Q1 2025 Kingsoft Cloud Holdings Ltd Earnings Call
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Good day and thank you for standing by welcome to the Kinks of cloud first quarter 'twenty 25, Our next 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.
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Let's be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Nicole Sean IR director of Kings of Cloud. Please go ahead.
Speaker Change: Thank you operator, Hello, everyone and thank you for joining us today, So cloud sports quota are tiny tiny fly earnings release was distributed earlier today and is available on our IR website at IR. Okay. That's why you and they'll come as well as on the PR newswire services on the call.
Speaker Change: The day from teens up well read how our watch them on a feel little town and that's that's what Mr. Jorge for me it's not.
Speaker Change: Don will review, our business strategies operation and the company highlights followed by Mr. Lu who will discuss the financial performance that they will be available to answer your question. During the <unk> session that follows there will be in contact with you integration all integrations IL four IL convenience and their reference cohorts.
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Speaker Change: We begin I'd like to remind you that this conference call contains forward looking statements within the meaning of section 20 <unk> of the Securities Exchange Act of 1934 at the money and as defined in the U S. Probably Securities Litigation Reform Act of 1995.
Speaker Change: These forward looking statements are based upon management's current expectation and current market and operating conditions and relate to you once that involve known or unknown risks uncertainties and other factors all leash are difficult to predict and many of which are beyond the company's control, which may cause the company's at.
Actual results performance or achievements to differ maturity from those in the forward looking statements further information regarding these and other risks uncertainties or factors are included in the company's filings with the U S.
The company, that's not undertake any obligation to update any forward looking statements as a result of new information future events or otherwise except as required under applicable law. Finally, please note that unless otherwise stated all financial figures mentioned during this conference call are denominated in RMB.
Joe: It's now my pleasure to introduce our vice Chairman and CEO. Mr. Joe. Please go ahead. Thank you.
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Kimco CEO: Hello, everyone. Thank you and welcome all for joining kings of clouds. The first quarter of 2025 earnings call I am CEO of Kimco.
Jamie: This quarter, we continued to steadily advance our business with a target on high quality and sustainable development centering on key areas of AI.
Jamie: First.
Jamie: We recorded year over year revenue growth of 11%, reaching RMB 197 billion.
Jamie: Both public cloud and enterprise.
Jamie: <unk> year over year growth, among which public cloud increased by 14 reached.
Jamie: Reaching RMB 135 billion.
Jamie: Second we continued to drive progress with AI.
Jamie: This quarter.
Jamie: Gross billing reached RMB $525 million, representing a year over year increase of over 200%.
Jamie: Quarter over quarter growth of 11%.
Jamie: Further contributing 39% of public cloud revenue.
Jamie: In addition, this quarter, we are accelerating the construction of our computing clusters with more flexible capital deployment, which is expected to launch service officially in the second quarter.
Jamie: Boosting our AI business revenue.
Jamie: Third.
Jamie: As the only strategic cloud platform of the Xiaomi entering south ecosystem.
Jamie: Our business cooperation with the ecosystem progress smoothly.
Jamie: This quarter revenue from Xiaomi in terms of the ecosystem reached RMB $500 million up 50% year over year.
Jamie: With its contribution to total revenue further increasing to 25%.
Jamie: By fully integrating the strengths of both parties and jointly expanding cloud infrastructure for the AI era, our collaboration with Xiaomi and kings in the AI space continued to progress and deepen.
Jamie: Okay.
Jamie: Finally in terms of profitability this quarter, our non-GAAP gross profit was RMB $327 million.
Jamie: Representing a year over year increase of nine 6%.
Jamie: non-GAAP EBITDA margin reached 16, 2% an increase of 14.3 percentage points year over year.
Jamie: Mainly attributable to the continued increase in the proportion of AI business revenue.
Jamie: However, we also witnessed that our profit has experienced some fluctuation quarter over quarter.
Jamie: non-GAAP gross margin declined by two six percentage points quarter over quarter to 16, 6%.
Jamie: The decline in gross margin was mainly due to declined profit contribution from a lower proportion of enterprise cloud revenue as well as the impact of Frontloaded investment of computing resources.
