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SYNC.
Global Trend Forecast, 2014 Issue 64
The Future of Technology, Media & Telecoms
Volume III
July 2013
Cyrus Mewawalla
cyrus@researchcm.com
+44 (0) 20 3393 3866
www.researchcm.com
Authorised and regulated by the Financial Conduct Authority
CM Research
22 Upper Grosvenor Street
London W1K 7PE

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Contents
EXECUTIVE SUMMARY 4
PART I: HARDWARE 6
Technology Hardware: Executive Summary 7
Connected devices 8
Consumer Electronics 10
Component Makers 12
PCs, Servers, Storage and Networking 14
Telecom Equipment 16
Semiconductors 18
PART II: SOFTWARE 20
Technology Software: Executive Summary 21
Applications Software 22
Infrastructure Software and the Cloud 24
Security Software 26
Video Game Software 28
IT Services 30

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PART III: INTERNET & MEDIA 32
Internet & Media: Executive Summary 33
Internet (e‐commerce) 34
Internet (social media) 36
Advertising 38
Film & Television 40
Publishing 42
PART IV: TELECOMS 44
Telecom Services: Executive Summary 45
Cable & Satellite Operators 46
Telecom Operators 48
APPENDIX 1: M&A TRENDS 51
APPENDIX 2: ABOUT CM RESEARCH 54
APPENDIX 3: RECENT PUBLICATIONS 55

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Executive Summary
In this report, the third volume in our “Global TMT Trend Forecast” series, we identify the major disruptive technologies that we will see in
2014 and predict how they will impact the world’s largest technology, media and telecom (TMT) companies. Our objective is to offer
investors and industry executives a comprehensive trend forecast for the global TMT sector over the next 12 months.
To set the scene, the chart below shows the relative market performance of 17 TMT sectors since the beginning of 2008, benchmarked
against the S&P 500 index. Future performance will be largely impacted by the trends outlined in this report.
Over the last five years internet companies, software developers and data centres have been the most prominent outperformers
whilst consumer electronics companies, telecom equipment makers, publishers and telecom operators have underperformed.
Global TMT sector: Cumulative 5½ year share price performance
Hardware Software Internet & Media Telecoms
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research. Bars show the cumulative sector performance from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013 of a selection of stocks that we believe are
bellwethers for each sector aggregated on an equal weighting basis. Note: Whilst the performance of every sector is shown over a 5½ year period, the performance of social media is shown over a two year period as most social media companies were not listed 5 years ago.
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Here are some of our conclusions:
 Consumer electronics: Wearable computing devices and internet TV will be the big consumer electronics products of 2014. Both
are likely to strengthen the dominance of the bigger internet ecosystems run by Apple and Google. But the Asians are fighting back.
Samsung may yet revive Bada and LG has bought HP’s WebOS specifically for its smart TV offering. In addition, a host of new
mobile ecosystems from Huawei, Jolla, UCweb and Mozilla have recently entered the market, threatening this cosy duopoly.
 Telecom equipment: Software defined networks (SDNs) will soon threaten the dominance of networking equipment leaders like
Cisco and Juniper Networks. But as mobile technology moves to an all-IP environment, leading providers of fixed IP networking
equipment such as Cisco will move into the wireless equipment market thus far dominated by Ericsson.
 Semiconductors: Cheaper smartphones and tablets will soon flood the market, many made in China, shifting the balance of power
in the chip industry from expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.
 3D printing: The market for 3DP services grew 29% in 2012 to reach $2.2bn worldwide. Whilst Foxconn’s Terry Gou describes 3DP
as “a gimmick”, we believe it could transform manufacturing, hasten the onshoring of production and shorten product development
cycles. 3D Systems and Stratasys have seen their shares rise already but CAD software firms like PTC and Autodesk could be next.
 Software: Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that include ERP
platforms, Big Data analytics, cloud and cyber-security. IBM, SAP, Oracle and Microsoft will be the main predators.
 Cloud: As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like VMware and Citrix
Systems will face fierce competition from Microsoft. Meanwhile, WAN optimisation players like Riverbed Tech help move data faster.
 E-commerce: Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
 Advertisers: Ads are going mobile. Google has a 55% share of the $16bn global mobile ads market. If Google’s platform dominates
internet TV as well, traditional advertisers will find themselves negotiating with the same near-monopoly in all their markets.
 Film & Television: TV doesn’t work without content. As technology giants rush to develop their own versions of the next internet TV
platform, they will bid up the price of popular content. Stellar performers like Disney and Time Warner may yet see more upside.
 Publishing: Whilst DMGT has shown how smart management can turn around an incumbent publisher in a declining industry, the
overall outlook for publishers remains bleak.
 Cable & Satellite: Far more prepared for the digital world than telecom operators ever were, cable and satellite operators have a
good chance of avoiding being eaten alive by Apple and Google by investing in independent platforms like FanTV.
 Telecom operators: As voice, messaging and internet access revenues decline, operators must act fast to avoid disaster. But we
argue that competition, politics and the evolving scope of internet regulation will impact share prices more than operator strategies.

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Part I: Hardware

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Technology Hardware: Executive Summary
Here is a summary of our dominant themes for the technology hardware sector over the next 12 months:
Connected Devices
Wearable computing devices such as Sony’s SmartWatch or Google Glass will be the next big thing to follow smartphones and tablets.
They will help better target commercial services to us by tracking more of our personal data.
Consumer Electronics
Internet TV is likely to be the next big consumer product, but it is too early to pick a winning platform as yet. More generally – as was the
case with smartphones and tablets – consumer electronics hardware makers are seeing their profits siphoned off by software ecosystems.
Asia is fighting back: Samsung may yet revive Bada and LG has bought HP’s WebOS specifically for its smart TV offering.
Component Makers
3D printing could lead to the democratisation of manufacturing, changing how we design, manufacture and repair virtually everything we
use today from medical devices to aircraft parts to houses. 3DP will shorten product development cycles and facilitate the onshoring of
production.
PCs, Servers, Storage and Networking
The shift from the “PC generation” to the “cloud generation” is changing the way data is stored and accessed. This shift has been hastened
by the flop of Windows 8. Storage technology is moving to solid state drives (SSD), a more expensive but faster version of storage than
traditional hard disk drives (HDD). Software defined networks (SDNs) will soon threaten the dominance of networking equipment leaders
like Cisco and Juniper Networks.
Telecom Equipment
As mobile technology moves to an all-IP environment, leading providers of fixed IP networking equipment such as Cisco will move into the
wireless equipment market thus far dominated by Ericsson.
Semiconductors
Cheaper smartphones and tablets will soon flood the market, many made in China, shifting the balance of power in the chip industry from
expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.

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Connected devices
 Dominant theme: Wearable computing devices will be the next big thing to follow smartphones and tablets.
 Outlook: China is set to dominate shipment numbers for smart connected devices for several years, heralding an era of cheap
“phablets” where Huawei, ZTE and Lenovo may edge out western rivals.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Wearable
devices
Wearable connected devices – such as
Sony’s SmartWatch, Google Glass and
medical devices – will be the next big
product cycle after smartphones.
Wearable devices create more opportunity
to collect personal data, benefitting the
two dominant mobile ecosystems that are
best placed to collect and sell this data.
Apple, Google Alibaba, Amazon,
Baidu, Microsoft,
RIM, Sony, Nokia,
LG, Tencent
Apple copycats The Apple business model – of owning
hardware, software and an apps-based
ecosystem – is being cloned by rivals.
More software companies will start making
their own hardware. The losers will be the
hardware-only device manufacturers,
whose margins will be squeezed.
Apple, Google,
Microsoft, Baidu, Alibaba,
Tencent, Huawei,
Facebook, Amazon
Samsung, HP, Dell,
LG, Sony, RIM, Acer,
Asustek, HTC, Nokia
New mobile
ecosystem
entrants
New entrants are invading the market for
mobile ecosystems, challenging Apple and
Google’s dominant position.
To enter this market, some have
developed their own mobile operating
systems. Others have developed mobile
web browsers or mobile search platforms.
Jolla, Mozilla, Opera,
Huawei, Baidu, Qihoo 360,
Facebook, Tencent,
Alibaba, Amazon, Easou
Apple, Google
Cheap
smartphones
China’s smartphone shipments hit 78m in
Q1 2013, up by 117% compared to Q1
2012 and representing 36% of global
shipments of 216m for the quarter.
As China goes mass market, average
prices will fall and Chinese manufacturers
will edge out western rivals. Android will
remain popular for lack of competition.
Google, Samsung, Huawei,
ZTE, Lenovo, Xiaomi
Apple, Microsoft,
Nokia, HTC, RIM, LG
Litigation As Apple and Google’s ecosystems grow,
the risk of patent litigation and anti-trust
litigation against them increases.
The risk is that management becomes
distracted by litigation, taking their eye off
innovation.
Huawei, ZTE, Samsung,
Facebook, Amazon,
Xiaomi
Apple, Google
Conflicts of
interest
Google and Microsoft have decided to
enter the hardware market, creating
conflicts for customers of their software.
Apple doesn’t have this conflict because it
doesn’t license out iOS.
Apple Google, Microsoft

