Beyond 2014: Evolving Opportunities in Technology.

Transcription

1 Beyod 2014: Evolvig Opportuities i Techology. February Prepared by: Michael J. Moskowitz, Seior Vice Presidet ad Seior Ivestmet Strategist. Jeffrey C. Beard, Seior Equity Research Aalyst. I this special report 1 Market perspective 1 Trasformig growth 2 Mobile computig: Smartphoes 3 Mobile computig: Tablets 4 Media ad etertaimet 4 Security 5 Big Data 6 3-D pritig 7 Summary

2 Beyod 2014: Evolvig Opportuities i Techology Techology is rapidly trasformig our daily lives ad drivig ew corporate efficiecies. The pace of techological chage presets both opportuities ad challeges for ivestors, cosumers ad busiess leaders. What will be the Next Big Thig i techology ivestig? To help us uderstad equity ivestig opportuities i this costatly-chagig idustry, this report idetifies several importat treds i the techology world today. We believe the followig areas offer curret opportuities for log-term value creatio with proper diversificatio ad maagemet: Mobile computig smartphoes ad tablets, Media ad etertaimet, Security, Big Data, 3-D pritig. Although there are a umber of techology idustries that offer potetial ad we do ot cover all of them i this report we believe the areas profiled here are importat oes o which to focus attetio. While smartphoes ad tablets have revolutioized our daily commuicatio, their peetratio of the emergig markets is still i the early stages. Our icreased use of techology to store data has caused real iformatio security cocers for atioal retailers, govermets, ad corporate etities. Yet the eed to address those security cocers offers potetial for leadig techology security firms. Further, Big Data ad three-dimesioal (3-D) pritig are forecast to grow at high double-digit growth rates as busiesses seek to leverage cosumer isights through techology ad pursue flexible, scalable maufacturig solutios. This is the secod report i our Techology series o The Next Big Thig, ad follows our first report published i Jue 2011, which profiled opportuities i media ad etertaimet, commuicatios, mobile computig, hosted iformatio techology services, security, ad storage. Market perspective. Iformatio Techology cotiues to gai size ad scale i the global ecoomy at a impressive pace. Global Iformatio Techology (IT) spedig, icludig Techology ad Telecommuicatios, is forecast to grow by 3.1 percet this year to $3.8 trillio. Whe the Media ad Etertaimet sector is icluded, the global market size rises to a estimated $5.9 trillio. 1 To put IT spedig i perspective, the most recet World Bak data shows that IT represets 11 percet of all global goods imported, 10 percet of all global goods exported, ad 31 percet of all global services exports. 2 Just oe area of IT mass adoptio of coected digital services by cosumers, eterprise, ad govermets ( digitizatio ) added a estimated $193 billio to world ecoomic output ad created six millio jobs globally i Emergig markets accouted for more tha 70 percet of this gai i GDP resultig from digitizatio. Digitizatio also accouted for approximately $50 billio i research ad developmet expeditures amog the 1,000 largest global compaies last year. 3 Trasformig growth. Let s begi with a review of importat developmets sice our last report o the techology sector. A key tred i Iformatio Techology has bee the icreasig importace of the cosumer referred to as the cosumerizatio of IT. Aalyst estimates show that the global Home Busiess ad Cosumer segmet of Techology reveues is the largest ad fastest growig segmet i the Techology uiverse. Global Home Busiess ad Cosumer reveues are forecast to grow at a 7.2 percet compoud aual growth rate (CAGR) to $620 billio i 2017, followed by Health Care ad Resource Idustries, both growig at a percet CAGR. 4 February 2014 Beyod 2014: Evolvig Opportuities i Techology 1

