Chairman and Ceo Letter

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Chairman and Ceo Letter THIS DOCUMENT IS IN DRAFT FORM. THE INFORMATION CONTAINED HEREIN IS INCOMPLETE AND IS SUBJECT TO CHANGE. THIS DOCUMENT MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CHAIRMAN AND CEO LETTER Dear investors, Thank you for your interest in AInnovation. Artificial intelligence, or AI, is a new technological tidal wave that will totally transform the global economy. After the first three industrial revolutions of steam engine, electricity, and information technology, AI is now leading the fourth industrial revolution, digitizing and automating everything, creating unprecedented value and abundance. AI is an omni-use technology that will be as quintessential as electricity and will become the next-generation technology platform that elevates virtually every industry to the next level. We are now at the dawn of this new AI economy. Hui and I wrote this letter to share our unique approach tapping into the AI opportunity. For the past four decades, I have been researching, building, and investing in AI. While studying for my Ph.D. at Carnegie Mellon, I built a game-playing Othello program that defeated the world champion and developed the world’s first speaker-independent continuous speech-recognition system, honored as the “Most Important Innovation of 1988” by Businessweek. Later at Apple, SGI, Microsoft, and Google, I led AI research and development. The teams I built have been responsible for many of the AI advancements in recent years. For example, I founded Microsoft Research in Beijing, which has trained over 5,000 AI researchers and engineers over the past 23 years. In my venture capital firm, Sinovation Ventures Group, I unveiled a unique “VC+AI” model combining AI investments and AI venture building in 2016. My aspiration was to coach bright scientists and young entrepreneurs to build “practical innovations” that deliver great value for both business and society. Through the past 40 years, it has been my biggest hope that AI will would evolve from a lab-only technology to a pervasive application-driven technology. This hope became more promising after the AlphaGo match in March 2016, which woke up the world’s awareness to AI. With this Deep Learning breakthrough, AI continued to blossom in various fields, enabling online shopping recommendations, AI drug discovery, manufacturing automation and a smarter generation of industrial robots. In my 2018 book “AI Superpowers”, I described the “Four Waves of AI” framework and explained how AI applications were penetrating and influencing various industries from Internet AI, Business AI, Perception AI, to Autonomous AI, and I further predicted that China would co-lead the AI revolution with the U.S. This belief was corroborated by Pricewaterhouse Cooper’s (PwC’s) Global Artificial Intelligence Study1 which estimated AI would contribute $15.7 trillion to global economy by 2030. PwC predicted that these economic gains from AI would be realized in China, with a 26% boost to its GDP in 2030 compared to a 14.5% boost to the GDP in North America. While Chinese consumer mobile Internet companies have caught up with those in the U.S., the B2B sector still lags by a large margin. Pragmatic traditional Chinese businessmen prefer to see bottom-line impact before being willing to adopt new technological solutions. It was clear to me that AI would be the single most important technology that not only reduces cost and increases efficiency but would become an essential revenue and profit-generating platform. When I could not find entrepreneurs to partner with in this challenging domain, I decided to venture-build this technology in-house, exploring AI’s exceptional ability to enhance existing technology solutions for businesses. Our early developments made great progress and we have attracted many talents to join this initiative. By November 2017, it was clear that we needed a seasoned business executive to lead this effort as a venture-funded start-up. Through the years I mentored many outstanding PhDs on how to build a start-up. I understand their scientific strengths but also some challenges, especially when it comes to the commercialization of technology. Note: 1) https://www.pwc.com/gx/en/issues/data-and-analytics/publications/artificial-intelligence-study.html v THIS DOCUMENT IS IN DRAFT FORM. THE INFORMATION CONTAINED HEREIN IS INCOMPLETE AND IS SUBJECT TO CHANGE. THIS DOCUMENT MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CHAIRMAN AND CEO LETTER When I met Xu Hui over breakfast on 2018 New Year’s Day, I knew that this venture found its leader. Hui, who came over 22 years of experience in China’s B2B industry in several Fortune 500 companies, including IBM, SAP, Microsoft, and Wanda, became my co-founder and company CEO. We named the company AInnovation, meaning “AI + Innovation”, pronounced “flag” phonetically (旗 幟) in Chinese. With a mission to empower business value with AI, AInnovation is positioned as a technology front-runner partnering with the Chinese enterprises in AI transformation. It is rooted