Jamie: non-GAAP operating profit was impacted by the decline in gross profit, resulting in the loss of RMB 55 $8 million this quarter.
Jamie: non-GAAP operating margin was negative two 8% representing an improvement of four four percentage points compared with a loss of seven two percentage points in the same period last year.
Speaker Change: And turned from a profit to a slight loss quarter over quarter.
Speaker Change: Despite the quarter over quarter fluctuations in financial performance this quarter and the headwind of both market pressure and supply chain uncertainties.
Speaker Change: We remained firmly on track with our long term strategy and continued to move forward with confidence.
Speaker Change: We have strengthened our foundation in ecosystem Corporation <unk>.
Speaker Change: Computing infrastructure deployment and AI application.
Speaker Change: Advancing the strategic layout of our company's overall AI cloud services.
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Speaker Change: Now, let me walk you through the key business highlights for the first quarter of 2025 in.
Speaker Change: In public cloud space.
Speaker Change: Revenue reached RMB $135 billion this quarter.
Speaker Change: Representing a year over year increase of 14%.
Speaker Change: AI business as a key growth driver reported a significant increase in gross billings to RMB $525 million.
Speaker Change: Over 200% year over year, and 11% quarter over quarter.
Speaker Change: Counting for 39% of public cloud revenue.
Speaker Change: Queuing to lead the industry.
Speaker Change: Based on steady usage growth in ecosystem customers and foundation model customers continued demand for AI applications and internet customer business scenarios, such as online education and online travel also made breakthroughs.
Speaker Change: In the construction of clusters, we efficiently coordinated and responded quickly to the demand schedule of key customers created benchmark case of delivering full spectrum cloud services for large scale clusters within the quarter.
Speaker Change: In addition through a flexible capital cooperation model, we ensure sufficient underlying computing power supply to support the rapid growth of our AI business.
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Tony: In enterprise cloud space revenue reached RMB $616 million this quarter, representing a year over year increase of 5%.
Tony: Affected by seasonal slowdowns in project delivery and acceptance process enterprise cloud revenue declined quarter over quarter.
Tony: By industry.
Tony: Public service sector.
Tony: We are advancing the application of AI in public service cloud and the state owned asset cloud.
Tony: Actively embracing the AI driven trends.
Tony: So cloud has built a rich set of motto resources through open source model marketplace, while providing a one stop motto tool chain that covers key process, including data processing model fine tuning model evaluation and motto quantization.
Tony: We remain committed to delivering improved process, one stop AI services to help customers do fleet optimized model performance in our business scenarios.
Tony: In health care sector, we initiated the construction of our platform from mutual recognition and sharing of test and examination results in Wuhan.
Tony: He is a cloud medical imaging cloud capabilities, which have been deployed enrichment such as Johnson <unk> Johnson provinces.
Tony: Once again validated.
Tony: Our capabilities also expanded from imaging scenarios to test and examination scenarios and have been further replicated and extend it to the entire Hubei province market.
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Joe: In terms of product and technology, we upheld the principle of building success based on technology and innovation.
Joe: Focusing on delivering best in class customer experiences across our core product offerings.
Joe: This quarter, we continue to enhance the product capabilities of our intelligent cloud computing services.
Joe: Our singly old training and inference platform as a one stop AI development and deployment platform remains continued committed to providing enterprises with efficient elastic and cost effective model training and inference services.
Joe: The integration of high quality models, including the one from Xiaomi will further extend the platform's ecosystem capabilities and how customers apply AI technologies in scenarios, such as natural language processing multimodal interaction and intelligent decision making.
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Speaker Change: Uhm CFO Harry.
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Speaker Change: Yes.
Speaker Change: Overall, our AI business continued to grow rapidly and our cloud services have entered a new development pipeline.
Speaker Change: In the public cloud space, we strengthened our capabilities in infrastructure training and inference platforms and AI tools to help customers reduce training costs and improve stability convenience and efficiency throughout model development fine tuning and usage.
Speaker Change: In the enterprise cloud space with a focus on AI data and office productivity, we provide one stop model solutions and services under the trend of enterprise AI plus narrow developments.