3 Chart 1. Cosumer Spedig Likely Will Drive Worldwide IT Growth Through 2017 Aual IT spedig, $ i millios, U.S. dollars Home Busiess ad Cosumer Commuicatios ad Media Govermet Discrete Maufacturig Bakig Services Process Maufacturig Retail Health Care Isurace Securities ad Ivestmet Services Utilities Trasportatio Wholesale Educatio Resource Idustries Costructio $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 Aual data, excludig Telecommuicatios Source: Wells Fargo Wealth Maagemet, Goldma Sachs, IDC, September 2013 Over the past three years, there has bee a dramatic rise i coected devices with a IP (Iteret Protocol) address, such as PCs, smartphoes, tablets, cars, home appliaces, wearable devices, ad plat machiery. I fact, coected devices with a IP address are expected to grow to 8.6 billio devices by This represets a 24 percet CAGR betwee ad Aalysts estimate that, ultimately, up to oe trillio devices could be coected to the Iteret, ad 100 millio machies could be globally coected to each other. Iovative examples of coected devices ow iclude surgical tools, istrumetatio, wearable medical moitors ad patiet moitorig odes, smart pills, home ad automotive sesors ad meters, ad parkig meters. 6 Global mobile data traffic rose to 11 percet of Iteret traffic i 2013 ad aalysts forecast that it could represet up to 30 percet of total Iteret traffic by There were 2.4 billio Iteret users i, with aual global growth averagig eight percet drive maily by growth i the emergig markets. Global IP traffic has icreased fourfold i the last five years. Yet today, the Iteret is used by oly 34 percet of the global populatio offerig sigificat potetial for growth. The umber of people accessig the Iteret, maily through mobile devices, is forecast to grow to 4.7 billio by Mobile computig: Smartphoes. Market aalysts cite the smartphoe as the sigle most successful electroic product lauched sice its itroductio i As smartphoes have matured from devices ito devices with multiple applicatios, they have drive exceptioal reveue growth at the expese of traditioal mobile phoes ad eterprise-cetric smartphoes. Cosumers have bee primarily resposible for drivig the growth of smartphoes, yet 20 percet of smartphoe uit shipmets were busiess-related i. 10 Chart 2 profiles the smartphoe market, which is expected to grow at a CAGR of 5.7 percet to total reveue of $373 billio i Globally, smartphoe peetratio exceeds 55 percet of hadset uit shipmets i The market is cocetrated, with the top four global smartphoe vedors located i the U.S., Korea, ad Taiwa accoutig for 79 percet of global sales volume i Chart 2. Utility ad Basic Phoes Likely Will Cotiue to Lose Market Share to Premium Phoes $ i millios $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Utility Phoe Basic Phoe Premium Phoe 2013E 2014E 2015E - CAGR = 5.7% 2016E Source: Wells Fargo Wealth Maagemet, Jauary 2014, Forecast Aalysis: Mobile Phoe Productio ad Semicoductors, Worldwide, 3Q13 Update, Garter, October 28, 2013 As show i Chart 2, the smartphoe market is segmeted ito categories that iclude Basic/Utility (sellig price of $50 $100) ad Premium ($200 $500). 2 February 2014 Beyod 2014: Evolvig Opportuities i Techology

4 Demad for these segmets is drive by 3G/4G capability as well as the smartphoe s operatig system, power efficiecy, size ad weight, scree size, ad camera. Additioal applicatios iclude trackig of users activities (such as locatio, gestures, ad biometrics), voice recogitio, ad climate sesors. I the future, we expect to see faster device coectivity ad etwork speed, improved applicatio processors, ad greater memory. As the total cost of owig smartphoes cotiues to declie, we expect smartphoe adoptio to cotiue to accelerate. Strog double-digit uit growth of premium smartphoes is expected through Additioal smartphoe uit growth is expected i emergig markets. Smartphoes: Key treds. I 2013, more smartphoes were produced tha mobile phoes for the first time, ad by 2017, 85 percet of mobile phoes produced are expected to be smartphoes. 