Summary of the Conference Call for 山石网科 Company Overview - **Company**: 山石网科 - **Industry**: Cybersecurity and Data Security Services Key Points and Arguments Financial Performance - For the first three quarters of 2025, 山石网科 achieved revenue of 719 million yuan, a slight increase of 2% year-on-year [3] - The net loss attributable to shareholders was approximately 72.84 million yuan, a reduction in loss of about 5% year-on-year [3] - The gross margin for the main business was around 71%, maintaining an industry-leading position [3] - Sales expenses decreased by approximately 20% year-on-year, while R&D expenses decreased by about 4% [3] - Overall expense ratio decreased by 9 percentage points year-on-year [3] Business Growth - Data security and service business grew by 77% year-on-year, becoming the second growth curve for the company [2] - Boundary security business line maintained stable growth with a year-on-year increase of 6% [4] - The company aims to achieve sales of over 1 billion yuan within three years [5] Key Industry Performance - Key industries such as finance and telecommunications performed exceptionally well, exceeding overall average growth rates [7] - Major projects in the finance sector included significant contracts with Agricultural Bank of China and Postal Savings Bank [7] - The telecommunications sector secured five new major projects this year [7] Strategic Initiatives - The implementation of the new cybersecurity law is expected to shift enterprises from passive compliance to proactive construction, creating opportunities in the cybersecurity market [2][10] - The company is leveraging AI technology to transition from passive defense to proactive defense, positioning AI as the core engine of cybersecurity [10][11] - The dual A strategy (AISC liberating computing power and AI liberating human resources) is being employed to integrate AI into products [12] International Expansion - A new R&D center was established in Hong Kong to enhance local market penetration and expand into Southeast Asia [13][14] - Revenue from overseas regions grew by over 30% year-on-year, with government institutions becoming major clients [4][14] Future Outlook - The revised cybersecurity law, effective January 1, 2026, is expected to increase demand for cybersecurity products and gradually restore budgets [15] - The company anticipates a cautious optimism for the fourth quarter of 2025, with a focus on key industries and business lines [16][17] - Strategic goals for 2026 include achieving profitability and expanding overseas business to 20-25% of total revenue [21] Cost Control and Efficiency - The company has implemented measures to enhance cost control and sales collection management, resulting in a 9% decrease in expense ratio [18][19] - Specific measures include optimizing supply chain management and enhancing the efficiency of sales personnel [18][20] Challenges and Resilience - Despite challenges in the current economic environment, the cybersecurity industry remains crucial and resilient [23] - The company is confident in its ASIC chip strategy, which is expected to support further development [23] Development Phases - The company plans to enter an adjustment and optimization phase from 2023 to 2025, followed by a phase of surpassing development from 2026 to 2028 [24] Investor Expectations - The company hopes investors will continue to support its transformation journey, emphasizing the advantages of its core technologies, particularly the ASIC chip [25][26]

Core Insights - The company is undergoing a structural transformation in its overseas strategy, transitioning from a focus on Hong Kong to expanding in Southeast Asia, leveraging its self-developed ASIC security chips to break the long-standing technology monopoly held by foreign firms [1][2][3] Group 1: Strategic Developments - The self-developed ASIC security chips are expected to achieve small-scale shipments in Q4 of this year, targeting high-end clients in finance and telecommunications [1][3] - The company's global vision aims for overseas business to account for a significant portion of profits, with a goal of achieving a balanced profit distribution among domestic, overseas, and OEM businesses over the next three years [1][2] - The shift in focus from primarily serving Chinese financial clients in Hong Kong to a broader client base, with government sectors now becoming the largest customer segment [1][2] Group 2: Market Dynamics - The Hong Kong government's urgent need for supply chain security has created a favorable environment for the company, allowing it to capitalize on this demand as a leading Chinese cybersecurity firm [2] - In Southeast Asia, the company is focusing on high cost-performance products, responding to regional concerns about supply chain security amid geopolitical tensions [2][3] - The company plans to deepen cooperation in three key areas in Hong Kong: government, finance, and critical infrastructure, while expanding its market presence in Southeast Asia and exploring potential in Europe and the Middle East [2] Group 3: Technological Advancements - The self-developed ASIC security chips are a crucial tool for the company to break the overseas monopoly, with four years invested in R&D leading to expected mass production in Q4 [3][5] - The company emphasizes the importance of developing its own hardware to meet the specific performance needs of security scenarios, as general-purpose chips are insufficient for high-demand applications [4][5] - The introduction of AI technology alongside ASIC chips forms a "Double A Strategy," enhancing data processing efficiency and reducing the need for human monitoring of security alerts [5][6] Group 4: Competitive Landscape - The company is positioned as one of the few globally capable of producing high-end network security ASIC chips, alongside Fortinet, with no other domestic competitors currently able to match this capability [5] - The ASIC product line is expected to open new market opportunities, particularly in the low-end commercial market, which has been challenging to penetrate [6] - The company aims to redefine competition in the cybersecurity industry through technological innovation rather than homogeneous competition [6]

