Research in Motion (RIMM)

Transcription

1 COMPANY NOTE USA Technology Telecom Equipment/Wireless Research in Motion (RIMM) Limited Patent Value; Cut Target to Salvage Value of $21 as We Wait for QNX Key Takeaway In consultation with industry experts, we performed a deep dive on 1,400 patents to determine the firms with essential LTE patents. We also analyzed the three required smartphone patent areas (Wireless, OS/Software, Hardware). With an on-going handset business, RIM's patent monetization value is likely only $1B, supporting our $21 cash cow salvage valuation (an unlikely scenario but could provide valuation support as we wait for QNX). RIM patents relatively weak: we believe most of RIM's patents are in security rather than in wireless so may have to pay a fair amount in LTE royalties. We believe the liquidation value of RIM's patents is only ~$2.5B. We believe the security patents are worth approximately $500M, RIM s wireless patents are worth approximately $1.2B ($400M LTE plus 3G, etc.), and we add the $770M worth of patents acquired from Nortel. Combining the various patents, we arrive at the patent portfolio value of approximately $2.5B. But with an on-going handset business, RIM's patent monetization likely caps out at ~$1B. In valuing the patents we assume RIM sells its patent portfolio but arranges cross-licensing agreement with other wireless patent holders. The main value would be in licensing the patents to the other third of new and upcoming wireless entrants and in licensing the security patents where RIM is particularly strong and less cross licensing is required. Therefore, we estimate RIM s patents in a take-out could be worth ~$2.5B but likely only ~$1B if RIM still sells handsets. Cash cow salvage value of $21: our analysis is of the scenario whereby the board decides to maximize the value of the cash cow subscription annuity stream while minimizing hardware losses. We give this scenario a low probability as we believe the board is unlikely to challenge the co-ceos. Also, we do not think any buyers are likely to step in; however, we believe the stock is likely to find a bottom around that level. Calculation: net cash ~$1.5B + patents ~$1B - restructuring ~$700M + subscription business. Playbook 2.0 and QNX beta handsets would make us more positive: both should include native /calendar, indicating that the major hurdle for the transition to QNX has been overcome. Management said both should be available in coming months. Valuation/Risks Our $21 target is ~7x our FY13 ests (2-year range 7x-18x). Risks: 1) quicker transition to new OS; 2) stronger new products sales; 3) improved execution. USD Prev. 2010A Prev. 2011A Prev. 2012E Prev. 2013E Rev. (MM) -- 14, , , ,942.0 EV/Rev 0.7x 0.5x 0.6x 0.5x Consensus EPS May A Aug A Nov Feb FY Feb FY P/E 5.2x 3.6x 5.7x 7.1x Financial Summary Price Performance UNDERPERFORM Price target $21.00 (from $25.00) Price $22.73 Net Debt (MM): $(1,415.0) Market Data 52 Week Range: $ $21.60 Total Entprs. Value (MM): $10,497.8 Market Cap. (MM): $11,912.8 Insider Ownership: 11.5% Institutional Ownership: 63.6% Shares Out. (MM): Float (MM): Avg. Daily Vol.: 25,111,962 Peter Misek, CFA, CPA * Equity Analyst (212) pmisek@jefferies.com Jason North * Equity Associate (212) jnorth@jefferies.com Billy Kim * Equity Associate (212) bkim@jefferies.com * Jefferies & Company, Inc. SEP-10 JAN-11 MAY-11 SEP-11 EQUITY RESEARCH AMERICAS Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-us analysts on pages 10 to 12 of this report.

