the mobile data opportunity â€“ finding the best spots in the food

April 17, 2008 Americas: Wireless

Goldman Sachs Global Investment Research 1

April 17, 2008

Americas: Wireless

The Mobile Data opportunity – Finding the best spots in the food chain

Industry context

We view mobile data as the largest secular

growth opportunity in telecom. Beyond telecom,

this has the opportunity to replicate the transition

that happened from narrowband to broadband in

a wired world. In this report, we have worked with

our global counterparts to track the opportunity

from mobile operators to handset vendors,

infrastructure participants and beyond.

Source of opportunity

We forecast $205bn (~$80bn currently) in total

mobile data revenue by 2012 for companies in

our direct coverage universe.

Catalysts

*We expect smartphones will be 40% of North

American handsets by 2012, up from 11% today.

*Carriers are increasing smartphone subsidies, as

these devices expand ARPU.

*We believe standardization will increase

considerably, which lowers the barriers for

content providers and applications developers.

Top picks along the mobile data theme

Significant exposure to an underestimated mobile

data opportunity cuts across various parts of the

food chain. We recommend the following as top

picks in the context of the mobile data

opportunity: AAPL, BRCM, CCI, CSCO, DLB, DOX, GLUU, JNPR, QCOM, RIMM, SNCR, STAR, SVR, T, and VZ. We have created a

basket of the stocks mentioned here where high

liquidity and low volatility are the most

compelling (ticker: GSTHDATA).

Top pans along the mobile data theme

As data moves from fixed to mobile, companies

attached to legacy platforms will face the greatest

secular challenge. In this context, Wireline-only

telcos (CTL, EQ, FRP, Q), Cable & Satellite

(CMCSA, CVC, TWC, DISH, DTV), and legacy

vendors (ALU) are all negatively impacted. We

have created a basket of stock negatively

impacted (ticker: GSTHLGCY).

Risks

Delays in wireless data adoption.

RELATED RESEARCH

March 26, 2008 Americas: Communications Technology:

Transitioning CommTech coverage; lowering view to

Neutral

February 21, 2008 EMERGING TECHNOLOGY RESEARCH:

Technology area: Mobile Broadband: Introducing Emerging

Technology Research; WiMAX “Deep Dive”

November 23, 2007 Americas: Technology: Takeaways for

the Tech investor from recent VC trends

November 19, 2007 Americas: Towers: Raising Tower ests.;

swapping CCI (CL-Buy) for AMT (now Neutral)

October 15, 2007 Americas: Telecom Services: Taking a

bigger Byte: Sizing up the wireless data opportunity

Jason Armstrong, CFA (212) 902-8156 | [email protected] Goldman, Sachs & Co.

James Covello (212) 902-1918 | [email protected] Goldman, Sachs & Co. Sarah Friar (415) 249-7436 | [email protected] Goldman, Sachs & Co. James Mitchell, CFA (212) 357-1849 | [email protected] Goldman, Sachs & Co.

The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Customers in the US can receive independent, third-party research on companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.independentresearch.gs.com or call 1-866-727-7000. For Reg AC certification, see the text preceding the disclosures. For other important disclosures go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not required to take the NASD/NYSE analyst exam.

The Goldman Sachs Group, Inc. Global Investment Research



Table of contents

Analyst contributors 3

Overview: The Mobile Data Opportunity – Finding the Best Spots in the Food Chain 4

Gating factors to mobile data adoption starting to be unlocked 9

Mobile operators (Armstrong, Malat): Finally ready to deliver 12

Smartphones: unlock next layer of opportunity 15

Infrastructure: Higher bandwidth data means more demand 26

IT Services (Grausam): Transaction monetization 35

Content: Interface improvements accelerate content migration to mobile 38

Private companies: Broad-based activity related to mobile data opportunities 50

Disclosures 54



Analyst contributors

Exhibit 1: Analyst contributors

Jason Armstrong, CFA James Covello Seogju Lee James Schneider, Ph.D. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & [email protected] [email protected] [email protected] [email protected] York: 1-212-902-8156 New York: 1-212-902-1918 New York: 1-212-902-6785 New York: 1-917-343-3149

David C. Bailey Sarah Friar Thomas D. Lee Jennifer Watson, CFAGoldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & [email protected] [email protected] [email protected] [email protected] York: 1-212-902-6834 San Francisco: 1-415-249-7436 New York: 1-212-902-2066 New York: 1-212-357-7937

Tim Boddy Elizabeth W. Grausam, CFA Michael Liddell, CFA Mark Wienkes, CFAGoldman Sachs International Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & [email protected] [email protected] [email protected] [email protected]: +44 (20) 7552-1036 New York: 1-212-357-4831 New York: 1-212-357-9111 New York: 1-212-357-1986

Joey Cheng Craig Hettenbach Scott Malat, CFA Sasa Zorovic, Ph.DGoldman Sachs (Asia) L.L.C. Goldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & [email protected] [email protected] [email protected] [email protected]: +886 (2) 2730-4186 New York: 1-212-902-9959 New York: 1-212-902-6708 New York: 1-212-357-3948

Ingrid Chung Simona Jankowski, CFA James Mitchell, CFAGoldman, Sachs & Co. Goldman, Sachs & Co. Goldman, Sachs & [email protected] [email protected] [email protected] York: 1-212-902-2360 San Francisco: 1-415-249-7437 New York: 1-212-357-1849

Source: Goldman Sachs Research.



Overview: The Mobile Data opportunity – finding the best spots in the food chain

We view mobile data as the largest secular growth opportunity in telecom. With nearly $20 billion spent in the most recent

spectrum auction, carriers are clearly positioning for the next leg of growth in mobile data. The revenue potential is

enormous and there will be several seats at the table.

There are seemingly endless opportunities in the food chain for mobile data. In this report, we focus on core areas of our research

coverage, where mobile data is either a significant opportunity, a threat or something in between. This is not meant to be an

exhaustive list, but rather a comprehensive view of where we believe opportunities exist across our US coverage universe.

Our analysis of the opportunity surfaces three key points:

(1) In our collective coverage universe, we forecast $205 billion in annual run-rate revenue attached to mobile data by 2012, up from under ~$70 billion currently in annual revenue. The greatest absolute exposure is centered on carriers and

handset vendors, with each expected to generate between $60 billion (in the U.S. alone) and $70 billion, respectively, in revenues in

2012. The greatest relative exposure belongs to the infrastructure providers, with 52% revenue exposure in 2012. The highest

forecast compound annual growth rates are expected to be attached to Internet mobile search, with over 100% CAGR in industry

revenues forecast.

(2) Our smartphone forecasts highlight potential for acceleration in data growth. Networks and handsets have both

evolved to a point where functional mobile data is becoming the reality. The iPhone has been a game-changer in the U.S., raising

the bar for competitive handset launches. The larger screen size and improved user interface of these new devices are helping to

more closely match the user experience in the wireless world with that of the wired world. In our forecasts, we expect 40% of handsets purchased in 2012 in North America to be smartphones. For reference, AT&T says that currently 13% of

subscribers in the base have smartphones, and we estimate that 11% of North America handsets are smartphones. Smartphones

are benefiting from increasing carrier promotions and subsidies, given the incentive of higher average revenues per user (ARPU).

(3) Standards convergence drives upside. Lack of standardization has been a significant deterrent to the adoption of mobile

data. However, developments at various points in the food chain are set to simplify. For instance:

• The top two domestic carriers, AT&T Wireless and Verizon Wireless, which have always been on different technology

platforms, have recently spent over $16 billion in spectrum auctions with the spectrum earmarked for migration to a

common LTE technology platform in 2010.

• In addition, relative to prior generation devices, we believe the smartphone market will be far more concentrated in the

hands of a few select vendors.

• Finally, we believe that similar to the wired world, greater standardization at the operating system level will be realized. In

part, this will track increases in handset supplier concentration.

-> Overview

Gating factors

Mobile operators

Devices

Infrastructure

IT services

Content

Private company



Exhibit 2: Our Goldman Sachs mobile data top picks basket is comprised of companies from across the mobile data value chain

The mobile data value chain

*MSFT - We are currently Not Rated given Yahoo! deal *Basket stocks exclude names where there are liquidity (trading) limitations.

Wireless Carriers

Devices

Back office

Content

Infrastructure

Operating Sys

Telco Equipmt / Semis

Towers

Telecom IT Services

Backhaul

Music / video

Gaming

Handsets

Mobile Internet

Semiconductors

Enterprise Apps

Participants

BRCM, QCOM, Mediatek, TXN

MSFT, RIMM, PALM, Symbian

RIMM, AAPL, HTC, NOK, MOT, PALM

GOOG, AOL, YHOO, EBAY, AMZN, RNWK, IACI

WMG, DIS, VIA.B, NWS, DLB

GLUU, ATVI, ERTS, THQ

ORCL, SAP, CRM, SFSF, TLEO, KNXA, MSFT

CCI, AMT, SBAC

DOX, NSR, SNCR, SVR

T, VZ, S

CSCO, JNPR, ALU, NOK, ERIC, STAR, ADI, LLTC, AMCC, ALTR,

PMCS, XLNX

Top stocks to monetize mobile data (bolded stocks part of basket)

FTWR, T, VZ, Q

CSCO, JNPR, STAR

DLB

CCI

QCOM, BRCM

DOX, SNCR, SVR

GLUU

RIMM, AAPL

Consumer / EnterpriseSpend

MSFT*

T, VZ

Source: Goldman Sachs Research.

Potential winners

The winners we believe are the companies best positioned to be at the forefront of the migration from a wired broadband world to

a mobile broadband world.

In terms of service providers, this means companies with scale wireless businesses, where next-generation networks have been

deployed and where companies have the financial flexibility and business sense to aggressively subsidize smartphones to



accelerate adoption in the base. AT&T, Verizon and Sprint fit the profile. Although from an investing perspective, AT&T and

Verizon have the clearest path towards monetizing mobile data platforms.

On the device side, the biggest opportunity accrues to companies that are attached to smartphone deployment. RIMM and Apple amongst North American companies (along with the likes of Nokia and HTC abroad), lead the charge on the devices, with

Qualcomm and Broadcom likely beneficiaries on the component side (along with the likes of Mediatek abroad), and Microsoft

increasingly extending its presence into mobile operating systems.

With content as the next layer, we believe the key participants will include a mix of the traditional and upstart. We believe

Google has the best opportunity in mobile search. Music and gaming form the primary opportunities from a content perspective,

with key opportunities being companies such as Dolby for music playback and pure-play Glu Mobile on gaming.

Finally, on the core infrastructure side, IT services companies, next-generation equipment providers, the Towers, and backhaul

providers all stand to benefit from accelerating mobile data growth. We favor Cisco as the leading provider of next generation

equipment, as well as Juniper and Starent with a longer-term view. We favor exposure to IT Services through Amdocs, Syniverse, and Synchronoss, each with very high forecast exposure to mobile data. We also like the Towers broadly, with our

preference being Crown Castle given higher urban exposure, where mobile data growth will be strongest.

Exhibit 3: Price targets and key risks for potential beneficiaries from the shift to wireless data

in US$

Potential wireless data winners included in our Long basket (GSTHDATA)Company Ticker Rating Price target Timeframe Key risks

Amdocs DOX Buy $45.00 6-month Customer concentration / lumpy pipeline-to-backlog conversion.Apple AAPL Buy $175.00 12-month Shares carry a multiple higher than group, exposing them to broader market de-riskingAT&T T Conviction Buy $50.00 12-month Economic risks spreading to enterprise and wireless./ IPTV platform technology riskBroadcom BRCM Buy $32.00 6-month Ability to drive revenues in cellular/core markets demand trends/new product successCisco CSCO Conviction Buy $29.00 6-month Slowdown in IT and carrier spending / deceleration in emerging marketsCrown Castle CCI Conviction Buy $50.00 12-month Potential pressure in wireless end market / delay in AWS rollout.Dolby DLB Buy $55.00 6-month Exposure to consumer spending / PC OEMs no longer paying for 3rd party ISVsJuniper JNPR Neutral $25.00 6-month Slowdown in carrier spending / weakening in JNPR's competitive positioningQUALCOMM QCOM Buy $44.00 6-month Changes to the royalty rate / increased WCDMA chipset competitionResearch In Motion RIMM Buy $130.00 6-month Lower enterprise IT spend / increased competition Syniverse SVR Neutral $19.00 6-month Verizon contract re-pricing / BSG Wireless acquisition integrationVerizon VZ Neutral $46.00 12-month Macro risk from the economy / Industry worst residential line loss

Potential wireless data winners not included in our Long basket (GSTHDATA) Company Ticker Rating Price target Timeframe Key risks

Glu Mobile GLUU Neutral $7.50 12-month Resurgent revenue growth is the primary upside risk to our price target.Microsoft MSFT Not Rated N/A N/A N/AStarent Networks STAR Neutral $14.00 6-month Increased competition / high customer concentration / lumpy order patternsSynchronoss SNCR Buy $38.00 6-month Customer concentration at AT&T Mobility / customer integration

Source: Company data, Goldman Sachs Research estimates.



Revenue opportunity

Mobile data has the opportunity to be a large driver across many industries. Not surprisingly, mobile operators and device markers

will dominate the absolute revenue opportunity. However, on a relative basis, the story changes, with Infrastructure providers, IT

services, and Towers very well positioned to benefit from the platform shift to wireless. In Exhibits 4 and 5, we highlight our

forecasts for the total 2012 mobile data revenue opportunity by sector, and then also demonstrate what mobile data is expected to

represent as a percent of total segment revenues, in order to highlight relative importance by sector.

Exhibit 4: Mobile operators and device makers should take an outsized

portion of the mobile data revenue opportunity.

2012E mobile data revenue opportunity in our U.S. coverage universe, in $bn

Exhibit 5: We note that potential mobile data revenue could have the largest

relative impact on Infrastructure, Devices and IT Services.

2012E mobile data revenue opportunity as a % of industry revenue

$0

$10

$20

$30

$40

$50

$60

$70

$80

Rest of world $50.8 $26.8 $3.3 $5.4 $4.2 $3.8 $2.3 $1.2 $1.2

U.S. $69.9 $14.9 $10.2 $4.1 $1.6 $1.1 $1.1 $1.5 $0.6 $0.3 $1.5

Wireless carriers Smart phones Infrastructure Music/video Semiconduct

ors Gaming Enterprise applications Mobile search Telco IT

servicesOperating systems Towers

52%

36% 35% 35%31%

29%

16%

7%5% 4%

2%0%

10%

20%

30%

40%

50%

60%

Infrastr

ucture

Smart phones

Teleco

m IT se

rvice

sWire

less c

arrier

s

Towers

Gaming

Music/vi

deoMobile

searc

hOpera

ting sy

stems

Enterpris

e applic

ations

Semico

nductors

Source: Goldman Sachs Research estimates.




Potential losers

Wireline telecom – Wireless substitution set to increase, and could cut into data as well. In recent history, an average of

2% of households cut the cord every year, opting for wireless as their primary connection. A challenging economic cycle we believe

will accelerate this rate of erosion. The greater the functionality of mobile phones, including mobile data accessibility, the lower the

stickiness factor of wireline phones. Wireline-centric companies, attached mostly to consumer, include CenturyTel, Embarq,

Fairpoint, and Qwest in our coverage universe.

