Ruijie Networks' net profit in 2025 increased by 21.3% year-over-year, with AI computing power driving nearly 44% growth in direct sales revenue from major clients, but overall gross profit margin declined by 3.14 percentage points.

Question to AI: Why has the growth of AI computing power business failed to prevent the decline in gross margin?

Everyday Economic News reporter: Cai Ding Editor: Chen Junjie

Ruijie Networks (SZ301165, stock price 82.06 yuan, market capitalization 65.275 billion yuan) disclosed its 2025 annual report on the evening of March 27. The company achieved revenue of 14.316 billion yuan in 2025, a year-on-year increase of 22.37%; net profit attributable to shareholders of listed companies was 696 million yuan, a year-on-year increase of 21.30%; non-recurring net profit was approximately 656 million yuan, a year-on-year increase of 23.68%; basic earnings per share was 0.8754 yuan. The company plans to distribute a cash dividend of 5.25 yuan (including tax) for every 10 shares to all shareholders and to transfer 4 shares from the capital reserve for every 10 shares.

Image source: Ruijie Networks annual report

According to data compiled by Wind Financial Terminal, the consensus expectation of 8 institutions for Ruijie Networks’ net profit attributable to the parent company in 2025 is approximately 1.032 billion yuan. The disclosed figure of 696 million yuan is below institutional expectations and is 32.52% lower than the consensus forecast value. Nonetheless, there are still many highlights in Ruijie Networks’ annual report.

Image source: Wind

Direct sales model revenue increased by 43.61%, overall gross margin declined by 3.14 percentage points

In 2025, the global trend of generative AI (artificial intelligence) large models continued, and the upgrade of computing power infrastructure became one of the biggest certainties for growth in the ICT (Information and Communication Technology) industry. Ruijie Networks continued to launch relevant products in the AI computing track. The annual report shows that Ruijie Networks not only launched a 51.2T CPO (Co-Packaged Optics) switch suitable for AI training and ultra-large-scale computing clusters but also released a new generation of 1.6T/800G optical module products during the year. These technological reserves have directly translated into accelerated large customer orders, and its AI intelligent computing center network solutions have been scaled to serve leading internet companies such as Alibaba, ByteDance, Baidu, and Tencent.

Breakthroughs with key customers are also reflected in the company’s sales model and revenue structure. In 2025, Ruijie Networks’ direct sales model revenue reached 7.782 billion yuan, a year-on-year increase of 43.61%, accounting for 54.36% of total revenue. The huge demand from internet giants for data center switches has become the main engine driving revenue growth.

While expanding in scale, the company’s overall gross margin level has declined. The financial report shows that the overall gross margin for 2025 was 35.48%, a decrease of 3.14 percentage points from the previous year. By product category, the gross margin for the core business of “network equipment,” which accounts for a large portion of revenue, was 33.53%, down 4.33 percentage points year-on-year.

Image source: Ruijie Networks annual report

In terms of sales model comparison, facing internet giants and operators, Ruijie Networks’ direct sales business has a gross margin of 27.19%, down 2.46 percentage points year-on-year, and is significantly lower than the traditional distribution model’s gross margin level of 45.36%. Additionally, during the reporting period, the company accrued 66.0994 million yuan in inventory impairment provisions.

Wholly-owned subsidiary Shanghai Ruishan’s revenue declined by 47.45% year-on-year

On the other side of the squeezed profit margin, Ruijie Networks’ operational safety net has indeed thickened. During the reporting period, the net cash flow generated from operating activities increased by 735.17% year-on-year to approximately 1.828 billion yuan. The company stated that this was mainly due to increased sales collections and enhanced inventory turnover management, leading to a decrease in inventory scale and reduced capital occupancy.

Image source: Ruijie Networks annual report

However, the reporter from Daily Economic News also noticed that the shift towards direct sales to major customers has begun to have a substantial impact on the company’s internal business structure and subsidiary collaboration. The annual report also disclosed that Ruijie Networks’ wholly-owned subsidiary Shanghai Ruishan experienced a 47.45% year-on-year decline in revenue due to a major customer changing its procurement channel from “purchasing from Shanghai Ruishan” to “directly purchasing from Ruijie Networks,” resulting in significant losses for Shanghai Ruishan’s individual financial statements. This “internal volume cut” caused by changes in customer procurement paths and fluctuations in subsidiary performance is a result of the company’s adjustment of its sales system to adapt to the direct sales mechanism for major customers.

Image source: Ruijie Networks annual report

In addition, on the research and development investment side, the proportion of R&D investment to revenue decreased from 18.74% last year to 14.57% in 2025. At the same time, the capitalization rate of R&D expenses fell from 13.99% to 4.2%, and the contribution of capitalized amounts to the current net profit also decreased sharply from 53.43% last year to 12.59%. From a financial accounting perspective, this marks the completion of significant projects such as the “Meta Network System” and their transition to mass production, with more prudent financial treatment, but it has objectively weakened the short-term profit enhancement effect.

In 2025, Ruijie Networks achieved revenue growth and a significant increase in net cash flow from operating activities. In the future, restoring gross margin and optimizing internal business collaboration remain important issues.

Daily Economic News