13 Mobile devices with 4G capability are forecast to grow at a CAGR of 121 percet betwee 2011 ad Growth for 2G ad 3G is expected to be flat to egative. 14 Fifty-five percet of U.S. households ow ow at least oe smartphoe. 15 Amog milleials (the age cohort bor betwee 1980 ad 2000), smartphoes are cosidered more importat tha tablets ad laptops. 16 Mobile computig: Tablets. The key driver behid tablet sales has bee rapid cosumer adoptio, which is expected to cotiue. Icreased fuctioality ad lower prices also have cotributed to tablet market growth. Rapid growth has come at the expese of the traditioal cosumer PC market. Mobile PCs face the most sigificat immediate replacemet risk as a result of tablet adoptio followed by desktop PCs. Global PC uit sales declied 10.3 percet from to 2013, the sharpest declie i the PC market. 17 The highest tablet uit growth rates are expected to be i the $200 ad lower price categories. 18 This year, for the first time i history, global factory reveue for smartphoes ad tablets is expected to be larger tha reveue for the etire cosumer electroics market (icludig televisios, audio equipmet, cameras ad camcorders, video game cosoles, ad home appliaces). The tablet market is projected to expad at a CAGR of 17.4 percet i uits shipped, ad exceed more tha $251 billio i aual reveue by Key emergig markets, such as Chia, Idia, Idoesia ad Brazil, represet a major growth market for tablets (ad smartphoes), although aalysts forecast lowermargi tablets will be sold i these coutries. Nevertheless, the tablet market is still cosidered to be i its early evolutioary stages, ad it is likely to cotiue to beefit from may of the smartphoe iovatios discussed above. There are more tha 20 publicly-traded compaies i the tablet ad smartphoe markets i the U.S. ad Asia. This icludes major divisios of IT-hardware compaies. Aalysts ad ivestors likely will cotiue to focus o the evolutio ad pace of hardware ad software iovatio at the domiat tablet compaies i this rapidly-growig market. Chart 3. Purchasig Treds Likely Will Favor Basic Tablets ad Ultramobile Devices Through 2017 $ i millios $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Utility Tablet Basic Tablet Premium Tablet Notebook Ultramobile 2013E 2014E 2015E - CAGR = 6.1% 2016E Source: Wells Fargo Wealth Maagemet, Jauary 2014, Tablets Worldwide, , 3Q13 Update, Garter, October, Tablets: Key treds. We expect that tablets will cotiue to capture market share from PCs ad otebooks. Yet ultra-mobile PCs (small tablet PCs weighig two pouds or less with 10-ich to 11-ich screes) are expected to erode sales of PCs, ad possibly, of premium tablets as well. Ultramobile PCs are priced at approximately $350, a price level that competes i the mid-poit of the market. By 2017, oe-third of the world populatio is expected to have either a PC or tablet, ad users likely will favor basic tablets over PCs ad other alteratives by a ratio of 2 to Price compressio is expected to cotiue i the tablet market with growth drive more by basic tablets (priced at $250 ad uder) tha premium tablets ($400 ad higher). Tablets are expected to achieve 60 percet market peetratio i North America ad 42 percet i Europe by Globally, oe i eight people is expected to ow a tablet by February 2014 Beyod 2014: Evolvig Opportuities i Techology 3

