Q2 2023 Kingsoft Cloud Holdings Ltd Earnings Call
Okay.
Good day, and thank you for standing by welcome to King soft clouds second quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press.
Stahl one one on your telephone you will then hear an automated message advising Johan is raised to withdraw your question. Please press star one one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference I bet, you'll speak today, Nicole Shan IR manager. Please go ahead.
Thank you operator or walk and thank you for joining us today and sell cloud second quarter earnings release was distributed earlier today and is available on our IR website at IR.
Yes.
As well as on global Newswire services.
On the call today from Consol cloud, we tell our watch on that.
And third puzzle and is therefore.
Is that Don will review, our business strategy operations and company highlights followed by Mr Hall.
The financial debt guidance it will be available to answer your question during the Q&A session that follows it really comes back to integrate.
Oil companies and the reference only.
So by any discrepancy.
There's always again like to remind you that this conference call contains forward looking statements within the meaning of section at Hawaii.
As of Monday.
Finally in the U S Private security Litigation Reform Act.
These forward looking statements are based upon management's current expectations current market and operating in Asia and they relate to you instead of you all know and love at some of these other factors.
Felicia difficult.
All of the company of Central which may cause the company's actual results performance or achievements to differ.
Early from them.
Well their information regarding these and other risk factors.
Factors are included in the Companys filings with the U S. D. C. The company does not undertake any obligation to update any forward looking statement as a result, new information. So I'm sure you are all other what.
As required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this.
This conference call.
Yeah.
Now my pleasure to introduce our watch on that deal.
Great.
Uh huh.
Fighting hunger to hang it all in my opinion PRT deal that you're doing.
Yeah.
So G shipping circles around cooked so she thought that U N.
<unk> you.
But in G. D. G. How are you doing so you're saying that you'll need to meet the team.
Sure.
Chabertia see young.
Childhood malady.
<unk> San.
Sure Sheila Ennis, you still got it though so she wouldn't boots.
Sorry, it's one lease with Cingal.
Oh Molly.
That'd be auditing she got it.
So the Chilean Congress at Assembly at all.
Hi, Bob how they'll hold an EBITDA lose weight food up I'm, just trying to understand.
Joe Chilean tons sheet powerful saw that what do you think about India.
Sure Shaun T too so that already have yoga.
Hello, everyone and thank you all for joining kings of cloud second quarter 2023 earnings call.
During the quarter, we continued to uphold the principle of high quality and sustainable development build success based on technology and innovation and forge our reputation throughout the entire business process with customer Centricity.
We have enhanced our operations management and proactively embraced the new AI era.
This quarter our profitability further improved total revenues reached RMB 184 billion.
Justice gross margin increased steadily for the fourth consecutive quarter to a new record high of 11, 3%.
Adjusted gross profit reached RMB $207 million more than three times the amount for the same quarter last year.
Normalized adjusted EBITDA margin was negative three 3%, which represents a significant improvement of five three percentage points from the same quarter last year and two six percentage points from the previous quarter.
From your G. Though so you can see them do it.
Molly.
Hi, Charles.
Joe It's really until we see that full time, the audio suite <unk>.
You will agree with you.
Women tissue, we are how many cycles teach.
Tell me if you said sometime.
Oh, Thiago gentlemen, T cell.
Yeah.
Well I mean tissue foolhardy Xiaomi do you.
She's had some huh.
But T. Two nine so do you sense at Honda.
<unk> talked about the show.
She said.
Well when table Youll Hakuho Thiago.
Understood.
Felicia Genesis Chengdu, it's hung sequencing some cool.
So we're the leader in yoga congestion genco.
These aren't.
John I'm going to show you some so anytime soon.
So as you teach them well.
Tony that's hung about Johan Sverdrup.
Sure Dmitry on the treating pension some cool lithium which also comes up so.
In terms of public cloud services revenues were RMB 116 billion with a gross margin of five 2% significantly higher than and turning positive from the negative two 4% gross margin in the same quarter last year.
We continued to focus on three priorities for public cloud services name.
Namely the Xiaomi and kicks off the ecosystem.
Customer mix and cost reduction.
First of all we continue to serve Xiaomi and kings of ecosystem well in.
In particular total revenues from Kings of the group increased by approximately 15% year over year.
Second we continued to optimize our customer mix.
The revenue share of our largest customer dropped further to around 16%, while signing up more than 20, new medium sized customers.
Meanwhile, we also resolutely, what's true from long term loss, making projects and customers achieving a more balanced and healthy our revenue mix.
Third we have made cost reduction and efficiency improvement and ongoing initiative.
We established a dedicated cost optimization team to tackle redundancy.
Excluding the cancellation relocation consolidation reuse and disposal of such resources and assets yielding remarkable results.
How are you telling me it but Tito yes sure <unk>.
Molly Wade.
She.
Joe Chilean Cheetah <unk>.
Perfect.
Talk with you soon.
Great.
Well I mentioned to Jonathan what's even don't cushioning.
Hi.
We cope with genuine high triangle <unk> syndrome.
Charlene Julian Oh, Brian Shea.
Probably more so.
