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>> [inaudible] So we're going to hear one more stock pitch,
then we'll give everybody a five minute break.
So we are going to move on now to a combo thesis
about changing our sector weight
in the information technology sector.
So the first pitch we'll here is to reduce our exposure
to the Microsoft and Intel positions.
Our first presenter will be Ashley Brecheisen
who is originally from Lyndon, Kansas.
Currently lives and works in Lawrence.
Ashley has a 5-year-old daughter, Isabella,
who she calls the source of her drive and inspiration.
Ashley is scheduled to graduate with a BBA in finance this week.
She plans to begin studying for her CFA charter and hopes
to soon be employed in the financial services sector.
Ashley's quote about the course is
that APM has taught her many things about professionalism,
critical thinking, and rigorous financial analysis are the
most resounding.
Also presenting on this team is Stevi Schultz who is
from Neodesha, Kansas.
Stevi you may have seen competing on the boards
on the Washburn's Women's Basketball team
for a number of years.
Stevi graduated with an undergrad degree in accounting
in May 2012 and is completing her MBA this semester.
Stevi will begin studying for the CPA exam this summer
and she begins with [inaudible] in Kansas City this fall
as an assurance associate.
And I would also just like to add a comment.
It's always the way in the world that a person sometimes
who does some of the most work gives you the shortest bio.
But Stevi's fingerprints are all over position reviews.
She has switched teams so many times this semester I think she
knows a little bit about everybody's research.
And has really been a workhorse for us in portfolio management.
So let's welcome our next presenters.
[ Silence ]
>> Stevi Schultz: All right.
So I'm Stevi Schultz.
>> Ashley Brecheisen: And I'm Ashley Brecheisen.
And we'll be proposing a trim recommendation
on our Wintel stocks.
>> Stevi: Just to keep things clear while we're presenting,
the majority of the time
that I'm talking I'll be talking about Intel.
And then the majority of the time
that she's speaking it'll be about Microsoft.
So to start Intel Corporation overview.
Intel designs, manufactures, sells,
sells integrated digital technology platforms worldwide.
Their mostly known for their microprocessors.
They're in the semiconductor industry.
They were founded in 1968 and based in California.
>> Ashley: Microsoft was founded in 1975, and it's headquartered
in Redmond, Washington.
They're in the system software industry.
They develop, license,
and support software products and services.
And they design and sell hardware worldwide.
>> Stevi: To start we have Intel's revenues
by geographic segments and business segments.
To start on the right is geographic segments.
And we can see that their revenues are pretty evenly
portioned on segments.
And on the left is business segments.
We can see the majority, 64.3 percent of their revenues coming
from that PC client group.
And Intel relies pretty heavily on that group.
>> Ashley: Likewise we have a breakdown
of Microsoft's revenues by business segment
and geographic region.
As you can see Microsoft's business services division
accounts for the largest amount
of Microsoft's revenue at 32.4 percent.
Followed by the window's division and service
and tool division each of which are bringing in about 25 percent
of Microsoft's revenues.
The second chart shows that 52 percent of these revenues come
from within the United States.
And the remaining 47.3
from other countries around the world.
>> Stevi: Now we'll look
into the historical performance analysis.
This is the three year cager [phonetic] for Intel on top
and Microsoft on the bottom.
The majority of the growth rates are positive and healthy
with the exception of the free cash flow
for Intel which is negative.
We'll get deeper into this later.
But it's important to note that both have positive EVAs
and at the same time negative MBAs.
Here we have Intel against the SMP.
Intel's been behind the SMP since June of 2012.
In the past month there's been a small price increase.
And that is one factor to support our trim thesis.
>> Ashley: Following on that is Microsoft's stock benchmark
against the SMP.
As you can see, Microsoft diverged from the SMP
about the same time Intel did in June of 2012.
Although it hasn't experienced the same dire decrease
that Intel does, it does perform very similarly.
