Vimicro's IPO performance - Interview with Deng Zhonghan

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Vimicro's IPO performance - Interview with Deng Zhonghan [Copy link]

'We didn't bleed'

　　Reporter: What is the significance of Vimicro's successful listing on NASDAQ?

　　Deng Zhonghan: Vimicro has been profitable for nine consecutive quarters and has no shortage of money. For the company, the primary purpose of our listing is to gain recognition from global business partners and customers and to open up the international market . Secondly, to further acquire international technology and talent through this platform. Thirdly, to cash out our early investments. Fourthly, to enable employees’ stock options to be converted into real stocks and currencies.

　　For the industry, firstly, it showed that the Ministry of Information Industry's first venture capital investment was successful. Secondly, Vimicro's multimedia chips have occupied 60% of the global market and have entered a large number of first-tier brands such as Sony and Samsung, reflecting the progress of China's core technology. Thirdly, the Ministry of Information Industry has also developed a new management method for electronic funds, breaking away from the management model of the planned economy and achieving the purpose of supporting the industry through venture capital.

　　Reporter: Please introduce your listing process.

　　Deng Zhonghan: In the three weeks from October 31, we held 98 investor meetings, from Singapore to Hong Kong, from London to New York, from Boston to Philadelphia, Houston, and San Francisco. The price was set on the evening of the 14th, the underwriters bought the shares and distributed them to investors, and trading began on the 15th. On the evening of the 17th, we attended the Nasdaq closing bell ceremony.

　　Reporter: What do you think about Vimicro's stock price falling below the issue price on the first day of its listing?

　　Deng Zhonghan: There are various considerations in determining the issue price. From the perspective of the interests of the company and old shareholders (including the Ministry of Information Industry), we hope that the issue price will be set high so that more funds can be raised with the same share dilution. However, an issue price that is too high will affect the enthusiasm of new investors. We believe that it is normal for the stock price to rise or fall within 20% on the day of listing. Our stock has now rebounded and is close to the issue price.

　　Reporter: Why is the issue price lower than the guidance price?

　　Deng Zhonghan: When we set the guidance price, we of course put pressure on the securities underwriters, hoping that the stock price will be set higher.

　　Reporter: What is the equity structure of Vimicro after its listing?

　　Deng Zhonghan: Company executives hold about 26% of the shares, employees hold about 20% of the shares, and the rest are new and old investors.

　　Reporter: Who are the new and old shareholders?

　　Deng Zhonghan: Including the Ministry of Information Industry, Paul Pacific, GA Partner's funds, and strategic investments from companies such as Fujitsu.

　　Reporter: How many shares does the Ministry of Information Industry have?

　　Deng Zhonghan: About 10%. The Ministry of Information Industry was the first round of investment, with the most original shares. It should be said that six or seven years ago, the Ministry of Information Industry used venture capital to establish Vimicro for the first time. Today, Vimicro has been successfully listed on NASDAQ, taking the lead in realizing the globalization process of China's semiconductor industry. The Ministry of Information Industry has also established its own venture capital fund platform abroad.

　　Reporter: How can the capital of the Ministry of Information Industry be listed overseas?

　　Deng Zhonghan: The Ministry of Information Industry has set up Infotech to manage its shares abroad. They are also very happy that they have successfully recovered the investment of state-owned assets and can continue to invest in the domestic information industry.

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"China's semiconductor industry needs to prove itself" Reporter: From your listing process, do American investors have enough confidence in China's semiconductor industry? Deng Zhonghan: Some American investors do not have enough confidence in China's semiconductor industry. When the Columbia Broadcasting Corporation of the United States interviewed me, the first question was "Do you have core technology and intellectual property rights?" My answer was that as the first company with independent intellectual property rights listed in the United States, Vimicro's chips are all independently developed, with more than 500 patents, including dozens of US patents, and there have been no problems with intellectual property rights. Before Zhuhai Actions' pricing, Sigmatel's CEO criticized its intellectual property rights in Forbes, which shows that Americans are very suspicious of China's intellectual property rights. In addition, they also questioned Vimicro's financial system because we used China's financial system before. In short, American investors still wear tinted glasses and have a one-sided view of China's semiconductor industry. As the only Chinese IC design company listed on NASDAQ, we still need time to prove ourselves. We have a long way to go. Reporter: How do you eliminate their distrust? Deng Zhonghan: We can only gain the trust of the capital market by continuously implementing our business plans, including the protection of intellectual property rights, transparency of financial means, etc. Reporter: There are still many design companies in China that hope to be listed overseas. Can you give some suggestions on how to convince investors? Deng Zhonghan: The investors we have contacted can be roughly divided into three categories. One is those who don’t know much about semiconductor technology and China, the second is those who know more about technology, and the third is those who know more about China. Investors who know more about China will ask questions such as whether the Ministry of Information Industry’s desire to establish Chinese standards is narrow-minded? My answer is that it is precisely because China lacks core technology that it needs global chip companies to start from the Chinese market and promote Chinese standards to the world to form global standards. In addition, an investor asked whether the current domestic mobile phone market share is declining, and a large number of Vimicro’s customers are domestic mobile phone manufacturers such as Bird and Lenovo. Will it be affected? My answer is that the previous success of domestic mobile phones lies in the success of low-end mobile phones, and the desire to develop to the high-end is limited by core technology. It is precisely because of the emergence of local chip companies such as Vimicro that domestic mobile phones have the opportunity to make mid-to-high-end mobile phones with functions such as digital cameras and music ringtones. Therefore, it is the best time for local chip companies to cooperate with the local market. They also asked where our talents come from. I answered that Vimicro has well combined overseas talents with local talents. Investors who are more familiar with technology will ask about our competitors and product direction. I told them with facts that we have defeated competitors in many markets and have a 60% market share in the PC camera market; companies such as Sigmatel have always wanted to enter the mobile phone market but have not succeeded, while we have entered the mobile phone market. In September this year, the shipment volume of our mobile phone MP3 players has reached 1.3 million. We are positioned in the multimedia chip market, taking a relatively special path and having our own technical patents. But when answering questions from investors who are more familiar with the semiconductor industry and technology, we can feel that they have expressed certain reservations about whether Chinese companies can achieve sustainable development through core technology innovation. In short, chip design companies must be technically strong.

