Credit：TMTPost

“Baidu has a substantial reserve of AI chips which can help it keep improving Ernie bot for the next year or two,” Baidu CEO Robin Li, or Li Yanhong, replied to a question about the impact of new U.S. restrictions on AI development at an earnings call.  The new restrictions on the chip export to China have limited impact on Baidu in the near term, and the company believes its chip reserve as well as other alternatives will be sufficient to support lots of AI native applications for its end users, Li told analysts.

But in the long run, Li cautioned difficulties in acquiring the most advanced chips will inevitably impact the overall AI development in China and that’s why his company is proactively seeking alternatives, which are not as advanced as those made in U.S. Li predicted the high-end chip shortage could prompt a consolidation of large language models (LLMs) in China. Though not specifying what Baidu’s possible alternatives are, Li said the company’s unique four-layer AI architecture and strength in AI algorithm will continue to help it improve efficiency and mitigate some of challenges resulting from U.S. curbs.

Li’s remark made as Baidu posted slightly stronger-than-expected sales in the quarter ended September 30 despite macroeconomic weakness. Revenue rose 6% year-over-year (YoY) to RMB34.45 billion (US$4.72 billion), topping the analysts’ estimated RMB34.21 billion, and non-GAAP operating income of RMB7.6 billion with the same YoY increase, much better than projection of RMB6.88 billion. 

Sales of Baidu’s core business online marketing surging 50% YoY to RMB19.7 billion. Baidu said the e-commerce platform as one of top contributors, which accounted from about 10% of total online marketing revenue. Robin Li highlighted the AI development, especially the generative AI model Ernie and Ernie Bot, by which Baidu can reinvent its consumer and enterprise products and its own operations.

Baidu launched Ernie 4.0 (EB4), its most powerful foundation model in October and the paid version of Eirne Bot 4.0 at RMB59.9 per month in the beginning of this month. EB4 is now accessible to users on Ernie Bot, and business customers can use it via Baidu’s cloud API, empowering them to develop their own AI-native applications and solutions. Erne Bot has accumulated 70 millioin users since its public launch three month earlier. “Our AI-centric business and product strategy should set the stage for sustained multi-year revenue and profit expansion within our Ernie and Ernie Bot ecosystem,” Li said. Li expected Baidu’s AI cloud revenue should rebound to positive growth in the fourth quarter, driven by the increasing momentum in generative AI related businesses.

At the earnings conference, Baidu management underlined potential of AI-driven advertising as the company is carrying out a fundamental restructuring, ranging from creative construction, ad targeting to the bidding mechanism. Ernie is estimated to help generate hundreds of millions of yuan in additional ad revenue for the current quarter. Baidu executives felt there are significant monetization opportunities in the new search and the revamped ad platform. The company said its search engine will be able to talk with users in natural language and have multi-rounds of conversations, which will create more potential on the commercial use of an experimental chatbot-type ad product for small and medium enterprises (SMEs) and brands.

Baidu believes if efforts will eventually transform from a cost-per-click (CPC) model to a cost-per-sale (CPS) model. It said its ongoing effort to revamp the ad platform have already shown positive results and vowed to continue leveraging generative AI and to assist advertisers in achieving durable ROI growth on Baidu platform.

Prior to Baidu’s earnings, Tencent last week also disclosed expected impact of U.S. export control. Tencent President Martin Lau said his company has “one of the largest inventories of AI chips in China among all the players”, and it has “enough chips to continue our development of Hunyuan for at least a couple more generations” since it is the first Chinese firm to put in order for H800 and have a pretty good inventory of the AI chip.

However, Lau admitted the export control did have the potential impact on Tencent’s cloud computing business. He said Tencent will try to see whether it can offload a lot of the inference capability to lower-performance AI chip, so that it can retain the majority of its high-performance AI chips for training, and will try to find the domestic source for these training chips.

Alibaba last week disclosed it decided not to proceed with a full spinoff of Cloud Intelligence Group owing to the U.S. export restrictions. The company warned the new export control “may materially and adversely affect” the cloud unit’s ability to offer products and services and to perform under existing contracts, thereby negatively affecting the company’s results of operations and financial condition.

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