Cable & Satellite – Content finding other modes of distribution that cable & satellite companies do not control. AT&T

and Verizon will increasingly drive a “3 screens” approach, with content distributed through traditional TV, Internet, and now

mobile platforms. This poses a threat to incumbent video providers due to potential disintermediation and also threatens Cable’s

wired broadband and telephony business. We believe this will force risky partnerships, such as potential Sprint/Cable WiMAX joint

ventures, or eventual outright ownership of wireless. Either scenario will present an overhang. Losers in this scenario include

Comcast (CMCSA, Neutral), Cablevision (CVC, Neutral), Time Warner Cable (TWC, Neutral), DirectTV (DTV, Buy), and DISH Network

(DISH, Neutral) are losers.

Legacy infrastructure – Vendors attached to legacy mobile platforms without a migration path to 3G and beyond will suffer. For instance, Motorola, which at one point built a dominant handset position behind the strength of its industrial design

capabilities (producing products such as the RAZR), will continue to lose share as smartphones take over the handset mix (where

the focus is more on usability and software applications). (deleted text) Alcatel-Lucent is the industry leader in wireline legacy

switching (which we expect to decline steeply) and in CDMA wireless equipment, which will be gradually replaced by WCDMA / LTE.

Its market share in WCDMA is currently only 3%, suggesting significant long-term market share loss.

Exhibit 6: Price targets and key risks for potential losers from the shift to wireless data

in US$

Potential wireless data losers included in our Short basket (GSTHLGCY)Company Ticker Rating Price target Timeframe Key risks

Alcatel-Lucent ALU Sell $5.79 6-month Higher-than expected sales / a recovery in bond yields or additional restructuringCenturyTel CTL Sell $35.00 12-month Accretive M&A / larger than expected dividend hike.Comcast CMCSA Neutral $22.00 6-month Increased capex / cash for retrans / competition / further macro slowdownDirecTV DTV Buy $30.00 6-month Competition from cable and RBOCs / decreasing HD advantage / loss of NFLDISH Network DISH Neutral $33.00 6-month Competition from cable and RBOCs / fewer gross adds due to macro slowdownEmbarq EQ Neutral $43.00 12-month Accretive M&A / dividend increaseFairpoint FRP Conviction Sell $6.00 12-month Ample dividend support for now / index buyingQwest Q Sell $5.50 12-month Bigger than expected buyback / consolidationTime Warner Cable TWC Neutral $29.00 6-month RBOC video threat pressuring ARPUs / higher capex / further macro slowdown

Potential wireless data losers not included in our Short basket (GSTHLGCY)Company Ticker Rating Price target Timeframe Key risks

Motorola MOT Not Rated N/A N/A N/A




Gating factors to mobile data adoption starting to be unlocked

The strength of the user experience will dictate the growth opportunity in wireless data. In that respect, we believe the key

gating factors involve network presence, pricing and handset selection—all of which point to significant data uptake in

coming years. Data pricing has become relatively affordable, with text messaging packages starting at $5 per month, phone

Internet access at roughly $15, and laptop card access at $50-$60. Lastly, we expect smartphones to account for 40% of all

handsets by 2012.

Networks moving to 3G and beyond

We believe that large 3G rollouts should drive data adoption, while 4G rollouts should provide the next boost in the 2010-2012

timeframe. Exhibit 7 illustrates the current 3G rollouts from the national carriers. Following recent rollouts by all carriers, 65%-80%

of US subscribers currently have access to 3G services at AT&T, Verizon, and Sprint. T-Mobile plans to launch 3G services in 2008

using its AWS spectrum.

We expect a large amount of 700MHz spectrum to be used for 4G services, which should drive the next leg of data adoption. AT&T

and Verizon’s combined bids of $16 billion made up over 80% of the spectrum purchased in the recent auction. AT&T and Verizon

management have noted that they expect to use this spectrum specifically to build out their 4G networks.

Exhibit 7: 3G services are largely deployed and 4G services are already being planned

3G and 4G plans by carrier

3G POPs covered 3G Notes 4G Update

AT&T ~200mnHSDPA available in 270 cities and the company expects to be in 350 cities by the end of 2008. We estimate the 3G network covers approximately 200mn POPs.

Plan to deploy LTE (2010-2012E)

Verizon 242mn EV-DO Rev A network covers 242mn POPs as of Dec 31, 2007 Plan to deploy LTE (2010-2012E)

Sprint 234mn EV-DO covers nearly 234mn POPs as of Dec 31, 2007. EV-DO Rev A network covers 82% of CDMA network.

Plan to deploy WiMax (test markets with ~15mn POPs underway). Future expansion plans remains uncertain.

T-Mobile Currently launching Currently deploying 3G network on AWS spectrum in a phased launch through 2008.

Have not announced 4G strategy, but we expect them to converge to LTE.

Source: Goldman Sachs Research estimates, company filings.

Overview

-> Gating factors

Mobile operators

Devices

Infrastructure

IT services

Content

Private company



Pricing opening up the pipe

We believe the lower price points for data usage should drive adoption. We note that text messaging packages actually start at $5

per month depending on usage, while mobile internet access (unlimited) prices at ~$15 per month. In addition, unlimited $99 voice

plans from Sprint and T-Mobile include unlimited text (and data from Sprint).

iPhone proves that handsets are key in driving the customer experience

We expect smartphones to improve the customer experience and drive significant data adoption uptake. We expect smartphones

to account for 40% of handsets sold in North America by 2012, up from roughly 11% today (see Exhibit 8). We believe the rapid

iPhone adoption highlights the demand for more powerful, intuitive devices. We note that at our recent Goldman Sachs Tech

Symposium in February, Apple reaffirmed that the company is on track to meet its 10mn iPhone unit sales target for calendar 2008.

While we expect those shipments to be more backend-loaded, we continue to look for 11 million units for the year.

Interoperability slowly improving, likely through market share consolidation

One of the biggest barriers to mobile data adoption has been the lack of common operating systems and middleware in devices –

today, mobile content developers need to make several hundred versions of each game, ringtone, etc. given the multiple standards

used by almost every handset vendor. For example, Nokia has Series 40 phones with a proprietary operating system, as well as its

Symbian O/S-based Series 60 phones and a few Linux-based models. Motorola uses several versions of its own proprietary O/S as

well as making Microsoft-based, Linux-based, and Symbian/UIQ-based products. In Japan, the success of mobile data reflects the

determination by DoCoMo and KDDI to enforce the use of common O/S and interfaces on handset vendors.

Moving forward we expect the market to concentrate around a small number of platforms (Symbian, Windows Mobile and

potentially Apple, Blackberry, BREW and Linux), driven by natural market share consolidation as barriers to entry in smartphones

are high and few existing handset vendors will be able to afford the investment required. Greater operator discipline in handset

selection will also be important. In addition, from the network side interoperability will be enhanced by the development of the IP

Multimedia Subsystem (‘IMS’) standard, a common SIP-based architecture for delivering multimedia services across both fixed and

mobile networks.



Exhibit 8: We expect Smartphone sales to dramatically increase in coming years

Smartphone penetration in North America

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E

Nor

th A

mer

ican

sm

artp

hone

s (m

n)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Nor

th A

mer

ican

sm

artp

hone

s as

a %

of t

otal

han

dset

s

Smartphone Units Smartphone Penetration

Source: Goldman Sachs Research estimates, IDC.

Content and applications likely to improve dramatically once key gating factors are overcome

We expect the availability of attractive, easy to use and interoperable devices combined with affordable high-speed networks will

finally kick-start the development of compelling mobile content and applications, offering far greater choice and quality than the

ringtones, basic games and text-based services (e.g., horoscopes, etc.) available to users today. In addition to paying for Internet

access we expect wireless users to adopt existing ‘wired’ Internet services such as web-browsing, search, email, music, instant

messaging and social networking in large numbers, and also anticipate growth in new context-based services (e.g., navigation and

location based search), rich multimedia content (e.g., games, videos) and a host of enterprise applications (e.g., machine-to-

machine communications).



Mobile operators (Armstrong, Malat): Finally ready to deliver

Summary of the mobile opportunity

For the mobile operators, the push for network capabilities and spectrum depth has provided the building blocks for substantial

growth in mobile data. This provides a strong platform as smartphones increasingly penetrate the base. With mobile data revenues

dominated by text messaging at this point, the next leg of growth will have higher capital intensity, but also carry greater

monetization opportunities.

By 2012, we expect mobile data revenues for US carriers to reach $70 billion, up from $19 billion in 2007. Upgraded networks and

devices should drive increased opportunity for Internet access, gaming, music, mobile video, text messaging, and laptop data cards.

In addition, our analysis does not include potential advertising or other mobile applications (e.g. Location-based services, buddy

functions, e-Commerce opportunities, machine to machine), which potentially could further increase the revenue opportunity.

Top down revenue opportunity

• Text messaging is the largest piece: Text messaging has the highest penetration level among current mobile users at over

38% at the end of 2007. We expect text messaging to equate to an $19 billion opportunity by 2012, up from $7 billion in 2007.

• Expect Internet access to be the next big driver of growth: We expect Internet access to be a $22 billion business in

2012, up from $4 billion in 2007. Game-changing devices such as the iPhone with easy to use functions are beginning to

change the Internet experience for mobile subs, and we expect other equipment manufacturers to roll out challengers to the

iPhone, which should drive increasing mobile data usage.

• Blackberry service continues to grow: We expect Blackberry service to drive close to $15 billion of revenue to mobile

operators by 2012, up from $3 billion in 2007.

• Laptop data cards catching on: We expect laptop data cards to drive close to $9 billion in revenues by 2012, up from $3

billion in 2007.

• Gaming, Music, Mobile Video: We expect these applications to combine for $6 billion in revenues by 2012, up from $2

billion in 2007.

Overview

Gating factors

-> Mobile operators

Devices

Infrastructure

IT services

Content

Private company



Exhibit 9: Carrier opportunity – our bottoms-up analysis helps to frame the data market size for mobile operators

2007E 2008E 2009E 2010E 2011E 2012ETotal US population ('000s) 303,000 306,030 309,090 312,181 315,303 318,456Total US subs ('000s) 255,396 270,480 282,298 292,326 301,104 308,259

Application penetration Text messaging 38.0% 50.0% 60.0% 65.0% 67.5% 69.0%Internet access 14.1% 20.4% 30.5% 37.0% 39.8% 41.8%Gaming 3.5% 5.2% 6.8% 8.0% 8.3% 8.5%Music (ringtone/song) 12.5% 13.0% 13.0% 13.0% 13.0% 13.0%Mobile video 2.0% 3.5% 4.5% 5.0% 5.5% 5.8%Laptop data cards 1.8% 2.3% 2.8% 3.3% 3.8% 4.0%Blackberry service 3.0% 4.4% 7.2% 8.3% 8.9% 9.1%

Implied subs ('000s)Text messaging 97,050 135,240 169,379 190,012 203,245 212,699Internet access 35,994 55,198 86,088 108,224 119,756 128,853Gaming 8,910 14,004 19,192 23,462 25,089 26,208Music (song/ringtone) 31,924 35,162 36,699 38,002 39,144 40,074Mobile video 5,108 9,467 12,703 14,616 16,561 17,725Laptop data cards 4,469 6,086 7,763 9,501 11,291 12,330Blackberry service 7,677 12,015 20,192 24,230 26,653 27,986

Revenue Opportunity (in $US millions)Text messaging $7,094 $10,453 $13,708 $16,173 $17,697 $18,717Internet access $4,498 $8,207 $12,716 $17,488 $20,518 $22,375Gaming $452 $687 $996 $1,280 $1,457 $1,539Music (song/ringtone) $719 $805 $862 $896 $926 $951Mobile video $669 $1,312 $1,995 $2,459 $2,806 $3,086Laptop data cards $2,509 $3,800 $4,986 $6,215 $7,485 $8,504Blackberry service $3,347 $5,317 $8,696 $11,994 $13,739 $14,753

Projected US wireless data revenues $19,288 $30,581 $43,959 $56,504 $64,627 $69,924% growth 58.6% 43.7% 28.5% 14.4% 8.2%

Subscriber count

Data servicepenetration

rates

Dataservice

subscriber buckets

Subscriber revenue


Our estimate of the carrier opportunity is based on a bottoms-up analysis of penetration rates and price points by application.



Quantifying the opportunity – what’s already in the estimates

At our Communacopia conference and recent CTIA conference, AT&T and Verizon were bullish on the mobile data opportunity, with

both mentioning that investors are underestimating the potential. In addition, on their recent conference call following the

conclusion of the 700Mhz auctions, Verizon set expectations for data to make up over 50% of service revenues over the long-term,

well above our 33% estimate by 2012E. We believe current Street estimates are largely driven by percentage of total ARPU instead

of a ground up analysis of penetration rates and price points by application. As a result, we do not believe long-term estimates

factor in the potential effects of a number of important data applications (i.e., laptop cards, gaming, music, mobile video). In

addition, machine-to-machine applications (M2M)—which Verizon specifically highlighted as a large opportunity—are not factored

into our estimates or consensus. Examples of potential M2M applications include fleet management, telematics, and point of sale.

Investment themes / top picks

AT&T (T, CL-Buy): Headstart in data demand thanks to iPhone. Across the carriers, AT&T is best positioned to gain a

disproportionate share of the mobile data revenue opportunity in the near-term given the strength of its multi-year exclusive iPhone

offering. Currently, iPhone users sign up for at least a $20 data bundle that includes 200 text messages and unlimited Internet

usage, which is cheaper than peer offerings. The offering eases subscribers into trying out new data features over the two years of

the contract, and should cultivate a base of subs who will find it hard to go back to more traditional offerings.

Verizon (VZ, Neutral): Network quality should make upselling easier: We expect Verizon to be the other key beneficiary of

the increase in mobile data usage as well over time. Given its traditional focus on network quality, it should be easier to upsell its

subs onto data services and thus we expect its data ARPU to increase with AT&T's in lockstep over time despite its current lack of a

"game-changing" device.

Key Risks

(1) Recent unlimited voice and data plans could limit data ARPU growth; (2) Content providers and device manufacturers may be

able to sell directly to consumers/enterprises and bypass mobile operators.



Smartphones: unlock next layer of opportunity

1. Handsets (Boddy, Cheng, Jankowski, Lee T.)

By 2012, we expect the smartphone market to reach 362 million units (which represents 20% of the total handset market), up from

114 million in 2007 (10% of overall handset units). Intense focus from mobile operators to increase their data subscribers (resulting

in higher handset subsidies compared to traditional handsets), more affordable smartphone devices (driven in part by lower

component costs), and increased consumer appetite for mobile applications such as traditional Internet access, wireless email, GPS

applications, and gaming should drive increased demand for smartphone devices globally. Additionally, with Apple, RIM, HTC and

Nokia “setting the bar” and their flagship smartphone products (iPhone, Curve/Pearl, Touch/Diamond, N95), we believe other

handset vendors are likely to spend an increasing amount of time on developing compelling smartphones, which should help spur

overall smartphone demand.

