Tsinghua Unigroup Ltd (紫光集團) chairman Zhao Weiguo (趙偉國), who became a billionaire buying semiconductor companies, said the industry has entered a “serious bubble” in China after valuations surged.
Many of the nation’s chipmakers are too expensive, given “fierce” competition, Zhao said in an interview in Beijing on Saturday last week.
The investment arm of China’s Tsinghua University, which has announced US$4.7 billion of acquisitions in the past two years, is not planning more deals in the integrated circuit industry, he said.
Share prices for China’s listed chipmakers have almost tripled over the past year amid a rally in Chinese equities that added US$6.4 trillion to the country’s market capitalization. About 80 percent of Chinese semiconductor companies earned less than US$50 million in their last financial year, while almost half trade at more than 100 times profit.
“We see few good companies that are worth buying,” said Zhao, 48, who declined to discuss individual businesses. “Most of the chip companies are hardly making money.”
Technology-related firms have led China’s stock market boom after the Chinese Communist Party promoted the industry to wean Asia’s biggest economy from its reliance on infrastructure investment and property development.
China’s government, which sees semiconductor technology as vital to national security, has been supporting acquisitions in the industry as it seeks to reduce a reliance on foreign suppliers.
Tsinghua Unigroup in February said it received 10 billion yuan (US$1.6 billion) in state-backed funding over five years to invest in chip firms, while one of its units last month agreed to buy a controlling stake of Hewlett-Packard Co’s Chinese networking and server businesses to create H3C Technologies Co (華三通信) for US$2.3 billion.
Ningbo Kangqiang Electronics Co (寧波康強電子), a US$1.4 billion producer of semiconductor packaging materials based in eastern China, trades at 2,809 times its profit in the latest financial year, data compiled by Bloomberg show.
Nationz Technologies Inc (國民技術), a US$3.2 billion maker of radio frequency chips, has a multiple of 1,062.
Zhao has tapped connections at Tsinghua University to make acquisitions and amass a fortune of at least US$2 billion, according to the Bloomberg Billionaires Index.
Tsinghua founded what later became Unigroup in 1988. In a 2010 privatization, a firm controlled by Zhao became Unigroup’s second-biggest shareholder after the university.
Tsinghua Unigroup is to “definitely” seek a public listing for Spreadtrum Communications Inc (展訊通信) and RDA Microelectronics Inc (銳迪科微電子), chip designers it bought over the past two years, Zhao said. Tsinghua Unigroup has not yet decided whether to pursue an initial public offering or inject their operations into one of the listed companies it controls, he said, adding that a decision would not be made for at least a year.
“Now we are focusing on expanding the business,” Zhao said. “The two companies themselves don’t lack money.”
Zhao pledged to donate 70 percent of his personal assets to Tsinghua University to promote scientific research and train young talent, Tsinghua Holdings Co (清華控股) president Xu Jinghong (徐井宏) told reporters on May 22.
Giving wealth to a university, rather than forming his own foundation, will ensure the money is used sustainably, Zhao said.
“At birth we bring nothing, and at death we take away nothing,” he said, citing a Chinese proverb. “University foundations have an alumni culture and moral restraint, so they can manage wealth in a longer-term, responsible fashion.”
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