What Kai-Fu Lee-backed AInnovation Tells Us About China’s Smart Manufacturing – Techdoxx

Deepak Gupta
Deepak Gupta January 25, 2022
Updated 2022/01/25 at 12:03 PM

The enthusiasm for finding paying customers for artificial intelligence continues in China. AInnovation, a Chinese computer vision startup backed by Sinovation Ventures and Kai-Fu Lee’s SoftBank, is trying to automate China’s massive manufacturing industry. Just four years old, the startup has filed for IPO in Hong Kong, and its prospectus offers a rare glimpse into the commercial viability of smart manufacturing, which is a key part of China’s industrial project for the next few years.

Throughout the 2010s, computer vision companies like SenseTime and Megvii won gold by powering China’s public safety infrastructure with facial recognition technology. As competition drives down prices and the pressure of US sanctions on surveillance technology rises, China’s early AI startups sought diversification. SenseTime has entered education. Megvii, also supported by Sinovation Ventures, added storage to your offers.

AInnovation is among a list of young players in the AI ​​app arena. Co-founded by CEO Xu Hui, who is a veteran of IBM, SAP and Microsoft in China, the startup earned half of its revenue from manufacturing customers in the nine months ending September 2021, according to its report. prospectus. Its computer vision modules and custom services are used in scenarios such as transporting cast iron, detecting abnormalities in automotive production lines, and detecting defects during semiconductor manufacturing.

A third of the company’s revenues came from financial services, with the rest coming from retail, telecommunications and other sectors.

A company like AInnovation cannot simply hire a team of PhDs to run machine learning models in the lab. She literally needs to get her hands dirty, visit customers’ factories and know what kind of automation generates the best return for steel mills and apparel. As such, the startup has established two joint ventures, respectively, with its main partners – the large steel group CISDI and the state-owned construction giant China Railway No. 4.

Screw defect detection using AInnovation’s computer vision technology. Photo: AInnovation

The innovation is still not generating as much income as its smart city predecessors. In 2020, the startup raised 462 million yuan (US$73 million) in revenue; SenseTime pocketed 3.4 billion yuan That year. But Innovation is growing fast. In the nine months ended September 2021, its revenue reached 553 million yuan, surpassing the sum of 2020.

There are challenges though. On the one hand, the startup relies heavily on a few key accounts. Revenues generated by its five largest customers in 2019 and 2020 represented around 26% and 31%, respectively.

China’s early AI competitors rallied around facial recognition for a reason — it’s profitable because it’s primarily a software business. SenseTime’s profit margin, for example, has risen from around 57% in 2018 to over 70% in 2020.

Innovation was also once a software business first. Its gross margin stood at 63% in 2018, but dropped to 31% in 2019 and to 29% in 2020, as it moved from selling primarily software to integrated solutions involving more hardware components, which often incur more material costs, he notes. your prospectus. Profitability also declined because the company “offered competitive prices” to expand its customer base. In the AI ​​business, data is the fuel.

Both are still unprofitable businesses. AInnovation reported an adjusted net loss of about 160 million yuan (US$25 million) in 2019 and 144 million yuan in 2020. SenseTime, by comparison, reported an adjusted net loss of 1 billion yuan and 878 million yuan. yuan during the same periods.

Each vertical within China’s manufacturing industry is easily a multi-billion market opportunity; the question is whether AInnovation can find its way to sustained growth and a healthy business model.

AInnovation priced its shares at HK$26.30 ($3.38) each, the bottom of its traded range, Bloomberg reported early. At that price, the company would raise about $151 million with its Hong Kong IPO.

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