2 THE LONG VIEW RIMM Research in Motion, Inc. Underperform: $21 Price Target Scenarios Target Investment Thesis Ripple effect of Playbook execution issues leading to QNX delays QNX has integration issues BB OS 7 phones see lackluster sell-through Carrier support flagging Risk to subscriber revenues FY13EPS: $3.21; Target Multiple: 7x; Target Price $21. Upside Scenario BB OS 7 handsets sell better than expected Better execution leads to improved carrier relations QNX phones comes sooner than expected FY13 EPS: $3.50; Target Multiple: 9x; Target Price: $30. Downside Scenario Competition even fiercer than expected leading to ASP and margin erosion QNX phones pushed out FY13 EPS: $3; Target Multiple: 7x Target Price: $18. Long Term Analysis 2-Year Forward P/E 40.0x 30.0x 20.0x 10.0x 0.0x Long Term Financial Model Drivers LT Earnings CAGR 0% Organic Revenue Growth 5% Acquisition Contribution 0% Operating Margin Expansion -5% Other Considerations Ripple effect of Playbook execution issues: our checks indicate the issues have led to a fire drill and resources being pulled off of other projects. We think this will cause QNX delays Forward P/E Upside Target Downside Source: Capital IQ, Jefferies estimates Peer Group Group 2-Year Forward P/Es 30x 25x 20x 15x 10x 5x 0x 12.7x 8.1x 4.6x 27.5x 16.8x Source: Capital IQ, Jefferies estimates 7.6x 8.6x 4.6x Earnings Growth vs 2-Year Forward P/E 60% HTC 40% AAPL 20% DELL MSFT 0% RIMM MMI HPQ -20% NOK -40% 0x 10x 20x 30x Source: Capital IQ, Jefferies estimates Recommendation / Price Target Ticker Rec. PT RIMM Underperform $21 AAPL Buy $500 HTC NC N/A MMI Hold $40 NOK Hold 3.91 HPQ Buy $40 DELL Hold $15 MSFT NC N/A Catalysts Sell-through of BB OS 7 handsets Timing of QNX handsets Signs of enterprise demand for Playbook Company Description Research in Motion designs, manufactures and markets wireless devices, communications solutions and applications globally. The Company is an innovator in the area of wireless technologies and solutions and provides solutions for wireless connectivity to consumers and enterprises around the world. page 2 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

3 Proprietary Essential LTE Patent Analysis Please reference our concurrently published industry note Smartphone Patent Wars Far From Over: Deep Dive Into Essential LTE Patents for additional details. In valuing the essential LTE patent portfolios of major players in the wireless space, we utilized outside industry experts that included physics PhDs, wireless engineers, patent legal specialists, and former patent office employees. Our work began by first screening tens of thousands of patents and then determined a level of essentiality based on individually examining over 1,400 patents related to LTE. Patents are difficult to value Most attempts to value patents focus either on 1) counting the total number of patents a company has, but the important number is the number of essential patents, 2) counting the essential patents in the ETSI library, but this data is self-reported. Alternatively, the essentiality of LTE patents can be determined by lawsuit decisions (none yet), licensing agreements, or purchases. Of the latter two, there is no public data apart from the $4.5B purchase of Nortel's patent portfolio. Our methodology for LTE Industry experts performed a proprietary analysis comparing each company s patents to the LTE standards and determined their essentiality. Then we analyzed Nortel's portfolio and estimated how much of the purchase price was likely for the LTE patents. Nortel's patents were in five categories, but we believe about half of the value was in the wireless patents, and that a majority of the wireless value was in the LTE patents. In our LTE patent valuation analysis we assume 30% of the $4.5B acquisition price was for the LTE patents. We note that these values are rough estimates and only for the LTE portion of their portfolios (3G patents will also determine a significant portion of value). Exhibit 1: Essential LTE Patents LG Qualcomm InterDigital Motorola Nokia Samsung ZTE Nortel ETRI TI Ericsson NSN RIM Freescale Huawei NEC 0% 5% 10% 15% 20% 25% Source: Jefferies & Co. page 3 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

