MCAFEESUYANG “SEAN” HONG, YANYAN XU

Presented on 11/10/2009

I. Company OverviewII. Company StrategyIII. Macro-economic OutlookIV. Industry AnalysisV. CompetitorsVI. ValuationVII. Client PortfolioVIII. Recommendation

Deliverable Outline2

I. History

II. Current Position

Company Overview3

History4

1992- Incorporated, under the ticker “MCAF”

1997- Merged with Network associates, under the ticker

“NETA”

1999- McAfee.com initial public offering, under the ticker

“MFE”

2002- Company streamlined to security focus

2004- First stage of reformation was completed

2004 is the turning point when company showed strong profitability in focused area.

Current Position5

Largest company dedicated to security technology

Employee: 5,600

Newly added to S&P 500

35 billion asset and 1.6 billion revenue in 2008

Global expansion to Europe, Asia, Latin-America

McAfee is the leader in the market

Acquisition Strategy6

Roll-up company that grows by acquisition

Focus on single market- security

Most recent acquisitions:

MX Logic $140 million

Solidcore Systems $33 million

Endeavor Security $3 million

McAfee is currently enjoying the benefit from its acquisitions

I. Business Model

II. Products

Company Strategy7

Business Model8

The 3-5-3 model describes products, geography and customer

Products9

System Security Offerings

PC protection

Network Security Offerings

Internet protection

Vulnerability and Risk Management Offerings

Company security protection

Comprehensive product mix that dominate the market

Geography10

Focus on North America and Europe market and explore the emerging market

I. Industry OverviewII. Five-forces Analysis

Industry Analysis11

Industry overview12

Adverse effects: Economic downturn alters consumption Limit to credit-impairs acquisition strategy Foreign exchange exposure

Favorable effects: Threat of terrorism stimulates the market Stable growth in Internet access Government recognition and procurement

Impact on adverse side is systematic while that on favorable is industry specific

Five-forces Analysis13

Suppliers play more strongly with less threat from substitution and buyers

Strength and Weakness14

Opportunities and Threats15

I. Income AnalysisII. LeverageIII. Efficiency

Financial Position16

Income Analysis17

High gross margin, high SG&A cost/ Stable performance through out recent years

Efficiency19

Increasing utilization of assets

I. Competitors Profile

II. Comparable Analysis

Competitors Analysis20

Competitors Profile21

International Business Machine Integration of IT consulting

Microsoft Internet-PC market giant

Symantec Corporation Pure-player competitor

Other medium-small size company Converted to strategic alliance (SIA)

Successfully mitigate the challenge from giants and small competitors

Competitors Profile22

International Business Machine Computer technology and IT consulting company Market Cap: 165.51B Employees: 398,000

Microsoft Computer and internet technology company Market Cap: 257.41 Employees: 93,000

Big companies that have related sector or department in security industry

Competitors Profile23

Symantec Corporation Security software company Market Cap: 14.38 B Employees: 17,500

Leading position overtaken this year by McAfee

Security Innovation Alliance24

Security Innovation Alliance Technology partnering program to accelerate product

development Different level of Alliance

Strategic Alliance Downstream of the value chain Most recent alliance: Lenovo, Verizon and Adobe

McAfee uses alliance to antagonize giants in the market

Profitability25

Medium performance in profitability and potential in cutting SG&A expense

Liquidity26

Low debt obligation reduces future risk

Efficiency27

High efficiency and utilization of assets

I. Historical Highlights

II. Management

III. Assumptions

IV. WACC

V. DCF

VI. Multiples

Valuation29

Historical Highlights30

Huge turnaround since 2004: divested non-core business, focused on acquisition, and restructured

Management31

Forecasts about what they plan to see in 2009 with respect to the income statement Give forecasts in “absolutes”

Clear explanation of what impacted each line of last three years of line items

Core strategy Strong history of acquisitions and strong forecasts of future

acquisitions and partnership deals Roll up, fragmented industry

Management clearly defines historical impacts and identifies key drivers for the future

Assumptions32

Costs grow at a slower rate due to business model, every additional sale of software or service above fixed cost lacks substantial variable cost and goes straight to the bottom line

Revenue Increase customer base Strengthening relationships with strategic partners Increased revenue from upgrade initiatives Increased revenue from network security solutions, higher

hardware content means more upfront revenue realization

Cost (Absolute) Grow from McAfee Consulting Services Increased demand from subscription based products Impact of acquisitions (Amortization)

Assumptions33

Strong revenue growth, slow reduction of growth in COGS, increasing growth in R&D and amortization

WACC34

Operating leverage is high, financial leverage is low

WACC - Bloomberg35

Lower WACC explained by significantly lower beta (weekly, 2 year)

DCF36

Current price is around $42

Goal Post

Bloomberg

Multiples37

Intrinsic value is around $36 to $45

I. Diversification

II. Projected position in portfolio

Client Portfolio38

Diversification39

Low correlation with current holdings

Projected Position40

If 300 Shares purchased, it would represent around 3% of the total portfolio value

Recommendation41

Pros DCF shows fairly valued

Current price of $42 Intrinsic value of $36 to $45

Management’s new business model has turned the company around since 2004

Current projections for the future are strong Largest dedicated security

Cons 39 PE Multiple

Market has high expectations Will they meet and beat expectations? One bad year can mean huge reduction in sales price

Add to Watchlist. If price pulls back, look to purchase 300 shares