Speaker Change: Looking ahead, we will maintain deep cooperation with Xiaomi and kings of ecosystem fully understand and explore new AI opportunities and continue to create value for our customers shareholders employees and other stakeholders.
Speaker Change: I will now pass the call to our CFO Henry to go over our financials for the first quarter of 2025. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you Mr. <unk> and thank you all for joining our call today.
Speaker Change: I will now walk you through our financial results for the first quarter of 2025.
Speaker Change: This quarter, our AI strategy of continuing to drive our growth and laid a foundation for future development.
Speaker Change: Total revenues for this quarter or 1000, 970.0 million RMB, reflecting 11% year over year increase.
Speaker Change: All of the revenues from public cloud services, while $1353 5 million RMB.
Speaker Change: 14%.
Speaker Change: 1187 format RMB in the same quarter last year.
Speaker Change: This growth was mainly fueled by our search and AI related business with our billing.
Speaker Change: <unk> 525 million RMB.
Speaker Change: This quarter, our capital expenditure bridge 600, there are 5 million RMB.
Speaker Change: Revenue from Enterprise Cloud services reached $616 5 million RMB up 5%.
Speaker Change: $588 2 million RMB in the same quarter last year.
Speaker Change: Primarily driven by increased demand and industry solutions.
Speaker Change: However, we have witnessed a 25% sequential decrease of enterprise revenues, which was mainly due to the seasonality impact.
Speaker Change: Yes.
Speaker Change: Total cost of revenue was 1008, $1651 7 million RMB up 11% year over year, which was in line with our revenue expansion.
Speaker Change: IDC cost dropped by 6% year over year from 706% to $8 5 million RMB, two 722 point MLR RMB this quarter.
Speaker Change: <unk> execution of cost control and a better recommendation.
Speaker Change: Depreciation and amortization cost increased from $183 5 million RMB in the same period of last year to $378 5 million RMB. This quarter, mainly due to the depreciation of newly acquired high performance service expand our AI business.
Speaker Change: Solution development and service costs Rose by 13, 3% year over year from 446.0 million RMB two of $505 2 million RMB.
Speaker Change: Even by expansion and Camelot personnel to support revenue growth.
Speaker Change: Fulfillment costs and other costs was $3 1 million RMB.
Speaker Change: At $42 1 million RMB this quarter respectively.
Speaker Change: Our adjusted gross profit for the quarter.
Speaker Change: $327 7 million R&D and <unk>.
Speaker Change: Nine 6% increase year over year.
Speaker Change: While a decrease of 23, 4% quarter over quarter.
Speaker Change: Adjusted gross margin was 16, 6% in this quarter compared with 16, 8% in the first quarter of 2024, and a 19, 2% in the fourth quarter last year.
Speaker Change: Our adjusted gross margin has been negatively impacted by this as analogy for enterprise cloud services.
Speaker Change: And at a higher upfront investments into service in Iraq for AI business.
Speaker Change: Yeah.
Speaker Change: On expense side, excluding share based compensation, our total adjusted operating expenses of $427 3 million RMB, a decrease of 9% year over year, and a four 3% quarter over quarter.
Speaker Change: Of which our adjusted R&D expenses was 208 million RMB increased by 4% from same quarter last year.
Speaker Change: Selling and marketing expenses were $107 8 million R&D increased by 10, 1% year over year.
Speaker Change: Adjusted SG&A expenses for $118 7 million RMB decreased significantly by 13.6.
Speaker Change: 6% year over year due to the decline quite a lot.
Speaker Change: Our adjusted operating loss was $55 8 million RMB.
Speaker Change: Narrowed by 56% from 127.0 million RMB in the same period of last year.
Speaker Change: The improvement was mainly due to increased across profit and a decrease of credit loss expenses.
Speaker Change: However, the adjusted operating profit turned loss from last quarter, which was mainly due to the decrease of gross profit in this quarter.
Speaker Change: Our non-GAAP EBITDA profit was $318 5 million R&D increased by eight points.
Speaker Change: Of $33 2 million RMB in the same quarter of last year.
