Earnings have rebounded from their lows, with large models beginning to make tangible contributions at Hikvision

Introduction:The rapid development of next-generation artificial intelligence technology centered on large models is driving significant improvements in Hikvision's product innovation and operational efficiency

Li Ping/Author Lishi Business Review/Produced by

Revenue stabilizes as profits return to high growth

Not long ago, Hikvision, the global security giant, $Hangzhou Hikvision Digital Technology (002415.SZ)$ disclosed its 2025 annual report and the first-quarter 2026 financial results. The data shows that in 2025, Hikvision achieved a total revenue of 92.508 billion yuan, representing a year-over-year increase of 0.01%, the lowest annual revenue growth in the company's history. Meanwhile, the net profit attributable to shareholders reached 14.195 billion yuan, an increase of 18.52% year-over-year, marking the best profitability performance in the past five years.

First-quarter data indicates that from January to March 2026, Hikvision generated revenue of 20.715 billion yuan, a year-over-year increase of 11.78%, and net profit attributable to shareholders amounted to 2.781 billion yuan, growing by 36.42% year-over-year. As of now, Hikvision’s profit segment has achieved year-over-year positive growth for six consecutive quarters.

In addition to the improvement in profitability, Hikvision also experienced a significant enhancement in its operating cash flow. In 2025, the company's net inflow of operating cash flow reached 25.339 billion yuan, up more than 12 billion yuan year-over-year. By the end of 2025, the total amount of accounts receivable and bills was down 7.77 billion yuan compared to the end of the previous year, reflecting a decrease of 19.1%, further validating the improvement in the company's operational quality.

Leveraging the improved profitability and robust operating cash flow, Hikvision increased its returns to investors. According to the 2025 profit distribution plan, the company proposed a cash dividend of 7.50 yuan per 10 shares, with a planned total cash dividend payout of 6.874 billion yuan. It is estimated that the cumulative cash dividend for 2025 will reach approximately 10.54 billion yuan (including the completed interim dividend payment for 2025), accounting for 74.25% of the company's 2025 net profit attributable to shareholders, with a dividend yield of 3.5%. Including the share repurchase cancellation in 2025 (2.028 billion yuan), Hikvision has nearly distributed all distributable profits for the period.

The strong start reflected in the Q1 earnings report, combined with the fulfillment of high dividend payouts, made Hikvision a focal point for secondary market investors. On April 20th, the day after the earnings announcement, Hikvision's stock price rose over 4%, hitting a new high since 2024, with the company's total market capitalization firmly surpassing the 300 billion yuan mark.

Regarding the 2025 performance, Hikvision stated during the earnings conference that both domestic and international environments are undergoing significant changes and adjustments. The company's operational focus has gradually shifted from pursuing revenue scale growth to enhancing operational quality. Starting from the second half of 2024, the company continuously optimized internal operational mechanisms and resource allocation, improving fine-grained operational levels and strengthening accounts receivable collection management. After more than a year of adjustment, these efforts have consistently shown positive outcomes. From the first quarter of 2025 onward, net profit growth rates accelerated quarter by quarter for five consecutive quarters.

Moreover, the rapid development of artificial intelligence technology significantly propelled product innovation and operational efficiency at Hikvision. In 2025, the company launched hundreds of AI-powered large model products in its security business and digital scenario solutions, covering various bands and categories. Revenue from large model products grew steadily throughout the year, reaching a certain scale. In 2026, Hikvision plans to further enrich its AI product portfolio, strengthen marketing for large AI models, and expedite product implementation.

Six consecutive increases in gross margin driven by AI support

It is worth mentioning that the continuous launch of large AI model products like Guanlan is expected to raise Hikvision's long-term gross margin baseline. First, the efficiency gains brought by 'AI+' manifest as willingness to pay. By adding minimal costs (such as AI computing power, storage, etc.) to existing products, but significantly enhancing product performance through large models, addressing user/customer pain points, and greatly improving labor productivity, customers are willing to pay for this, ultimately resulting in higher gross margins.

Secondly, there are currently not many vendors that can provide large-scale model products like this. Hikvision has a first-mover advantage in the supply-demand relationship. According to company estimates, the gross margin of 'AI+' products could increase by more than just one or two percentage points; it may rise anywhere from a few points to over ten points.

Benefiting from the comprehensive promotion of AI technology, Hikvision's gross margin has seen a noticeable recovery. Financial data shows that from Q4 2024 to Q1 2026, Hikvision achieved sales gross margins of 42.16%, 44.92%, 45.41%, 45.67%, 47.13%, and 49.09%, with gross margins increasing year-over-year for six consecutive quarters. Notably, in Q1 2026, Hikvision's gross margin reached its highest level in nearly five years.

In response, Hikvision stated during its earnings call that the improvement in gross margin was mainly due to three factors. First, the company shifted its operational focus from pursuing revenue scale to enhancing operational quality, proactively cutting some low-competitiveness product lines. Second, the introduction of AI-driven large model products contributed positively to profitability. Third, price increases in storage and electronic components affected the competitive landscape of the industry, especially since storage product prices started rising in October of last year, corresponding to the company’s gross margin increase over the past two quarters.

By business segment, Hikvision's core product and service businesses achieved a gross margin of 49.07%, an increase of 3.31 percentage points year-over-year, while innovative businesses reported a gross margin of 39.12%, a decline of 0.98 percentage points year-over-year. By region, Hikvision's domestic business had a gross margin of 45.53%, up 2.9 percentage points year-over-year, while overseas operations reported a sales gross margin of 46.46%, an increase of 0.34 percentage points year-over-year. Overseas business profitability continues to outperform domestic operations.

