Vimicro International Corp. (VIMC) Enters Joint Venture in Shanxi Province to Expand Security-Surveillance Business

Vimicro International said today it has entered a joint venture with Shanxi Guoxin Investment Corp. (“Guoxin Group”) to form a subsidiary that will make and sell Surveillance Video and Audio Coding (“SVAC”) based security products along with related intelligence and video sensing applications. Vimicro is a leading PC-camera processor and IP-based solution provider. Guoxin Group is the primary financial holding company of the Shanxi provincial government. The joint venture, or “Subsidiary,” will be based in Taiyuan, the capital of Shanxi Province. The Subsidiary will be named Zhongtianxin Science and Technology Co., Ltd. Formation of the Subsidiary is part of Vimicro’s attempts to broaden its security and surveillance business by working with a state-owned enterprise in Shanxi Province.

Guoxin Group will make a capital contribution of RMB 98 million. Vimicro’s capital contribution will be RMB 26 million. VMF Consulting Company will contribute RMB 4 million. Vimicro will also contribute intellectual property, appraised at RMB 72 million by an independent 3rd party valuation firm, to the Subsidiary. Both Vimicro and Guoxin Group will own 49% of the Subsidiary and VMF Consulting Company will own the remaining 2%. Vimicro and Guoxin have agreed to help the Subsidiary obtain business. Additionally, the Subsidiary will apply to receive preferential treatment from the Shanxi provincial government after the Subsidiary is incorporated. This treatment should help it obtain substantial market share. Additional preferential treatment is expected to be received in terms of taxation, governmental subsidies, industry support, and the grant of land-use rights.

Guoxin Group, under the terms of the joint venture, has promised to arrange as much as RMB 10 billion in financing to help the Subsidiary market SVAC-based products and services in both the Shanxi province and other areas of China. Being the partner of the Shanxi provincial government gives the Subsidiary priority to act as the contractor for these projects and to provide SVAC products and services to the market.

Asked for comment about the venture, Dr. John Deng, Chairman and CEO of Vimicro, said, “We are very excited about the formation of this strategic new subsidiary in Shanxi province,” said Dr. John Deng, Chairman and CEO of Vimicro. “We look forward to working with our partners there to accelerate the roll-out of SVAC-based products and services, which will promote the growth of the high-tech economy in Shanxi province, strengthen our design capability, as well as promote the Company’s IC businesses. The new subsidiary will focus on security-surveillance products and services, as well as developing relationships with security-surveillance customers. We believe the establishment of this Subsidiary will strengthen our ability to secure many attractive opportunities in Shanxi province for the benefit of Vimicro and its shareholders.”

As a leading multimedia semiconductor and solution provider that designs, develops, and markets mixed-signal semiconductor products and system-level solutions that enable multimedia capabilities in a variety of products for PC/Notebook, consumer electronics, and surveillance markets, Vimicro is aggressively expanding business into the surveillance market with system-level solutions and semiconductor products to capitalize on China’s domestic demand. Vimicro’s ADSs, each of which represents four ordinary shares, are currently trading on the NASDAQ Global Market under the ticker symbol “VIMC.”

As the primary financial holding group of the provincial Shanxi government, Guoxin Group is engaged in a variety of activities including: trusts, securities, fund management, futures, property trading, venture capital, real estate, hotels, restaurants, tourism, and medical care. Guoxin Group has registered capital of RMB 2.6 billion, with approximately 3,000 employees. As of the end of 2010, Guoxin Group had total assets of RMB 20.7 billion, managed assets of RMB 193 billion, and net assets of RMB 9.1 billion.

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