Speaker Change: Our non-GAAP EBITDA margin achieved a 16, 2%.
Speaker Change: Compared with one 9% in the same quarter last year.
Speaker Change: Mainly due to our strong commitment to AI cloud computing development strategic adjustment of business structure, and our strict control over cost and expenses.
Speaker Change: As of March 31, 2025, our cash and cash equivalents totaled 2000 to $322 7 million RMB, providing a strong liquidity position to support operations and AI investments.
Speaker Change: Looking ahead, our cloud infrastructure is ready to serve in a short time, but demand from igo assistance and other AI application scenario not only filled our business growth, but also reinforced our confidence in this trajectory.
Speaker Change: As demand if all AI cloud service continues to grow we are well positioned to capture and capitalize.
Speaker Change: The opportunities.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you this concludes our prepared remarks.
Speaker Change: And Sheila no hesitation. If you have questions. Please ask that question in both Mandarin Chinese and English with postal operator. Please go ahead. Thank you.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one on one again.
Speaker Change: We will now take the first question.
Speaker Change: Okay.
Speaker Change: From the line of Brian Gong from Citi. Please go ahead.
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Speaker Change: Very much for your question so in relation to your first question about the declines speed in terms of both public cloud enterprise cloud as.
Speaker Change: As we noted in the prepared remarks.
Speaker Change: Especially for the enterprise cloud that seasonality is quite evident.
Speaker Change: That includes the impact for both.
Speaker Change: Our own.
Speaker Change: Enterprise cloud services as well as the business from Camelot.
Speaker Change: Because obviously Q1 there is the factor of the Chinese new year, and a lot of customers or enterprise cloud business is still doing the budgeting.
Speaker Change: Now in terms of.
Speaker Change: The public cloud as we mentioned before the public cloud business.
Speaker Change: Panther cloud focuses mainly on key customers.
Speaker Change: <unk> typically our large customers and they have their own cycle of the construction of the clusters before they can actually get online and to generate revenue. So in fact in the first quarter. We have delivered a 500 top node cluster to our key customers, Amit however that delivery time.
Speaker Change: <unk> was only at the end of March and therefore, the revenue and profit.
Speaker Change: Reflection as in the financial numbers will only be shown in the next quarter, which is the second quarter Q2.
Speaker Change: Now in relation to your question about the model from Xiaomi in fact does Xiaomi 7 billion parameter model was actually trained from our cluster.
Speaker Change: And the.
Speaker Change: In fact that the tremendous growth of the Acs AI business has much to do with the demand coming from Xiaomi.
Speaker Change: In the long term.
Speaker Change: Active the tremendous demand that the tree.
Speaker Change: <unk> demand for model in France, coming from Xiaomi still has significant potential. However, since we are serving xiaomi the pace of Xiaomi demand has a lot to do with Wynn and the amount.
Speaker Change: <unk> revenue and profit will show on our financial statements on a quarterly basis.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Last question. Please thank you.
Speaker Change: Thank you we will now take the next question.
Speaker Change: From the line of Xiaodong Southern Cross he ICC. Please go ahead.
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Speaker Change: Your line is now open Sir.
Speaker Change: Thanks management for taking my questions and first of all I noticed that the keys of cloud in terms of office has recently jointly launched an AI.
Speaker Change: Matos machines.
Speaker Change: For Goldman of service sector.
Speaker Change: How do you view that business opportunities in the government of <unk> sales and also could you into.
Speaker Change: Produce the pricing models at this all in one machine and secondly could you. Please update on the non-GAAP op margin outlook for the subsequent quarters. Thank you.
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Diego: Further in that region.
Diego: On the call say at same time, so it was interesting pilot with outlet versus historical.
Diego: Thiago and hit those Hello, Harold Meloche.
Diego: Javier.
Diego: Yes.
Diego: So it's now about it.
Diego: But you've done an influenza with Youtube content online so is that issue.
Diego: So I'm going to deal with all hasher emissions.
Diego: But that didn't ship.
