Russell Tham, who is helping to drive Temasek’s bets in the ‘deep tech’ space, explains the complexities involved and the opportunities arising
Russell Tham of Temasek International was in Europe when Russia invaded Ukraine. He was on yet another of his regular trips, hunting for potential deals and partners to help drive Singapore’s agenda in the so-called “deep tech” space.
As joint head, enterprise development group (Singapore) and head, strategic development, Tham has a big say in deciding where Singapore’s state investment agency should invest.
Broadly defined, “deep tech” refers to companies typically at the start-up stage, offering products and services that lean heavily on advanced engineering and scientific research. These include computer engineering, electronics and also energy and material sciences.
Tham’s focus on deep tech could not have come at a more significant time. The war in Europe comes on top of the ongoing trade war between the US and China that has spawned a second front in the race for technology dominance.
The way Tham sees it, deep tech investing amid heightened global geopolitical tension is best described as a “dynamic multivariate” problem. “You’re triangulating for many factors and each factor evolves and changes with time, essentially making it a bit more complicated. Like it or not, that’s the environment we are operating in.”
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Amid the complexities, it is important to be discerning. Some technologies are geared towards solving more common and “amenable” problems such as more efficient renewable energy that can help fight climate change.
On the other hand, the semiconductors and advanced computing spaces are considered strategic to a country’s interest and hotly contested. “We just have to navigate carefully, and make sure we know where to make a play and how to invest in a thoughtful manner,” says Tham.
At the very least, Singapore is willing to commit significantly to further its position in the deep tech space.
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Last October, deputy prime minister Heng Swee Keat announced that Temasek will allocate $1 billion a year to invest in various deep tech domains. Besides advanced manufacturing, sectors of interest include disruptive materials, life sciences and food tech. According to Heng, the investments in these areas will help support Singapore’s role in the global technology supply chain.
To put it in context, Singapore’s investment in deep tech is not limited to this $1 billion. The National Research Foundation also has a budget of $25 billion to fund research and innovation between 2021 and 2025.
As at the end of March 2021, Temasek has an overall investment portfolio of some $381 billion although Tham points out there is no “hardcoded” limit to the size of each investment in deep tech. He also declined to be more precise about the targeted returns except to say that the overall goal should at least be to beat the cost of capital.
In any case, these financial constraints and goals should not sidetrack the fact that advancements in various technologies have proven their value, says Tham. For example, if the Covid-19 pandemic had happened 20 years earlier, the world at large would have reacted very differently to this black swan event.
For one, there would be no mRNA vaccines; there would also be the absence of all the capabilities that enable people to work from home seamlessly — essentially things taken for granted today. “Effectively, people would be stuck in their flats, unable to go out and order their food and do all this stuff online. So, that’s the role technology is playing in the broadest context,” he says.
And if there is a bright side to the pandemic, trade tensions, war and climate change, it is that these problems will help accelerate innovation.
Temasek is one of the investors in Commonwealth Fusion Systems, which is trying to commercialise nuclear fusion systems / Photo from Commonwealth Fusion Systems
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Icing on the cake
Given the potential application of deep tech, does Temasek always invest with an eye on Singapore eventually owning pieces of technologies for its self use?
For instance, Temasek has invested in two nuclear fusion firms: Commonwealth Fusion Systems and General Fusion. With energy security a pressing issue, could this mean powering Singapore with nuclear fusion someday? On March 23, the Energy Market Authority published a study that lists nuclear as a potential energy source come 2050.
Tham says Temasek’s priority remains to invest for long-term sustainable returns. However, if nuclear fusion becomes a viable option either via these two companies or otherwise, that could be the “get out of jail” card for Singapore’s energy needs, not forgetting the possibility of receiving a financial windfall. The investments in quantum computing, which promises much stronger computer power, also follow the same logic, he adds.
To be sure, Temasek is not the only investor with the mandate to make investments in deep tech. However, thanks to its heft and reach, there is “good access to the deals we like”, says Tham, and not a case where there is too much money chasing after too few prospects.
And while there might be competing interests from other Singapore entities, Tham says Temasek works independently and will steer clear of destructive competition.
Eye on the region
In its earlier phase, Temasek’s key assets were largely the stable of Singapore Inc names ranging from Singapore Telecommunications to Singapore Technologies Engineering to DBS Group Holdings. What followed next was active expansion into overseas growth markets like China, the US and Europe.
With Asean fast climbing up the economic development ladder, Temasek has seen more prospects nearer to home. For example, it has invested in super apps Grab Holdings, and Gojek, which later merged with Tokopedia to form GoTo.
Grab went public via a US$40 billion ($54.31 billion) Nasdaq spac deal late last year. However, its share price has dropped by around three quarters since then as the most recent earnings report card laid bare the challenges it faces in this current climate.
