The rapid growth of computational power in China marks a significant moment in the evolution of technology and industryBy September 2024, China's computing centers are projected to exceed an impressive 8.3 million standard racks with a cumulative computational capacity of 246 exaflops (EFLOPS). This meteoric rise presents numerous opportunities for various sectors, but perhaps the most immediate beneficiaries will be those involved in CPU production.
Faster computational speeds will necessitate an increase in both the quantity and quality of servers deployed across industriesIn this technological landscape, the CPU—often likened to the brain of a server—plays a critical role in enhancing overall server performanceAs servers become more advanced, they require more powerful CPUs, leading to an increase in their market valueOne company at the forefront of this revolution in China is Hygon Information Information Technology, known as the only domestic producer capable of mass-producing x86 chipsIn an era of skyrocketing demand for computational power, Hygon Information is poised to seize a new wave of development opportunities.
The financial metrics reported by Hygon Information indicate a robust growth trajectoryFrom merely 380 million RMB in revenue back in 2019, the company has surged to a staggering 6 billion RMB by 2023. This upswing in profits marks a noteworthy recovery, especially given that the company faced losses of 83 million RMB just a few years agoMore strikingly, its net profits soared to 1.263 billion RMB in the same periodWhen looking at the first three quarters of 2024 alone, Hygon Information has already achieved revenues of 6.1 billion RMB and a net profit of 1.5 billion RMB, surpassing total figures for all of 2023.
As 2025 approaches, many semiconductor manufacturers have begun releasing their projected reports for 2024, and Hygon Information is no exceptionThe company anticipates a net profit between 1.81 billion and 2.01 billion RMB for the entirety of 2024, reflecting an impressive year-on-year growth of between 43% and 59%, placing it among the industry leaders in terms of performance growth.
Moreover, Hygon Information's profitability has also seen remarkable improvement, with gross margins increasing from 37.31% in 2019 to an impressive 59.67% by 2023. During the first three quarters of 2024, the gross margin skyrocketed to 65.63%, surpassing the 55.23% margins reported by major players like Cambricon, who dominate the AI chip market
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The net profit margin also witnessed a significant leap from a staggering -36.23% in 2019 to an astonishing 54.33%. This meteoric rise illustrates Hygon Information's ability to maintain healthy growth amidst surging demand for computational capabilities.
In terms of its core offerings, Hygon Information specializes in high-end general-purpose processors (CPUs) and co-processors (DCUs), adhering to a strategy referred to as 'selling a generation, validating a generation, developing a generation.' This approach has allowed for rapid product iterationTheir fourth-generation CPU and the second-generation DCU, Deep Computing Unit (DCU), have been successfully launched, while work on the fifth-generation products is well underway.
Hygon Information's strategic choice to utilize the x86 instruction set—a vital factor influencing processor applicability—provides it with a distinctive edgeThe x86 architecture dominates the global server market, capturing over 90% of the market share due to its ability to support a plethora of low-cost hardware and software ecosystemsThis massive ecosystem is one of the key reasons why global giants like Intel and AMD primarily utilize the x86 instruction set.
Within the domestic CPU industry, of the six major players, only Hygon Information and Shanghai Zhaoxin are pursuing the x86 instruction set pathSignificantly, Hygon Information's x86 processors outperform Zhaoxin’s on crucial parameters like core count and hyper-threading capabilitiesAdditionally, by securing x86 authorization early and optimizing its operations, Hygon Information has reached a stage of self-sufficient product iteration, making it a standout contender within the Chinese CPU market.
In addition to its CPUs, Hygon Information’s DCUs, which are essentially GPGPUs and can be understood as AI chips, hold considerable market power as wellComparing Hygon Information’s first-generation DCU against Nvidia's A100 and AMD's MI100 reveals that Hygon Information has achieved noteworthy results in production technology and memory frequency, paralleling international benchmark standards
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Notably, the just-launched second-generation Deep Computing Unit exhibits a 100% performance increase over its predecessor, showcasing Hygon Information's relentless drive to enhance product competitiveness.
Since 2018, Hygon Information has been nurturing strong relationships with several major clients such as Lenovo, Inspur, and H3C, and expanded its reach into financial and energy sectorsAs its portfolio of clients continues to grow, so, too, does the company’s order volumeA clear indicator of this upward trend is reflected in the contract liabilities, which can be simply regarded as a deposit agreed upon in contractual termsBy the first half of 2024, Hygon Information’s contract liabilities amounted to 15 million RMB, signifying a remarkable year-on-year growth of 426.49%, a strong indication of increasing orders.
Alongside growing orders, Hygon Information is also ramping up its inventory levelsIn the first three quarters of 2024, the company reported inventory amounts soaring to 3.896 billion RMB, a 468% increase year-on-year—an indication that downstream demand for its products remains robust.
What solidifies Hygon Information's foothold in the industry is not merely its stellar performance but its commitment to R&D—an area where it has significantly investedFrom an allocation of 175 million RMB in 2019, the research and development expenses surged to nearly 2 billion RMB by 2023, representing a jaw-dropping compound annual growth rate of 83%. This substantial investment consistently exceeds 30% of revenue, highlighting a firm commitment to innovation.
So, where is all this R&D investment directed? A review of Hygon Information's mid-2024 reports shows that ongoing projects center around core business—processor chips and corresponding technologies—which will ensure accelerated iterations of its flagship products.
High barriers to technological entry clearly illustrate more promising growth avenues for Hygon Information's performance potential
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