Speaker Change: Liver damage and finance <unk> accounting finance will debate on it. So you know women will noncritical, Mr. Milligan switching nonbank Luna <unk> Polynesia Toone other PC is from Deloitte <unk> Touche marching down the path.
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Diego: Suddenly you have enrollment coupon buoyed shipment will attend to you think fundamentally.
Tony Lefebvre: I'm wondering if you could how much important you've got really Tony Lefebvre, Lantana, clearly inkjet yoga Daiichi HD.
Diego: Nothing that should help you.
Diego: Here too we also have the entire tumor because it'll be a balanced with a cohort actually.
Diego: <unk> talked about.
Diego: <unk> got at some point.
Diego: C. J you put length, yet so it will need to either under <unk> Levered digital Pedro Pablo you ship, one eight Asia, India Temenos will close we had a good chunk of it is there, but all those things.
Diego: I think the rationale to want to go accordingly.
Diego: It's about how work with absolute certainty.
Diego: So let me quickly translate so as Randy pointed out the market for AI in all.
Diego: On the office automation targeting the government space has been developing very fast and therefore, that's the reason why kings of cloud <unk> come together with Kings have office to jointly develop and offer a plan for a solution to such market, which has been actually validated by the market so that integrated solution.
Diego: Is actually an integration of both software and hardware and notably in software portion, there's the AI component that helps them.
Diego: To become more efficient in office scenarios and this is targeted for Chinese government agencies.
Diego: <unk> layers of various.
Diego: Tears now in terms of the pricing question you asked it actually varies based on the different configuration of hardware that we are providing to the customers. So the pricing can actually vary by quite a lot.
Speaker Change: Thank you good luck.
Diego: Thank you for the question on the margin side I can probably a few things on a point or so.
Diego: Given the seasonality in Q1.
Diego: As probably many of you understand that.
Diego: Sure.
Diego: Our primarily the Opex is.
Diego: The human capital expenses.
Diego: The salary is compensation and bonuses also for us. So in Q1, basically we not only need to incur the normal salary payment, but also theres a bonus and also certain employee benefits also incurred in Q1.
Diego: During the holiday season.
Diego: Stan.
Diego: But given the revenue side it was affected by the delay of certain projects and also top line growth has been affected by seasonality. So.
Diego: Stay via variation of the topline growth.
Diego: Largely affected our bottom line, so the cost structure, especially on the salary and compensation is relatively fixed so that's why it's kind of affecting on the op margin in Q1.
Diego: It's kind of a very.
Diego: Straight line.
Diego: The reason so going forward I think given the.
Diego: Better margin profile for example, with AI.
Diego: <unk> and <unk>.
Speaker Change: Our relationship with our ecosystem partners, especially for <unk>, our CEO Mr. <unk> just mentioned.
Speaker Change: The Big project, we're likely to deploy it on the way and it will be largely book.
Speaker Change: Starting from Q2 going forward, so hopefully our top line growth will drive a better margin expansion in the following quarters. So we're in the view that our op margin will be better in <unk>.
Speaker Change: Falling quarters at.
Speaker Change: It depends on the topline growth the pacing of that and the scale of the revenue quality in the following quarters.
Speaker Change: But on the other end, we also implying out given the EBITDA margin will be likely.
Speaker Change: Sure.
Speaker Change: Better compared with the op margin given the nature of the AI business. So as the AI business penetration become hiring of public cloud services. So hopefully at the EBITDA margin can be recovered a little bit faster than op.
Speaker Change: Module side, so I think our encouraged.
Speaker Change: The audience should probably closely track our growth margin profile and.
Speaker Change: EBITDA margin profile as well.
Speaker Change: R&D costs, which are primarily linked to the expenses and the compensation of the salaries of employees. I think these are factors that are going to be the leading indicator for the op margin going forward for the following quarters.
Speaker Change: So while we don't give a formal guidance I understand Brian also mentioned is for the full year top line revenue in our call today.
Speaker Change: By the way are in the view of that and the margin profile in the following quarters likely especially in the second half of this year will be better than the first half of this year.
Speaker Change: At this moment, we don't give a kind of a formal management guidance for the top line, but the margin profile would be continue to be better, especially in the second half of this year.