4 Exhibit 2: Essential LTE Patents: Detail % Ownership of Patent Holder Essential LTE Patents Estimated Value ($M) LG 23% 7,907 Qualcomm 21% 7,329 InterDigital 9% 3,279 Motorola 9% 3,279 Nokia 9% 3,086 Samsung 9% 3,086 ZTE 6% 2,121 Nortel 4% 1,350 ETRI 2% 771 TI 2% 771 Ericsson 2% 579 NSN 2% 579 RIM 1% 386 Freescale 1% 193 Huawei 1% 193 NEC 1% 193 Source: Jefferies & Co. RIM Cash Cow Salvage Valuation JEF: cash cow salvage value for RIM of $21; patents likely only worth ~$1B Our analysis is of the scenario whereby the board decides to maximize the value of the cash cow subscription annuity stream while minimizing hardware losses. We give this scenario a low probability as we believe the board is unlikely to challenge the co-ceos. Also, we do not think any buyers are likely to step in. We assume the hardware business will be run at breakeven and the subscription business will be run as a cash cow. In order to calculate a liquidation value for RIMM, we assume the following Net cash ~$1.5B. Patents monetized for $1B: RIMM has ~2,000 patents in the U.S., ~3,200 in Europe, and ~3,000 in Canada though its share of essential patents is unclear and estimates of RIMM's share of essential LTE patents ranges from 0% to 10%. Overall, we believe RIMM has a solid patent position that is big enough to defray some royalty costs but not all (e.g., RIMM settled with MMI for an upfront payment and on-going fees) and that many of RIMM s stronger patents are in security rather than in wireless. We assume RIMM sells its patent portfolio but arranges cross-licensing agreement with other wireless patent holders. The main value would be in licensing the patents to the other ~33% of new and upcoming wireless entrants. We estimate RIMM s patents in a take-out could be worth ~$2.5B but likely only ~$1B if RIMM still sells handsets. Breakeven hardware business: RIMM aims to run the hardware business at breakeven by gutting R&D and SG&A, ditching QNX, and exiting tablets. Basically, RIMM continue to offer the same messaging-focused handsets at the lowest price possible while remaining cash flow breakeven in the segment. page 4 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

5 Annual Subscriber Decline Annual Subscriber Decline Restructuring cash charge of $700M: in this scenario we assume layoffs of 80% of the workforce and severance payments of $50K/person. Subscription business as a cash cow: we assume 80% GM and 54% initial OM for the segment. We run a sensitivity analysis with various churn and ASP decline assumptions to calculate an NPV for the segment. We assume that opex declines in line with subscriber deterioration. Table 1: NPV of Cash Flow from Cash Cow Subscription Business Annual Rate Decline ## 0% 2.5% 5.0% 7.5% 10.0% 0% 13,148 10,250 8,130 6,612 5,514 1% 12,260 9,732 7,835 6,439 5,407 2% 11,333 9,177 7,513 6,248 5,289 3% 10,415 8,611 7,175 6,045 5,162 4% 9,569 8,067 6,835 5,835 5,031 5% 8,820 7,563 6,506 5,623 4,894 6% 8,169 7,106 6,193 5,415 4,757 7% 7,604 6,698 5,904 5,214 4,618 8% 7,116 6,330 5,637 5,024 4,486 9% 6,690 6,003 5,393 4,843 4,352 10% 6,317 5,710 5,169 4,672 4,231 Source: Jefferies The share price calculation then is $1.5B net cash + $1B (patents) - $700M restructuring charge + subscription NPV all divided by 524M shares outstanding. Table 2: Share Price based on Cash Cow Subscription Business Annual Rate Decline 0% 2.5% 5.0% 7.5% 10.0% 0% $28.53 $23.00 $18.95 $16.05 $ % $26.83 $22.01 $18.39 $15.72 $ % $25.06 $20.95 $17.77 $15.36 $ % $23.31 $19.87 $17.13 $14.97 $ % $21.70 $18.83 $16.48 $14.57 $ % $20.27 $17.87 $15.85 $14.17 $ % $19.02 $17.00 $15.25 $13.77 $ % $17.95 $16.22 $14.70 $13.39 $ % $17.02 $15.51 $14.19 $13.02 $ % $16.20 $14.89 $13.73 $12.68 $ % $15.49 $14.33 $13.30 $12.35 $11.51 Source: Jefferies Conclusion A 2.5% annual rate decline and 2% annual subscriber decline implies a $21 stock price. Again, we believe this scenario is unlikely but likely provides some type of floor for the stock. page 5 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

