Cambricon Technologies Corporation Limited (688256) has finally crossed its breakeven threshold, as a rapid surge in revenue begins to dilute its historically heavy research and organizational spending. This release of operational leverage is now driving a significant shift in its financial profile. However, this improvement in profitability is not rooted in expanding gross margins, and the surge in earnings has been accompanied by rising inventory and prepayments, leaving cash flow from operations trailing behind reported net income.
The next critical phase for the company hinges on converting its rapid top-line growth into dependable cash generation. This will be the true test of whether its substantial investments in supply chain capacity and delivery expansion can prove sustainable over the long term.
Revenue Scale Triggers Operational Leverage
In 2025, Cambricon decisively crossed the commercial breakeven line for the first time. The latest annual report shows the company's total revenue soaring from 1.174 billion yuan in 2024 to 6.497 billion yuan, a staggering year-on-year increase of 453.21%. Net profit attributable to shareholders swung from a loss of 452 million yuan to a gain of 2.059 billion yuan.
The momentum has carried into 2026. In the first half of the year, Cambricon generated 5.996 billion yuan in revenue, which is already 92.29% of its full-year 2025 total. First-half net profit reached 2.311 billion yuan, meaning it earned more in six months than it did in all of the previous year.
The company's profit expansion is not being driven by better gross margins. Its gross margin was 56.71% in 2024, 55.15% in 2025, and 55.25% in the first half of 2026—essentially flat. Instead, the dramatic change is occurring in its expense ratios. In 2024, Cambricon's combined core operating expenses—covering sales, management, and research and development—totaled 1.466 billion yuan. This sum represented a staggering 124.86% of its full-year revenue. By 2025, this total had only inched up to 1.617 billion yuan, an increase of just 10.26%. During that same period, revenue expanded 5.53 times, causing the expense ratio to plunge to 24.89%. In the first half of 2026, these expenses were just 810 million yuan, further compressing the ratio to a mere 13.53%.
Looking at incremental figures provides an even clearer picture. Between 2024 and 2025, the company generated approximately 2.917 billion yuan in new gross profit, yet its combined sales, management, and R&D expenses increased by only about 150 million yuan. The R&D and organizational infrastructure built over previous years did not expand in tandem with revenue, allowing most of the gross profit from new sales to flow straight to the bottom line.
The 2025 inflection in profitability is therefore not a result of higher gross margins. Rather, an expensive research platform was finally paired with a sufficiently large revenue base to effectively absorb its fixed costs.
Sales Expense Ratio Hits Rock Bottom
The company's sales expenses are conspicuously low. In 2025, Cambricon's sales expenses were just 68 million yuan, translating to a sales expense ratio of only 1.05%. In the first half of 2026, this figure dropped even further to 26 million yuan, a ratio of 0.44%. Adding to the anomaly, the wages and salaries within these expenses have been falling—from 57 million yuan in 2023 to 39 million yuan in 2024 and 36 million yuan in 2025—while revenue exploded from 709 million yuan to 6.497 billion yuan. Excluding 12 million yuan in share-based payments from 2025, the adjusted sales expense ratio was approximately 0.86%.
This trend makes Cambricon a clear outlier. Public data shows that in 2025, the sales expense ratios were 4.44% for Hygon Information Technology, 12.47% for MetaX, and 15.49% for Moore Threads. While such comparisons require caution due to differences in product maturity and customer bases, they highlight that Cambricon's commercialization is not following the traditional pattern of a scaling salesforce.
However, this does not mean the company has no need for customer acquisition efforts. Its 2025 annual report reveals that direct sales account for 99.13% of total revenue. The sales department still bears the responsibility for promotions and expanding its client base. Furthermore, selling AI chips into a customer's system is not a simple hardware handover; it typically entails substantial engineering work from R&D personnel for operator, framework, communication, and software stack adaptation. Consequently, the customer adaptation process relies heavily on the research team, meaning that sales expenses alone provide an incomplete view of the commercial investment required. In 2025, Cambricon's R&D expenditure reached 1.351 billion yuan—nearly 20 times its sales expenses.
