LipBu Tan

1
China Emergence of a Global Superpower
Lip-Bu Tan Walden International CSPA 2005 Annual
Conference September 24, 2005
2
The Rise of China

• Fastest growing economy in the world with an
  economic growth rate averaging 8 - 9 in the
  last 25 years
• Largest population in the world with 1.3 billion
  people
• Emerging middle class makes it one of the largest
  consumer markets in the world
• Government encouraging investment through
  offering of loans incentive programs
• Strong cross border links to Silicon Valley
• Thriving entrepreneurship and the emergence of
  the private sector
• Educating world class engineers
• 2008 Beijing Olympics, 2010 Shanghai World Fair

3
The Rise of China
Personal Computers
China
USA
India
Mobile Handsets
China
USA
India
Sources Time Magazine, CSFB, IMF, World Bank
4
China Internet is Mobile-Centric

• China has 360M mobile users, 3.6x more than its
  Internet users and amounting to the level of the
  next 3 nations combined
• MVAS contributed 700-800M in revenue to Chinese
  Internet firms in 2004

5
China Semiconductor Industry Growth

• Worlds fastest growing semiconductor market
• Growth in market share, value chain, profit pool,
  RD, patents and IP
• Worlds 2nd largest consumer of semiconductors in
  2010
• Primary growth industry supported by the
  government
• Building the semi value chain is part of the 10th
  5-Year Plan
• Increasing IC consumption/supply gap
• 5.7B in 1999
• 25B in 2004
• 45B in 2008
• Establishment of local value chain
• Foundries
• Over a dozen fabs
• 20 of global production capacity by 2006
• Semiconductor Packaging, Assembly Testing
  (SPAT) facilities
• Over 90 SPAT facilities
• 10 of the worlds SPAT revenue

6
China Industry Trends

• Communications
• Convergence of mobile and wireline creating
  attractive new opportunities
• New mobile applications (video, enterprise
  applications, and gaming) exploiting 2.5G 3G
  launch pending governments approval
• IP becoming unifying medium for mobile and
  wireless networks IMS, VoIP
• Software / Services
• Increasing broadband penetration will drive
  internet service and application
• Software as a service business model is
  increasingly being accepted
• Wireless devices are the next major client for
  software appointments
• Open source is a significant trend

7
China VC Investment Climate

• 253 projects received VC funding for 1.3 billion
  in 2004 (28 growth from 2003)
• Foreign VCs still dominate the market supplying
  70 of funding
• 24 VC-backed IPO in 2004, raised 4.3 billion
• Materialized divestment in 2004 through IPO, MA
  trade sales 802M
• Investment focus mainly on broader IT, led by
  semi (IC design) (400M)
• Geographic split Greater Shanghai (40), Beijing
  (28) and Pearl River Delta (12)

8
China Offers

• Cost effectiveness of labor, capital and
  operations expenses
• Participation in the local supply chain
• Proximity to the vast domestic market
• Talent pool
• Worlds largest source of university-trained
  engineers since 1997
• Over 250,000 returnees with Western education

9
China Success Stories

• Innovations driven by new business models /
  technology
• Alibaba (1B investment from Yahoo)
• Baidu (2.5B market cap)
• Focus Media (950M market cap)
• Capitalize the eyeball effect in 5-star
  properties
• Shanda (1.8B market cap)
• Massive concurrent online gamers
• SINA (1.4B market cap)
• Content is the king
• News, SMS, gaming, community, e-commerce, VOIP
  interactive media
• SMIC (3.5B market cap)
• Leverage innovations, leadership, government
  support local industry growth

10
Potential Undercurrent

• Soft landing of the heated economy
• Energy price and scarcity
• A growing heterogeneous market
• Uneven distribution of wealth among population
• Uneven distribution channels across geographic
  coverage
• Conflicting regional laws and regulations
• Opening of capital market post WTO
• Currency exchange rate
• Bank reforms
• Future role of foreign financial institutions
• Exit of foreign investment
• Relationship with Taiwan and the Western nations
• Anti-corruption campaign

11
Challenges

• Large market, but not everyone makes money
• Lack of a quality pool of middle management
• Ambiguity and changes of policy
• Information transparency accessibility
• Corporate governance
• Sustainability of growth profitability in the
  long term
• Rapid growth of competition

12
Walden International Investment Focus

• Early Stage, Cross-Border IT investments

13
Selected China Related Investments / Exits
SMIT
14
Thank You!

• Lip-Bu Tan
• lbtan_at_waldenintl.com
• 415-765-7100