6 Exhibit 3: Quarterly Estimates FQ3E (Nov) FQ4E (Feb) (Feb FY; $B) (Non-GAAP) FY11A Est Street Est Street Revenue Gross Profit GM 44.3% 37.0% 38.6% 36.9% 38.7% SG&A R&D EBITDA EBITDA Margin 25.5% 15.8% 21.7% 15.8% 21.0% EBIT OM 23.3% 12.8% 17.7% 12.9% 16.3% EPS (fd) FQ3E (Nov) FQ4E (Feb) (Feb FY; M) FY11A Est Street Est Street Playbooks Phones ASP (Handset) ASP (Tablet) Net Adds Source: company filings, Jefferies estimates Exhibit 4: Annual Estimates FY12E FY13E (Feb FY; $B) (Non-GAAP) FY11A Est Street Est Street Revenue Gross Profit GM 44.3% 39.2% 39.6% 37.1% 38.4% SG&A R&D EBITDA EBITDA Margin 25.5% 17.1% 21.4% 13.6% 21.1% EBIT OM 23.3% 14.1% 15.7% 10.3% 15.7% EPS (fd) FY12E FY13E (Feb FY; M) FY11A Est Street Est Street Playbooks Phones ASP (Handset) ASP (Tablet) Net Adds (4.0) Source: company filings, Jefferies estimates page 6 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

7 Research in Motion Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E FY FY11 FY12E FY13E Income Statement May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 Feb-10 Feb-11 Feb-12 Feb-13 Services and Softw are ,030 1,075 1,030 1,081 1,152 1,066 1,077 1,085 2,417 3,492 4,216 4,380 Devices and Other 3,478 3,779 4,582 4,577 3,878 3,093 3,797 4,011 3,707 3,929 4,278 4,648 12,536 16,416 14,779 16,562 Total Revenue 4,235 4,621 5,495 5,556 4,908 4,168 4,827 5,092 4,859 4,995 5,355 5,733 14,953 19,907 18,994 20,942 Cost Of Goods Sold Services and Softw are Devices and Other 2,202 2,443 2,968 2,960 2,600 2,398 2,891 3,052 2,733 2,888 3,189 3,512 8,019 10,573 10,941 12,321 Cost Of Goods Sold 2,312 2,566 3,101 3,103 2,752 2,556 3,043 3,211 2,958 3,096 3,396 3,720 8,369 11,082 11,563 13,171 Gross Profit 1,923 2,056 2,394 2,453 2,156 1,612 1,783 1,880 1,901 1,899 1,959 2,012 6,584 8,826 7,432 7,771 Selling General & Admin Exp ,811 2,400 2,767 3,243 R & D Exp ,351 1,560 1,686 Amort. of Goodw ill and Intangibles Opex ,138 1,213 1,259 1,205 1,199 1,226 1,306 1,379 1,441 1,490 3,250 4,189 4,888 5,615 Operating Income 1,059 1,082 1,256 1, ,334 4,636 2,544 2,156 Investment Income EBT Excl. Unusual Items 1,068 1,088 1,245 1, ,363 4,644 2,575 2,189 Income Tax Expense , Net Earnings (reported) ,491 3,411 1,992 1,678 Per Share Items Basic EPS Weighted Avg. Basic Shares Out Diluted EPS Diluted EPS (Non-GAAP) Weighted Avg. Diluted Shares Out Source: company data; Jefferies & Company, Inc. estimates page 7 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