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Outlook
Today the world has 2.8bn internet users. Of these, at least 1.5bn access the internet wirelessly. That’s up from 1.1bn a year ago. The next
billion users are all likely to use their smartphone as their primary means to access the internet. Mobile now makes up 16% of all internet
traffic. This internet traffic is monetised most effectively by those with the largest mobile ecosystems. So far Apple and Google dominate,
with a joint 92% market share of the mobile operating system market.
But with China set to remain the world’s biggest mobile internet market for the foreseeable future – it is already home to 29% of the world’s
mobile internet subscribers – two things will change. Cheaper smartphones will flood the market, benefitting local manufacturers such as
Huawei, ZTE and Xiaomi at the expense of dearer western rivals. And Google Android’s hold on the low-end operating software market
may be side-lined by home-grown software from the likes of Huawei, Tencent, Baidu or Alibaba.
Connected devices: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
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Consumer Electronics
 Dominant theme: Internet TV is likely to be the next big consumer product, but there is no clear winner for investors as yet.
 Outlook: As with smartphones and tablets, consumer electronics hardware makers are seeing their profits sucked out by
software ecosystems. Asia is fighting back: Samsung may yet revive Bada and LG has bought HP’s WebOS.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Internet TV No technology company has yet mastered
the three pre-requisites for (enjoyable)
internet TV: a simple electronic program
guide, a low latency user experience, a
vast back-catalogue of licensed content.
Each player is attacking TV from a different
angle. Apple’s strength is iTunes and iOS;
Google’s YouTube and Android; Microsoft and
Sony have their games consoles. Streaming
specialists such as FanTV also stand a chance.
Apple, Google,
Microsoft, Fanhattan,
Roku, Boxee
Sony, Samsung, LG,
Nintendo
Slaves to the
ecosystem
Consumer electronics are fast becoming
bolt-on accessories for the internet
ecosystems controlled by the “second
screens” of Apple, Google and Microsoft.
Once-great consumer brands are being reduced
to low margin subcontractors for the big internet
ecosystems of Apple, Alibaba, Baidu, Google
and Facebook.
Amazon, Alibaba,
Apple, Facebook,
Google, Microsoft,
Netflix
Samsung, LG,
Nintendo, Nokia,
Philips, Sony, Canon
Robotics A new generation of consumer products
based on robotics is emerging, including
driverless cars, hands-free vacuum
cleaners and personal companion robots.
Three types of beneficiaries are emerging: robot
manufacturers like iRobot, motion sensor
developers like Microsoft Kinect and operating
software developers like Apple and Google.
iRobot, Microsoft,
Apple, Google
On-shoring More technology companies are on-
shoring manufacturing of their latest high
tech products. Apple assembles iMacs in
the US; Google will manufacture Glass in
California and the Moto X in Texas.
Selected manufacturing clusters that moved to
Taiwan, Korea and China in the last decade
may now move back to the US. Manufacturers
like Lenovo and Hon Hai will be obliged to open
plants in the west, raising costs.
Apple, Google Lenovo, Huawei, Hon
Hai, Samsung
Screen
technology
While Samsung and LG have massively
overspent on developing OLED displays
Sony has invested more cautiously in 4K
technology.
Sony’s 4K TVs will be priced between LCDs
and OLEDs and may give Sony an advantage,
especially if it mandates its film division to
produce 4K films.
Sony Samsung, LG

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Outlook
As the share performance chart below aptly illustrates, only two of the world’s leading consumer electronics companies are trading at
higher valuations than five and half years ago. They are Apple and Samsung. The consumer electronics sector has become polarised by
the internet. The big mobile internet ecosystems – Apple, Google, Microsoft, Baidu and Tencent – are sucking all the profits out of
hardware manufacturing, reducing hardware-only makers to low-margin producers of commodity products. The next big product cycle for
the industry is internet TV. Here too the lion’s share of the profits is destined to go to internet ecosystems rather than hardware makers.
Samsung, the most profitable hardware-only maker, owes its manufacturing prowess to a strategy of relentless hardware innovation. It is
likely to hold that lead with its new hardware innovations such as flexible screens or eye-scrolling technology. But without its own software
ecosystem – it tried and failed with Bada – it is doomed to fail ultimately. LG Electronics, conscious of this dilemma, purchased WebOS
from HP for use in its smart TV platform. If it makes the most of this opportunity LG could become the first Asian player to compete
successfully – on a software level – with Apple, Google and Microsoft, giving it a slim chance to claim a decent slug of the profits of the
internet TV market.
Consumer electronics: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
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Component Makers
 Dominant theme: 3D printing could lead to the democratisation of manufacturing, changing how we design, manufacture and
repair virtually everything we use today from medical devices to aircraft parts to houses.
 Outlook: Consumer electronics devices are increasingly controlled by two dominant operating systems: iOS and Android now
account for over 90% of smartphones and tablets shipped worldwide. Successful component makers will need to align their
businesses more and more to these software ecosystems.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
3D printing In 2012, the market for 3D printing
products worldwide grew 29% to$2.2bn,
according to Wohlers Associates. Used
primarily for prototyping, 3DP could soon
be used for manufacturing components.
Foxconn’s Terry Gou recently called 3D printing
“a gimmick”. But whether Mr. Gou likes it or not,
3DP is coming to mass production. Everyone
from material providers like Nitto Denko to
assemblers like Foxconn will be impacted.
3D Systems,
Stratasys
Too early to say
Flexible displays New display technologies will soon give us
screens that have rigid curves built into
them or that are bendable by the user.
So far Samsung appears to be the clear leader,
which is bad news for arch rival Apple.
Samsung Apple, Google, LG
Display, Sony,
Universal Display
Apple supply
chain
Apple is diversifying its supplier base
away from Samsung. It is also playing a
divide and rule game between its top two
assemblers Hon Hai and Pegatron.
TSMC could displace Samsung in processors
and LG Display and TPK could do so in touch
screens. For its main assembly suppliers, a
pricing war could send margins further down.
TSMC, TPK, LG
Display
Hon Hai, Pegatron
Robotics As Chinese labor costs rise and industrial
unrest grows, more Asian component
makers will look to industrial robots to
control their cost base.
Foxconn leads the charge with its plan to roll
out 1m Foxbots. But its investment may be
delayed by falling profits as it lowers margins to
compete with Pegatron.
Hon Hai (Foxconn),
ABB, Fanuc,
Kawasaki
Slaves to the
ecosystem
As industry profits move from hardware to
software, component makers need to
position themselves accordingly.
Increasingly Apple, Google – and perhaps of
Alibaba and Baidu – will be the most sought
after supply chains, rather than, say, Samsung.
AAC Technologies,
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Outlook
Five years after the start of the financial crisis, two thirds of the component makers in our stock universe below are still trading at valuations
below those at 1 January 2008.
As profits in the consumer electronics industry shift from hardware makers to internet ecosystems, the profitability of component makers
will be linked more and more to how successfully they compete for coveted places in the supply chains of the leading operating software
developers such as Apple and Google rather than the leading hardware manufacturers such as Samsung. AAC Technologies – which
makes miniature microphones used in the iPhone and iPad – is a case in point.
Component makers: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
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PCs, Servers, Storage and Networking
 Dominant theme: SDNs will soon threaten the dominance of networking equipment leaders like Cisco and Juniper Networks.
 Outlook: Microsoft’s disastrous Windows 8 launch has had an adverse impact on the hardware sector. Outlook remains bleak
for PC/ notebook makers and HDD storage; rosy for servers, tablets, SSD storage and niche networking products.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Software defined
networks (SDNs)
SDNs will soon threaten the dominance of
networking equipment leaders like Cisco.
Competitive power in the networking sector is
moving from hardware to cloud software.
VMware, Netflix,
Amazon, Google
Cisco, Juniper
Networks
Cloud Production is shifting from PC-based
devices such as laptops to cloud-based
devices such as servers and tablets.
Outlook continues to look bleak for PC and
notebook makers; rosy for servers, tablets, SSD
storage and niche networking products.
Samsung, Asustek,
ARM, Quanta,
Lenovo, Google
Intel, Microsoft
Death of
Windows 8
As Samsung and Asustek issue tablets
with dual Windows8/Android operating
systems Windows’ decline is assured.
In the PC/tablet sector competitive power will
shift from Microsoft not only to Apple and
Google but also to hardware makers.
Apple, Google,
Samsung, Lenovo,
Asustek
Microsoft
Storage
technology
As PCs decline and tablets rise, storage is
moving from hard disk drive (HDD) to solid
state drive (SSD) technology.
The leading HDD players argue they have
mitigating strategies, but the speed of the
technology shift could catch them out.
OCZ, Stec, Intel,
Sandisk
Seagate, Western
Digital
Open source
storage
Open source storage hardware from the
likes of Backblaze shows signs of taking
off, threatening leading storage companies
Open source solutions reduce barriers to entry
and exert downward pressure on margins. EMC
and NetApp are first in the line of fire.
Backblaze, RedHat EMC, NetApp, HP,
Dell, IBM, Oracle
Micro servers Micro servers – cheap, low-power servers
– represent a fraction of server shipments
but are gaining market share in data
centers, especially for cloud services.
ARM-based chips are likely to power many
micro servers and could seriously challenge
Intel’s domination of the high-growth data center
server market.
ARM Intel
WAN
optimization
Data centers are becoming increasingly
fragmented. That makes response speeds
a differentiating factor.
A handful of companies specializing in
technologies that optimize wide area networks –
making data flow faster – should benefit.
Brocade, Fusion-IO,
SGI, Riverbed
Technology

