Editor's note: "China's Science and Technology Innovation Story" is an interview column that tells the story of China's listed companies. We focus on the ecosystem of science and technology enterprises and convey the important role of finance in serving the real economy. Through vivid cases, witness the rise of China's scientific and technological innovation. This is the 7th interview, to see how Shanshi Network Technology, a listed company on the Science and Technology Innovation Board and a leader in network security, breaks through the road of localization of information and innovation.

One day in 2021, Luo Dongping convened several core management personnel in the Shanshi Network Technology Building in Suzhou to discuss a major decision - should you make a completely self-developed ASIC security chip?

This is a road that no one has yet walked in the field of professional cyber security in China, and it has invested a lot of money. "It's a bit challenging, but it's also very groundbreaking. This is a must for the domestic information and innovation security industry. As a member of the Mountain and Stone Network Branch (688030. Luo Dongping, chairman of the board of directors and a "veteran" who has been deeply involved in the field of network security for nearly 30 years, said in an exclusive interview with a reporter from Times Weekly, "Solving this single point problem solves the major strategic problem behind it." ”

"Information innovation" (information technology application innovation industry) is one of the hottest topics in the market in recent years. In 2019, the information and innovation policy ushered in a "big explosion", and in the next three years, the information and innovation-related policies showed stepwise growth, especially in 2021, the number of information and innovation-related policy documents issued nationwide has reached 45.

The ecosystem of the information and innovation industry is huge, covering almost all aspects of the information industry. From the perspective of the industrial chain, the information and innovation industry mainly includes four major fields: basic hardware, basic software, application software, and information security. Among them, chips, complete machines, operating systems, databases, and middleware are the most important links in the industrial chain.

In 2021, Hillstone officially launched the security chip strategy, and in 2023, it will carry out the technology research and development of self-developed ASIC security chips, aiming to comprehensively cover the important links of the network security information innovation industry chain through independent innovation technology, and provide users with more efficient and safer network security guarantees. Chips are the "pearls" in the crown of the underlying hardware technology of network security, and they are also one of the dilemmas that need to be broken through in the localization of China's information and innovation.

But for Luo Dongping and his team, making ASIC security chips is "too familiar".

The wind rises at the end of Qingping. As early as 1997, after graduating from Tsinghua University, Luo Dongping, who came to United States to study, joined NetScreen, a network security company founded by three Tsinghua brothers. As a member of the core founding engineer team, Luo Dongping is responsible for chip development.

"At that time, NetScreen gathered a group of people with particularly strong technology and courage, and as soon as the special equipment products equipped with self-developed chips were launched, the performance of all the security equipment on the market at that time was improved by leaps and bounds." Luo Dongping recalled. In 2001, NetScreen was listed on the NASDAQ in the United States. In 2004, NetScreen was acquired by Juniper Networks for $4.2 billion, becoming the technology company with the highest valuation of Chinese students in the United States at that time.

Long before the wind of information innovation swept China, in 2007, Luo Dongping and several technical experts who had participated in NetScreen entrepreneurship returned to China to found Shanshi Network Technology, opening a new entrepreneurial road. In September 2019, Hillstone Network Technology landed on the A-share market as one of the first batch of listed companies on the Science and Technology Innovation Board.

At present, Hillstone Network Technology has formed eight categories of products and services involving border security, cloud security, data security, business security, intranet security, intelligent security operation, security services, security operation and maintenance, etc., with the four technical characteristics of "holographic, quantitative, intelligent, and collaborative", and has provided products and services for more than 60 countries and regions, with a total of more than 28,000 users. Efficient and stable support for the sustainable and safe operation of customers' businesses.

In 2023, the revenue of Hillstone Network Technology will reach 901 million yuan, and the R&D investment will be 375 million yuan, a year-on-year increase of 10.42%, accounting for 41.58% of the company's operating income, accounting for more than 36% for three consecutive years. In terms of patents, Hillstone has mastered 30 core technologies of independent research and development, and applied for more than 500 domestic and foreign patents. According to IDC's "2023 Q4 China IT Security Hardware Market Tracking Report", in 2023, Hillstone will rank second in the Internet industry, ranking among the top three for three consecutive years, and ranking third in the financial industry for two consecutive years. According to the "IDC MarketScape: 2023 Vendor Evaluation of China's Data Security Management Platform" released by IDC, Hillstone Network Technology was selected as a typical representative and placed in the "Major Players" quadrant.

