Summary of Key Points
Rockchip Microelectronics is a chip company that has survived for 25 years by constantly "jumping to new fields" when its previous businesses were threatened by emerging technologies. From tape recorders to MP3 players and tablets, it always managed to move to new areas before the old markets were completely overtaken by smartphones (which emerged as super-platforms). Now, it is experiencing rapid growth in its AIoT (Artificial Intelligence + Internet of Things) business, with profits expected to increase by 60-70% according to its semi-annual report. However, its stock price has remained stagnant. On the surface, this seems to be due to the second-largest shareholder's reduction in holdings; but deeper down, there are concerns from the market about whether the AI era will bring another super-platform (such as an AI-powered smartphone) that could once again dominate the fragmented market. Additionally, Rockchip has accumulated 1.3 billion yuan worth of inventory to cope with rising costs from suppliers, putting pressure on its cash flow.
The History of 25 Years of "Jumping to New Fields"
Rockchip's strategy has always been simple: smartphones are the "stars" that attract all surrounding smaller markets, so it focuses on developing for areas beyond their reach:
- 1.0 Era: Tape recorder chips. It dominated 80% of the market by providing chips with variable speeds without sound distortion for companies like BBK Technology, but the tape format was replaced by digital media, ending that market.
- 2.0 Era: MP3/MP4 chips. It gained market share from leading players like Julei, but the emergence of smartphones eliminated the need for dedicated MP3 players.
- 3.0 Era: Tablet chips. Within three years, it became the largest supplier in China, but the rise of large-screen smartphones eroded the tablet market (Rockchip lacked baseband technology and couldn't compete with MediaTek).
- 4.0 Era: AIoT chips. It entered markets such as robotics and automotive infotainment systems. Its flagship RK3588 chip, known for offering 80% of the performance at a third of the price (according to a former vice president's "832 Rule"), is now used in high-end BYD vehicles and Yushu robots.
In short, Rockchip has survived by moving faster than smartphones have expanded their market influence.
Real Growth, but Money Locked Up in Inventory
The semi-annual report predicts a 60-70% increase in profits. Is this real?
- Genuine growth: The increase isn't due to price hikes (Neusoft Technology, for example, relied on price increases). Instead, it's because new chips like the RK3572/RK3538 have been adopted by key customers, and AIoT products are selling well. This is evident in the high gross margin—41.95% in 2025 (up 4 percentage points from the previous year) and 43.04% in the first quarter of this year (a record high). Even with rising costs for memory and packaging, the gross margin increased, indicating higher sales volumes.
- The Cost of Growth: The profits haven't gone into shareholders' pockets; instead, they were invested in purchasing raw materials. Net profit for 2025 is expected to be 1.04 billion yuan, but cash flow is only 1.069 billion yuan (20% lower than the previous year), and inventory has increased from 1.254 billion yuan at the end of last year to 1.304 billion yuan in the first quarter of this year (a 60% increase).
- Why Stockpile Inventory? Memory prices rose in the third quarter of last year, and delays in customer switching to new solutions affected Rockchip's revenue growth. This time, it took precautions by stocking up on materials to ensure supply when customers needed them. Its chips support LPDDR5 memory, which other companies don't, giving it a competitive advantage. However, inventory accumulation is a double-edged sword: if prices continue to rise, the stock may become worthless if demand declines.
The Surface Reason for Stagnant Stock Price: The Second Largest Shareholder's Reduction in Holdings
The direct reason for the stock price's stagnation is the second-largest shareholder, Huang Xu, reducing his holdings:
- Huang Xu co-founded the company with founder Li Min and parted ways in 2023. In 2024, he sold 253 million yuan worth of shares; he will retire in January 2025 and plans to sell an additional 6.43 million shares (potentially earning 1.1 billion yuan) by September 3.
- However, it's important to note that Li Min (the actual controller of the company) has not sold any of his 44% stake. Huang Xu's sale is a personal retirement move and does not indicate poor company performance. Once the sale period ends on September 3, this selling pressure will disappear.
The Real Concerns of the Market: Will an AI Super-Platform Overtake Rockchip?
Will Rockchip's AIoT market be swallowed up by a new super-platform, similar to how MP3 players and tablets were replaced by smartphones?
- Reasons for Concern: Companies like Jieyue Xingchen and Nubia are releasing AI-powered smartphones, and companies like ByteDance and OpenAI are developing AI-based devices. These new platforms aim to become the entry points for the AI era, potentially consolidating functions from infotainment systems, robots, to glasses on a single screen.
- Two Reasons Not to Panic:
1. New Platforms Are Still Small: AI-powered glasses sold only 4.5 million units in China this year (compared to 70 million smartphones in one quarter), which is not enough to support a large developer community.
2. Customers Have Control: For example, Apple's CarPlay Ultra was rejected by car manufacturers like Aston Martin and BMW; Rockchip only sells chips and doesn't compete for control over data, meeting customer needs.
- Rockchip's Response: It has developed the world's first 3D stacked coprocessor, combining storage and computing power in one chip, giving devices more autonomy and reducing their vulnerability to being replaced by super-platforms.
This concern is long-term, but for now, the new platforms are not yet dominant, and customers are resisting such changes.
What to Watch Out For in the Future:
- Coprocessor Orders: The production pace of the 3D stacked coprocessor will indicate how quickly fragmented devices will become more autonomous.
- AI Smartphone Sales: The success of AI-powered smartphones from companies like Jieyue Xingchen and Nubia will reflect the potential of this new technology.
- Mid-Year Report: The report, expected at the end of August, will show whether inventory levels and cash flow have improved.
- End of Shareholder Reduction: After September 3, if the selling pressure disappears, the stock price may move.
Rockchip has successfully navigated previous market changes. Whether it can continue this success depends on these factors.