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1 A publication of Equity Research Hitachi CQ2'08 Storage Review July 31, 2008 Sector Rating: Hard Disk Drives, Market Weight Sector Rating: Enterprise Storage, Overweight Stock Price FY CASH EPS FY P/CASH EPS Company Name Rating 07/31/ E 2009E Hard Disk Drives Seagate Technology Inc. (STX) 1 $15.11 $2.55 A $ x 8.0x Western Digital Corp. (WDC) A x 7.3x Enterprise Storage Brocade Communication Systems Inc. 2 V x 9.5x EMC Corp. (EMC) x 16.6x Emulex Corp. (ELX) x 13.6x Isilon Systems Inc. (ISLN) 2 V 4.79 (0.49) (0.34) NM NM NetApp, Inc. (NTAP) 1 V A x 18.1x QLogic Corp. (QLGC) A x 15.5x Xyratex Ltd. (XRTX) x 7.6x Source: Company data and WCM, LLC estimates NA = Not Available, NC = No Change, NE = No Estimate, NM = Not Meaningful 1= Outperform, 2 = Market Perform, 3 = Underperform, V = Volatile HGST (HDD) Results - Profitability Continues & Still Losing Shipment Share (Positives for STX & WDC) - HGST reported revenue of $1.430 billion, up 17.7% yr/yr and 1.1% seq. (vs. STX +5.6% yr/yr and WDC +45.8% yr/yr). HGST was profitable for the 3 rd consecutive quarter with operating income at $53M (down from $65M, but still a positive as HGST appears to have remained a rational competitor). This represents the first time HGST has been profitable for more than 2 consecutive quarters. On a shipment basis, HGST shipped ~22M units during the quarter (+9% yr/yr; vs. +10% at STX and +41% at WDC). We believe the company continues to lose overall shipment share; most notably in the 2.5" market where we now believe that Seagate is beginning to regain some share vs. both WD and HGST - see figures herein. Hitachi did not provide any updated forecast for its HDD business going forward. Hitachi Storage Solutions (HDS + Hitachi Storage Japan) - Hitachi reported storage solutions revenue of 85 billion, up 2% yr/yr (-8% seq.); however, when adjusted to US$ this equates to approximately $810M, or up a solid 19% yr/yr (- 8.5% seq.) - some favorable compare dynamics should be considered. Our conversations with HDS' management (discussed in detail below), highlighted: (1) High-End - systems rev. grew a solid 3x that of EMC's Symmetrix revenue (or low- 30% yr/yr range). We estimate this implies a 2-3pp share gain relative to EMC and IBM during CQ2'08. High-end USP systems shipments remain in the ~900 unit range; touching on the 10,000 cumulative mark, (2) Geo Growth - Asia-Pac up in the mid-50% yr/yr range, EMEA up in the mid-20% yr/yr range, and Americas up in the high-teens yr/yr range. Japan remains weak w/ rev. declining double-digits yr/yr. HGST did see a modest decline in overall financial services revenue (we estimate ~30% of total revenue); offset by strong net customer additions (+110 accounts in Americas during CQ2'08), (3) Software/Services - rev. grew in the low-30% and mid-20% yr/yr range, respectively. (4) Macroeconomic Thoughts - some pushouts/deferrals seen; however, overall pipeline looks healthy into 2H'CY2008. Enterprise Hardware Aaron Rakers, CFA, Senior Analyst (314) / aaron.rakers@wachovia.com Matthew Nahorski, Associate Analyst (314) / matthew.nahorski@wachovia.com Please see page 11 for rating definitions, important disclosures and required analyst certifications. WCM does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of the report and investors should consider this report as only a single factor in making their investment decision.