John It's only in Gaza hygiene, Badawi someway nickel quarterly Tankan ducks, what changing daily.
You know, we're managing the Asia June yet.
Beijing.
And.
You can see for the cardholder and Cook.
Okay.
Tibor Sundance, Utah.
<unk> suddenly I'm, saying to you why.
Through the tank hunting or moving down.
So it sounds like it or not.
Formerly ing Gen product way more tower golf product all hung up your grandson, what you thought.
So weighted towards long term debt.
Yeah.
For the 200 and Shanghai.
Clarified the charcoal intention so without courtyard.
Highest share but doesn't cook.
Yeah.
Pilot called Jaco Schoeman triangular so you substitution paywall.
Sure woman concern.
On courtyard homegrown leasing tissue culture, I mean, Shanghai Suzhou architecture.
Sure, Yeah, I'll harder JT herself with Xiaomi.
Sure.
Well my ranch on essentially the chancel Caribbean.
Sheila Changzhou, China, Sean you said something about you need.
Neil you got in South Florida.
The other part is you know.
Yes.
So really jumped so easy in carriers, some would that be alright, sorry.
Women back home.
You can sell more tenure for the.
Also some of our shadow chancellor oxygen carrying somewhat waiver.
<unk> CLO with Xiaomi soil only illogical.
Staying in front of me.
Thank you Yossi.
<unk> product.
<unk> J E.
T.
See you at sort of attraction.
She'd homeaway, who with whom our go forward thinking D dimer, Chrysler Sarnia Johan CTO d'artagnan fungi.
Got you got you.
Don't know yet what mutation woke up Archie talked about wafer will get off.
What's impacting your sales motion.
Praetor Shanghai Union, so how exactly to Hartford holdout Jackup market.
So yes, Youll also on Europe offer shortly.
Pardon me.
Generally.
One told our EP cohorts you know once you got a partial shambled could change that.
You can see useful source of Paypal for artists and.
In case of fancy Xiaomi, that's helpful as well.
Right correct.
Gotcha, Alright wait so youll have a cohort that's all within that uses our patented syntech it with alcohol beer shaping Giancarlo.
Moving on to Enterprise Cloud services total revenues were RMB $675 million with a gross margin of 21, 7%.
A significant improvement from 15, 3% in the same quarter last year.
In public services face, we opted to focus on our core areas of topics service cloud and stayed on asset cloud executing a differentiated approach with not only build cloud for customers, but also develop an end to end cloud service model covering cloud migration cloud usage and cloud management.
We have forged our core competitiveness of standardized our public services cloud operation capabilities ethical.
Applicable to both public service cloud and state owned asset class.
For example, we have been the partner for the Beijing Public service cloud for nine consecutive years, winning a strong reputation to devote to deliver secure reliable and easy to use systems and services.
Starting in a virtuous cycle of increased cloud adoption by more than 50 public services departments.
In digital health space, we have maintained a steady and sure approach first consolidating our strengths than expanding its scale.
Our proven capabilities and the leadership in Super large ultra complex landmark cloud projects have provided a solid foundation for further growth.
On one hand, we have horizontally replicating our original health care cloud model to more regions.
Our motto features an innovative architecture recognized by China's National Health Commission and industry associations and has been promoted to more than a dozen provinces as an industry reference framework, allowing us the opportunity to engage more deeply in the construction of the national public health systems and medical digital ads.
<unk> platforms, producing remarkable economic and social benefits.
For example, we completed the first phase of the Johnson medical image Cloud project integrating image data from over 1300 hospitals across the province with estimated annual savings of RMB, two 4 billion from reduction of duplicated medical images.
Building upon our successful experience of this landmark project, we have replicated our imaging cloud project in promising progress.
Meanwhile, we are working on the plan for the second phase of Jiangsu imaging Cloud project, which upon completion is expected to connect all the public hospitals across the province to the cloud platform.
On the other hand, we're also vertically penetrating our business to a hospital level, we are partnering with a number of top tier hospitals to facilitate cloud based next generation digital transformation, our solution addresses a number of pinpoints, including high maintenance costs server instability and low risk slow response.
Monster user requests for example, we helped a drone and hospital 400 University.
<unk> a tertiary hospital transform its modular system with micro service architecture developed an innovative data structure for dancing hospital, creating a loosely coupled horizontally integrated architecture with platforms and applications, enabling business process optimization and unified data management.
In the financial services space, we completed and delivered a batch of big data projects for leading financial institutions as well as the second phase of China construction banks cloud infrastructure development project.
We're now in the process of deploying the third phase of this project.
Turning to Camelot during the quarter Camelot achieved a solid business performance signing up six new customers, while maintaining robust relationship with existing major clients is profitability remains at a healthy and stable level.
How many of them yet.
LNG shipping.
Yes.
Gross income in the corporate to yet.
Turing voluntary to Shenandoah you don't we don't haven't hit.
Sure.
So to your oncology colgate's conduct until I'm sure.
Parachute.
Well I mean, the passcode <unk> hundred 72.
What each having to go address it.
Betsy.
Sure. Thank you Sundar leaps and Mubarak al Dor.
<unk> quantity neutral kind of antenna tuners, only you're coordinating sounds pretty near term.
