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Telecommunications Software & Wireless Equipment

February 18, 2011
Scott Sutherland, CFA (213) 688-4522 scott.sutherland@wedbush.com Suhail Chandy (213) 688-4380 suhail.chandy@wedbush.com

Mobile World Congress Recap: Connected Devices & Mobile Data Management
This week, we attended Mobile World Congress (MWC) in Barcelona, where we met with 15 public and 15 private companies and attended several networking events. We came away incrementally positive on Openwave and Amdocs. We remain positive on Apple, NeuStar, Synchronoss, Smith Micro, and TeleCommunication Systems, and found Comverses late cancellation interesting. We remain neutral on CSG Systems and RIM, and cautious on Nokia and Nuance. The biggest news came out the Friday prior to MWC with the Nokia/Microsoft smartphone partnership. During the show, we focused on our coverage universe and the themes of connected devices and mobile data management. Does Nokia/Microsoft really create a 3-horse race (with Android and Apple)? In our opinion, Nokia has now become a show-me story. While Nokia does get better economics and differentiation through partnering with Microsoft, the risks are higher. Microsoft has made strides with Windows Phone 7 (WP7) with a better user interface and app developer support. That said, the combined size of Windows Phone and Nokia Ovi stores of >50,000 applications still greatly lags iPhone at >350,000 and Android at >250,000. Many at the show were skeptical regarding the success of this partnership. Based on our discussions, we expect the first device could be out late this year (not 2012) and cost cuts could total $1 billion by the end of 2012. We also believe Nokias market share losses could accelerate in the intermediate term. Lastly, it was odd that Nokia/Microsoft neglected RIM in this horse race. While RIM is clearly also under attack, we believe the company will do well in emerging markets and with new devices and see the attack on RIM more on its high margin messaging revenue. Smartphone growth and other connected devices to deliver strong growth in 2011. While we expect mobile phones to increase 8% in 2011, we expect smartphones to increase 36% to 400 million. We also expect tablets to increase 2-3x to over 50 million units in 2011. We also saw a lot of interest in other connected devices at the show such as USB dongles, mobile hot spots, M2M, cars, digital media devices, and medical devices. We felt like there was a lot of interest in M2M. Ultimately, we believe mobile operators see and are pushing for >400% mobile penetration in years to come as the world moves towards Ericssons vision of 50 billion mobile connected devices. Mobile data tsunami continues as deals and partnerships for software solutions start to fall. Cisco expects mobile data traffic to increase 26-fold from 2010 to 2015, a 92% CAGR. Mobile video was 49.8% of traffic in 2010 and is expected to increase to 66% in 2015. To solve this explosion in data, carriers need more spectrum, more coverage, to improve backhaul, and to handle mobile data more intelligently such as data offloading and media optimization. We met with almost every software player in the spectrum including GGSN players (Cisco, Juniper, Ericsson), policy enforcement (Procera, Allot, Sandvine), policy management (Bridgewater, Tekelec, Openet), and media optimization (Openwave, Bytemobile, Mobixell). In our opinion, we may finally be seeing the tipping point with deal signings and partnerships, highlighted by the Juniper partnerships with Openwave, Bridgewater, and Openet and expect deal closures to accelerate by mid-2011. As messaging gets less exciting, areas such as location, advertising, and application stores get more exciting, and billing is still interesting. We would highlight the decline in TeleCommunication Systems messaging revenue and Comverses fall from grace in messaging. We also believe Acision has had a rougher go. However, new areas such as location, advertising, and application stores are picking up the slack. We see TCS leading in location and Motricitys acquisition of Adenyo further highlights interest in mobile advertising and marketing. We will be hosting a MWC Wrap-Up Call on Friday, February 18, 2011 at 11 am PST. Please contact your Wedbush Securities salesperson for call information. Risks associated with the Telecom Software industry include service provider consolidation, reduced capital spending, increased competition, slower-than-expected adoption of wireless data, and delayed introduction of next generation devices and wireless networks. Risks associated with the Wireless Equipment industry include increased competition, consumer adoption, carrier support, FX volatility, component availability and prices, support for OS and app stores, and timing of introduction of new products.

Telecommunications Software

Wedbush Securities does and seeks to do business with companies covered in its research reports. Thus, 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. Please see page 10 of this report for analyst certification and important disclosure information.