2 Enterprise Hardware Hitachi Storage Solutions (Hitachi Data Systems + Hitachi Storage Japan) Hitachi, Ltd. reported storage solutions revenue of 85 billion during its June quarter (FQ1 08). This reflects a yr/yr increase of 2%, but is down approximately 8% sequentially (a much better trend than the -12% and - 11% declines that were seen during the June 2006 and 2007 quarters, respectively). Figure 7 provides a summary of Hitachi s enterprise storage solutions results over the past several quarters. However, it is important to understand that these are Yen-based results and should be normalized for the currency impacts. Using the company s conversion ratio of 105 /US$, Hitachi s total Storage Solutions revenue equates to revenue of approximately $809.5 million, or up 19% yr/yr but down 8.5% sequentially during the June quarter (reflects nearly 17pp of positive impact from currency translation on a yr/yr basis; similar the prior quarter impact). While a favorable compare should be somewhat considered, we believe this indicates solid performance out of Hitachi during CQ2 08. Figure 8 provides a summary of the yr/yr growth rates for Hitachi based on US$ results. However, it is interesting to point out that our conversations with Hitachi Data Systems management, Randy DeMont, Executive Vice President, Worldwide Sales, Support, and Services and Chief Scientist, Claus Mikkelson, did note that HDS revenue grew faster than this consolidated metric as Japan revenue continues to face a challenging macro-economic environment. We estimate that HDS accounts for nearly 85% of Hitachi s consolidated Storage Solutions revenue, up from a ~80% contribution in prior quarters. We estimate that HDS hardware revenue grew in a solid double-digit yr/yr range, while software and services grew in the 30% and mid-20% yr/yr ranges, respectively see further discussion below. The company also highlighted solid growth within Sun (improving trends) and HP we estimate representing approximately 10-15% and approximately 20% of total HDS revenue, respectively. Our discussions suggest that Hitachi saw solid growth in its Asia-Pac (estimate >50% yr/yr; modestly driven by some pull-forward in China business ahead of the Olympics), EMEA (estimate mid-20% yr/yr), and even growth in Americas (estimate high-teens yr/yr growth); despite still having as much as 30% of its revenue tied to the financial services vertical. Hitachi s growth compares to EMC reporting revenue of $2.873 billion in its core Information Storage segment during its June quarter. This was up 14% yr/yr and 6% sequentially. Within EMC s Information Storage results, the company reported solid hardware growth of 13% yr/yr (high-end Symmetrix up 10% yr/yr and CLARiiON up 8% yr/yr), while software license revenue declined 4% yr/yr but increased 5% sequentially. We continue to believe that Hitachi primarily competes with EMC s high-end Symmetrix solutions (note: we estimate that nearly 80% of Hitachi s revenue is driven by its high-end USP solutions), in which EMC has been benefiting from a favorable product cycle over the past few quarters most notably from the DMX-4 ramp. Finally, IBM had reported that its total enterprise storage revenue grew 12% yr/yr (+6% yr/yr in constant currency) during its June quarter. In this, IBM reported that its disk storage revenue grew 20% yr/yr, in which IBM also primarily competes against HDS in its high-end DS-series solutions. The company reported that the high-end DS8000 solution posted solid growth of 24% yr/yr during the June quarter (following strong 17% yr/yr growth during the prior quarter). Figure 9 provides a comparison between the yr/yr growth rates of Hitachi s total storage solutions revenue, relative to EMC s storage hardware and IBM s disclosed yr/yr disk storage growth rate. Finally, Figure 10 provides a comparison between Hitachi s storage solutions revenue and EMC s Information Storage revenue. 6