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Outlook
In Q1 2013, PC shipments declined 14% year on year, much worse than expected, and largely down to the poor reception for Windows 8.
Lenovo fared better than any other PC maker. In the short term, Microsoft’s troubles may give hardware makers slightly more competitive
power as they play Microsoft off against Google Android – Indeed Samsung and Asustek have already started, by releasing dual operating
system tablets. IHS expects hard drive (HDD) sales to fall 12% in 2013 to $32.7bn as solid-state drives (SSDs) march ahead. Last
quarter’s worldwide enterprise expenditure figures for the storage services sector generally have also been lacklustre.
Looking ahead, we see continued turmoil in the PCs, Servers, Networking and Storage sectors. Storage market leaders like EMC and
NetApp will see threats both from open source and a host of new entrants into the sector. But one problem that remains in the networking
and storage sectors is data latency. Niche players in networking technology who can make data flow faster stand to benefit. Three names
immediately spring to mind: Brocade, Riverbed Technology, and Fusion-IO.
PCs, Servers, Storage and Networking: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
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Telecom Equipment
 Dominant theme: As mobile technology moves to an all-IP environment, leading providers of fixed IP networking equipment
such as Cisco will move into the wireless equipment market thus far dominated by Ericsson.
 Outlook: The near term outlook for telecom equipment will be dominated by an increasingly vicious US-China dispute over
state-sponsored cyber-attacks. Trade embargos and subsequent retaliation measures are likely to impact Huawei more than
Cisco and Ericsson.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Mobile moves to
IP
4G is the first mobile standard to be all-IP.
Whereas 3G technology involved
proprietary standards, 4G is more open.
As mobile moves to IP, fixed IP networking
giants like Cisco and Juniper will find it easier to
challenge 4G leaders like Ericsson.
Cisco, Huawei, ZTE,
Juniper Networks
Ericsson, Alcatel
Lucent, Nokia
Siemens
Trade wars Telecom equipment is the first line of
defense in cyber-warfare. Huawei and
ZTE are increasingly banned from bidding
for western telecom contracts on national
security grounds.
As cyber-warfare threats grow, protectionism in
the telecom equipment market is likely to rise.
Europe may follow the US’s lead, supporting
home-grown telecom equipment makers. China
may retaliate.
Alcatel Lucent,
Ericsson, Nokia
Siemens, Cisco
Huawei, ZTE
LTE/Wi-Fi
integration
By 2014, mobile traffic will account for
30% of total internet traffic, up from 12% in
2012, according to StatCounter. New
technologies that allow seamless roaming
between 4G and Wi-Fi will allow offloading
of heavy data users from expensive 4G
networks to cheaper Wi-Fi networks.
In hardware, Cisco is making the biggest push
for the combined cell market. In chips,
Qualcomm, Broadcom and Marvell stand to
benefit. In corporate services, the likes of Aruba
Networks, which provides secure Wi-Fi
services, will see a growing market.
Aruba Networks,
Cisco
Ericsson
M&A Many Western telecom equipment makers
are nursing heavy losses and may be
forced to sell assets.
Nokia Siemens has been rumored to be up for
sale and Alcatel Lucent may also be a bid
target.
Nokia, RIM
Alcatel Lucent
Patents wars Spurred by Apple’s patent war, the value
of the industry’s patents is rising.
Expect selected patent portfolios of weaker
competitors to be put up for sale.

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Outlook
Much of the telecom equipment sector, as the chart below illustrates, is still trading at pre-2008 valuation levels. Note that Huawei – the
largest telecom equipment player in the world by revenues – does not feature on our share performance chart below because it is privately
owned. As 4G (OFDM) technology proliferates, Huawei’s lead is likely to increase for two reasons. First, the biggest problem with 4G
technology is call handover from CDMA (3G) and TDMA (GSM) technology. The best way to ensure seamless handover is to buy handsets
and network infrastructure from the same vendor. Huawei is the only vendor that currently provides an end to end product range. Second,
since 4G is an all-IP platform, Huawei, a low-cost manufacturer of fixed IP equipment, has yet another advantage. All this is bad news for
Cisco, Ericsson, Alcatel Lucent and Juniper Networks.
But politics may change the balance of power. The US has started a trade war, pointing its finger at Huawei and its alleged military
connections. Depending on how this war of words unfolds, western equipment players may be handed an advantage in western markets.
Telecom equipment: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
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Semiconductors
 Dominant theme: Cheaper smartphones and tablets are entering the market, many made in China, switching demand for
chips from expensive US chipmakers like Qualcomm to cheaper Chinese ones, like MediaTek and Spreadtrum.
 Outlook: Chinese wireless chipmakers are best positioned for the rush to mass market “phablets”.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Cheaper
smartphones
Smartphone penetration in China has
passed 15%. It should reach 50% by
2015. Huawei, Xiaomi and ZTE are likely
to gain global market share as a result.
Domestic Chinese chip manufacturers like
MediaTek and Spreadtrum will see beneficial
knock on effects, with Qualcomm being the
biggest loser.
MediaTek,
Spreadtrum
Qualcomm, Marvell,
Broadcom
Internet of things As more devices – from fridges to cars to
hospital patients – are monitored on the
internet, the number of sensors around us
will explode.
Manufacturers of these sensors and the
embedded microprocessors that control them
will benefit.
Microchip Tech,
Freescale, Asia
Optical, Infineon,
Micronas, Omnivision
Apple’s supply
chain
Apple is reshuffling its supply chain away
from Samsung, its main smartphone/tablet
rival.
TSMC could be the biggest beneficiary amongst
chipmakers, with orders for both the A6 and A7
chipsets.
TSMC, Avago, Cirrus
Logic, Omnivision,
TriQuint, Skyworks
Samsung
Intel vs. ARM Intel is the market leader for PCs and
servers because of its unrivalled
processing power. ARM designs dominate
the mobile devices sector because of their
low power consumption. But Intel and
ARM are invading each other’s markets.
Intel now powers the Samsung Galaxy Tab 3
with its Atom processor, but has few other wins
in mobile. ARM, on the other hand, is moving
fast into the high-growth micro-server market for
data centers. It has recent orders from Baidu for
cloud servers. It’s too early to pick a winner, but
both moves are game-changing.
Too early to say
Graphics chips ARM and Intel are incorporating graphics
capability within their core chip designs.
Chinese chipmakers are also entering the
fray.
Competition within the graphics chips market is
heating up. Nvidia and Imagination could see
their pricing power eroded faster than expected.
MediaTek, ARM Imagination Tech,
Nvidia, Qualcomm

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Outlook
In 2013, Gartner estimates that 2.35bn IT devices will be shipped. Of these, 305m will be PCs and laptops, 201m will be tablets and 1.8bn
will be mobile phones. Within the mobile phone category, smartphone shipments are expected to reach 958m units this year, up from
722m last year. With connected devices being the most lucrative end market for chips, it is not unsurprising that the fortunes of many chip
companies are tied to the most profitable IT device maker, Apple. Chip companies in Apple’s supply chain – like Cirrus Logic, Skyworks
Solutions, Omnivision, Avago and ARM – saw their share prices rise with Apple’s until mid-September 2012, when Apple’s shares peaked.
Now, during the next phase of the smartphone cycle – when smartphones go mass market, particularly in China – it is the turn of Chinese
chip makers to rise. MediaTek and Spreadtrum are closely integrated with the supply chains of Huawei, Xiaomi and ZTE and are likely to
benefit as Chinese smartphone penetration grows from 15% to 50% (the steepest section of the typical S-shaped growth curve) over the
next three years.
Semiconductors: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
0%
100%
200%
300%
400%
500%
600%
2008 2009 2010 2011 2012 2013

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Part II: Software

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Technology Software: Executive Summary
Here is a summary of our dominant themes for the Software and IT Services sectors over the next 12 months:
Applications Software
Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that include ERP platforms, Big
Data solutions, cloud services, cyber-security and search functionality. IBM, SAP, Oracle and Microsoft will be the main predators.
Cloud Software
As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like VMware and Citrix Systems now
face fierce competition from the bigger software houses like Microsoft.
Security Software
Our interviews with executives in the insurance industry confirm that board level of awareness, understanding and accountability structures
for cyber-threats is low. As a result, corporations have for some time been underinvesting in cyber-security assets. When a respected CEO
gets fired for mishandling cyber-risk, market sentiment will change: boards will be forced to increase expenditure on cyber-security services,
lifting earnings prospects for the cyber-security industry.
Video Game Software
The shift from console games to online and mobile games is happening faster than many expected. EA, Activision Blizzard and Ubisoft will
see their core business under attack whilst mobile-only games developers like Gameloft and Gamevil could benefit from being in the right
space at the right time. At the same time, in the short term, mobile and online games developers are losing competitive power to the big
apps platforms like Apple and the big social media platforms like Facebook and Tencent. But, in the longer term, HTML5 technology may
reverse that trend.
IT Services
The IT services industry’s business model is changing: the typical customer today runs the marketing department rather than the IT
department; key vendor partnerships are shifting from ERP vendors like SAP to cloud services vendors like Salesforce; most importantly,
the industry’s future as a middleman in a world where cheap, cloud-based services can be purchased directly is threatened.

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Applications Software
 Dominant theme: Apple and Google pioneered the internet ecosystem. Now the race is on to build software ecosystems that
include ERP platforms, Big Data solutions, cloud services, cyber-security and search functionality.
 Outlook: Large software groups, unable to innovate fast enough, will continue to acquire smaller application software houses.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Software
ecosystems
Internet companies such as Apple and
Google pioneered the internet ecosystem.
Now it is the turn of software companies to
build their own ecosystems.
A host of emerging technology cycles are all
software based. Larger software companies,
unable to keep pace with innovation, will be
forced to acquire.
Targets: small/
medium sized
application software
companies
Acquirers: IBM,
Oracle, SAP, Apple,
Google, Yahoo,
Microsoft, Baidu
Mobile-first,
app-centric
start-ups
Smaller screens and lower customer
patience levels mean that desktop
applications have to be re-designed from
scratch to have any hope of working well
on the mobile internet.
Mobile-first, app-centric start-ups are unseating
current software leaders as the internet goes
mobile. New mobile operating systems from
Jolla (Sailfish) and mobile browsers from
Amazon (Silk) are fast entering the market.
Twitter, Jolla,
Amazon, Mozilla,
UCWeb, Opera
Apple, Facebook,
Google, Baidu,
Tencent
Cloud business
model
The success of Adobe’s “Creative Cloud”
subscription model makes it more likely
that software will move from a licensing
model to a cloud-subscription model.
If monthly subscription fees replace larger, one-
off license fees, revenues will fall in the short
term. Whilst Adobe has succeeded here, other
houses may issue profit warnings.
Adobe, Salesforce,
NetSuite, Apple,
Google, Red Hat,
VMware, Citrix, EMC
Microsoft, SAP,
Oracle, IBM
Computer aided
design (CAD)
software
The 3D printing market was worth $1.7bn
in 2012 and is growing at 30% p.a.,
according to Wohlers Associates.
3D printers are used mainly for prototyping. If
3DP technology is adopted in mass
manufacturing, the first wave of beneficiaries
will be CAD software companies.
PTC, Autodesk,
Dassault Systemes
Big Data So far no software company has even
come close to analyzing large amounts of
unstructured data in a quick and
meaningful way.
The leaders in complex analytical engines are
IBM (Watson) and the large internet companies
that have developed complex search
algorithms.
Amazon, Baidu,
Google, Facebook,
Alibaba, IBM
SAP, Oracle