Exhibit 10: Smartphone penetration globally, 2003-12E Exhibit 11: Smartphone Regional Mix, 2003-12E

-

50

100

150

200

250

300

350

400

2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E0%

5%

10%

15%

20%

25%

North America Rest of world Smartphone Penetration

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E

North America Western Europe Asia Pacific Japan ROW

Source: Company data, IDC, Goldman Sachs Research estimates.

Source: Company data, IDC, Goldman Sachs Research estimates.

Overview

Gating factors

Mobile operators

-> Devices

Infrastructure

IT services

Content

Private company



Top-down revenue opportunity

• We expect total smartphone revenues to reach $66bn in 2012, which represents a 5-year CAGR of 13% from 2007-12.

This compares to handset revenue growth of 4% during the same period. We are assuming typical ASP erosion associated with

high-end handsets (roughly 10% year-on-year decline) as we estimate smartphone ASPs in 2012 to be $182, down from $307 in

2007. This compares to handset ASPs of $104 in 2012, down from $135 in 2007.

• Asia represents the largest opportunity: We expect Asia (including Japan) to be the largest smartphone market at 142

million in 2012 (39% of the total smartphone market). In terms of smartphone penetration (% of total handsets), we estimate

that 17% of the handset market in Asia will be smartphones. Key beneficiaries include Nokia, RIM, Samsung and HTC.

• North America and Western Europe expected to see solid growth: In developed markets, we expect North America and

Western Europe to see solid smartphone adoption reaching 161 million units in 2012 (45% of the total smartphone market),

based on 40% smartphone penetration both in North America and Western Europe. Key beneficiaries include Nokia, RIM,

Samsung, and HTC.

• Microsoft-based devices expected to see the fastest growth: We expect Microsoft-based devices to reach 72 million

units in 2012 (5-year CAGR of 43%) as Microsoft gains steady traction with consumers/prosumers, small and mid-size

businesses, and potentially larger enterprises. Vendors likely to benefit include HTC and Samsung, and to a lesser degree

Motorola and Palm.

• Blackberry not far behind: Blackberry-based devices are expected to see continued strong growth, reaching 58 million units

in 2012 (5-year CAGR of 39%). Key points driving the growth are increasing adoption of wireless email (current wireless email

penetration likely around low to mid single digits) and expansion of new distribution channels.

• Nokia less of a beneficiary: We expect Nokia will benefit from smartphone growth, which should slow ASP declines and

drive new services revenues for Ovi. However, we believe this is already largely reflected in estimates, and expect Nokia to be a

potential modest market share loser in smartphones to Apple, RIM and Microsoft-based devices.

Investment themes/top picks

• Research in Motion (RIMM, Buy): Clear leader in smartphone market; Momentum likely to continue. RIM’s

leadership in offering a best-in-class wireless email platform and its ability to offer compelling smartphone devices makes it

well positioned to benefit from the growing trend in mobile data adoption. Other key points supporting our positive view: (1)

we are still early stages of wireless email adoption in both enterprise and consumer segments, (2) we believe that the company

is seeing strong distribution channel expansion outside the US (Latin America, Eastern Europe and China), and (3) the

acceleration in subscriber growth is likely to drive a healthy replacement market.

• QUALCOMM (QCOM, Buy): Benefits from increased mobile data adoption through 3G handset royalties and 3G chipset sales. We favor QUALCOMM based on: (1) strong 3G handset unit growth needed to support increased mobile data

adoption, benefiting QUALCOMM’s licensing business, (2) market leadership in 3G baseband chipsets, which is likely to result

in market share gains, (3) current discount in the shares based on the unlikely scenario that Nokia never makes a royalty

payment to QUALCOMM.



• Apple (AAPL, Buy): 3rd-party applications should continue to keep iPhone ahead of the smartphone pack. We

expect Apple to exceed its 10mn iPhone unit target for calendar 2008 fueled by a new 3G platform (expected to be launched in

June), additional international carrier agreements, and the rollout of 3rd-party applications. We think that the largest contributor

to Apple’s leadership in the smartphone market is its use of Mac OS X on iPhone which is the same operating system used with

its Macs and the iPod Touch. In addition to driving R&D efficiencies for the company, the use of a common, proven operating

system across multiple platforms should enable Apple to innovate and add new features at a faster pace than competing

smartphones. One example of this leadership is that we expect a broad array of 3rd-party applications to be available on iPhone

by year end, including Spore from Electronic Arts, Epocrates, AOL’s Instant Messenger, and salesforce.com. These

applications will continue to set iPhone apart from other smartphone offerings and provide a new revenue stream for Apple as

it captures 30% of the purchase price for all 3rd-party applications downloaded onto the iPhone through the company’s online

iTunes store.

• HTC (one to consider internationally – Conviction List pick): Leverage dual engine Microsoft and Google to ride on mobile broadband growth trend: HTC’s leadership position on Microsoft provides a foundation for a strong global

carrier franchise from 2G to 3G. Additionally, the company is continuing to expand its leadership into the Google platform, with

the first Google-based smartphone slated for 2H08. With the upcoming Diamond launch (on May 6th in London), HTC is setting

itself a new milestone to further enrich user experience by stylish form factor and innovative user interface, and ultimately turn

itself from Function to Fashion, enlarging its market segment from professional to mass consumers. We believe Diamond will

further enhance HTC brand recognition and, with 5 to 10 carriers already signed on, aims to be the best seller in HTC history

with 4mn+ units.

Key Risks

(1) Lack of new, compelling applications or services to drive need for smartphones, (2) Slower enterprise IT spending, which would

impact adoption of wireless email-based smartphones, (3) Prolonged macroeconomic slowdown, negatively impacting consumer

spending. Smartphones likely to be viewed as more discretionary.

Overview of the handset market

After five consecutive years of robust handset growth (5-year CAGR of 22% from 2002-2007), we expect handset unit growth to

decelerate to a 9% CAGR in 2007-2012. We continue to expect strong emerging markets subscriber growth – we now model 5.6

billion subscriptions globally by 2012, supporting 9-10% long-term handset unit growth. We note that this expectation is clearly at

risk if economic growth slows in emerging markets, while rising input costs, especially food prices, also represent a significant risk

to operators’ efforts to reach ever-lower income thresholds in these markets.

While the broader handset market is expected to grow only 9% annually over the next five years, we believe the smartphone

market will grow much faster at a 5-year CAGR of 29%.



Exhibit 12: Handset Volume vs. Value Growth

10%+ unit growth vs. 3-5% value growth

Exhibit 13: Replacement market - Emerging vs. Developed

Replacement market in developing regions expected to drive growth through

0

200

400

600

800

1,000

1,200

1,400

1,600

2003 2004 2005 2006 2007E 2008E 2009E 2010E

Han

dset

uni

ts (m

n)

0%

5%

10%

15%

20%

25%

30%

Gro

wth

(%)

Volumes (mn) Value growth Volume growth

-100

100

300

500

700

900

1,100

1,300

1,500

2003 2004 2005 2006 2007E 2008E 2009E 2010E

Emerging markets replacement handsetsHandsets for net addsDeveloped market replacement handsets

Source: Gartner, Goldman Sachs Research estimates.




Exhibit 14: Global handset industry model

2006 2007E 2008E 2009E 2010E 2011E 2012E 2006 2007E 2008E 2009E 2010E 2011E 2012E

Units Handset unit growthWestern Europe 171 178 168 172 182 191 198 Western Europe 8% 4% -6% 2% 6% 5% 3%North America 161 168 165 172 184 193 206 North America 12% 4% -2% 4% 7% 5% 7%Latin and Central America 119 133 143 155 161 170 179 Latin and Central America 15% 12% 7% 8% 4% 5% 6%Asia 342 430 511 592 672 771 843 Asia 36% 26% 19% 16% 14% 15% 9%

of which China 127 157 188 225 257 284 310 of which China 27% 23% 20% 20% 14% 10% 9%of which India 60 74 93 127 150 196 222 of which India 109% 24% 27% 36% 18% 30% 13%

Eastern Europe 107 108 110 113 125 136 145 Eastern Europe 30% 1% 2% 2% 10% 9% 7%Africa 48 66 77 90 101 110 116 Africa 30% 36% 17% 17% 11% 9% 5%Middle East 36 51 54 61 70 74 82 Middle East 29% 41% 6% 12% 15% 6% 11%Total 985 1,135 1,230 1,355 1,495 1,645 1,768 Total 22% 15% 8% 10% 10% 10% 7%

Total Subscribers PenetrationWestern Europe 427 455 476 494 508 522 531 Western Europe 109% 116% 121% 125% 128% 132% 134%North America 251 272 288 304 321 338 358 North America 76% 82% 86% 90% 94% 98% 103%Latin and Central America 308 373 424 471 512 551 590 Latin and Central America 58% 69% 77% 85% 91% 97% 102%Asia 1,034 1,332 1,624 1,939 2,244 2,564 2,877 Asia 29% 36% 44% 52% 59% 67% 74%

of which China 446 527 619 720 819 919 1,020 of which China 34% 40% 47% 54% 61% 68% 75%of which India 137 208 289 399 508 643 770 of which India 13% 19% 26% 35% 45% 56% 66%

Eastern Europe 284 325 355 379 401 423 444 Eastern Europe 70% 80% 88% 94% 99% 105% 110%Africa 195 263 322 374 426 468 508 Africa 24% 31% 38% 43% 48% 52% 55%Middle East 131 163 190 217 246 267 290 Middle East 35% 43% 50% 56% 62% 66% 71%Total 2,631 3,183 3,679 4,178 4,657 5,134 5,598 Total 41% 49% 56% 62% 69% 75% 81%

New subscribers New subscriber growthWestern Europe 35 28 20 18 14 14 9 Western Europe 0% -21% -27% -11% -22% -4% -33%North America 26 22 16 16 17 17 20 North America -9% -18% -28% 4% 4% 1% 20%Latin and Central America 66 65 51 47 41 39 39 Latin and Central America 0% -1% -22% -8% -13% -4% -1%Asia 227 298 293 315 305 320 313 Asia 58% 31% -2% 8% -3% 5% -2%

of which China 70 81 92 102 99 100 101 of which China 18% 17% 13% 11% -3% 1% 1%of which India 62 70 82 110 109 135 127 of which India 131% 13% 16% 35% -1% 24% -6%

Eastern Europe 66 40 30 25 21 23 21 Eastern Europe -8% -39% -25% -19% -14% 6% -7%Africa 62 67 59 52 52 43 40 Africa 16% 9% -12% -12% 0% -17% -7%Middle East 33 32 27 27 29 21 23 Middle East 17% -1% -17% -1% 10% -27% 6%Total 514 552 496 499 479 477 464 Total 20% 7% -10% 1% -4% -1% -3%

Replacement handsets inc. "grey market" (real market) Replacement rate inc. "grey market" (real market)Western Europe 143 156 152 157 170 180 190 Western Europe 36% 37% 33% 33% 35% 36% 37%North America 135 147 150 155 167 176 186 North America 60% 59% 55% 54% 55% 55% 55%Latin and Central America 63 80 108 127 141 154 165 Latin and Central America 26% 26% 29% 30% 30% 30% 30%Asia 196 238 343 424 537 649 749 Asia 24% 23% 26% 26% 28% 29% 29%

of which China 95 123 153 192 238 272 306 of which China 25% 28% 29% 31% 33% 33% 33%of which India 13 23 37 52 84 117 161 of which India 17% 17% 18% 18% 21% 23% 25%

Eastern Europe 60 84 96 104 120 130 142 Eastern Europe 27% 29% 29% 29% 32% 33% 33%Africa 7 23 45 68 86 106 117 Africa 5% 12% 17% 21% 23% 25% 25%Middle East 12 31 41 49 59 71 80 Middle East 13% 24% 25% 26% 27% 29% 30%Total 615 759 934 1,084 1,281 1,467 1,630 Total 29% 29% 29% 29% 31% 32% 32%




2. Semiconductors (Covello, Hettenbach, Schneider)

The semiconductor market opportunity related to mobile data is primarily driven by the increased adoption of smartphones,

specifically 3G and 3.5G phones which offer enhanced data rates. Because of the enhanced processing, display, and data rate

capabilities embedded in most smartphones, they typically include significantly more semiconductor content than low-end or mid-

range phones. We estimate that the total handset semiconductor revenue opportunity will increase from $38 billion in 2007 at a ~2-

3% CAGR through our forecast horizon. Importantly, 3G handsets currently carry 2.5 to 3.0 times the semiconductor content of their

2G counterparts. While price declines are a constant in the semiconductor industry, we believe that the ratio between content

included in 3G and 2G solutions will remain relatively constant over our forecast horizon. Thus, a result of the incremental market

penetration of smartphones is the fraction of semiconductor handset revenue devoted to 3G and 3.5G (and in the future, 4G)

technology. In addition, there is a secular trend toward integration of multiple discrete components today on single-chip solutions.

As a result, we believe that the semiconductor winners in the smartphone business will be companies with both leading-edge 3G

technology and highly-integrated product roadmaps.

Exhibit 15: Semiconductor content projections for 3.5G, 3G, and 2G

handsets

Exhibit 16: Semiconductor baseband market share in 2006

2007E 2008E 2009E 2010E 2011E 2012EHSDPA/HSUPA $66 $55 $50 $47 $44 $41

1xEVDO 43 38 36 35 33 31WCDMA 60 50 44 41 37 33

TD-SCDMA 47 46 40 37 33 29Average 3G chipset cost $54 $47 $43 $40 $37 $34

GSM/GPRS 23 20 18 17 15 13EDGE 34 30 27 24 22 20

GSM 16 15 14 13 12 11CDMA/TDMA/iDEN/PDC 20 18 17 16 15 14

Average 2-2.5G chipset cost $23 $21 $19 $18 $16 $15

Incremental 3G cost per chipset $31 $27 $24 $23 $21 $19

GS Smartphone unit forecast (mn) 114 150 208 265 313 361

Smartphone semiconductor revenue (mn) $3,517 $3,980 $4,892 $5,965 $6,499 $6,921

NA Smartphone mix 17% 18% 21% 23% 23% 23%

NA semiconductor Smartphone revenue $588 $734 $1,033 $1,398 $1,493 $1,569

ROW semiconductor Smartphone revenue $2,929 $3,245 $3,859 $4,567 $5,006 $5,353

3G

2G-2.5G

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

TI Qualcomm Freescale Infineon(includes

Agere)

STMicro NXP(Philips)

MediaTek(includes

ADI)

Marvell(includes

Intel'sXScale)

Broadcom

Uni

t sal

es

2.5G Total 3/3.5G

Source: IDC, Goldman Sachs Research estimates.

Source: IDC, Goldman Sachs Research estimates.



Revenue opportunity

• Semiconductor opportunity driven by incremental 3G content which enables mobile data: Quite simply, high-speed

mobile data capability drives more advanced handsets, along with incremental silicon content. We arrive at our estimate for the

mobile data opportunity in semiconductors by taking the incremental content for 3G phones versus 2G phones in 2012 (we

estimate ~$20 per phone) times our smartphone unit estimate of 368 million to arrive at an incremental semiconductor revenue

opportunity of $7.4 billion in 2012. The most significant differences in silicon content within this amount come in the areas of

the applications processor and non-volatile memory.