3 Hitachi CQ2'08 Storage Review Figure 7: Hitachi Storage Solutions Total Revenue ( ;B) versus Yr/Yr % Change Hitachi SAN/NASRevenue (Japanese Yen; M) 100,000 95,000 90,000 85,000 80,000 75,000 70,000 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 - Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Hitachi new WMS/AMS midrange disk arrays. Hitachi announces new USP arrays (array-based virtualization) Hitachi announces USP Performance Boost. Hitachi Refreshed High- End Arrays; USP-V Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% (5%) (10%) (15%) (20%) (25%) Yr/Yr %Change Revenue (Yen; M) Yr/Yr % Change Source: Hitachi; Wachovia Capital Markets, LLC Figure 8: Hitachi Storage Solutions Revenue Yr/Yr % Growth using US$ 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% Yr/Yr %Change 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% FQ102 FQ202 FQ302 FQ402 FQ103 FQ203 FQ303 FQ403 FQ104 FQ204 FQ304 FQ404 FQ105 FQ205 FQ305 FQ405 FQ106 FQ206 FQ306 FQ406 FQ107 FQ207 FQ307 FQ407 FQ108 Source: Hitachi; Wachovia Capital Markets, LLC Figure 9: Hitachi (Yen-based) vs. EMC vs. IBM Yr/Yr Storage Growth (IBM = Disclosed Disk; EMC = Storage Hardware) Yr/Yr % Change 40% 35% 30% 25% 20% 15% 10% 5% 0% (5%) (10%) (15%) (20%) Q1'03 Q2'03 Q3'03 Q4'03 Q1'04 Q2'04 Q3'04 Q4'04 Q1'05 Q2'05 Q3'05 IBM - Disk Storage EMC - Total Storage Hardware Hitachi - Total Storage Solutions Source: Hitachi; IBM; EMC; Wachovia Capital Markets, LLC Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 Q1'08 Q2'08 7

4 Enterprise Hardware Figure 10: Hitachi Storage Solutions versus EMC Information Storage Segment Revenue (US$) Revenue ($M) $3,200 $3,100 $3,000 $2,900 $2,800 $2,700 $2,600 $2,500 $2,400 $2,300 $2,200 $2,100 $2,000 $1,900 $1,800 $1,700 $1,600 $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 CQ1'06 CQ2'06 CQ3'06 CQ4'06 CQ1'07 CQ2'07 CQ3'07 CQ4'07 CQ1'08 CQ2'08 36% 34% 32% 30% 28% 26% 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Hitachi - % of EMC Source: Hitachi; EMC; Wachovia Capital Markets, LLC EMC Info Storage ($M) Hitachi Storage Solutions ($M) Hitachi - % of EMC With this, we would highlight the following thoughts with regard to Hitachi Data Systems (ex-japan) storage solutions results: Geographical Growth; Some Weakness in Financial Services, but Overall Geos Solid Our conversations with HDS (Hitachi Storage Solutions excluding Japan) suggested that the company again saw solid growth (albeit including favorable currency impacts) in both Europe and Asia-Pac (ex-japan). Our conversations suggested that Asia-Pac results were most notably strong with revenue up in the plus- 50% yr/yr range during the June 08 quarter (vs. mid-20% yr/yr growth in the prior quarter). While we believe a favorable yr/yr compare, coupled with some pull-forward in deployments in China ahead of the Olympics, had an impact, this does compare to EMC s report that its Information Infrastructure revenue in Asia-Pac grew 23% yr/yr (including currency benefit). HDS noted that its EMEA revenue grew at a solid double digit yr/yr rate during the quarter (we estimate in the mid-20% range; similar to the prior quarter and reflective of currency impacts). This was more in-line with EMC s report of 24% yr/yr growth in EMEA during its June 08 quarter. Americas revenue was noted as growing in the high-teens yr/yr range, which compared to mid-single digit yr/yr growth in the prior quarter, according to our conversations. EMC s N. America revenue for Information Infrastructure grew 7% yr/yr. Hitachi s Randy DeMont did note that the company expanded its new account base by approximately 110 customers during the quarter, an acceleration by a factor of 25 or so net new customers additions seen over the past few quarters. With regard to the macroeconomic environment, Mr. DeMont did note that while it has seen the macroeconomic concerns in the market as enterprises curtail their IT spending plans, this has yet to have a meaningful impact on its results, or we believe the enterprise storage market overall. We believe the company did see some softness in its Financial Services results, which we estimate to account for approximately 30% of its total revenue likely seeing a modest yr/yr decline, according to our conversations. Another Quarter of Strong High-End Growth We estimate that HDS high-end USP solutions account for the vast majority (we estimate ~80%) of the company s total hardware revenue. In this, our conversations suggested that its high-end revenue grew as much as 3x that of EMC s 10% yr/yr high-end Symmetrix growth (we estimate in the low-30% yr/yr range). This also compares to IBM reporting solid 24% yr/yr growth in its high-end DS8000 systems during the June 08 quarter. With all three high-end providers reporting their June quarter results, our sense is again that the high-end storage array market is clearly better than expected (note: most viewing the high-end market as a low/mid-single digit growth 8