8 Research in Motion Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E Balance Sheet May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 ASSETS Cash And Equivalents 1,135 1,083 1,286 1,551 1,850 1,152 1,435 1,791 1, ,221 1,527 1,917 1,747 Short Term Investments Total Cash & ST Investments 1,755 1,664 1,628 1,911 2,348 1,532 1,776 2,121 2,389 1,149 1,097 1,178 1,566 1,889 2,297 2,146 Accounts Receivable 2,338 2,365 2,712 2,594 2,650 3,216 4,101 3,955 3,772 3,571 3,819 3,917 3,738 3,842 4,119 4,410 Other Receivables Total Receivables 2,555 2,613 2,922 2,800 2,786 3,364 4,340 4,279 4,235 4,198 4,297 4,420 4,218 4,336 4,649 4,977 Inventory ,372 1, Deferred Tax Assets, Curr Other Current Assets Total Current Assets 5,349 5,215 5,574 5,813 6,228 1,083 1,183 1,088 1,476 1,973 1,709 1,563 1,377 1,458 1,579 1,712 Net Property, Plant & Equipment 1,509 1,737 1,844 1,957 2,075 2,169 2,343 2,504 2,576 2,699 2,858 3,012 3,154 3,302 3,458 3,608 Long-term Investments Goodw ill Other Intangibles 1,172 1,291 1,359 1,326 1,298 1,421 1,372 1,798 2,164 2,307 2,379 2,296 2,208 2,112 2,010 1,900 Total Assets 8,835 9,224 9,704 10,204 10,683 10,439 12,085 12,875 13,842 13,198 13,285 13,424 13,486 14,070 14,974 15,333 LIABILITIES Accounts Payable & Accrued expenses 2,007 2,002 2,450 2,254 2,308 2,815 3,553 3,343 3,862 3,672 3,478 3,281 3,250 3,401 3,880 3,801 Curr. Income Taxes Payable Unearned Revenue, Current Def. Tax Liability, Curr Other Current Liabilities Total Current Liabilities 2,266 2,167 2,752 2,432 2,521 3,018 3,834 3,630 3,967 3,778 3,590 3,399 3,374 3,531 4,016 3,944 Def. Tax Liability, Non-Curr Other Non-Current Liabilities Total Liabilities 2,347 2,238 2,884 2,602 2, Stock 2,353 2,375 2,350 2,372 2,368 1,989 2,145 2,199 2,202 2,394 2,406 2,418 2,430 2,442 2,454 2,467 Retained Earnings 4,189 4,664 4,564 5,274 5,656 5,027 5,815 6,749 7,444 7,586 7,843 8,154 8,223 8,631 9,031 9,442 Comprehensive Inc. and Other Total Common Equity 6,488 6,987 6,820 7,603 7,999 7,214 8,004 8,938 9,588 9,917 10,192 10,523 10,610 11,036 11,455 11,886 Total Liabilities And Equity 8,835 9,224 9,704 10,204 10,683 10,439 12,085 12,875 13,842 13,976 14,063 14,202 14,264 14,848 15,752 16,111 Source: company data; Jefferies & Company, Inc. estimates page 8 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

9 Research in Motion Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E FY10 FY11 FY12E FY13E Cashflow Statement May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 Feb-10 Feb-11 Feb-12 Feb-13 Net Income , , , , ,677.7 Depreciation & Amort Stock-Based Compensation Other Operating Activities (10.2) (24.0) Change in w orking capital (127.5) (224.0) (307.1) (77.0) (723.0) (23.2) (168.3) (991.5) (41.5) 51.2 (160.7) (496.0) (991.5) (160.0) Cash from Ops. 1, , ,020.0 (49.0) , , , , ,230.2 Capital Expenditure (226.1) (208.0) (301.1) (303.8) (222.0) (287.0) (200.9) (198.9) (908.8) (188.9) (198.4) (208.3) (1,009.4) (1,039.0) (908.8) (801.9) Cash Acquisitions (14.1) (318.8) 0 (161.1) (27.0) (103.0) 0 0 (130.0) (143.4) (494.0) (130.0) 0 Sale (Purchase) of Intangible assets (42.4) (104.4) (45.5) (364.7) (560.0) (244.0) (244.0) (30.0) (1,078.0) (30.0) (30.0) (30.0) (421.4) (557.0) (1,078.0) (120.0) Invest. in Marketable & Equity Securt. (103.2) (173.5) 1, (463.0) (14.9) (15.6) (16.4) (17.2) (18.1) , (71.4) Net (Inc.) Dec. in Loans Originated/Sold - - Other Investing Activities - - Cash from Investing (385.8) (88.5) (520.1) (782.0) (1,097.0) (459.8) (244.5) (1,805.9) (235.4) (245.6) (256.4) (1,470.1) (264.5) (1,805.9) (993.3) Long-Term Debt Repaid (6.1) Total Debt Repaid (6.1) Issuance of Common Stock Repurchase of Common Stock (416.9) (1,548.6) (171.1) (16.5) (26.0) (11.0) (200.0) (200.0) (437.0) (389.0) 0 0 (869.5) (2,153.0) (437.0) (389.0) Other Financing Activities (0.6) (0.7) (1.0) (0.4) Cash from Financing (409.0) (1,544.7) (166.0) 32.8 (20.0) (10.0) (188.0) (188.0) (404.4) (376.9) (843.4) (2,086.4) (404.4) (339.7) Foreign Exchange Rate Adj. (29.3) 26.8 (3.3) 21.8 (23.0) (2.0) (6.1) 16.0 (2.0) 0 Net Change in Cash (698.1) , (1,135.0) (66.9) 65.7 (162.2) ,674.0 (162.2) Source: company data; Jefferies & Company, Inc. estimates page 9 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

