Kingsoft reports 271m yuan annual loss, compared with profit of 369m yuan in 2015

Kingsoft Corp, the Chinese software maker whose chairman is Xiaomi Corp’s co-founder Lei Jun, says it’s going to prioritise the development of AI (artificial intelligence) in its cloud service unit over the next two years, as well as other niche areas such as health care and gaming.

The Hong Kong-listed company, which also owns Cheetah Mobile, the apps developer, and office software WPS, one of Microsoft office’s strongest rivals, Kingsoft was reporting a loss of 271 million yuan (US$39.3 million) for the year ended December 31, 2016.

Cheetah has more than 600 million users worldwide, more than 75 per cent of which are overseas.

The results were mainly dragged down by impairment costs associated with internet companies Xunlei and 21 Vianet, in which it is a major investor, according to its filing with the Hong Kong stock exchange.

The loss compares to a profit of 369 million yuan in 2015. Revenue still grew 46 per cent to 8.3 billion yuan year over year.

“AI is definitely going to be our focus in the cloud unit,” said Zou Tao, the newly appointed chief executive. “We have started already and expanded fairly quick in the first quarter of this year.”

Refusing to elaborate on the details of its AI cloud service, as it remains a “top secret”, Zou said AI is the future of the IT industry.

In stark contrast to its overall results, Kingsoft’s cloud unit together with its office software and other businesses, saw a 99 per cent rise in profit to 1.3 billion yuan, while online game sales also surged 86 per cent to 2.5 billion yuan during the same period.

In addition to AI, online gaming, health care and video cloud have also been developing well and it expects to “reap the awards” from those field this year, Zou said.

Similar to its western peers, a spate of Chinese internet titans have joined the throng digging for gold from cloud computing services in recent years, including Jack Ma’s Alibaba and Pony Ma’s Tencent.

A far smaller player compared with those giants, Kingsoft says there is still plenty of room for its cloud unit to flourish in China, as it expects the Chinese government is still likely to favour domestic cloud service providers over foreign ones at this stage.

“This is actually why Chinese cloud service providers have developed so well in recent years, “ Zou said. “Just imagine how could the Chinese authorities feel safe enough to store its data on Amazon’s cloud service?”

Despite the struggles of Xunlei and 21 Vianet, Ng Yuk Keung, its chief financial officer, said Kingsoft was still not considering any reduction in those investments.

“The purpose of investing in Xunlei and 21Vialet is not for profit in the first place,” Ng said. “It’s part of our strategy in developing cloud services.”

China’s cloud service market was worth 52 billion yuan in 2016 and is expected to maintain a more than 30 per cent compound annual growth rate for the next few years, according to consultancy iresearch.

Echoing those figures, Zou said he remained confident of the sector’s growth, describing the future of cloud business in China as “just fantastic”.