May 11th 2011

DIS Disenchanted
MSFT’s Skype deal and surprise coming from China’s trade data managed to keep the Dow Jones
Industrial Average advance intact on Tuesday. Commodities also saw recovery to stay in force, at
least for now.

The Dow Jones Industrial Average advanced 75.68 points or 0.6% to 12,760.36, S&P 500 index
settled at 1,357.16 or up 10.87 points (+0.81%), while NASDAQ Composite finished 1.01% higher
or up 28.64 points at 2,871.89.

Markets have been zooming into the MSFT-Skype deal all day. Many wonder on how Skype could
become a great addition to MSFT’s assets. Well, according to Steve Ballmer, MSFT wants to connect
Skype to many of its products such as Microsoft Outlook, Xbox, and Windows phone. The move is also
aimed at rebalancing MSFT’s competitive edge against AAPL (which has FaceTime) and GOOG
(which has GTalk video chat on its Android). Goldman Sachs and JPM are the advisors selected by
Skype on this deal. Although the amount offered is somewhat small relative to MSFT’s cash pile, the
$8.5B price tag has been considered as kind of steep. The immediate winners on the deal however,
are EBAY, Silver Lake, and Andreessen Horowitz.

Enough for MSFT. Moving on to another topic of the day, DIS has reported its quarterly results which
missed estimates. Net income fell 1.2% from year-ago figures of $953M or 48c to $942M or 49c.
Sales increased 6% to $9.08B. Consensus was 57c on sales of $9.12B. Studio-entertainment unit’s
operating income slumped 65% to $77M, while cable and broadcast networks & TV stations division
saw 17% growth to $1.52B. Theme-park division’s profit decline 3.3% due to Japan’s quake impact.
DIS was down $1.06 or 2.41% at $42.85 during the extended hours session after ending the regular
session at $43.91 or up 1.88%. DIS pinpointed four items which contributed to the miss of estimates:
disappointing Mars Needs Moms and timing of Pixar DVD releases; Easter calendar shift’s impact on
Parks and Resorts (attributed at $23M); Japan earthquake which reduced income by around $25M;
Playdom purchase accounting impact of about $34M. These four items sapped 6c out of EPS. It seems
that DIS would be losing its magical touch for a while following the poor result.

China delivered a surprise gains in trade surplus in April. Reported at $11.4B, the surplus way
beyond last year’s $1.68B surplus and even a lot more than $139M surplus recorded in March.
Chinese exports increased 29.9% from a year earlier, but slowed compared to last month’s 35.8%
increase. Imports however, grew 21.8% YoY, slower than 27.3% saw in March. Prior the release,
Reuters consensus saw exports to grow 29.4%, imports to increase 28%, while trade surplus was seen
at $3B. Dow Jones Newswires however, forecast smaller surplus of $1B before the figures were
released.

The final piece of yesterday’s headlines is the increase in maintenance margins for US light crude
futures contract from $5,000 to $6,250. The change was to be effectively applied on Tuesday.
Initially, oil prices fell on the news from CME Group, but in the end Brent crude futures ended at

1 .DJI 12,760.36 (+75.68 ● +0.60%) .SPX 1,357.16 (+10.87 ● +0.81%) .IXIC 2,871.89 (+28.64 ● +1.01%)
 May 11th 2011

$117.63 a barrel, up $1.73 while US light crude also gained as it settled at $103.88 a barrel or
$1.33 higher. Apparently the market was concerned over the impact of the Mississippi flood over the
refinery operations nearby.

As oil prices advanced, gold prices also turned higher. Spot gold rose 0.2% to $1,516.81 an ounce,
while spot silver turned positive to end at $38.59 an ounce, gaining 1.8%. Gold futures for June
delivery also gained, ending the day at $1,516.90, up $13.70 after fluctuating between $1,505.20
and $1,520.

Just today, China unleashed strings of economic data. Consumer Price Index was reported rising 5.3%
in April YoY, Producer Price Index jumped 6.8% during the same period. Market consensus expected
CPI to rise 5.2% and PPI to rise 7.3%. Industrial output climbed 13.4% YoY in April, vs. consensus rise
of 14.5% and compared to March’s increase of 14.8%. Urban fixed-asset investment rose 25.4%
since the beginning of the year until the end of April, beating consensus of 24.9% rise. Meanwhile,
issuances of new loans by Chinese banks beat the expectations of 725B yuan at 739.6B yuan. M2, or
broad money-supply growth, rose 15.3% in April, less than 16.5% increase expected earlier.
Overall, inflation remained high in April, opening a way for another monetary tightening by PBOC,
while growth seems to be stalling a bit. As loans issued remained high, another potential RRR increase
is to be expected again in near-term.

Wednesday’s agenda will feature trade deficit data for March, seen at $47B, worsening from
$45.8B in February. On the earnings front, CSCO is set to report its 3Q earnings with the consensus
number lies at $0.37 per share on revenue of $10.87B, compared to the same quarter last year’s
results of $0.42 per share on revenue of $10.40B. CSCO will report after the market closes.

2 .DJI 12,760.36 (+75.68 ● +0.60%) .SPX 1,357.16 (+10.87 ● +0.81%) .IXIC 2,871.89 (+28.64 ● +1.01%)
 May 11th 2011

Stock Focus: Microsoft Corp.