Company Analysis
Amdocs (DOX, NEUTRAL, $30 PT): Well Positioned for Real Time Usage-Based Billing
While we did not have a formal meeting, Amdocs had a crowded booth that we visited several times. Ultimately, we believe the robust growth in data and adoption of usage/tiered billing will present incremental opportunities for Amdocs. Amdocs real time converged billing platform should benefit from emergence of usage based/tiered billing. As mobile data is expected to grow at a 92% CAGR and revenue expected to grow at a ~15% CAGR over the same time period, something has to give. As we predicted in 2009, carriers have started to move towards usage-based and tiered billing solutions. Our checks indicate Amdocs is one of two vendors with a truly converged and scalable platform with the other being Comverse, though we expect CSG to integrate Intec in pursuit of the same vision. We believe the adoption of connected devices and shifts in billing methodology will create incremental investments for Amdocs. We see areas such as data billing, new pricing plans, and policy management as providing opportunities. Checks continue to indicate exciting new opportunities though there remain some cracks. After some issues with Clearwire last year, we believe Amdocs is shoring up this relationship. We also continue to believe the large emerging market opportunity is in Indonesia though we have not fully counted out India. On the other end, we have seen some areas of displacement for peripheral billing products, which gives us some modest concern. At current levels, we find Amdocs reasonably valued and are becoming incrementally more positive. Maintaining our NEUTRAL rating and PT of $30. Our PT is based on our DCF analysis. Our PT represents an FY12E cashadjusted PE multiple of 9x. This is a modest premium to our LT estimated EPS growth rate of 6%, which we believe is reasonable, given Amdocs market leadership and strong balance sheet. Risks to attainment of our share price target include difficulties integrating acquisitions, increased competition, a downturn in IT spending, pricing pressure, and potential negative outcomes from wireless consolidation.

Apple (AAPL, OUTPERFORM, $430 PT): Beneficiary From Nokia/Microsoft Partnership

While Apple was not present, the impact of the company continues to be felt throughout the industry. With smartphone growth and market share gains, robust tablet growth, and new products, we believe Apple remains well positioned for growth. Nokia/Microsoft partnership the best scenario for Apple. In our opinion, this partnership should allow Apple to continue to gain smartphone market share from Nokia, and possibly at an accelerated base as Nokia makes the transition to Microsoft. In addition, this means Nokia is not adopting Android, which has been growing like a weed and we view as the biggest competitive threat to Apple. App store remains the Cadillac of the industry. Many vendors and app developers continue to indicate the ease of use and monetization of the iPhone app store remain a key differentiator. In addition, new suspected products such as the iPad 2, iPhone 5, and iPhone mini/nano should drive incremental growth. While the Verizon iPhone launch has been indicated to be slightly below expectations, we believe 10-11 million Verizon iPhones remains a good target. We believe Apple is in good hands with a deep management team. While disheartened to hear more info on Steve Jobs condition, we believe Apple has been run operationally by others in the management team and the company is in good hands. We continue to find shares of Apple reasonably valued and see upside to 2011 expectations. We thus remain buyers at current levels. Reiterate OUTPERFORM rating and PT of $430. Our price target is derived from our DCF analysis and represents a 15x multiple on our FY12 cash-adjusted EPS estimate. This is a modest discount to our LT EPS growth estimates of 17%. With shares trading at 11x FY12E cash adjusted EPS, we find Apple attractively valued. Risks to the attainment of our price target include increased smartphone competition, macro downturn, pricing and margin pressure, and increased support for more open operating systems such as Android.

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Comverse Technology (CMVT.PK, OUTPERFORM, $9.50 PT): Late Cancellation Brings More Questions, but Are They Near an End?
Comverse pulled out of Mobile World Congress, which we believe could be a derivative of recent restructurings as well as nearing strategic options. We would note other vendors indicate that if a vendor pulls out or misses a year, there is a good chance the vendor will lose their good exhibitor location. This would lead us to believe Comverse could be on the verge of being sold. However, others indicated the restructuring may be creeping up to higher management levels and Comverse possibly felt like it was not a good idea to put employees on the front line during this period. That said, we are pleased to hear Comverse is tackling Phase 2 of its restructuring that should save an additional $45 million annually, in our opinion. Comverse One billing system also stands to benefit from the emergence of usage based/tiered billing. As mobile data is expected to grow at a 92% CAGR and revenue is expected to grow at a ~15% CAGR over the same time period, something has to give. As we predicted in 2009, carriers have started to move towards usage-based and tiered billing solutions. Our checks indicate Comverse is one of two vendors with a truly converged and scalable platform with the other being Amdocs. Furthermore, several contacts indicate Comverse may be the best real-time system. We believe the adoption of connected devices and shifts in billing methodology will create incremental investments for Amdocs. We see areas such as data billing, new pricing plans, and policy management as providing opportunities. Messaging still in the dumps. We continue to see a challenging voicemail market and now believe the growth in text messaging is also topping out. In addition, we believe Comverse has lost some key accounts in messaging and had some technical issues with its A2P messaging product. Ultimately, while we are seeing incremental value in the billing business, we are seeing the value of the messaging business continue to deteriorate. We believe Comverse is near the end for both its filings and strategic options. We believe an auction process may be underway and still see value at current levels though time remains an enemy. Maintain OUTPERFORM rating and PT of $9.50. Our target is based upon our DCF analysis and is moderately below our sumof-parts analysis of $10, which we believe will be realized via M&A over the next year. Risks to attainment of our share price target include SEC filing delays, options accounting review, limited traction for InSight, slow uptake of enhanced services, integration risks, and reduced IT spending by carriers.

