If we say that the first half of the Internet belongs to the consumer Internet, then the protagonist of the second half will be the Industrial Internet, which is also known as "an important cornerstone of the fourth industrial revolution."
The Industrial Internet is a typical "long slope and thick snow" type track. It needs a lot of investment in technology, capital, and talents in the early stage, and waiting for the return is a long-term process of "snowballing".
Therefore, enterprises related to the industrial Internet are prone to be in a state of strategic loss, so the road to capital is more tortuous.
On August 22, the website of the Shanghai Stock Exchange showed that the audit status of Shugen Internet Co., Ltd. (hereinafter referred to as "Shugen Internet") was changed to terminated. The reason for the termination was that the company voluntarily applied to withdraw the IPO application materials.
The main business of Shugen Internet is to provide overall industrial Internet solutions for equipment manufacturing, iron and steel metallurgy and other industries, and to provide related enterprises with low-cost, low-threshold, high-efficiency, and highly reliable industrial Internet services.
Shugen Internet withdrew its IPO application this time, and the market generally believed that it was due to strategic losses, and the losses were due to factors such as large initial R&D investment and unbalanced market supply and demand.
The market will inevitably ask: Is this enterprise still viable? Is it even possible in this industry?
In fact, the withdrawal of the IPO of Shugen Internet seems to be a retreat, but it is actually a move forward.
Some companies withdrew their IPOs because of their own poor management and losses. Some companies withdrew their IPOs because they invested heavily in research and development in the early stage and caused losses, but they could bear more fruitful results in the later stage. The root Internet belongs to the latter.
In this process, enterprises, capital, and the market need to have enough patience and confidence. In times of uncertainty, confidence is more important than gold.
The growth logic of "advancing through retreat"
On the whole, domestic industrial Internet companies are facing a common problem:
loss.
Whether it is industrial Internet companies such as Shugen Internet, or the industrial Internet sector of A-share companies, most of them are in a state of loss. The prospectus of Shugen Internet shows that the company will be in a state of loss from 2019 to 2021, and the loss in 2021 will exceed 700 million yuan.
This is mainly because the application penetration rate of domestic industrial Internet platforms, although rising from 14.67% in 2020 to 17.5% in 2022, is still at a relatively low level.
Under the situation that the market penetration rate needs to be improved, the industry is still in the early stage of development, and the market demand needs to be released. All companies in the industry need to invest a lot of costs in research and development, manpower and other costs. This is not only to build industry infrastructure and promote the healthy development of the industry, but also to conduct market education, tap demand, and increase the penetration rate.
During this process, the income of the entire industry and individual enterprises often cannot cover R&D, labor and other costs, resulting in losses.
This is only temporary, not permanent.
In fact, technology companies generally follow the growth curve of "losing money first and then making profits", and it is only a matter of time before they become profitable and go public.
Recently, some media disclosed that the British chip giant Arm is planning to launch an IPO in September this year. If it is successfully listed, it may become the world's largest IPO this year. Arm's road to listing has been quite tortuous. It has experienced many IPO sprints in its more than 30 years of development history, but it was stranded or withdrawn due to various reasons such as losses. However, despite the twists and turns of the IPO road, Arm's valuation has been rising steadily, and now exceeds US$60 billion, and there is a high probability that it will be successfully listed this year.
Nvidia, the leading chip company that had planned to acquire Arm, has already been listed successfully. This year, due to the popularity of generative AI, its profits have increased significantly, and then it has reached the peak in the capital market, and its stock price has risen nearly 60 times compared to 2016. Reviewing the market value trend chart of Nvidia from 2016 to the present, we can find that it is not a smooth rise, but a tortuous process of ups and downs. The main reason is that Nvidia has experienced long-term losses and has been questioned by the market.
It can be seen that it is normal for technology companies to "lose first and then make profits". Looking at China, technology companies that are in a state of loss are keen to list on the Science and Technology Innovation Board. Although the Science and Technology Innovation Board has set up multiple sets of listing standards and allows companies to list at a loss, in the actual review process, the balance of profitability is still more important.
This has added uncertainty to the listing of some companies. Therefore, it is normal for companies in the industry to withdraw their IPO applications not only from Shugen Internet, but also from many others. The Wind financial terminal shows that as of July 31 this year, 145 companies have terminated their IPOs, of which 133 have voluntarily withdrawn, and they are concentrated in the technology field where Shugen Internet is located.
The purpose of companies withdrawing their IPOs is to "advance through retreat", re-accumulate strength, and burst into greater strength in "squatting and jumping".
It can be found that during the listing period, the root interconnection did not stop moving forward. It can be seen from its official account that the pace of development such as project signing and product release is still advancing steadily.
The business world is like "sailing against the current". Sometimes staying where you are is actually a step backward. Continue to advance or retreat to advance, is the fundamental driving force to surpass the opponent.
