Multiple Chinese AI Unicorn Startups Report Losses, Suffering Impact From US Sanctions

A robotic shark is seen at the Apsara Conference, a cloud computing and artificial intelligence (AI) conference, in Hangzhou, in China's eastern Zhejiang Province, on Oct. 19, 2021. (STR/AFP/Getty Images）

News Analysis

China’s leading artificial intelligence (AI) firms have had a stressful year in 2022. Some reported heavy losses due to the COVID-19 pandemic, the chip ban, and the U.S. sanctions over their role in human rights abuses in Xinjiang.

iFlytek Voice Recognition

On April 20, iFlytek, China’s voice-computer champion, reported a revenue of 18.82 billion yuan ($2.73 billion), a year-on-year decrease of 63 percent, for 2022 net profit.

The loss was caused by U.S. sanctions in 2019 and 2022, which affected the company’s operations, from its supply chain to getting contracts, according to the company’s report.

In 2019, iFlytek and seven other companies were placed on a U.S. trade blacklist over their role in assisting Beijing’s surveillance and human rights abuses in China’s Xinjiang region.

In 2022, the company was again placed on the U.S. entity list, restricting it from acquiring critical technologies used in supercomputing and guided weapons, among other things.

Chinese AI Tigers

China’s four leading computing startups—SenseTime, Megevii, CloudWalk, and Yitu Technology—are recognized as the “four AI tigers.”

All four companies are on the U.S. trade blacklist.

SenseTime and CloudWalk recently released their reports, showing losses for 2022.

SenseTime reported an operating income of 3.8 billion yuan (about $550 million) for 2022, a year-on-year decrease of 19 percent; the annual loss was 6.09 billion yuan (about $880 million), and a cumulative loss of 43.8 billion yuan (about $6.35 billion) since 2018.

According to various Chinese media reports, SenseTime’s core business in the “smart city” was down 50 percent year-on-year, mainly due to the impact of the pandemic.

“Smart city” refers to SenseTime’s security and surveillance products employed in cities’ infrastructures.

SenseTime developed technology in facial recognition and its application in video analysis, autonomous driving, and remote sensing.

The company has been on the U.S. trade entity list for allegedly using its technology to assist the Chinese Communist Party’s (CCP) surveillance of Uyghurs.

CloudWalk was the world’s largest facial recognition device maker, according to a 2018 report from Gen Market Insights.

The company’s 2022 performance forecast reported a net profit attributable to the parent company of -785 million yuan to -934 million yuan (about -$113.87 million to -$135.49 million). The loss has increased from 24.18 percent to 47.75 percent year-on-year.

AI security cameras with facial recognition technology are seen at the 14th China International Exhibition on Public Safety and Security at the China International Exhibition Center in Beijing on Oct. 24, 2018. Nicolas Asfouri/AFP via Getty Images

CloudWalk is on the U.S. Defense Department’s list of companies serving Chinese military research and development (R&D) as part of the CCP’s so-called military-civil fusion strategy.

The company’s re-identification (ReID) technology—which can track people by clothing, hairstyle, and posture—supplements facial recognition for public surveillance.

CloudWalk’s cross-mirror tracking ReID technology has reportedly assisted the Chinese authorities in arresting more than 10,000 people from 2016 to 2019. In particular, the technology has allegedly become a persecution tool widely distributed throughout China to target specific ethnic and religious groups.

Chinese Chip Crisis

Cambricon, China’s leading AI chip startup, reported its operating income of 729 million yuan (about $105 million) in 2022, a year-on-year increase of 1.11 percent; the net profit attributable to the parent company is -1.1 billion yuan (about -$160 million), a 41.40 percent higher loss compared to the same period in 2021.

The company said the significant loss was due to increased R&D expenses, asset impairment losses, and credit impairment losses.

It has not yet made a profit, mainly because its complex computing chips require continuous and significant R&D investment.

Cambricon was listed on the U.S. trade blacklist in December last year.

On Dec. 16, 2022, the U.S. government added 21 Chinese AI chip entities to its trade blacklist and blocked their access to technology made anywhere in the world with U.S. equipment.

Li Bing contributed to this report.