China's big tech firms that have dominated the country's IT market posted earnings that fell short of expectations. Baidu is losing ground in the AI development race as its search dominance weakens, while Xiaomi's core smartphone business faltered under the direct impact of a memory chip shortage.
Revenue at Baidu, China's largest search company, fell for a fifth straight quarter, according to Bloomberg on the 18th. Analysts see the company losing its footing in the advertising market while also falling behind rivals in the AI development race. Baidu's second-quarter revenue for the period ended in June came to 31.3 billion yuan (about 6.55 trillion won), down 4% from a year earlier and missing the average analyst estimate. Net profit plunged 68% to 2.32 billion yuan, hit by a threefold increase in the company's investment in AI data centers and computing resources. Baidu shares fell more than 4% in premarket trading in the U.S.
Baidu, China's leading internet search provider, has faced an existential threat since the arrival of ChatGPT. Its advertising business, a high-margin core revenue source, is losing share not only to social media rivals such as ByteDance but also to newly emerging AI chatbots. Baidu's large language model, Ernie, has also fallen behind open-weight competitors such as Moonshot AI on key metrics.
Its newly prioritized cloud computing business, however, is growing rapidly. Advertising revenue for the June quarter plunged 19%, but AI cloud infrastructure revenue surged 50% as customers rushed to rent AI accelerators, offsetting the decline. Baidu Chairman Robin Li said in the earnings announcement that while the online marketing business remains under pressure, the growth momentum of its core AI-based businesses demonstrates that Baidu is successfully transforming from an internet-centric company into an AI-first one.
Baidu is also focusing on autonomous driving and hardware. Its robotaxi service is expanding rapidly at home and abroad, and the company is pursuing a plan to spin off its semiconductor unit Kunlunxin and pursue a dual listing in Shanghai and Hong Kong.
Xiaomi, which reported earnings the same day, also posted a third straight quarter of declining net profit. Second-quarter adjusted net profit plunged 43%, a steeper drop than expected, to 6.22 billion yuan (about 1.3 trillion won), while revenue fell 6.1%. The decline came as the company cut shipments of mid- and low-priced devices amid a global memory chip shortage. Xiaomi's smartphone revenue fell 7.5%. According to market research firm Counterpoint, Xiaomi recorded the largest drop in smartphone shipments among the world's top five brands in the second quarter.
The market sees Xiaomi's success as hinging on its new smartphones and on overseas sales of electric vehicles beginning next year. However, Bloomberg noted that the company faces numerous obstacles in its overseas expansion, including tariffs, regulatory investigations and tighter safety standards.