Through the call.
Or me Peon Christiansen bathroom tell me what's wrong she had when she won't trend program.
So would you use.
Useful.
Hi.
<unk>.
Given that you have.
Yeah.
European Tms.
Colombia is telling you and you could argue in Guangzhou Cindy how are you.
Cool.
In the mature cycle now.
Hi, it's always calling you and Hungary, where you're from.
Tim could you see.
Or shouldn't we at June <unk>.
The answer to Vanda Tanya.
<unk> property.
Well I mean, the usual you and congrats on courtyard Chicago.
G suite three Josh Ginger.
Higher food three Josh again John .
Joe Lebel to trail.
<unk>.
And that's essentially.
In terms of products and technology.
We uphold our principle of building success based on technology and innovation by delivering best in class customer experience across our core product offerings.
In storage space, we launched a deep ultra called data archive product, particularly well suited for data management use cases, including medical imaging financial documents and compliance on archive.
In big data space, our big data product well recognized for its overall strengths and ranked among the top three leading Chinese companies by IDC, a premier International institution in its data Lake House platform Technology assessment reports 2023 in terms of its comprehensive capabilities such as data <unk>.
<unk> storage development and security.
In database space, we entered into strategic partnership with Pimco, leveraging our respective strengths to jointly provide fully managed fully managed distributed cloud database services in.
In enterprise cloud space, we upgraded our galaxy stock management system, our unified platform facing operation and maintenance, but now and the cloud user facing cloud manager, adding dozens of new features to solve cloud management and usage pain points for enterprise cloud customers.
In 2023, trusted cloud summit, and authoritative and prestigious events that promote the best practice of cloud industry standards in China and hosted by China Academy of information and Communications Technology, and China Communication Standards Association or Galaxy stack, one two milestone awards, namely Best practice Awards.
For technology and best practices Award for public services cloud validating our outstanding technical strength in the domain of dedicated cloud.
The ingestion answered that.
Well I mean as you see the price will shine.
<unk>.
Foreign exchange is to me didn't wait for the jewelry items. So the thing that <unk>.
She should EBITDA agco.
So a xiaomi GM Samsung <unk> European packed UGC.
And with that his shingles.
Tricia Chilean her treaty year with a bushel.
Judy add Tobey with Honeywell, who chairs the <unk> the <unk>.
Yeah, and they total about margin calls shortly afterwards.
Police who more than.
<unk> <unk> 25.
But suddenly seeing shouldn't the launch windows.
We see plentiful ITC tongue Asia towards <unk>.
Children Xiaomi.
Torture at all.
<unk> 42, a strategic alternative.
Bye.
Ushering in the new AI era.
We're beginning to see results from our rapid response to and comprehensive embrace of Aig's.
Leveraging our neutral positioning we have gained the preference of independent AI companies and sign a dozen up new AI customers.
As the sole strategic cloud platform in the Xiaomi and kicks off the ecosystem. We are working closely with kings after office on WPS, AI, enabling motto training and inference business deployment.
Partnering with industry, leading large language motto and back to our database providers, we launched our mass mutual trust the dedicated zone solution to bridge the trust the gap in AI to be use cases.
We also carried out AI targeted upgrades to our container and storage products to support Infiniband technology and multimedia processing in Aig's use cases.
In addition, we are collaborating with the Xiaomi and think about the ecosystem to purchase or lease AI service from various channels conducting tests and evaluations of domestic Gpus.
Alternative contingency plans.
Okay.
James.
How do you have a solution.
Jonestown Cts will yet.
This essentially a year.
The tomb Battle at Bristol.
So the junior she is not.
The only thing <unk> Eli.
Without any answered yet.
Okay.
Total copper okay.
Yes.
<unk> grew more.
<unk>.
Don't really show that 70.
She's on sources can be bought or ship.
Hi, Bert its almost even cry Butler senior it's Julian.
You also you can get some.
Sure, Yes, so shouldn't that Tony got tuned up.
Okay.
Please go ahead.
To develop and grow our Wuhan R&D Center is our significant strategic initiative.
Which will help us nurture new talents for maintaining our technological leadership in the medium to long run.
In less than a year since its inception in last October through voluntary relocation of key R&D staff from Beijing, and Wuhan local recruitment our Wuhan team has quickly grown to approximately 400 people accounting for more than one third of our total R&D team and 50% of the Wuhan team hold and not.
Just degree.
We also organized the star training camp at one center to provide aspiring at University graduate with a fast track to transition from campus to workplace and attract the talent from top universities by fostering a sense of belonging is in our corporate family.
So in theory.
Could you the ICT Betsy Duke.
You mean, the leader Sushi quiet, so Chico <unk> Tien Tsin, let me start in Australia.
So I wont rely women's young tissue being closer and closer to that further events.
So co vehicles Bollywood trussell thanks.
So again don't suddenly a product function.
Oh wait cohort.
You angle.
We've talked about that.
Uhm CFO , Harry we thought that this article highway 80 Tcf.
In summary, the continuous and rapid improvement in our profitability over the past few consecutive quarters has strengthened our belief in the strategy and the direction we have chosen.