The low sales expense ratio is a reflection of a cost structure shaped by direct sales to major clients, a technically intensive delivery model, and heavy R&D investment. Changes in the customer base further support this interpretation. In 2024, the top five customers accounted for 94.63% of Cambricon's revenue, with the largest single customer representing 79.15%. By 2025, the top five's share fell to 88.66%, the largest customer dropped to 26.21%, and four of the top five were new customers added that year. Concurrently, data from the Shanghai Stock Exchange indicates that Cambricon's revenue structure has shifted from being primarily focused on intelligent computing cluster projects in its early listing days to relying mainly on its commercial cloud-based chip product lines.
This reduction in reliance on the largest customer, coupled with new major clients ramping up simultaneously and a product transition from project-based integration to commercial chips, clarifies why sales expenses have not grown in step with revenue. The primary driver for the falling sales expense ratio remains the sheer speed at which revenue has scaled.
Customers Diversify While Suppliers Consolidate
While the income statement appears leaner, another side of this scale effect is emerging: the balance sheet is getting heavier. As a fabless company, Cambricon does not own manufacturing capacity and must secure wafers, packaging, testing, and processing resources well in advance to support shipment growth. In 2024, its top five suppliers accounted for 58.04% of total procurement, with the largest at 22.39%. In 2025, these figures jumped to 75.23% and 55.34%, respectively.
This presents a key structural shift: even as downstream customer concentration decreases, upstream supplier concentration is rising sharply. This signals that while the company has solved its customer source problem, ensuring supply becomes the critical variable to validate in the next phase. This shift is now evident in the company's cash allocation. As of the end of June 2026, Cambricon's inventory stood at 8.248 billion yuan, with prepayments at 2.914 billion yuan. In the first half of the year, despite a net profit of 2.311 billion yuan, its net cash flow from operations was only 311 million yuan, resulting in a net profit-to-cash conversion ratio of roughly 13.46%.
Even in 2025, the company achieved a net profit of 2.059 billion yuan, but its operating cash flow was still negative at -498 million yuan. Management disclosed that operating cash flow in the first half of 2026 fell 65.83% year-on-year, mainly due to increased procurement and income tax payments. Another factor to monitor is impairment. Data shows inventory write-down losses in the first half of 2026 reached 397 million yuan, approximately 2.97 times the amount for the entire year of 2025.
The rapid increase in inventory and prepayments does not necessarily indicate weakening demand; the company is building stock to support a larger delivery pipeline. However, in an industry with an extremely fast AI chip iteration cycle, the more aggressive the stockpiling, the more sensitive it becomes to risks from product transitions, shifts in demand timing, or changes in purchase prices. Therefore, going forward, operating cash flow will be a far more critical metric than the sales expense ratio for assessing the quality of Cambricon's earnings.
Can the Operating Leverage Sustain at Greater Scale?
Long-term expectations can be benchmarked against the company's own stated objectives. Cambricon's 2026 restricted stock incentive plan sets a 2026 revenue target of 13.5 billion yuan, a cumulative 2026-2027 target of 40.5 billion yuan, and a cumulative 2026-2028 target of 100 billion yuan. It is crucial to note these are incentive plan targets, not financial forecasts or promises.
However, based on the 5.996 billion yuan in revenue from the first half of 2026, achieving the 13.5 billion yuan annual goal would require 7.504 billion yuan in the second half—a 25.15% increase over the first half. If the company were to hit the cumulative milestones each year, it would imply roughly 27 billion yuan in revenue for 2027 and approximately 59.5 billion yuan for 2028.
Profit growth is no longer the sole metric for validation; converting revenue expansion into cash and stable deliveries is equally crucial. If customer concentration continues to decline while the sales expense ratio remains low, it would demonstrate that growth stems from more sustainable product demand rather than a few large orders. Additionally, if inventory and prepayment growth can be effectively controlled to fall below the pace of revenue growth, and operating cash flow begins to converge with net profit, it would prove that supply chain investments are converting into cash.
Historically, Cambricon's challenge was a heavy R&D system with insufficient revenue scale. Post-2025, that conflict is migrating. The revenue surge has already proven that existing R&D and organizational investments can be rapidly amortized. Yet, the working capital demands from wafer procurement, packaging, testing, and stockpiling are escalating quickly. The company's primary financial dilemma is shifting from whether revenue can cover R&D investment to whether high-speed growth can simultaneously translate into cash and reliable delivery capacity.
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