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"Chinese IC design companies will not form a wave of overseas listings for the time being" Reporter: There are many design companies in China that want to go public, but it seems that not many meet the requirements of Nasdaq. Do you think that after Vimicro's listing, Chinese IC design companies will form a wave of overseas IPOs? Deng Zhonghan: Now, the threshold for semiconductor companies to go public is getting higher and higher. In the past five years, only about 10 semiconductor design companies have been listed in the United States. Although Chinese companies are growing rapidly, foreign capital will think that most Chinese design companies are making low-end products. In addition, the US 404 Act has increasingly high requirements for companies to go public, including internal control, information disclosure, financial transparency, etc., which will increase costs by at least 5%, which is a pressure for small and medium-sized enterprises. Moreover, American investors still do not know much about China's semiconductor industry. At present, only our company has successfully gone public, and they still need some time to observe. Reporter: Vimicro has been preparing for the listing for a long time. Why did you choose to go public at this time? Deng Zhonghan: All securities firms hope that we will go public early, but we have to control the process according to the development of the company. After going public, there will be a lot of pressure on the company, including performance, etc. The company still has to operate according to its own business plan. Vimicro has been profitable for nine consecutive quarters and is an industrial company. We should say that we have already met the requirements for listing. However, we still hope to make full preparations. With the support of the National Development and Reform Commission, the State Administration of Foreign Exchange, and the China Securities Regulatory Commission, we reorganized the board of directors last year. The former chairman of the US Securities and Exchange Commission and the academician of the US Academy of Engineering have joined the board of directors. We have also absorbed new shareholders, including the corresponding adjustments to the financial system. All these require time. Reporter: As a Chinese IC design company, in addition to listing on NASDAQ, has Vimicro considered listing elsewhere? Deng Zhonghan: I have not considered it yet. Reporter: As an IC design company with a high reputation in China, why did Vimicro not choose to list in China? Deng Zhonghan: First, China's capital market has not yet formed a mature model for identifying semiconductor companies, while it is easy to find mature investors in the United States, and semiconductor companies are easy to be recognized. Second, from the perspective of our target major customers, such as Samsung, Nokia, and Motorola, they would rather we list on NASDAQ. In addition, in the domestic capital market, it is impossible to realize options, acquire foreign talents and technologies, and exit old shareholders. Reporter: Please take Vimicro as an example and talk about whether overseas listing is the best channel for domestic semiconductor companies to raise funds? Deng Zhonghan: Listing is not just for financing. We are not short of money. We are listed mainly to allow old shareholders to exit, to realize employee options, and to build a platform for acquiring international technology and talents, to attract customers, etc. A good semiconductor company has already enjoyed a good cost advantage in China and does not need so much capital. What is more important is to make good products. You can't go public just for the sake of going public. "The digital multimedia market is our main direction" Reporter: Please introduce Vimicro's development direction after going public? Deng Zhonghan: In the future, we will still make our products and technology better. At present, our market has a good growth rate. Our sales last year were 50 million US dollars, and in the first half of this year, it has reached 40 million US dollars. We believe that digital multimedia is a new and fast-growing market that will gradually enter various application fields and has broad market prospects. 3C integration is digital multimedia, which is related to content. It integrates various applications such as entertainment, education, and information. This is the concept of digital multimedia. Based on the technology platform of our digital multimedia chip, we can apply it to various fields. We will continue to explore in this field and form a product series. Reporter: Looking back on the growth experience of these six years, what successful experiences do you think Vimicro has? Deng Zhonghan: From the perspective of the company's investment, the Ministry of Information Industry adopted a venture capital mechanism, authorized the management team to operate, and broke away from the management model of the planned economy. We successfully went public and achieved the original goal. From the product perspective, we cut into the hot market of digital multimedia. From the perspective of talent, we organically combined outstanding talents from the United States and local talents and established a very good management team. From the perspective of intellectual property rights, we have applied for more than 500 patents and continue to issue new patents every year. In terms of integration with the government, we have well combined the investment of the Ministry of Information Industry with foreign investment. In terms of the market, we first established our own brand in the foreign market, and then went back to expand in the domestic market. Cooperation with software manufacturers and complete machine manufacturers is also very important. For example, Vimicro and Microsoft have established a joint laboratory. The company's growth process requires the integration and connection of various resources. Reporter: What suggestions do you have for the development of China's IC design industry? Deng Zhonghan: Judging from the experience of South Korea and Taiwan Province of my country, the key to whether an industry is influential lies in whether it has several influential companies, such as Taiwan's support for TSMC and South Korea's support for Samsung and LG. Quantity does not equal quality, and the government should make great efforts to support some high-quality companies. As for the way of support, for example, the United States supports companies through some funds, such as the consideration of some large projects, the formulation of tax policies, and the formulation of standards should be led by enterprises, etc.