Technology Investing in 2009

14 May, 2009

Coatue Management LLC

Disclaimer
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 Agenda

1. Overview – Current Environment

2. How Does a Hedge Fund Work?

3. Principles for TMT Investing

4. Current Trends in TMT Investing

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 Volatility Still Remains High

Source: Bloomberg
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Stock Market Has Bounced Off Its Lows

Source: Bloomberg
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P/Es Are Down – Stocks Seem Fairly Valued

Source: Bloomberg Coatue

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Inflation Concerns Are Rising, Yields Are Up

Source: Bloomberg
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Management Guidance – Good, Bad, Not Ugly

“Instead of each month looking and not knowing where the bottom is, they are for the
first time getting something tangible beneath them.”
- John Chambers, CEO of Cisco Systems Inc.

“It is increasingly clear that the worst is over…we’ve hit a floor, and we seem to be
getting some bounce off it.”
- Rupert Murdoch, CEO of News Corp.

Reservations are “modestly above” a year earlier.

- Tom Staggs, CFO of Disney Inc.

“We don’t yet see a change.”

- Eric Schmidt, CEO of Google Inc.

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 Agenda

1. Overview – Current Environment

2. How Does A Hedge Fund Work?

3. Principles for TMT Investing

4. Current Trends in TMT Investing

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The Long And Short Of It

$1000 Investment = $1000 Equity

Exposures (% Equity):
Longs + Shorts = Gross
Longs – Shorts = Net

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Performance Examples
Exposure Market +30% Market -30% Market Flat*

Long 100% 130% 70% 115%

Short 70% 91% 49% 60%

Gross 170% 221% 119% 175%

Net 30% 39% 21% 56%

9% -9% 26%

HFs underperform HFs protect HFs add real

strong rallies capital when value through
market falls stockpicking

* Market flat, longs +15%, shorts -15%

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 Agenda

1. Overview – Current Environment

2. How Does A Hedge Fund Work?

3. Principles for TMT Investing

4. Current Trends in TMT Investing

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Investment Principles

z “The market has never spoken to me.”

- Julian Robertson, Tiger Management

z Focus on stockpicking not macro conditions – avoid directional bets

z Dare to be different – seek out companies with less coverage

z Stay passionate about technology – focus matters – identify long term trends

z Invest your net worth alongside your investors – stay disciplined

z Cap your losses

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Technology Trends Create and Destroy Value
Winners Winners Winners
IBM Winners
Microsoft Cisco
Sperry Google?
Compaq Lucent
Univac Apple?
Dell Nortel
NCR Research In Motion?
Intel Nokia
Control Data Qualcomm?
Gateway Ericsson
Honeywell Amazon?
Hewlett Packard Sun Microsystems
Digital Equipment
Xerox
Wang

MAINFRAMES PERSONAL COMPUTING NETWORKING INTERNET

1960-1980 1980-2000 1990-2000 2000-?

Losers Losers Losers

Mainframes Regional Bells Dell?
Minicomputers Long Distance Cos Microsoft?
Intel?
Traditional
Media?
* The above stock selections are not intended to represent investments made by Coatue
Source: Coatue analysis

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 TMT - Winners and Losers Every Year
The "normal years" The "bubble years" Normal??
1990 1991 1992 1993 1994 1995 1996 1997 1998 AVG 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
TMT Universe 1,344 1,358 1,376 1,382 1,468 1,551 1,619 1,727 1,770 1,882 2,330 2,365 2,158 2,032 2,274 2,571 3,004 3,890 2,543

Stocks +50% 29 142 102 219 126 231 200 259 287 800 167 236 61 722 445 370 535 796 22
% Universe 2% 11% 7% 16% 9% 15% 12% 15% 16% 11% 43% 7% 10% 3% 36% 20% 14% 18% 20% 1%

Stocks -30% 258 63 145 38 94 90 157 275 276 109 1059 1044 1181 56 231 172 228 626 1928
% Universe 19% 5% 11% 3% 6% 6% 10% 16% 16% 10% 6% 46% 44% 55% 3% 10% 7% 8% 16% 62%

