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Adding Value Through Innovation
John Deng, Ph.D. Chairman Chief Scientist,
Vimicro Corporation 2006-10-17
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H i s t o r y of S T
U.S. - China Agreement on Cooperation in Science
and Technology signed in 1979
On April 18, 2006, the United States and the
People's Republic of China signed the
Protocol Extending the Agreement
ST
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Innovation in China

• National Program for Medium- to Long-term
  Scientific
• and Technological Development 2006-2020

• What we learn from the United States
• Key to success
• (1) Market driven,
• (2) Enterprise initiatives,
• (3) IP protection and development

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Vimicro adding value through innovation

• Largest multimedia semiconductor technology
  company in China
• 2004 National Science and Technology 1st Class
  Award (China)
• Close to 400 patents filed worldwide, with
  cutting-edge products and solutions offered to
  both PC and mobile phone markets
• No. 1 PC camera processor supplier globally with
  over 60 market share
• No. 1 mobile camera processor and mobile music
  processor supplier in China
• Active member of leading global and domestic
  multimedia standard groups (MIPI, MMTA, AVS)

Manufactured in China to Designed in
China HOW ???
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From innovation to value creation

• What is innovation ?
• How does innovation lead to value creation ?
• What roles will China play in innovation and
  value creation process ? (A case study on
  Vimicro)

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What is innovation ?

• Technology means the processes by which an
  organization transform labor, capital, materials,
  and information into products and services of
  greater value the concept of technology extends
  beyond engineering and manufacturing to encompass
  a range of marketing, investment, and managerial
  processes
• Innovation occurs when there is a change in one
  of these technologies
• The
  Innovators Dilemma by Clayton Christensen
• Harvard Business School

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How does innovation lead to value creation?
Supply Side 1. Great technology 2. Strong
management 3. Good capital 4. Competitive
cost .
Demand Side 1. Market scale 2. Market scope
Value Creation
Innovation
Value creation by China through innovation
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A case study

• Vimicro

Adding Value Through Innovation
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Supply side Cutting-edge technology
Vimicros Adaptable Processor Architecture -
400 patents filed
Prog Mem
Prog Mem
Flexibility
m
P
m
P
Prog Mem
MAC
Addr
General Purpose
Macro
Unit
Gen
m
P
m
P
Software Programmable DSP
reconfigurable
Dedicated Logic
DataPath
Software/Hardware Adaptable Processor
Direct-mapped Hardware
Power requirements
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Supply side Experienced management
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Supply side World class board and advisors
Denotes Vimicro Independent Board Member
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Supply side Savvy and resourceful investors

• Ministry of Information Industry
• Chinas governing body on information technology
  industries
• Seed investment to Vimicro provides strong
  government support while maintaining high level
  of management freedom
• General Atlantic Partner
• One of world's leading direct investment firms
  (with US8bn fund) focused on technology, process
  outsourcing and communications investments on a
  global basis
• Invested in over 130 companies, now has 50
  companies in portfolio, of which nearly half are
  based outside US
• Other reputable investors include
• Doll Capital Management
• Fujitsu,Foxconn
• Power Pacific Corporation
• Other reputable overseas and domestic enterprises

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Supply side Competitive cost structure
Cash Cost per RD Engineer
Other Cost Structure Benefits
Indexed to 100

• Experienced team leaders with Silicon Valley
  experience ensure high levels of efficiency
• Increase local pool of talents

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Demand side Huge market scale in China

• Rapid growth of economy (8 p.a.)
• Largest base of consumers (1.3bn population)
• Worlds largest mobile population (over 350
  million subscribers) and wireless data market
• Advanced network infrastructure
• Governments commitment in promoting multimedia
  industry (SMS, MMS, Broadband, 2.5G, 3G)

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Demand side Well developed market scope on
multimedia applications
Worldwide Camera Phone Shipments and Penetration

• PC multimedia (web conference, video chatting,
  video e-mails, dating)
• Mobile multimedia (mobile video, music, flash,
  gaming)
• Home multimedia (HDTV, XBox, Set-top boxes,
  Security)
• Partnerships with Microsoft, Intel, TI, Fujitsu,
  Logitech
• Standard development (MMTA, MIPI, AVS) and
  government supports

Shipment (M)
CAGR 61.4
CAGR 75.3
Source IDC, September 2003
US Wireless Ringtone Subscribers and Revenue
Subscribers (M)
CAGR 136.6
CAGR 62.4
Source IDC, May 2003
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Value creation to the global parties

• Global consumers
• Global customers
• Global suppliers
• Global Shareholders/Investors
• Governments

Adding value by China through innovation
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A new era Made in China
Manufactured in China Designed in
China Made in China
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• Thank You !