Top pick and investment themes

• Broadcom (BRCM, Buy): Handset market share gains with highly integrated, low cost 3G platforms that enable mobile data. Developing its mobile baseband business has been a central focus for the company over the past several years.

Although Broadcom is a minor player in handset basebands today with less than 2% market share, it already has a significant

presence in handset connectivity solutions (such as Bluetooth) and has been developing highly-integrated baseband solutions

for some time. Broadcom has been the first vendor to announce a fully integrated, single-chip 3G handset solution (including

HSPA capabilities) called Zeus, and it has also announced a single-chip EDGE product called Venus. We think Broadcom is

likely to gain near-term traction with design wins at Samsung and Nokia with its single-chip Venus and Zeus products in

2H2008 and 2009, respectively. Over the longer term, we think Broadcom can achieve as much as 15% share by 2012 by further

penetration at Samsung, Nokia, and potentially other handset OEMs as well.

• Mediatek (one to consider internationally – emerging pick): Market share leader in emerging countries by its highly

integrated mobile SoC, coming 3G SoC will further fuel its global market share gain before the end of the year. As a late comer

in supplying 2G mobile chipsets, Mediatek has successfully increased its market share to 12% by the end of 2007, focusing on

non-tier 1 customer engagement from the greater China area. Its highly integrated SoC and turnkey solution has helped non-

tier 1 customers to simplify design effort and shorten design cycle, resulting much lower total cost of ownership in emerging

markets. Mediatek will launch both 3G and WiMAX SoC before the end of the year to address 3G+ replacement demand from

both developed and emerging countries. We expect Mediatek to leverage its greater China non-tier 1 partners to penetrate into

retailers/carriers from both emerging and developed countries, and to move its global market share from 12% to 23% by 2009.

• The growing importance of mobile data could drive further consolidation among semiconductor vendors. Over the

long term, we think the growing importance of mobile data will drive an inflection point among semiconductor providers for

handsets. The mobile baseband market remains both crowded and highly competitive today, with more than ten providers

currently. Given continued pressures on component costs and the need for semiconductor providers to maintain scale in their

mobile business to justify fixed investments, we would favor semiconductor providers that have demonstrated both strong

integration capabilities and compelling technology roadmaps. Although Texas Instruments is a market share leader today, we

think its focus on its analog is likely to lead to long-term market share loss and less focus on the mobile business. We also

expect market share gains for integrated platform providers such as Broadcom to come at the expense of providers with less

compelling integration capabilities and technology roadmaps, such as Freescale.



Key Risks

(1) A lack of new, compelling applications or services to drive need for smartphones, (2) reduced requirements for local storage that

could drive lower memory content in smartphones.

3. Operating systems (Friar, Zorovic)


The major players in the worldwide mobile operating system marketplace consist of Symbian OS, Windows Mobile, Blackberry OS,

Linux, Palm OS, and other. In 2007 we estimate that the Symbian OS comprised a majority of the worldwide operating system

shipments at 63%, followed by Linux and Windows Mobile at 11% and 11%, respectively. Exhibits 17 and 18 show that in the next

few years Microsoft will likely make significant strides in gaining market share in the mobile OS segment with a 9% increase.

Exhibit 17: Worldwide Converged Mobile Device

Shipments by OS in 2007

Smartphone mix (% of handsets) by OS

Exhibit 18: Worldwide Converged Mobile Device

Shipments by OS in 2012

Smartphone mix (% of handsets) by OS

BlackBerry OS10%

Palm OS2%

Windows Mobile11%

Mac OS X3%

Symbian63%

Linux11%

Total shipments (mn) = 114.4

Windows Mobile20%

Palm OS2%

Mac OS X6%

BlackBerry OS16%

Linux7%

Symbian49%

Total shipments (mn) = 361.5

Source: IDC Corporation, Goldman Sachs Research estimates.

Source: IDC Corporation, Goldman Sachs Research estimates.

Revenue drivers

The rapidly growing demand for converged mobile devices, that combine the features of a mobile phone with the features of a

handheld device in both the enterprise and consumer end markets, is driving the need for high-level operating systems (HLOs).



On the enterprise side key growth drivers include:

• An increasingly important role of VoIP services and unified communications allowing greater levels of connectivity

across enterprise applications

• Software-as-a-Service (SaaS) adoption

Quantifying the opportunity

We quantify the worldwide converged mobile device opportunity as the number of mobile device shipments times the cost per

device (which we have assumed is $6.00). Our $6.00 assumption is primarily based on our knowledge that Microsoft is getting high

single-digits to low teens per device and Symbian is getting roughly $4.00 per device. We estimate that the market opportunity will

go from $686 million in 2007 to $2.2 billion in 2012 representing a 26% CAGR over the five-year period.

Exhibit 19: Mobile OS worldwide revenue opportunity

WW Converged Mobile Device Shipments ($M) 2006 2007 2008 2009 2010 2011 201207-'12

CAGR (%)Mobile shipments (mn) 76 114 150 208 265 313 361 26%Cost per device = $6Mobile OS revenue ($mn) 454 686 901 1,249 1,591 1,879 2,169

Smartphone Mix (% of Handsets) by OSBlackBerry OS 7% 10% 12% 14% 14% 15% 16%Palm OS 2% 2% 2% 2% 2% 2% 2%Mac OS X 0% 3% 7% 7% 7% 6% 6%Windows Mobile 9% 11% 12% 14% 17% 19% 20%Linux 17% 11% 9% 8% 8% 7% 7%Symbian 64% 63% 57% 55% 53% 50% 49%Other 0% 0% 0% 0% 0% 0% 0%Total 100% 100% 100% 100% 100% 100% 100%

BlackBerry OS 33 67 109 172 227 277 347 39%Palm OS 10 13 19 27 34 40 43 28%Mac OS X 0 20 63 87 105 120 130 46%Proprietary OS (non incremental) 43 100 191 286 366 437 521

Linux 79 78 83 101 120 133 152 14%Free OS (opportunity cost) 79 78 83 101 120 133 152

Windows Mobile 43 73 112 179 266 363 434 43%Symbian 289 435 515 683 838 946 1,063 20%Other 1 0 0 0 0 0 0Licensed OS (incremental) 333 508 627 862 1,105 1,309 1,497Total 454 686 901 1,249 1,591 1,879 2,169 26%

NA smartphone mix 11% 17% 18% 21% 23% 23% 23%

NA mobile OS smartphone revenue $37 $85 $116 $182 $259 $301 $339 32%

ROW mobile OS smartphone revenue $296 $423 $511 $680 $846 $1,009 $1,157 22%

Source: Goldman Sachs Research estimates, IDC Corporation.



Microsoft presence expected to grow

Microsoft (MSFT, Not Rated): Gaining share in the coming years. While the mobile business is not currently a big driver for the

Microsoft model overall, it stands to become more meaningful in the years to come. Microsoft recognizes the adoption momentum

for converged mobile devices in the enterprise, as well as consumer markets, and as such remains highly committed to its mobile

computing initiatives. In fact, Craig Mundie, Microsoft’s Chief Research and Strategy Officer, recently commented at our

Technology Symposium that the mobile OS would likely be the next billion dollar business for Microsoft.

As indicated in Exhibit19 above we also expect Microsoft to expand its mobile computing footprint and with that increase its

revenue contribution from this segment. We estimate revenue from the Windows mobile business going from $460 million in FY2008 to $1.1 billion in FY2012. The difference between the Microsoft's mobile OS opportunity illustrated in

Exhibit 19 and the revenue projections in our model is that our model includes revenue from MSN mobile services (OSB) and the

Windows Mobile software platform (EDD) where Exhibit 19 is just looking at the mobile OS opportunity. The company monetizes its

Windows mobile business in four ways:

• Revenue generated per Windows mobile license/unit, which is similar to the desktop business. We make

conservative assumptions that in 2010 there will be 260.7 million total converged mobile device shipments with an

operating system and about 57.6 million Windows mobile shipments. These assumptions suggest $4 per device, which is

less than the high single-digits to low teens the company is currently getting per device leaving room for upside to the

model.

• Revenue generated per Windows Server Device Manager licenses, which is similar to the server and tools model.

Put simply, the Windows Server Device Manager is installed in addition to Exchange server and enables IT departments to

centrally manage security issues on mobile devices to the same degree as the desktop.

• Licensing additional protocols such as ActiveSync or PlayReady. Currently licensed by Nokia, among others,

ActiveSync enables the synchronization between mobile devices and PCs. PlayReady is a digital rights management (DRM)

provider for mobile phones and offers downloadable content such as music, wallpaper and ring tones.

• Mobile advertising, which is currently in its very early stages, but could become increasingly important to the

overall mobile business in the years to come, as Microsoft can leverage its efforts in the Online Services Business.

In addition to the macro drivers mentioned above that are driving the overall converged mobile devices market, Microsoft’s high

growth is driven by company-specific factors including its many partnerships with device players and mobile operators such as HP,

HTC, Motorola, Palm, and Samsung and Vodaphone. Additionally, it has its brand and large installed base of Windows (Vista) and

Exchange customers for which it can leverage. We estimate that there are about 500 million corporate email boxes, of which 300

million are on Exchange server. Microsoft’s stronghold on the market with Exchange server creates an entryway for Microsoft to

sell its Windows mobile OS. If we assume there are currently 15 million Windows mobile devices, this implies only 5% market

penetration into the Exchange server base and 3% into the overall corporate mailbox market representing a largely under

penetrated market ripe for growth.

Key inhibitors to growth are its ability to deliver the consistent high level experience that Apple has managed to do in the consumer

market. Microsoft’s Windows mobile OS is currently deployed on more than 100 mobile models, where Microsoft has little control

over the hardware specifications that ultimately impact the user’s experience. Competition also remains a key inhibitor to success,

especially from Research in Motion (RIMM) in the enterprise market and as mentioned above, Apple in the consumer space. On the

enterprise side, RIMM has a stronghold in this market, as its devices meet the needs of most mobile users and was a first mover in



the market. While Microsoft recognizes it will likely take time to move users off of the Blackberry, Microsoft’s strategy is to break

into RIMM’s user base by going in through the IT department and leverage its existing relationships. In our view there is still much

work to be done for Microsoft in this area.



Infrastructure: Higher bandwidth data means more demand

1. Telecom equipment (Boddy, Jankowski, Lee)

Summary of the opportunity

We expect the 3G/4G mobile equipment market (including base stations for radio access, backhaul equipment and mobile core

switches, but excluding other site costs e.g., towers, shelters and air-conditioning) will grow at a 5-year CAGR of 18% to reach $37

billion in 2012E, as operators build out broader and deeper network coverage and subsequently add capacity to support fast

growing data services. We expect the fastest growing segments will be in backhaul equipment to transport large volumes of data

from the radio access network to the core network, and in edge and core IP routers which will increasingly replace legacy circuit

switches.

However, we forecast that overall mobile equipment spend will grow at only 4% over the period; first, because despite

enormous traffic growth we believe 3G and IP technologies are highly deflationary compared to legacy 2G / core circuit switched

technologies; and second, because much of the 3G growth will be offset by declining 2G investments, which are peaking in 2008E.

Despite a painful round of industry consolidation, industry EBITDA margins remain under severe structural pressure, falling from a

peak of 17.3% in 2005 to only 8.8% on current Goldman Sachs estimates for 2008E. The fundamental problem is price aggression

from Chinese vendors, Huawei and ZTE, who have increased their aggregate market share from 2% to 14% in the past five years

and continue to target revenue growth of over 50% per annum. In a low growth environment this structural pressure makes all

incumbent vendors highly unattractive, in our view, and we would look to gain exposure to mobile data growth via companies with exposure to next-generation networking equipment, principally Cisco (Conviction Buy), and with a

long-term view Juniper and Starent (both Neutral); we remain Sell-rated on Ericsson and Alcatel-Lucent.

Revenue drivers

Demand for mobile equipment is driven by traffic growth, technology change and geographic coverage expansion, and is offset by

ongoing price declines due to improved efficiency and Moore’s law. While there is no reliable industry source for volume growth

(either of traffic or base stations), we qualitatively assess the impact of each of these drivers to arrive at our forecasts. We then

cross-check these assumptions against wireless capex forecasts from leading global operators, although we note that capex

forecasts are typically backwards looking and reflect historic rather than future operator strategy.

• With the launch of data services we expect traffic growth to accelerate dramatically from its historic c.20% annual growth rate

(which was driven by new 2G users and by rising MOU). This is because data uses far more capacity than voice –at present one

data user in the US (using c. 1 GB of capacity / month) is equivalent to 3 or 4 voice users (at c.1,000 minutes/month).

Overview

Gating factors

Mobile operators

Devices

-> Infrastructure

IT services

Content

Private company



• Technology change is also having a positive impact, as operators worldwide deploy advanced 3G networks in order to offer

high-speed data services (and to lower the cost of providing voice calls). In the 2010-12 timeframe we expect the start of

upgrades to 4G networks via LTE and, less commonly, via WiMAX, will also catalyse increased investments.

• Geographic coverage expansion has been an enormous driver of 2G growth in emerging markets, but with multiple new

network rollouts nearing completion in many markets we believe risks are now to the downside; as in Europe after 2001, we

expect 2G demand will decline rapidly as coverage expansion is far more expensive than subsequent capacity additions. (The

same effect is also likely to be true in developed markets where 3G services have been rolled out early, e.g., Western Europe.)

• We believe that new technologies (3G radio access, IP) are enormously deflationary compared to legacy technologies. We

estimate at least a ten-fold reduction in the cost per bit between 2G and 3G. When combined with fierce pricing pressure, we

believe that the data growth in the radio-access network will not translate into meaningful revenue growth for vendors.


Within an overall lackluster outlook (with the Chinese vendors set to enjoy almost all the incremental growth), we expect wireless

backhaul, IP routing and softswitches / IMS equipment will be the fastest growing segments. (Note our forecasts exclude the

revenue potential from network outsourcing and managed services, which we estimate will continue to grow at c.10%)



Exhibit 20: We forecast an 18% CAGR in next generation mobile equipment, but only a 4% CAGR for the overall market

Mobile infrastructure market, 2003-2012E

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2003 2004 2005 2006 2007 2008E 2009E 2010E 2011E 2012E

Wire

less

infr

astr

uctu

re s

pend

ing

($ m

n)

-10%

0%

10%

20%

30%

40%

50%

60%

Gro

wth

(%)

2G 3G Total growth 3G growth


Investment themes / Top picks

Given the challenging demand and pricing environment for legacy vendors we recommend owning pure-play vendors with

exposure to next-generation technologies, notably Cisco and Starent. We would avoid Ericsson and Alcatel-Lucent.

• Cisco Systems (CSCO, CL-Buy) – The leading vendor of next-generation networking equipment. Cisco is the leading

vendor of next-generation networking equipment, with 54% share of the service provider router market. As wireless operators

move to IP-based networks to support the growth in mobile data and transition to 4G, we expect the leading router vendors to

benefit from a favorable multi-year upgrade cycle. However, while Cisco’s participation in this market is significant, its

contribution to the overall company is relatively small at 5-10% of total revenues.

• Juniper Networks (JNPR, Neutral) - High exposure to next-generation networking equipment. Similar to Cisco,

Juniper should benefit from the growth in wireless data through its participation in the service provider router market, where it



is the second largest vendor after Cisco with 22% share. Given Juniper’s smaller size, its exposure to the wireless data trend is

more significant: we estimate that service provider routers drive around 55% of total company sales, though only a portion of

that is driven by wireless capex.