Looking ahead, we will meaningfully upheld the principle of high quality and sustainable development and focus on technology reputation and management to drive progress, thereby creating value for our customers shareholders employees and the society.
I'll now pass the call over to our CFO Henry to go over our financials for the second quarter of 2023. Thank you.
Thank you Mr Doyle and I welcome everyone for joining our call.
Now I will walk you through our financial results for the second quarter of 2023.
Our strategy of high quality and sustainable development, we are pleased to deliver another quarter of steady profitability improvement.
Our adjusted gross profit continue to grow for the fourth consecutive quarter and achieved a record high of $206 8 million RMB increased by 200, there were 2% year over year, representing adjusted gross margin of 11, 3%.
Along with our strict expense control our normalized adjusted EBITDA narrowed from negative $163 7 million RMB in the same period of last year to negative $59 9 million RMB this quarter as a REIT.
Normalized adjusted EBITDA margin and further narrowed from negative eight 6% in the same period of last year and an active five 9% in the last quarter to a negative three 3% this quarter.
Thanks to the operational efficiency improvement quarter over quarter narrowing of normalized adjusted EBITDA margin outpaced the increase of adjusted gross margin.
Our total revenue or $1835 4 million RMB this quarter of which revenue from public cloud services or 1000 to $159 5 million RMB, representing a decrease of 10, 1% compared with $1289 1 million RMB in the.
<unk> last year.
Steadily adjusted our revenue mix and a proactively scaling down our services to our top CDN clients.
Revenue from enterprise cloud services, or $675 2 million RMB, representing an increase of nine 5% from $616 6 million RMB in the same period of last year.
Year over year increase was mainly driven by our continued focus on selected verticals and our quality of projects.
Coverage from COVID-19 impact.
Our investment into flagship projects bearing fruits.
Our capability is to replicate the solution set of services to different regional customers.
Yeah.
We continue to enhance our cost control measures total cost of revenue decreased by 11, 5% on a year over year to $1628 8 million RMB.
IDC cost decreased significantly by 16, 4% year over year from $1029 1 million RMB, two 867 million RMB this quarter.
Depreciation and amortization cost decreased by 18, 8% from $249 1 million RMB in the same period of last year to 200 zero to 1 million RMB this quarter.
<unk> development and our services cost decreased by seven 4% from $489 1 million RMB, two $452 9 million RMB this quarter.
Fulfillment costs and other costs were $71 7 million RMB.
RMB and a $41 3 million RMB this quarter respectively.
Adjusted gross profit this quarter increased by 200 zero to 2%.
Two $206 8 million RMB, representing an adjusted gross margin of 11, 3% this quarter compared with six 6% in the same period of last year. The significant margin improvement testify to be the effectiveness of strategic adjustments of revenue mix improvement of our <unk>.
Infrastructure efficiency phase out of a lossmaking customers.
And optimized enterprise cloud project selections and efficient cost control measures.
Demonstrating our strong commitment to improve our profitability and delivering high quality and a sustainable development.
Each of our business lie at Schuh margin improvements.
Gross profit of public cloud services.
$59 7 million RMB, which was negative significantly improved from the gross loss of 37% million RMB in the same period last year.
Gross margin on private car services was five 2% compared with negative two 4% in the same cap last year.
Improvement was mainly due to our proactive a scaling down of CDN services and adjustment of our climax.
Gross profit of enterprise cloud services was $146 7 million RMB compared with $94 6 million RMB in the same half last year.
Gross margin of enterprise Cloud services was 21, 7% improved from 15, 3% in the same period of last year.
The improvement was mainly due to our rigorous enterprise cloud project selection.
In terms of expenses, excluding share based compensation and impairments of long lived assets.
Our total adjustment operational expenses were $538 1 million RMB decreased by nine 7% from $595 8 million last quarter of which our adjusted R&D expenses were 182, 3% million RMB decreased by 10% from last quarter.
Adjusted selling and marketing expenses was $128 3 million RMB compared with $104 2 million RMB last quarter.
Adjusted G&A expenses decreased largely by 21, 3% from $289 1 million RMB last quarter to 227 5 million RMB.
We have been taking a strict expense control over the period, such as reduction of several expenses and a screening of other discretionary expenses and others.
As of June 30.
2023, our cash and cash equivalents and short term expenses and investments amounted to $4 3 billion RMB, providing us with sufficient working capital and liquidity for operations.
Capital expenditures for this quarter was 89.0 million RMB, which primarily consists of payment for service.
Well, having taking prudent control of our procurement of traditional CPO service such as the ones used for CDM business.
While these savings are funds for high performance AI service and we are working very closely with the top leading global OTT service provider and their OEM partners to fulfill the orders.
We expect our capital expenditures may increase in the second half of this year, but subject to a timeline of service delivery.
Our operating cash flow once again recorded net inflow after last quarter fluctuation.
Rich $65 2 million RMB and resulted from our margin improvements as well as our internal cash control enhancements.
Lastly, we are honored to see that we have been lifted in a first edition of the sustainable year for China by S&P Global.
Selection assessed almost 1600 Chinese companies and all of those 88 outstanding customer companies across 44 industries included in our 2023 sustainability yearbook, China of S&P Global we.