And also note that in April 13 it experienced the same increase
that Intel did as well.
>> Stevi: This is Intel and Microsoft compared
to a competitor Qualcomm.
And it's important to note that both Intel
and Microsoft lagged behind Qualcomm.
This is the comparison of Qualcomm and Intel's margins
and yields for the past 5 years.
So since 2008, operating margin for Intel has increased,
while Qualcomm's has decreased.
Free cash flow margins is opposite.
Intel has decreased, while Qualcomm has increased.
Overall, Qualcomm's margins are higher than Intels
which indicates that Qualcomm's a little more efficient
than Intel.
But Intel has higher yields
which also supports our trim thesis
because that will keep the portfolio yield up.
>> Ashley: Likewise we have Microsoft Corporation verses
Qualcomm on their margins and yields.
As you can see, Microsoft has had much more effective margins
and yields consistently over the last four years over Qualcomm.
And continues with the trend of keeping our yields
up as Stevi just mentioned.
>> Stevi: Now we'll dive
into a little bit deeper just specifically to Intel.
We have total revenue and net income.
Since 2009, there's been an increasing trend.
There's a small contraction in 2012
that was due to low PC sales.
Here we have gross profit margin and operating profit margin.
Since 2010, there's been a decreasing trend.
We would like to see these margins increasing,
which is one reason that we've decided to trim the position.
Total debt to assets and long-term debt to equity.
From 2007 to 2010, they kept those under 5 percent.
But in 11 and 12 they've increased quite significantly.
And again, this is [inaudible] PC sales being reflected
in the financial measures.
Net profit margin and free cash flow margin have been
on a negative trend since 2010.
And that's one reason we're deciding to trim.
We'd rather have those growing.
Again, with ROAC we prefer a portfolio.
We'd rather have the ROIC growing,
and that supports our trim thesis.
NOPAT free cash flow.
Free cash flows have been decreasing.
NOPAT you can see that contraction in 2012 again
as a result of the low PC sales.
Here we have EVN and MBA.
Since 2010 the trend of MBA has been lower
than the trend in EVA.
And this indicates unprice economic profit
that may provide the stock price for the boost in the future
that we can benefit from.
>> Ashley: Moving
into Microsoft's historical performance analysis.
First with revenue and net income.
Like Intel, both total revenue
and net income show a generally increasing trend
with the exception of 2009.
This is obviously attributed to the recession.
It is worth noting that 2012 is the first year
that meant Microsoft fails to convert total revenue
into net income [silence].
Next of course is earning per shares and dividends per shares.
Earnings per share, though it has fluctuated,
has hovered around the $1.95 percent --
$1.95 average over the last 6 years.
But despite these fluctuations in EPS,
notice how Microsoft maintains a consistent growth
in its dividends per shares [silence].
Looking at gross profit margin and operating margin.
We notice that both the operating profit margin
and gross profit margin are extremely stable over time
and exhibit very little movement during the time of recession.
And as we touched on before,
both of those margins exceed those of Intel
and Qualcomm [silence].
Here's Microsoft's return on assets,
equity, and invested capital.
ROA and ROE have been fairly consistent
with the exception of 2012.
But most importantly, note
that Microsoft's extremely attractive ROAC
which has been maintaining an 80 percent average
over the last six years.
And last is Microsoft's economic value added
and market value added.
Microsoft's market value added has been
on a decreasing trend in the recent past.
But notice how Microsoft's EVA has been trending upward
over the same period.
This suggests that there's a lot of unpriced EVA
that should bolster Microsoft's price
when the price [inaudible] does occur in the market.
>> Stevi: Now we'll move on to, of course,
five forces for Intel.
First thing is supplier power that we've rated out low.
This is because suppliers have materials that are abundant.
The basic material that's used to make semiconductors,
which is silicone, is abundant in nature.
And then there are several suppliers.
So because of this they have low pricing power
and switching costs are low.
Buyer power we rated at moderate.
There's buyer diversity.