Hikvision also noted that on an annual basis, from 2020 to 2025, the company's annual gross margin fluctuated between 42% and 46%. The recent gross margin increase is believed to be driven by both short-to-medium-term and long-term factors, reflecting a trend of upward movement in the gross margin center. Additionally, the price hike cycle not only impacts BOM costs but also influences the competitive landscape of the industry. Anti-internal competition dynamics have also helped optimize the industry structure and improve market concentration among leading companies. Moreover, technologies like Hikvision's Guanlan encoding help users save on storage costs, further supporting gross margin growth.

For a hardware company, a 49% gross margin is already considered very high, which has sparked concerns among some investors about whether Hikvision can sustain such a high margin. In response to investor concerns, Hikvision stated during its earnings call that while the company's gross margin center is improving, maintaining the 49% level remains uncertain. For hardware companies, higher gross margins aren't always better, and the company will seek a balance between gross margin, supply assurance, market share, and customer satisfaction.

Overseas and innovative businesses offset declines in core operations.

It is worth noting that throughout 2025, Hikvision failed to escape the quagmire of low or even negative growth. Therefore, if the company's gross margin reverts to a declining trend, the current profit growth will be difficult to sustain. Data shows that in Q1-Q3 2025, Hikvision's revenue growth rates were 4.01%, -0.45%, and 0.66%, respectively. In Q4 2025, Hikvision generated revenue of 26.75 billion yuan, a year-over-year decrease of 2.74%.

Among these factors, the decline in the security business has been a key reason for the company’s sluggish revenue growth. Data indicates that in 2025, all three of Hikvision’s domestic business groups experienced varying degrees of decline. Specifically, the Public Business Group (PBG) and Enterprise Business Group (EBG) dropped by 4.12% and 3.33%, respectively, while the Small and Medium Business Group (SMBG) plummeted by 26.35% year-over-year.

It is reported that Hikvision's PBG primarily serves government clients, focusing on projects such as public security, transportation, smart cities, and initiatives like the 'Bright Project' and 'Sky Net Project,' which historically constituted Hikvision's most core and largest business segment. However, as local government spending tightened domestically, Hikvision’s PBG business suffered significant setbacks. Data shows that from 2021 to 2024, Hikvision’s PBG revenue was 19.161 billion yuan, 16.135 billion yuan, 15.354 billion yuan, and 13.467 billion yuan, with year-over-year declines of 16.4%, 4.8%, and 12.4%, marking four consecutive years of decline. Based on 2025 data, the rate of decline in Hikvision’s Public Business Group revenue narrowed but still showed no clear signs of stabilization.

In recent years, driven by the demand for corporate digital transformation, Hikvision's EBG business has gradually replaced its PBG business to become the company’s largest revenue source. However, with ongoing adjustments in related markets such as real estate and petrochemical energy industries, Hikvision's SMBG business targeting large enterprise customers has also shown signs of stagnation. Data indicates that from 2023 to 2025, Hikvision's EBG business revenue declined from 17.845 billion yuan to 17.063 billion yuan, experiencing slight adjustments for three consecutive years.

On the other hand, in an environment of continued macroeconomic downturn, small and medium-sized enterprises have cut non-essential expenditures, leading to a noticeable decline in their willingness to purchase security equipment, thereby pressuring Hikvision’s SME Business Group's revenue generation capabilities. According to the 2025 financial report, the economic environment had the greatest impact on SMEs, resulting in a 26% year-on-year decline in revenue for Hikvision’s SME Business Group.

Additionally, Hikvision proactively mentioned in its annual report that in 2025, through inventory reduction by distributors and the establishment of regional warehouses, distributor inventory significantly decreased, effectively improving SMBG turnover efficiency. This suggests that the significant drop in revenue for Hikvision’s SME Business Group was closely related to inventory destocking by distributors. As product shipment rhythms recover, the future decline in SMBG revenue is expected to narrow rapidly.

Compared to the sluggish domestic market, Hikvision's overseas market maintained stable growth. Throughout 2025, Hikvision's international operations achieved revenue of 27.217 billion yuan, representing a 4.73% increase year-on-year. Notably, non-distributor revenue accounted for over 30% of overseas income, with rapid growth in non-video products like access control, alarms, and commercial displays, forming a second growth curve at the product level.

According to the annual report, amid increasingly turbulent international situations and surging anti-globalization trends, Hikvision adhered to a “one country, one policy” strategy, delegating decision-making power to four major regions (Pan-Asia Pacific, Middle East & Africa, Pan-Europe, Americas), successfully leveraging localized operational advantages to offset negative impacts from geopolitical risks.

Besides the stable growth in overseas markets, the high growth of innovative businesses emerged as another highlight in Hikvision’s annual report. In 2025, Hikvision’s eight innovative businesses collectively generated sales revenue of 25.446 billion yuan, marking a 13.17% year-on-year increase. Among these, automotive electronics achieved revenue of 5.289 billion yuan, growing by 34.95%, the fastest growth rate. Moreover, Hikvision Robotics, Ezviz Network, and Hikmicro continued to lead their respective niche markets, becoming new growth engines for the company.

It should be noted that despite the robust growth of innovative businesses, they still could not fully offset the impact of the domestic security business decline on Hikvision’s domestic operations. In 2025, Hikvision's domestic business achieved revenue of 58.222 billion yuan, reflecting a 4% year-on-year decrease, marking the first time total domestic revenue experienced negative growth.

Overall, although Hikvision’s profit recovery was evident, the foundation for its revenue to bottom out and rebound remains fragile, especially given the uncertainty regarding whether the domestic security business can truly bottom out and recover. Whether it can sustain continuous performance growth remains to be seen.

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