At the important node of the fifth anniversary of the opening of the Science and Technology Innovation Board and the fifth anniversary of the listing of Hillstone Network Technology, the Times Weekly reporter had an in-depth dialogue with Luo Dongping on topics such as chip strategy, artificial intelligence technology application, information and innovation industry layout, and the development trend of the Science and Technology Innovation Board.

As a long-term entrepreneur, Luo Dongping and his team have carved a belief in technology in their bones. "The logic behind the self-developed security chip is very similar to that of the aviation industry – once the problem of aero engines is solved, then all aircraft platforms will be comprehensively improved. The self-developed security chip is equipped with an excellent performance 'engine' for all security platforms, and the performance of domestic security platforms will be greatly improved. Luo Dongping said excitedly.

Breakthrough Xinchuang: Products equipped with self-developed security chips will be launched in 2025

Times Weekly: "Chip strategy" is one of the "four tough battles" of Hillstone Network Technology, and the self-developed ASIC security chip can be described as an important step in the technological innovation of Hillstone Network Technology. Why did Hillstone decide to develop its own ASIC security chip? What are the market and technical considerations behind this decision?

Luo Dongping: At present, it will take some time for the performance of domestic CPUs to improve. In the field of information and innovation security, this dilemma has led to the inability of network security devices to meet the growing network speeds, or to meet this demand at a very high cost. At the same time, if the performance of network security equipment cannot meet customer needs, it will also weaken the competitiveness of going overseas. Therefore, we need a domestic self-developed ASIC security chip to cooperate with the domestic CPU, so that the performance of domestic security equipment has been greatly improved, so as to solve the current security dilemma of information innovation.

Hillstone's decision to make chips is almost a perfect reproduction of the situation when we started our business at NetScreen, which is equivalent to doing what we have done in the past at a higher level.

Why is it not easy for others to develop self-developed security chips? Because we initially chose the distributed architecture technology route based on multi-core CPU, and we are a very unique software and hardware integrated design manufacturer among domestic professional security vendors. Therefore, the self-developed ASIC security chip is a very natural product extension on the road of the self-developed security hardware platform.

Looking back, at the beginning, Hillstone Network Science chose the most difficult path, but without this technical route, there would be no self-developed security chip today. Now, everything we do can be strung together.

Times Weekly: What is the strategic intention behind the localization of self-developed ASIC security chips? What is the impact on the competitiveness and market position of Hillstone? What efforts have been made to achieve this, and what are the biggest challenges?

Luo Dongping: Technology has no borders, and the self-developed ASIC security chip will comprehensively enhance the market competitiveness of Hillstone network technology security products. We not only want domestic customers to use the excellent information and innovation security products of Shangshi Network Technology, but also let the information and innovation security products of Mountain Stone Network Technology open up a new world overseas.

Back then, we were making security chips at NetScreen to solve a purely technical problem, but today the meaning of making self-developed chips in China is very different. In addition to solving the performance problems of Xinchuang security products mentioned earlier, it can also solve the problem of too many product lines, which will greatly increase R&D operating costs.

ASICs are chips designed specifically for specific applications, with the advantages of high performance, low latency, and low power consumption. After the launch of the self-developed ASIC security chip of Hillstone Network Technology, it can cover the domestic and overseas markets with the "Quanxinchuang" product line. This also means that we only need to maintain a set of product lines, the product line is greatly simplified, and at the same time solves the problems of domestic and overseas markets, and has the strength to compete with foreign brands, which will greatly improve the profitability of products.

Overseas markets are also involved in the company's longer-term development strategy. Under the current economic environment and international situation, it is inevitable to develop overseas business. Hillstone has a mature team and many years of development experience in overseas markets. In the future, we aim to reach one-third of our revenue from overseas markets.

At present, the company has completed the research and development of 30 models of hardware platforms for the subsequent installation of ASIC security chips. In 2025, the final product will be released gradually as planned.

