① Chen Jihong said that in order to seize the favorable opportunity of “time, time and place,” the company will once again achieve a breakthrough in high-end CNC system applications such as 5-axis; ② As the world's first intelligent CNC system equipped with AI chips, the Huazhong 9 intelligent CNC system has now been used in small batches by many domestic machine tool companies; ③ According to Chen Jihong, in 3-5 years, domestic CNC systems will have a collective breakthrough.
Finance Association, April 23 (Reporter Li Yongjun and Huang Lu) “Sales of high-end CNC systems such as 5-axis will once again achieve a breakthrough this year.” Chen Jihong, chairman of Huazhong CNC (300161.SZ), said in an exclusive interview with a reporter from the Financial Federation during the 13th Shanghai CNC Machine Tool Show (CCMT2024) that the Shanghai exhibition was very popular, technology in the domestic machine tool industry is improving, the market is recovering, and the company should seize the opportunity to take advantage of the momentum.
He said that in the context of vigorously developing new quality productivity and speeding up equipment updates, the core technical performance of domestic high-end CNC systems is constantly being upgraded. In another 3-5 years, there will be a collective breakthrough in domestic CNC systems.
(Photo by interviewee Chen Jihong, chairman of Huazhong CNC)
“Good products are used”
“With the theme of 'AI empowers five axes to lead composite upgrades', we held a flagship new product launch conference for the 30th anniversary of Huazhong CNC at CCMT2024. The launch of the new Xinhuazhong 8-type high-end 5-axis CNC system product package and turn-milling composite product package was well received. Everyone gave high praise to the results we have exhibited for 30 years, and there are more and more manufacturers using the Huazhong system. I am very excited.” Although the schedule was full during the exhibition, the interview took place at around 8:30 a.m. Chen Jihong, who was sitting across from the Financial Association reporter, had passion in his words.
At the CCMT2024 exhibition, a total of 132 machine tools equipped with Huazhong CNC systems were exhibited, including more than 40 high-end 5-axis systems, a significant increase compared to 56 and 24 sets when participating in the 2023 China International Machine Tool Exhibition (CIMT).
According to Chen Jihong, good products are used. “Everyone said OK at first, but that's not great. Instead, after using it for a few years, I found that it was OK. Users and people in the industry all say that you (the product) is good is really good. (CNC) can only mature through extensive testing and verification in the market and technology iteration.”
Currently, the main competitors of high-end domestic CNC systems are foreign companies represented by Japan's FANUC (FANUC) and Germany's Siemens. Huazhong CNC's breakthrough at the high-end level is significant. “We sell high-end machine tools to some key industries. Customers specify that they use domestic CNC systems, and the Huazhong 5-axis CNC system just makes up for this gap.”
Chen Jihong said that since the market ecosystem formed by foreign brands over a long period of time is difficult to break, and the technical threshold of the industry is very high, China's CNC system industry started from scratch and experienced a long process of technological maturity and product application promotion. “It is difficult for companies that have always used foreign CNC systems to switch to domestic CNC systems.”
Chen Jihong believes that the localization of CNC systems always has to be done by someone. As an industrial mother machine, the CNC system is also the “brain” of the industrial mother machine, which is a “stuck neck” problem that must be faced in competition between major countries.
“A group of Huake people represented by Academician Zhou Ji realized this problem more than 30 years ago, only to have Huazhong CNC. We are relaying generations.” He said that to solve the “stuck neck” problem, overcoming core technology is the most basic requirement. More importantly, it is necessary to engineer and industrialize core technology, occupy the market, and achieve localized replacement.
(Chen Jihong was interviewed by a reporter from the Financial Association. The first one on the left is Chen Jihong)
Established in 1994, Huazhong CNC actively participated in the national strategy by promoting China's “High-end CNC Machine Tools and Basic Manufacturing Equipment” project in 2009.