5 Media ad etertaimet. The media ad etertaimet sector icludes a etwork of cotet creators, physical ad digital cotet distributors, storage ad telecommuicatio service firms, ad itellectual-property compaies. The treds outlied above have had a sigificat impact o the future of media ad etertaimet, particularly as a result of digitizatio. Mirrorig treds i mobile computig, global mobile Iteret access for media ad etertaimet likely will pass fixed-broadbad access i Reveue i the media ad etertaimet sector is projected to grow to $2.2 trillio by 2017 ad to rise at a CAGR of 5.8 percet through Chart 4. Media ad Etertaimet Distributio of Reveue Sources Projected for 2017 Out-of-home advertisig 2% Radio 2% Music 2% Cosumer magazie publishig 4% Video games 4% Cosumer ad educatioal book publishig 5% Filmed etertaimet 5% Newspaper publishig 8% Iteret advertisig 8% Busiess-to-busiess 10% TV advertisig 10% Pay-TV subscriptios ad licece fees 10% Source: Global Etertaimet ad Media Outlook, PwC, 2013, Wells Fargo Private Bak estimates Iteret access 31% Cotet creators are tailorig cotet to specific platforms, such as tablets, smartphoes, ad gamig cosoles. I the global advertisig market, Iteret advertisig ow represets 20 percet of global advertisig spedig. 24 Aalysts forecast a 13 percet CAGR for this segmet, which should result i 2017 sales of $185 billio (29 percet of global advertisig spedig). 25 Other areas of digital growth iclude search, display, mobile advertisig, olie video advertisig, ad classifieds. 26 Media ad etertaimet: Key treds. Chart 5. Security Services Spedig by Segmet Likely Will Cotiue to Rise $ i millios $100,000 The digital world is drivig global media ad etertaimet reveue. Total reveue for this sector is projected to grow at a CAGR of 11.9 percet betwee ad By 2017, emergig markets likely will accout for 22 percet of global media ad etertaimet reveue. 28 I 2013, cosumers spet a average of 30 percet of their media time olie. A total of 80 percet of U.S. cosumers multitask while watchig televisio; ofte usig aother digital device. A total of 16 percet of U.S. cosumers are playig video games while watchig televisio. 29 More tha oe-third of milleials say their buyig decisios are iflueced most by ads i video games. 30 Aalysts estimate that 59 percet of all U.S. households ow at least oe gamig cosole. 31 Aalysts also estimate that, i the U.S., movie cosumptio (29 percet of total) outpaced all broadcast cable ad etertaimet geres i 2013, followed by ews (18 percet), sports (16 percet), ad usergeerated cotet (15 percet). Approximately 2/3 of all media purchases made by trailig milleials (ages 13-18) are digital. 32 Security. Security remais a key IT spedig priority for corporatios. The frequecy of ews reports discussig security breaches icreased dramatically i There were multiple breaches of U.S. federal govermet data ad corporate firewalls last year. For example, a major U.S. retailer experieced a data breach affectig more tha 70 millio customers, while a large software compay was impacted by a data breach that affected approximately 38 millio users. Although security spedig is somewhat sesitive to macroecoomic treds, it is a missio critical ivestmet for compaies i the fiacial services, health care, ad IT idustries. New regulatios are expected to cotiue to drive demad for security solutios. $80,000 $60,000 Cosumer Security Software Security Services Network Security Equipmet Ifrastructure Protectio Idetity Access Maagemet - CAGR = 8.5% $40,000 $20,000 $0 2013E 2014E 2015E 2016E Source: Wells Fargo Wealth Maagemet, Jauary 2014, Garter, October February 2014 Beyod 2014: Evolvig Opportuities i Techology

6 Autheticatio, malware detectio, threat protectio, ad etwork foresics are a few of the security areas receivig ew ivestmets. The global security market is forecast to grow at a 8.5 percet CAGR from $62.0 billio i 2013 to $93.5 billio i The fastest areas of growth are data loss prevetio, IT outsourcig ad idetity access maagemet all i the busiess sector. 