MSFT
Last May 10th Resistances 25.85 26.00 26.22 26.58 27.03
$25.67 0.62% Supports 25.26 25.17 24.66 24.32 23.80
WTD MTD Outlook
0.77% 0.96% NEUTRAL
YTD 12-Month Price Range
8.03% 0.50% $24.32-$27.03

MSFT has been struggling to break through its confinement area below the EMAs. Initial attempt
failed at $26.87 after it slipped back to hit the low of $25.25 on Tuesday after the Skype deal was
announced. The stock recoiled higher though and settled the day at $25.67. Despite the rebound,
chart outlook seems to be pessimistic, plus MACD is falling to negative territory. Expect the software
titan to remain stuck between $24.32 and $27.03 for now. Skype deal could guide MSFT to launch
another attempt to break through the thick EMAs layer.

3 .DJI 12,760.36 (+75.68 ● +0.60%) .SPX 1,357.16 (+10.87 ● +0.81%) .IXIC 2,871.89 (+28.64 ● +1.01%)
 May 11th 2011

Price Performance - as of May 10th 2011

Code Last Dy WTD MTD YTD 12-Mos
AA 17.52 -0.06% 2.16% 3.06% 13.84% 50.52%
AXP 50.17 -0.04% -0.06% 2.22% 16.89% 25.83%
BA 79.95 0.39% 0.81% 0.21% 22.51% 24.57%
BAC 12.28 0.82% -0.24% 0.00% -7.95% -21.98%
CAT 112.87 1.08% 2.29% -2.20% 20.51% 85.76%
CSCO 17.79 1.08% 1.31% 1.54% -12.06% -23.19%
CVX 104.36 0.26% 1.44% -4.64% 14.37% 41.28%
DD 55.89 0.87% 2.31% -1.58% 12.05% 54.52%
DIS 43.91 1.88% 1.97% 1.88% 17.06% 31.39%
GE 20.30 1.15% 1.45% -0.73% 10.99% 24.16%
HD 37.27 0.84% 0.76% 0.32% 6.30% 10.07%
HPQ 41.57 1.34% 1.86% 2.97% -1.26% -9.65%
IBM 170.38 0.76% 0.88% -0.12% 16.09% 36.02%
INTC 23.03 1.19% -0.95% -0.52% 9.51% 7.52%
JNJ 65.76 0.20% 0.75% 0.06% 6.32% 12.80%
JPM 45.16 0.44% 0.27% -1.03% 6.46% 14.10%
KFT 34.22 0.53% 0.41% 1.88% 8.60% 19.65%
KO 67.34 0.58% 0.66% -0.18% 2.39% 31.01%
MCD 79.71 0.50% 1.28% 1.79% 3.84% 19.20%
MMM 95.71 -0.29% 0.12% -1.54% 10.90% 20.68%
MRK 36.77 0.79% 1.04% 2.28% 2.03% 9.14%
MSFT 25.67 -0.62% -0.77% -0.96% -8.03% -0.50%
PFE 20.86 1.26% 1.51% -0.52% 19.13% 36.97%
PG 65.73 0.91% 0.70% 1.28% 2.18% 7.60%
T 31.69 1.08% 1.38% 1.83% 7.86% 30.41%
TRV 63.86 0.74% 0.68% 0.92% 14.63% 29.09%
UTX 89.81 0.32% 0.67% 0.26% 14.09% 33.29%
VZ 37.57 0.89% 0.78% -0.56% 5.00% 36.52%
WMT 55.53 0.78% 0.93% 1.00% 2.97% 9.83%
XOM 83.34 0.19% 0.79% -5.27% 13.98% 37.84%

4 .DJI 12,760.36 (+75.68 ● +0.60%) .SPX 1,357.16 (+10.87 ● +0.81%) .IXIC 2,871.89 (+28.64 ● +1.01%)
 May 11th 2011

Analysts' Upgrades & Downgrades

Code House Ratings PT
CSCO BGC Financial BUY $24.00
MRK Argus Buy -
Health Wells Fargo Underweight OVERWEIGHT Sector-wide
n Reiterate n Upgrade n Downgrade n Initiation
US Economic Calendar
Date Time Report Period Actual Forecast Previous
10-May 8:30 AM Import Price Index Apr 2.2% 1.6% 2.6%
10-May 10:00 AM Wholesale inventories Mar 1.1% 1.0% 1.0%
11-May 8:30 AM Trade deficit Mar -$47.0 bln -$45.8 bln
12-May 8:30 AM Jobless claims 7-May 428k 474K
12-May 8:30 AM Retail sales Apr 0.7% 0.4%
12-May 8:30 AM Retail sales ex-autos Apr 0.7% 0.8%
12-May 8:30 AM PPI Apr 0.8% 0.7%
12-May 8:30 AM Core PPI Apr 0.2% 0.3%
12-May 8:30 AM Inventories Mar 0.8% 0.5%
13-May 8:30 AM CPI Apr 0.4% 0.5%
13-May 8:30 AM Core CPI Apr 0.2% 0.1%
13-May 8:30 AM Consumer sentiment May 71.0 69.8

Disclaimer: This report is provided for information purposes only. It is not an offer to sell or to buy any securities. This
report has been prepared based on sources believed to be reliable, but there is no assurance or guarantee regarding its
completeness and accuracy. The author accepts no responsibility or liability arising from any use of the report.

5 .DJI 12,760.36 (+75.68 ● +0.60%) .SPX 1,357.16 (+10.87 ● +0.81%) .IXIC 2,871.89 (+28.64 ● +1.01%)