Summary of China Software Industry Conference Call Industry Overview - The China software industry experienced a revenue growth of **11.7% YoY** in December 2025, a decline from **14.6% in November 2025**. The month-over-month (MoM) growth was **3%** [1][4]. - The aggregate revenue for the software sector in December reached **Rmb1.5 trillion (US$209 billion)**, contributing to a total revenue growth of **13.2% YoY** for 2025 [15][1]. - The industry is expected to face a **quarter-over-quarter (QoQ) decline in 1Q26** due to weak seasonality and the Chinese New Year (CNY), but sequential growth is anticipated thereafter [1][4]. Key Drivers and Trends - The rollout of **Generative AI (Gen-AI) models** is accelerating, enhancing capabilities in text, image, and video applications, which is expected to support the expansion of AI applications [1][4]. - The **IT services segment** remains the largest contributor to revenue, accounting for **69%** of total software revenues in 2025, followed by software products at **21%** [15][24]. Performance Indicators - The **Small and Medium Business (SMB) Purchasing Managers' Index (PMI)** decreased to **47.4 in January 2026**, down from **48.6 in December 2025**, indicating weakened economic momentum [4][5]. - The **net margin** for the software industry improved to **12.6% in December 2025**, up from **8.4% in November 2025**, reflecting a gradual recovery post higher employee compensation impacts [9][22]. Segment Performance - **IT services** saw a **16% YoY growth** in December, with revenues reaching **Rmb1 trillion (US$143 billion)**, while the **security software** segment grew by **5% YoY** [26][17]. - The **service outsourcing contract value** declined significantly, down **56% YoY** to **Rmb275 billion** in December 2025, attributed to weak demand in software R&D and industrial design services [26][27]. Investment Recommendations - Companies recommended for investment include **Sensetime, Meitu, Kingdee, Hundsun, TUYA, and Empyrean** [3]. Additional Insights - The **overseas revenue exposure** for Chinese software companies remained stable at **2.8%** [15]. - The software industry is expected to continue evolving with advancements in foundational AI models, which will drive the application ecosystem [4][1]. This summary encapsulates the key points from the conference call regarding the current state and future outlook of the China software industry, highlighting growth metrics, challenges, and investment opportunities.