Thought: Intel Capital and Investment into FPT – Analysis From an Investor’s Viewpoint
A month ago in a talk about WTO and impact on Vietnam in Hanoi, I had a short conversation about the reason why Intel Capital decided to choose to invest in FPT. I said then that the reason Intel had chose FPT was more than just profitability or leadership, though these were important, but strategic alignment in the business between Intel and FPT. In fact, FPT is offering ISP service and at the same time owns the biggest Vietnamese PC assembling lines, one by its own and one in cooperation with CMC, another local IT company.
A couple of days back, when I read an article on Red Herring about Intel Capital’s investments exceeding $1 billion this year, I quickly did a reality check of what I said the other day. What I found from their Web site confirmed the strategic alignment, at least at the high-level. In addition to the three companies that received investment from Intel Capital announced in October also fit perfectly into this category.
Introduction about the group:
“With an overall strategy to stimulate advances in computing and communications, the Intel Capital team seeks out and invests in promising companies worldwide working together to:
- Establish new and innovative technologies
- Develop industry standard solutions
- Drive global Internet growth
- Enable new usage models
- Advance the computing and communications platforms”
Moreover, among Intel Equity funds, Intel Digital Home Fund’s investment strategy is detailed below:
“The Intel Digital Home Fund is a US$200 million private equity investment fund that invests in companies developing hardware and software, as well as connectivity and supporting technologies that are aligned with Intel’s strategic efforts to drive convergence of personal computer and consumer electronics devices in the home.”
Clearly, FPT was chosen for strategic fit for Intel Capital. Therefore, if the market rules apply, the price that Intel Capital paid for FPT’s shares would be higher than the simple expected value of the company. This suggests that FPT share is well over priced in the market right now. This might not be important for short-term investors, but it is for long-term investors to know.
Thought: Do China’s Tech Firms Gain on Multinational Rivals
From Wall Street Journal online:
“China’s technology companies are closing the gap with their foreign rivals in productivity, positioning themselves to become a bigger threat to multinationals both in China and abroad, according to a survey by McKinsey & Co. and China’s Tsinghua University.
The survey suggests that Chinese tech companies are gaining ground on multinationals in terms of size and in terms of the efficiency of their operations, as they learn to fine-tune processes that in the past relied strictly on China’s abundance of cheap labor to compete. It also found that Chinese tech companies are increasingly moving up from low and midprice product segments, which they have long dominated, into higher-end product segments that foreign companies have long dominated.”
From the first looks, the result was quite impressive. However, a couple of important points from the same paper issue helped me to understand more, and at the same time change my impression about the article.
- The companies surveyed are from different sectors, ranging from “fire-safety products to mobile phone and PC manufacturers“. No breakdown available made it impossible to determine the competitiveness of Chinese high-tech companies, which I am most interested in.
- Efficiency in the survey was defined as average revenue per worker. Taking R&D investment, salary and working regulations into consideration, if all labor conditions were the same, the number may not be that high.
- Average Return on Equity (ROE) of Chinese tech companies was 12.1% in comparison to 15.7% of their rivals in US, but up from 6.8% of the tech companies in Germany.
After all, the only firm conclusion I could find from this survey is foreign tech firms, especially European ones, got hurt because of rigid labor regulations, especially in presence of Intellectual Property issues in China. This is nothing new, of course. Then, I have problem understanding why McKinsey invested in this survey and why Wall Street Journal publish such a result, from which one cannot find any new insight.
Uploaded in Heidelberg, Germany.