5 Hitachi CQ2'08 Storage Review arena). Our conversations have continued to support our thesis that, outside of product cycle dynamics, the high-end market could actually be benefiting from consolidation efforts as IT environments look at the sprawl of midrange solutions within their data centers we believe an ongoing driver looking into 2H CY2008. We estimate that HDS added another than ~900 USP systems to its installed base during the June quarter ending at approximately 9,900 units (see Figure 11); tapping on the door of the 10,000 unit shipped market since the Sept 04 introduction. Our conversations noted that HDS continues to see more than a 50% attach rate for its Universal Volume Manager (UVM; virtualization) software within its customer base. In addition, our recent conversations have also suggested that the company has been realizing a 25% attach rate within these UVM customers for the company s Dynamic Provisioning (thin-provisioning) functionality remaining fairly stable with the contribution seen in the prior quarter. We continue to estimate that 25-30% of the company s installed base uses Hitachi s virtualization in heterogeneous environments. According to our analysis and discussions, it appears that Hitachi garnered an increased share in the highend storage array market during CQ2 08 both on a yr/yr and sequential basis. As shown in Figure 12, we estimate that Hitachi gained as much as 2-3pp of revenue share sequentially (+4pp yr/yr), while we estimate that EMC s Symmetrix and IBM s high-end systems revenue share declined by 2-3pp and 1pp on a sequential basis, respectively. Figure 12 also summarizes our estimates on the high-end share trends. Figure 11: Hitachi High-End USP Installed Base Cumulative USP/NSC Controller Shipments 10,500 10,250 10,000 9,750 9,500 9,250 9,000 8,750 8,500 8,250 8,000 7,750 7,500 7,250 7,000 6,750 6,500 6,250 6,000 5,750 5,500 5,250 5,000 4,750 4,500 4,250 4,000 3,750 3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1, /08: Disclosed "Close" to 10,000 Cumulative Shipped 11/07: Disclosed >7,300 Cumulative 6/07: Disclosed >6,000 Cumulative Shipped 5/06: Disclosed >3,000 Cumulative Shipped FQ2 04 FQ3 04 FQ4 04 FQ1 05 FQ2 05 FQ3 05 FQ4 05 FQ1 06 FQ2 06 FQ3 06 FQ4 06 FQ1 07 FQ2 07 FQ3 07 FQ4 07 FQ1 08 Source: Hitachi; Wachovia Capital Markets, LLC estimates 9

6 Enterprise Hardware Figure 12: Hitachi High-End USP Installed Base Relative Revenue Share (%) Q1 04 Q2 04 Q3 04 Q Q1 05 Q2 05 Q3 05 Q Q1 06 Q2 06 Q3 06 Q Q1 07 Q2 07 Q3 07 Q Q1 08 Q2 08 EMC Symmetrix/DMX 55% 45% 45% 48% 46% 48% 47% 48% 47% 46% 42% 40% 44% 46% 42% 45% 40% 43% 46% 45% 45% 44% 45% 46% 43% IBM ESS (Shark; DS-series) 20% 22% 23% 17% 23% 20% 25% 22% 20% 23% 20% 26% 22% 18% 21% 21% 28% 22% 17% 21% 20% 25% 21% 20% 19% HGGR Lightning/USP-Series 25% 33% 32% 34% 31% 32% 27% 30% 34% 31% 38% 34% 34% 37% 36% 34% 32% 35% 36% 34% 35% 31% 34% 35% 38% Total High-End Disk Storage 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Relative M arket Share ( % ) 80.0% 77.5% 75.0% 72.5% 70.0% 67.5% 65.0% 62.5% 60.0% 57.5% 55.0% 52.5% 50.0% 47.5% 45.0% 42.5% 40.0% 37.5% 35.0% 32.5% 30.0% 27.5% 25.0% 22.5% 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% EMC Symmetrix HGGR TagmaStore/Lightning IBM DSxxxx/Shark Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01 Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Source: Hitachi; Wachovia Capital Markets, LLC estimates Midrange Growth Remains Weaker-than-Desired Our conversation with HDS suggested that its modular (midrange) AMS/WMS storage revenue grew in the mid-teens yr/yr range during the June quarter. While this is better than the single-digit growth reported in the prior quarter, the company s management notes that this remains below its expectations and that this remains an area of increased focus (i.e. expect a potential refresh over the coming quarters). As a reminder, EMC had reported that its midrange CLARiiON revenue grew 8% yr/yr, decelerating from the 19% yr/yr growth reported in the prior quarter in anticipation of a widely-expected midrange refresh (possibly taking place as early as next week CLARiiON CX4 arrays). IBM had reported that its midrange revenue grew 28% yr/yr; however, this is a metric that the company had not been reporting over the