In our report Highlights of Tech Sector Reports, we provide a brief overview (in slide format) of recent core Technology Sector research reports, consolidating our points of view on the current state, key drivers, and underlying business trends of key areas of Technology.

2/02 CIO Survey -- We Saw a Decrease in CIOs’ Caution Regarding Current Economic Conditions and IT Budgets
CIO’s are less fixated with the slowing economy and spending cuts. The percentage of CIOs indicating that the slowing economy has caused them to re-evaluate IT budgets in the last month declined in January to 44% from 67% in November. We saw an increase in respondents who said they would spend more on technology products and services in 2002 from 31% in November to 40% in January. The percentage of CIOs saying that they have a positive or slightly positive outlook on the US economy increased from 44% in November to 60% in January. 47% of CIOs responded that they expect to spend more in the second half of the year, compared to 24% of respondents in the November survey. The year is looking more backend loaded, as management wants to see how the economy plays out. 42% of respondents indicated that they are likely to spend evenly throughout the course of the year, versus 55% in the November survey. The top priorities for CIOs remained the same in January, compared to November, although they changed positions within the top three. Our survey indicated the top three technology priorities in 2002 are application integration (from No. 3 to a tie for No. 1), security software (from No. 2 to a tie for No. 1), and e-commerce initiatives (from No. 1 to No. 3).

2/02 Internet User/Usage Ecosystem – Trends of Recent Quarters Continue to Point to Strong Internet User and Usage Growth, but at Slowing Rates
Normalized trends of the past few quarters continue to point to strong Internet user and usage growth, but at slowing rates. Although the weaker economy and the law of large numbers have clearly hit Internet-related purchases and usage this year, CQ4 data continue to support solid Internet user and usage growth rates. CQ4:01 Y/Y user growth metrics ranged from 8% to 40%, with a mean increase of 23% and a median increase of 22% — this compares with the CQ3:01 Y/Y user growth range of 27% to 37%, with a mean increase of 29% and a median increase of 27%. CQ4:01 Y/Y usage growth ranged from (7)% to 117%, with a mean increase of 41% and a median increase of 39% — this compares with CQ3:01 Y/Y usage growth of a range of (1)% to 128%, with a mean increase of 48% and a median increase of 46%. For CQ4:01, the Internet growth metrics continued to support strong, though slowing, rates of growth. Mean year-over-year usage growth outpaced mean user growth in CQ4:01 by a multiplier of 1.8. The CQ4:01 quarter-to-quarter metric cut was as follows: of the 21 quarterly metrics presented in this report, 48% saw an increase in the rate of growth Q/Q in CQ4:01, while 52% saw a decrease, versus 57% up and 43% down in CQ3:01.

2/02 Global Chipwatch – The Semiconductor Industry Shows Clear Signs of Having Bottomed and is in the Process of Steadily Building Momentum
We believe the semiconductor industry reached a cyclical trough in the third quarter. We expect the industry to bounce along the bottom during the fourth quarter of 2001 and the first quarter of 2002, with first-quarter revenues unchanged plus or minus 2% Q/Q. However, we continue to believe that the rate of recovery will be choppy and muted during the next four to six quarters. Excess capacity, subdued economic growth, and a lack of killer applications indicate that near-term visibility will remain limited, pricing power will be difficult to achieve and overall growth rates will probably remain under pressure. We currently expect revenues to be flat to down 5% Y/Y in 2002, but easy comparisons suggest that strong growth should be recorded in 2003 — we currently expect 20-25% Y/Y revenue growth in 2003. While we are becoming increasingly positive on near-term stock-price performance, we believe that there are four key risk factors to monitor. Near-term visibility is still limited by low backlogs. A lack of pricing power caused by excess capacity should remain in force during the next four to six quarters. The potential for a ‘double-dip’ in the economy would adversely impact our earnings estimates and, finally, we think valuations remain rich.

2/02 Global Communicator – Outlook Remains Cautious for Telecom Equipment & Data Networking Industry Group
Coming on the heels of flattish stock performance in December and strong performance in November, telecom equipment stocks have recently experienced deep selling pressure due, we believe, to cautious carrier commentary, below-consensus capex guidance, limited visibility from most equipment vendors, and accounting/liquidity fears resulting from several bankruptcy filings. The Morgan Stanley Diversified Telecom Equipment Index (MS-DTI) was down 5% M/M in January, and declined an incremental 8% during February to date. We maintain the cautious outlook we articulated in the January and February editions of the Global Communicator, and point to challenging results and guidance from a spectrum of carriers and equipment vendors during the January earnings season for support. We do not expect a recovery in industry fundamentals until late 2002/early 2003, and think stocks could trade within a narrow band until investors have evidence of improving or worsening conditions. At this point, we believe most stocks already discount much of the negative news flow that has surfaced over the past few weeks. However, we believe there is risk to our CQ1:02 estimates, particularly for vendors with heavy Inter-Exchange Carrier (IXC) exposure.

Highlights of Tech Sector Reports – Part 1 of 1 (42 pages)