Q&A with Dr. Ta-Lin Hsu, Chairman of Hambrecht & Quist Asia Pacific

San Jose, California, July, 2003 - Dr. Ta-Lin Hsu is the pioneer of Asian Venture Capital. He received his PhD in Electrical Engineering from UC Berkeley, and a B.S. in Physics from National Taiwan University. Dr. Hsu joined Hambrecht & Quist Group in 1985, then became President of a separate corporation in 1990 on which he now sits on the board as Chairman. Prior to H&Q, he was a Senior Manager of Storage Systems and Technology at IBM.

Dr. Hsu administered the first professional venture capital fund in Taiwan, which later became H&Q Asia Pacific(AP). The approach of H&Q AP in Asia is to act as a long-term investor; it manages over 17 funds with committed capital in excess of 1.8 billion USD. The company is based in Silicon Valley, with 11 branch offices in other Asian countries including but not limited to: Bangkok, Hong Kong, Beijing, Tokyo, Taipei etc. Some of the companies in its portfolio include SMIC(Semiconductor Manufacturing International

Corporation) in China, Starbucks Northern China, ACCESS (a major provider of the micro-Web browser for the NTT DoCoMo I-mode) in Japan. Asian Business Week named him an "Asian Star" and recognized him for inviting the World Bank to help with the Korean financial restructuring during the 1997 crisis. H&Q AP is also one of Aplus Flash Technology's major investors. It is our honor to be able to include this first hand interview of Dr. Hsu in our 2nd issue of Aplus News Flash.

Q: During the past 3 years, SV has experienced an economic downturn. Recently, however, it seems to be recovering. Do you believe that the economy has hit rock bottom already? After all the big changes, will the role of Chinese entrepreneurs in SV change accordingly?

A:I believe the recovery is on its way. However, we still need to be very cautious. No matter what, every industry should stick to its core competency. In terms of technology, I believe Chinese Americans in SV will lead in different roles. I've lived in SV for more than 30 years, and I've tried to observe the various activities that have represented the different eras, from semiconductors in the 80s to the Internet boom later on. Currently, the industry is in an unclear climate. People are trying very hard to discover the next "activity". I am pretty sure that we are at a turning point at which the future of SV will become more dynamic and diversified, just like the Chinese American community.

We've seen groups of Chinese people going back to their motherland to seek new opportunities. Furthermore, some start-ups have also moved to Taiwan or China in order to reduce their costs, be closer to their customers, and increase efficiency in the supply chain. We all know that the semiconductor industry in both places have formed a complete cluster.
In a way, semiconductors are not SV's core competencye. Taiwan, as well as the China market, have become the mainstream semiconductor standard, with their world-class IC design and foundry technologies. All these positive elements give talented Chinese- Americans more space to develop their businesses. However, I still would like to stress that SV will become core in the development of biotechnology, networking technology, and the medical device technology. As a fertile breeding ground for advanced technology, SV will not be easily been replaced.

Q: You just mentioned that the semiconductor industry in Asia will catch up with SV, what is your analysis of how or why this will happen?

A: The development of semiconductor technology requires teamwork amongst many different levels, as well as ample cooperation among various parties. Along the way, we've seen the boom of first Japan, Korea then Taiwan's semiconductor industries. These successful markets have proven that Asia's talent can build cutting edge technology. Also, SV Chinese have really helped boost the exchange of information and technology. All of these factors have helped shaped Asia into an increasingly important region for the semiconductor industry.

China is currently the emerging market, and offers many high-growth business opportunities for companies worldwide. The success of SMIC, China's largest scaled foundry, is a very good example. Its success shows us that China's capabilities to build up a strong semiconductor industry are very high, and that it has already constructed a solid foundation. In addition, the China market has the added benefit of being very low-cost yet highly efficient. Its ability to compete on lower end, cost efficient technology makes it prudent for Taiwan to upgrade and focus on a higher-end technology strategy.


Q: Industries in Asia have upgraded over the years, taking on increasingly advanced technological responsibilities. During this next period of upgrading, what roles do Silicon Valley and China play?

A: Talent, technology, and capital are the most important elements in the development of new technology. I suggest that there be more cooperation between Taiwan, China, and SV. For example, the Taiwanese government can invite scientists from China to help with R/D efforts in Taiwan. In another way, for technology's sake, SV is still a good place for innovation. SV is taking on its own transformation right now - due to the lack of funding, there are some really great companies just fighting for survival. In fact, there are some good investment opportunities for Taiwan; I would even suggest that the government fund the capital to buy 30 or even 50 of these excellent hi-tech companies. In comparison to during the dot com era, the cost is very inexpensive. This buyout strategy could help Taiwan upgrade cost-effectively in a very short time period.

Q: Would you mind also talking about your investment strategy during the downturn?

A: After the internet bubble burst, although VCs became more conservative, they were still very eager to find a new investment model. We would re-invest in healthy companies as long as they had good technology, a good team, and a promising future. Capital can help these kinds of companies survive much better.

However, since the economy seems to be recovering, currently we have also been thinking about a "Venture Recovery Model". It means we focus on certain types of companies: 1) companies which have technology and products, such as internet security, network traffic management, wireless communication and medical devices. 2) Companies that are market proven and with potential for large market share in Asia. We plan to move those companies to Asian countries and help them go IPO locally. Currently, Taiwan and Japan have better opportunities to get public investment than the US stock market. We'll also focus on SMS technology and wireless technology in Asia. Particularly, we believe that related IC design will reach a higher boom. After further restructuring, the technological significance and contributions of the Asia market in not only assembly, but also design, IP and advanced technology, will show the world that potential and capability that exists in Asia.