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Outlook
Three industry trends are making life uncomfortable for many traditional software companies: the move to app platforms, the move to the
cloud and the move to the mobile internet. In addition to these new dimensions, there are a myriad of emerging technology cycles –
including 3D printing, robotics, software defined networks, smart TVs, cloud computing and mobile payments – that are all software based.
All of this is heralding a new golden age for applications software.
Large software groups, unable to innovate fast enough, are acquiring specialist software houses. The M&A timeline charts on pages 50
and 51 illustrate the scale of the upheaval taking place in the software industry: software companies account for just 11% of the market
capitalization of the global TMT sector, by our estimates, but made up 55% of M&A transactions, by value, in the TMT sector over the last
three years.
With the exception of IBM, SAP and Oracle, many of the application software companies listed below are likely to become takeover targets
as the sector consolidates further.
Applications software: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
250%
300%
2008 2009 2010 2011 2012 2013

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Infrastructure Software and the Cloud
 Dominant theme: As IT infrastructure moves into the cloud, virtualisation products act as the gateway. Niche players like
VMware and Citrix Systems now face fierce competition from the bigger software houses like Microsoft.
 Outlook: Infrastructure software stocks are the most susceptible to a dramatic fall in value during an economic downturn.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Virtualization Virtualization allows computing resources
(e.g. infrastructure, operating software or
storage solutions) to be deployed as and
when required, cutting corporate IT costs.
The big software houses are creating their own
virtualization products, squeezing niche players:
in 2012, VMware's virtualization share fell to
56.8%, as Microsoft's rose to 27.5%.
Microsoft VMware, Citrix
Cloud ERP Emerging cloud-only companies are
attacking ERP incumbents IBM, Oracle
and SAP who are encumbered by legacy
systems which can’t easily switch to cloud.
IBM, SAP and Oracle acknowledge the problem
and are rapidly acquiring cloud companies. The
problem is that revenues and profits could fall
significantly during the transition to cloud.
NetSuite, WorkDay,
Salesforce
IBM, SAP, Oracle
Open source OpenStack is the open cloud standard
used by Rackspace, HP, Dell and others.
Proprietary cloud platforms include Citrix’s
CloudStack, VMware’s vCloud, Amazon’s
AWS and Microsoft’s Azure.
Barriers to entry for open source cloud
platforms are low, pushing margins down.
Proprietary cloud services providers stand the
best chance of making big money.
Amazon, Citrix,
VMware, Microsoft,
EMC, NetApp
Rackspace, Equinix,
HP, Dell
Software defined
networks
Software defined networking (SDN) is an
emerging architecture for data networks.
SDNs allow software to control the
network path along which data packets
flow. In theory, this would reduce network
hardware to commodity boxes.
New standards like the Open Flow protocol are
gaining traction and may soon take SDNs from
the abstract into the mainstream. SDNs will
speed up the transition to the cloud by making
cloud services work faster and more efficiently.
The downside is that security risk rises.
Google, VMware Cisco, Oracle, IBM,
Akamai, Juniper
Networks
Wi-Fi offloading Mobile networks are increasingly off-
loading heavy data users onto Wi-Fi.
As Wi-Fi becomes a core part of corporate IT
world, Wi-Fi infrastructure firms will benefit.
Aruba Networks

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Outlook
In the short term, the big trends likely to impact investors in communications infrastructure stocks are the cloud and, particularly,
virtualisation. Microsoft, VMware and Citrix are fighting it out in the virtualization market. Meanwhile, Oracle, IBM and SAP are fighting
cloud-only ERP platforms like Salesforce, NetSuite and WorkDay by making cloud acquisitions of their own. The incumbents’ legacy
product base of expensive, difficult-to-implement, semi-redundant ERP systems turn customers away.
In the longer term, software defined networks (SDNs) could have a far more profound impact than the cloud. Just as internet protocol (IP)
standards made proprietary telecom equipment makers like Lucent and Nortel less relevant, so SDNs may turn today’s leading IP
networking equipment makers – like Cisco and Juniper Networks – into commodity box makers, with all the power to control data flows
resting with software developers, using standards like the Open Flow protocol as the communication medium between these boxes. The
winners will be the communications infrastructure software companies who will be able to program the networking equipment boxes to
carry their traffic efficiently without having to invest in expensive hardware boxes.
Infrastructure software and cloud: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
0%
100%
200%
300%
400%
500%
600%
700%
800%
2008 2009 2010 2011 2012 2013

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Security Software
 Dominant theme: Our interviews with executives in the insurance industry confirm that board level of awareness,
understanding and accountability for cyber-threats is low. As a result, corporations have long underinvested in cyber-security
assets.
 Outlook: When a respected CEO gets fired for mishandling cyber-risk market sentiment will change: boards will be forced to
increase expenditure on cyber-security services, lifting earnings prospects for the cyber-security industry.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Corporate
awareness
levels
Several countries have launched national
security initiatives to raise cyber-security
awareness at board level, with banks and
critical infrastructure seen as the most “at
risk” sectors.
Until a high-profile CEO of a multinational
company gets fired for presiding over a large-
scale cyber-attack, boards will not take cyber-
security seriously. When they finally wake up,
demand for cyber-security services will climb.
Check Point,
Sourcefire,
Symantec, Qihoo,
Verint, Websense
Fortinet, ProofPoint,
Banks, stock
exchanges, telecom
operators, power
grids
Software
ecosystems
Apple pioneered the internet ecosystem.
Now IBM, Oracle and SAP are building
their own software ecosystems.
Larger software houses will strengthen their
cyber-security capability, especially in network
security and enterprise firewalls.
Targets: Fortinet,
ProofPoint, Palo Alto,
Sourcefire, Verint
Acquirers: IBM, SAP,
Oracle, Salesforce,
Apple, Google
Trade wars Telecom equipment is the first line of
defense against a cyber-attack. Telecom
equipment companies may soon be
viewed as strategic military assets.
Trade wars may break out. The west may
become more protectionist when awarding
contracts for telecom equipment, cyber-security,
IT services and semiconductors.
Alcatel-Lucent, Cisco,
Ericsson, Intel
Huawei (unlisted),
ZTE
Credit fraud Financial fraud is on the rise. Criminal
gangs are targeting banks to access credit
or loans on the back of stolen identities via
the internet.
As online personal data balloons, credit checks
will involve more complex Big Data algorithms.
Demand for credit analysis products will rise as
a cyber-fraud prevention measure.
Experian, Equifax
Regulation Regulators may force greater corporate
disclosure of cyber-related issues (e.g.
cost to shareholders) for listed companies.
This will raise security awareness of investors,
ramping up demand for cyber-security
companies’ products.
Palo Alto, Qihoo 360,
Symantec, Trend
Micro, Websense

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Outlook
Recent technology trends have triggered new cyber-security risks for corporations: the bring-your-own-device (BYOD) trend coupled with
the fact that mobile workers travel all over the globe mean that corporate IT managers have to protect corporate data across more IT
platforms at a time when budgets are tight. The explosion in personal data online makes it easier for criminal gangs to steal identities and
fraudulently access bank accounts. The proliferation of third party apps has led to a dramatic rise in reported malware. In 2012, the number
of malicious web links grew by almost 600% worldwide, according to Websense’s 2013 Threat Report.
As IT infrastructure and software move to the cloud, physical security gets replaced by cyber-security but a worldwide skills shortage
means that many IT managers are out of their depth when it comes to cyber security. In the longer term, the move to software defined
networks is the most worrying trend: as network hardware becomes a commodity, cyber-security risk – which is currently contained in the
top four layers of the 7-layer OSI protocol stack (applications, presentation, session, transport) – spreads to the bottom three layers
(network, data, physical) as well. Boards aren’t taking cyber-security seriously. The catalyst is just around the corner. When a respected
CEO gets fired for being asleep at the wheel during a cyber-attack, boards will be forced to spend more on cyber-security and market
sentiment will change in favour of the cyber-security sector.
Cyber-security software: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
0%
100%
200%
300%
400%
500%
600%
700%
Ahnlab Check Point
Software
F5 Networks F‐Secure Gemalto Nice Systems Sourcefire Symantec Trend Micro Verint Systems Verisign Websense
2008 2009 2010 2011 2012 2013

