Author: Hengxin

Source: Bowang Finance

On the evening of August 21, iFLYTEK released its 2024 semi-annual report. As a representative company in the domestic AI field, iFLYTEK previously stated that it would "All in the large model, focusing on building a domestic large model application ecosystem" and launched the Spark large model version 4.0. Currently, how effective is the implementation of the large model, and what changes have occurred at the business level? Through the latest financial report, we might be able to get a glimpse of it.

The report shows that iFLYTEK achieved operating revenue of 9.325 billion yuan in the first half of the year, a year-on-year increase of 18.91%, with gross profit growing by 19.08%; multiple core businesses achieved double-digit growth, with education, open platform, and consumer businesses performing exceptionally well, with revenues reaching 3.012 billion yuan and 3.512 billion yuan, respectively; R&D investment in the first half of the year reached 2.19 billion yuan, a year-on-year increase of 32.23%.

iFLYTEK also announced a plan to increase the shareholding of senior executives, further demonstrating confidence in the company's future development and recognition of its value. The announcement shows that iFLYTEK's President Wu Xiaoru, Vice President Jiang Tao, and Vice President Nie Xiaolin will increase their shareholdings by 20 million yuan through call auctions.

Brokers have also given their endorsement to iFLYTEK. On August 22, Guosen Securities released a rating report stating that considering the large-scale implementation of Spark AI applications across various sectors, iFLYTEK is expected to continue its high growth trajectory and maintains its "outperform" rating for the company.

Various signs indicate that due to its firm investment in fundamental large models, iFLYTEK's product quality and competitiveness have continued to improve, further laying a solid foundation for consolidating its position in the national AI industry and continuing to play a pivotal role in the AI sector.

01

Quality Improvement and Efficiency Enhancement are the Face, with Fruitful Achievements

Looking at iFLYTEK's financial report, "quality improvement and efficiency enhancement" are evident, with revenue growth exceeding the industry average. More importantly, gross profit growth exceeds revenue growth, demonstrating good results in quality improvement and efficiency enhancement.

On the one hand, it shows the company's strong competitiveness in a complex market environment; on the other hand, it indicates a significant improvement in cost control and operational efficiency.

In the first half of 2024, iFLYTEK achieved operating revenue of 9.325 billion yuan, a year-on-year increase of 18.91%, and gross profit of 3.748 billion yuan, a year-on-year increase of 19.08%. Another key point is that both per capita income and per capita gross profit have increased at iFLYTEK, further increasing by 9% on top of the 120,000 yuan and 80,000 yuan increases in 2023, respectively, with additional increases of 50,000 yuan and 20,000 yuan year-on-year in the first half of the year.

Apart from its financial performance, iFLYTEK has also achieved good results in personnel and expense management.

In terms of personnel efficiency, iFLYTEK has optimized its personnel structure, focusing on recruiting R&D and sales talent required for large model development and promotion in research institutes and the Spark Corps, while strictly controlling headcount overall. In terms of expense management, targeted increases have been made in expenses related to Spark large model R&D and promotion, with total related investments exceeding 1.3 billion yuan in the first half of the year. Among them, investments in general large model R&D increased by 400 million yuan, investments in large model training and inference platform engineering increased by 160 million yuan, investments in large model promotion and application promotion increased by 120 million yuan, and investments by various BGs and BUs in large model productization increased by over 600 million yuan.

This level of effectiveness is attributable to iFLYTEK's proactive adjustment of its business structure.

Jiang Tao, the Secretary of the Board of Directors of iFLYTEK, stated, "In the first half of 2024, the company proactively adjusted its revenue structure, with significant growth in C-end hardware sales driven by the large model, and further acceleration in B-end implementation."

The continued effectiveness of the business structure adjustment has led to healthier development of iFLYTEK's core businesses. In the first half of 2024, education products and services achieved revenue of 2.86 billion yuan, a year-on-year increase of 25.14%; medical business revenue reached 228 million yuan, a year-on-year increase of 18.8%; open platform revenue reached 2.345 billion yuan, a year-on-year increase of 47.92%; smart hardware revenue reached 900 million yuan, a year-on-year increase of 56.61%; and automotive business revenue reached 350 million yuan, a year-on-year increase of 65.49%.

As the saying goes, 'No pain, no gain.' In the first half of the year, iFLYTEK's quality improvement and efficiency enhancement efforts highlighted its steadily improving management capabilities and continuous progress towards high-quality development.

02

Strategic Focus is the Foundation, with Invaluable Contributions

iFLYTEK's ability to improve quality and efficiency in the short term is inseparable from its solid and orderly promotion of strategic business focus. The two are complementary and inseparable.

In the first half of the year, iFLYTEK continued to drive product focus in strategic markets through a series of mechanisms, identifying the first batch of seven key strategic focus businesses based on strategic direction, market space, competitive advantage, and team strength, among other factors. For these seven key strategic focus businesses, iFLYTEK introduced new mechanisms in team incentives, human resources, and operations management to fully support the steady growth of existing mature profitable businesses.