Referring to the 30 years that have gone through ups and downs in central China, Chen Jihong said that it is not easy for Huazhong CNC to develop and grow in industry competition. In particular, he mentioned that with the support of major projects, Huazhong CNC worked hard for 8 years, experienced many “100 days of research”, and finally successfully developed the Huazhong 8 series high-end CNC system, which has achieved a leap from 0 to 1 in China's high-end CNC industry.
When the “04 Project” was launched in 2009, the market share of domestic high-end CNC systems was only 1%. By the end of the “04 Project” in 2020, the market share of domestic high-end CNC systems had reached about 30%.
“Around 2017, a third party agency tested the company's Huazhong 8 high-performance CNC system and comprehensively benchmarked the high-performance CNC system product functions in Germany, Japan and other countries. More than 600 functions of standard CNC system products reached 100%, and the benchmarking ratio of more than 1,900 functions of high-end CNC system products exceeded 98%. There is still a gap in the performance of high-end CNC system products. This is due to insufficient testing and verification of domestic systems in various application scenarios.”
“We used to be 1.2 (version), now 2.4 (version), and soon 3.0 (version). In addition to improved functionality, the upgraded version also drastically reduced the performance gap. The performance gap was reduced thanks to finding a few hardcore users.”
Chen Jihong specifically mentioned that he would like to thank Haomai Machine for their support. “Two years ago, Haomai Machine formed a joint research team with us and carried out four rounds of 100 days of research.”
Chen Jihong said that the so-called 100-day challenge was to send a team of 200 people to work hard for 100 days, 12 hours a day, 6 days a week. “The core technical indicators in terms of performance have been overcome.”
This is just a microcosm of years of technical research in central China. A CIFA reporter noticed that at this Shanghai Machine Tool Show, more than 40 five-axis machine tools were equipped with CNC systems in central China. Chen Jihong specifically mentioned that the CCMT2024 Jinan No. 2 Machine Tool Factory's “double five-axis gantry CNC machine tool” is supported by the Huazhong CNC system.
“Many of my friends and machine tool factory bosses saw the Jinan No. 2 machine tool. They thought they were using an imported system, and then took a closer look, it was actually a Central China system. They all know that this machine is technically difficult, which is equivalent to our original control of a 5-axis, but not necessarily well controlled. You also need to use one head to control two 5-axes, which is even more difficult.”
After years of hard work, in 2022, Huazhong CNC made great progress in the field of high-end CNC systems, breaking through 1,000 sets for the first time, tripling from 2021. In 2023, the company supplied more than 1,600 units in the field of high-end 5-axis CNC system applications, an increase of nearly 60% over the same period last year. Last year, the company achieved a year-on-year increase of 27.13% and 45.70% in revenue and net profit to mother, respectively. Among them, the company's CNC system and machine tool business achieved revenue of 892 million yuan, an increase of 26.22% over the previous year.
Chen Jihong said that in order to seize “time and place are favorable to people,” the company will once again achieve breakthroughs in high-end CNC system applications such as 5-axis this year.
Empowering with AI, from “following” to local “leading”
On April 9, Huazhong CNC unveiled a series of new products at the exhibition, including the Huazhong CNC five-axis flagship product package, the new 3C drilling center product package, processing robot automation solutions, and the intelligent application of AI-enabled machine tools. Among them, the intelligent application of AI-enabled machine tools attracted much attention.
“Foreign systems have formed a huge user ecosystem in China, and it is still very difficult for domestic systems to enter the market.” Chen Jihong said, “How can we break this ecosystem? Catching up against targets can only narrow the gap; only through innovation and AI empowerment can we gradually surpass it, thus achieving the effect of doing more with less.”
While demonstrating the intelligent application of AI-enabled machine tools at the booth, Chen Jihong explained, “Judging from remote fault diagnosis, we can use the same topics to test the big model system of engineers with one or two years of service and Huazhong CNC. Assuming an engineer with one year of service gets 30 points and a two-year service gets 70 points, then the big model has already scored 80 points. This is equivalent to this large model system having reached the level of an engineer with two years of service.”