Core Viewpoint - Shanshi Network Technology is set to break the overseas monopoly with its self-developed ASIC security chip, which will begin small-scale shipments in Q4 2023, and is implementing a "dual A strategy" combining AI technology to enhance its market position and expand overseas operations [1][3]. Group 1: Company Strategy - The company aims to increase its overseas business share, targeting a balanced profit distribution among domestic, overseas, and OEM operations within three years [1][2]. - Shanshi Network Technology's overseas expansion strategy includes deepening cooperation in Hong Kong's government, financial, and critical infrastructure sectors, while focusing on high-cost performance products in Southeast Asia [2][3]. Group 2: Product Development - The self-developed ASIC security chip is a key tool for Shanshi Network Technology to overcome the long-standing dominance of foreign manufacturers in the high-end market [3][4]. - The company has invested four years in the development of the ASIC chip, with plans for mass production starting in Q1 2024, targeting high-end clients in finance and telecommunications [3][5]. Group 3: Market Positioning - The company has shifted its focus in Hong Kong from primarily serving financial clients to also addressing the growing demand from the government sector, which has become its largest customer [2][5]. - In Southeast Asia, the company is leveraging its high cost-performance advantage to attract clients, especially in light of recent geopolitical tensions that have heightened the focus on supply chain security [2][6]. Group 4: Technological Innovation - The "dual A strategy" integrates ASIC technology to enhance computational power and AI to reduce human resource requirements, improving efficiency in monitoring and responding to network security threats [6][5]. - The company aims to redefine competition in the network security industry by focusing on technological innovation rather than homogeneous competition, inspired by successful market strategies of established players like Fortinet [6].

Summary of the Conference Call for 山石网科 (ShanShi Network Technology) Company Overview - **Company**: 山石网科 (ShanShi Network Technology) - **Industry**: Cybersecurity and AI Technology Key Financial Performance - **Revenue Growth**: 2025 H1 revenue reached 4.17 billion CNY, a year-on-year increase of approximately 9.46% [3] - **Gross Margin**: Main business gross margin stood at around 71%, leading in the cybersecurity industry [3] - **Net Profit**: Net loss of 76.55 million CNY, but a year-on-year reduction in loss by 4%, with a 53% reduction in Q2 alone, indicating improved profitability [2][3] Strategic Initiatives - **Double A Strategy**: Implementation of "Double A Strategy" (ASEC and AI) to enhance computing power through self-developed ASIC chips and optimize processes using AI, aiming for profitability recovery [2][6] - **ASIC Chip Development**: Self-developed ASIC chips have entered mass production, with expected testing in Q4 2025, laying the groundwork for entering the 信创 (Xinchuang) market [2][7] - **Channel Sales Growth**: Channel sales contracts reached 154 million CNY, a 53% year-on-year increase, with the number of platinum partners rising to 49 [2][7] Operational Efficiency - **Cost Control**: Overall expenses decreased by 7%, with sales expenses down by 25% and R&D expenses down by approximately 5% [4] - **Productivity Improvement**: Overall employee efficiency improved by about 26%, with AI technology enhancing R&D code efficiency by over 20% [4][12] Market Expansion - **Overseas Market Growth**: Hong Kong market grew by 46% in H1 2025, with a target of 50% growth in overseas business by 2026 [4][21] - **Focus on Southeast Asia and Americas**: Strategic localization efforts in Southeast Asia and the Americas, with a focus on government and financial sectors [22][24] Future Development Plans - **Two-Step Strategy**: A two-phase development strategy focusing on brand transformation and platform switching to ISC hardware platform by Q4 2025 [8][10] - **Data Security Growth Target**: Aiming to achieve sales of 100 million CNY in data security and services within three years [9] AI and Technology Integration - **AI for Process**: Significant improvements in R&D efficiency through AI, with a focus on enhancing internal operations and customer solutions [30][31] - **AI Product Acceptance**: Market acceptance of AI products is still developing, with expectations for rapid growth in the next 5 to 10 years [34][35] Challenges and Outlook - **Profitability Outlook**: Optimistic about Q4 2025 performance, with expectations for significant loss reduction and potential profitability [44][45] - **Impact of AI Policies**: Government policies on AI are expected to positively influence the company's data security business [46] Conclusion 山石网科 is strategically positioned to leverage its technological advancements in ASIC and AI to enhance operational efficiency, expand its market presence, and improve profitability in the coming years. The company's focus on cost control, channel partnerships, and international market growth will be critical to achieving its ambitious targets.

