Qiu yueye intern Lu qianying

The "first share of AI chips" Cambrian still has a long way to go in commercialization.

"AI chip first share" cambrian (688256.SH) has been losing money for years and burning more than money. its commercialization has a long way to go.

on the evening of January 30, Cambrian issued a pre-loss announcement for its 2023 annual results. The forecast shows that Cambrian is expected to achieve operating income of 0.68 billion -0.72 billion yuan last year, slightly lower than the same period in 2022. The net profit loss is expected to be 0.756 billion -0.924 billion yuan, 26.47 to 39.84 percent lower than the same period last year. Non-net profit loss of 0.945 billion -1.155 billion yuan, compared with the same period last year, the loss narrowed by 26.87 to 40.17.

Overall, Cambrian's losses have been lower than in previous periods, but revenue still cannot keep up with losses. In addition, this is the first decline in operating income in the seven years since the establishment of the Cambrian, and it is also the seventh consecutive year of Cambrian losses.

The Cambrian losses were not unexpected. The Cambrian report for the third quarter of 2023 has shown that from the beginning of last year to the third quarter, the company's total operating income only reached 0.146 billion yuan, a decrease of 44.84 from the same year last year. This figure is far from the previous annual forecast of 0.68 billion yuan to 0.72 billion yuan. In addition, the attributable net profit loss in the first three quarters of the Cambrian was 0.808 billion yuan, and the non-net profit loss was 0.949 billion yuan, which was similar to the annual expected loss.

Highly dependent on large customers

Cambrian was established in 2016 and listed on the Shanghai Stock Exchange in 2020. On the first day of listing, the Cambrian opened up 288 percent, with a market capitalization of 100 billion yuan.

Behind the capital market boom is years of losses. And since its inception, the Cambrian has begun to lose money. According to the prospectus, in 2017 and 2018, Cambrian lost 0.3807 billion yuan and 0.041 billion yuan respectively. In 2019, its losses rose exponentially to $1.179 billion billion. In the next two years, its losses have narrowed due to the AI boom, with losses of $0.434 billion and $0.825 billion in 2020 and 2021, respectively. But the good times did not last long. In 2022, the Cambrian loss expanded sharply again, as high as 1.257 billion yuan, which was also the worst year since the establishment of the Cambrian.

according to the expected upper limit of losses in 2023, the accumulated losses in the past 7 years have exceeded 5 billion yuan. Cambrian is mainly due to investment in research and development and lower-than-expected product sales for years that have not been profitable.

In terms of revenue growth, Cambrian performed better, but its growth rate was difficult to keep up with the rate of burning money. In 2018, its operating income broke 100 million yuan, and in the following year, the Cambrian operating income was greatly improved, and it was stable at about 0.44 billion yuan in 2019 and 2020. The following year, Cambrian's operating income increased significantly again, to $0.721 billion and $0.729 billion in 2021 and 2022, respectively.

In addition, the Cambrian has always had the problem of over-reliance on large customers.

According to Cambrian disclosures, from 2017 to 2022, the total sales of the company's top five customers accounted for 100, 99.95, 95.44, 82.11, 88.60 and 84.94 percent of operating income, respectively. In the early stage of development, Cambrian almost completely relied on large customers. As the market expanded year by year, its dependence decreased, but the proportion of large customers remained high.

Further, Cambrian still has the largest customer sales accounted for more than half of the situation. For example, in 2021, Cambrian's largest customer is Jiangsu Kunshan High-tech Industry Investment and Development Co., Ltd., whose sales account for up to 62.46 percent of the total; in 2022, the largest customer is Nanjing Science and Technology Innovation Investment Co., Ltd., which accounts for 60.81 percent of the total annual sales.

According to the investigation, the major shareholder behind Kunshan High-tech Industry Investment and Development Co., Ltd. is Kunshan Chengbei Cultural Center, with a shareholding ratio of 44.67, while Nanjing Science and Technology Innovation Investment Company belongs to Nanjing Southeast State-owned Assets Group.

Source: Cambrian Listing Prospectus

In the earlier unlisted stage, Cambrian's top five major customers, in addition to Huawei Haisi, were mainly "China Science Department" companies, such as Shuguang of China Science and Technology and Shanghai Pudong Activity Center, academician of the Chinese Academy of Sciences.

The risk of relying heavily on large customers is that Cambrian's performance will be greatly affected if the customer significantly reduces the purchase volume or disengages the partnership. The best example of this phenomenon is Cambrian's terminal intelligent processor IP product line. Since the "break-up" with Huawei, the operating income ratio of this business has fallen sharply for four consecutive years. In 2017 and 2018 before Cambrian listing, its revenue was almost entirely dependent on Huawei Haisi's IP license.