CSG Systems (CSGS, NEUTRAL, $23 PT): Successful Integration of Intec is Key
CSG had an exhibit in the main hall via Intec, which had moderate traffic. We had a brief meeting with a marketing representative from the legacy CSG business. We are comfortable with the predictable legacy CSG business. With share gains over the past year at Charter and Time Warner and incremental product offerings, we believe CSGs core broadband billing business is stable and predictable. Intec integration is key for CSGs success in the future. CSG indicated so far they have seen positive feedback from customers, though others industry contacts have indicated otherwise. However, after less than stellar success with the Lucent Kenan acquisition and integration, we would like to see signs of success before getting more positive. We believe cable operators will need the real time billing capabilities of Intec to be integrated effectively. While we find shares reasonably valued and believe 2011 guidance is conservative, integration risks keep us on the sidelines. Maintain NEUTRAL rating and PT of $23. Our target is based on our DCF analysis and represents a 10x multiple to our 2011 non-GAAP EPS estimate of $2.30. This is a modest premium to our long-term EPS growth rate estimate of 8% which we believe is justified given solid revenue visibility. Risks to attainment of our share price target include non-exclusive contracts risk/opportunities with DISH and Comcast, industry consolidation, health of the cable and satellite industry, and pricing.

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NeuStar (NSR, OUTPERFORM, $33 PT): Strengthening NPAC Position and New Directory Opportunities

NeuStar had an Avenue meeting center and hosted a reception but not any analyst meetings. We are more positive as we see the company strengthening its grip on the NPAC contract and introducing new and compelling directory services. Industry contacts indicate the NPAC should stay right at home with NeuStar. With the NPAC coding more fields and the RBOCs porting legacy numbers into NeuStars database, we believe the NPAC is shifting from an exception directory to an authoritative directory like VeriSigns domain name registry. We also believe as the NPAC grows in size and complexity, it is becoming much more difficult to see how NeuStar can be replaced, especially given the challenges Perot Systems and even NeuStar faced in the past when the NPAC was smaller and less complex. Even industry peers indicate they dont see NeuStar losing the NPAC. UltraViolet, PathFinder, and Geolocation directories look interesting. For UltraViolet, where NeuStar will manage the rights to theatrical releases starting mid-2010, we see an emerging revenue opportunity. We also see PathFinder getting traction with a deal with Twitter and partnership with Aepona. We believe PathFinder is being used by ~80 GSM operators and usage is starting to accelerate though from a small base. Last, we believe a geolocation directory could be interesting. While there was some questioning if NeuStar would be offering applications, we believe the company is well positioned to be a directory provider for other vendors to build applications on. We believe NeuStar should keep its focus on directories, which the company is very good at. We continue to find shares of NeuStar attractively valued given the predictable growth for several years. In addition, with increased confidence that NeuStar retains the NPAC contract and several new directory services ramping, we are getting more excited. Reiterate OUTPERFORM and PT of $33. Our PT is based on our DCF analysis and represents a 15x multiple on a cash-adjusted basis to our 2011 adjusted EPS estimate of $1.92, which is a slight premium to our projected LT EPS growth rate of 14%. Risks to attainment of our share price target include changes to NPAC contract, service concentration, changes in the regulatory environment, telecom stabilization, and execution on margins and new services.

Nokia (NOK, NEUTRAL, $10.50 PT): Mixed Feedback on Microsoft Partnership

Nokia did not have a major exhibition presence at MWC, but the analyst briefing the prior week brought the big news of the Microsoft partnership. We would note that other handset vendors such as Samsung and ZTE had large and very crowded booths, while HTC and Motorola had more moderate traffic. Feedback on Microsoft announcement is mixed, at best In our opinion; Nokia took the higher risk, higher reward strategy by partnering with Microsoft for its smartphone strategy. We believe sticking with Symbian/MeeGo, Nokia would have been in a long painful fall from grace. Going with Android, we believe Nokia would have admitted its mostly a lower margin hardware manufacturer, which is not necessarily a bad thing and in our opinion the best strategy. That said, Microsoft helps Nokia preserve more margin and value for its assets while differentiating its products. Of note, NAVTEQ will be a key asset in this relationship. While Windows Phone 7 (WP7) has gotten reasonably good user reviews, app developers seemed mostly disappointed, especially the ones I sat next to on the plane from London to Barcelona. We also believe until the Nokia WP7 phones come to market, Nokias share gains may accelerate. Other data points on the partnership. Based on the analyst briefing and other follow up comments and meetings, we believe Nokia could deliver a WP7 device by the end of the year and the company plans to take ~$1 billion of OPEX out of the business model by the end of 2012. In addition, we believe there is a larger focus on enterprise customers and RIMs stronghold than some investors anticipate. Lastly, we believe there is a split in Nokia among those that supported Symbian, Microsoft Windows Phone, and Android, respectively, that management will need to address quickly and get everyone on the same page. We believe shares of Nokia will remain range bound for the foreseeable future until further proof points on the riskier Microsoft partnership are proven out. Maintain NEUTRAL and $10.50 PT. Our PT is based on our DCF analysis and represents a 12x multiple on our 2011-adjusted EPS estimate of $0.88, which is a premium to our projected LT EPS growth rate of 8%. We feel this premium is reasonable given peer multiples, market leadership, and solid balance sheet. Risks to the attainment of our price target include increased competition especially at the high end of the market and in emerging markets, FX volatility, delay in introduction of new products, and lack of support for O/S and app store.

