Due to the “special social and economic environment,” iFlytek’s progress was significantly delayed last year as profits collapsed.
Photo from CFP
By JIANG Jingling
Chinese technology company iFlytek released its 2022 annual report and its Q1 report on April 20. In 2022, the company achieved revenue of 18.8 billion yuan (US$2.7 billion), an increase of 2.8 percent, a gross profit of 7.7 billion yuan, up 2 percent, a net profit of 561 million yuan, down 63.9 percent.
iFlytek is one of China’s first AI companies. Partly state-owned, the IT concern was established in 1999. Listed on the Shenzhen Stock Exchange with a market cap of around 25 billion yuan, iFlytekit is backed by several state-owned investment funds. Specializing in voice recognition, iFlytek produces tools for analysis of legal documents and medical imagery. State-owned China Mobile is the company's largest shareholder with an 11.6 percent holding.
During the earnings conference, iFlytek president WU Xiaoru stated that there were two main reasons for the poor performance last year.
Due to the “special social and economic environment” – geopolitical events triggered by Washington’s obsession with China’s tech development – progress was significantly delayed, especially in Q4, when more than 20 projects and contracts worth over 3 billion yuan were postponed, though not canceled.
The tremors were felt into the first quarter of this year. Q1 revenue was 2.9 billion yuan, a year-on-year decrease of 17.6 percent, with a net loss of 57.9 million yuan, compared to a net profit of 111 million yuan in Q1 last year.
The company also spent approximately 800 million yuan expanding cooperation in education, medicine and other fields which exacerbated the profit drop. Wu said the company is confident of posting a better balance sheet in Q2.
Chinese tech firms worked hard to establish relationships with US companies and universities in recent years, but the connections have come under growing scrutiny as relations between the two countries sour.
Massachusetts Institute of Technology announced a five-year collaboration with iFlytek in 2018 on subjects including human-computer interaction, machine learning and applied voice recognition. The relationship was abruptly ended less than two years later.
Like many other growing Chinese AI companies, contracts to supply software for processing video and audio to local administrations are a vital source of income. It is these government connections that Washington claims are the basis of sanctions.
Having been included in the US entity list in 2019 when Washington banned six Chinese AI companies, iFlytek was sanctioned again last year, which affected current orders and required adjustments to the supply chain.
Last October, Washington enforced export controls that banned US businesses from marketing cutting-edge chipmaking tech and high-end semiconductors, including the Nvidia A100 chip, to any “Chinese groups,” widening restrictions from specific blacklisted companies.
The A100 is the mainstay of AI at the moment. Nvidia controls 95 percent of the market for graphics processors used for machine learning.
The technology behind the A100 was first used to render complex 3D graphics in games. It is often called a graphics processor, or GPU, but these days the A100 is configured for machine learning tasks and runs in data centers, not inside gaming PCs.
Also on Thursday, iFlytek joined the crush of Chinese tech companies on the ChatGPT bandwagon. Baidu, Alibaba, JD.com and NetEase have plans for ChatGPT rivals.
Alibaba announced it is working on a ChatGPT-style of tech that could be integrated into its cloud computing products. NetEase education subsidiary Youdao is working on tech to be integrated into some of its education products. JD.com plans to release an industry version of ChatGPT called ChatJD with applications in the retail and finance industries.
China’s chatbots will differ significantly from their US counterparts, but Chinese firms’ recent activity indicates that generative AI technologies are expected to be strongly transformative in the technology sector.
Excitement about the technology has inspired serious rivalry among Chinese companies to find a viable Chinese-language-based competitor for the domestic market. Although there has never been a direct Chat-GPT-style product, iFlytek's share price has increased due to its perceived proximity to AIGC technology.
Despite the absence of any real pedigree in the field, iFlytek plans to release its large-language-model pitch for fame and fortune on May 6. The project, Wu trumpeted, has been in preparation since December 2022 – that’s only four months and tells us the project began only after the initial release of ChatPT in November.
Nonetheless, iFlytek expects to bolt the model onto five of its products.