Founder's Wealth Shrinks

At the beginning of the listing, Cambrian was very popular. On the day of listing, the issue price was 64.39 yuan per share, and the closing price was 212.4 yuan per share, an increase of 229.86 percent, and the total market capitalization exceeded 100 billion yuan. Subsequently, as the market tends to calm down, its share price also slowly fell.

in early 2023, ChatGPT was born, driving the artificial intelligence market hot, Cambrian stock price rebounded again, once soared to 271.47 yuan per share. As of the close of trading on February 2, 2024, Cambrian's share price was 108.49 yuan per share, with a total market value of 45.24 billion yuan.

As the stock price picks up in 2023, many Cambrian shareholders have reduced their holdings and cashed out, such as Nanjing Zhaoyin, Hubei Zhaoyin, Ningbo Hangao, Paleozoic Venture Capital, and China Investment Venture Fund. By the end of 2023, Cambrian's five venture capital shareholders had basically liquidated their positions, with a cumulative reduction of more than 4 billion yuan.

in March 2023, the Cambrian announcement disclosed that Ningbo Hangao had completed its liquidation and reduction between September 2022 and March 2023. A few months later, Nanjing Zhaoyin, Hubei Zhaoyin also came to the stock clearance information.

in August 2023, the Cambrian announcement disclosed that during the period from March to August 2023, Shengdai venture capital had reduced its shares by 1.4343, with a total amount of about 1.072 billion yuan. In September, Cambrian issued another announcement to disclose that during the period from March to June 2023, the cumulative reduction of shares in the State Investment Venture Fund was 1.7760, with a total reduction of about 1.482 billion yuan, making it the highest amount of shareholder reduction in Cambrian in the past year. After the reduction, Paleozoic Venture Capital no longer holds Cambrian shares, while GIC Venture only holds 0.0003 per cent.

The departure of Cambrian shareholders has sparked a lot of public opinion. In order to enhance investors' confidence in the company, Hanwuji announced a repurchase plan in August 2023. According to the plan, the proposed amount of Cambrian repurchase in this round is 30 million yuan to 50 million yuan, which will be used for employee stock ownership plan or equity incentive.

A month later, Cambrian responded again and issued an announcement stating that the company had received a "Letter of Commitment" issued by Chairman Chen Tianshi, in which he promised: "The company's shares (119530650 shares) directly held by me will not be reduced in any way from the date of this letter of commitment until December 31, 2024".

according to Wind data, on January 2, Chen Tianshi and Beijing Aixi science and technology center (limited partnership) lifted a total of 150.1436 million shares, with a market value exceeding 20 billion yuan.

Chen Tianshi was born in 1985 in Nanchang, Jiangxi. He was admitted to the Junior Class of the University of Science and Technology of China at the age of 16. After graduation, he served as a researcher and doctoral supervisor of the Institute of Computing Technology of the Chinese Academy of Sciences. According to the Cambrian 2023 quarterly report, Chen Tianshi currently holds 28.69 percent of the company's shares, a total of 0.119 billion shares, based on the closing price on February 2, 2024, the current value is 12.979 billion yuan. Compared with the wealth of more than 25 billion yuan on the first day of Cambrian listing, Chen Tianshi's wealth has shrunk by more than 10 billion yuan.

In recent years, with the rapid development of the artificial intelligence industry and the increasingly fierce market competition, Cambrian, as the "first share of AI chips", still has a long way to go in commercialization.

CITIC Securities report pointed out that at present, in addition to Cambrian, in the cloud intelligent computing market and edge intelligent computing market, the current market share is mainly occupied by companies such as Avida; in the intelligent computing cluster system market, clusters based on Avida GPU products occupy a dominant position in the market. Compared with industry giants such as Nvidia, Cambrian has a certain competitive disadvantage.

At present, Cambrian's main product is the artificial intelligence chip Siyuan 370 launched in 2021. In March 2022, Cambrian officially released the new training accelerator card MLU370-X8. The MLU370-X8 is equipped with a dual-chip four-core grain Siyuan 370, mainly for training tasks. Cambrian official website shows that in the training tasks such as YOLOv3 and Transformer, which are widely used in the industry, the parallel performance of the 8-card computing system reaches 155 percent of that of Avida 350W RTX GPU on average. Yuanda Securities pointed out that there is still a big gap in performance between the AI flagship chips owned by Cambrian and other domestic companies and the H100, the main computing power chip of Avida, but the Siyuan 590 developed by Cambrian is expected to be benchmarked against H100.