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Nuance (NUAN, UNDERPERFORM, $17 PT): Seeing Pricing Pressure and Microsoft Making Competitive Headway
Nuance did not have a large presence though did have some meeting rooms and made some announcements. We did not host any meetings with Nuance, but the company made some basic predictive text and speech announcements. While excited about the mobile opportunity, we continue to see increased competition and pricing pressure for Nuances mobile speech solutions. We spoke to several customers and/or competitors, namely in voicemail-to-text. While Nuance still delivers a solid ASR (Automated Speech Recognition), competitors are pricing lower. Of note, we see Ditech at the low end, Yap in the middle, and Microsoft moderately lower. In addition, we were surprised to hear from vendors that Microsofts technology is now comparable for voicemail-to-text. Last, we would point out that several voicemail-to-text vendors that use Nuances software are not pleased that Nuances is now competing more directly with them. Multimodal Android application announcement may indicate more direct to consumer business. During the show, Nuance announced a multimodal FlexT9 app for Android in six languages that combines Dragon Dictation, T9 Trace, T9 Write and XT9. This allows customers to interact and stay connected through their device whether they speak, trace, write or tap. The app is priced at $4.99 on the Android App Store. While this is an interesting application, we believe the direct to consumer model supports our checks that Nuance is seeing competitive solutions, including Googles, that are gaining share as preinstalled predictive text and speech solutions. With inferior organic growth, premium P/FCF multiple, and increasing competitive concerns, we would be on the sidelines and expect shares of Nuance to underperform peers. Maintaining UNDERPERFORM and $17 PT. Our target is based upon our DCF analysis and represents a 12x multiple to our CY11E pro forma EPS of $1.39. This is a slight discount to our LT EPS growth estimate of 13% due to weak cash flow. Risks to attainment of our share price target include slower than expected adoption of speech technology, more significant competition, limited balance sheet flexibility, operational disruptions due to acquisition integration, and management execution.

Openwave (OPWV, OUTPERFORM, $3 PT): Media Optimization Opportunity Nearing and Juniper Relationship is Key
Openwave had moderate to good traffic at its Avenue demonstration facility and meeting center. We hosted an investor meeting with the companys CEO, Ken Denman, and CFO, Anne Brennan. We also attended its analyst briefing and networking events, and met with several peers/partners. Media Optimization and other related technologies nearing an inflection point. Openwave indicated it had 43 trials at the end of December and has won four deals out of seven decisions. Speaking with other media optimization vendors such as Bytemobile and Mobixell, it appears the market is starting to move and we believe as other operators see the early leaders move forward they will follow. We thus feel the market should see an inflection point in 2011. We also see traction for other products such as Smart Policy, Analytics, and Passport. Juniper relationship further solidifies Openwaves positioning, while the company also expands its F5 partnership. We are starting to see the GGSN (Gateway GPRS Support Node) vendors partner with policy management, policy enforcement, and service orchestration vendors. We believe the Juniper relationship is key as it helps position Openwaves service orchestration and media optimization technologies into the data path. We believe this is also key getting Openwave more traction with Tier 1 operators. Juniper has >200 carrier relationships for Openwave to leverage. Selling is starting immediately though the first phase of technology integration will be completed by June with the second phase by the end of 2011. Also, Openwave announced it is expanding its relationship with F5 for all data management products. Long tail expected for legacy products as other new products also gain traction. Management indicated it has been signing long term M&S contracts for legacy products, which includes incremental capacity purchases. This should ensure a long tail of revenue for legacy products. At the same time, it appears that new messaging products such as Email MX Stateless Edition is seeing traction. We also continue to watch other new products such as Amplicity and management indicated other new products should be introduced in the coming quarters. We remain positive and continue to see Openwave as a value turnaround story. We expect to see improvements in bookings by the June quarter, which in turn should lead to renewed revenue growth and earnings. Maintain OUTPERFORM and PT of $3. Our target is based on our DCF analysis and represents a 0.8x EV/CY11E Sales multiple, which is a material discount to its peer group, given that Openwave remains a turnaround story. Risks to attainment of our share price target include service provider consolidation, reduced capital spending, increased competition, and slower-than-expected adoption of wireless data.