prior several quarters. Software/Services Growth HDS reported that its software revenue again grew in the low-30% yr/yr range during the June quarter. Our conversations pointed to positive growth in the company s storage management, archiving, and protection software and the notion that the company is seeing increasing correlation in the company s solutions approach. In this, the company saw very strong growth (we estimate >50% yr/yr) in the company s Hi-Command management software. We estimate that HDS services revenue grew in the mid-20% yr/yr range; with similar growth in both support services and professional services during the quarter. An increasing services organization will be important going forward, in our opinion. Strong Backlog Looking Into 2H CY2008 Although it is our sense that HDS management is cautiously optimistic on the demand trends currently playing out in the overall storage market, and continually driven by the ongoing growth dynamics in digital content, it is cognizant of the potential macroeconomic impacts and IT spending curtailment looking into 2H CY2008. That said, our sense is that the company believes it should be able to surpass the Hitachi, Ltd. forecast implying a 6% sequential revenue decline during its current quarter. Mr. DeMont did note that the company has a solid/strengthening pipeline of business and a closure rate that has been increasing. 10

7 Hitachi CQ2'08 Storage Review Other Other highlights include: (1) SAN Networking Growth (SAN Switches) We estimate that HDS sales of networking gear grew in the high-single digit yr/yr range during the June 08 quarter, (2) IBM/Diligent HDS noted that it has not seen any meaningful change with regard to its partnership with Diligent (de-duplication) since IBM s acquisition earlier in the year. We estimate that HDS had made up the majority of Diligent s revenue. (3) Enterprise SSDs During the quarter HDS confirmed our prior expectation that it would be looking to roll out SSD support on its high-end arrays. While the company would note whom it might be using, we believe this would likely be utilizing the FC (rather than the SATA) interface; we believe pointing to STEC. Our conversations noted that it has not had to make meaningful firmware revisions to support SSDs; more about qualification of the SSDs around quality and endurability. (4) Capacity Utilization Rates Mr. Mikkelson had stated that his guesstimate with regard to average enterprise utilization rates within SAN environments remains in the 30-50% range. This remains a focus for us as we monitor the impact of a potential economic slowdown looking forward. (5) High-End Refreshes Our conversations noted that Hitachi continues to focus on offering refreshes to its high-end systems every 3 years; putting the company into the 2010 timeframe for its next meaningful refresh to the USP product family. (6) Operating Margin We estimate that HDS margin structure continues to remain stable; holding in the high-single digit range, according to our estimates, (7) IBM/XIV the company has heard a lot of chatter about IBM s XIV strategy; though only seeing a small number of point-of-concept deployments in the market. This system, which we do not believe will replace the highend portfolio at IBM, could be announced in the October/November timeframe, according to our checks. Hitachi Ltd. Storage Solutions Guidance Hitachi is not adjusting its Storage Solutions forecast for the full fiscal year; however, given the company s FQ1 08 results, we believe this remains conservative. Hitachi previously forecasted its FY2008 (March 2009) Storage Solutions revenue to be approximately 360 billion, or essentially flat on a yr/yr basis. This reflects an estimate of 165 billion during 1H FY08 (June and September quarters), which would imply a decline of approximately 5% yr/yr. This would now imply approximately 80 billion during the Sept 08 quarter, or a decline of 6% sequentially and 12% yr/yr appears conservative, especially considering our conversation with HDS management. Hitachi estimates 2H FY08 (December and March 2009 quarters) revenue to be approximately 195 billion, reflecting 4% yr/yr growth. This compares to EMC expecting its total Information Storage revenue to be up 5% yr/yr during CY2008 (though we now estimate approximately 10% yr/yr growth); estimates total Information Infrastructure (EMC ex-vmware) revenue growth of 9% yr/yr (we now estimate 11% yr/yr growth, though including ~2pp of yr/yr growth from Iomega acquisition). Required Disclosures To view price charts for all companies rated in this document, please go to or write to 7 Saint Paul Street, 1st Floor, MD5202, Baltimore, MD ATTN: Research Publications Additional Information Available Upon Request I certify that: 1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed; and 2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report. 11

