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What AInnovation, backed by Kai-Fu Lee, tells us about smart manufacturing in China – TechCrunch

 | Breaking News Updates

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

Throughout the 2010s, computer vision companies like SenseTime and Megvii struck gold by powering China’s public security infrastructure with facial recognition technology. As competition drives down prices and pressure from U.S. sanctions on surveillance technologies increases, China’s early AI upstarts have sought to diversify. SenseTime has gone into education. Megvii, also backed by Sinovation Ventures, has added warehousing to its offerings.

AInnovation is part of a rank of young players in the field of AI applications. Co-founded by CEO Xu Hui, who is a veteran of IBM, SAP and Microsoft in China, the startup derived half of its revenue from industrial customers for the nine months ending September 2021, according to its prospectus. Its computer vision modules and custom services are used in scenarios such as molten iron transport, anomaly detection on automotive production lines, and defect detection in semiconductor manufacturing.

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

A company like AInnovation can’t just hire a team of PhDs to run machine learning models in the lab. He literally has to get his hands dirty, visit customer factories and find out what kind of automation generates the best output for steelmakers and garment manufacturers. As such, the startup has created two joint ventures respectively with its main partners – the major steel group CISDI and the public construction giant China Railway No. 4.

What AInnovation, backed by Kai-Fu Lee, tells us about smart manufacturing in China – TechCrunch

 | Breaking News Updates

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

AInnovation is not yet generating as much revenue as its Smart City predecessors. In 2020, the startup raked in 462 million yuan ($73 million) in revenue; SenseTime pocketed 3.4 billion yuan that year. But AInnovation is growing rapidly. In the nine months ended September 2021, its revenue reached 553 million yuan, surpassing the sum of 2020.

There are, however, challenges. On the one hand, the startup relies heavily on a few large accounts. The revenue generated by its top five customers in 2019 and 2020 accounted for approximately 26% and 31%, respectively.

China’s early AI competitors have coalesced around facial recognition for a reason – it’s lucrative because it’s primarily a software company. SenseTime’s profit margin, for example, has grown from around 57% in 2018 to over 70% in 2020.

In the past, AInnovation was also a software-focused company. Its gross margin was 63% in 2018 but dropped to 31% in 2019 and 29% in 2020, as it moved from selling primarily software to integrated solutions involving more hardware components, which typically drive more of material costs, notes its prospectus. Profitability also declined because the company “offered competitive pricing” to expand its customer base. In the AI ​​industry, data is the fuel.

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

Each vertical in China’s manufacturing industry easily represents a multi-billion market opportunity; the question is whether AInnovation can find the path to sustained growth and a healthy economic model.

AInnovation has priced its shares at HK$26.30 ($3.38) each, the low end of its traded range, Bloomberg reported earlier. At that price, the company would raise around $151 million in its Hong Kong IPO.

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