750
R. Keith Gay • Associate Director of Research • kgay@tweisel.com • 415.364.2582
Consumer Healthcare (Continued) Technology (Continued)
Gaming & Lodging and Medical Devices Communications Equipment:

Interactive Market Services Robert C. Faulkner IP Networking
Jake Fuller rfaulkner@tweisel.com 212.271.3760 Jason Ader, CFA
jfuller@tweisel.com 212.271.3821 Philip E. Legendy 212.271.3762 jader@tweisel.com 617.488.4621
Timothy Forrester 212.271.3843 Jason Kim 617.488.4192
Pharmaceuticals: Specialty
Lifestyles/Sports Retailers Donald B. Ellis, PharmD Electronic Supply Chain
Jim Duffy dellis@tweisel.com 415.364.7038
Matt Sheerin
jduffy@tweisel.com 415.364.5974
Aaron Mishel 415.364.2622 msheerin@tweisel.com 212.271.3753
Christian Buss 415.364.2519 Yumi Odama 415.364.5965
Alberto Mann 212.271.3635
Restaurants Industrial Growth
Enterprise Hardware
Matthew J. DiFrisco
mdifrisco@tweisel.com 212.271.3673 Kevin Hunt, CFA
Alternative Energy khunt@tweisel.com 617.488.4162
Jake Bartlett, CFA 212.271.3802 Jeff Osborne
josborne@tweisel.com 212.271.3577 Information & Financial Technology Services
Retailing: Hardlines
Dilip Warrier 415.364.2983 David Grossman
Matt Nemer dgrossman@tweisel.com 415.364.2541
mnemer@tweisel.com 415.364.5901 Applied Technologies Melissa Moran, CFA 415.364.2586
Ajit Pai
Retailing: Softlines Semiconductor Capital Equipment
apai@tweisel.com 212.271.3695
Liz Dunn Douglas G. Reid, CFA
Sven Eenmaa 212.271.3838
ldunn@tweisel.com 212.271.3806 dreid@tweisel.com 212.271.3841
Andy Yeung, CFA 415.364.2589
Bill Strauss 212.271.3425 Nehal Chokshi 212.271.3653
Christina Colone 212.271.3582 Defense & Security
Semiconductors: Analog & Mixed Signal
Specialty Finance and Business Services David Gremmels, CFA
dgremmels@tweisel.com 212.271.3787 Tore Svanberg
Mark Sproule tsvanbeg@tweisel.com 650.688.5261
msproule@tweisel.com 212.271.3839 Alex Motamed 212.271.3803
Akil Marsh 212.271.3742 Evan Wang 650.688.5263
Healthcare Semiconductors: Multimedia & Specialty
Media and Telecom
Heidi T. Poon, CFA
Biotechnology Internet Services hpoon@tweisel.com 415.364.2505
Ian Somaiya Christa Quarles, CFA
isomaiya@tweisel.com 212.271.3761 Semiconductors: Processors & Components
cquarles@tweisel.com 415.364.7154
Michael Ulz 212.271.3423 Kevin Cassidy
Cyrus Modanlou 415.364.2976 kcassidy@tweisel.com 650.688.5264
Stephen Willey 212.271.3620
Jennifer Wang, CFA 415.364.2590
Healthcare Information Technology and Media & Entertainment Software: Applications & Communications
Pharmaceutical Services Tom Roderick
Lloyd Walmsley
Steven P. Halper lwalmsley@tweisel.com 415.364.2584 troderick@tweisel.com 415.364.5952
shalper@tweisel.com 212.271.3807
Gur Talpaz 415.364.2608
Alan Fishman 212.271.3679 Telecom Services Chris Koh 415.364.2655
Topher Orr 212.271.3659
James D. Breen, Jr., CFA
Software: Infrastructure
jbreen@tweisel.com 617.488.4107
Life Science and Diagnostics Tim Klasell
Shane J. Larkin 617.488.4108
Peter Lawson, PhD tklasell@tweisel.com 415.364.2949
plawson@tweisel.com 212.271.3859 Technology Dormain Geyer 415.364.2807
Jonathan Palmer 212.271.3834
Communications Components
Jeremy Bunting, PhD
jbunting@tweisel.com 415.364.2610
Communications Equipment:
Core & Wireless
Hasan Imam, PhD
himam@tweisel.com 212.271.3698
Thomas Weisel Partners LLC • One Montgomery Street • San Francisco CA 94104 • tel 415.364.2500 • fax 415.364.2695 • www.tweisel.com

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The Green

THE GREEN BOOK

Our Guide to Growth Stock Investing in 2008

THE YEAR AHEAD ...............................................................................................3

THE ECONOMY IN 2008 AND BEYOND: WILL WE WEATHER THE

THE MARRIAGE OF TECHNOLOGY AND RESOURCES ...............................37

SECTION II: BEST IDEAS FOR 2008 ...................................................................43

INDUSTRIAL GROWTH ......................................................................................63

SECTION III: TWP VALUATIONS ......................................................................85

Consumer (see pp. 49-55)

Healthcare (see pp. 57-62)

Industrial Growth (see pp. 63-66)

Media and Telecom (see pp. 67-70)

Technology (see pp. 71-84)

Prices in this publication are as of the close, November 30, 2007.

THE YEAR AHEAD

THOMAS W. WEISEL, TWP CHAIRMAN & CEO

The Green Book: December 2007 3

The Long-Term Trend Reverses: Growth Companies Outperform Value

Some Winners for 2008 and Beyond

4 The Green Book: December 2007

Media and Telecom

The Green Book: December 2007 5

Industrial Growth and Alternative Energy

6 The Green Book: December 2007

The Green Book: December 2007 7

THE ECONOMY IN 2008 AND BEYOND: WILL WE WEATHER THE STORM?

November 2007 Blue Chip Consensus and FED

Blue Chip FED (mid-point)

The Green Book: December 2007 9

10 The Green Book: December 2007

Eight Keys to Continued Expansion or Recession Risk

The Green Book: December 2007 11

inflation followed by recession, or boom-bust cycles of those periods. As Figures 2 and 3

U.S. Business Cycle in Different Periods (1949 – 2007)

Source: Business Cycle Dating Committee, National Bureau of Economic Research

U.S. Real Gross Domestic Product Growth

12 The Green Book: December 2007

Inflation, Interest Rates, Monetary Policy and Credit Conditions

Inflation and Unemployment Rates

Core CPI (12-month) Unemployment rate

Source: U.S. Department of Labor, Bureau of Labor Statistics (BLS)

The Green Book: December 2007 13

14 The Green Book: December 2007

The Green Book: December 2007 15

3-month libor and treasury Percent

Source: Federal Reserve and British Banking Association

Thomas Weisel Partners LLC

Asset Backed Commercial Paper Outstanding

Source: Federal Reserve Statistical Release

The Green Book: December 2007 17

Growth by Type of Personal Consumption Expenditure

Percent Change from a Year Earlier

Monthly Growth of Non-Farm Employment

Source: U.S. Department of Labor, Bureau of Labor Statistics (BLS)

18 The Green Book: December 2007

Source: S&P/Case-Shiller home price index

The Green Book: December 2007 19

20 The Green Book: December 2007

Investment, Business Capital Spending and Inventories

Real Private Fixed Investment: Housing Downturn

residential structures equipment & softw are

The Green Book: December 2007 21