August 10, 2009

Industry Report

Think Greentech Reason for Report:

Takeaways On Smart Grid Conference Call With Industry Update
Colin Rusch
Jesse Berst
212-468-7015, crusch@thinkequity.com
THINK SUMMARY:
Below are our takeaways from our conference call with Jesse Berst, Managing
Director, Global Smart Energy on smart grid technologies. Mr. Berst's thoughts
included the following:
KEY POINTS:
• Berst framed comments on smart grid by stating that an upgrade of the U.S.
electricity infrastructure could be a primary driver for the U.S. economy over
coming decades.
• Primary policy drivers are expected to be dynamic retail electricity pricing and
decoupling.
• Mr. Berst expressed his view that the most economically-efficient smart grid
path would be to (a) install a system-wide communications infrastructure, (b)
invest in transmission and distribution automation to improve asset
efficiencies, and then (c) add home energy management networks.
• Standard-setting process still in progress, may complicate product and
company positioning in the next 12-24 months.
• While some technologies are starting to emerge, diversified end-markets
leave room for multiple technology winners.
• Adoption of intermittent renewables sources will likely coincide with adoption
of smart grid technologies, given potential intermittency-related instabilities.

Key Drivers Affecting The Smart Grid

• On near-term policy drivers, Mr. Berst indicated that there is strong federal
support and growing state regulatory support for 1) dynamic electricity pricing
that reflects time-based differences in the cost of power and 2) decoupling of
utility revenues from electricity sales volume. These drivers would help to
create demand for smart meters and energy efficiency/demand response.
• Longer-term, Mr. Berst noted the potential of a carbon price to improve the
economics of efficient asset management, and suggested that the federal
government could push for standardized building energy codes and other
regulatory harmonies that currently affect utilities operating in multiple states
and jurisdictions.
• Mr. Berst expressed his view that the most economically efficient smart grid
path would be to (a) install a system-wide communications infrastructure, (b)
invest in transmission and distribution automation to improve asset
efficiencies, and then (c) add home energy management networks.
• However, he indicated that aggressive marketing from meter companies,
directed policy support in the federal stimulus bill, and the reluctance of
regulators to include new technologies in rate bases has pushed investment
toward smart metering and home area networks.
• He expressed concern that smart grid companies would have to adapt to
more than 35 mandated standards in the next 18 months due to the
standards-development process led by the National Institute of Standards
and Technology (NIST). According to Mr. Berst, many providers are
unprepared to move to more open protocols and non-proprietary technology
solutions.
• Mr. Berst noted that the growth of intermittent renewables is a strong driver
for smart grid investment. Instabilities could materialize with roughly 5%
intermittent renewables penetration and are unavoidable at levels of 15-20%
without smarter load management.

Takeaways continue on page 2.

Please see analyst certification (Reg. AC) and other important disclosures on pages 3-4 of this report.
 August 10, 2009
Industry Report

Mr. Berst's thoughts also included the following:

Smart Metering Markets And Communications Architecture

• Mr. Berst noted that there has been significant push-back against smart metering deployments from consumer groups
such as the AARP.
• He believes that markets would continue to grow in areas with regulatory support, high electric rates, and high growth of
renewables, including California, Texas, Hawaii, and the Northeast.
• Mr. Berst predicted that, while most utilities have leaned toward RF mesh technologies for smart communications, cellular
networks may take on a much-larger role in the future. He cited as an example the recent agreement by Verizon and
QUALCOMM, which could encourage the spread of small chips to let smart devices easily connect to the cell network at
cheaper rates.
• He expressed the belief that fiberoptics would be useful for connecting utility backhauls, but was not necessary for
residential connections.
• He questioned the market readiness of broadband-over-powerline technologies and indicated that significant technical
problems persist.
• Mr. Berst suggested that the best markets for powerline technologies were in rural areas and in Europe, where many more
homes are connected to a single transformer.

Demand Response
• Mr. Berst observed that demand-response management companies were facing increasing pressure from
customers—particularly commercial and industrial customers—to pass on a larger share of electricity savings.
• He noted the risk that larger utilities could seek to assume more of the energy management/DR functions on their own
and/or pool together with other utilities to increase DR capability.
• He observed that DR companies were lobbying heavily for increased federal and state regulatory support (i.e., decoupling,
time-based rates, and incentives for DR).
• Mr. Berst expressed the view that companies with more open platforms and add-on capability from third parties would
have a competitive advantage going forward.

Emerging Opportunities
• In Mr. Berst's view, the biggest opportunity on the grid exists for companies that can aggregate distributed resources—not
only demand response, but also distributed generation, storage, and battery banks—and can use these resources as a
portfolio to do load balancing.
• He believes that there will be a strong demand for systems integration, enterprise-wide systems architecture solutions,
and geospatial platforms that can measure and control the efficiency of transmission operations.
RISKS:
Industry risks include: global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and
increased competition.

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 August 10, 2009
Industry Report

COMPANIES MENTIONED IN THIS REPORT:

Company Exchange Symbol Price Rating Price Target
QUALCOMM Inc. NASDAQ QCOM $45.97 Buy $55.00

Important Research Disclosures

Analyst Certification
I, Colin Rusch, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.

The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total
revenues, a portion of which is generated by investment banking activities.

ThinkEquity LLC makes a market in QUALCOMM Inc. securities; and/or associated persons may sell to or buy from customers on a
principal basis.

Rating and Price Target History for: QUALCOMM Inc. (QCOM) as of 08-07-2009
03/14/07 04/26/07 05/18/07 11/09/07 06/05/08 07/25/08 10/29/08 01/08/09 01/29/09 04/13/09 04/28/09
B:$50.00 B:$55.00 B:$60.00 B:$50.00 B:$60.00 B:$65.00 B:$50.00 B:$48.00 B:$45.00 B:$50.00 B:$55.00
60

50

40

30

20
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

Created by BlueMatrix

Rating Definitions
The ThinkEquity LLC rating system is based on a stock's expected total return over a 12-month investment horizon. Ratings on coverage
are defined as follows:

Buy: Appreciation potential of 20% or more over the next 12 months. Analyst has a high level of conviction that the company's business
fundamentals are intact and that the company will meet or exceed earnings projections. Valuation is considered reasonable considering
the company's potential.
Accumulate: Appreciation potential greater than 0% and less than 20% over the next 12 months. Typically good companies, with
fundamentals and earnings visibility intact, but current valuation limits upside potential.
Source of Funds: Stock is expected to decline as much as 20% over the next 12 months, due to a single or combination of factors
including excessive valuation, negative sector sentiment, and/ or reduced earnings expectations.
Sell: Stock expected to decline 20% or more over the next 12 months. Company fundamentals are deteriorating, leading to material
downward revisions in earnings projections and valuation.

Distribution of Ratings, Firmwide

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 August 10, 2009
Industry Report

ThinkEquity LLC

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [B] 102 50.20 13 12.75
HOLD [Acc] 78 38.40 5 6.41
SELL [S/SoF] 23 11.40 0 0.00

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