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Investing in Broadband Investing in Broadband CommunicationsCommunications

Presented byAndrew Kau – General Partner

December 5, 2002

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Equipment Vendor Balance Sheet AnalysisEquipment Vendor Balance Sheet Analysis

TELLABSSIEMENSNORTELNOKIAMOTOROLALUCENTERICSSONCISCOALCATELUSD M

1994,7093566,6342,72591(1,507)6,4829812003E

1103,161(933)6,1101,662(1,859)(2,582)4,7821932002E

Free Cash Flow

110,5434,7901,0428,9435,1606,999--5,965Debt

9938,8914,8696,3036,4875,4238,20421,0614,723Cash

$1,888$31,357$1,919$69,126$24,668$2,849$8,025$74,971$3,231Market Cap

Sourced: Bear Stearns

3

Walden International Overview Walden International Overview

Founded in 1987

Extensive presence in Asia and U.S.

Relationships with top tier investors

Fifteen General Partners

US$2.0 billion under management

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Geographic Coverage Geographic Coverage

Singapore

San Francisco

Mumbai

Beijing

Hong Kong

Palo Alto

Kuala Lumpur

Manila

Taipei

Tokyo

Shanghai

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Team Experience and ExpertiseTeam Experience and Expertise

Semiconductor

Areas of Focus

Communications

Life SciencesEnterprise Software

IT Services / Integration

Semiconductor

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VentureVenture--Backed Backed IPOsIPOs in the USin the US

$3.7$4.6

$8.7

$0.9$1.7

$18.8

$19.4

1121

200

248

68

121

216

0

5

10

15

20

25

1996 1997 1998 1999 2000 2001 YTD 2002

USD

Bill

ion

0

50

100

150

200

250

300

# of

IPO

s

$ Raised at IPO # of IPOs

Source: VentureOne

7

US VCs US VCs -- $ Raised & $ Invested$ Raised & $ Invested

$12 $16 $18$20

$31 $27

$61$68

$106

$128

$41

$54

$5

$19

$0

$20

$40

$60

$80

$100

$120

$140

USD

Bill

ion

1996 1997 1998 1999 2000 2001 YTD 2002

$ Raised $ Invested

Source: Venture Economics

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Asian VCs Asian VCs -- $ Raised & $ Invested$ Raised & $ Invested

Source: AVCJ

$7.4

$4.9

$16.6

$9.1

$17.9

$12.3 $12.1 $11.9

$1.1

$5.6

02468

1012141618

USD

Bill

ion

1998 1999 2000 2001 YTD 2002

$ Raised $ Invested

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PRC Government PlanPRC Government Plan

Information Technology becoming a new driving force of China’s economy growthChina’s MII a 10-year plan focusing on network construction, software development and R&D of core IT technologies, incl.

Making a strategic adjustment to its existing networks under the principle of integrating computer networks, telecom and cable TV networksBuilding high-speed broadband information network, providing voice as well as data and multimedia transmission services

Core IT Technology sectorAim to master core technologies, including IC and software developmentMake breakthroughts in R&D of large-scale IC, high-function computers, large scale system software, high-speed network systems, new generation mobile communications and digital TV broadcasting

Changes in regulationTelecom carriers are free to set tariffs on non-basic services such as ISDN local calls, voice mail rentals, cellular SIM card fees and satellite mobile

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China Communications marketChina Communications market

Broadband (ADSL + Ethernet)# of broadband users in 2001 was between 1.8 to 2 millionCapacity of broadband networks was 5.7 million in 2001

CellularProjected by IDC to reach 166 million subscribers in 2002Mobile penetration reached 6.7%

OpportunitiesWireless LANDSL deploymentMetro / access optical networks Broadband access

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StatisticsStatistics

Output of IT industry accounted for 4.2% of China’s GDP in 2001, up from 2% in 1995 and is expected to double to account for more than 7% of the national GDP by 2005Under the 10th 5-Year Plan, by 2005

China’s IT industry to reach RMB 920 billion (~USD111 billion) Sales revenue of electronic IT products expects to reach RMB 1.5trillion (~USD181 billion)Export of electronic IT products will rise to USD100 billionTelecom revenue expects to be RMB1 trillion (~USD121 billion)40 million Internet-connected computersA telephone penetration of 40%200 million data, Internet and multimedia usersInternet penetration rate of 15%

