SenseTime's completed restructuring and transformation strategy entered into Generative Artificial Intelligence.
The company SenseTime once a leader in traditional AI focused on visual recognition, has officially reorganized to focus on generative AI
Highlights:
SenseTime has completed a strategic reorganization to focus on generative AI as its main growth driver
The AI company is turning to a mass market with greater market potential as it is still in a state of severe losses
Xiao Lin
SenseTime Group Co., Ltd. (0020.HK) is one of the earliest pure artificial intelligence (AI) companies in China and is well-known in the field of facial recognition. But as the technology has become increasingly controversial for its use in surveillance, the company felt it was time for a change and is now moving full steam into the less controversial field of generative artificial intelligence (GenAI).
The shift is the subject of a sweeping restructuring plan that Chairman and CEO Xu Li detailed in an internal memo last week, discussing the company's prioritization of GenAI as a new major growth driver.
In an internal letter on Tuesday, Xu Li said the reorganization was complete: "We have carried out a round of organizational adjustments to better cope with the opportunities and challenges brought by the AI 2.0 era."
As disclosed in a document submitted to the Hong Kong Stock Exchange on Wednesday, the core of the company's strategy is to adopt a "1+X" structure. In this model, "1" represents SenseTime's core capabilities in basic AI models and cloud technology, which are the backbone of its business. “X” refers to customized industry-specific solutions for industries such as automotive, medical, robotics, and retail.
The strategic shift marks a formal departure from SenseTime’s traditional AI products - most notably its controversial smart city business that uses facial recognition technology, which has faced falling revenue and increased scrutiny in the West due to its use in surveillance applications.
Xu Li did not mention these sensitive issues in his letter, but instead emphasized that profitability is the long-term goal of this restructuring. He said: "Through this restructuring, we will upgrade the group into an organization with sustainable profitability and strong growth potential, laying a solid foundation for long-term development."
Investors seemed less interested in the company's previously discussed transformation. SenseTime’s stock price remained largely unchanged in the two days following the announcement. But the stock surged 14% in Friday trading, suggesting that perhaps some people are starting to take notice — and are happy to see the company move into a less controversial area of AI with greater mass-market potential. Even after this rebound, the stock is still down about 75% from its early 2022 high.
As losses continue and competition intensifies, SenseTime’s turnaround is not surprising, especially given recent reports that the company has initiated a new round of layoffs. Since OpenAI launched ChatGPT at the end of 2022, SenseTime, as a leader in the traditional artificial intelligence market, has been following the trend and getting involved in GenAI.
A recent report released by the official China Internet Network Information Center showed that by the end of June 2024, the number of GenAI users in China will reach 230 million, accounting for about one-fifth of the Internet users in the world's largest internet market. As of the end of June, the number of Internet users in China was approximately 1.1 billion.
Although the consumer market is huge in terms of the number of users, SenseTime seems to be more focused on commercial GenAI customers, who are often more willing to spend money on technology that can give them a competitive advantage.
A competitive field SenseTime is one of a growing number of AI-focused startups emerging in China. Oxford Intelligence, which originated from the University of Oxford, listed the world's 30 most valuable artificial intelligence startups in a white paper, including eight Chinese companies.
SenseTime was founded in 2014 by the late Chinese University of Hong Kong professor Tang Xiaoou, who began putting computer vision technology to practical use in the early 2000s, using facial recognition technology to classify and organize his son's photo albums.
With the development of technology, computer vision artificial intelligence has become the core of the company's smart city products, widely used in surveillance systems such as cameras, and has been adopted by public security systems across China. The app caught the attention of U.S. government officials, who blacklisted SenseTime in October 2019, restricting its access to U.S. technology, saying it was suspected of facilitating surveillance activities related to the disputed Xinjiang region.
Still, the company’s business has continued to thrive during the pandemic as China widely uses its technology to monitor infections and control the spread of the coronavirus. Riding a wave of government-driven spending, SenseTime’s annual revenue climbed to a peak of 4.7 billion yuan in 2021, more than double the 1.85 billion yuan in 2018.
In December 2021, just before SenseTime planned to go public in Hong Kong, Washington again imposed sanctions on it for similar reasons. But this time, U.S. investors are banned from holding or trading its shares, effectively excluding them from the IPO. SenseTime, which was valued at HK$139 billion at the time, delayed its IPO by about two weeks but ultimately raised HK$5.78 billion.
As the pandemic ends and China's economy slows, government spending on security and surveillance has fallen, causing SenseTime's annual revenue to fall for the first time in 2022. By the first half of this year, the revenue contribution of its smart city business had dropped from 45.6% at its peak to less than 10%.
Since 2022, SenseTime has shifted from reliance on smart cities to GenAI. While the company hasn't officially divested the business, it's notable that it doesn't appear in the company's new restructuring plan.
Ten years after its establishment, SenseTime is still losing money. Although losses have narrowed, the company is expected to remain loss-making until at least 2026. In the first half of this year, its loss was 2.5 billion yuan, a decrease from the 3.1 billion yuan loss in the same period last year. As part of cost-cutting measures, the company's headcount fell from 6,114 in 2021 to 4,672 at the end of June.
Under the new structure, GenAI has become the company's core business, divided into business units focusing on different areas. Each business unit has its own independent CEO, as well as more flexible incentive mechanisms and financing channels.
SenseTime’s GenAI transformation has progressed rapidly in the past two years. In the first half of this year, the business had revenue of 1.05 billion yuan, more than double that of the same period last year, accounting for more than 60% of the total revenue of 1.74 billion yuan in the period.
SenseTime’s smart car business, which supports autonomous driving and in-car interaction, is one of its most promising areas, generating revenue of 168 million yuan in the first half of this year, double that of the same period last year and accounting for almost 10% of total revenue. The company didn’t mention its other generative AI business segments in its earnings report, which means they may not yet be generating significant revenue.
This article "Completed restructuring and transformation strategy-SenseTime entered into generative artificial intelligence" is an English translation of the Original Chinese article, written by Xiao Lin.
"完成重組轉變策略-商湯進軍生成式人工智能