The "key variable" for long-term aggressiveness
There is a classic line in the movie "The Godfather":
"Those who spend half a second to see the essence of things, and those who spend a lifetime without seeing the essence of things, are destined to have completely different fates."
The essential reasons behind the losses of different companies are the key to determining whether the company can go further and gain a firm foothold in the differentiation of the pattern.
Some enterprises lose money because they spend too much resources on "fast variables" instead of "slow variables".
In the kinetic energy of enterprise development, those shallow ones are "fast variables", usually marketing, publicity and so on. In the short term, they can be effective for a while, but they are also characterized by instability and low thresholds.
The deep-seated internal factors are "slow variables", such as technology and product research and development, personnel training, etc., which require a lot of investment, and may not see results in the short term, but the compound interest effect will become more obvious in the later period, and truly improve the enterprise. quality of operation.
In the field of industrial Internet, the loss of enterprises such as Shugen Internet is precisely because of the key layout of "slow variables". Such an enterprise is not "not good" in the eyes of the outside world, but is concentrating on improving the quality of operation.
First of all, the prospectus shows that from 2019 to 2021, Shugen Internet will achieve revenues of 151 million yuan, 279 million yuan, and 517 million yuan respectively. expanding.
Secondly, the R&D investment of Root Internet is also rising one after another, reaching a total of 534 million yuan from 2019 to 2021, accounting for 56.3% of the three-year cumulative revenue, and exceeding about 85% of companies listed on the Science and Technology Innovation Board. After deducting R&D investment, the losses of Root Internet from 2019 to 2021 are 202 million yuan, 134 million yuan, and 123 million yuan respectively, which means that its operating losses are actually shrinking year by year.
This loss comes from research and development, which is undoubtedly worthwhile. Because R&D investment makes the talent team stronger, and talents make technology and products better, thereby attracting more customers and increasing the number and stickiness of customers.
From 2019 to 2021, the number of R&D personnel of Shugen Internet will increase from 191 to 697. In order to attract more talents, Shugen Internet not only provides employees with highly competitive salary levels, but also implements equity incentives, which greatly increases labor costs.
Although the cost of labor has risen, the gathering of talents has made the technology and products of Shugen Internet more competitive.
In Changsha, Hunan Province, as soon as a welding robot lowered its welding torch, various indicators were displayed in real time on the big screen in the Guangzhou exhibition hall of Root Internet, which is 600 kilometers away, including different processes such as factory blanking and sorting, welding, and machining. It truly achieves the transparency of all elements of human, machine, material, law and environment, which can be called a "transparent factory".
Better technical strength makes the products of Shugen Internet more attractive and competitive.
The support and compatibility of industrial protocols is the "touchstone" to measure the product strength of an industrial Internet company.
Because the industrial field involves a wide range of areas, and the industrial Internet platform connects different devices and software in different application fields, extensive support and compatibility for industrial protocols is the primary threshold.
According to the data, at present, the root cloud platform of the tree root interconnection has supported more than 1,100 industrial protocols, accounting for 95% of the mainstream protocols in the market. The platform connects more than 1.2 million sets of high-value industrial equipment, with more than 5,000 types of equipment, and the total assets of the linked industries exceed one trillion yuan.
In terms of specific service targets, Shugen Internet has provided industrial Internet services for nearly a thousand companies in ten industries, including Sany Group, Celes, Aidi Precision and so on.
At the same time, the proportion of revenue from the largest customer is also declining-73.62%, 68.24%, and 56.24% from 2019 to 2021, respectively. This means that the products of Shugen Internet attract more customers, its income sources become wider, and its ability to resist risks is stronger.
It is worth mentioning that Shugen Internet not only serves a large number of customers, but also continues to improve the digital capabilities of the customers served. The digital model factory of its largest customer will achieve a 26% reduction in the average production cycle and a 25% increase in the per capita output value of manufacturing in 2022, and the operating conditions and quality will continue to improve.
In addition, among the customers of the root Internet service, there are many top players with a level of hundreds of billions, and the investment in digitalization continues to increase.
Take the largest customer of Shugen Internet as an example. In 2022, this customer will start to lay out the construction of overseas lighthouse factories, and the first overseas lighthouse factory, the Indonesian lighthouse factory, will be put into operation. As of the end of 2022, the customer has promoted the construction of 31 lighthouse factories, and 25 lighthouse factories have been completed and reached production capacity, and mentioned in the 2022 financial report that "it is expected that investment in digital transformation will continue to increase in the future."
This shows that the customers of Shugen Internet are relatively sticky to digitalization, which improves the business resilience and robustness of Shugen Internet.
In short, the losses caused by investment in "slow variables" such as R&D and talents are actually a "strategic loss" for the later and longer-term development.
The vision of tree root interconnection is obviously long-term.
A "value path" through the future
Looking into the future, the industrial Internet industry where Root Internet is located will undoubtedly have huge opportunities.