Technical beliefs: Adhere to long-termism, deeply embrace AI, open cooperation

Time Weekly: In 2007, you returned from Silicon Valley to start a businessIt can be said that it has witnessed a wave of development of China's Internet. Looking back on the growth process of Hillstone Network Technology, what are the key nodes? Can you share some of the key decisions you made along the way?

Luo Dongping: All the key decisions made by Hillstone Network Technology have a common background, that is, long-termism. Whether it is choosing a distributed architecture technology route based on multi-core CPUs, conducting self-developed security chips, or cooperating with Digital China (000034. SZ) is preparing for long-term healthy development by comprehensively working together to build an ecosystem, as well as standardizing and improving the company's management capabilities through the listing process.

Technological innovation is also inseparable from long-termism. For example, our founding team chose the distributed architecture technology route based on multi-core CPUs at the beginning. The initial investment of this technical route is relatively large, and there is no small difficulty, if it is only to make a short-term product, there is no need to choose this technical route. But if this technical route is done, the development potential will be very large. We made this choice from the standpoint of long-termism, and the subsequent development process has confirmed that it is a very correct choice.

Times Weekly: Hillstone Network Technology has strong technical genes and has many firsts in the industry. How did such technological genes come to be? How has it shaped the current market position and technological advantage?

Luo Dongping: Shanshi people define themselves as "believers in technology". Our core team has participated in the successful start-up of NetScreen, formed a belief in technology, established a technology-based development concept, and built the team with full consideration of the leadership of technical capabilities. After years of insisting on investment in technological innovation, Shanshi has created a very clear market position and advantages.

Take the product category of network firewall as an example. Since 2014, Hillstone has been ranked No. 1 in the Magic Quadrant of Gartner's Network Firewall. Zhou Hongyi, founder and chairman of 360 Group, also publicly said that Hillstone Network Technology is the only company in China that can make high-end firewalls on a par with Silicon Valley firewall technology.

Times Weekly: In the face of an increasingly complex network security environment, how does Hillstone provide customers with more comprehensive and intelligent security solutions? How to seize the opportunity of AI technology iteration and integrate it into products and services to improve security defense capabilities?

Luo Dongping: It is very difficult to do network security. Cyberattacks are constantly changing and asymmetrical – offense always has an advantage over defense. The attacker takes the spear and attacks our shield, and the spear can pierce in the shield with the slightest hole. Therefore, constantly changing according to the situation of offense and defense, and constantly adopting new technologies for product and program innovation, is the foundation for Shanshi to continuously improve the defensive ability for customers.

AI technology is not new to the emergence of these two years, the two years are the prominent performance of generative AI and large language models that have caused a sensation. Large language models have achieved remarkable results in the field of network security, but traditional AI technologies (such as machine learning and deep learning) still have irreplaceable advantages in most scenarios.

Hillstone began to promote the application of AI in the field of network security 10 years ago, and continues to launch AI-based security products and solutions. We have applied traditional AI capabilities to security products such as firewalls, IDPS, NDR, and XDR, so that AI capabilities can be integrated into the entire process of abnormal behavior detection, unknown threat detection, traceability analysis, and linkage response, so as to build intelligent and efficient sustainable security operation capabilities.

In the past two years, due to the outstanding performance of generative AI and large models, Hillstone has continuously implemented the capabilities of security large models in more products and security scenarios. For example, intelligent O&M assistant, threat event correlation analysis, data security classification and grading, and so on.

All in all, cybersecurity needs to embrace AI deeply.

Times Weekly: Can you talk about how Hillstone Network Technology builds a network security ecology based on technical genes? ？

Luo Dongping: Since the beginning of this year, Hillstone has vigorously promoted the new concept of "comprehensive opening from south to north, and Hillstone AI leads the future", which is an important measure for Hillstone to practice ecological win-win.

The original intention of "opening up from the south to the north" is to solve the pain points of current user O&M. Because users often purchase various security products from different manufacturers and categories, there are problems such as poor cross-platform compatibility in operation and maintenance management. "Southbound Openness" is based on the Hillstone XDR system, which is compatible with the security components of competitors from multiple dimensions and simplifies the unified management of users. "Northbound Opening" will open the security components of Hillstone to the outside world, and integrate various security capabilities of Hillstone into its management platform through third parties or capable customers.