We would like to send S&P global recognition of our ESG efforts, we will continue our commitment to improve our governance decreasing our footprint of carbon emission.
And are making positive impact to the whole industry and a side.
Looking ahead, we will continue to pursue a high quality and a sustainable development strategy and unlock synergies within the Xiaomi <unk> subgroup ecosystems.
While staying agile to capture new opportunities in the new era of AI technology. Thank you.
This concludes our prepared remarks.
We are now I think you detail questions. Please ask your question.
Randy.
Operator. Please go ahead. Thank you.
Thank you as a reminder to US question, you will need to press star one on one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one and one again please.
Please standby, while we compile the Q&A Keith.
Our first question comes from the line of Sheila Dang Shang from CIC. Please go ahead.
That's helpful. Harry Nicola Shaw Okay.
Only thing I can just you talked about that.
Now with that lens.
These are some kind of reference you back in and doing a shebang.
So do you think you guys did in <unk> that should show that you can always say youll have with title and then Macquarie anytime you can touch on Macquarie you Betsy.
Please ask your Michigan Xiaomi.
Nicola Shaw go sooner.
<unk> now with or without you Tony Jones from Xiaomi.
Thiago. Thank you should take the AI, South Guangdong Nichols for closing any like T J Maxx.
<unk> a question yes.
Maybe I'll kick it to analyst questions and I should add that.
Zircon to attract them.
Yeah, we're trying to do it.
Oh go ahead, sorry on later.
So around their showroom Goldman Sachs rationale.
No question.
Ben.
Thanks management for taking my questions I've got two questions here first of all the company has been proactively scaling down the CDN business in the past like Q. So when do you expect the structure optimization for your.
Public cloud that's next to the company Derrick.
Is there any chance that you're a public class background to our returns.
Positive growth in upcoming quarters, and secondly, what's your management think of the prospective incremental revenue contribution from large language models and generates an AI.
Related to our business. Thank you.
Great.
Consequently screenshot.
Netease <unk> women think accordions vehicles in Colorado.
She says a lot about high tech hubs to Ashwin <unk> Citi.
<unk>.
<unk> got to go.
To go back and clarify.
So you kind of what's your any light on what you would consider a golden rule.
So this song.
So I don't see that.
Finance.
Thanks for the ecosystem.
<unk>.
The system such as a source of highway police unions will you can shop by some good a chart on that yet.
Pure he sounds a little quieter.
So until that job messages.
<unk> has its own them.
The chart on the hybrid types of sheet estrogen. So these are all Nippon.
<unk> partner yet.
We should see the boost.
Turning to the opinion of our unions.
So I'm going to tell them.
How about Texas.
Yes.
So yes.
Can be summed up as seasonal powder update and pension that young Chung.
Of course with Union.
Should have been accomplished over the past credits.
We finished the year with its own casualty ago, the charter prices.
So Jonathan let me talk to you a way to do towards fitness.
Well I'm going to transfer the Nicaraguan Malina <unk> consider four ideas simulating sooner we'll get auto.
Due to the heart of Xiaomi for nickel.
Nick do you have any cycle.
Me too.
I would say boy you all caught up within Epsilon, so youll cut them.
With regard to the way that you can quickly become harder sometimes soon now.
Not a whole lot to hydrocodone need Yahoo tissue, Panama shell SMIC.
Okay. So.
To respond to your question.
The structural adjustment we have been conducting in the public cloud services segment.
This can be break it down into two parts. One is the CDN business and the other is the other public cloud service business now for the CDN part actually it since I took the role of CEO last year, we have communicated with the market and I would have to say that in general the development for this adjustment of this business has been in line with what I have communicated.
In the past quarters, but due to the changes in the overall market situation to speed has been a little bit faster than what we had expected however in general.
Pes and the direction. It is consistent we would expect the adjustment for the CDN business to continue for a while and we expect to complete to complete that within half a year to one year and for the non CDN business part of the public cloud services business.
Business adjustment has been going through rather smoothly and we have done an excellent job in terms of cost reduction as can be shown in our financial performances.
Gross margin for the public cloud services business has improved from 92% to 4% in the second quarter 2022 to positive five 2%.
This quarter with which we are reporting. So this also relates to the second question that you asked about the AI business.
We expect that this roundup AI opportunity has a potential opportunity to bring us more growth to the public cloud services business.
Okay.
Thiago <unk> from the ads on TV.
Probably a candle ought to go through that.
Danielle.
Do you see the ballpark from Golar.
Assets out there, but it's useful.
Good tissue workshop.
<unk> also tightened our.
Okay.
102 million.
They don't send them back to the women's support to go to go to.
<unk>.
That's how you consider timna achievements.
Continental.
What's the challenge of our time.
So these are sort of coming to Lucy stood accounting change right.
Seasonally you prefer attitude thats, all going to go through that.
Sean it's suitable for doing.
So this element Nick.
Without regard to the.
Richie a tumor mass of Florida trigger that she's a day sexual rubber youre hitting the tinder, whereas youre going off highway. So it will handle all treatable eligible.
You must vote according to the $2.
Finally, a powerful Harlem Susan that Werent Xiaomi.