33 Most idepedet, public security firms are based either i the U.S. or Israel. Although a umber of idepedet firms have bee purchased, there are approximately 10 publicly-traded security firms i the market. Security: Key treds. Cybercrime ad cyber espioage were estimated to have cost U.S. corporatios $70 billio $140 billio i 2013, or betwee 0.5 ad 1 percet of GDP. Aual costs of cybercrime ad cyber espioage represeted a estimated $300 billio globally i The icreasig frequecy ad sophisticatio of security attacks likely will cotiue to drive demad for security services as well as Virtual Private Network (VPN)/Firewall equipmet, ifrastructure protectio, ad idetity access maagemet. Additioal drivers of demad for security solutios iclude the icreasig sophisticatio of malware ad rasomware as well as regulatory compliace, social media, ad mobile computig solutios. The rise of hackig as a service has preseted ew demads o security systems. Virtual computig ( cloud computig ) is a ew distributio chael for security services. Virtual (cloud-based) delivery of security services was estimated to have grow by 30 percet i 2013 to $2.1 billio. A 10 percet CAGR is forecast betwee ad Big Data. Big Data is oe of the more fasciatig techological iovatios ad oe that has real ivestmet potetial. CAGR estimates of compaies that support the collectio ad aalysis of data exceed 18 percet, ad idustry reveue is projected to reach early $55 billio by Compaies are capturig more data about their customers thaks to the Iteret, smartphoes, sesors, ad other devices. Big Data focuses o aalyzig this iformatio, icludig data o cosumer behavior ad spedig. Busiesses use this iformatio to determie how ad where customers are makig decisios ad how they ca best positio their products or services. Examples of its use iclude s from retailers arrivig i your ibox just whe you are iterested i their products. Big Data cotiues to represet oe of the most relevat ad importat techology treds. As data is captured through the Iteret, sesors, ad smartphoes, or created by compaies, firms are challeged with maagig it to gai customer isights ad make decisios. Much of this data is i ustructured formats, which creates a eed for ewer techologies to aalyze the data ad support this large ad growig market. Moreover, embedded techology will soo be ubiquitous (ay place you ca place a sesor ca be utilized to capture data). The growth of Big Data touches all major categories of the techology sector. Advacemets i aalytics, virtualizatio, ad cloud computig all are leadig to a eed for faster access to data while reducig latecy. We soo will be able to quickly gai iformatio about our curret Table 1: Priority Matrix for Big Data, 2013 Years to Maistream Adoptio Less tha 2 Years 2 5 Years 5 10 Years More tha 10 Years Beefit Trasformatioal High Moderate Low I-memory aalytics Social media moitors Predictive aalytics Cloud computig Cotext-eriched services I-memory database maagemet system Complex-evet processig Cotet aalytics Graph databases Iformatio capabilities framework Telematics Iformatio valuatio ad ifoomics Iteret of thigs Cloud parallel processig Cloud-based grid computig Hadoop SQL iterfaces I-memory data grids Itet-drive customer systems Quatified self Sales aalytics Social aalytics Text aalytics Hi-performace message ifrastructure Logical data warehouse Operatioal itelligece platforms Search-based data discovery tools Data sciece Database software as a service (dbsaas) Documet store database maagemet systems Hadoop distributios Itelliget electroic devices Key-value database maagemet systems Speech recogitio Table-style database maagemet services Big data aalytics for E-commerce Dyamic data maskig Iformatio sematic services Video search Source: Garter, Ic., November 2013 February 2014 Beyod 2014: Evolvig Opportuities i Techology 5