China’s IT market has approximately 46,000 IT companies

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OpportunitiesOpportunities

“Digital Olympics” programBuilding of telecommunications infrastructure and network systems Creation of Media Village for the press

Workstations with sophisticated equipment and facilities, including high definition TV signals, ISDN telephones, multimedia network terminals, various wire and wireless wideband access

Government support & budget will accelerate infrastructure investment

Set up a mobile communication product R&D fund to bolster domestic technology development

Current MAN infrastructure is limited in both capacity and coverage, require major built out

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DWDM EndDWDM End--users Revenues users Revenues Asia Pacific (excluding Japan)Asia Pacific (excluding Japan)

Long Haul DWDM Systems by Country (% of 1H 2001 Revenues)

PRC81.2%

Taiwan5.4%

Thailand0.9%

Australia6.7%

Malaysia1.9%

Korea0.7%

Philippines1.3%

New Zealand0.3%

India1.6%

Metropolitan DWDM Systems by Country (% based on 1H 2001 Revenues)

Hong Kong8.6%

India3.3%

Korea35.1%

PRC37.9%

Australia11.0%

Singapore4.1%

Revenues of USD 349 million

Revenues of USD 29 million

Source: IDC

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China China –– Market Forecast for DWDM SystemsMarket Forecast for DWDM Systems

$350

$11

$592

$14

$847

$24

$1,211

$44

$1,514

$75

$1,635

$118

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Rev

enue

s in

USD

mill

ion

2000 2001 2002 E 2003 E 2004 E 2005 E

Long Haul Metro

Carriers continue to build up their fibre optic network and utilize DWDM equipmentData and voice traffic continue to increase at high rates, which cannot be met by traditional managed networks services like DDN

Source: IDC

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China China –– Market Forecast for Optical CrossMarket Forecast for Optical Cross--ConnectsConnects

$6$35

$62

$218$253

$311

$0

$50

$100

$150

$200

$250

$300

$350

Rev

enue

s in

USD

mill

ion

2000 2001 2002 E 2003 E 2004 E 2005 E

Optical Switch - Opaque

Optical switches are deployed by new generation carriers and potential service providers to build up their optical network.

Source: IDC

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China China –– Telecom Service Revenues ForecastTelecom Service Revenues Forecast

$0.5 $0.7 $0.8$1.1

$1.3$1.6

$0.0

$0.5

$1.0

$1.5

$2.0

Reve

nue

Fore

cast

USD

bi

llion

2000 2001 2002E 2003E 2004E 2005E

MDNS

$17,730$21,691

$25,845$29,903

$33,599 $36,775

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Rev

enue

For

ecas

t USD

mill

ion

2000 2001 2002E 2003E 2004E 2005E

PSTN Service

$4.0$9.0 $13.0

$41.0

$215.0

$306.0

$0$50

$100$150$200

$250$300$350

Rev

enue

For

ecas

t USD

M

2000 2001 2002E 2003E 2004E 2005E

IP-VPN

$0.2 $0.8$2.0

$4.0

$6.5

$9.4

$0

$2

$4

$6

$8

$10

Reve

nue

Fore

cast

USD

B

2000 2001 2002E 2003E 2004E 2005E

VoIP Services

Source: IDC

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China China –– Broadband Services Revenue ForecastBroadband Services Revenue Forecast

$16 $46

$146

$389

$733

$1,221

$1,646

$1,919

$45 $97$184

$400

$684

$829

$39

$135

$1,108

$937

$627

$318

$8$153

$368

$730

$0

$500

$1,000

$1,500

$2,000

$2,500

2000 2001 2002E 2003E 2004E 2005E

USD

mill

ion

ADSL Cable ModemMetroEthernet FWA

Source: IDC

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Macro approach Macro approach –– what we dowhat we do

Strong commitment to Asia

Establish strong local government and industrial networks

Build strong local investment team in Shanghai / Hong Kong / Beijing offices

Develop / expand proprietary deal flows

Provide global value adding services and strong domain knowledge

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What we requireWhat we require

Entrepreneurs With technical experience and entrepreneurs mentality

Understand local market / local customer needs

Experience in general management

Hungry to build scalable world class companies

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WI WI -- Investments in Asia Investments in Asia (from 1992 to Aug(from 1992 to Aug--02)02)

Others7%

China/Hong Kong27%

India6%

Malaysia7%Philippines

7%

Singapore18%

Taiwan28%

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Selected Communications Portfolio CompaniesSelected Communications Portfolio Companies