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Video Game Software
 Dominant theme: Mobile and online games developers are losing competitive power to the big apps platforms like Apple and
the big social media platforms like Facebook and Tencent. Longer term, HTML5 technology may reverse that trend.
 Outlook: The shift from console games to online and mobile games is happening faster than many expected. Mobile-first
games developers like Gameloft and Gamevil could benefit from being in the right space at the right time.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
The platform
effect
Video games are moving away from
consoles towards apps platforms like iOS
or Android and social media platforms like
Facebook or Tencent.
The big games developers are being marginalized
as their distribution becomes dependent on the
app platforms of the larger internet ecosystems.
Apple’s new game controller will hasten this trend.
Amazon, Apple,
DeNA, Google, Gree,
Facebook, Tencent
Perfect World,
Zynga, Activision
Blizzard, EA,
Ubisoft, Zynga
HTML5 Native apps offer better user experience,
but are expensive to maintain across
multiple platforms. HTML5 technology
allows developers to build web-based
apps that run on any smart device using a
standard web browser.
If HTML5 technology supersedes native apps as
the developers’ platform of choice, it will threaten
the stickiness of Apple and Google’s app
ecosystems, loosening their respective walled
gardens. Competitive power would then shift back
to the video game developers.
Gameloft, Gamevil,
Activision, EA,
Netease, Ubisoft,
NCsoft
Apple, Google,
Microsoft
Motion sensors Motion sensors that have been developed
for gaming consoles could generate
lucrative revenues in other industries.
Microsoft Kinect and Leap Motion are the market
leading motion sensors. They could provide the
critical component for robots and smart TVs.
Microsoft,
Leap Motion
Nintendo
Smart TV
strategy
Microsoft and Sony launch new games
consoles this year – Xbox One and PS4.
Both have integrated their games console
with their smart TV offerings.
There is no clear winner in the internet TV market.
Apple has iTunes, Google has Android, Microsoft
and Sony have their new consoles and several
start-ups like Fanhattan are eyeing the space.
Too early to say
Freemium model
failing
In the freemium model, games are given
away for free and the games developer
makes money by selling virtual goods to
the user, often via in-app purchases.
The biggest market for freemium games is China’s
$8bn online games market. But the model is
failing. The safest way to play the Chinese gaming
market is via the platforms, not the developers.
Tencent Changyou, Perfect
World, Giant
Interactive

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Outlook
Sales of console games worldwide peaked at $32bn in 2008, according to PwC. By end 2012 they had fallen 15% to $27bn. PwC expect
console game sales to start rising again, but we believe they will continue to decline. The online gaming market was worth $19.5bn last
year, up 80% on 2008, and is expected to increase another 60% by 2016 – China accounts for 37% of this market. The mobile games
market was worth $10bn last year, up 73% on 2008, and expected to increase another 44% by 2016 – Korea, Japan and China account for
22%, 17% and 10% respectively of this market.
Whilst the online and mobile gaming sectors are growing, a sizeable chunk of the industry’s profits are likely to gravitate towards the big
platforms – Apple, Google, Facebook and Tencent. Meanwhile, as Microsoft, Sony and Nintendo see their customers move towards
cheaper gaming platforms, they are working hard to adapt their games consoles to become the digital hub for home entertainment, though
with limited success so far. For now, however, the mobile games developers like Gameloft and Gamevil seem to be in the sweet spot.
Gaming software: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
0%
100%
200%
300%
400%
500%
600%
2008 2009 2010 2011 2012 2013

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IT Services
 Dominant theme: The IT services industry’s business model is changing: the typical customer is now the Chief Marketing
Officer rather than the Chief Technology Officer; its key partnerships are shifting from ERP vendors to cloud services vendors;
most importantly, its future as a middleman in a world where cheap, cloud-based services can be bought directly is threatened.
 Outlook: The IT services sector faces significant downside risk.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Big Data Traditionally, databases and business
intelligence tools were purchased
separately. Now they are being combined
into “Big Data appliances”.
To survive, IT services companies need to
metamorphosise into one-stop-shop data-
management houses because soon they will
compete with internet companies like Amazon
and Google who deal with Big Data for a living.
Amazon, IBM,
Oracle, Google,
Facebook, SAP,
Microsoft
Accenture, Atos,
Capgemini, Infosys,
TCS, Tieto, WIPRO,
Apple, HP, Dell,
Digital Marketing Increasingly, it is the marketing executives
of multinationals rather than IT executives
that are becoming the key accounts of IT
services companies.
Advertising and brand marketing – once a
people-oriented industry – is, in the digital age,
very much an algorithm-based IT service.
Acxiom, Marketo,
Constant Contact,
ValueClick,
Responsys
Cloud services Businesses are learning to cut IT costs by
shifting in-house Capex to outsourced
Opex in the cloud.
IT services companies will change their
business partners from traditional ERP giants
like SAP to cloud companies like EMC.
Amazon, EMC,
NetSuite, Red Hat,
Salesforce, Teradata
Accenture, Atos,
Capgemini, IBM, TCS
Tieto, Infosys, Wipro
Open source
databases
Traditional relational databases are not
capable of handling unstructured data.
Many next generation database platforms
– like Hadoop – are open source.
Oracle, IBM and Microsoft – the three largest
SQL database manufacturers – have the most
to lose and are belatedly embracing Hadoop.
The danger is that open source platforms drag
the entire industry’s margins down.
Red Hat HP, Oracle, IBM,
Microsoft, Progress
Software, SAP
Software
ecosystems
IT services companies risk being
disintermediated by the big software
ecosystems just as book shops have been
disintermediated by Amazon.
As a result, some will transform themselves into
software ecosystems. Niche cloud-based
application software and cyber-security
companies could become their bid targets.
Citrix, Fortinet,
NetApp, Progress
Software, Red Hat,
SGI, Informatica

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Outlook
The IT services sector is in a digital transition phase that, in many ways, resembles the retail sector. It risks becoming irrelevant as internet
services companies cut out the middle man and offer IT services – storage, data analytics, ERP systems – directly via the cloud. Ironically,
Amazon – who destroyed much of the retail sector – is now taking direct aim at the IT services industry with its enterprise cloud offering.
Revenue models for IT services companies are changing. One-off fees for expensive, large-scale ERP systems implementations are being
replaced by monthly subscription fees for Infrastructure-as-a-service (IAAS). That could reduce revenues in the short term and raise
upfront costs (because IT services companies would have to invest in their own infrastructure). Oracle’s partnership with Salesforce,
announced last month, is an admission that Salesforce’s cloud-based strategy is the future.
On 12 March 2013, we issued a Sell note on the Indian IT services sector. Since then there have been profit warnings not only from
Infosys but right across the industry from IBM, SAP, Oracle, and Tieto. We may be witnessing the start of a painful industry restructuring.
IT Services: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
2008 2009 2010 2011 2012 2013

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Part III: Internet & Media

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Internet & Media: Executive Summary
Here is a summary of our dominant themes for the Internet and Media sectors over the next 12 months:
Internet (e-commerce)
Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
Internet (Social Media)
Crowd-funding is the next big thing in social media. The growth potential for this market is almost limitless as it expands to include
corporate loans, mortgages, credit cards and insurance services.
Traditional advertising
As advertising expenditure moves away from TV towards mobile, advertisers’ fortunes will be tied ever more closely to the technology
platforms that control internet TV and mobile advertising. With respect to internet TV, no platform has emerged as the clear winner yet. But
with respect to mobile advertising, Google already commands over half the global market.
Film & Television
Broadcasters are resisting the integration of live TV into the internet TV offerings of Apple, Google and Microsoft. Their hope is that an
independent platform – like FanTV – will emerge that will give them more control. But in the short term, the price of popular content is likely
to be bid up as technology companies keen to get into the internet TV hardware game realise that success is as much to do with access to
licenced content as it is to do with great technology.
Traditional Publishing
Like the music industry before it, the publishing sector is being destroyed by digitisation. Whilst DMGT has shown how smart management
can turn around an incumbent publisher in a declining industry, the overall outlook for publishers remains bleak.

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Internet (e-commerce)
 Dominant theme: Maps and mobile payments are the new battlegrounds in the war for supremacy of the mobile internet.
 Outlook: A host of new mobile ecosystems are coming onto the market, threatening the dominance of Apple and Google.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Map wars Knowing where your customer is located
and which direction he’s heading is critical
to selling him something.
Controlling the maps function is key to
controlling mobile commerce. Google Maps
(now including Wave) is the clear leader,
followed by Nokia’s Navteq and Tomtom.
Google, Nokia,
Tomtom
Apple, AOL, Baidu,
Microsoft, Yahoo,
Facebook, Tencent
Mobile payments Cloud-based solutions are displacing Near
Field Communications (NFC) as the likely
global mobile payments standard. Google
Wallet is the most prominent NFC failure.
Square and PayPal lead in the West. Alibaba
and Tencent in China. Apple and Facebook
have yet to enter the race. Several outliers like
Amazon and Groupon remain in the game.
eBay, Square,
Groupon, Alibaba,
Tencent, Monitise
Amazon, Apple,
Google, Facebook,
VeriFone
Mobile
ecosystems
Now that we know investing in big internet
ecosystems are the best way to make
money, new entrants are piling in, both by
way of new mobile web browsers and new
mobile operating systems.
For Apple and Google this may be in the price.
But for emerging contenders – Alibaba,
Amazon, Baidu, Huawei, Jolla, Microsoft,
Mozilla, Tencent, Tizen, Twitter, Ubuntu,
UCweb, Yahoo – there may still be upside.
Apple, Google Alibaba, Baidu,
Huawei, Jolla,
Microsoft, Mozilla,
Tencent, Easou,
Ubuntu, UCweb
Tax avoidance Internet services companies tend to pay
considerably less tax than their peers in
other industries. The political will to
address this anomaly is strengthening
worldwide.
Authorities everywhere are attempting to close
down tax loopholes. If they succeed, effective
tax rates for internet companies will rise and net
earnings will fall.
Amazon, Apple,
eBay, Google,
Facebook, Renren
Internet of
Things
The “internet of things” refers to the
identification of objects via sensors in
order to monitor them or share information
about them via the web.
New connected devices such as Google Glass
will provide innovative ways to collect more data
about our digital lives, enabling internet
companies to target more services to us.
Google, Facebook,
Apple, Microsoft,
Huawei