Okay.
So too soon.
Sure.
<unk> to add a suite on the future.
You guys do.
We see long term.
Okay.
Household Mr Chung.
Special concern that took about one year.
You've got <unk>.
<unk>.
Pension and medical school.
<unk>.
What should that occur.
Of course, when used with <unk> 200 in fact, Washington, So neither.
Nick.
So and that all hope because you use with oncologists and there was a huge hole.
Okay. So if they do.
The English acquisition.
We will send that to you kind of to go add a solo.
I think they're starting to discern if you consider the new the <unk>.
T. Some fashion to ensure that the comments you said that the growth in China.
Kind of a particular.
So it's hard to tease out quite quickly.
Qsymia Dmitry Hello, so it's almost like a tender.
This is roberto.
<unk>.
Sure.
That's one motion.
Yes.
So its angle camera.
Good.
So on Xiaomi sorted.
How slow that down.
<unk> view of that you see how do we think the project can also help govern.
<unk>.
Putting the assets in the hernia kind of auto show.
<unk>.
Turning to the park.
Contributed to collapsing back about three inches long Wale REIT income.
You can identify them and talking about kind of what enable yet.
Two more towards the <unk>.
Yes.
When we talk about <unk>.
What enabled only office.
Political guangxi <unk> solar the trees are and how that youll be at the high.
You guys have the GTA.
So in that channel.
<unk> synthesis of T. Taylor, so enabler quite muted.
Yes, it was a joke to let's just say that held up that's only so oriented producers saw.
UTC Cai von <unk> table today, particularly a chunk leaves us with only one related to your question.
Okay.
Okay.
Hum.
So to answer your question, we do believe that this round of new AI opportunities will bring a lot of opportunity for us as we can.
See you after the Chinese Spring Festival.
GBT concept started to explosive growth grow the demand for AIG have been particularly strong and as mentioned our neutral positioning has enabled us to win the favor of the vast majority of venture AI companies in China, and we are in the process of signing up comp.
Packed with dozens of such companies and so this is about the.
In terms of supporting their computing power.
In addition.
As mentioned, we are also providing companies.
With mass a modest a service business. We are also making progress in that front. For example, we have launched the mass mutual trust dedicated solution and we're also collaborating very closely with Xiaomi and <unk> soft.
In general.
In summary, basically what we have been seeing is on the demand side. The demand is particularly strong. However on the supply side. There is significant bottleneck in particular in terms of Nvidia supply chain to supply of GPU chips, and we believe that's a bottleneck is.
With difficult resolved within the short period of time, so in short the supply far exceed the demand far exceeds the supply in the market and that is not the situation as one company as the general situation for the industry.
As a result of that we had originally expected the revenue from AI can be shown in our financials in the third quarter and that is likely to be delayed due to the shortage of supply of GPU servers to the fourth quarter or even the first quarter of 2024.
However, I would say in terms of the overall deployment in response to this new era of AI Casey the results that we have achieved including the contract that we have signed including the model. The solutions that we have launched a quite successful.
In the longer in the even longer term. We believe this will become the embracing the AI wholeheartedly will actually become the most the core direction for it.
King's off the cloud and can support.
Operator next question please.
Thank you, we'll now move onto our next question.
Our next question comes from the line of Timothy <unk> from Goldman Sachs. Please go ahead.
Hi, guys good morning.
Based on just deal with it.
Well go into <unk>, especially going into Monte lose from here now on Macondo.
Hi, minimal UGC Julien.
So let me touch on commission.
Hung again with Xiaomi cuneus shoes.
I mean, obviously, you're talking about really knockdowns from Xiaomi, telling me. It's on companies that you should have a choice to go if they hold it you don't your association.
On a continuum.
Coca Cola FEMSA.
Peter can we assume that you're good.
Dr Schwindt surgical at Hollywood, Gebbia, and now <unk>.
Which you don't want to be if you're doing it at a higher initial which you show you saturate a sharper.
And you always have to behold.
Sure Alan Me, neither met Chicago Shore Center. Thank you to each of you I know you've gosh over there.
Thank you Scott.
Thank you management for taking my questions I have two questions. One is regarding the gross profit margin.
Gross margin of the cloud enterprise cloud has been upward trend over the past few quarters any especially.
<unk> cloud to achieve.
Above 20% for the past two quarters.
Claude mentioned further elaborate on.
Driver subsequent sparkman behind that and what is our updated view on the gross margin target for this year any nanometer.
And secondly, and also.
Regarding the.
The enterprise cloud and the question is rocket disregarding AR revenue SSC.
The revenue has been.
Declining mode slightly in the second quarter, just wondering if there is any specific reason behind that and how should we look at the revenue trend into the second half of this year. Thank you.
Thank you Ken This is Harry I'm happy to take on the first question and our CEO Mr. <unk> will take on the second one.
So.
For actually acknowledge the improvement of the gross margin for our enterprise class business actually there are few things we actually discussed this earlier, but you eventually see that trend actually kept very stable NFC that improvement expansion a few things first of all yes.
We talk about this the right client selection process. So I think that's actually the first and the beginning point that to do the right business with the right people.