Speaker Change: Next question. Please thank you.
Speaker Change: Thank you we will now take the next question.
Thomas Chong: From the line of Thomas Chong from Jefferies. Please go ahead.
Thomas Chong: Right.
Speaker Change: So what that will.
Thomas Chong: <unk> history.
Thomas Chong: March one and AI.
Thomas Chong: The capex.
Thomas Chong: Got it.
Thomas Chong: <unk> de <unk>.
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Thomas Chong: Finally, the diesel.
Thomas Chong: I think a breakdown.
Thomas Chong: That's helpful. When you start negotiating.
Speaker Change: Pardon me Tim.
Speaker Change: In Japan, but the Goldman Goldman.
Speaker Change: Goldman Qt.
Speaker Change: Capex.
Speaker Change: With Q1.
Speaker Change: I would say yourselves Johann I'll turn it over to you that yes, you can say, yes. It wouldnt be so sure. Let me go job you'll need to sign up more things.
Speaker Change: Glenn.
Speaker Change: During the war.
Speaker Change: Boy.
Speaker Change: Yes.
Speaker Change: Thanks management for taking my question. My first question is about the AI Capex and the Opex.
Speaker Change: <unk> can.
Speaker Change: Can we have.
Speaker Change: Update like last quarter.
Speaker Change: My second question is about our quarterly Capex like capital.
Speaker Change: You bet.
Speaker Change: And usual aspect.
Speaker Change: Sequential.
Speaker Change: Momentum.
Speaker Change: In a complex.
Speaker Change: And my third question is about.
Speaker Change: More about the industry landscape given that customers are allowed we're taking wallet is still model smaller models.
Speaker Change: Large orders would that affect the cloud revenue. Thank you.
Speaker Change: Thank you Thomas I will take the first two are first first question and defer to CEO SSL quarter second or third question, what's up without ego. Derek you mentioned reverse somewhat in the industry in total.
Speaker Change: Okay.
Speaker Change: The first question regarding the capital expenditures, so I have mentioned.
Speaker Change: In this quarter, our total Capex was 600 zero 5 million RMB for the first quarter of this year.
Speaker Change: So.
Speaker Change: If the audience remembers things last year, we actually diversify the way it with financing.
Speaker Change: Investment into AI, especially infrastructure.
Speaker Change: Our cost structure.
Speaker Change: So our own cash to be used for the Capex Thats a one part but also we are going to for example, doing the financial leasing and operation leasing our with our partners for example, xiaomi as well, but also we're going to get financing for example, the bank loans and a certain leasing agreements with the state owned banks in China.
Speaker Change: Locally as well as from a leasing companies in China as well to around a certain.
Speaker Change: Off the balance sheet, a financing arrangement. So I think these are the three ways that we're financing the total.
Speaker Change: Infrastructure.
Speaker Change: Demand so all of that I think the reason you're probably point out of total capex for this quarter is kind of 600 million for this quarter, but I think our total investment into AI, because we also start to.
Speaker Change: Leasing certain servers from third party is to reduce our burden too.
Speaker Change: Pay out of pocket from on cash. So there are certain leasing on a rental agreement, we actually start to negotiate in a setup with third party stock from Q1, So hopefully for next quarter, we're going to give some updates regarding our total spending including both our own cash out of pocket, but also the leasing agreement.
Speaker Change: Westar to arrange with third parties. So it is going to be the total investment of the AI infrastructure from our definition. So we're going to likely has a play for next quarter. Because we just started to arrange those agreements with third parties.
Speaker Change: Sure to reduce in the savings until the more efficient in terms of our own cash management. So I think right now we give the number on the total capex, but the leasing plus the Capex plus hour on cash will be another update for next quarter and also given the opex as I mentioning, earning earning cost our R&D expenses for this quarter.
Speaker Change: <unk> is around 200 million RMB and self expenses is around a 108.
Speaker Change: Million RMB and management SG&A is around 119 million RMB. So if we're putting the three number together is roughly about 400 million on the opex side, including R&D sales marketing and SG&A I think this probably can give you a kind of a color regarding the total opex.