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Outlook
Global B2C e-commerce sales hit $1.04tn in 2012, up 22% on 2011, according to eMarketer. In 2013, they are expected to grow by 17% to
$1.22tn. The US accounts for 32%, China 14% and Japan 10% of the global total. But China is catching up fast. Whilst the US and
Japanese markets are expected to grow this year by 12% and 7% respectively, China’s will grow by 65%.
In our last TMT Trends report (CM Research, 24 September 2012) we concluded that profits would gravitate towards the leading internet
ecosystems – Apple, Amazon and Google in the west and Baidu, Tencent and Alibaba (whenever it listed) in China. Now the story has
moved on. There are far more entrants offering competing internet ecosystems and there is certainly room for five or six ecosystems to co-
exist in each market. Investors should watch Huawei, Jolla, Microsoft, Mozilla, Opera, Qihoo 360, Tizen, Ubuntu, UCweb and Yahoo.
Internet (e-commerce): Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
100%
300%
500%
700%
900%
1100%
1300%
1500%
2008 2009 2010 2011 2012 2013

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Internet (social media)
 Dominant theme: Crowd-funding is the next big thing in social media.
 Outlook: The fortunes of social media companies have been mixed. With so many unproven business models lining up for
IPO, investors should do their homework before investing.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Crowd-funding With credit markets seizing up over the
last five years, crowd-funding sites are
filling the gap.
Growth potential for this market is almost
limitless as it expands to corporate loans,
mortgages, credit cards and insurance services.
Kickstarter,
Lending club,
Wonga
Banks and insurance
companies
New social
sharing models
People are sharing more things online,
especially in Asia. In this model, everyone
wins: I help you; you help me; we help
others; and the social network profits.
Waze is an example of this type of social
sharing model where everyone’s a winner. New
sharing models, especially in mobile, will
threaten incumbent social networks.
Waze, Yelp,
TripAdvisor,
Pinterest, Instagram,
Tumblr, Foursquare
Facebook, Linked In,
Renren, Sina, Gree,
DeNa
Wearable
connected
devices
Social networks make money by collecting
personal data. Wearable devices such as
Google Glass or fitness tracking watches
will help them collect more personal data.
This is where social media truly converges with
consumer electronics. Wearable devices will be
designed specifically to collect personal data.
Apple and Google are best positioned to do this.
Apple, Google Microsoft, Yahoo,
Facebook
Internet TV Internet TV is the natural follow-on
advertising market for many social media
companies.
Competition in the internet TV market will be
intense and thus far no social network has
come up with a credible business model for TV.
Apple, Google,
Microsoft, Fanhattan,
Roku, Boxee
Facebook, Twitter,
Yahoo, Tencent,
Sina, Renren
Virtual
currencies
Social networks are developing their own
virtual currencies as well as investing in
mobile payments technology. Both
strategies will raise barriers to entry.
A virtual currency – if it reaches critical mass –
helps to convey a sense of widespread trust in
an ecosystem, reducing customer churn.
Amazon Coins is the latest. Expect many more.
Alibaba, Amazon,
eBay, Facebook,
Monitise, Square,
Tencent, Bitcoin
Data privacy The EU is threatening the future
profitability of leading US technology
companies by steadfastly sticking to its
principles on data privacy.
If the EU refuses to back down on data privacy
issues, the US social media sector will be the
worst hit, with ad revenues lower and data
collection costs higher.
Apple, Google,
Facebook, Twitter,
Groupon, Microsoft,
Linked In

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Outlook
A year ago, many analysts – including us – expressed concern that the big social networks would have trouble moving to mobile. Smaller
screens, fewer keyboard strokes and shorter attention spans made it harder to monetize mobile social networkers. By Q1 2013, those
concerns had evaporated as Facebook and Google both saw mobile ad revenues rise steeply. Facebook reported that 30% of its revenue
base that quarter had come from mobile.
But now we have bigger concerns.
The world has 2.8bn internet users, half of whom already use social media, according to eMarketer. The next billion internet users will likely
be poorer, less literate and live in conflict zones. Most will use social media and most will do so via mobile. What these users will want of
social networks will differ markedly from the wants of their current user base. The nature of social networks is such that they are constantly
under threat from the next big thing. Current threats include virtual currencies, crowd-funding, wearable devices, internet TV and, of course,
regulators. We expect high volatility over the next 12 months in the social media sector as these trends unfold, taking some of the
established leaders by surprise.
Social networks: Cumulative 1½-year share price performance
Note: Social networks simply haven’t been around for long enough for us to show 5½ year share price performance data
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the year-to-date share price performance for a selection of large cap stocks in this sector from 1 January 2012 to 30 June 2013.
Where companies have floated during this 1½ year period, the share price performance is shown since the IPO date.
‐100%
‐50%
0%
50%
100%
150%
200%
250%
Baidu Demand
Media
DeNa Facebook Google Gree Groupon Linkedin Mail.Ru Mixi Netease NHN Renren Shutterfly Sina Tencent TripAdvisor Yahoo! Youku
Tudou
2012 2013

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Advertising
 Dominant theme: As advertising expenditure moves away from TV towards mobile, advertisers’ fortunes will be tied ever
more closely to the technology platforms that control internet TV and mobile advertising. With respect to internet TV, a winning
platform has not yet emerged. But with respect to mobile advertising, Google already commands over half the global market.
 Outlook: Traditional advertisers probably have about a year before disruptive forces in the TV advertising market hit them.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Digital marketing The range of direct digital threats is
expanding. Cloud-based marketing
software from the likes of Marketo and
Contact Contact is one; so are price
comparison sites like moneysupermarket,
social shopping sites like Groupon, and
content generators like Demand Media.
The traditional advertisers have been quick to
acquire digital marketing agencies. Most, like
WPP and Havas, now generate at least 30% of
their revenues from digital advertising. To stay
ahead of the game, they are likely to acquire
more.
Targets: Marketo,
Constant Contact
Demand Media
Groupon, inContact
Millennial Media
Moneysupermarket
Responsys
Acquirers: Dentsu,
Havas, Interpublic,
Publicis, WPP
Internet TV TV advertising still accounts for 35% of the
global advertising market. It remains the
core market for traditional advertisers.
With the advent of smart TVs, broadcasting will
switch rapidly to narrowcasting and advertisers
could see their core TV market fall off a cliff.
Apple, Baidu, NHN,
Google, Microsoft,
Facebook
Dentsu, Havas,
Interpublic, Omnicom,
Publicis, WPP
Software
ecosystems
Traditional advertisers are not just
competing with digital marketing agencies.
They are competing with IT companies
who are busy building software
ecosystems which include advertising
modules as part of the package...
... Salesforce’s acquisition of ExactTarget is a
case in point. IT services companies are
integrating their corporate software offerings.
Digital advertising and marketing services are
now being bundled with other enterprise
software applications, including ERP systems.
Oracle, SAP, IBM,
Microsoft
Dentsu, Havas,
Interpublic, Omnicom,
Publicis, WPP
Mobile Internet Mobile internet ad revenues are expected
to quadruple worldwide from $4bn in 2011
to $16bn in 2013. Google should account
for 55% of this market in 2013, Facebook
12% and Twitter 2%.
As traditional advertisers’ core end markets
move from TV to mobile, their fortunes will be
tied even closer to Google. If Google does well
in the internet TV space too it could make large
parts of the media buying industry redundant.
Google, Facebook,
Twitter, Millennial
Media
Media buying
agencies

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Outlook
For the last decade a third of advertising revenues have come from TV broadcasting. In 2012, the TV advertising market was worth $200m,
double the internet advertising market. If you believe the TV industry is about to be hit by a new wave of disruptive technologies
spearheaded by Apple and Google, then expect the advertising industry to undergo a bumpy ride. Apple, Google and Microsoft will almost
certainly integrate their existing mobile operating systems and ad platforms with their forthcoming internet TV offerings. Without regulatory
intervention, they will suck the profits out of the TV advertising industry as they have done in so many other “old media” industries. Simply
generating a third of their revenues from digital marketing services will not be enough to secure WPP, Havas and Publicis’ future because
those digital market services will be sold to a duopoly of advertising platforms who will dictate pricing terms.
More broadly, it is interesting to note from the chart below that many “new media” digital marketing companies have not done much better
than the traditional media advertising agencies they have supposedly usurped. .
Advertising: Cumulative 5½ year share price performance
Old media advertisers New media advertisers
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
250%
2008 2009 2010 2011 2012 2013

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Film & Television
 Dominant theme: Broadcasters are resisting the integration of live TV into the internet TV offerings of Apple, Google and
Microsoft. Their hope is that an independent platform – like FanTV – will emerge that gives them more control.
 Outlook: In the short term, the price of popular content is likely to be bid up as technology companies keen to get into the
internet TV hardware game realise that success is as much to do with access to licenced content as it is to do with great
technology.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Third screens Third screens involve seamless transfer of
data between 3 screens: a smartphone,
tablet and TV. Second and third screens
work best when the same operating
system is used across all three screens
(e.g. Microsoft SmartGlass with Xbox
One).
Broadcasters will not integrate live TV content
with Apple, Google or Microsoft’s offerings for
fear of losing control. That’s why their versions
of internet TV provide a disjointed user
experience. Expect to see a host of new
streaming set-top boxes with “independent”
platforms that play to content owners’ fears over
a potential Apple/Google internet TV duopoly.
Fanhattan, Apple,
Google, Microsoft, LG
Cisco, Ericsson, Intel,
Pace, TiVo, Roku,
Netflix, Amazon,
Samsung, LG, Sony
HTML 5 Native apps tied to an operating system
like iOS or Android make the content
provider beholden to Apple or Google, But
web-based apps using HTML 5
technology allow them to retain control.
TV channels will turn into web-based apps. This
will allow film and TV content providers to keep
their own brand identity, user interface (EPG)
and revenue stream, without having to pay a cut
to Apple or Google.
BSkyB, CBS, Disney,
Time Warner, Zee
Viacom, Comcast,
News Corp
Bidding war for
content
It’s only worth buying an internet TV if you
can access the range of content you want,
both on-demand content and live TV. As
more technology players move into the
market for next generation TV software
they will have to sign a string of content
deals, bidding up the price of content in
the process.
Technology companies are queuing up to
license popular content to ensure their TV
offerings are attractive to customers. They
include internet companies (Apple and Google);
games console makers (Sony and Microsoft),
(telecom equipment makers (Ericsson and
Cisco), streaming services (Netflix and Amazon)
and telecom operators (BT and Verizon).
BSkyB, CBS,
Comcast, Disney,
Discovery, Lions
Gate, News Corp,
Time Warner,
Viacom, Zee

