Analysis of the Substantial Impact of Kunlunxin's IPO on the Gross Margin Improvement of Baidu's AI Chip Business

As a subsidiary of Baidu focusing on AI chip research and development, Kunlunxin officially submitted an IPO application to the Hong Kong Stock Exchange on January 1, 2025, marking a key strategic move in Baidu’s layout of the AI hardware industry chain [1][2]. Kunlunxin was founded in 2011, originally as Baidu’s Intelligent Chip and Architecture Department. After completing independent financing in 2021, it gradually moved towards independent operation. Currently, Baidu holds approximately 59% of Kunlunxin’s shares and will remain the controlling shareholder after the IPO [3].

From the perspective of financial data, Kunlunxin is in a rapid growth stage: it is expected to achieve revenue of approximately RMB 2 billion and a net loss of approximately RMB 200 million in 2024; revenue in 2025 is expected to exceed RMB 3.5 billion, with external customer revenue accounting for more than 50% by then, and it is expected to achieve break-even [4]. After the latest round of financing, Kunlunxin’s valuation has reached RMB 21 billion (approximately USD 3 billion), a significant increase from the previous RMB 18 billion [5].

The semiconductor industry has typical high fixed cost characteristics, with R&D investment, wafer manufacturing costs, and packaging and testing fees forming the main cost structure. After the IPO, Kunlunxin will obtain sufficient capital to expand production capacity. According to industry experience, when production capacity doubles, unit manufacturing costs can be reduced by 20%-30% [6]. From data calculations, Kunlunxin’s revenue will increase from RMB 2 billion to RMB 3.5 billion in 2025, and the 75% revenue growth rate will effectively allocate fixed costs, which is expected to bring about a gross margin increase of approximately 3 percentage points.

Previously, Kunlunxin mainly served Baidu internally, making it difficult to effectively allocate R&D costs. As the proportion of external customers increases from 40% in 2024 to more than 55% in 2025 [7], it means more external customers will share the high R&D investment. According to industry rules, when the proportion of external customer revenue exceeds 50%, the erosion of R&D expenses on profit margins will be significantly reduced, and the marginal profit margin can increase by 2-3 percentage points. This structural change will directly improve Kunlunxin’s gross margin level.

The governance structure of listed companies requires higher information disclosure standards and internal control levels. This external constraint will promote systematic improvements in Kunlunxin’s supply chain management, production process optimization, and inventory control. Historical data shows that the average operational efficiency improvement of successfully listed semiconductor design companies can bring about a gross margin improvement of 1.5-2 percentage points [8]. In addition, listed companies are more likely to obtain bank credit and supplier payment term preferences, thereby improving cash flow and procurement costs.

IPO financing will give Kunlunxin stronger R&D investment capabilities, supporting the development of more advanced process chips and the launch of higher-performance products. Product differentiation brought by technological leadership will enable Kunlunxin to gain stronger pricing power. According to product value chain analysis, technological upgrading can support a product premium space of 5%-8%, which will directly translate into an increase in gross margin. Kunlunxin’s third-generation chip products have achieved technological breakthroughs in inference performance comparable to international competitors, laying the foundation for product premiums [9].

Based on current data calculations, the impact path of Kunlunxin’s IPO on Baidu’s overall gross margin is as follows:

From the perspective of contribution ratio, Kunlunxin’s business currently accounts for approximately 0.86% of Baidu’s total revenue, so its direct impact on Baidu Group’s overall gross margin is relatively limited. However, from the perspective of strategic value, the successful IPO of Kunlunxin will significantly increase Baidu’s valuation premium in the AI infrastructure field [10]. The market has given positive feedback: Baidu’s Hong Kong stock rose by 9.4% in a single day after the news was announced, and its US stock soared by 15% [11].

Although Kunlunxin’s IPO has a positive effect on gross margin improvement in the short term, the following risk factors still need to be noted: First, cyclical fluctuations in the semiconductor industry may affect downstream demand and capacity utilization; second, competition in the domestic AI chip market is becoming increasingly fierce, with competitors such as Huawei and Cambricon continuing to exert pressure; third, changes in the international situation may lead to restrictions on access to advanced processes, affecting product iteration speed.

Kunlunxin’s IPO will substantially promote the improvement of the gross margin of the AI chip business through four dimensions: scale effect, customer diversification, operational efficiency enhancement, and technological upgrading. It is expected that Kunlunxin’s gross margin will increase from the industry average of 40% to approximately 46.5% in 2025, an increment of about 6.5 percentage points. For Baidu Group, although the direct financial impact is limited, the valuation potential and strategic value released by Kunlunxin’s independent IPO are more far-reaching. In the long run, as the proportion of external customers continues to increase and production capacity expands, Kunlunxin is expected to become a new profit growth driver for Baidu.

[1] Yahoo Finance -