8 Enterprise Hardware Wachovia Capital Markets, LLC maintains a market in the common stock of Brocade Communication Systems Inc., Isilon Systems Inc., NetApp, Inc., QLogic Corp., Xyratex Ltd. Wachovia Capital Markets, LLC or its affiliates intends to seek or expects to receive compensation for investment banking services in the next three months from EMC Corp. Wachovia Capital Markets, LLC or its affiliates received compensation for investment banking services from EMC Corp. in the past 12 months. EMC Corp. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wachovia Capital Markets, LLC. Wachovia Capital Markets, LLC provided investment banking services to EMC Corp. EMC Corp., Seagate Technology Inc. currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of Wachovia Capital Markets, LLC. Wachovia Capital Markets, LLC provided noninvestment banking securities-related services to EMC Corp., Seagate Technology Inc. Wachovia Capital Markets, LLC received compensation for products or services other than investment banking services from EMC Corp., Seagate Technology Inc. in the past 12 months. Wachovia Capital Markets, LLC does not compensate its research analysts based on specific investment banking transactions. WCM s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm, which includes, but is not limited to investment banking revenue. STOCK RATING 1 = Outperform: The stock appears attractively valued, and we believe the stock's total return will exceed that of the market over the next 12 months. BUY 2 = Market Perform: The stock appears appropriately valued, and we believe the stock's total return will be in line with the market over the next 12 months. HOLD 3 = Underperform: The stock appears overvalued, and we believe the stock's total return will be below the market over the next 12 months. SELL SECTOR RATING O = Overweight: Industry expected to outperform the relevant broad market benchmark over the next 12 months. M = Market Weight: Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months. U = Underweight: Industry expected to underperform the relevant broad market benchmark over the next 12 months. VOLATILITY RATING V = A stock is defined as volatile if the stock price has fluctuated by +/-20% or greater in at least 8 of the past 24 months or if the analyst expects significant volatility. All IPO stocks are automatically rated volatile within the first 24 months of trading. As of: July 31, % of companies covered by Wachovia Capital Markets, LLC Equity Research are rated Outperform. 52% of companies covered by Wachovia Capital Markets, LLC Equity Research are rated Market Perform. 4% of companies covered by Wachovia Capital Markets, LLC Equity Research are rated Underperform. Wachovia Capital Markets, LLC has provided investment banking services for 43% of its Equity Research Outperform-rated companies. Wachovia Capital Markets, LLC has provided investment banking services for 33% of its Equity Research Market Perform-rated companies. Wachovia Capital Markets, LLC has provided investment banking services for 54% of its Equity Research Underperform-rated companies. Important Disclosure for International Clients The securities and related financial instruments described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. For certain non-u.s. institutional reader (including readers in the EEA), this report is distributed by Wachovia Securities International Limited ( WSIL ). For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 ( the Act ), the content of this report has been approved by WSIL a regulated person under the Act. WSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007, therefore clients will automatically be deemed to be a professional or an eligible counterparty. This research is not intended for, and should not be relied upon, by retail clients. 12

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