Some of Intel's buyers are companies
like HP, Dell, and Samsung.
And this buyer diversity is good for Intel
because it gives Intel the pricing power.
And then we have buyer backward integration.
Several of Intel's buyers are now making their own processors.
An example of that is Samsung and Toshiba.
Because of this, the pricing power is given to companies
like Samsung and Toshiba that are integrating backward.
Competitive briberies we've rated at high.
The market is shifting.
The marketing is shifting from the PC over to the mobile phone.
And it's also shifting in the sense
that consumers prefer everything to be on one device.
And because of this, nondirect competitors are stealing Intel's
market share.
And then it also hurts Intel's pricing power.
Then we have threat of substitutes
that we've rated at moderate.
Technology today is relying on processors so the threat
of substitutes really isn't a threat to Intel's business.
There's high switching costs.
Because there are a limited number of substitutes,
switching costs are high.
And then technology advancements.
Innovations will always serve as a threat.
Then we have threat of new [inaudible].
We rated that at low.
In this industry there's a lot of significant RND costs.
A need for economies of scale, capital, and brand identity.
So Intel's competitive position
in the semiconductor industry has diminished somewhat,
but they are still a significant player.
>> Ashley: Next is Microsoft's port of five forces.
Supplier power is high.
Microsoft experienced high pressure
from its suppliers centered
around its proprietary partnerships ability
to mandate prices.
And costs associated with acquiring trademark
and copyright products that Microsoft uses
in its entertainment devices.
The buyer power is moderate.
While there is no real threat of buyer backwards innovation,
and they do still hold the market in the business system,
in the business system's industry.
Buyer preference does raise the buyer's ability
to set prices [silence].
The competitive rivalry is high due
to the change in buyer preference.
Microsoft can no longer price its products
with disregard to the competition.
Additionally, other companies like Qualcomm
and Sony are stealing market share away from Microsoft
in the mobile and gaming industries or markets.
And poor customer reception
to Microsoft's latest products is giving its competitors a
strong advantage.
Threat of substitutes is moderate.
Companies like Google are beginning
to offer comprehensive business packages.
None of these yet compare to Microsoft's.
And the cost of switching
to those substitutes would be very high for a business.
However, Microsoft's few attempts
to enter the mobile market have been met
with formidable competitors.
A good example of this would be the early 2000 pocket PC release
which was quickly answered by the BlackBerry.
The threat of new entrance is low.
Microsoft business systems are still the most often used
in businesses and schools here America
and in many places worldwide.
Designing a new business system or server and tool product
as comprehensive as Microsoft's but with a new edge
of diversification would be very difficult.
And any attempt to do so would also be very program
and RND intensive, as well as expensive and time-consuming.
>> Stevi: Now we have Intel's SWAT.
Shrinks for Intel.
They have shrunk brand image,
a strong processor market position.
They are advanced technologically.
And they also have loyal customers.
Weaknesses.
Those declining PC sales that I mentioned.
They're not focused on the mobile market.
And some have even said the mobile market is the future
of the Internet.
And then they have high retail prices [silence].
Opportunities, partnerships,
and alliances [inaudible] an opportunity.
Growing that global semiconductor market.
And then as I mentioned, the mobile market.
Threats. There is rapid technology changes,
and there's always the threat of innovations,
increasing competition, and political issues.
[silence]
>> Ashley: For Microsoft some
of their strengths are their enterprise businesses,
their diversified product line, their established brand name,
and their successful tools and service division.
Weaknesses for this company revolve
around programs security vulnerability.
Management's inability to deliver products that roll
out on schedule and meet customers' demands.
Supply chain costs as mentioned in the supplier power importers.
And failure to time its mobile market entry properly
and to enter with quality products.
Some opportunities available to Microsoft lie
in its enterprise oriented offerings
and it's cloud computing.
Windows has launched Azure,
which is their version of cloud computing.