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Outlook
The clumsy “smart TVs” sold today are just the precursor for what is to come. True internet TV will allow the customer to access any
content – live sports, broadcast TV, catch-up TV or on-demand programming – through a single electronic programming guide (EPG)
without the latency one gets today. But we are still in the very early stages of this technology cycle – streamed TV content still represents
less than 2% of the pay-TV market.
Internet TV offers big prizes. At $200bn, the TV advertising market is still double the size of the internet advertising market. Soon your
smartphone or tablet will be the second or third screen used to control your television. Apple, Google and Microsoft are well positioned to
win in this market. Several other players – Cisco, Intel, Ericsson, Sony, Samsung, LG, BT, Netflix, Facebook and Amazon – are lining up to
play too. Start-ups like Zeebox and Fanhattan offer platforms that are independent of Apple or Google and so appeal to the broadcasters.
But their products will never sell in the high street unless they include access to a wide range of content. So in the short term owners of
popular content will remain in the driving seat.
Film and Television: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
250%
300%
2008 2009 2010 2011 2012 2013

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Publishing
 Dominant theme: Like the music industry before it, the publishing industry finds itself outmanoeuvred by the internet.
 Outlook: Whilst DMGT has shown how smart management can turn around an incumbent in a declining industry, the overall
outlook for publishers remains bleak.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Business
turnaround
models
Print revenues are falling at a rate of 20%
per annum for some publishers. But digital
revenues are not rising fast enough to
counter this.
DMGT has shown that publishers with a
focused strategy can turn their businesses
around by moving away from print into events,
digital media and financial news.
DMGT, Pearson Most newspaper and
magazine publishers
Google news tax In March 2013, Germany’s parliament
passed a ‘Google tax’ law, forcing Google
to pay royalties to newspaper publishers
for providing excerpts of their news
articles in its search results.
Germany’s law may backfire on German
publishers by referring less traffic to their
websites from Google searches. But more
countries may become emboldened to start
levying usage taxes on US internet companies.
Google
Google’s digital
library
Google is creating the world’s largest
digital books library, with over 25m books
already scanned. The problem is that it
faces multiple copyright-infringement
claims from authors who did not give their
permission to Google to publish their
copyrighted works.
Copyright cases are continuing against Google
in the US and other countries. Lawmakers are
still re-writing copyright law. If Google wins
these cases, then authors and publishers will
see assets they thought they owned being
legally expropriated by Google under “fair use”
provisions.
Google Hachette (Lagardere),
HarperCollins (News Corp),
Macmillan (Holtzbrinck),
Simon & Schuster (CBS),
Penguin (Pearson)
Apple’s eBook
anti-trust case
The US Dept. of Justice has taken Apple
to court over allegations that it conspired
with five publishers to raise e-book prices.
All the publishers involved have now
settled, but Apple has chosen to fight the
case.
If Apple loses the case, its “agency” model
(which allows publishers to set the price) fails
and Amazon’s “wholesale” model (which allows
Amazon to set the price) wins. The price of
books will plummet, spelling bad news for all
book publishers.
Amazon Apple
Hachette (Lagardere),
HarperCollins (News Corp),
Macmillan (Holtzbrinck),
Simon & Schuster (CBS),
Penguin (Pearson)

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Outlook
The publishing sector is in the thralls of a downward spiral. Take the global newspaper market. It has shrunk by 14% since 2005 because
of the internet. Yet by end 2012, the industry had only managed to convert 0.5% of its circulation revenues to digital format. Magazine
publishing tells a similar story. With books, things are even worse. In the US and Europe over 15% of book sales are digital and 90% of the
market is cornered by Amazon. Moreover, the big five book publishers have all reached a settlement with the US Department of Justice on
a price fixing scam originally engineered by Apple.
Daily Mail & General Trust and Pearson stand out as two companies that have braved this new world and come out on top. Each has a
focused digital strategy and each is leaving its traditional print publishing businesses to die. But they are exceptions to the rule. For now,
we expect more carnage in the publishing sector.
Publishing: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
2008 2009 2010 2011 2012 2013

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Part IV: Telecoms

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Telecom Services: Executive Summary
Here is a summary of our dominant themes for the Telecom Services sector over the next 12 months:
Cable and satellite operators
Many cable and satellite operators realised several years ago that they would become dumb pipes unless they built integrated ecosystems
that packaged in-house content with their distribution platform. But the missing element from most cable ecosystems is software. Industry
outsiders have long been scheming to exploit this weakness and invade the pay-TV market by developing internet TV software that is as
user friendly as current electronic programming guides (EPGs). So far the main candidates – Apple, Google, Microsoft and Sony – have
failed to impress customers with their set-top boxes. FanTV from Fanhattan is the latest in a line of new entrants. But one day soon an
enterprising technology company will crack this last bastion of traditional media.
Telecom operators
The Internet of Things, mobile payments, Big Data, software defined networks, internet TV and cloud services all present potential new
revenue streams for operators as voice, messaging and internet access revenues decline. Strategies differ from operator to operator, but
three factors outside their control are likely to influence their earnings prospects significantly. The first is the level of competition: a lack of
competition in the US, following a decade of mergers and acquisitions, has helped AT&T and Verizon raise tariffs, especially in the wireless
space. The second is politics: China’s state-controlled operators may soon be given a nod and a wink by the Communist Party to clobber
privately owned internet companies like Tencent and Alibaba with higher charges for carrying their traffic. China Mobile is already
rumoured to be negotiating a deal with Tencent for its WeChat messaging service. The third is the scope of regulation: telecom operators
are the only segment of the internet value chain to be heavily regulated. That has held broadband investment levels down, especially in
Europe. There is a growing view all over the world that regulation of the internet needs to be overhauled. Many countries, for example, are
eager to ensure US internet companies pay more local taxes. There is a small chance that telecom operators could benefit from such an
overhaul.

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Cable & Satellite Operators
 Dominant theme: The optimum business model is one that combines in-house content with in-house distribution. But the
weakness in these cable and satellite ecosystems is the lack of a common software platform.
 Outlook: Apple, Google and others are using software to enter these tightly guarded ecosystems. One day they will succeed.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Content-filled
walled gardens
Many cable and satellite operators
realized they would become dumb pipes
unless they built integrated ecosystems
which packaged in-house content with
their distribution platform.
Cable operators will continue to acquire content
assets to strengthen their walled gardens.
Simultaneously, internet companies like Google
are commissioning their own original content.
Film and TV companies will benefit.
BSkyB, Comcast
Software The missing bit of most cable ecosystems
is software. If sufficiently user-friendly,
internet TV software developed by
industry outsiders may cause cracks in
Cable-TV business models.
As user preferences shift from broadcasting to
narrowcasting, cable operators are adapting
their set-top boxes accordingly. Whilst Apple
and Google have thus far failed to conquer TV,
it is only a matter of time before someone does.
Apple, Google,
Microsoft, Sony,
Samsung, Fanhattan
Most cable operators
Dual screening TV viewers are increasingly dual-
screening: interacting with their TV via
their PC or mobile device, talking about
live TV content on social media, or using
their mobile device as a remote control.
Cable and satellite operators are trying to
control the “second screen” by providing
subscribers free mobile TV or interactive apps
that communicate with their TV. But loss of
control of this second screen is a real threat.
Amazon, Apple,
Facebook, Google,
Netflix, Zeebox,
Fanhattan
Most cable operators
IPTV Telecom operators have found it difficult to
sell IPTV to cable customers. By end
2012, Korea Telecom was one of the most
successful with 6m IPTV subscribers
(almost a quarter of households). But
Verizon FiOS TV had just 4.7m; BT Vision
just 0.7m and SingTel mio TV just 0.4m.
Leading IPTV players in mature Asian
broadband markets like Hong Kong, Korea,
Singapore and Taiwan have learned that it is
difficult to displace incumbent pay-TV operators
without offering a larger content library. Until
operators acquire content on a large scale, they
are unlikely to pose a significant threat.
BT, PCCW,
Chunghwa Telecom,
SingTel, Korea
Telecom, Verizon

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Outlook
Many cable and satellite operators realised several years ago that they would become dumb pipes unless they built integrated ecosystems
that packaged in-house content with their distribution platform. But the missing element from most cable ecosystems is software. Industry
outsiders are looking to exploit this weakness and invade the pay-TV market by developing internet TV software that is as user friendly as
current electronic programming guides (EPGs).
Technology companies like Apple and Google are further down the line in terms of developing TV operating systems. But the missing
element of their internet ecosystems is content, especially live TV content.
Both industries can help each other fill in the gaps in their business model, but neither is likely to let the other into their domain. For cable
and satellite operators, the best strategy appears to be to acquire technology platforms built by start-ups like Fanhattan and stream their
content to connected TVs via web-based apps. Comcast and BskyB are investing in such technologies. The cable and satellite operators
have a hell of a fight ahead of them, but they are more prepared than the telecom operators ever were and some of them might even win.
Cable & satellite operators: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
2008 2009 2010 2011 2012 2013