10 Company Description Research in Motion designs, manufactures and markets wireless devices, communications solutions and applications globally. The Company is an innovator in the area of wireless technologies and solutions and provides solutions for wireless connectivity to consumers and enterprises around the world. Analyst Certification I, Peter Misek, CFA, CPA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Jason North, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Billy Kim, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. For Important Disclosure information on companies recommended in this report, please visit our website at Disclosures.action or call Meanings of Jefferies Ratings Buy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12- month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. page 10 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

11 Other Companies Mentioned in This Report Apple Inc. (AAPL: $413.45, BUY) Dell (DELL: $14.88, HOLD) Hewlett-Packard (HPQ: $22.47, BUY) Motorola Mobility Holdings, Inc. (MMI: $37.82, HOLD) Nokia (NOK1V FH: 3.89, HOLD) ZTE Corporation (763 HK: HK$21.20, BUY) Distribution of Ratings IB Serv./Past 12 Mos. Rating Count Percent Count Percent BUY % % HOLD % % UNDERPERFORM % % Other Important Disclosures Jefferies Equity Research refers to research reports produced by analysts employed by one of the following Jefferies Group, Inc. ( Jefferies ) group companies: United States: Jefferies & Company, Inc., which is an SEC registered firm and a member of FINRA. United Kingdom: Jefferies International Limited, which is authorized and regulated by the Financial Services Authority; registered in England and Wales No ; registered office: Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0) ; facsimile +44 (0) Hong Kong: Jefferies Hong Kong Limited, which is licensed by the Securities and Futures Commission of Hong Kong with CE number ATS546; located at Suite 2201, 22nd Floor, Cheung Kong Center, 2 Queen s Road Central, Hong Kong. Singapore: Jefferies Singapore Limited, which is licensed by the Monetary Authority of Singapore; located at 80 Raffles Place #15-20, UOB Plaza 2, Singapore , telephone: Japan: Jefferies (Japan) Limited, Tokyo Branch, which is a securities company registered by the Financial Services Agency of Japan and is a member of the Japan Securities Dealers Association; located at Hibiya Marine Bldg, 3F, Yuraku-cho, Chiyoda-ku, Tokyo ; telephone ; facsimile India: Jefferies India Private Limited, which is licensed by the Securities and Exchange Board of India as a Merchant Banker (INM ) and a Stock Broker with Bombay Stock Exchange Limited (INB ) and National Stock Exchange of India Limited (INB ) in the Capital Market Segment; located at 42/43, 2 North Avenue, Maker Maxity, Bandra-Kurla Complex, Bandra (East) Mumbai , India; Tel page 11 of 12 Peter Misek, CFA, CPA, Equity Analyst, (212) , pmisek@jefferies.com

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