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Research In Motion (RIMM, NEUTRAL, $60 PT): Expecting Good Device Growth but Concerned on Higher Margin Messaging Services
RIM had minimal presence at MWC and did not host formal investor meetings. However, while our outlook for lower margin device revenue has improved, we are more concerned on higher margin messaging services revenue. Device revenue to benefit from international expansion and new tablet products, though watching pricing of competitive products. We continue to see RIM benefit from international markets, especially where the company can take market share from Nokia. We also expect the companys new PlayBook tablet to see a successful launch though still believe follow up on a successful launch will be critical. RIM did announce two additional PlayBook versions for 2011, bringing the count to four versions of PlayBooks to be introduced in 2011. Our biggest concern on device revenue is the fact that compelling Android devices are being introduced at price levels <$100, meaning the $199 Torch-like launches are probably a thing of the past. Higher margin messaging revenue under attack. We believe RIMs ability to keep overall corporate margins >25% mostly stems from its dominance in high margin messaging services. While we expect international expansion and ongoing device sales to benefit lower ARPU BIS messaging revenue with consumers, we see RIMs higher ARPU BES revenue under attack in the enterprise. Of note, all competing vendors highlight their heterogeneous device support and materially lower prices. We believe companies such as Synchronica and Seven are interesting. We would also highlight that Nokia/Microsoft indicated they plan to attack RIM in the enterprise. Last, Motorola, through its 3LM acquisition and partnerships with HTC, Sony Ericsson, and Sharpe has indicated it plans to attack RIM in the enterprise. We expect RIM to deliver reasonably good near term results. However, longer term, we believe RIM could be a case of continued revenue growth but declining margins, which would keep a cap on EPS growth. Maintain NEUTRAL and PT of $60. Our PT is based on our DCF analysis and represents a 9x multiple on our FY12E proforma EPS estimate of $6.59. This is inline with our projected long-term EPS growth rate of 9%. Risks to the attainment of our price target include increased smartphone competition, enterprise support for heterogeneous devices, lack of adoption by consumers, and support for O/S and app store.

Smith Micro (SMSI, OUTPERFORM, $12 PT): Expect an Inventory Rebound, but Then Where?
Booth traffic was moderate and we hosted an investor meeting with the companys CSO. We were encouraged by the companys announcement of a couple of international wins and remain intrigued by the companys SODA initiative, which could prove to be a catalyst in Q2. Ultimately, we believe for sustained appreciation in the stock, investors need to gain comfort that recent issues were inventory related and not demand or competition related. We see a growth opportunity for connection management solutions and expect an inventory rebound. Ultimately, we believe Smith Micro is seeing a disappointing start to 2011 due to an inventory issue at Verizon. Of note, we believe Verizons 4G launch for laptop modems was soft due to new technology with some glitches, bulky USB dongles, limited marketing support, and slightly delayed launch. We also believe the enterprise sales cycle will take at least 6 months. On the positive front, we expect new and smaller modems to be announced in Q2. As for the market, we actually see more interest from competing vendors as the proliferation of tablets, smartphones, and connected PCs will create a larger opportunity for connection management vendors. We believe concerns regarding smartphones as mobile hot spots are somewhat misplaced. While we do not see smartphone hot spots penetrating the core enterprise market, we believe it could open up a consumer market. New SODA (Secure On-Device API) is interesting but we would like to see traction. Expected in Q2, SODA should underlie Smith Micros new Mobile Hotspot Manager that will support users across a range of devices. The trick is that Smith Micro and carrier partners will need to convince the device (USB dongles, mobile hotspots, etc) manufacturers to incorporate the API on their devices. Should Smith Micro launch the product and get carrier support, we would see this as a material positive. SODA should provide improved setup and security, allow measurement of individual device traffic, allocation of bandwidth, and battery life information. International customers announcements, though expected, came as a nice early surprise. During MWC, Smith Micro announced PT Bakrie and Telecom New Zealand as two new international customers, in addition to a small presence at Vodafone. Of note, Telecom New Zealand will place Smith Micros Connection Management software across a range of devices. While we expect shares to rebound, as the majority of Q1 issue was likely inventory related, we believe it will be critical for the successful launch of new products, penetration of international markets, and the ability to fend off competition. We would buy shares for the inventory rebound over the next six months while ascertaining future growth opportunities. Maintain our OUTPERFORM rating and PT of $12. Our PT is based on our DCF analysis and represents a 2011E cash-adjusted PE multiple of 25x, which is a modest discount to our estimated LT EPS growth rate of 31%. Risks to attainment of our share price target include key customer losses, customer concentration, market consolidation, slower IT spending, macro impact on consumer software, and slower-than-anticipated adoption of new technologies.
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Synchronoss (SNCR, OUTPERFORM, $36 PT): Connected Device Opportunity Continues to Grow
Synchronoss did not host any investor meetings as they were primarily focused on customer and partner meetings. Overall, we heard positive comments regarding Synchronoss in addition to a reasonably well attended customer reception. At this point, we believe growth drivers are pretty much in place for 2011 as the company looks towards driving continued growth in 2012. Expanded product capabilities announced. Of note, Synchronoss announced expanded capabilities for its ConvergenceNow and ConvergenceNow+ products such as the ability to support >4,000 transactions per minute. Management also announced support for seamless content transfer and synchronization for the iPhone, which we expect to benefit greatly from the Verizon iPhone launch, though it has been slightly below expectations from current reports. We see 2011 growth baked in as the company looks towards 2012. With the ramp at Verizon, cable customers, and device OEMs, we believe Synchronoss has most of its growth drivers baked in for 2011 and believe the company is looking to put in growth drivers for 2012. We believe this will be driven by international expansion (including Vodafone), new products, and M&A. Ultimately, we do not believe management is going to let the cash sit on their balance sheet. While shares trade at a premium valuation, given growth drivers of connected devices, eCommerce, and cloud computing, we believe Synchronoss is a dynamic growth story and would be opportunistic at current levels. Reiterate OUTPERFORM and our PT of $36. Our PT is derived from our DCF analysis and represents a 2012E cash-adjusted PE multiple of 30x. This is a moderate premium to our projected long-term EPS growth rate of 24%, which we believe is fair, given likely upside to managements conservative guidance. Risks to attainment of our share price target include key customer losses, slower adoption of E-Commerce as a telecom services sales channel, slower growth of VoIP services, pricing pressure, increasing competition, and management execution.