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Telecom Operators
 Dominant theme: The Internet of Things, mobile payments, Big Data, software defined networks, internet TV and cloud
services all present potential new revenue streams for operators as voice, messaging and internet access revenues decline.
 Outlook: As long as operators sit on the regulated side of the internet, they are unlikely to substantially increase profits.
Theme What’s happening? Our conclusions for the sector Leaders Laggards
Internet of
Things
More and more objects are being
connected to the internet – from heating
systems to engine parts – to enable them
to be controlled centrally and managed
more efficiently.
Operators have an opportunity not just to make
money from carrying machine-to-machine
(M2M) traffic but by creating a set of cloud-
based enterprise software services and data
centers built around the Internet of Things.
NTT, KT, China
Mobile, KPN,
Telefonica
Regulation A geopolitical fault line is developing that
pits emerging markets against the USA.
Outside the US, the internet is becoming
more regulated. But this means different
things in different countries. In the West,
the big regulatory issues are net neutrality,
price capping and data privacy. In
developing markets, it tends to mean
political censorship of the internet.
In Europe and the US operators are lobbying
regulators to relax net neutrality rules on the
grounds that they hold back broadband
investment. In China, state-controlled operators
are attempting to bully privately owned internet
companies to pay more for the traffic they send
through their pipes. In Korea, operators want
broadcasting rules relaxed to allow operators to
compete.
Situation fluid:
Regulators all over
the world are
debating net
neutrality, data
privacy, internet
censorship
Mobile payments Operators failed to profit from the first
round of the mobile internet. Many see
mobile payments as their second chance
to ride the mobile commerce wave.
Operators are grouping together regionally (e.g.
ISIS in the US and Weve in the UK). But they
are competing with more nimble technology
companies and will probably lose.
Apple, Alibaba, eBay,
Google, Square,
Tencent
Most telecom
operators
Software defined
networks (SDNs)
SDNs transfer the intelligence currently
held in a network equipment box to a
software layer, enabling the network to be
centrally controlled.
SDNs allow operators to manage networks
more efficiently and offer new services. But
operators risk losing control of their network to
industry outsiders.
Too early to say

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Outlook
Voice and messaging revenues have peaked for many operators. Indeed, instant messaging apps like WhatsApp – which now has 250m
users – is destroying operators’ messaging revenues faster than anyone expected only a year ago. Internet access services are becoming
less profitable because data traffic is rising at a rate of 100% per annum prompting higher capex, but competition and regulatory controls
make it difficult for operators to raise prices in line with higher investment costs. If operators do not find new revenue streams soon, their
profitability levels will decline rapidly, especially in mobile.
Operator strategies on how to combat this decline differ: BT is trying to move into the TV market with its live sports channels. AT&T,
Verizon, PCCW and many others are doing the same. SK Telecom has been the most active operator in the world in selling OTT services
such as mobile TV and online games over its advanced LTE network. Telefonica, Verizon and China Telecom are moving into cloud
services. China Mobile is investing in a platform supporting the Internet of Things but is also using its political clout to force internet
companies like Tencent (whose WeChat service generates a lot of network traffic) to pay more.
North American telecom operators: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐80%
‐60%
‐40%
‐20%
0%
20%
40%
60%
AT&T CenturyLink Clearwire Frontier Comms Level 3 Rogers Comms Sprint Nextel Telus US Cellular Verizon Windstream
2008 2009 2010 2011 2012 2013

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European telecom operators: Cumulative 5½ year share price performance
Asian telecom operators: Cumulative 5½ year share price performance
Source: Company data, FT, Bloomberg, S&P Capital IQ, CM Research
Bars show the cumulative share price performance for a selection of large cap stocks in this sector from 1 January 2008 to the periods ending 31 December 2008, 2009, 2010, 2011, 2012 and 30 June 2013.
‐100%
‐50%
0%
50%
100%
150%
200%
2008 2009 2010 2011 2012 2013
‐100%
‐50%
0%
50%
100%
150%
200%
2008 2009 2010 2011 2012 2013

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Appendix 1: M&A trends
Summary of recent mergers and acquisitions deals in the sector. This gives us an idea of which sectors and themes are hot.
Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history
Q2
2013
Q1
2013
Q4
2012
Source: Company data, CM Research
0 5 10 15 20 25 30
Oracle acquires Eloqua (Cloud marketing platform)
Windstream acquires Paetec (Telecom operators)
Adtran acquires Nokia Siemens Broadband Access business (Telecom…
Nielson acquires Arbitron (Digital ratings)
Arris acquires Moto Home (TV set top boxes)
Belkin acquires Linksys (Networking gear)
Cisco acquires Intucell (Software defined networks)
Oracle acquires Acme Packet (Session border control)
IBM acquires Star Analytics (Software analytics)
Google acquires Channel Intelligence (e‐commerce tracking)
Liberty Global acquires Virgin Media (Cable operators)
Amazon acquires Goodreads (Book review site)
Ericsson acquires Microsoft's Mediaroom IPTV business (IPTV)
Cisco acquires Ubiquisys (small cells)
Baidu acquires PPS (internet video provider)
Intel acquires Stonesoft Oyj (internet security ‐ network firewall)
Yahoo acquires Tumblr (Short form blogging with pictures)
Bain Capital and Golden Gate Capital acquires BMC Software (Software…
IBM acquires Softlayer (Web hosting and cloud infrastructure)
Softbank acquires Sprint Nextel (Telecom operators)
Cisco acquires JouleX (Energy managemnet software for data centres)
Sprint acquires Clearwire (Telecom operators)
Salesforce.com acquires ExactTarget (Cloud marketing software)
Google acquires Waze (Crowdsourced traffic navigation software)
Gannett acquires Belo (TV broadcasting)
Stratasys acquires MakerBot (3D printing)
Acquisition price (US$bn)

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Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history (cont.)
Q4
2012
Q3
2012
Q2
2012
Source: Company data, CM Research
0 1 2 3 4 5 6
Oracle acquires Vitrue (Social marketing platform)
Facebook acquires Karma (Social media app)
Dell acquires Quest Software (Software management )
Salesforce.com acquires Buddy Media (social media)
Agilent Tech acquires Dako Denmark (Life science diagnostics tools)
Lam Research acquires Novellus (Semiconductor equipment maker)
Microsoft acquires Yammer (Social media)
Oracle acquires Collective Intellect (Cloud based social intelligence)
Sony acquires Gaikai (Cloud gaming)
Dentsu acquires Aegis (Advertising )
Vmware acquires Nicira (Network efficiency)
Apple acquires Authentec (Fingerprint ID, mobile payments)
Google acquires Wildfire (social media ad solutions provider)
Oracle acquires Xsigo (data centre networking virutalisation )
Google acquires Frommers (travel guides)
Cicso acquires NDS (Video and content delivery solutions)
Oracle acquires Involver (Social media marketing)
Cisco acquires Cloupia (Data centre software)
Consolidated Comms acquires Surewest (Telecom operators)
Zayo acquires Abovenet (Telecom operators)
AT&T acquires NextWave (wireless spectrum)
Carlyle acquires Getty Images (Distributor of stock photos and videos)
IBM acquires Kenexa (HR software)
Verint Systems acquires Comverse Tech (cyber security)
Cisco acquires Meraki (Cloud networking)
Cisco acquires Caridien (Network traffic management software)
Priceline acquires Kayak (Online travel)
RedPrairie acquires JDA Software (Application software (supply chain…
Acquisition price (US$bn)

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Global Mergers and Acquisitions in Technology, Media and Telecoms: Two year transaction history (cont.)
Q2
2012
Q1
2012
Q4
2011
Source: Company data, CM Research
0 2 4 6 8 10 12 14
eBay acquires Zong (Mobile payments)
HTC acquires S3 Graphics (Mobile phone patents)
Vodafone acquires Vodafone Essar (33%) (telecom consolidation)
Teradata acquires Aster Data (Data analysis software)
Apple, RIM, Microsoft acquires Nortel Networks (Technology patents)
Google acquires Motorola Mobility (Technology patents)
HP acquires Autonomy (Search engine)
IBM acquires Algorithmics (Risk management software for banks)
Broadcom acquires Netlogic (Wireless chips)
SK Telecoms acquires Hynix (21%) (Chip manufacturing)
Permira acquires Genesys (Call centre services)
Oracle acquires RightNow (Cloud computing)
Huawei acquires Huawei Symantec JV (50%) (Cyber security software)
Blinkx acquires Prime Visibility Media (Digital advertising)
SAP acquires Success Factors (Online HR software)
Verizon acquires AWS spectrum from Comcast, Time Warner Cable and…
Seagate acquires Samsung Electronics Hard Disk (Hard disk drives)
Apple acquires Anobit Technologies (Flash memory maker)
AT&T acquires Spectrum from Qualcomm (mobile spectrum)
3D Systems acquires Z Corp (3D printing)
SingTel acquires amobee (provider of mobile advertising services to…
Oracle acquires Taleo (HR software)
YouKu acquires Tudou (online video site)
Zayo acquires 360networks (Telecom operators)
Western Digital acquires Viviti Tech (formerly Hitachi Global Storage…
Facebook acquires Instagram (Photosharing service)
Stratasys acquires Objet (3D printing)
SAP acquires Ariba (e‐commerce (enterprise software for procurement))
LinkedIn acquires Slideshare (Social media)
Acquisition price (US$bn)

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Appendix 2: About CM Research
We provide global thematic research in the Technology, Media and Telecoms (TMT) sectors. Our focus is on disruptive technologies. How
will they unfold? Which industries will be impacted? Who will be the ultimate winners and losers?
Our research approach:
 Search for emerging technology trends
 Spot global investment themes
 Screen for local companies affected
Our research product:
 Global TMT Trend Forecast (annual)
 In-depth thematic research (fortnightly)
 Technology briefings
 Analyst access
 Bespoke research
Our clients:
 Asset managers
 Family offices
 Industry executives
 Consultancy houses
 Governments
Our recent themes:
3D printing, App revolution, Chinese Internet, Big Data,
Chinese Internet, Cloud Computing, Cyber Security,
Digital Media, HTML5, LTE, Mobile Internet, Mobile
Payments, Net Neutrality, Regulation, Robotics,
Smartphones, Social networks, Video Games
Technology, Media
& Telecoms
Thematic
Research
Strategy
Forward
thinking