• Starent (STAR, Neutral): Pure play on mobile data. We have a favorable long-term view of Starent given its high exposure

to mobile data through its leadership in the mobile infrastructure gateway market, high-quality customer base (Verizon,

Vodafone and Sprint), and strong competitive position due to its superior technical attributes. In the more intermediate term,

we maintain a Neutral view until we get better visibility into Starent’s design win traction with key prospective customers such

as AT&T, which would be important for our FY09 estimates as well as in diversifying Starent’s highly concentrated customer

base.

Exhibit 21: An industry under pressure: we continue to recommend that investors avoid large-cap incumbent equipment suppliers

Aggregated mobile infrastructure revenues and clean EBITDA margins, top 10 vendors, 1996-2009E

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007E 2008E 2009E

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Growth (LHS) EBITDA margin pre-synergies (RHS)

Average 1996-2007 margins




Key risks

The key upside risks to our negative view are twofold. A change in price behavior by Chinese vendors would allow industry

margins to recover; and mobile data demand could grow even faster than we anticipate, forcing operators into pre-emptive plans to

upgrade network capacity. Selling capacity upgrades into an installed and captive base would yield high margins for legacy

infrastructure vendors like Ericsson or Alcatel-Lucent, although this would also of course benefit pure-play vendors as well.

2. Towers (Armstrong)


By 2012, we expect data to account for $1.5 billion of US tower revenues, up from $225 million in 2007. Disaggregating mobile data

revenues highlights a mixture of contributors ranging from low-bandwidth text messaging to very high bandwidth laptop card

usage. In terms of network capacity planning, the biggest current revenue driver, which is text messaging, is largely irrelevant. The

next layers of data growth will be much more bandwidth intensive. Our assumption is that laptop card access, and then mobile

internet access across smartphones (with the iPhone as a leading indicator), will place the largest demands on the network.

Top-down revenue opportunity

• Laptop cards should drive the most bandwidth usage. Our channel checks suggest the average laptop card subscriber is

using 800MB per month. This is significantly higher than original expectations. By 2012, we expect laptop card usage to

account for 60% of data-driven revenues for the towers.

• Internet access (handset data plans): We believe the average iPhone user is using close to 100MB per month on the EDGE

network. This is multiples of what legacy VCast (Verizon 3G) or MediaNet (AT&T 3G) subscribers had been using.

• 1MB of data could be thought of as 3-4 voice minutes. Network planning takes a variety of forms around voice and data.

Our channel checks led us to an approach whereby data traffic is converted to voice minute equivalents. The ratios will differ

depending on the network (i.e.: CDMA vs. GSM, 2G vs. 3G, etc), but 3 minutes of voice traffic per 1MB of data traffic seems to

approximate an average that also accounts for future improvements in network efficiency.



Exhibit 22: Laptop card and mobile internet access adoption create the biggest opportunity for traffic volume growth

Equivalent voice minutes of 1MB data: 3

2006 2007 2008 2009 2010 2011 2012U.S. Subscribers (in millions)Internet access (handset data plans) 14.0 36.0 55.2 86.1 108.2 119.8 128.9Laptop card 2.5 4.5 6.1 7.8 9.5 11.3 12.3

Wireless data usage (MB)/user/monthInternet access (handset data plans) 5 10 20 36 54 70 88Laptop card 800 800 880 1,012 1,164 1,280 1,370

Average MOUsInternet access (handset data plans) 15 30 60 108 162 211 263Laptop card 2,400 2,400 2,640 3,036 3,491 3,841 4,109

Total Traffic (in billions of minutes)Internet access (handset data plans) 3 13 40 112 210 303 407Laptop card 72 129 193 283 398 520 608

Data - Equivalent MOUs (billions) 75 142 233 394 608 823 1,015

Total industry equivalent MOUs 2,289 2,628 2,980 3,350 3,738 4,093 4,403

(a) Data as a % of total equiv. MOUs 3.3% 5.4% 7.8% 11.8% 16.3% 20.1% 23.1%

(b) Total estimated industry cell sites 195,613 213,299 229,296 245,347 261,295 276,972 289,436 growth (yoy) 6.5% 9.0% 7.5% 7.0% 6.5% 6.0% 4.5%

(c) Estimated leasing rev / cell site $19,048 $19,612 $19,961 $20,405 $20,984 $21,570 $22,242

(a*b*c) = Data driven industry rev ($mn) $121 $225 $357 $589 $893 $1,201 $1,484 growth (yoy) 85.9% 58.4% 65.0% 51.4% 34.6% 23.5%

Mix shifts to iPhone-like devices, which accelerates data usage.

Assuming conversion of 1MB equals roughly 3 voice minutes of use.




Quantifying the opportunity – what’s already in the estimates

We believe Street estimates do not account for data uptake explicitly, and thus understate the opportunity over the long-term.

Instead, Street estimates seem to be largely driven by assumed BBE lease-up rates declining over time. In contrast, we built a

ground up analysis of bandwidth usage by applications and converted this into equivalent MOUs to break down our BBE lease-up

rate assumptions.

Investment themes / top picks

Coverage view on Towers is Attractive: We believe Towers are clear-cut beneficiaries on the infrastructure side from

increased mobile data uptake. Although 2007 should turn out to be a solid year—11% average Tower leasing revenue growth

despite a trough year in wireless capex—data usage should provide an added boost.

Crown Castle (CCI, CL-Buy): Towers in top 100 markets key to benefiting from data growth. Across the towers, CCI is

best positioned to gain a disproportionate share of the data revenue opportunity given the largest exposure to Top 100 markets.

We note that 72% of CCI sites are located in Top 100 markets, versus 62% for AMT and 48% for SBAC. In addition, we believe CCI

offers upside to estimates and conservative 2008 guidance,

Key Risks

(1) Technology—longer-term, we believe offloading of mobile traffic onto WiFi edge networks (attached to wired broadband

networks) poses the greatest risk for Towers. However, any near to medium term impact is limited by several factors, including a

lack of open WiFi networks and a lack of devices with WiFi antennas built in.; (2) Mobile end market—the fate of Towers is tied

into mobile capital spending cycles, which can be governed by subscriber growth, spectrum availability, and a host of other factors.



3. Backhaul services (Armstrong)


We expect higher-bandwidth mobile data, such as laptop cards and mobile internet access, to drive significant incremental demand

for more robust backhaul. Approximately 80% of backhaul is over copper wire, much of which we expect to be upgraded to fiber,

cable or fixed wireless to better accommodate the increasing data load. Our assumption is that mobile internet access across

smartphones (with the iPhone as a leading indicator), and then laptop card access, will place the largest demands on the network.

Top down revenue opportunity

• Laptop cards should drive the most bandwidth usage. Our channel checks suggest the average laptop card subscriber is

using 800MB per month. This is significantly higher than original expectations.

• Internet access (handset data plans): We believe the average iPhone user is using close to 100MB per month on the EDGE

network. This is multiples of what legacy VCast (Verizon 3G) or MediaNet (AT&T 3G) subscribers had been using.

Exhibit 23: Copper lines account for roughly 80% of backhaul technology

2006: % of tower sites by backhaul technology

Exhibit 24: We expect carriers to increasingly turn to fiber and fixed-wireless

backhaul as higher-bandwidth data uptake increases.

2010 estimated % of tower sites by backhaul technology

Fixed-Wireless (outsourced), 1%

Fixed-Wireless (self), 14%

Fiber/Cable, 5%

Copper, 80%

Fixed-Wireless (outsourced), 5%

Fixed-Wireless (self), 15%

Fiber/Cable, 10%

Copper, 70%

Source: Fibertower, Stratsoft, New Paradigm.

Source: Fibertower, Stratasoft.



Players in the backhaul market

Incumbent local exchange providers currently account for the vast majority of backhaul. Fixed wireless providers including

Fibertower (FTWR, Not Covered), are challengers to incumbent access. Additionally, we expect cable companies to have an

increasing presence in the backhaul market.

Key Risks

(1) Technology—longer-term, we believe offloading of mobile traffic onto WiFi edge networks (attached to wired broadband

networks) poses the greatest risk for backhaul providers. However, any near to medium term impact is limited by several factors,

including a lack of open WiFi networks and a lack of devices with WiFi antennas built in.; (2) Mobile end market—the fate of

backhaul is tied into wireless capital spending cycles, which can be governed by subscriber growth, data uptake, and a host of other

factors.



IT Services (Grausam): Transaction monetization

Summary of the mobile opportunity for back-office software and IT services

Within telecom, the mobile segment is the largest driver for our Telecom IT Services coverage universe, as mobile operators have

traditionally been the most likely to buy applications from third-party vendors and to outsource support systems. Therefore, we

expect telecom IT services vendors will benefit significantly from mobile data adoption in the coming years. Furthermore,

consistent with our Telecom IT Services Investment Framework, we believe that spending on infrastructure software and support

services has lagged network spending on next-generation wireless in 2005-2007, and looking forward into 2008-2010, we expect

companies in our coverage to begin benefiting from:

1. the rising complexity of mobile data offerings which require upgrades and increased customization of back-office applications

to support service creation, billing, and customer care; and

2. the consumer adoption of services resulting in increased demand for processing services, such as activation and roaming, that

support subscriber activity.

Amdocs is the key beneficiary of the first trend given its broad-based exposure to back- and front-office support applications and its

leading IT services presence in consulting, systems integration, and outsourcing. Additionally, Amdocs has the most significant

footprint within the North American wireless industry, providing either billing and/or CRM support to AT&T Wireless, Bell Canada

Mobility, Rogers, Sprint-Nextel, Telus, and T-Mobile. Additionally, we expect Synchronoss and Syniverse to be key beneficiaries of

the second trend – increasing data adoption and usage – as these companies support subscriber activation and roaming services.

NeuStar will also likely benefit, though less directly than Synchronoss and Syniverse, as mobile operators continue to upgrade

network infrastructure and require updated routing support services.

The opportunity: We see at least $2bn in incremental spending by 2012, but likely drifting higher

(1) Overall spending pie on “traditional” back office software infrastructure is likely to increase by at least $1.3 billion

Worldwide spending on third-party mobile BSS/OSS (business support and operational support systems) should increase by

roughly $1.3 billion from 2007-2012, based on estimates from IDC (through 2011) and our internal expectations for companies

under our coverage. We expect Amdocs to be the primary beneficiary of increased billing and CRM systems support, with

predominantly all of this incremental spending attributed to upgrading and customizing billing, CRM, and ordering applications to

support emerging data services.

(2) Clearinghouse and other managed services platforms expand the total opportunity at least $1 billion further

In all, we expect at least $1 billion of incremental spending through 2012 for companies in our coverage area beyond the traditional

market of billing, CRM and order management services that Amdocs has dominated.

• Activation revenue estimated at roughly $500-700 million over the next 5 years. Underpinning this estimate is an

expectation that each subscriber interaction, whether to port a phone number, upgrade a handset or service package, or

activate a new line, has the potential to generate at least $2-3 in revenue per event to outside vendors, if not substantially more

Overview

Gating factors

Mobile operators

Devices

Infrastructure

-> IT services

Content

Private company



in the case of a new subscriber activation. Based on our telecom team’s analysis, roughly 240mn additional lines of service

(texting, Internet, music, etc.) will be activated by subscribers by 2012, providing a potential revenue stream for activation alone

of roughly $500-700 million over the next 5 years directly associated with mobile data.

• Roaming-related data revenue potentially a $200-300 million opportunity by 2012. Mobile data roaming introduces a new

revenue stream for clearinghouses as consumers begin to use data services more seamlessly. We expect roaming revenue to

closely track the increase in minutes of usage which our telecom team expects to increase by nearly 7X from 2007 to 2012.

While current revenues for data roaming facilitation are small (we estimate <$50 million annually), Syniverse has indicated

triple-digit growth rates for the services over the past two years, and, ultimately, we believe roaming facilitation could grow

into a $200-300 million opportunity by 2012.

• Other emerging opportunities are sizeable. NeuStar should also stand to benefit as mobile data adoption requires more

advanced subscriber routing information and as networks continue to expand. While difficult to quantify, we expect the

revenue opportunity could be greater than $100 million.

Exhibit 25: IDC estimates an incremental $1.3bn in annual wireless spending

on BSS/OSS applications and IT services support

$ in millions

Exhibit 26: Activation revenue estimated at roughly $500-600 million over

the next 5 years

$ in millions

$3,597$3,837

$4,082$4,372

$4,628$4,921

$-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

2007E 2008E 2009E 2010E 2011E 2012E

Wor

ldw

ide

Wire

less

BSS

/OSS

Spe

nd ($

mn)

$235$249

$286

$211

$157

$130

$-

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

2007E 2008E 2009E 2010E 2011E 2012E

Act

ivat

ion

reve

nue

($ m

n)

Source: IDC and Goldman Sachs research estimates.

Source: Goldman Sachs research estimates.

Investment opportunity

For direct exposure to mobile data within IT Services, we highlight Amdocs (DOX, Buy), Synchronoss (SNCR, Buy) and Syniverse

(SVR, Neutral) as the most direct beneficiaries of consumer adoption and usage of data-related products. Amdocs is the key billing

and CRM infrastructure provider to the telecom industry and is particularly well aligned with North American wireless where it



dominates in market share. Synchronoss is a managed services provider, targeting activation and customer care interactions,

particularly in on-line environments. Synchronoss is the primary activation engine behind AT&T Mobility’s web presence and also

provided the activation systems for the successful iPhone launch. Still in the early stages of expanding its presence beyond AT&T,

the company recently signed Sprint-Nextel as a customer and is planning to expand service footprint to Europe in CY2008.

Syniverse is the dominant roaming clearinghouse in the United States and, increasingly, in Europe and Asia. We expect the

increase in data MOUs to directly impact its roaming revenue stream.

Risks to our estimates

Our annual estimates could be at risk as new project implementations tend to take significant periods of time, and sales cycles for

large billing and CRM implementations tend to be long and prone to delay, particularly in periods of economic uncertainty.

Additionally, the pace of consumer adoption is critical to our view on the overall revenue opportunity. Last on risks to the

downside, further carrier consolidation and/or a significant stumble by Sprint, could disrupt pricing and demand for software and

services projects. To the upside, we believe that the wireless market will be increasingly prone to outsourcing billing and customer

care infrastructure as time to market and the customer experience become critical competitive differentiators.



Content: Interface improvements accelerate content migration to mobile

1. Mobile Internet (Mitchell, Watson)


By 2012, we believe that mobile search advertising could reach $1.5 billion domestically. We believe that the increased penetration

of data/Internet applications on mobile devices and/or increased adoption of smartphones are key swing factors in search usage

given that Google has experienced 50X more searches from iPhone users than searches from other mobile device users. Our

proprietary survey conducted in March 2007 indicated that mobile search users in general make their search engine use decision

based primarily on the following: 1) User-friendly interface; 2) Relevancy of results; 3) Speed of responses; 4) Depth of results; and

5) Personalization. The order of importance of these criteria is the same as PC-based search, with the exception of user-friendly

interface, which is not a concern for a PC-based searcher. In terms of display advertising, we think that search is likely to be the

significant opportunity, with display advertising dependent on the use of mobile video given the size of screens that limit the ability

for a consumer to view a broad selection of data/content at one glance.