Speaker Change: Capex for on a quarterly basis. Thank.
Speaker Change: Thank you.
Speaker Change: I think I can say.
Speaker Change: Brian you may suddenly without warning.
Speaker Change: Yes, I'm going to elaborate.
Speaker Change: Yes.
Speaker Change: Right.
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Speaker Change: So good signs so far.
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Speaker Change: Okay.
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Speaker Change: Two quick questions.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Equally translate Mr dose response to the chip van question.
Speaker Change: So honestly and very frankly, there surely will be impact right.
Speaker Change: However, this is actually not at the same time for a similar kind of restrictions imposed.
Speaker Change: <unk> chips.
Speaker Change: So on.
Speaker Change: And we have experienced a similar thing.
Speaker Change: Before.
Speaker Change: So before this round of restriction actually hit US we have had.
Speaker Change: Some inventory and storage. So therefore, the short term impact it's not.
Speaker Change: Not materially.
Speaker Change: However from a long term mid to long term perspective.
Speaker Change: There will be.
Speaker Change: Meaningful impact.
Speaker Change: For both the Kingdom cloud at the company and for the industry as a whole as well.
Speaker Change: We mentioned before since 2023, we have already strengthened our cooperation with made in China computing resources and that kind of cooperation.
Speaker Change: Managed to continue that corporation since then.
Speaker Change: In light of the similar restrictions we have made.
Speaker Change: And we have been well prepared for the gradual substitution of median China computing resources shoot restrictions continue to be more restrictive.
Speaker Change: If you're starting to win.
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Speaker Change: And what's more tungsten sounded all signs of all of these actions.
Speaker Change: And I think that Youll do micro sudano treatment for pneumonia.
Speaker Change: Lastly in meetings.
Speaker Change: On the bulk whole memory neither of US army, some kind of a young sundar silicon onto a macro cyclical mcconnel unit two.
Speaker Change: Some of them most of them with <unk>, you see core dominance of hydrogen.
Speaker Change: It was not assumed beyond the Sundar I will go into the <unk>.
Speaker Change: Another company in the future.
Speaker Change: Well I mean, hopefully a truly national vouchers.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: So the conclusion debated conclusion is that there is no <unk>.
Speaker Change: Negative impact.
Speaker Change: Core revenue on profitability of bookings.
Speaker Change: And reason is being follows.
Speaker Change: First one is for the traditional 100 motto customers. There are models have been.
Speaker Change: $1 billion parameter I'll ask one of which model and then have historically been using our computer computing power for training and in for instance, and this part is actually not impacted and secondly for the more traditional internet space customers.
Speaker Change: Have actually always been using rapidly or smaller.
Speaker Change: Of those including the $30 to $30 billion can be kind of parameter amounts for our business. So this for us is actually incremental amount of our revenue.
Speaker Change: Both our revenue development and thirdly in terms of the in the future for the Xiaomi in terms of the ecosystem. We also expect to have actually a positive impact coming from the more prevailing usage of.
Speaker Change: Relatively small.
Speaker Change: Modest because more of the motto inference originally coming from outside of the Kings of.
Speaker Change: Cloud.
Speaker Change: Our computer power infrastructure from from other companies actually when one does xiaomi and <unk> started to adopt a more medium size or smaller size. The models. They're actually is starting to use more of kings of cloud computing resources and so forth.
Speaker Change: Tax rate another part of potential incremental revenue and profit for us.
Speaker Change: Thank you operator next question.
Speaker Change: Thank you.
Speaker Change: We will now take the next question.
Speaker Change: From the line of one thing you from CLSA. Please go ahead.
Speaker Change: Total Henry Clark Nicola Shaw was just answered it thank you <unk>.
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Giuliani: And Giuliani now.
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Speaker Change: Good Donald Chua Jacob post training more people fall where yields are now mature this year.
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Speaker Change: G question issue, Kelly, Michelle mentioned, Canada.
Speaker Change: One question is on <unk>. So the first question is can management share. The recent gross margin transfer AIG PC services previously we upstream aggressive price competition in the industry, mainly focus on model API pricing are we seeing the pricing pressure expense <unk> leasing business as well and the second question is following.