TeleCommunication Systems (TCS) (TSYS, OUTPERFORM, $6 PT): Location Replacing Messaging

TCS booth had a very good new location in the key Hall 8, with moderate though improved traffic from last year. During the conference, we hosted an investor meeting with TCS CTO and CMO, and spoke with several other representatives at the booth. Ultimately, while 2011 will be another somewhat challenging year, we see a return to organic growth as location products and services starts to replace the decline in messaging revenue. Location products and services focused on navigation, people, work, and assets. On the infrastructure side, TCS highlighted the 750 million transactions it saw already on its hosted infrastructure with 25-35% of location infrastructure revenue driven from location transactions. Management also highlighted ~12 tier 2 and 3 opportunities with its Huawei relationship and the inclusion of VZ Navigator on the Verizon iPhone. Management highlighted support for TELUS, MTS, Bell Mobility, Sprint, AT&T, Verizon, and Hutchison for location infrastructure and that it is seeing good RFP activity for location for LTE network launches. We also see renewed European E112 activity also providing incremental opportunities. While we remain very comfortable for TCS in location infrastructure, we believe nuances in location services; primarily navigation presents both opportunities and risks. No messaging licensing revenue assumed for 2011. While still possible, incremental capacity purchases for messaging revenue has slowed materially. That said, management still believes some incremental purchases are possible but leaving that for upside in the model. We will be watching Verizons text messaging statistic as a leading indicator. Government revenue still back end loaded but should improve from last year. We are impressed with the amount of backlog TCS has in Government, which should lead to good visibility into long term revenue growth. However, similar to last year, we expect revenue to be back end loaded for Systems, while Services should ramp throughout the year. Per our recent upgrade, we still see TCS as an attractively valued recovery story that is seeing a return to positive YoY organic growth. Maintain OUTPERFORM rating and PT of $6. Our PT is based on our DCF analysis and represents an adjusted 2011E PE of 12x. This is a slight discount to our estimated LT EPS growth rate of 14%. Risks to attainment of our share price target include timing of systems sales, more significant competition in new growth markets, adoption of free navigation, management execution, and customer concentration.

Other Companies Meeting With the Entire Ecosystem

We also met with or stopped by the booth of several other interesting public companies including Motricity, Openet, Allot, IDC Communications, Qualcomm, Motorola Mobility, Procera, Evolving Systems, Bridgewater Systems, Microsoft, Juniper, Cisco, Ericsson, Synchronica, Sandvine, Mach, and Glu Mobile. We also had a chance to catch up with Syniverse, which recently was taken private.

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Figure 1: Telecom Software and Wireless Equipment Comparative Valuation

Source: First Call, Company data, Wedbush Securities, Inc.

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Figure 2: Covered Companies Mentioned In This Report (Intraday 2/18/2011)

Company AMDOCS APPLE COMVERSE TECHNOLOGY CSG SYSTEMS NEUSTAR NOKIA NUANCE COMMUNICATION OPENWAVE RESEARCH IN MOTION SMITH MICRO SYNCHRONOSS TELECOM SYSTEMS CISCO F5 NETWORKS GOOGLE JUNIPER NETWORKS VERISIGN

Ticker DOX AAPL CMVT CSGS NSR NOK NUAN OPWV RIMM SMSI SNCR TSYS CSCO FFIV GOOG JNPR VRSN

Rating NEUTRAL OUTPERFORM OUTPERFORM NEUTRAL OUTPERFORM NEUTRAL UNDERPERFORM OUTPERFORM NEUTRAL OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM OUTPERFORM NEUTRAL NEUTRAL

Current Price $29.78 $355.92 $6.63 $19.88 $26.85 $9.10 $19.49 $2.29 $69.59 $9.32 $34.30 $4.51 $18.97 $121.68 $628.69 $43.85 $36.83

Price Target $30 $430 $9.50 $23 $33 $10.50 $17 $3 $60 $12 $36 $6 $24 $128 $750 $34 $38

Source: Company data, Wedbush Securities, Inc.

