On March 31, Sangfor Technologies Inc. released an impressive annual report. In 2025, the company achieved revenue of 8.043 billion yuan, a year-on-year increase of 6.96%, with net profit attributable to shareholders reaching 393 million yuan, up 99.52% year-on-year. Non-GAAP net profit surged by 296.38%.
This high growth was primarily driven by a significant profit increase in the fourth quarter. Specifically, amid the continued contraction of its traditional cybersecurity business and declining gross margins, the company boosted its net profit margin by substantially reducing its three major expense ratios.
For Sangfor, growth is currently mainly driven by its cloud computing business. However, the gross margin of the cloud computing segment is significantly lower than that of the cybersecurity business, and it has also led to a sharp increase in inventory. As the proportion of cloud computing revenue continues to rise, improving profitability has become an urgent priority.
Fourth-quarter performance turned the full-year net profit positive, but how sustainable is the cloud computing business?
Quarterly data shows that the company reported a loss of 250 million yuan in the first quarter of 2025, with a cumulative loss of 80.5638 million yuan for the first three quarters. The full-year profit growth was largely dependent on the fourth quarter, which was mainly supported by the cloud computing business.
Sangfor is a provider of enterprise-level cybersecurity, cloud computing, AI, and basic network and IoT products and services. In 2024, its revenue breakdown was 48.27% from cybersecurity, 45% from cloud computing and IT infrastructure, and 6.73% from basic network and IoT businesses.
In recent years, Sangfor's traditional businesses have been declining. In 2025, cybersecurity revenue was 3.54 billion yuan, down 2.46% year-on-year, while basic network and IoT revenue fell 2.69% to 493 million yuan. In contrast, cloud computing and IT infrastructure revenue reached 4.01 billion yuan, up 18.50% year-on-year, becoming the main growth driver.
The growth in cloud computing has been fueled by AI industry development and national policy support. Since the fourth quarter of 2025, inflationary pressures in the AI industry chain have intensified. As demand for tokens surged, price increases gradually spread from upstream components to CPUs and cloud services, benefiting cloud computing and related service providers. Industry analysts project the total market size to exceed 2.1 trillion yuan by 2027.
Since launching its first "Desktop Cloud aDesk" in 2013, Sangfor has expanded its product portfolio to include hyper-converged infrastructure, the Sangfor Cloud Platform (SCP), and Enterprise Distributed Storage (EDS). Last year, the Software-Defined Data Center (SDDC) product line, primarily comprising HCI products, and the EDS business became the main growth engines.
In terms of revenue structure, cloud computing and IT infrastructure accounted for 49.86% of Sangfor's total revenue in 2025, surpassing cybersecurity as the largest revenue source. However, while driving the company's recovery, the cloud computing business also introduced challenges.
First, the gross margin of the cloud computing business is significantly lower than that of cybersecurity. In 2025, the cybersecurity segment's gross margin was as high as 79.43%, while cloud computing stood at only 42.51%. As the business mix shifted, the overall gross margin declined rapidly, dropping by 10.67 percentage points since 2020 to 59.31% in 2025.
Notably, the cloud computing gross margin fell by another 1.73 percentage points year-on-year in 2025, likely due to rising hardware procurement costs for servers, CPUs, memory, and SSDs, coupled with intensified competition in government and enterprise cloud projects, leading to price wars and lower product pricing. If the proportion of cloud computing revenue continues to increase, Sangfor's overall gross margin will remain under pressure.
The cloud computing and IT infrastructure business also led to a sharp rise in inventory, which increased by 153% to 861 million yuan in 2025, hitting a multi-year high. Although the inventory buildup was intended to hedge against rising storage costs, the associated impairment risks cannot be overlooked.
Traditional businesses continue to decline with low profitability.
The most pressing issue for Sangfor is the persistent decline of its traditional businesses.
In recent years, macroeconomic conditions have led domestic downstream customers to tighten IT spending, significantly impacting Sangfor's traditional segments. Cybersecurity revenue began declining in 2022, while basic network and IoT businesses started shrinking in 2023.
As of 2025, traditional businesses have yet to rebound. The company disclosed that intense domestic competition and weak customer demand have led to revenue declines in mature product lines such as Next-Generation Firewall (AF) and Network Behavior Management (AC). Although newer businesses like XDR, Managed Security Services (MSS), and SASE are growing rapidly, their revenue remains too small to offset the decline in traditional products. The basic network and IoT segment also faces fierce competition and declining revenue.
Amid shrinking core business revenue, falling gross margins, business transformation, and persistently high expenses—especially R&D spending, which has exceeded 2 billion yuan since 2021 with an R&D expense ratio of nearly 26%—Sangfor's net profit has declined sharply. In 2024, net profit attributable to shareholders was 197 million yuan, only 24% of the 2020 level.
At the same time, gross margins have continued to fall. In 2025, the company's gross margin was 59.31%, down more than 10 percentage points since 2020 and 1.73 percentage points from the previous year, significantly squeezing profit margins.
In response, Sangfor substantially reduced its three major expense ratios. In 2025, the three expense ratios totaled approximately 58.96%, down about 5 percentage points from 2024, helping to lift the net profit margin. However, the overall net profit margin remains relatively low, with net profit margin and non-GAAP net profit margin at 4.88% and 3.79%, respectively, in 2025.
It is worth noting that Sangfor has relied heavily on non-recurring gains and losses in recent years. In 2024, non-recurring items accounted for 61% of net profit attributable to shareholders, reaching 120 million yuan, and still represented 22% in 2025.
Major contributors to non-recurring gains include government subsidies, fair value changes from held financial assets, and investment gains from the disposal of such assets.
Sangfor has maintained a large amount of financial assets held for trading. As of 2025, the book value of these assets reached 1.932 billion yuan, primarily consisting of structured deposits and non-guaranteed, floating-yield wealth management products.
A puzzling aspect is that while the company uses significant idle funds for financial investments, it also raised capital through a convertible bond issuance of 1.215 billion yuan in July 2023, while maintaining an extremely low dividend payout ratio, which has hovered around 10% since 2018.
For Sangfor, against the backdrop of sluggish growth in its core cybersecurity business and ongoing business transformation, the company needs to reserve funds to manage long payment cycles for government and enterprise projects and to stockpile raw materials. However, this approach significantly reduces shareholder returns, raising questions about whether continued investments will eventually translate into sustainable profits.
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