in our belief that advanced AI technologies can help traditional businesses to solve pressing practical problems, reduce costs, increase productivity, and deliver tangible bottom-line impact. AInnovation’s solutions span across Business AI, Perception AI, and Autonomous AI under the Four Waves of AI framework, and cope with real-world extensive enterprise physical use cases involving machinery vision, motion, control, and decision-making. Here in China, we are witnessing tremendous demand for such technology-driven industrial upgrades. Many Chinese traditional industries, such as manufacturing, are facing challenges from rising labor costs driven by a declining working population and slowing population growth. In the past 15 years, the scale of China’s manufacturing industry has increased by almost 30 times. In 2020, China already accounted for over 30% of worldwide automobile production, and over 40% of global ship production. In addition, globally in 2020, over 80% of air-conditioners, about 90% of computers, and over 85% of mobile phones were produced in China. In 2020, China’s manufacturing output reached $3.9 trillion, accounting for over 28% of the global market. China’s gigantic manufacturing ecosystem fuels its status as the “World’s Factory”. It is hyper competitive in the pursuits for quantity and quality, both domestically and internationally. With China’s national directive of building new digital infrastructure, AI will continue to play a crucial role in reconstructing and modernizing the Chinese economy. Traditional industries have developed an ecosystem with large-scale upstream and downstream synergy, and technological revolution will potentially lead to improvement or even disruption throughout the complete supply chain. Moving the needle in a sizable, complicated mature industry is full of exciting challenges and the Covid-19 epidemic has further strengthened China’s manufacturing position in the global market. If AI can help large manufacturing enterprises to improve their efficiency by just a few percent, the resulting value generated will be substantial. As AInnovation is spearheading a new AI technology adoption cycle among traditional businesses, customer feedback has been the key indicator for our critical milestones. We anchor in industries through collaborating with lighthouse customers, designing AI-based solutions which focus at first on specific pain points in customers’ operational and information management processes. Examples include replacing human eyes with high precision computer vision, or transporting liquified steel heated to over 1500-degree Celsius on autonomous locomotives. Once customers are satisfied with the initial solution deployments, we earn their trust to dive deeper pinpointing further use cases that can be addressed by AI. We then expand those successful products and solutions to more customers. Within a few years, AInnovation has proven itself to be a compelling and trusted technology partner to many enterprise customers. AInnovation has developed industry sector specific solutions and co-created many AI application “firsts” with our customers, ranging from AI in steelification, AI in mining safety, AI in motor engine assembling, AI in electronics fitting, AI in garment making, AI in big data center operations, AI in insurance and financial decision making, and a lot more. vi THIS DOCUMENT IS IN DRAFT FORM. THE INFORMATION CONTAINED HEREIN IS INCOMPLETE AND IS SUBJECT TO CHANGE. THIS DOCUMENT MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. CHAIRMAN AND CEO LETTER At AInnovation, we regard “talent” as the foundation and “value” as the lighthouse to build a high-performance team. Our culture promotes value, integrity, execution, success, and happiness. In less than four years, we have achieved market leadership in the enterprise AI solutions industry in China. According to Frost & Sullivan’s research, in terms of revenue, we were the third largest AI technology driven solution provider in the enterprise AI solutions market in China and the largest AI technology driven solution provider in China’s AI solution market in the manufacturing industry. We were also named by Gartner as 2021 “Example Vendor” in Machine Vision and “Cool Vendor” in AI for Computer Vision and we are listed by Forrester as a mid-sized machine learning vendor in China. We regard every day as Day One in a start-up. Hui and I believe that we stand on the brink of a technology revolution that will re-invent many industries in China. We are grateful to our open-minded and supportive customers for partnering with us on this fast growth entrepreneurial journey, experimenting how to make AI work for their businesses. We also want to thank our team for their dedication and perseverance, for rolling up their sleeves to tackle unusual tasks, such as camping out in factories or even crawling into coal mines to make technology truly useful. AInnovation has realized our long-awaited dream that AI is not confined to academia, but a revolutionary technology that will change the world.
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