NASDAQ Index 374 586 677 777 752 1052 1291 1570 2193 4069 2471 1950 1336 2003 2175 2205 2415 2652 1577

z Under normal market conditions, TMT sectors

produce good longs and shorts in both up and
down markets

z During the “bubble years” (1999-2003) and in

2008, TMT stocks moved in a unidirectional way
driven by momentum rather than fundamentals

Sources: Factset data, Coatue analysis, 2008

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Value Of Proprietary Research – Baidu Example
z Software program tracks key metrics of business
− Searches across 900k keywords
− Tracks changes in bidding prices
− Tracks 200k advertisers and advertiser churn
z Identifies Baidu’s largest advertisers who can subsequently be surveyed
z Example of 2009 post Chinese New Year inflection point in chart below

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 Agenda

1. Overview – Current Environment

2. How Does A Hedge Fund Work?

3. Principles for TMT Investing

4. Current Trends in TMT Investing

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Current Trends in TMT

z Smartphones
− Mobile internet will make it compelling for everyone to own a smartphone
− Cell phone base may reach 4 billion units in 2010 – growing 1.2 billion units/year
− Smartphones just 5% of this market today – units growing 25% in tough economy
− Key winners: Research in Motion, Apple - they have the software expertise
− Losers: Nokia?

z Cloud Computing and Virtualization

− Desktops are dead – new world is one desktop, anywhere, anytime, any device
− Huge cost savings for enterprises
− Enabled by advances in software and networking
− Key winners: Citrix Systems, VMWare
− Losers: Intel? Microsoft? Hard disk drive and DRAM manufacturers?

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Current Trends in TMT - Background
z Mobility
− Historical trends (internet, communications, computing) converging to create Mobility mega-trend
‹ Enabled by cheap technology (semiconductors, LCD screen, touch interface)
− Handset market growth hits plateau at 1.2B units per year
‹ Incremental handset growth comes from replacement market not new subscribers
‹ New features and functionality required to drive upgrades and adoption of smart phones
− Smart phone is under-penetrated in all geographies and growing 25% in a tough economy
‹ 30% penetration of North America and Europe units
‹ 15% penetration of worldwide units
− Key Winners: RIMM, AAPL
‹ Own the ecosystem: hardware + software
‹ Deliver a platform and a service
z AAPL – iTunes store for media and applications
z RIMM – Push email and blackberry messenger

− Key Loser: NOK

‹ Unit share is deceptive, 5 to 8 low-end units required to equal gross profit from 1 smart phone
‹ Key incumbent problem – “how do you drive car with your foot on both the gas pedal and the brake?”
z Can’t cut costs to stay competitive at low-end and invest in high-end
‹ Units can disappear quickly: Siemens went from shipping 45M units to zero in 18 months
‹ No software strategy, lack of core expertise in computing, development platforms needed to win
‹ At 15x forward EPS – better to own RIMM or AAPL?

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Current Trends in TMT - Background
z Virtual Enterprise
− The desktop is dead
− Consumer technologies are driving enterprise innovation (salesforce.com, google, facebook)
− Virtualization driving adoption of “Cloud Computing” architecture
− Lines between a server and a switch are blurring (CSCO) creating a new landscape
z Key Winner: CTXS
− Only pure-play virtualization asset (VMW owned by EMC)
− Virtual Desktops are a huge new opportunity
− Strategic value of asset only increasing (HPQ, IBM, DELL, CSCO)
− Enables vision of “one desktop at any time, any where, on any device”
‹ YouTube features demo of full-featured Windows dekstop running on iPhone
z Key Loser: INTC
− Moore’s law is no longer relevant – users no longer need higher performance CPU
‹ Consumer focus on communications (3G, WiFi)
− All end markets under attack
‹ Desktops are going away
‹ Server market shrinking due to virtualization
‹ Netbooks cannibalizing the notebook market
− New competitors entering the market (QCOM, NVDA)
− High fixed cost model, fab ownership requires significant investments
− Management team not focused on returning capital to shareholders

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