Competitors like Amazon, Google, and Apple have all came
at cloud computing with a different perspective,
so this leaves room for Microsoft to experience success
in the cloud computing market,
even though they've entered a little bit late.
The main trigger there --
to make sure that all its offerings are differentiated
and of good quality.
[ Background Sounds ]
And lastly, some threats
to Microsoft's position include the overall decrease
in the PC industry size.
And the increase in the popularity of mobile devices.
Piracy problems and emerging markets --
as these are diminishing revenues from Microsoft
and also contributing to the program security issues
that they're experiencing.
Google's control on the search engine market.
Being in Yahoo have been able to gain popularity here recently.
But none of this popularity is coming from any
of Google's popularity being detracted.
And also the IOS Android and Google platforms
that are already well established
in the mobile market.
>> Stevi: For our forecast for Intel.
Income statement.
To be conservative for revenue growth, we dropped it
down to 5.1 percent in 2013.
We tapered it down to 2 percent for perpetuity.
For the margins gross margin and operating margin.
We took more of a seven year average
than the five year average that's shown.
Net margin, to be conservative, we dropped it down to 18.5.
Common shares growth seems good to us.
And then dividend growth, to be conservative again,
we started at 3.5 percent and tapered
to a 1 percent perpetuity.
For the balance sheet.
We like the averages of 11.6 and 6.8
for the first two cash equivalence
in total receivables.
And then inventory we took the past four year average
and of 8 percent and kind of kicked
out that 2008 percentage since it was so high.
And then we liked all of these averages except
for debt and equity.
For debt, considering the 2012 level
of 25.2 percent we thought it was unrealistic
that 2013 would be at 10.6 percent so we raised
that up to 20 percent.
For equity kind of the same thing.
We didn't think 103.7 was realistic
since it was 96 in 2012.
And to be conservative, we wanted to drop
that down to 98 percent.
Here's the WAC for Intel.
And we used the same long-term growth rate of 2 percent
that we did for revenue growth.
And we smoothed the beta down to 1
which gave us a WAC of 8.1 percent.
Now, based on the free cash --
the discounted free cash flow model,
Intel's undervalued by $12.41.
We can see that its intrinsic value is expected to increase.
It has been consistently undervalued since 2008.
And as -- we hope to benefit from the fact
from when the market price hopefully catches
up to that intrinsic value.
Then the dividend discount model.
We have those same growth rates in there
that we used in the forecast.
And we smooth the beta to one.
And we can see our intrinsic value of 1218
in our current price of 21.69.
And more than half of the stock prices is supported
by the present value of the dividends alone.
Here we have the intrinsic value estimates
versus the current price.
As we've talked about, all metrics are undervalued except
for that dividend discount model.
But it does cover half the price.
>> Ashley: And now I'll move
into forecasting assumptions for Microsoft.
Revenue growth was adjusted to capital at IQ
and also expectations and then tapered
to a conservative 3 percent in perpetuity.
The margins were adjusted to capital IQ
and [inaudible] suggestions and then tapered
to conservative perpetuities.
The common shares growth is expected to continue to decline.
We chose to keep that negative 1.5 percent growth
into perpetuity because we recognize Microsoft's current
number of shares outstanding is extremely high.
And one of the highest numbers
of shares outstanding in the industry.
And then for dividend growth, we also reduced that consistent
with the margin of safety principal.
And tapered that down to 2 percent in perpetuity.
For the balance sheet forecasting assumptions.
Cash and equivalence were tapered off
from 2012 to be conservative.
Total receivables average was reduced
to offset the high number of receivables
in 2018 due to the recession.
And inventory was reduced to a conservative rate
that was more sustained between 2009 and 2010.
Next, the total current assets average was lower
to offset the abnormally high rates in 2011 and 2012.
Net PP and E was tapered off in conservation.
And total debt and equity were raised to better reflect --
to be a better reflection of the last two previous years.
Next, looking at Microsoft's weighted average cost
of capital.