Revenue drivers

• eMarketer forecasts that the U.S. mobile search market will increase at an 83% CAGR from 2009-2012, growing to $1.5 billion from $35 million in 2007. Based on our estimates, these industry estimates assume the following:

− 32% of U.S. data/Internet mobile subscribers will use search by 2012 versus 15.4% today, implying that 28mn

mobile subscribers (10% of total mobile subscribers) will access search via their handset, up from 5 million in 2007;

− The average mobile subscriber using search will conduct 12 searches per week on their mobile device in 2012, up from 7 in

2007 and compared to the 13 weekly searches the average Internet user conducts from his/her PC on a weekly basis in 2007;

− Advertisers will increasingly market to users that are searching via their mobile device, with 31% growth in spending per

search conducted through greater coverage rates and higher bids, reaching current PC-based levels in 2011/2012.

• Where could we be conservative?

− We assume that a price per click model is first adopted in mobile search; however, we believe that mobile search is an ideal

format for pay-per-call functionality, for which advertisers have been willing to pay a significant premium given the

substantially higher conversion rates of consumers once they have generated a live connection. Industry sources imply that

advertisers are willing to pay up to $10-$11 for a phone call (vs. ~$0.50 for a click) to their business because conversion

rates from a call are in the 65%-75% range, which drives advertiser return on investment. Thus, with a pay-per-call model,

the mobile opportunity could be significantly higher than what we have laid out in Exhibit 27 below.

Overview

Gating factors

Mobile operators

Devices

Infrastructure

IT services

-> Content

Private company



Exhibit 27: The U.S. mobile search opportunity

Summary CAGR2007 2008 2009 2010 2011 2012 2009-2012

US mobile search ($ millions) $35 $107 $242 $531 $910 $1,484 83%Total US search revenue $10,670 $13,211 $15,410 $17,652 $19,947 $21,941 12%Y/y growth 211% 125% 119% 72% 63%% of total mobile search 41% 44% 41% 41% 39% 39%% of total US web search 0.3% 0.8% 1.6% 3.0% 4.6% 6.8%

Total mobile searches (000) 1,787,612 3,791,691 6,361,337 9,472,197 13,117,826 17,292,988 40%Y/y growth 112.1% 67.8% 48.9% 38.5% 31.8%

Internet mobile subs (000) 32,848 47,113 63,142 73,862 83,022 88,158 12% Internet mobile subs who use search (000) 5,055 9,348 13,902 18,588 23,358 28,183 27% % of total Internet mobile subs who search 15.4% 19.8% 22.0% 25.2% 28.1% 32.0%

Weekly searches per mobile sub 1.05 1.55 1.94 2.47 3.04 3.77 25% Weekly searches per mobile sub who uses search 6.80 7.80 8.80 9.80 10.80 11.80 10%

Spending per mobile search ($) 0.02 0.03 0.04 0.06 0.07 0.09 31%Y/y growth 46.8% 34.2% 47.3% 23.9% 23.7%

Search spending per internet mobile sub ($) 1.05 2.28 3.83 7.18 10.96 16.84 64% Search spending per internet mobile sub who uses search ($) 6.82 11.49 17.39 28.54 38.97 52.66 45%

Source: eMarketer, Goldman Sachs Research estimates, Synovate.


Similar to our forecasts, we believe that current Street estimates have been built primarily based on the opportunity for PC-based

search as opposed to growth from mobile searches given the difficulty in predicting the timing and speed of mobile search

adoption. In addition, the opportunity could be significantly higher than what we have detailed in this report should consumers

have the option of unlimited data plans that lead to “free” incremental search while improvements in latency and user interfaces

are likely to drive higher usage over time.

Top pick

Google (GOOG, Buy): With mobile search users citing the same drivers of preference for mobile search as PC-based search, Google should be well-positioned. Based on Google’s near 60% US query share and over 70% US search revenue

share, we believe it can leverage its scale and comparative advantages in driving the Search Productivity Cycle across mobile

search. The key gating factors to success in our view will include the following: 1) Number of advertisers; 2) Number of queries/end

users, 3) Information; and 4) Inventory/index (i.e. number of local advertisers and size of local web index). We believe that local

inventory will be critical to the mobile search experience, and based on our 2007 proprietary user study, Google has a leading share.

Specifically, our survey showed that 44% of web users use Google when conducting a local search on their PC, up 900 bps from

2006 while Yahoo!, MSN, and AOL all lost share, implying that Google’s dominance in web search has benefited its strength in local,

which may be more critical in a mobile search world.



Key Risks

(1) Shift to revenue sharing with access provides/carrier networks would decrease the opportunity available to Internet companies;

(2) Bandwidth restrictions applied to certain websites or the need to pay for tiered distribution.

2. Music/video (Chung, Wienkes)

Summary of the opportunity

Industry overview: Mobile music/video revenue in the U.S. has to date been primarily confined to ringtone downloads. Limited by

bandwidth constraints and decreasing consumer novelty, ringtone revenue plateaued at approximately $550 million in 2007,

according to BMI. We see growth reaccelerating beyond 2008 with 3G network speeds encouraging full track music revenue and

potentially eclipsing today’s ringtone market by 2013. As an example, Japan, with one of the world’s highest 3G network

penetration rates at ~53% of subscribers, derives 93% of digital music revenue via mobile devices as opposed to desktop transfers

to iPods and other devices, as most phones are capable of full track music downloads. This compares with 33% in the United States,

where ringtones remain the primary mobile music revenue source. We see the U.S. and other international markets shifting in the

direction of advanced markets like Japan driven by:

(1) Increasing penetration of 3G enabled networks;

(2) Better user interfaces with next-gen 3G devices; and

(3) Direct billing simplifying the transaction process.

We also see mobile video benefiting from these drivers as well, although somewhat tempered relative to music given the more

active engagement required. Music can easily be consumed while ‘on the go’ on a mobile device while video requires being

stationary to safely watch, in which case more traditional devices could provide better selection and quality. We see current

offerings like Verizon and Sprint’s live linear channels with limited on demand programming evolving to include more premium on

demand programs – with live sports and blockbuster hit content driving adoption. In addition, greater Internet browsing may also

include more snackable video content such as that on YouTube, although we account for that revenue via the page views

associated in our Internet forecast.

Our top-down industry analysis projects segment CAGR of ~60% to $7 billion in 2012

Our top-down industry forecast calls for gross mobile full track music revenue to grow from $0.5 billion in 2008 to $4.6 billion in

2012 (see Exhibit 28). This would represent average annual growth of ~70%. Full track─music capable handsets represented

approximately 15% of active handsets in 2007 according to NPD, with 1.1% of all handset owners using them to directly purchase

full track music as of 4Q2007 according to Nielsen Mobile. We see music download capable handsets increasing to over 45% of handsets, with 27% of owners actively purchasing full track mobile music by 2012. We believe our baseline

forecast is conservative, with the number of music downloads per enabled handset as having the greatest sensitivity. Our base case

assumes the download quantities increase from an estimate of about 3 tracks/enabled handset/year to ~10 tracks by 2012. If usage

were more like that exhibited by current Apple iPod owners, we could see downloads at the rate of 15 or more per year.

We estimate prices per download will decline over time, as the experience more closely mimics that of the iTunes store – with

pricing accordingly converging by 2012. Today’s mobile downloads are in the $1.50- $2.00 per song range, well above the typical



$0.99 for iTunes tracks. We expect a typical single track mobile download to reach the standard $1 level by 2012, with track/ringtone

packages reaching the iTunes store rate of $2.

Exhibit 28: Goldman Sachs mobile music track industry revenue opportunity

$ and units in 000s

Mobile full track music downloads 2007E 2008E 2009E 2010E 2011E 2012E

U.S. mobile subscribers 255 270 282 292 301 308

% listening to music on mobile phone 6% 10% 20% 30% 40% 45%% of listeners downloading from mobile music service 18% 20% 30% 40% 50% 60%% of total mobile 1% 2% 6% 12% 20% 27%

Music downloads per service user / yr. (base case) 3.0 3.5 5.5 7.5 10.0 10.0Music downloads per service user / yr. (high side -- iPod type usage) 5.0 7.0 9.0 13.0 15.0 15.0

Price per download $1.75 $1.60 $1.45 $1.30 $1.25 $1.25Total US revenue (base case) $14 $30 $134 $342 $753 $1,040Total US revenue (high side) $23 $61 $221 $593 $1,129 $1,561

US as a % of International music revenue 5% 10% 20% 30% 35% 40%Total International revenue $373 $454 $887 $1,558 $2,688 $3,251 % growth 22% 95% 76% 73% 21%

Total Worldwide revenue $392 $500 $1,065 $2,026 $3,629 $4,552 % growth 28% 113% 90% 79% 25%

Source: Company data, Nielsen Mobile – a service of The Nielsen Company, Goldman Sachs Research estimates.

Mobile video remains a relatively small portion of the current mobile market as approximately 30% handsets were video capable in

2007, and only 1.1% of all mobile users actively used video capability according to Nielsen Mobile. Today’s business model is

primarily limited to subscription services, with few advertising supported or pay per download offerings available. As network

speeds increase we see increasing offerings of ad supported and pay per download video for more mainstream consumers, while

subscription prices decline.

About 25% of today’s video subscribers use their services daily, while 52% use them only once per week according to Telephia,

leading to an estimated average of 2.4 views per week. We see usage per active user increasing to 3.5 or more views per week by

2011 as mobile devices: 1) get used for intraday / at work viewing, 2) are used for travel periods, and 3) serve as secondary home

TVs; among other incremental uses. We also see overall penetration of video capable devices increasing to 40% by 2012 and ~50%

or more of capable users using video in some form (ad supported, subscription service, or pay per download). This drives

subscription revenue of approximately $1.9 billion vs. ~$0.3 billion today, advertising revenue of approximately $400 million,

assuming 1-2 commercial spots per program, and $600 million from pay per download options. See Exhibit 29 for details.



Exhibit 29: Goldman Sachs mobile video industry revenue opportunity

$ and units in 000s

Mobile video usage 2007E 2008E 2009E 2010E 2011E 2012E

U.S. mobile subscribers 255 270 282 292 301 308% video capable 30% 32% 35% 37% 39% 40%

Video capable users 77 87 99 108 117 123

Weekly views/active user 2.4 2.8 3.0 3.3 3.5 3.5Spots/program 0.3 0.5 0.8 1.0 1.3 1.5Annual views 139 866 2,774 5,849 12,022 16,831CPM $15.00 $16.50 $18.15 $19.97 $21.96 $24.16% of video capable active users 6% 14% 24% 32% 45% 50%Mobile video ad revenue $2 $14 $50 $117 $264 $407

Subscription fee per subscriber $6.00 $5.50 $5.25 $5.00 $5.00 $5.00% of video capable subscribing 6% 9% 14% 17% 20% 25%Subscription fee revenue $314 $514 $871 $1,103 $1,409 $1,850

Monthly downloads/active user 0.0 0.0 1.0 1.5 2.0 2.0Revenue per download $0.99 $0.99 $0.99 $0.99 $0.99 $0.99% of video capable using pay per download 0% 0% 9% 12% 15% 20%Download fee revenue $0 $0 $106 $231 $419 $586

Total mobile video revenue $317 $528 $1,027 $1,451 $2,092 $2,842

Source: Nielsen Mobile – A service of The Nielsen Company, Telephia, Mobile World Congress, Goldman Sachs Research estimates.


Mobile video revenue opportunity remains small relative to the total revenue streams of our large cap entertainment companies at

$1.5-$2 billion versus $140 billion+ for the companies in aggregate during 2008, and we do not expect it will be a primary driver of

growth. That said, we favor companies that are most capable of driving successful content aggressively across platforms, such as

Disney (Buy), Viacom (Neutral), and News Corp (Not Rated). In music, only one of our covered companies has significant exposure

to the market, Warner Music Group (Neutral). We view the adoption of 3G music enabled handsets as a net positive for the industry,

as it provides more convenient ways to legally acquire music, but estimates would have to be substantially higher to offset the

expected decline in physical music sales and cannibalization of wired downloads. We also expect some cannibalization of existing

ringtone downloads as consumers switch to integrated full tracks.

Dolby (DLB, Buy) - Of our covered Entertainment names, we believe that Dolby is the best positioned company to benefit from the adoption of 3G handsets. Currently, Dolby administers and receives a disproportionately large percentage of

the royalty fee for the HE AAC codec, a compression and encoding technology for music playback on mobile devices. The HE AAC

codec is built into most models of 3G phones. We estimate that Dolby will generate roughly $15 million (2% of total company

revenue in FY2008) from HE AAC in 2008 and expect HE AAC revenue to grow at the pace of 3G handset adoption (~25% CAGR

from 2007-2012 vs. our 16% revenue CAGR for Dolby over the same time period). Additionally, Dolby has created a bundle of sound

technologies to accompany HE AAC called Dolby Mobile Suite. We believe the company is well-positioned to leverage the



relationships and IP from HE AAC to sell Mobile Suite, driving incremental revenue beyond HE AAC by increasing the licensing fees

received per handset.


Downside risk to our estimates could come from lower than expected pricing for services or subscriptions, and / or less demand for

advertising supported content. We see upside potential from increased download rates for music as network speed increases given

lower transaction and interface barriers as well as the opportunity for a greater variety of content such as full length movies with

future generation networks.



3. Gaming (Wienkes)

Summary of the data opportunity

Industry overview: The mobile gaming industry is a developing niche with vast growth potential as mobile devices become the

primary electronic interface for consumers. Handsets are increasingly becoming more conducive for gaming as larger screens and

superior 2.5G-3G platforms are being rolled out that allow for more complex and better-quality game-play. We expect consumer

adoption to increase significantly as more wireless subscribers adopt 2.5G-3G technology and handsets become more game-

friendly. As the industry matures and the demographic expands, we believe the mobile gaming industry is potentially larger than

that of console and PC games. In fact we believe the industry is poised for rapid growth as mobile devices become the primary

gaming interface for consumers. As this rollout continues, we believe it will substantially broaden and deepen the universe that is

able to play the improved games and help drive consumer adoption. Specifically, we believe the industry will be driven by:

(1) Increasing penetration of 2.5G-3G “game-friendly” handsets;

(2) greater adoption as customer awareness increases; and

(3) new distribution and monetization engines.

Exhibit 30: Goldman Sachs mobile gaming industry revenue opportunity

2.5G - 3G 'Game Friendly' Handsets

Consumer Adoption

New Distribution & Businesses


More “game-friendly” handsets should encourage consumer adoption, which drives new distribution and businesses.



Our top-down industry analysis has the mobile industry growing to $5.3bn in 2012

Our top-down industry analysis has gross mobile gaming revenue growing from $2.1 billion in 2006 to $5.3 billion in 2012 (see

Exhibit 31). We base our analysis on the projected number of game-enabled (2.5G and 3G) worldwide handset sales as mobile

games are predominantly downloaded in the first few months that a handset is sold.

