China's top AI chip unicorn faces revenue slump amidst AI boom

Amid Nvidia's recent record-breaking revenue, China's leading AI chipmaker, Cambricon Technologies, has not shared in the AI boom, reporting a more than 40% decline in revenue for the first half of 2024. Profitability still appears to be years away.

According to reports from Chinese media outlets such as Yicai, NBD, and Sina, Cambricon's revenue for the first half of 2024 was CNY64.77 million (US$9.11 million), representing a year-over-year decrease of 43.42%. The net loss reached CNY530 million, indicating that the company has yet to profit.

Cambricon attributed the poor performance primarily to significant R&D investments. In 2023, the company's R&D expenses totaled CNY1.118 billion, an extraordinary 157.53% of its revenue.

Since 2021, Cambricon's revenue growth has stagnated, hovering around CNY700 million. In 2023, its revenue was CNY709 million, and it has consistently remained unprofitable, indicating challenges in commercialization.

Capitalizing on import substitution

Although Cambricon has been consistently unprofitable, its balance sheet for the first half of 2024 shows several positive changes, suggesting that the company may gradually overcome its challenges.

Unlike in the previous eight years, when Cambricon was vulnerable to customer churn, the tightening of US export controls against China in 2022 and 2023 has created opportunities for AI chip substitution within China. Cambricon is well-positioned to benefit from computing power projects by state-owned enterprises and the three major telecom operators.

Given that AI computing cluster projects are typically delivered in the second half of a year, Chinese securities firms maintain their revenue forecast for Cambricon in 2024 at around CNY1.116 billion. They remain optimistic about the long-term demand for AI computing chips driven by large language models and the opportunities presented by China's domestic substitution.

In 2024, Chinese governments at all levels, telecom operators, and internet companies have been increasing their investment in AI computing infrastructure. In particular, China Mobile, China Telecom, and China Unicom have jointly tendered for 16,000 AI servers, and various regions have been building intelligent computing centers.

In response, Cambricon is speeding up the adoption of its current products and advancing the development of next-generation offerings. With tightened US export controls on AI chips, Chinese companies are increasingly transitioning their AI computing platforms to domestic products. As a leading AI chipmaker in China, Cambricon is poised to benefit from this shift.

High exposure to major customers

However, the more significant factor impacting Cambricon's performance is the stability of its major customers.

In its early years, Cambricon gained considerable recognition through its partnership with Huawei. However, this heavy reliance on a single large customer exposed the company to significant risks. Starting in 2018, Huawei's HiSilicon began developing its own AI chips and introduced several products, shifting from being a major customer of Cambricon to a direct competitor.

In 2020, the cloud smart chip and acceleration card business replaced the IP authorization and software business as the core driver of Cambricon's revenue. However, even with this business shift, Cambricon's heavy reliance on large customers persisted.

The revenue from Cambricon's top five customers accounted for 88.60%, 84.94%, and 92.36% of its annual revenue in the past three years, respectively, indicating a high degree of customer concentration. Moreover, the revenue contribution from Cambricon's largest customer has been significant, and there has been a turnover of major customers in recent years.

Note: There are no significant inconsistencies or semantic ambiguities in the article. The content provides a comprehensive overview of Cambricon Technologies' financial performance, challenges, and potential opportunities in the context of China's AI chip market.

Source: Cambricon, September 2024

Source: Cambricon, September 2024