And if you do look at our average revenue mix from an enterprise cloud we used to have some kind of heavy weights on the top clients with over 30.
<unk> or <unk>.
40 million RMB per contract, but right now our focus on the sweet spot around like $808 million to about.
10 million RMB per contract so working on that range of the right clients, we have a better ability to control the costs and to make sure that all the receivables and.
Cost control measures kind of actually a final order deliver asking that's the first point the <unk>.
<unk> was really about the repeating sales for the more standardized products. So we're working very closely with our sales team and our R&D team as well. So we will make sure that we not only work with one client or one product <unk>.
Working with the different clients with the same product. So I think that percentage, obviously, we didn't disclose the number from last year to this year. The standardization of the products services and solutions has been a very important driver.
The second part.
Third one is really about.
Appreciate the article comments from the research analysts and our shareholders. We are actually moving up from the ice two Pos level after services and in some cases, we are actually working with some soft level products.
Products, especially given the AI drivers salmon.
A phenomenon hopefully we can actually go up a little bit obviously, it depends on different verticals on the right penetration of the Paas and SaaS level product, which actually narrow carry with some higher margin.
So as a conclusion Tim.
To believe we have a capacity and the willingness to keep gross margin above 20% of the enterprise cloud services, including both <unk> and to come out as well and given the right incentive.
For our solution delivery team to control their own cost, which would actually embed it into their own budgeting and our bonus calculation, we'll hopefully have more internal measures to make sure. This pressure has been moving down the channel to make sure I believe we're working things out cloud actually pay attention on the bottom line.
So going forward hopefully, we can keep above 20% on a gross margin of enterprise cloud as well as we are hoping.
After the AI eventually unfolded, our enterprise class module and even a higher hopefully can above the three handles.
The mid term so I think Thats give you hopefully give you some color. Thank you Tim and the second question I will pass over to <unk>.
Jonathan Hunt.
<unk>, you mean fac with only the windshield was the high end of course opinion.
One quick question the actual users to job longhorn that are somewhat similar.
The strength of pharma, it's Chandler.
Andrey <unk>.
So Duncan golf conclusive findings as John alluded to see because we consider two in Canada.
The PMI, so we ought to go to the assumptions.
Colby.
<unk>.
Lisa.
Two shallow lagoon for Duane.
When you conduct and go to high end finance, she said that we're interested in growth somewhat.
Due to the shifting to the synergies you can absolutely see soon.
So you've got some some good products in.
In combat ship, all that saw kind of pure <unk> do we suffer signatures, but it's essentially with GDS unions.
Hiring and the Xiaomi <unk> Tom.
So it isn't it doesn't come down.
Two other type of central item that achievements in yet.
<unk>. This is somewhat altice has shown when theyre, so, but and so some of the.
Golden useful in Shanghai, Covent Garden shelf.
Again, so cheap to put up so so so travel to go to.
Archie to handle on that.
That's helpful. Yes, so once that system. So we have been booking kimball gas assortment pension pension either.
She is also hot.
Sure.
Passion.
Good.
So the Gen Hudson since January .
<unk> specialty year with the <unk> formula.
To have sufficient for that extension.
Alright.
Nikolay I wouldnt back off to get some good way of actuals in Q or was it an economic issue and passion.
There is a profitable but she.
<unk>.
I'd say, it's also GDS so Nick.
So much of what she additionally in China, we are at a higher yes.
Starting with me as I choose to substitute <unk> mill come closer to the funnel through <unk> to grow how that's used to the nonfinancial.
The high intensity.
So shipments delayed closings or saw in the Americans.
Shipments vehicle that won't be there to continue to go lower.
We like functional so some of it's just a quick fix so it is only a I don't know whatever high end to sufficient GT sharper pencil shorted on <unk>, yes, so that's a good <unk> Sheng.
Hi, Sean.
Hydro power.
Can you junctions with they don't ship for pay holders.
John turns within into whatever you opened so far that's in downstream and showed higher opex and it could get to a timber.
Our top choices of since I wish on that kind of shows you what would you consider yourself <unk>.
And the womens Xiaomi starting in Q2, you mentioned and then Youll quick follow up after that.
<unk> got people worry us at all.
I'm curious within the Chinook.
Cannot do a tender.
Im open interest.
She is one day closer to carefully select choke okay.
So before I answered.
Do you want to answer the details of a question I would like to give you an overview of how we think about the enterprise cloud business.
Route thinking is that.
We have been.
In becoming more focused on high quality products high quality projects in terms of selecting high quality projects.
And also for the projects that are more sustainable for us.
No.
In terms of project quality in terms of reputation input in terms of.
Deployment capabilities and services, we offer to customers who have been working very hard on those fronts and that is why you have been seeing in the consecutive quarters, we have been experiencing improving profitability levels and now as to your question of why the slight decrease for the revenue of enterprise cloud.
For the second quarter versus the first quarter. The answer is really just the seasonality because the revenue.
Recognition for enterprise.
Cloud project.
The delay from Intel from the time of the signing of those projects to the revenue recognition for some for several quarters to one year and in some other cases can be as long as two years and therefore.
The financial results, you'll see in one single quarter.
