Driven by surging AI computing demand and accelerated domestic substitution, Chinese high-end processor leader Hygon Information Technology Co.,Ltd. (688041.SH) delivered strong revenue and profit growth for the first half of 2026. During the reporting period, the company achieved operating revenue of 9.099 billion yuan, up 66.52% year-on-year; net profit attributable to shareholders reached 1.798 billion yuan, a 49.69% increase; and net profit after deducting non-recurring gains and losses was 1.631 billion yuan, up 49.67%. Basic earnings per share rose 50% to 0.78 yuan per share. The company attributed its performance to rising demand for domestic chips from rapid AI development, along with increased R&D investment and product optimization that expanded its high-end processor market share.
However, behind the high profit growth, net cash flow from operating activities was negative 428 million yuan, a decline of 119.64% year-on-year, creating a stark contrast between profit gains and negative cash flow. The company explained that the cash outflow resulted from a strategic increase in inventory reserves to align with sales plans, secure supply capacity, and capture market opportunities, leading to significantly higher spending on raw materials and operating purchases. Meanwhile, operating costs rose 87.15% year-on-year, driven not only by business expansion but also by higher unit procurement costs from increases in upstream raw materials and storage-related materials.
In other words, Hygon Information is in a strategic expansion phase of "stockpiling for future growth," sacrificing current cash flow to secure future market share and delivery capability. The direct consequence of this strategic stockpiling is reflected on the balance sheet: inventory book value reached 7.518 billion yuan at the end of the reporting period, accounting for 20.86% of total assets. This ratio is relatively high among semiconductor design companies. The interim report also noted that if market conditions change, competition intensifies, or technology updates cause inventory obsolescence, large stockpiles could shift from "ammunition" to a "burden."
Supply chain constraints also warrant attention: the company has a high concentration of suppliers, and due to geopolitical factors and entity list restrictions, switching to new suppliers is costly and some alternatives are difficult to replace. Any supply chain disruption could adversely impact production, operations, and R&D.
In the broader industry context, the integrated circuit design sector is at a critical stage where computing power demand is growing rapidly, and domestic substitution is transitioning from policy-driven to market-driven. The AI industry's shift toward intelligent agent paradigms is driving a significant increase in token consumption, with the accelerated server market expected to grow at a compound annual rate exceeding 30% over the next five years. Hygon Information's DCU products have already been adapted to over 400 mainstream large models, including DeepSeek and Qwen3, and both next-generation general-purpose processors and co-processors are under development, giving the company a clear technological edge.
However, beneath the high-growth narrative, key issues requiring ongoing verification include: whether the mass production progress of R&D projects can be realized as planned, whether the conversion efficiency of the large model ecosystem can continue to improve, and whether inventory digestion pace and impairment risks are truly manageable under the high stockpile level. These factors represent both the biggest opportunity and the greatest uncertainty for Hygon Information in the second half of the year.
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