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Analyst Certification I, Scott Sutherland, CFA, Suhail Chandy, certify that the views expressed in this report accurately reflect my personal opinion and that I have not and will not, directly or indirectly, receive compensation or other payments in connection with my specific recommendations or views contained in this report.
Disclosure information regarding historical ratings and price targets is available at http://www.wedbush.com/ResearchDisclosure/DisclosureQ410.pdf

Investment Rating System: Outperform: Expect the total return of the stock to outperform relative to the median total return of the analysts (or the analysts team) coverage universe over the next 6-12 months. Neutral: Expect the total return of the stock to perform in-line with the median total return of the analysts (or the analysts team) coverage universe over the next 6-12 months. Underperform: Expect the total return of the stock to underperform relative to the median total return of the analysts (or the analysts team) coverage universe over the next 6-12 months. The Investment Ratings are based on the expected performance of a stock (based on anticipated total return to price target) relative to the other stocks in the analysts coverage universe (or the analysts team coverage).* Rating Distribution (as of December 31, 2010) Outperform: 53% Neutral: 38% Underperform: 9% Investment Banking Relationships (as of December 31, 2010) Outperform: 11% Neutral: 1% Underperform: 0%

The Distribution of Ratings is required by FINRA rules; however, WS stock ratings of Outperform, Neutral, and Underperform most closely conform to Buy, Hold, and Sell, respectively. Please note, however, the definitions are not the same as WS stock ratings are on a relative basis. The analysts responsible for preparing research reports do not receive compensation based on specific investment banking activity. The analysts receive compensation that is based upon various factors including WS total revenues, a portion of which are generated by WS investment banking activities. Capital Markets Disclosures as of February 18, 2011 Company Amdocs Apple Comverse Technology CSG Systems International NeuStar Nokia Nuance Communications Openwave Systems Research In Motion Smith Micro Synchronoss TeleCommunication Systems Cisco Systems F5 Networks Google Juniper Networks VeriSign Disclosure 1 1 1 1 1 1 1 1 1 1 1,3,4,5,7 1 1 1 1 1 1

Research Disclosure Legend 1. WS makes a market in the securities of the subject company. 2. WS managed a public offering of securities within the last 12 months. 3. WS co-managed a public offering of securities within the last 12 months. 4. WS has received compensation for investment banking services within the last 12 months. 5. WS provided investment banking services within the last 12 months. 6. WS is acting as financial advisor. 7. WS expects to receive compensation for investment banking services within the next 3 months. 8. WS provided non-investment banking securities-related services within the past 12 months. 9. WS has received compensation for products and services other than investment banking services within the past 12 months. 10. The research analyst, a member of the research analysts household, any associate of the research analyst, or any individual
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11. 12.

directly involved in the preparation of this report has a long position in the common stocks. WS or one of its affiliates beneficially own 1% or more of the common equity securities. Lou Kerner maintains a position in shares of Facebook (private)

Price Charts Wedbush disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter. Additional information on recommended securities is available on request.

* WS changed its rating system from (Strong Buy/Buy/Hold/Sell) to (Outperform/ Neutral/Underperform) on July 14, 2009. Please access the attached hyperlink for WS Coverage Universe: http://www.wedbush.com/services/cmg/equities-division/research/equityresearch Applicable disclosure information is also available upon request by contacting Ellen Kang in the Research Department at (213) 6884529, by email to ellen.kang@wedbush.com, or the Business Conduct Department at (213) 688-8090. You may also submit a written request to the following: Business Conduct Department, 1000 Wilshire Blvd., Los Angeles, CA 90017.

OTHER DISCLOSURES
RESEARCH DEPT. * (213) 688-4505 * www.wedbush.com EQUITY TRADING Los Angeles (213) 688-4470 / (800) 421-0178 * EQUITY SALES Los Angeles (800) 444-8076 CORPORATE HEADQUARTERS (213) 688-8000 The information herein is based on sources that we consider reliable, but its accuracy is not guaranteed. The information contained herein is not a representation by this corporation, nor is any recommendation made herein based on any privileged information. This information is not intended to be nor should it be relied upon as a complete record or analysis; neither is it an offer nor a solicitation of an offer to sell or buy any security mentioned herein. This firm, Wedbush Securities, its officers, employees, and members of their families, or any one or more of them, and its discretionary and advisory accounts, may have a position in any security discussed herein or in related securities and may make, from time to time, purchases or sales thereof in the open market or otherwise. The information and expressions of opinion contained herein are subject to change without further notice. The herein mentioned securities may be sold to or bought from customers on a principal basis by this firm. Additional information with respect to the information contained herein may be obtained upon request.