<unk> added.
Added combined.
Result of different projects, signing at different time time points and different delays in the overall.
Revenue recognition cycle and therefore.
I wouldn't say that the slight decrease for.
For the financial for the revenue for enterprise cloud for the second quarter versus the first quarter is a reflection of the of our business performance for the enterprise cloud on the contrary, we feel that the fundamentals of the enterprise business has been going quite well and in some future quarter. For example in the fourth quarter it might be also seeing aaas.
Is that in search of our enterprise cloud revenue, however, does not necessarily reflect.
Equivalent search of the business fundamentals. So that's the that's the general idea I would like to I'd like to give you in fact that we have also been in communication with the auditors and hoping to find a matrix that wood.
That will provide a real time reflection.
Our fundamental business situation.
And the alignment with that of the financial performance, we're still exploring that we hope to find out metrics. Thank you.
Yes.
Richard Thank you Thats helpful.
Thank you, we'll now move onto our next question.
Okay.
Yeah.
Our next question comes from the line of Allen Lee from Jpmorgan. Please go ahead.
Hey.
Just wanted to you Oh.
Well you could acquire music going model.
Could you comment I make a wish I wish I don't rule out, which we see during the year.
Forcing the cheese trials Finch water, Molly Whitaker, which quarter the Tricia.
Oh, what time washed out by Neil Mitchell you quite a few commodity should start guys Shiga Xiaomi arms, Honeywell Silicon panic hiring Union Shitala juncture.
So right. So you call it a pause for Sofia, two challenges in Georgia, and nimble and Joshua Horowitz, how do you see kind of how we're going to take a pause casassa yeah. When I'm trying not one particular Corrine did you guys showed that got to wash off welcome Frank.
Management for taking my question I have a follow up question on gross margin so for public cloud services, if we exclude CDM business.
What's the gross margin trend for core computing and storage.
In past few quarters, and how do we think about China into the second half and also how are you. Just mentioned you have increasing revenue contribution from higher margin source at a past services and could management share. Some color how should we think about our long term revenue contribution from these two business. Thank you.
Okay.
Thank you Alan this Henry.
Happy to share some color.
So first of all again, while we're talking about a structure change at our client and revenue mix CDN versus non CDN, but I want to point out that.
The stadium business itself is not really a problematic business partners.
Concentration risk.
Gather with a CGM product to certain clients really.
High risk flat.
<unk>. So that's why we did some changes in the past few quarters.
But putting that aside as you mentioned there are choosing within <unk>, while we havent disclosing in detail on that.
Numbers are first of all.
The margin of the CDM business does have certain fluctuations depending on the season depends on mix and a one hour cutting down certain client penetration and the client concentration that we do need to switch and reallocate et cetera resources, especially on the DNA and the bandwidth we need to change and cancel and renew those actions will take.
Some fluctuations.
But I will say that.
In the old days, let's say last year or a year before as you mentioned there are certain quarters, our CDN business gross margin.
Our agents are notes, but right now we do have relatively stable positive gross margin at the CDN business, while it's really not as highest as a public cloud products the second hardest.
Gross margin of the cloud public cloud services, including computing network and.
Storage.
Higher in certain products are much higher than most of your products.
Products in terms of the gross margin.
And that we are trying to improving the percentage of that revenue from that product.
So if you're putting that everything together I think in the few quarters when were looking ahead.
Given that we do have a lot of efforts on the resource management and cost control hopefully the spread between the computing and storage versus ADL will be expanded.
And the computing and storage database and the network products will deliver even higher gross margin going forward given the changes we have.
So I don't want to provide a detailed guidance on our gross margin by product as I mentioned is really a dynamic really.
Kind of a fluid.
Situation, but overall I can I can I can tell you that from a menu.
We're aiming for a relatively expansion for the public cloud gross margin as a whole and I will try to manage on that and one more point is.
You don't have to split that out because.
One client that will use multiple product lines.
One IDC centers, we may delever different products and resources, we are trying to co share and providing more good tonnage as well. So it's not really from that every single is straightforward.
Lineup calculation, so hopefully I cannot stand.
The second point is I think the earlier question from Tien was really regarding enterprise call. It's not really about the past all SaaS within the public cloud really two different animals I put this way so the enterprise cloud side as I mentioned, our paas and SaaS level packaging with the solution that our services and we do see that there was a convert.
To a higher margin on the public cloud I don't want to provide a detailed guidance because as I mentioned at West AI is coming all the business new models changing when we're talking about the math and other things biology or mentioned, we don't want to kind of develop and divided by the got a.
Traditional concept of iPhone and the ice product, but we are aiming for the mass products and services as a whole package and as a whole I think the margin will be much higher than a traditional ice in our computing services going forward. Thank you Adam.
Okay. Thank you.
Yeah.
Okay.
Okay.
Thanks Jay.
Due to time constraints. This concludes our question and answer session. So I will hand, the call back to you for closing remarks.
Thank you operator, thank you all once again for joining us today.
Your question, please feel free to contact us.
Speaking with you again next quarter. Thank you.
Yes.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect speakers. Please standby.
Okay.
[music].
Okay.
[music].
Okay.
Okay.