Specifically, we forecast the number of game-enabled handset sales by region, then estimate the number of mobile gamers based

on consumer penetration (by region). Finally, we estimate the average downloads per mobile gamer by region, and using an

average $5 sale price, we arrive at our total industry revenue estimate.

Exhibit 31: Goldman Sachs mobile gaming industry revenue opportunity

$ and units in millions

Game-Enabled Handsets 2006E 2007E 2008E 2009E 2010E 2011E 2012ETotal Worldwide Game-Enabled Handset Sales 842 979 1,070 1,166 1,253 1,379 1,517

Blended percent purchasing mobile games 6% 7% 8% 8% 9% 12% 11%

Total Mobile Gamers 63 80 94 108 119 159 167

Blended number of downloads per mobile gamer 5.4 5.9 6.0 6.1 6.2 6.4 6.4

Total Mobile Game Downloads 420 640 740 840 940 1,020 1,060

Average Revenue / Download $5.00 $5.00 $5.00 $5.00 $5.00 $5.00 $5.00

Total Industry RevenueNorth America $253 $366 $576 $791 $967 $1,050 $1,091South America 100 131 149 160 163 177 184Europe 523 578 619 625 579 628 653Asia Pacific 1,203 2,093 2,306 2,548 2,868 3,112 3,234Rest of the World 20 31 49 77 122 133 138Total Industry Revenue $2,100 $3,200 $3,700 $4,200 $4,700 $5,100 $5,300



For direct exposure to the mobile gaming opportunity we believe equity investors should focus on pure play gaming companies

such as Glu Mobile (GLUU, Neutral) as a potential acquisition target rather than investing in core video game publishers with

mobile gaming elements such as Electronic Arts (ERTS, Buy) or THQ (THQI, Neutral). We believe mobile gaming companies will

continue to experience consolidation as large entertainment companies are expanding into this niche to capitalize on the expected

rapid industry growth.


Execution on the three critical success factors of (1) content, (2) distribution, and (3) technology will be requisite for growth over the

longer term, for both the long term potential of the industry and its mobile gaming participants. As such, we believe investors

should focus on mobile gaming companies that will exhibit multi-pronged strength in content, distribution, and porting technology,

rather than singular strengths. For example, branded content providers prefer to match their brands with a publisher with a history

of quality games, strong carrier relationships, and porting technology, while carriers in turn prefer mobile game publishers with



large and diverse portfolios of high-quality games that can be ported to the largest proportion of handsets within their subscriber

universe.

4. Enterprise applications (Friar, Zorovic)

Summary of the mobile enterprise applications opportunity

Industry overview: The market for mobile enterprise applications is poised for substantial growth in the coming years as several

drivers begin to come together. Specifically, we believe the industry will be driven by:

(1) Proliferation of VoIP and Wi-Fi; and

(2) Increasing adoption of Software-as-a-Service (SaaS) applications.

Initially, the proliferation of VoIP and Wi-Fi throughout 2008 will give employees greater mobile connectivity and the ability to utilize

business level applications on the road. In addition, themes such as desktop virtualization are likely to hit an inflection point in

2009., and further increase the ability for employees to access their corporate desktops while on the move. In conjunction with

greater connectivity, the increasing adoption of SaaS applications will allow business users to access applications anywhere

through an Internet browser and will increasingly blur the lines between on-premise and mobile applications. SaaS vendors such

as salesforce.com are already helping to make their applications easier to access via mobile devices such as iPhones, by making

interfaces friendly to mobile users. Thus, we expect business users to increasingly demand SaaS applications as these may be

accessed in the office or on the road with equal ease and functionality.

We see a $100bn+ potential market opportunity for mobile enterprise applications as SaaS applications blur the line

Currently the market for mobile enterprise applications specifically designed for mobile devices remains small at about $2 billion

according to IDC estimates, however we believe that the opportunity will be significantly expanded as enterprises increasingly

adopt SaaS applications over the coming years.



Exhibit 32: Goldman Sachs mobile enterprise applications revenue opportunity

$ millions

Mobile Enterprise Appications Revenue 07-'122007 2008 2009 2010 2011 2012 CAGR (%)

Content applications $163 $219 $258 $385 $575 $859 39%Engineering applications 43 62 71 101 143 204 36%Enterprise resource mgmt. 309 380 518 640 792 980 26%Operations and manufacturing 352 370 626 686 751 822 18%Customer relationship mgmt. 458 536 638 751 883 1,038 18%Collaborative applications 485 535 606 659 716 778 10%Supply chain mgmt. 228 217 247 288 335 390 11%Total $2,039 $2,320 $2,964 $3,509 $4,154 $4,918 19%

GS Smartphone unit forecast (mn) 114 150 208 265 313 361 26%

Enterprise revenue per smartphone $17.82 $15.45 $14.24 $13.23 $13.26 $13.61 (5%)

NA smartphone mix 17% 18% 21% 23% 23% 23%

NA mobile enterprise applications revenue $341 $428 $626 $822 $954 $1,115 27%

ROW mobile enterprise applications revenue $1,698 $1,892 $2,338 $2,686 $3,200 $3,804 18%




Exhibit 33: The full SaaS opportunity is much larger, providing room for

upside - about $70 billion in 2005…

$ billions, percentage of total revenue

Exhibit 34: …and expected to grow to $114 billion in 2010

$ billions, percentage of total revenue

Enterprise apps, $65 billion, 31%

System infrastructure, $75

billion, 35%

Database, $18 billion, 8%

Desktop applications, $24

billion, 12%

App development and deployment, $29 billion, 14%

75%

100%

System infrastructure includes desktop and network security applications, backup,

and virtualization.

App dev and deployment includes application servers, middleware, and integrated

development environments (e.g., Visual Studio), and business intelligence.

Desktop applications include authoring and publishing (e.g., Photoshop, Office),

entertainment, and education software.

Enterprise apps, $101 billion, 33%

System infrastructure,

$101 billion, 33%

Database, $24 billion, 8%

Desktop applications, $38

billion, 13%

App development and deployment, $41 billion, 13%

75%

100%

Source: : IDC Corporation, Goldman Sachs Research.

Source: : IDC Corporation, Goldman Sachs Research.

The desktop application and enterprise application markets stand at $24 billion and $65 billion, respectively. For our market sizing

analysis we assume the following:

• 100% of desktop applications are able to be delivered as on-demand solutions over time. => $38 billion opportunity in 2010.

• For the enterprise applications space we assume that approximately 10% of all data will not be able to be accessed on demand

per governmental mandates. This would include US government and international government data that is deemed “Top

Secret” and thus may not be co-mingled, stored off premise, etc. We also assume that approximately 15% of enterprise



applications cannot be designed as on-demand, solutions due to their inherent complexity and highly customized nature. => $76 billion opportunity in 2010.

• Thus we get to a $114 billion market opportunity by 2010.

As more employees begin to work from home or demand greater connectivity to their work environment as they travel for business,

we believe there will be a shift toward greater adoption of SaaS enterprise applications. Beyond the other advantages of SaaS

solutions, these applications will deliver the same functionality and data to employees no mater where they are, so long as they

have access to an Internet connection and a web browser.


While many companies including Microsoft (MSFT, Not Rated), Research in Motion (RIMM, Buy) and Sybase (SY, Not Covered) with

its iAnywhere software will be focused on applications specifically designed for the mobile environment, we believe the greatest

opportunity lies with on-demand applications which need only a web browser to be accessed. The proliferation of mobile devices

which can access Wi-Fi networks should give workers increasing access to SaaS applications. Key SaaS vendors are currently

companies such as salesforce.com (CRM, Sell) and SuccessFactors (SFSF, Neutral), however software stalwarts such as Microsoft,

Oracle (ORCL, Buy) and SAP (SAP, Neutral) are increasingly delivering applications via the web and thus should also benefit from

increasing Internet access via mobile devices.


Our market sizing illustrates the potential of the market, but by no means do we believe that the market will become fully

penetrated with SaaS solutions by 2010. While SaaS providers have now largely addressed customers’ concerns, including security

and reliability, customers we spoke with indicate that many SaaS offerings are still not as feature-rich as their on-premise

equivalents. Integration also seems to be an issue as customers are reluctant to introduce SaaS offerings into their IT environments

before they can be assured that data is well synchronized between SaaS and on-premise applications.



Private companies (Lee, S.): Broad-based activity related to mobile data opportunities

Summary of the mobile data-related activity among private companies

Our survey of VC investment trends as detailed in the report “Takeaways for the Tech investor from recent VC trends” (Simona

Jankowski, November 23, 2007) found that venture capital investment related to wireless/mobility has increased over the past few

years, with interest noted across several technology sub-sectors: communications equipment, semiconductors, software, and

services. There is widespread activity across these various sub-sectors; however, here we attempt to home in on the areas of

concentration for investments and private company activity related specifically to wireless data opportunities, as detailed above in

this report.

Exhibit 35: A more granular look at the top and bottom VC trends

as identified in a free-response question by participants in our VC survey

-15 -10 -5 0 5 10 15

Enterprise/application softwareTelecom equipment/services

B2BSemis/Semi cap equipment

HardwareConsumer electronics components

EDAOptics

SecurityNanotechnology

StorageVOIP/Media over IP

Communications applicationsConsumer Software/services

Peer-to-PeerThin film photovoltaics

Web 2.0Advertising

Analog semisClean Tech

International/OutsourcingOpen source

Virtualization/Data center Mobility/Wireless

Internet/Consumer mediaSoftware-as-a-Service

Num

ber o

f tim

es a

tren

d w

as id

entif

ied

as "

top-

3", m

inus

num

ber o

f tim

es

a tr

end

was

iden

tifie

d as

"bo

ttom

-3"

for V

C in

vest

ing

over

the

last

3 y

ears

Source: Goldman Sachs VC Survey.

Overview

Gating factors

Mobile operators

Devices

Infrastructure

IT services

Content

-> Private company



Advanced infrastructure and new services the area of focus in communications equipment. Although venture capital

investment and the number of private companies related to telecom and networking and equipment have declined significantly

relative to the bubble at the start of the 2000s, there continues to be much activity in communications equipment, in particular

related to next-generation networks and services. For wireless equipment, we noted more concentrated areas of investment related

to new wireless standards such as WiMAX (as detailed in our report, “Introducing Emerging Technology Research: WiMAX ‘Deep

Dive,’ “ Seogju Lee, February 21, 2008), advancing network architectures (relating to fixed mobile convergence (FMC) and transition

to full IP systems), and specific pain points developing (such as network optimization and video transcoding). Also, we note that

there has been limited activity by private companies related to mobile devices, given already difficult competitive landscapes,

though Modu has emerged more recently with its unique modular device architecture. In Exhibit 36, we detail select private

communications equipment companies focused on backhaul.

Exhibit 36: Select private communications equipment companies targeting opportunities related to increasing backhaul needs

Company CategoryAccedian Networks Carrier Ethernet equipmentActelis Networks Carrier Ethernet equipmentANDA Networks Carrier Ethernet equipmentAurora Networks Optical transportAxerra Networks Inc Pseudo-wire solutionsCalix Multi-service network equipmentCambridge Broadband Ltd Wireless backhaulCeterus Networks Ethernet transport solutionsExalt Communications Wireless backhaulHatteras Networks Multi-service network equipmentOpVista Optical transport equipmentOverture Networks Multi-service network equipmentRAD Data Communications Access equipmentRivulet Communications Multi-service network equipmentTejas Networks Optical transport equipmentTransmode Optical Optical transport equipmentTurin Networks Inc Multi-service network equipment

Please note: this list is not comprehensive and serves as a set of examples only.

Source: Compiled by Goldman Sachs Research.

Semiconductors to enable next-generation services. The semiconductor market specific to the cellular handsets is very large at

$38 billion in 2007, and there are many new growth opportunities related to wireless data, which private companies have formed to

address. Although the baseband market represents the largest portion of the cellular semiconductor market at 24%, it is very

difficult to penetrate, especially for a private company, given the aggressive competitive landscape (which is littered with many

large, incumbent diversified semiconductor suppliers), consolidated market share in the customer base (with the top five handset



vendors controlling 86% of the market), and large required investment (not only to fund extensive chip design, but also to support

lengthy customer and carrier qualifications). Hence, venture capital investments and private companies’ activities have been in new

technology and service areas like WiMAX, LTE, and video, as well as more efficient and/or more powerful approaches to power

management and RF technologies. In Exhibit 37, we detail select private semiconductor companies that are developing next-

generation RF technologies, which are related to the enablement of faster data transmissions on both the client and infrastructure.

Exhibit 37: Select private semiconductor companies deploying advanced RF solutions for next-generation wireless

RF/radioAmalfi Semiconductor CMOS-based power amplifiers - mobile phonesAxiom Microdevices CMOS-based power amplifiers - mobile phonesBitwave Semiconductor Programmable RF transceivers - mobile devicesOptichron Digital nonlinear signal processing solutions - wireless infrastructurePulseWave RF Digital RF power amplifier module - wireless infrastructureQuantance Power amplifier power controllerQuantenna Communications MiMo-based wireless solution - company still in stealth modeVanu Software radio - wireless infrastructure



Various new software, content, and service opportunities enabled by high-speed wireless data. High-speed wireless networks

will enable various new revenue-generating advanced service opportunities, and venture capital investments have been made into

a number of software and service-oriented companies, including those developing solutions related to productivity, mobile

internet, advertising, gaming, and video, as detailed above. In Exhibit 38, we detail a number of the more prominent private

companies active in these areas.



Exhibit 38: High-speed wireless data enables many new software, content, and service opportunities

Mobile AdvertisingAd Infuse Mobile ad platformAdMob Mobile ad networkGoldSpot Media Ad insertion for mobile broadcast TVGreystripe Embedded ads in mobile gamesMillennial Media Mobile ad networkQuattro Wireless Mobile ad networkRhythm NewMedia Mobile ad platform including video, banners, gamesSmaato Open Mobile Advertising Platform

Mobile GamingDigital Chocolate Mobile game application developerHands-On Mobile (formerly mForma) Mobile game publisherPunch Entertainment Developer of games playable across mobile phones and the WebSkyZone Entertainment Mobile entertainment content developer

Mobile VideoComVu Mobile streaming video softwareEyespot Mobile video sharing softwareJuice Wireless (Juicecaster) Mobile multimedia communityMyWaves Mobile video (software and ads)Ortiva Wireless Mobile video delivery optimization technologyTreemo Mobile entertainment content communityVeeker Mobile video and photo messagingvpod.tv Mobile video publishing communityZannel Mobile Instant Media Messaging





Reg AC

We, Jason Armstrong, CFA, James Covello, Sarah Friar and James Mitchell, CFA, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject

company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed

in this report.

Investment profile

The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are:

growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's

coverage universe.

The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:

Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI,

ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month

volatility adjusted for dividends.

Quantum

Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make

comparisons between companies in different sectors and markets.

Disclosures

Coverage group(s) of stocks by primary analyst(s)

Jason Armstrong, CFA: America-Telecom Services: Towers, America-Wireline Service - Canadian, America-Wireline Services. James Covello: America-Semi Device, America-Semiconductor Capital

Equipment. Sarah Friar: America-Software Group. James Mitchell, CFA: America-Internet, Asia Pacific Media.