Speaker Change: In sourcing of our <unk> stake how do we see the latest spend that makes up mono training demand.
Speaker Change: There was incremental came out for post training model and steel consoles release of our one may also lead to some model vendors abundant.
Speaker Change: Iteration, so how should we evaluate these two factors in their overall impact in the industry. Thank you.
Speaker Change: Our simply that the <unk> tiara value of collateral.
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Speaker Change: To fit into the shop for more time, so you can kind of sell down.
Speaker Change: Bob.
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Speaker Change: So when you have that statistically.
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Speaker Change: One solution in China.
Speaker Change: While enabled by Mitel.
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Speaker Change: <unk> cohort.
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Speaker Change: So you get your clothes Wolfgang.
Speaker Change: You want to hit as soon as higher loan balance.
Speaker Change: Yes, we do continue to do that.
Speaker Change: It is a commodity.
Speaker Change: Hello.
Speaker Change: Okay.
Speaker Change: So.
Speaker Change: In relation to the AI.
Speaker Change: AI cloud service margin or pricing pressure question let.
Speaker Change: Let me respond to you from two dimensions.
Speaker Change: Which is internal and external so externally as you rightly pointed out.
Speaker Change: We are seeing.
Speaker Change: Sort of market concentration for AI players as our customers.
Speaker Change: And therefore, they do have some impact too.
Speaker Change: To our new projects, which we entered into more recently and the impact would largely depend on the project side.
Speaker Change: However for the old long term contracts that we have signed in a path and those for those projects that we entered into in the past there is no.
Speaker Change: Meaningful or no material impact.
Speaker Change: Another point I want to point out is that starting from the second half a point of going for where increasingly elaborating. The so called resource poor supply chain.
Speaker Change: Two.
Speaker Change: To expand our infrastructure.
Speaker Change: So the.
Speaker Change: Yes, Richard just the strategy the strategy basically is for top customers.
Speaker Change: Customers, we use our own cash and dry powder and capex.
Speaker Change: To build the infrastructure and to provide cloud services to them. However for non top customers were increasingly using <unk>.
Speaker Change: Leveraging the partners who supply us.
Speaker Change: Not just servers and computing resources, and we jointly together to provide cloud service to their customers and because these are partners that provide resources.
Speaker Change: We actually also have to share some of the profit with them. So this is like a partnership in profit sharing motive model.
Speaker Change: And for that reason that new or emerging supply chain model has also to some extent inaccurately impacted the gross margin level of the company.
Speaker Change: Doug one in Q1 with Ita.
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Speaker Change: And then finally on deep secret <unk>, passing one John.
Speaker Change: I think if you kind of almost xiaomi tonnage.
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Speaker Change: Turning to the China, John <unk>, John keep on watching the <unk> control.
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Speaker Change: Excluding the one Johnson on Germany's Dibaba menu.
Speaker Change: Two questions for you guys. Since you came to the short answer don't confuse Europe's England now you will do it.
Speaker Change: Okay. So in response to your question regarding the impact of open source of hepatic or one to the demand of motto training.
Speaker Change: Answered my answer to you is coming from our SVP mutually altaf. So.
Speaker Change: The old batch of last time this model companies, that's open in Panama like language amount of companies.
Speaker Change: We do have seen their demand shrinking to some extent.
Speaker Change: Due to the success of the tick however.
Speaker Change: However.
Speaker Change: Most of the contracts that we entered with them are long term contracts and which we have entered in the past. So as we responded and first question. So the impact is very limited.
Speaker Change: However, there is also a group of other companies other than those larger lifetime with mono companies some of them coming from the international space. Some from other emerging industries. They are inspired by the success of epic and.
Speaker Change: And I also think that by using relatively.
Speaker Change: Manageable resources that will also potentially be able to train and stay.
Speaker Change: State of the art.
Speaker Change: So therefore, we're seeing increasing demand coming from these customers as well so all in all.
Speaker Change: We don't see we don't see negative impact from the from the success of the artistic model.
Speaker Change: Okay.
Speaker Change: Operator.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time.
Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].