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EQUITY RESEARCH DEPARTMENT (213) 688-4529 DIRECTOR OF RESEARCH Mark D. Benson (213) 688-4435
CONSUMER PRODUCTS AND SERVICES Consumer Products Rommel T. Dionisio Kurt M. Frederick, CFA CPA E-Commerce Edward Woo, CFA Nick McKay Entertainment: Toys Edward Woo, CFA Nick McKay Footwear and Apparel Camilo Lyon Alicia Jenks Healthy Lifestyles Kurt M. Frederick, CFA CPA Specialty Retail: Hardlines Joan L. Storms, CFA John Garrett Camilo Lyon Alicia Jenks Specialty Retail: Softlines Betty Chen Connie Wong TECHNOLOGY, MEDIA AND TELECOM Communications Equipment Rohit Chopra Sanjit Singh Datacenter Technologies Kaushik Roy David Kaczorowski Enterprise Software Michael B. Nemeroff Michael J. Anderson Entertainment: Retail Michael Pachter Entertainment: Software Michael Pachter Edward Woo, CFA Nick McKay Financial Technology Gil B. Luria Nick Setyan Internet and Social Media Lou Kerner Ed Arce Edward Woo, CFA Nick McKay LIFE SCIENCES Biotechnology/Biopharmaceuticals Gregory R. Wade, Ph.D. (415) 274-6863 David M. Nierengarten, Ph.D. (415) 274-6862 Christopher N. Marai, Ph.D. (415) 274-6861 Y. Katherine Xu, Ph.D. (212) 938-9955

(212) 938-9934 (213) 688-4459

(212) 668-9871 (212) 938-9922

(213) 688-4382 (213) 688-4343

(415) 274-6873 (415) 274-6883

(213) 688-4382 (213) 688-4343

(212) 668-9876 (212) 668-9778

Cardiovascular, Devices and Regenerative Duane Nash, MD JD MBA (415) 263-6650 Akiva Felt (415) 263-6648 Emerging Pharmaceuticals Liana Moussatos, Ph.D. Richard Lau Christopher N. Marai, Ph.D.

(212) 938-9924 (213) 688-4355

(213) 688-4474

(415) 263-6626 (415) 274-6851 (415) 274-6861

(213) 688-4459

(213) 688-4474 (213) 688-4382 (213) 688-4343

Healthcare Services - Managed Care Sarah James (213) 688-4503 Daniel Patt (212) 938-9937 Medical Technology Phillip Nalbone Jeffrey Chu

(213) 688-4537 (213) 688-4523 (212) 938-9924 (213) 688-4355

(213) 688-4501 (213) 688-4519

(415) 274-6884 (415) 274-6885

(212) 668-9874 (212) 938-9928 (213) 688-4382 (213) 688-4343

Medical Diagnostics and Life Sciences Tools Zarak Khurshid (415) 274-6823

(415) 273-7328 (415) 273-7315

Specialty Retail: Sporting Goods Camilo Lyon (212) 938-9924 Alicia Jenks (213) 688-4355 RETAIL/CONSUMER MARKET RESEARCH Gabriella Santaniello (213) 688-4557

Internet and Media Technologies Kerry Rice, CPA (213) 688-4538 Media James Dix, CFA Max Pinigin Movies and Entertainment Michael Pachter Edward Woo, CFA Nick McKay Semiconductors Patrick Wang Michael Lucarelli Betsy Van Hees Ryan Jue

(213) 688-4315 (213) 688-4518

CLEAN TECHNOLOGY AND INDUSTRIAL GROWTH Aerospace and Defense Kenneth Herbert Andrew Doup Clean Technology Craig Irwin David Giesecke Environmental Services Al Kaschalk Kevin Lee Industrial Biotechnology Liana Moussatos, Ph.D. Christopher N. Marai, Ph.D. Solar Technology Christine Hersey

(415) 274-6875 (415) 274-6876

(213) 688-4474 (213) 688-4382 (213) 688-4343

(212) 938-9926 (212) 938-9925

(212) 938-9938 (212) 938-9927 (415) 274-6869 (415) 263-6669

(213) 688-4539 (213) 688-4303

Telecommunications Software Scott P. Sutherland, CFA (213) 688-4522 Suhail Chandy (213) 688-4380 Wireless Equipment Scott P. Sutherland, CFA Suhail Chandy

(415) 263-6626 (415) 274-6861

(213) 688-4522 (213) 688-4380

(213) 688-4311

Water and Renewable Energy Solutions David Rose, CFA (213) 688-4319
EQUITY SALES Los Angeles San Francisco New York Boston EQUITY TRADING Los Angeles San Francisco New York Boston

(213) 688-4470 / (800) 444-8076 (415) 274-6800 (212) 938-9931 (617) 832-3700

(213) 688-4470 / (800) 421-0178 (415) 274-6811 (212) 344-2382 (617) 832-3700

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