Specifically, the '7' represent the strategic focus businesses, including key products with the potential to reach billions to tens of billions of yuan in revenue in sectors such as education, consumer goods, and smart cars; the '3' represent key exploratory businesses, including the exploration of Spark large models in the C-end and B-end, and the model exploration of Spark large model operational businesses in the medical field.

Liu Qingfeng, Chairman of iFLYTEK, stated, "Strategic focus will be a crucial driving force for efficiency improvement, and the core measures of strategic focus are based on performance assessments using per capita efficiency as an indicator, and secondly, on performance assessments of various businesses using KPI profits as the main orientation. Strategic focus is not simply about focusing (or eliminating) small businesses, but rather about continuously working based on strategic objectives. The results are already evident, but we must be more decisive in our efforts."

Looking ahead, iFLYTEK's management team stated that it will enter the market through successful bidding projects, identify scenarios for in-depth iteration, and form a virtuous cycle of input-output for customers in large models. At the same time, it will continue to focus on the 7+3 strategy and promote the commercialization of AI large models in core areas and scenarios.

In specific businesses, iFLYTEK will focus on markets such as learning machines, correcting machines, and smart cars.

The user penetration rate in the learning machine market is still less than 5%, indicating significant potential. Based on the new capabilities of the Spark large model, iFLYTEK will further develop new models such as one-on-one tutoring, enhancing user experience and market competitiveness. In the correcting machine market, iFLYTEK has developed the industry's first intelligent correcting machine, significantly improving teachers' efficiency and student learning outcomes. In the smart car market, iFLYTEK will rely on its technical advantages in speech recognition and semantic understanding to revolutionize human-computer interaction and further expand market space. Additionally, iFLYTEK will continue to explore the application of large models in the B-end, particularly in large enterprises such as central and state-owned enterprises.

Amid the dividends of the AI industry, iFLYTEK will achieve long-term high-quality and sustainable growth through strategic focus, further strengthening quality improvement and efficiency enhancement.

03

The Large Model is the Core, with Unwavering Commitment

For iFLYTEK, the battle for large models is one that it must fight and cannot afford to lose.

At the end of 2022, driven by ChatGPT, the wave of generative large model research and development swept the globe. iFLYTEK leveraged this momentum and released version 1.0 of the Spark large model in May 2023, which has since been updated to version 4.0 in just over a year.

Taking the Spark large model V4.0 released by iFLYTEK in June this year as an example, the model's capabilities have been significantly enhanced. According to official claims, it has fully aligned with GPT-4 Turbo in terms of base capabilities, surpassing GPT-4 Turbo in eight out of ten English evaluations, including HumanEval, WinoGrande, and GPQA, as well as two Chinese evaluations, C-Eval and CMMLU.

Based on iFLYTEK's strong foundation in large model implementation scenarios such as education, healthcare, and automotive, it has been able to achieve large-scale monetization in existing businesses, enhancing its competitive barriers.

Specifically, the Spark large model 4.0 is integrated into the "Big Classroom Product System" to create a new smart equipment brand, redefine classroom screens, launch the Spark Smart Blackboard, and introduce four major capabilities: multi-modal understanding and recommendation, natural interaction, virtual tutoring, and intelligent recording and sharing. This constructs a digital and intelligent teaching environment, transforming the blackboard from a writing surface into an AI teaching assistant for teachers. According to scaled data, teachers' resource retrieval and courseware creation efficiency have increased by approximately 56%, with over 85% of teachers giving positive feedback.

Looking at the "University Sentiment Product System" equipped with the Spark large model 4.0, it continuously creates user value by reducing workload and enhancing efficiency, not only significantly reducing the workload of teachers (with an increase in student-teacher fit of about 30%) but also providing students with personalized assignments to meet individual differences and learning needs, reducing ineffective practice.

At present, iFLYTEK's full commitment to the "iFLYTEK Spark large model" has already yielded some success. Combining the rapidly growing user dividends and technological prospects, iFLYTEK will undoubtedly emerge as a winner in this large model battle.

It is certain that iFLYTEK will remain unwavering in its commitment to the large model gamble. During the 2024 first-half results briefing, an investor asked, "What is iFLYTEK's path and pace for commercializing large models in the coming years?"

In response, iFLYTEK's management stated, "The current priorities for commercializing large models are primarily focused on three levels: accelerating large-scale implementation in existing scenarios such as education, healthcare, and automotive; enabling external use of large models; and actively investing in C-end applications represented by the Spark app, while also paying attention to transformative innovation opportunities based on integrated large model software and hardware products."

iFLYTEK is demonstrating the charm of large models through concrete actions, providing the industry with an "iFLYTEK" example. The imagination space is not limited to this, and we eagerly await further developments.