Under the general trend of AI, opening up from the south to the north is of special significance. The outstanding capabilities of large models must be exerted at key points in the data set. Due to the strong language understanding ability of the large model, it is possible to exert a comprehensive understanding ability of information in different industries and dimensions, so that the information of different industries and dimensions can work together in a key position, so as to produce a stronger security capability improvement.

"South-to-North opening" can also achieve the deep integration of "security + business", so that security can be deeply implanted into the business, making security the basic ecology of all services. The creation of this ecology is not a temporary need, but a long-term plan.

Capital boosts new productivity: innovative allocation of production factors to achieve ecological win-win

Time Weekly: How do you understand the new quality of productivity? How to summarize the new quality productivity of Hillstone Network Technology?

Luo Dongping: I believe that the new quality productivity is the combination of scientific and technological innovation and ecological win-win, and ultimately realize the healthy development of enterprises.

From the perspective of scientific and technological innovation, Hillstone Network Technology has spent a lot of energy on making security chips in recent years. In the new information innovation environment, our chip has just been designed, which is a revolutionary technological breakthrough for the market and the entire industry. In terms of artificial intelligence, our application started ten years ago, and now it is combined with a more powerful large model, and the product power has been greatly improved. To some extent, this is also an innovative configuration of factors of production.

The significance behind the combination of technological innovation and "comprehensive opening up from south to north" is: on the one hand, after our chips are made, the security platform can easily adapt to any domestic CPU, and the improvement of the product ecological environment and ecological win-win situation have become more realistic; On the other hand, we will combine our technological advantages with Digital China's ecological advantages to form an innovative combination configuration, bringing more imaginative ecological win-win development space.

Times Weekly: How to evaluate the financing ability of the Science and Technology Innovation Board? R&D is a common feature of companies listed on the STAR Market, how will the capital market be used to support technological innovation and business expansion in the future?

Luo Dongping: The Science and Technology Innovation Board is a particularly important platform for enterprises like us to innovate and develop new quality productivity, and provide financing channels for technology enterprises at different stages of development. In the past five years, the total financing of the Science and Technology Innovation Board has exceeded 1 trillion yuan, and the R&D investment of enterprises on the Science and Technology Innovation Board is about three times that of the entire A-shares.

From the perspective of Shanshi Network Technology, at the beginning of the establishment of the company, the innovation and leading nature of technology as a fundamental idea of development. When we went public in 2019, we raised about 859 million yuan in IPO, and two of the three projects raised were related to R&D. After listing, we used convertible bonds to raise financing, also to support R&D projects.

In the future, we will pay more attention to the R&D projects that are most critical to business innovation and development, such as self-developed chips and artificial intelligence, which can support us to adapt to the innovation situation and build innovation competitiveness. We hope that the capital market will continue to support hard-core technology companies like us, so that we can make efforts in more critical places to achieve healthy development and high-quality growth, so as to give back to the capital market.

Times Weekly: Not long ago, the China Securities Regulatory Commission announced that it would launch the "Eight Articles of the Science and Technology Innovation Board" to further highlight the characteristics of "hard technology" and improve the efficiency of refinancing review of science and technology enterprises. As a company listed on the STAR Market, how do you see these changes? How to look forward to the future development trend of the Science and Technology Innovation Board?

Luo Dongping: Hard technology needs time to precipitate, so it needs the support of capital. More efficient refinancing of science and technology enterprises is crucial to accelerating the research and development and research of key core technologies and promoting the high-quality development of enterprises.

By simplifying the review process and improving audit efficiency, science and technology enterprises can obtain financial support faster and accelerate the pace of innovation, which is also what innovative technology enterprises are willing to see.

We look forward to attracting more companies with core technologies and high growth potential to list on the STAR Market.

Times Weekly: In the face of market fluctuations, how should the policy level and the enterprise level retain "patient capital"?

Luo Dongping: Shanshi Network Technology is very lucky, almost all the investors in history are "patient capital", and the most patient capital "Northern Light Venture Capital" has accompanied us for 18 years and has played a vital role in the development of Shanshi Network Technology, a technology believer.

We hope to increase efforts to advocate the scale of "patient capital", and at the same time give policy support to "patient capital" to support technological innovation, so that they can really precipitate to help technological innovation companies, jointly through the cycle, and promote the healthier development of the capital market.