7 locatio, trasmit our shoppig ad travel habits, have istructios available to us, or beefit from locatiobased bargais, to ame a few advatages. It is estimated that as may as 30 billio sesor odes will be istalled ad operatig by The rapid growth i sesor odes will help to fuel cotiued growth of Big Data. Table 2. Total IT Spedig Drive by Big Data $ i millios Year Eterprise Software Spedig for Specific Sub- Markets Forecast: Social Media Reveue, Worldwide Big Data IT Services Spedig Total 2011 $2,565 $76 $24,407 $27,048 $2,918 $1,384 $23,476 $27, E $3,516 $1,812 $25,578 $30, E $4,240 $2,827 $37,404 $44, E $5,207 $3,615 $36,189 $45, E $6,461 $4,411 $43,713 $54,585 Totals $24,907 $14,125 $190,767 $229,799 CAGR E 20% 125% 12% 15% E 22% 34% 17% 18% Source: Wells Fargo Wealth Maagemet, Jauary 2014, Garter, October 2013 Big Data: Key treds. Techology spedig drive by Big Data is estimated to exceed $54 billio i 2016 (Table 2). 38 Ustructured data is estimated to drive 50-fold data growth from 2010 to D pritig. Three-dimesioal (3-D) pritig is a example of techology ad maufacturig workig together to become more flexible ad scalable ad allowig for ehaced efficiecy ad quality. 3-D priters are used to create physical objects from digital models programmed with their software. The primary beefit of this techology is the ability to maufacture customized parts o a as eeded basis without costly machiery or dies for castig. 3-D pritig is uquestioably the fastest growig area i IT. Shipmets of 3-D priters are expected to grow at a remarkable 95 percet CAGR from to 2017, ad reveue is expected to grow at a 82 percet CAGR to $5.7 billio over this period. 40 At $2 billio, 3-D pritig reveue is estimated to have achieved approximately eight percet of its global market potetial. By this measure, the curret market opportuity could be $21 $28 billio. 41 While the basis for 3-D pritig has existed for years, practical implemetatio is still i the early stages. It remais a cottage idustry, composed of several mid-cap public compaies ad a larger umber of private compaies. Buildig highly complex structures without difficulty is oe of the may advatages of 3-D pritig. Today, 3-D pritig is makig iroads i idustrial applicatios such as aeroautics ad cosumer products such as detal appliaces. The lower time-to-market offered by this techology has provided a edge to maufacturers of aerospace compoets, health-care products, orthodotia ad medical devices. Further, 3-D priters are makig iroads ito architectural desig, automotive, fashio, techology, ad cosumer products compaies. There also are a growig umber of smaller busiesses that specialize i desktop 3-D priters. These cosumer 3-D priters are priced at $1,000 or less. The 3-D priters used for idustrial productio are more costly with prices ragig from $5,000 to hudreds of thousads of dollars. 3-D pritig has sigificat future growth potetial due to its ability to save time, easily build complex structures, ehace quality, ad lower costs. The size of the 3-D pritig market is limited oly by the pace of iovatio ad advaces i materials sciece. 3-D pritig also offers the potetial for revitalizatio ad growth of the U.S. maufacturig base ad the possibility of the retur of maufacturig operatios that had bee relocated to coutries outside the U.S. Chart 6: 3-D Priter Use is Migratig from Hobbyists to Commercial Maufacturers 3-D Priters Shipmets (umber of uits) 3-D Priters Reveue ($ i millios) 1,200,000 1,000, , , , ,000 0 Cosumer Eterprise - CAGR = 95% $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Cosumer Eterprise - CAGR = 82% Source: 3-D Priters, Worldwide Garter, September, 2013, Wells Fargo Wealth Maagemet, February 2014 Beyod 2014: Evolvig Opportuities i Techology

