"Nowadays, generative AI has become the main development direction of SenseTime, but how to get rid of the loss dilemma as soon as possible is the top priority."

@TechNewSense Original

SenseTime, considered the leader among the "Four Little Dragons of AI," has been reported to have undergone significant organizational restructuring and laid off staff with N+1 compensation!

Recently, on the occasion of SenseTime's 10th anniversary, Chairman Xu Li sent an internal letter to all employees, mentioning for the first time the company's newly established trinity strategy of "Big Device - Big Model - Application" and announcing the acceleration of organizational and management streamlining.

According to "Digital Intelligence Frontier," after this letter was sent, SenseTime immediately initiated organizational adjustments and layoffs. The layoffs are still ongoing, with "a large conference room vacated in Shanghai." The scale of layoffs is unknown, and compensation is N+1. SenseTime has prioritized retaining its two main businesses related to the Ririxin Big Model and Big Device, while other business lines, including security, autonomous driving, and healthcare, have begun to adjust. The abrupt layoffs, "without giving employees a chance to catch their breath," have sparked dissatisfaction among them.

In response to the layoffs, SenseTime told "Interface News" that it is actively pursuing strategic transformation and optimizing its organizational and talent structure to better meet business development needs. Currently, SenseTime's social recruitment and campus recruitment are proceeding normally, and its overall business is developing steadily.

This is not the first time layoffs have been rumored at SenseTime. According to "Interface News," layoffs occurred in multiple business groups within SenseTime last August. Some laid-off employees stated that the company promised "N+2" compensation standards, and the company had also laid off employees in June 2022 and April 2023.

01.

Over 50 billion yuan in losses in six years

Founded in 2014, SenseTime is a leading AI software company in China. However, it has been in a state of loss for many years. Based on past financial reports, from 2018 to 2023, the company recorded annual losses of 3.43 billion yuan, 4.97 billion yuan, 12.16 billion yuan, 17.18 billion yuan, 6.093 billion yuan, and 6.495 billion yuan, respectively, for a cumulative loss of 50.324 billion yuan over six years.

In terms of business, SenseTime underwent a restructuring in 2023, establishing three new business segments: generative AI, traditional AI, and smart cars. According to SenseTime's 2023 annual financial results, the company achieved revenue of 3.406 billion yuan, a year-on-year decrease of 10.6%. Chairman and CEO Xu Li attributed the decline in revenue to industrial transformation and the proactive contraction of traditional AI business related to smart cities.

Financial reports show that smart city revenue accounted for more than 47% of total revenue in the first half of 2021 but gradually decreased year by year, falling below 10% in 2023. Generative AI, considered a key development direction, generated revenue of 1.184 billion yuan in 2023, accounting for 34.8% of total revenue, up from just 395 million yuan (10.4% of total revenue) in 2022, representing a staggering 199.9% growth rate.

Over the past two years, SenseTime has been dedicated to finding new growth points. However, as business diversification progressed and corporate investments increased, SenseTime's gross margin declined significantly, from 66.8% in 2022 to 44.1% in 2023, a drop of approximately 32%.

On August 27, 2024, SenseTime released its first-half 2024 financial report, reporting revenue of 1.74 billion yuan, a significant increase of 21% over the same period last year. Among this, generative AI generated nearly 1.1 billion yuan in revenue, a year-on-year surge of 256%.

However, in the first half of the year, SenseTime's net loss attributable to shareholders was still as high as 2.477 billion yuan. It is worth noting that generative AI does not necessarily generate sufficient revenue, and if it fails to cover costs, it may drag down the company's profit margin. Furthermore, competition in the large model field is intensifying, posing significant challenges for SenseTime.

02.

Is generative AI the savior?

At the end of 2021, SenseTime successfully listed on the Hong Kong Stock Exchange, becoming China's "first AI stock." Just days after its listing, SenseTime's share price doubled, and its market value briefly exceeded 300 billion Hong Kong dollars.

However, on June 30, 2022, the first lock-up expiration date after its listing, SenseTime's closing price was only 3.13 Hong Kong dollars, a 46.77% drop for the day, with a market value loss of 92.15 billion Hong Kong dollars in a single day. The share price had already fallen below the IPO price of 3.85 Hong Kong dollars. After the lock-up expiration, major shareholders continued to sell their shares, leading to a sustained decline in SenseTime's share price.

In November last year, US short-selling firm Grizzly Research released a short report on SenseTime, questioning the company's fake revenue and weak growth in its core facial recognition business. Previously, Grizzly had shorted several Chinese listed companies, including 58.com, Pinduoduo, and NIO. SenseTime quickly responded, firmly denying the allegations in the report.

It is worth noting that at the end of 2023, SenseTime's accumulated impairment losses on accounts receivable reached 4.2 billion yuan, with an additional 1.6 billion yuan added in 2023 alone, representing an impairment loss rate of 53%.

Today, generative AI has become the main development direction for SenseTime. However, for this prominent technology giant, how to get out of the loss dilemma as soon as possible is the top priority. Even industry leaders like OpenAI have reported significant losses, with a staggering $540 million loss in 2022.

It will take time for SenseTime to achieve profitability. So, when will SenseTime finally embark on the path to profitability?