{"id":4909,"date":"2023-10-24T05:55:56","date_gmt":"2023-10-24T05:55:56","guid":{"rendered":"https:\/\/infundpros.com\/business\/china-surveillance-group-sensetime-sees-bid-to-diversify-stymied-by-us-chip-curbs\/"},"modified":"2023-10-24T05:55:56","modified_gmt":"2023-10-24T05:55:56","slug":"china-surveillance-group-sensetime-sees-bid-to-diversify-stymied-by-us-chip-curbs","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=4909","title":{"rendered":"China surveillance group SenseTime sees bid to diversify stymied by US chip curbs"},"content":{"rendered":"
\n

SenseTime, once the darling of China\u2019s artificial intelligence sector, has been pushing to diversify away from unreliable government revenues by snapping up high-powered chips that every AI company wants.<\/p>\n

Its effort now seems doomed by the latest round of US government export controls preventing Nvidia and its rivals from selling the powerful chips, needed to train the latest AI systems, to Chinese customers and their foreign subsidiaries. <\/p>\n

Since it went public in 2021, SenseTime has been seeking to reduce its reliance on its core surveillance business, which sells AI-powered security cameras to Chinese authorities. <\/p>\n

However, the Hong Kong-based company\u2019s move into data centres packed with cutting-edge AI chips \u2014\u00a0which it rents out to AI companies \u2014\u00a0now appears stymied by the US-China \u201cchip war\u201d. <\/p>\n

To add to SenseTime\u2019s problems, analysts point to investors shying away.<\/p>\n

\u201cNo one wants to touch this space in China,\u201d said Andy Maynard, head of equities at China Renaissance, noting that many foreign investors cannot invest in the surveillance sector due to the Biden administration\u2019s recent move to ban some US investment in China\u2019s quantum computing, advanced chips and artificial intelligence.\u00a0<\/p>\n

\u201cSenseTime needs a dramatic catalytic event in the company to turn its share price around,\u201d he said.<\/p>\n

Shares in SenseTime have dived more than 75 per cent since June 2022. That was the date, six months after its initial public offering, that its cornerstone investors were allowed to sell the stock. The company \u2014 which is yet to turn a profit \u2014 now has a market capitalisation of $5.9bn, compared with $16.5bn at the time of its listing. <\/p>\n

The US last week said it was tightening rules on AI chip sales to China, in a blow to Chinese groups like SenseTime that rely on Nvidia and other companies selling high-performance semiconductors in the country.<\/p>\n

Washington\u2019s tighter controls come as Chinese AI groups such as SenseTime and iFlytek are pivoting away from their traditional strength in surveillance technology, which relies heavily on unstable revenues from cash-strapped local governments.\u00a0<\/p>\n

<\/source><\/source>\"A<\/picture>
A digital news officer produced by SenseTime. Its A100 chips are highly prized following the growth of domestic AI start-ups<\/span> \u00a9 CFOTO\/Future Publishing via Getty Images<\/span><\/figcaption><\/figure>\n

When SenseTime\u2019s chief Xu Li pitched his AI company to investors two years ago ahead of its public listing, he focused on a future revenue stream from a sprawling AI data centre under construction in Shanghai, where companies could train their models. <\/p>\n

\u201cWe are using a radical approach to reduce the price of training AI,\u201d he said in an interview with domestic media in 2021 around the time of the IPO. <\/p>\n

SenseTime used money from its Hong Kong listing to hoover up graphics processing units (GPUs) to power the Shanghai data centre, which it rents out to AI companies that cannot afford to buy the chips. The group secured a supply of Nvidia A100 GPUs ahead of the US placing restrictions on the components for export to China, said several people familiar with the matter.\u00a0<\/p>\n

That made the data centre move seem then like a prescient bet, said one AI investor in China. <\/p>\n

\u201cSenseTime was trying to find what business it could enter to diversify away from its surveillance business. At the time, it didn\u2019t seem credible, but the data centre has turned out to be a decent business for them,\u201d the investor said.<\/p>\n

Today, SenseTime\u2019s A100 chips are highly prized following the explosion of AI start-ups training large language models to launch domestic versions of OpenAI\u2019s ChatGPT. <\/p>\n

However, the company remains lossmaking, reporting a net loss of Rmb2.4bn ($330mn) with Rmb1.4bn revenue for the first six months of this year. And as Washington tightens China\u2019s access to Nvidia GPUs, SenseTime\u2019s edge in this field is set to expire. <\/p>\n

The latest controls add to the US placing the AI group on its Entity List and an investment blacklist. The latter move was done just before its IPO and prompted Chinese state-backed entities to step in as foreign investors pulled out. <\/p>\n

To get around the export controls, SenseTime bought advanced chips directly through its own subsidiaries that are not on the US Entity List. The latest rules from Washington appear to close that loophole, according to industry analysts. <\/p>\n

\u201cIt\u2019s the end of the road for the data centre. SenseTime can never buy another Nvidia chip,\u201d said the AI investor.\u00a0<\/p>\n

Being cut off from Nvidia\u2019s most advanced chips will become an increasingly existential problem not only for SenseTime\u2019s AI data centre but for Chinese AI groups in general. \u201cThe more GPUs, the better the model. It\u2019s more important than hiring PhDs. This is a bottleneck for Chinese companies,\u201d the AI investor said.\u00a0<\/p>\n

Officials said last week\u2019s fresh restrictions meant Nvidia would be barred from selling to China its A800 and H800 GPUs, the modified versions of its more powerful chips already banned in the country. The new controls will curtail China\u2019s access to the generations of more advanced chips that Nvidia has announced it will roll out over the next few years. <\/p>\n

Adding to SenseTime\u2019s problems, the revenues from its traditional core business of surveillance tech are falling. <\/p>\n

SenseTime \u201cdoesn\u2019t have good pricing power\u201d, said Ke Yan, head of research at DZT Research. Once SenseTime has kitted out local governments with the surveillance tech, \u201cthere is no recurring revenue like for other SAAS [software as a service] companies\u201d, he said. \u201cThe business model is not attractive. It looks like a contractor,\u201d he added.\u00a0<\/p>\n

SenseTime however insists it has \u201cclear growth plans\u201d and that it is \u201cconfident of [its] long-term business prospects\u201d. <\/p>\n

\u201cWe take a proactive approach to secure our supply chain and to ensure our business resilience,\u201d it said. <\/p>\n

SenseTime\u2019s smart city sales, which include its surveillance tech, fell 58 per cent in the first half of this year to Rmb184mn, with smaller and less affluent cities leading the decline. <\/p>\n

SenseTime, in its first-half financial report, said it was \u201cshifting\u201d its \u201cstrategic focus to top-tier customers with strong credit profiles\u201d after some customers had difficulty paying due to \u201ctemporary budget constraints\u201d.<\/p>\n

But even if SenseTime managed to revive its original core surveillance business and turn it profitable, analysts say that it would do little to prop up its flagging share price.\u00a0<\/p>\n

\u201cThe number of investors in this space is incredibly narrow. What\u2019s the upside of buying this with the sanctions fear? The company is underloved for reasons beyond its own doing,\u201d said Maynard.\u00a0<\/p>\n

Additional reporting by Hudson Lockett in Hong Kong<\/em><\/p>\n

\u00a0<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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