GoTo, meanwhile has chosen to list on its home ground Jakarta with a valuation of US$29 billion. On March 21, GoTo announced it will extend its book-building amid criticisms, as various commentators signalled that its valuations were too lofty for the current appetite.
Without referring to any specific company or market, Tham points out that deep tech investments tend to have longer gestation cycles and that investors are always looking for targets with the potential to be category leaders.
To this end, Tham has helped drive significant investments in two homegrown entities that fit the mould.
Last August, Temasek subscribed for 26.8 million new shares of SGX-listed AEM Holdings at $3.8477 each, becoming the largest shareholder of this leading provider of testing services to semiconductor giant Intel Corp.
When Nanofilm Technologies International, which specialises in advanced coating technology, went public, Temasek was one of the cornerstone investors. After Nanofilm reported maiden earnings that were lower than expected, Temasek raised its stake in the company even as other investors headed for the exit.
Tham is also unfazed that Nanofilm’s share price had dropped to below its IPO price of $2.59 at one point recently. He says many external factors can cause share prices to move and perhaps, analysts were expecting a higher growth profile.
He notes that Nanofilm’s ability to deliver earnings growth was hampered by supply chain constraints which hit everyone in manufacturing. Moreover, Tham is confident of the company’s growth prospects. “From our perspective, fundamentally, we invest in longer-term technical differentiation,” he adds.
In any case, Tham sits on the boards of both companies, giving him direct oversight over these two investments. “As a board member, we will exercise our influence when we think it is appropriate and if we think more capital is needed to drive a good return. We are fundamentally still investing for returns, right?” says Tham.
Besides taking a stake and becoming a significant shareholder, Temasek has formed a joint venture with Nanofilm to try and capture the growing parts of the so-called hydrogen economy, which is bandied about as one of the viable alternatives to fossil fuels. The joint venture, Sydrogen, aims to help build what is hoped to be better types of hydrogen fuel cells.
Tham explains the joint venture can be considered a form of “enterprise building” whereby it can potentially capture a “very, long, big value chain” of the hydrogen economy whose expected transition over multiple decades is just starting.
Tham says Temasek will do the same for other local high-potential companies to generate a good investment return while broadening and deepening the industrial technology base of Singapore to benefit the wider economy.
Semiconductors have been ‘weaponised’ by the US in its struggle for supremacy with China / Photo: Bloomberg
Before joining Temasek in May 2020, Tham had spent the better part of his career in the semiconductor industry. For 24 years, he was with US-based maker of capital machinery Applied Materials, which he joined as a sales engineer, working his way up to eventually manage the Asia Pacific region. After that, he was in ST Engineering for two years before Temasek called.
Even though Tham is now actively involved in many different industries, he has always kept a close eye on his old stomping ground, the semiconductor industry.
Due to the unexpectedly strong sales of electronics devices and conservative capacity planning, worsened by supply chain disruptions amid the pandemic, the semiconductor industry has been struggling to meet higher demand. In response, various industry players have announced multi-billion capex to build new foundries all over the world.
As a veteran of the industry, is Tham bracing for a repeat of the “feast and famine” cyclical pattern semiconductors has become notorious for?
Tham points out that the industry has undergone some structural shifts. While user demand can fluctuate, the industry can no longer depend on cheap logistics to boost production efficiency and capacity.
For one, geopolitics and the pandemic mean the drastic realignment of semiconductor supply chains including raw materials, machine parts, wafer production systems and chip testing services. “I think the geopolitical tension has risen to a point where every last jurisdiction feels compelled to have state-directed policies on domestic semiconductor capability and production,” says Tham. The idea that “the world is flat” — a catchphrase for globalisation where goods and services flow smoothly — no longer applies, he adds.
Of course, the good news is that overall demand is still on the uptrend. New electronic devices and applications ranging from cloud computing and blockchain to machine learning and the metaverse will drive demand for high-end chips, spurring continued investment in cutting-edge capabilities.
Meanwhile, there is the often-neglected segment of older generation chips good enough for less intensive uses, like in cars. Demand for such chips is “going gangbusters”, he notes.
So, while the industry will continue to ride the ups and downs and experience the gyrations, the baseline throughout each new cycle is certainly getting higher, says Tham.
Given the clear demand trend, does it make sense for Singapore to again have its own wafer fabricator? After all, Temasek was once the controlling shareholder of Chartered Semiconductor Manufacturing, which started out brightly but fell behind the market leaders before being sold in 2009 to what is today called GlobalFoundries, which is backed by the United Arab Emirates government and was recently listed on the Nasdaq.
Tham points out that Singapore, as a whole, continues to draw in even more investment from companies such as Micron Technology and United Microelectronics Corp and even GlobalFoundries, all of which have a presence here.
“What does it tell you? I think most investors do have a lot of faith that Singapore is a safe place to expand. Do we really need an indigenous semiconductor front-end player at this stage? Maybe not. But the good news is we have a more sizeable semiconductor wafer processing base here, which is good for Singapore,” he says.