As you can see, we've used the long-term growth rate of 3.
We've smoothed up the beta to 1,
which is only a small adjustment.
And that gives us a way to average cost of capital of 8.5.
If you recall, Microsoft does maintain an average ROIC
of around 80 percent.
So this gives us a very attractive ROIC
to weighted average cost of capital.
Next moving into evaluation.
Based on our modeling assumptions the intrinsic value
of free cash flows placed Microsoft
as undervalued by $25.39.
This results in a 95 percent under evaluation
from the 2012 year-end stock price of $52.10.
Also see how per share and intrinsic value is expected
to increase by more than $10 by 2017.
We -- like Stevi mentioned, we expect to benefit
from the year-end stock price catching
up with Microsoft's intrinsic value based on the unpriced EVA
that we've recognized in the stock earlier.
Moving on to the dividend discount model.
As you see, the dividend discount model does contradict
the intrinsic value slightly.
Per the dividend discount model,
Microsoft's future dividends only support a stock price
of $14.52 per share.
However, this is almost half the cost -- excuse me --
half of the current price of $30.83 is supported purely
by the discounted flow of dividends.
So based on this model Microsoft is overvalued by 112.33 percent.
Due to the conservative forecasting used,
Microsoft's dividend yield is expected to decrease
from 4.2 percent to 2.6 percent.
However, it kind of goes without saying
that the dividend [inaudible] likely remain a little bit
higher than this since we went about it conservatively.
This next slide here, of course, is just the intrinsic value
versus the current price.
First, notice that the dividend discount model is the only
evaluation model that prices Microsoft as overvalued.
And now we see that all the other evaluation metrics suggest
Microsoft to be undervalued by an average of $55.
>> Stevi: Here is one of Intel's charts
that we pulled off of stockcharts.com.
You can see its current price there at 2396.
You can see it breaking out of its 58 moving average.
And that is another reason
that we are choosing only to trim Intel.
>> Ashley: Likewise, Microsoft has also experienced a recent
increase in April 2013.
And as broken out of the 50 day moving average.
We feel this shows good movement in stock price
and possibly the beginning of some stock price correction
and supports our trimming thesis.
>> Stevi: Okay.
So let's talk about Wintel positioning.
The PC versus the mobile.
The PC industry year over year decline in PC sales.
Gartner has it at 11 percent.
And IDC has it at 14 percent.
Smartphones are in about 55 percent of U.S. homes today,
as opposed to 36 percent in 2010.
So you can see that's been almost a 20 percent increase.
Customers are migrating away
from the PC toward mobile devices.
Now these next few questions that I have are --
I got from a survey done by Accenture.
And Accenture is actually one
of our positive positions in our portfolio.
So the first one.
Which of these consumer electronics do you plan
to purchase in the next 12 months?
Forty-one percent of these consumers said smartphone,
while 36 percent said PC.
So we can see that more consumers are planning
to buy the smartphone than a PC.
The next one is --
of the consumer electronic devices you currently own,
please rank the top five that you use most often.
Now, what I have circled there is the difference
between 2010 and 2012.
And we can see that the PC is
up by 2 while the smartphone is up by 30.
So there's a lot of growth there with the smartphone.
A very minimal growth with the PC.
The next one is which of the following consumer electronics
do you current own?
This one goes from 2009 to 2012.
The smartphone starts at 26 percent in 2009 and grows
to 58 percent in 2012.
You can actually see all of these devices are growing.
The tablet goes from 8 to 25 percent.
But then when we get down to the bottom with the PC it goes
from 91 to 94 percent.
So we =can see that demand in mobile devices is increasing,
while the PC demand is pretty stagnant.
[silence] This is from the IDC.
It's the year over year PC sales.
In the first quarter of 2012, you can see that it's
at a positive 4 percent, but then by the first quarter
of 2013 it's down to a negative 14 percent.
PC sales have -- the year
over year PC sales have declined the past four quarters.