First of all, in terms of policy, the Industrial Internet has been identified as one of the key directions of new infrastructure in 2020, and it has been included in the "Government Work Report" for five consecutive years.
This is because a new development pattern in which the domestic cycle is the main body and the domestic and international dual cycles promote each other is currently being built. Under this pattern, the Industrial Internet, as a key component of new infrastructure, plays an important role in ensuring the security and stability of the industrial chain and supply chain.
Not only is there policy traction, the industrial Internet will also enter a high-speed development channel on the market side.
In August this year, the Ministry of Industry announced the addition of 23 "double-span" industrial Internet platforms. Looking back, from 2015 to the present, the number of dual-span platforms has also increased from 10 to 51. From thriving to a hundred flowers blooming, the industrial Internet has shown a trend of great prosperity on the supply side.
At the same time, the industrial Internet is also showing a high growth trend on the demand side. According to the "Global Digital Transformation Expenditure Guide" released by IDC, the scale of China's digital transformation expenditure is expected to exceed US$600 billion in 2026, and the five-year compound growth rate will reach 17.9%, which is at the forefront of the world, which stimulates the explosion of industrial Internet demand. .
In other words, the industrial Internet industry is showing a high growth trend on both sides of supply and demand. Under this situation, the country has clearly stated the goal that by 2025, the penetration rate of industrial Internet platform applications will reach 45%. According to the forecast of the China Academy of Information and Communications Technology, the average annual growth rate of China's industrial Internet industry from 2021 to 2025 is nearly 19%, and it is expected to exceed 2 trillion by 2025.
The double benefits of "policy + market" have given confidence to the entire industrial Internet industry.
However, the domestic industrial Internet is still in the early stage of development, and many processes are in the stage of exploration and improvement. For example, Shugen Internet is the first batch of industrial Internet companies in China, and it is also the first industrial Internet company to hit the Science and Technology Innovation Board. While it has merit, it also has room for improvement.
The executive salaries of Shugen Internet are generally relatively high. Among the 19 executives whose salaries are disclosed in the prospectus, the annual salary of one million accounts for 58%, and three of them have more than 3 million.
Shugen Internet stated in the prospectus that in the future, the number of employees in the company will continue to increase. The continuous introduction of high-end talents and the increase in the average wage level of the society will lead to a further increase in the salary level of the company's employees. Spending will continue to grow.
Obviously, this is equivalent to a team of hundreds of billions. However, no matter from the perspective of business scale or company valuation, it is inevitable that there will be some "cannons and mosquitoes".
From 2019 to 2021, the R&D expense ratios of Root Internet are 54.55%, 59.48%, and 55.1%, respectively, while the peer averages are 16.11%, 17.85%, and 17.55%. In other words, the R&D expense ratio of Root Internet is about three times the industry average, and the R&D input-output ratio is relatively low.
Not only that, the company's comprehensive gross profit margin is also relatively low, 46.23%, 49.97% and 40.08% respectively from 2019 to 2021, which are lower than the average value of its peers. The root cause, or the existing solutions still have a lot of room for polishing in the joint delivery of strategic ecology.
Of course, no matter the industry or the enterprise, it needs constant exploration and improvement from start to maturity. During this process, the Root Internet or the entire industrial Internet industry will accept market inquiries.
This is a road that must be passed, because with continuous trial and exploration, we can find a clearer and healthy direction of development. Right now, the root Internet is crossing the river by feeling the stones, and other companies can cross the river by feeling the root Internet in the future.
At present, the industrial Internet as a whole will show a situation of multiple coexistence and a hundred flowers blooming. There are horizontal platforms with multiple developments such as Root Internet, and there are also vertical platforms that focus on industry fields, and focus on creating tool life management, energy management, and cloud MES. The SaaS platform of industrial APPs in specific scenarios, such as SaaS, has been fully verified in the market.
No matter what type of enterprise, only by continuously maintaining R&D investment and gaining market recognition through talent, technology, and product iterations can it be possible to seize opportunities and win.
The "Huawei Basic Law" once pointed out that opportunities, technologies, products, and talents are the main traction forces for enterprise growth. Enterprises can increase their own growth by increasing the traction of these four forces and promoting a virtuous circle between them.
This is a "value path" leading to the future. It can be seen that Shugen Internet has injected a lot of resources and energy into technology, products, and talents, and is walking on the "value path" to seize opportunities.
Through 7 years of industrial digital transformation service practice, the root cloud industrial Internet operating system created by Shugen Internet has been iterated from version 1.0 to the current version 4.0. This means that for a period of time in the future, the R&D investment and personnel costs of Root Internet will remain at a relatively high level.
In the book "Beyond Competition: Business Models in the Age of Minor Profit", companies are divided into three categories: temporary winners are opportunists, temporary winners are pragmatists, and permanent winners are long-termists .
Clearly, Roots Interconnect belongs to the long-termists.