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  • Tsinghua Unigroup Zhao Weiguo: The Man Spearheading China's Chip Ambition
  • 27 July 2015

  •          In China’s quest to cut its reliance on foreign chip technologies, no one epitomizes Beijing’s vision better than Zhao Weiguo. The 48-year-old chief executive of Tsinghua Unigroup, an investment arm of the country’s prestigious Tsinghua University, in the past two years spent billions of dollars buying chip companies. The goal, he says, is using foreign know-how as a shortcut to building an advanced chip sector for China.
             Zhao’s deals have made Tsinghua Unigroup, which until two years ago was just an obscure state-controlled company peddling scanners and herbal medicine drinks, champion of Beijing’s chip ambitions. China aims to let revenues of domestic chip firms grow at more than 20% each year to reach 350 billion yuan ($56.3 billion) in 2020, according to a plan its cabinet, the State Council, released last year. Since 2013, the country every year spent more than $200 billion importing chips, almost as much as it did oil, according to the Beijing-based China Semiconductor Industry Association.
             Now Zhao has his eyes set on a bigger target. Tsinghua Unigroup is reportedly seeking to buy Micron Technologies, the world’s No.2 producer of dynamic random access memory chips after Samsung, for $23 billion. Discussions with Micron are still underway, according to people familiar with the matter.
             The deal, if successful, would be the biggest takeover of a U.S. company by a Chinese investor. It would be a game changer for China’s chip sector, as Micron would form a crucial part of the country’s chip supply chain. Acquiring it will also alleviate Beijing’s security anxieties, after former U.S. intelligence contractor Edward Snowden revealed that the U.S. government used the gear of American companies for spying purposes.
             Zhao declined to comment on specific deals, but says he is very interested in the memory chip sector. More acquisitions will be made, and targeted areas include the Internet, the chip sector and cloud computing, he says. Tsinghua Unigroup, which Intel last year agreed to invest 9 billion yuan ($1.5 billion) for a 20% stake, in 2014 generated more than 9 billion yuan ($1.5 billion) from chip sales. Chip revenue is expected to top 11 billion yuan ($1.77 billion) this year and the company’s total revenue will reach 50 billion yuan($8.1 billion), it says.
             Gu Wenjun, chief analyst at Shanghai-based industry researcher iCwise, says Tsinghua Unigroup has plenty of money and it only wants the very best in each field. The company, however, is poised to meet heightened scrutiny from foreign governments as it searches for valuable assets, says Mark Li, senior research analyst at Sanford C. Bernstein in Hong Kong.
             It would probably encounter the dilemma once faced by Chinese telecommunications giant Huawei, which in 2011 was forced to back away from acquiring U.S. server technology company 3Leaf partly due to its links to the Chinese army. Republican U.S. Senator John McCain already raised concerns about the possible national security implications of Tsinghua Unigroup’s proposed bid, calling for a thorough review by the Congress, the Department of Defense and other U.S. government agencies.
             “The U.S. government probably won’t let this deal through because Micron is a very useful company from both strategic and economic perspectives,” Li says.
             Zhao says his previous deals have not raised national security concerns. Tsinghua Unigroup in 2013 acquired then Nasdaq-listed semiconductor company Spreadtrum Communications for $1.7 billion, before last year spending $910 million to buy chipmaker RDA Microelectronics. In May this year it acquired a 51% stake in Hewlett-Packard’s China networking gear subsidiary H3C Technologies.
             “Mergers between big U.S. and Chinese companies are bound to happen,” Zhao says. “They should be viewed from a business perspective instead of being treated under nationalist and political contexts.”
             Analysts say Zhao’s acquisition strategy could save China a lot of time, as the country stands a very small chance of developing core technologies on its own. The companies he bought focus on chip design, and are well positioned to work with Shanghai-based foundry Semiconductor Manufacturing International Corporation to form an industrial chain. They say China, aided by the firms it acquired, is likely to see a breakthrough in a decade. By that time its chip market will reach $373.6 billion, more than double from the $154.9 billion in 2014, according to Arizona-based research company IC Insights.
             Zhao is quick to dismiss assumptions that he acts on behalf of the Chinese government. Tsinghua Unigroup is a market-oriented company and its decisions are based on business, he says. The firm is 51% owned by the state-run Tsinghua Holdings. Beijing Jiankun Group, a private investment firm Zhao founded in 2004, has 49%. Parent company Tsinghua Holdings once counted the son of former Chinese President Hu Jintao as its Communist Party head. Hu himself and Chinese President Xi Jinping are both Tsinghua alumni.
             Beijing certainly doesn’t hesitate from pouring funds into Tsinghua Unigroup. It last year received 10 billion yuan ($1.61 billion) from a government-run industry fund and 20 billion yuan ($3.22 billion) in loans from policy lender China Development Bank. The company is stealing a march ahead of state-run China Electronics Corporation and China Datang Corporation in gaining favor from the central government, says Li. Zhao says he raises money primarily from insurance companies and private equity firms.
             The meteoric rise of Tsinghua Unigroup stands in sharp contrast with what the firm once was two years ago. It was struggling to make ends meet with the lackluster sales of herbal medicines and scanners when Zhao first joined in 2009, he says. After spinning off some healthcare businesses, Zhao in 2013 decided to focus on the chip industry.
             “Everyone thinks that the government is pushing the development of the chip sector, but it is not like that,” he says. “In fact, companies did some stuff first and then the government started to notice.”
             “But government doesn’t know much about businesses,” he adds. “All our deals are market oriented.”
             Zhao himself cuts a colorful figure in China’s technology space. He spent his childhood herding sheep and feeding pigs in Xinjiang province, where his parents were sent to do agricultural work as punishment because they were marked as dissidents in 1957. Zhao’s father, who drew ire from authorities due to the poems he wrote as a college student, told him to learn a technology so he could have a better chance of survival.
             Zhao enrolled in Tsinghua University in 1985, majoring in electronic engineering. After completing his masters, he worked at Tsinghua Holdings briefly before founding what is now Shenzhen-listed chipmaker Tongfang Guoxin Electronics in 2000.
             In 2004 he founded Beijing Jiankun Group, focusing on China’s booming real estate and mining markets. The investments helped him amass a fortune of about $1 billion at that time, he says.
             Today Beijing Jiankun, where Zhao owns a 70% stake, has about 10 billion yuan ($1.6 billion) of assets under management. The company increased its stakes in Tsinghua Unigroup from about 35% to 49% by buying shares from minority shareholders through 2010. Zhao, who in the past has donated more than $100 million to education institutions, says he already pledged to donate 70% of his personal assets to Tsinghua University.
             Zhao says he will not rule out other safe investment opportunities. Tsinghua Unigroup in July invested $100 million for a minority stake in software startup Acadine Technologies, which is creating a new operating system for smartphones and other Internet-connected devices. In June, Unigroup spent $123.8 million to acquire a 15.2% stake in Chinese online lottery firm 500.com. One month later, Xiamen Insight Investment Co., a company controlled by Tsinghua Unigroup, agreed to purchase New York-listed Chinese tutoring service provider Xueda Education for $5.5 per American depositary share. Xueda will subsequently delist from the New York Stock Exchange.
             But chip will remain his main focus, Zhao says. “I understand this field and know what is going on,” he says. “Doing other stuff simply doesn’t feel right.”

             FORBES Yue Wang July 29, 2015
             http://www.forbes.com/sites/ywang/2015/07/29/meet-tsinghuas-zhao-weiguo-the-man-spearheading-chinas-chip-ambition/#15281ec238a2


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