And here we have Intel's revenues
by business segment -- segments.
On the left is 2007 and on the right is 2012.
So we can see that PC client group that Intel really relies
on has changed from 70.8 percent to 64.3 percent.
But they're not diversifying away from that reliance
on that PC base revenue fast enough, and because of this,
future growth potential is questionable.
>> Ashley: Likewise with Microsoft.
As you'll see the circle in the red the entertainment
and devices category, this is what Microsoft categorizes their
mobile devices under.
So just important to think about as we go on.
Notice that this category has only grown 1 percent
over the last 5 years.
With Microsoft's Windows division
by 3.5 percent over the same period.
We would expect a larger portion of this to be compensated
for in the entertainment and devices segment
if Microsoft were poising themselves
to be a very competitive member in the mobile market.
>> Stevi: This is a comparison of the market share
between Qualcomm and Intel.
Since 2009, Intel's market shares decreased while Qualcomms
has increased.
And then in the past 3 years, so from 2010,
it's actually been just a 6 percent swap
of Qualcomm stealing Intel's market share.
>> Ashley: And like the slide before this,
this is Microsoft share compared with Qualcomm
in a closed market scenario.
And as you can clearly see Microsoft has also experienced a
6 percent market share decrease due to its competition
with Qualcomm over the last four years [silence].
Okay. So in conclusion, we find that Intel
and Microsoft are still stable companies
that exhibit the ability
to continually produce attractive dividend yields
in the short run.
However, we also recognize that Intel
and Microsoft have fallen behind current innovations
on the market.
And are not positioned correctly to become formidable forces
in the mobile market at this time.
For these reasons, we recommend a 3 percent trim
to our Wintel holdings.
And this will reduce our Wintel --
this will reduce Wintel in our portfolio to a 7 percent weight.
Excuse me.
[ Coughing ]
Excuse me.
Thank you
[ Silence ]
Okay. So this will reduce our Wintel exposure
to a 7 percent weight.
And also allows us to take a 5 percent position
in a rising IT sector competitor Qualcomm.
Together the Qualcomm Intel, and Microsoft investments will
over weight the funds exposure to the IT sector
and poise the fund to reap the benefits
of stock price corrections that we expect to see
in this industry moving forward [silence].
Any questions?
>> How about some questions about that thesis?
[ Silence ]
And then pass it down to Bill [background sounds].
>> Thank you.
[inaudible] Energy.
My question is I guess for you, Stevi.
You made a pretty good case for declining PC sales
and certainly wouldn't argue with that.
My question is a qualitative one
with Intel's new silvermont mobile processor.
How do you believe that's positioning them
in the mobile market?
>> Stevi: It's helping them.
That silvermont actually came out today.
It is helping them.
But they're trying to make such a late move
into the mobile market, that they just don't have
that first [inaudible] advantage
which is why Qualcomm's already established
in the mobile market.
And we just prefer to --
we don't think that Intel's not going to do well,
but Qualcomm's already there so we just prefer to kind
of have Intel move over and let Qualcomm come in.
[silence].
>> I'm Bill Griner [assumed spelling],
and I'm with Mariner Wealth in Kansas City.
And I'm the oldest guy in my firm,
but I'm also the most experienced so I'm not really
up to snuff on technology ideas as Jim will say.
He'll back that up.
Why did they expand their debt structure last year?
Why did Intel expand their debt structure?
First of all, I agree with your thoughts.
I think trimming these two stocks probably makes sense --
but in particular going into Qualcomm.
But I think -- you're thesis
on the Intel side is holding together
with a 2 percent expected revenue growth, right?
And that's in the face
of nominal GP growth probably rising
by 4 percent roughly speaking in the U.S.,
not real GPD, nominal GDP.
What should mirror fairly closely corporate revenue growth
rates going forward.
So Intel you think is going to grow top line at half
that of the average company?
Whereas historically they've grown by 7.