Core Viewpoint - The company has launched a new ASIC & AI strategic product line, aiming to become one of the top five security vendors in China by 2028, focusing on integrated network security solutions [1] Group 1: Product Launch and Strategy - The company introduced several new products, including next-generation firewalls and AI-driven security systems, as part of its ASIC & AI strategy [1] - The core strategy is "ASIC as the foundation, AI as the guide," which aims to drive the next generation of network security [5] - The company plans to complete the mass production of its self-developed 28nm ASIC chips by October 2023, with a full platform switch expected by mid-2024 [4][5] Group 2: Technological Innovation - The successful one-time tape-out of the ASIC chip is attributed to the company's innovative technology roots, with a history dating back to its founding by alumni from Tsinghua University [3] - The ASIC chip project, named "Venus," has been developed in four years, making the company the third globally to use ASIC chips for firewall and data encryption [4] - The new architecture design and fully domestic production process have significantly improved the performance of domestic firewalls, particularly in critical infrastructure sectors like finance and energy [4] Group 3: Market Position and Future Outlook - The company has seen a 40% year-on-year increase in profitability in its Hong Kong and Macau operations, with significant breakthroughs in government and financial sectors [9] - The strategic partnership with Digital China has enhanced the company's sales efficiency by approximately 90% and allowed for a more focused industry strategy [9] - The company anticipates a significant increase in market share and profitability following the launch of its ASIC products, with a strategic adjustment period from 2023 to 2025 and a growth phase from 2026 to 2028 [9] Group 4: AI Integration and Security Ecosystem - The company is leveraging AI technology to enhance its security operations, creating intelligent defense systems that improve efficiency and risk management [8] - The "Security AI" strategy aims to reshape the security ecosystem, covering device operation, data security, and security operations [8] - Approximately 10% of the company's research and development efforts are currently driven by AI, indicating a strong commitment to integrating AI into its product offerings [8]

Group 1 - The event "2025 Vitality West Bank: From Urban Renewal to Living Model" was successfully held, focusing on the development of a world-class central vibrant area in Xuhui District, Shanghai [1] - Over 60 industry representatives attended the event, discussing the concept of a "7×24-hour lifestyle showcase" in the West Bank [1] Group 2 - WeWork China's Shanghai and new first-tier cities general manager highlighted the importance of "vitality" in the West Bank, noting that 35% of member companies are from the technology sector and 30% from arts and education [3] - WeWork China has established partnerships with companies like Ruian Office and NIO, connecting nearly 100 collaborative office spaces [3] - The operational team and local enterprises have significantly improved the dining experience in the West Bank, transforming it from a challenge to a bustling area with long queues even on weekdays [3]

Group 1 - The core idea of the news is the transformation of the Xuhui District in Shanghai into a vibrant hub for talent, investment, and entrepreneurship, driven by a series of urban renewal initiatives [1][3] - The "One Port, One Valley, One City, One Heart" strategy is being implemented, creating a world-class waterfront that attracts over a million square meters of financial capital and innovation [1] - The West Bank Financial City is positioned as a reservoir for capital, while the Digital Valley and Media Port serve as platforms for talent value transformation, fostering new forces in hard technology and culture [1][3] Group 2 - The West Bank area is characterized by a multidimensional connection of consumption, technology, art, media, and lifestyle, making it a fertile ground for entrepreneurship and a paradise for young people [3] - A virtuous cycle is being established in the West Bank, where talent drives innovation, capital empowers industries, and entrepreneurship activates the ecosystem [3] - A thematic dialogue event titled "2025 Vitality West Bank: From Urban Renewal to Living Model" is scheduled for June 10, 2025, focusing on topics such as commercial secrets and the parallel development of cultural industries and urban renewal [3] Group 3 - The dual strategy of "ART (Art) and AI (Artificial Intelligence)" is expected to bring iterative upgrades to the industrial ecosystem of the West Bank, with discussions on high-quality urban development in the Yangtze River Delta region [3] - The event will feature roundtable discussions among corporate management on the path to elevating urban capabilities and achieving high-quality development [3]