8 3-D pritig: Key treds. The 3-D pritig market was estimated to have 2013 total reveue of $2.2 billio D pritig has achieved approximately eight percet of its global market potetial. As oted, by this measure, the market opportuity could be $21 billio-$28 billio. 43 Cosumer ad eterprise 3-D priter shipmets are forecast to grow by a CAGR of 95 percet while reveue is forecast to grow by a 82 percet CAGR from to Curretly, there are approximately 30 compaies that sell 3-D maufacturig systems for idustrial productio, ragig i price from $5,000 to hudreds of thousads of dollars. Summary. Table 3. Estimated Market Sizes ad Growth Rates $ i millios CAGR Mobile Computig: Smartphoes $282,515 $372, % Mobile Computig: Tablets $186,756 $251, % Media ad Etertaimet $1,642,200 $2,177, % Security $62,120 $93, % Big Data $27,778 $65, % 3-D Priters $288 $5, % Total $2,201,657 $2,968, % Source: Wells Fargo & Compay compiled data, 2014 Techology is a importat cyclical sector to iclude i equity portfolios i later stages of ecoomic recoveries such as the curret market eviromet. As capital spedig rises with improvig busiess cofidece ad cosumers icrease spedig o mobile devices such as smartphoes, tablets ad related services we forecast solid performace by well-positioed compaies i the techology sector i We have touched o several ear- ad loger-term techology opportuities that offer the potetial to create value for ivestors whe icluded i welldiversified portfolios. While this is a excitig time to ivest i areas such as those profiled i this report, competig ideas i ew fields ofte mea that there will be, at most, a hadful of ultimate wiers ad may losers. As a result, it is importat to be selective ad diversify ivestmets to reduce the potetial risk associated with ivestig i ewer techologies. With the rapid pace of chage i the techology sector ad the eed for diversificatio, it ofte is appropriate to access IT ivestmet opportuities through professioal ivestmet maagers that are highly kowledgeable about the sector ad offer active maagemet of portfolios. While may of the firms i this idustry are large-cap compaies, give the sigificat umber of small- ad mid-cap firms i the IT space, it may make sese to access selected ivestmet opportuities through separately maaged accouts, mutual fuds, ad complemetary strategies offerig broad-based diversificatio. With rapidly growig markets ad the opportuity to trasform cosumer ad busiess practices, Big Data, mobile computig, techology security, 3-D pritig, ad olie media ad etertaimet merit cosideratio by ivestors. If you would like to discuss the techology sector or your equity portfolio, please cotact your ivestmet maager. Ed otes. 1 Forecast Alert: IT Spedig, Worldwide, 4Q13 Update, Garter, 12/27/13. The 2013 Value Shift Idex Slower Growth, Subtle Shifts, Booz & Compay, Market size is i costat currecy. 2 World Developmet Idicators 2013, The World Bak, 9/23/2013. Data for The Global Iformatio Techology Report 2013, World Ecoomic Forum, Booz & Compay, Goldma Sachs, IDC, September McKisey, 5/13. Ubiquitous Coectedess ad Big Data: Who Will Beefit, Saford C. Berstei, August, 2013; Forecast: The Iteret of Thigs, Worldwide, 2013, Garter, 11/18/13; Disruptive Techologies: Advaces that will trasform life, busiess, ad the global ecoomy, McKisey Global Istitute, May, Cisco Visual Networkig Idex: Global Mobile Data Traffic Forecast Update, -2017, Cisco White Paper, 2013; Kleier Perkis Caufield & Byers (KPCB) Iteret Treds Sources: Kleier Perkis Caufield & Byers (KPCB) Iteret Treds 2013; The Zettabyte Era Treds ad Aalysis, Cisco White Paper, The Rise of Geeratio C Implicatios for the World of 2020, Booz & Compay forecasts. 6 Booz & Compay, IDC, 12/13. 8 The Rise of the Eterprise i the Smartphoe Wars, Goldma Sachs, December 3, The Wireless View 2014: Smartphoes A Slowig Disruptive Force, Credit Suisse, 1/6/ Garter 10/28/13. IHSi Suppli Mobile ad Wireless Commuicatio Service, HIS; ad Mobile Techologies Idex, PwC, 2013; 2013 Global Mobile Cosumer Survey, Deloitte, Idustry Outlook, Deloitte, Mobile Maget, Deloitte, Garter Says Worldwide PC Shipmets Declied 6.9 Percet i Fourth Quarter of 2013, Garter Press Release, 1/9/ The Wireless View 2014: Smartphoes A Slowig Disruptive Force, Credit Suisse, 1/6/ Garter, Forecast; Tablets Worldwide, , Third Quarter 2013 Update, 10/13. February 2014 Beyod 2014: Evolvig Opportuities i Techology 7