That seems to be a pretty brash assumption.
And if you can back that up a little bit more
for me I'd appreciate that.
And secondly, what did they do with the debt structure?
They increased their debt outstanding
by a fairly significant amount.
Did they go into some kind
of a share repurchase program with that money?
>> Stevi: I'm not -- I didn't look too far into debts
for the revenue growth rate of 2 percent.
We have that at 2 percent really just to be conservative.
Realistically it probably won't be 2 percent.
It might be closer to the 7 percent that I think you said.
But we're just being conservative
so that we could show, even if worst case scenario kind
of if it is 2 percent, the stock is still undervalued based
on our forecasting assumptions.
>> Ashley: If I may add to that with some numbers.
In 2011, Intel issued about 5 million in bonds.
And reduced their equity by 4 million.
And then in 2012, they increased their equity again
by about 6 million.
But then they doubled the long-term debt.
So that's part of the expansion in those margins
that we see there is that piggyback effect
of the double long-term debt.
>> Okay. It's Jim Reed [assumed spelling] with Scout again.
Recently Intel cut a deal with Altera
to let them use some of their foundry.
Why would you hang on to your Intel position at all
if they're having trouble filling
up their foundries making their own chips?
>> Stevi: Well, large cap companies like Intel
and Microsoft they really -- they'll be in there --
down phases but they really don't --
aren't allowed to stay in those phases very long.
Intel [inaudible] they decide to shake something up.
And actually they have done that.
The Silvermont that was just introduced today.
And then just last week they announced the new appointed CEO.
So they've changed their COE to shake things up.
[ Silence ]
>> Any other questions about that Microsoft Intel space.
All right.
I'm going to zip on to the other side of the room [silence].
>> Hi, Heather Gill Singer [assumed spelling] third year
student at Washburn law.
D.J. talked with us earlier about Volkswagen
and their plan to do better.
I'm kind of curious, and I think you might have just touched
on that the CEO shake up and the silver product.
Do either companies -- have they kind of recognized the fact
that they're having some issues?
And do they have plans to do something better?
Or could you talk a little bit more about that, please?
>> Stevi: Yeah, they are trying to move into that mobile market.
Like I said before, it's late moving into there.
For Intel, they have actually teamed up with Google
to start trying to put Intel chips into some
of Google's phones, so the android phone.
And then with Microsoft, they have the Windows phone.
Some people in here might have it.
It's been out for a while.
Do you have anything else to add about that?
>> Ashley: Yes.
Let me -- would you recall the question for me again.
I had a point but --
>> Oh, sure.
Does Microsoft plan on doing something better
to get their numbers back on track basically?
>> Ashley: Right.
Okay. Microsoft definitely needs to make a move
into the mobile market,
and they're definitely coming at it from behind.
One of the things
that I mentioned is the cloud computing that they have.
They kind of have a unique opportunity to get into;
I'll be it late, but because of the differentiated approaches.
So long as there's a good quality they can sneak in
and experience good success with that.
But one thing worth mentioning is that their business systems
and their enterprising systems and they're servers
and tools categories are still some
of the leading in the United States.
And, in fact, these divisions are largely carrying
Microsoft forward.
Our concern is that if they don't weave everything together,
their business enterprises and their servers and tools
with the mobile market and really and look forward,
that eventually they'll be some stagnation.
So we recognize that they have good products that are going on.
Like their Windows still sold 400 million copies last year.
Their Office still sold 100 million copies last year.
And despite them feeling the largest percentage of that 11
to 14 percent in PC decline, Microsoft has estimated
that 8 percent of that came directly
out of their demographic.
They've still been able
to increase revenue by about 27 percent.
So right now while they're entering a phase of RND
and repositioning themselves, they are relying heavily
on their tools and server divisions
and their business enterprises.
>> Anyone else?
All right.
It's a long time to sit.
So how about a five minute leg stretcher
and then we'll see our next two presenters.
[ Applause ]