“I can't say that it was the first company in the world to use a numerical control system (the first batch) to use a large model. This system can sense, develop knowledge on its own, then predict the future based on this knowledge, optimize decisions, make decisions independently, and execute independently based on predicted results.” Chen Jihong said, “Many foreign CNC system companies visited us for in-depth research at the Shanghai Machine Tool Show. They are all particularly interested in this.”
(Photo taken by a reporter from the Financial Services Association, an AI model developed by Chen Jihong in CCMT2024)
According to information, the Huazhong Type 9 intelligent CNC system is the world's first intelligent CNC system equipped with an AI chip. Currently, the system has been used in small batches by many domestic machine tool companies.
“After another 3-5 years, the domestic CNC system will have a collective breakthrough”
Currently, the localization rate of high-end CNC systems in China is not high, and they have become a key basic component that is “stuck in the neck” due to the weak manufacturing base in China. Mainstream CNC systems in the Chinese market come from German and Japanese manufacturers such as Siemens and Fanuc. Overseas CNC system manufacturers account for about 67% of the market in 2022.
As mentioned in the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, we aim to achieve a penetration rate of more than 90% of digital R&D and design tools for industrial enterprises above scale, and a numerical control rate of more than 75% for key processes by 2027.
In response, Chen Jihong said, “In the past two years, especially the changes in the international situation, many users and places have gradually established a sense of confidence and awareness that the industrial chain is autonomous, controllable, and localized.” Chen Jihong said that judging from this exhibition, there are still many machine tool manufacturers using foreign CNC systems. This shows that domestic systems have not yet become mainstream recognition, so we have more to work hard.
According to Chen Jihong, in another 3-5 years, there will be a collective breakthrough in domestic CNC systems. “It's like buying electronics before. Everyone buys Japanese brands, but now it's a world of domestic brands. Also, 3 or 5 years ago, it was most difficult for users to buy domestic cars. When domestic cars overtook corners through electrification, several leading domestic manufacturers stood up collectively. In the same way, I believe that in the future, our machine tool companies will not feel that they will lose their grade and will have to cut prices because they are equipped with domestically produced CNC systems.”
Chen Jihong said that in order to maintain technological advantages and narrow the gap with imported products, Huazhong CNC has always maintained a high investment in R&D. Over the past five years, it has invested about 1.6 billion yuan in R&D, accounting for an average annual R&D investment of 20.49%. High investment in R&D has had a certain impact on net profit.
He explained that the company undertakes government subsidies for national and local science and technology projects. These projects all require strength to be unveiled; they cannot be obtained casually.
In the process of undertaking the project, the company needs to invest a large amount of manpower, material resources, and financial resources to ensure the smooth implementation of the project. The R&D investment for the corresponding project is large, and R&D expenses are all included in recurring profit and loss. However, according to the relevant provisions of accounting standards, government subsidies received by companies undertaking project projects must be included in non-recurring profits and losses. Therefore, when calculating net profit after deduction, only the confirmed amount of government subsidy revenue was deducted, and the relevant R&D investment expenses incurred for this purpose were not deducted, so the accounting method caused the company's net profit after deduction to be negative.
He said that Huazhong CNC, as a pioneer, “under pressure” must also insist on the research and development of CNC systems for high-end machine tools and reduce the price of five-axis systems from foreign manufacturers.
In order to seize a high position in the high-end CNC machine tool market, Huazhong CNC has increased production capacity and is promoting refinancing projects according to the plan, raising no more than 1 billion yuan, of which 500 million yuan is planned to be invested in key technology research and industrialization projects for five-axis CNC systems and servo motors (Phase I). It plans to add an annual output of 1,200 sets of 5-axis CNC systems, 500 sets of 5-axis CNC systems, 500 sets of 5-axis laser CNC systems, 250,000 servo motors, and 50,000 linear motors.
Chen Jihong said that high-end CNC systems, as an important indicator for measuring the country's level of technology and innovation, must continue to increase the localization rate and continue to achieve technological breakthroughs. In the future, Huazhong CNC will continue to increase the development and application of localized CNC systems, using the “Chinese brain” to equip “Made in China”.