America-Internet: Amazon.com Inc., Baidu.com, Inc., CNET Networks Inc., EarthLink, Inc., eBay Inc., Expedia Inc., FTD Group, Inc., Google Inc., GSI Commerce, Inc., IAC/InterActiveCorp, 1-800-

FLOWERS.COM, Inc., Orbitz Worldwide, Inc., Priceline.com Incorporated, RealNetworks, Inc., Vistaprint Limited, WebMD Health Corp., Yahoo! Inc..

America-Semi Device: Advanced Micro Devices, Inc., Altera Corp., Analog Devices, Inc., Applied Micro Circuits, Broadcom Corporation, Intel Corp., International Rectifier Corp., Intersil Corp., Lattice

Semiconductor Corp., Leadis Technology, Linear Technology Corp., LSI Corp., Marvell Technology Group Ltd., Maxim Integrated Products, Micrel, Inc., Microchip Technology Inc., Micron Technology

Inc., Monolithic Power Systems, National Semiconductor Corp., Nvidia Corp., PMC-Sierra, Inc., SanDisk Corporation, Sigma Designs, Inc., Silicon Image, Inc., SiRF Technology Holdings, Inc., Texas

Instruments Inc., Trident Microsystems, Inc., Volterra Semiconductor Corp., XILINX Corp., Zoran Corporation.

America-Semiconductor Capital Equipment: Advanced Energy Industries, Inc., Applied Materials, Inc., ATMI, Inc., Axcelis Technologies, Inc., Brooks Automation, Inc., Credence Systems Corp.,

Entegris, Inc., FormFactor, Inc., KLA-Tencor, Lam Research Corp., MKS Instruments, Inc., Novellus Systems Inc., Teradyne, Inc., Verigy Ltd..

America-Software Group: Adobe Systems Inc., Akamai Technologies, Inc., Autodesk Inc., BEA Systems, Inc., BMC Software, Inc., CA, Inc., Check Point Software Tech., Citrix Systems Inc., CommVault

Systems, Inc., Digital River, Inc., Informatica Corp., Kenexa Corporation, Limelight Networks, Inc., Macrovision Corp., McAfee, Inc., Microsoft Corp., Nuance Communications, Inc., Oracle Corp.,

Parametric Technology Corp., Quest Software, Inc., Red Hat, Inc., RightNow Technologies, Inc., salesforce.com, Inc., SAP (ADR), Secure Computing Corp., SuccessFactors, Inc., Symantec Corp., Taleo

Corporation, TIBCO Software Inc., VeriSign, Inc..

America-Telecom Services: Towers: American Tower Corp., Crown Castle International Corp., SBA Communications Corp..

America-Wireline Service - Canadian: BCE, Inc., BCE, Inc., Rogers Communications Inc., Rogers Communications Inc., TELUS Corp., TELUS Corp..



America-Wireline Services: AT&T Inc., Cellcom Israel Ltd., CenturyTel Inc., Cincinnati Bell Inc., Citizens Communications, Embarq Corp., FairPoint Communications, Inc., Global Crossing Ltd., Leap

Wireless International, Inc., Level 3 Communications, Inc., MetroPCS Communications, Inc., Qwest Communications Intl., SAVVIS, Inc., Sprint Nextel Corp., Verizon Communications, Windstream

Corp..

Asia Pacific Media: 104 Corporation, 51job, Inc., Alibaba.com, Asia Satellite, Cheil Worldwide, CJ CGV, Clear Media, Ctrip.com International, Daum Communications, Dish TV India, Entertainment

Network India, Focus Media, Gmarket, Imagi International Holdings, Megastudy, NCsoft, Netease, New Oriental Education & Technology Group Inc. (ADR), NHN, ON Media, Phoenix Satellite

Television, Shanda Interactive Ent, SINA Corporation, SK Communications, Sohu.com, Star Cruises, Star Cruises, Sun TV Network, Television Broadcasts, Television Eighteen India, Tencent Holdings,

The9 Limited, Zee Entertainment Enterprises.

Company-specific regulatory disclosures

The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of

Goldman Sachs and referred to in this research.

Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be aggregated under US securities law) as of the

month end preceding this report: Alcatel-Lucent (ADS) ($6.08), DISH Network Corp. ($31.84) and FairPoint Communications, Inc. ($8.21)

Goldman Sachs has received compensation for investment banking services in the past 12 months: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc. ($37.57),

Broadcom Corporation ($21.65), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), Dolby Laboratories, Inc. ($35.31), Embarq Corp. ($38.76), FairPoint Communications, Inc.

($8.21), Glu Mobile Inc. ($4.51), Microsoft Corp. ($29.22), Motorola, Inc. ($9.05), Qwest Communications Intl. ($4.54), Starent Networks, Corp. ($11.60), Syniverse Technologies, Inc. ($16.87), Time

Warner Cable Inc. ($26.80) and Verizon Communications ($35.85)

Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49),

AT&T Inc. ($37.57), Broadcom Corporation ($21.65), Cablevision Systems Corp. ($22.66), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), Crown Castle International Corp.

($37.94), The DIRECTV Group, Inc. ($25.45), Dolby Laboratories, Inc. ($35.31), Embarq Corp. ($38.76), FairPoint Communications, Inc. ($8.21), Glu Mobile Inc. ($4.51), Juniper Networks, Inc. ($23.36),

Microsoft Corp. ($29.22), Motorola, Inc. ($9.05), QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Starent Networks, Corp. ($11.60), Synchronoss

Technologies Inc. ($20.43), Syniverse Technologies, Inc. ($16.87), Time Warner Cable Inc. ($26.80) and Verizon Communications ($35.85)

Goldman Sachs has received compensation for non-investment banking services during the past 12 months: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc.

($37.57), Broadcom Corporation ($21.65), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), The DIRECTV Group, Inc. ($25.45), Juniper Networks, Inc. ($23.36), Microsoft

Corp. ($29.22), Motorola, Inc. ($9.05), QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Time Warner Cable Inc. ($26.80) and Verizon Communications

($35.85)

Goldman Sachs had an investment banking services client relationship during the past 12 months with: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc. ($37.57),

Broadcom Corporation ($21.65), Cablevision Systems Corp. ($22.66), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), Crown Castle International Corp. ($37.94), The

DIRECTV Group, Inc. ($25.45), Dolby Laboratories, Inc. ($35.31), Embarq Corp. ($38.76), FairPoint Communications, Inc. ($8.21), Glu Mobile Inc. ($4.51), Juniper Networks, Inc. ($23.36), Microsoft Corp.

($29.22), Motorola, Inc. ($9.05), QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Starent Networks, Corp. ($11.60), Synchronoss Technologies Inc.

($20.43), Syniverse Technologies, Inc. ($16.87), Time Warner Cable Inc. ($26.80) and Verizon Communications ($35.85)

Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc.

($154.49), AT&T Inc. ($37.57), Broadcom Corporation ($21.65), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), The DIRECTV Group, Inc. ($25.45), Juniper Networks, Inc.

($23.36), Microsoft Corp. ($29.22), Motorola, Inc. ($9.05), QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Time Warner Cable Inc. ($26.80) and

Verizon Communications ($35.85)

Goldman Sachs had a non-securities services client relationship during the past 12 months with: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc. ($37.57),

Broadcom Corporation ($21.65), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), The DIRECTV Group, Inc. ($25.45), Juniper Networks, Inc. ($23.36), Microsoft Corp. ($29.22), Motorola, Inc. ($9.05),

QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Time Warner Cable Inc. ($26.80) and Verizon Communications ($35.85)

Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: AT&T Inc. ($37.57), Comcast Corp. ($20.16), Dolby Laboratories, Inc. ($35.31), Motorola, Inc. ($9.05),

Starent Networks, Corp. ($11.60) and Verizon Communications ($35.85)

A director and/or employee of Goldman Sachs is a director: QUALCOMM, Inc. ($42.07)

Goldman Sachs makes a market in the securities or derivatives thereof: Alcatel-Lucent (ADS) ($6.08), Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc. ($37.57), Broadcom Corporation ($21.65),

Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), Crown Castle International Corp. ($37.94), The DIRECTV Group, Inc. ($25.45), DISH Network Corp. ($31.84), Glu Mobile Inc. ($4.51), Juniper

Networks, Inc. ($23.36), Microsoft Corp. ($29.22), Motorola, Inc. ($9.05), QUALCOMM, Inc. ($42.07), Qwest Communications Intl. ($4.54), Research In Motion Ltd. ($118.63), Starent Networks, Corp.

($11.60), Synchronoss Technologies Inc. ($20.43) and Verizon Communications ($35.85)

Goldman Sachs is a specialist in the relevant securities and will at any given time have an inventory position, "long" or "short," and may be on the opposite side of orders executed on the relevant

exchange: Amdocs Limited ($28.19), Apple Inc. ($154.49), AT&T Inc. ($37.57), CenturyTel Inc. ($31.00), Cisco Systems, Inc. ($23.89), Comcast Corp. ($20.16), Crown Castle International Corp. ($37.94),

Synchronoss Technologies Inc. ($20.43), Time Warner Cable Inc. ($26.80) and Verizon Communications ($35.85)

Goldman Sachs holds a position greater than U.S. $15 million (or equivalent) in the debt or debt instruments of: Time Warner Cable Inc. ($26.80)



Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global coverage universe

Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell

Global 28% 57% 15% 51% 44% 41%

As of Apr 1, 2008, Goldman Sachs Global Investment Research had investment ratings on 2,975 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment

Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage

groups and views and related definitions' below.

Regulatory disclosures

Disclosures required by United States laws and regulations

See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or

other ownership; compensation for certain services; types of client relationships; managed/co-managed public offerings in prior periods; directorships; market making and/or specialist role.

The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their

households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes

investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer,

director, advisory board member or employee of any company in the analyst's area of coverage. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price

chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs

website at http://www.gs.com/research/hedge.html. Goldman, Sachs & Co. is a member of SIPC.

Additional disclosures required under the laws and regulations of jurisdictions other than the United States

The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws and regulations. Australia: This research, and any

access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. Canada: Goldman Sachs Canada Inc. has approved of, and agreed to take responsibility for,

this research in Canada if and to the extent it relates to equity securities of Canadian issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the

company of travel expenses for such visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from Goldman Sachs

(Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (India) Securities Private Limited; Japan: See below.

Korea: Further information on the subject company or companies referred to in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. Russia: Research reports distributed in

the Russian Federation are not advertising as defined in Russian law, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the

meaning of the Russian Law on Appraisal. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company

Number: 198602165W). United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Services Authority, should

read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman

Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request.

European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at

http://www.gs.com/client_services/global_investment_research/europeanpolicy.html

Japan: Goldman Sachs Japan Co., Ltd. Is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the Kanto Financial Bureau (Registration No. 69), and is a member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of Japan (FFJAJ). Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the

Japanese Securities Dealers Association or the Japanese Securities Finance Company.

Ratings, coverage groups and views and related definitions

Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy or Sell on an Investment List is determined by a

stock's return potential relative to its coverage group as described below. Any stock not assigned as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review

Committee manages various regional Investment Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular

coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent investment recommendations focused on either the size of

the potential return or the likelihood of the realization of the return.

Return potential represents the price differential between the current share price and the price target expected during the time horizon associated with the price target. Price targets are required for

all covered stocks. The return potential, price target and associated time horizon are stated in each report adding or reiterating an Investment List membership.



Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at http://www.gs.com/research/hedge.html. The analyst assigns one

of the following coverage views which represents the analyst's investment outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The

investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook over the following 12

months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage

group's historical fundamentals and/or valuation.

Not Rated (NR). The investment rating and target price, if any, have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in an advisory capacity in a merger or strategic

transaction involving this company and in certain other circumstances. Rating Suspended (RS). Goldman Sachs Research has suspended the investment rating and price target, if any, for this stock,

because there is not a sufficient fundamental basis for determining an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and

should not be relied upon. Coverage Suspended (CS). Goldman Sachs has suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA). The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Ratings, coverage views and related definitions prior to June 26, 2006

Our rating system requires that analysts rank order the stocks in their coverage groups and assign one of three investment ratings (see definitions below) within a ratings distribution guideline of no

more than 25% of the stocks should be rated Outperform and no fewer than 10% rated Underperform. The analyst assigns one of three coverage views (see definitions below), which represents the

analyst's investment outlook on the coverage group relative to the group's historical fundamentals and valuation. Each coverage group, listing all stocks covered in that group, is available by primary

analyst, stock and coverage group at http://www.gs.com/research/hedge.html.

Definitions

Outperform (OP). We expect this stock to outperform the median total return for the analyst's coverage universe over the next 12 months. In-Line (IL). We expect this stock to perform in line with the

median total return for the analyst's coverage universe over the next 12 months. Underperform (U). We expect this stock to underperform the median total return for the analyst's coverage universe

over the next 12 months.

Coverage views: Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The

investment outlook over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment outlook over the following 12

months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.

Current Investment List (CIL). We expect stocks on this list to provide an absolute total return of approximately 15%-20% over the next 12 months. We only assign this designation to stocks rated

Outperform. We require a 12-month price target for stocks with this designation. Each stock on the CIL will automatically come off the list after 90 days unless renewed by the covering analyst and

the relevant Regional Investment Review Committee.

Global product; distributing entities

The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs, and pursuant to certain contractual arrangements, on a global

basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on macroeconomics, currencies, commodities and portfolio

strategy.

This research is disseminated in Australia by Goldman Sachs JBWere Pty Ltd (ABN 21 006 797 897) on behalf of Goldman Sachs; in Canada by Goldman Sachs Canada Inc. regarding Canadian

equities and by Goldman Sachs & Co. (all other research); in Germany by Goldman Sachs & Co. oHG; in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman Sachs (India) Securities

Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul Branch; in New Zealand by Goldman Sachs JBWere (NZ) Limited on behalf of

Goldman Sachs; in Singapore by Goldman Sachs (Singapore) Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has

approved this research in connection with its distribution in the United Kingdom and European Union.

European Union: Goldman Sachs International, authorised and regulated by the Financial Services Authority, has approved this research in connection with its distribution in the European Union and

United Kingdom; Goldman, Sachs & Co. oHG, regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht, may also be distributing research in Germany.

General disclosures in addition to specific disclosures required by certain jurisdictions

This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we consider reliable, but we do not represent it is

accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports

published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgment.

Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have investment banking and other business relationships with a

substantial percentage of the companies covered by our Global Investment Research Division.

Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are

contrary to the opinions expressed in this research. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the

recommendations or views expressed in this research.



We and our affiliates, officers, directors, and employees, excluding equity analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or

derivatives (including options and warrants) thereof of covered companies referred to in this research.

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal

recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this

research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of the investments referred to in this research and the

income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including

those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

Current options disclosure documents are available from Goldman Sachs sales representatives or at http://www.theocc.com/publications/risks/riskchap1.jsp. Fluctuations in exchange rates could have

adverse effects on the value or price of, or income derived from, certain investments.

Our research is disseminated primarily electronically, and, in some cases, in printed form. Electronic research is simultaneously available to all clients.

Disclosure information is also available at http://www.gs.com/research/hedge.html or from Research Compliance, One New York Plaza, New York, NY 10004.

Copyright 2008 The Goldman Sachs Group, Inc.

No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Goldman Sachs Group, Inc.

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