9 16 Forecast Overview: IT Spedig, Worldwide, 2013 Update, Garter, 11/14/ Forrester Global Busiess ad Cosumer Table Forecast Update, , PwC Techology Sector Scorecard, Q2, PwC, Global Etertaimet ad Media Outlook: , Global Etertaimet ad Media Outlook: , PwC, GroupM, PwC, Global Etertaimet ad Media Outlook: , PwC, Global Etertaimet ad Media Outlook: , PwC, Global Etertaimet ad Media Outlook: , PwC, Group M, Game O: Cosumer Treds i Iteractive Videogamig, Deloitte, Jue, Idustry Outlook, Deloitte, Global Mobile Cosumer Survey, Deloitte, Cosumer Treds i Broadcast Cable ad Filmed Etertaimet, Deloitte, Forecast Overview: Iformatio Security, Worldwide, 3Q13 Update, Garter, 11/14/ The Ecoomic Impact of Cybercrime ad Cyber Espioage, Ceter for Strategic ad Iteratioal Studies (CSIS),McAfee, July, Forecast Overview: Iformatio Security, Worldwide, 3Q13 Update, Garter, 11/14/ Garter, 10/ Garter, 11/ Wells Fargo Wealth Maagemet, Jauary 2014, Garter, October IDC s Digital Uiverse Study Sposored by EMC, 12/ Predict 2014: 3D Pritig at the Iflectio Poit, Garter, 12/2/ Wohlers Associates, Wohlers Associates, Wohlers Report Source: Wohlers Associates, Wohlers Report Garter, Ic., Market Defiitios ad Methodology: Imagig ad Pritig Services, Worldwide, Disclosures. Wells Fargo Wealth Maagemet provides products ad services through Wells Fargo Bak, N.A. ad its various affiliates ad subsidiaries. The iformatio ad opiios i this report were prepared by Wells Fargo Wealth Maagemet. Iformatio ad opiios have bee obtaied or derived from sources we cosider reliable, but we caot guaratee their accuracy or completeess. Opiios represet Wells Fargo Wealth Maagemet s opiio as of the date of this report ad are for geeral iformatio purposes oly. Wells Fargo Wealth Maagemet does ot udertake to advise you of ay chage i its opiios or the iformatio cotaied i this report. Wells Fargo & Compay affiliates may issue reports or have opiios that are icosistet with, ad reach differet coclusios from, this report. This report is ot a offer to buy or sell or solicitatio of a offer to buy or sell ay securities metioed. Wells Fargo & Compay ad/or its affiliates or may trade for their ow accouts, be o the opposite side of customer orders, or have a log or short positio i the securities metioed herei. Wells Fargo & Compay ad its affiliates do ot provide legal advice. Please cosult your legal advisors to determie how this iformatio may apply to your ow situatio. Whether ay plaed tax result is realized by you, depeds o the specific facts of your situatio at the time your tax preparer submits your retur. Asset allocatio ad diversificatio do ot assure or guaratee better performace ad caot elimiate the risk of ivestmet losses. Past performace does ot idicate future results. Ivestig i foreig securities presets certai risks that may ot be preset i domestic securities, icludig: currecy fluctuatio, the potetial for diplomatic ad political istability, regulatory ad liquidity risks, foreig taxatio, ad differeces i auditig ad other fiacial stadards. These risks are geerally itesified i emergig markets. There are additioal risks associated with ivestmets i smaller ad/or ewer compaies that are ot preset i compaies with larger capitalizatios. Idex performace figures do ot reflect actual tradig or material ecoomic ad market factors that would affect decisio-makig, as would be the case i maagig actual cliet portfolios. Performace results i actual portfolios will be reduced by fees, actual tradig costs ad other expeses. Idexes represet securities widely held by ivestors. You caot ivest i a idex. More iformatio available upo request Wells Fargo Bak, N.A. All rights reserved. Member FDIC. NMLSR ID WM29623 ( /14)