Can AI Toys Support Espressif Systems’ Performance?
Dear friends from 36Kr, today we will discuss Espressif Systems. On November 12, Espressif held its fifth extraordinary shareholders’ meeting in its new office building in Pudong New District. This is the first shareholders’ meeting since the company moved into the new office building in October. The new office building has eight floors, with floors 2 to 7 dedicated to the R&D center, accommodating up to about 1,200 employees.
More than 20 people attended the shareholders’ meeting, including Espressif’s Chairman Zhang Ruian, Vice General Manager and Secretary of the Board Wang Jue, and other internal and external shareholders, who also engaged with investors after the meeting. The shareholders’ meeting approved the proposals regarding the reappointment of the company’s auditing institution for the year 2025 and the proposal to change the company’s registered capital and amend the articles of association.
Management Responds to National Subsidy Impact and Cost Pressure
Espressif’s Q3 2025 report shows a total revenue of 1.912 billion yuan in the first three quarters, a year-on-year increase of 30.97%; the net profit attributable to the parent company was 377 million yuan, a year-on-year increase of 50.04%. However, due to the impact of the early consumption boost from the “national subsidy” in the second quarter, revenue in the third quarter decreased by 3.05% compared to the second quarter.
During the investor communication session after the shareholders’ meeting, some investors expressed concerns that the “national subsidy” policy might lead to an early release of the company’s performance, resulting in weaker performance later. However, Zhang Ruian was optimistic, stating that the company is still in a performance growth phase and that meeting shareholders’ expected growth targets is not a problem.
On the cost side, recent price increases from NOR Flash manufacturers such as Gigadevice, Puran, and Hengshuo have raised concerns. Many investors have found that several companies are negotiating new storage prices with downstream manufacturers, indicating that prices will continue to rise next year. Whether this round of storage price increases will raise Espressif’s costs is also a key concern for investors. Zhang Ruian stated that the price increase of NOR Flash has little impact on the company’s product costs because the company has a large volume, and upstream manufacturers generally do not raise prices for the company. It is reported that storage accounts for about 15% of Espressif’s total product costs.
Most of Espressif’s revenue comes from overseas, with domestic revenue accounting for 71.76% and overseas revenue accounting for 28.24% in the first half of 2025. As a company with a high proportion of overseas market revenue, tariff policies and geopolitical factors are key risk considerations. Zhang Ruian mentioned at the shareholders’ meeting that the company conducts a comprehensive risk analysis in its operations. From the perspective of process technology, the main foundry is TSMC, which currently does not use processes below 6nm, thus the risk of supply chain disruption is low. Moreover, Espressif’s main downstream customers do not manufacture in the United States. During past rounds of tariff adjustments, revenue continued to grow, indicating good business stability and risk resistance.
In terms of business structure, the smart home sector remains the core source of revenue, while non-smart home applications (such as industrial, medical, and other IoT scenarios) are growing at a faster rate. Wang Jue stated that in the third quarter, revenue from the smart home sector accounted for about 60% or more, significantly affected by the early boost from the “national subsidy,” with a quarter-on-quarter decrease of about 20%. However, the performance in the fourth quarter is still good; the non-smart home sector saw rapid growth in the third quarter, increasing by about 30% – 40%.
Future Growth Directions and Performance Growth Points
Espressif’s product market is in the broader IoT field, with a product strategy of “Processing + Connectivity.” The chip product matrix covers various processors (SoCs) with wireless connectivity capabilities, evolving into an IoT technology ecosystem company.
Regarding future growth directions and performance growth points, Zhang Ruian mentioned three aspects: first, the new Wi-Fi 6E project is expected to enter mass production by the end of this year and scale up next year; second, the company will launch AI inference edge chips, which are currently under research; third, Wi-Fi 7 chips are in internal development, expected to be completed next year.
Espressif’s first wireless communication chip supporting Wi-Fi 6E has completed engineering sample testing, equipped with a self-developed dual-core 500 MHz RISC-V processor. Zhang Ruian stated that the ESP32 series already has several integrated MCUs, and the AI inference edge chip being launched will develop towards high computing power, primarily focusing on image recognition, not limited to video recognition, and profitability will also increase.
Espressif’s development direction aligns with the 1.778 billion yuan private placement plan initiated this year. The funds raised will be used for three major R&D projects: the development and industrialization of Wi-Fi 7 router chips, the development and industrialization of Wi-Fi 7 smart terminal chips, and the development and industrialization of AI edge chips based on self-developed RISC-V IP. All R&D projects are based on the RISC-V open instruction set. Zhang Ruian stated that compared to the traditional ARM platform, the RISC-V development cycle is shorter, and the company operates using a self-developed IP model.
Additionally, Espressif is entering the video application field through SoC chips with integrated video processing capabilities. The ESP32-S3/P4 chips integrate AI vector instructions, supporting 1080P video encoding and local inference. Zhang Ruian mentioned at the shareholders’ meeting that the video chips launched by the company will not be used in AI glasses.
Current Status of AI Toys
Notably, two AI toys on the management’s table at the shareholders’ meeting attracted attention. Wang Jue introduced that both AI toys used Espressif’s chips, one utilizing a large model from Doubao, and the other using a large model from Baidu. However, the current shipment volume of AI toy-related products is very low. Zhang Ruian added that while many believe that AI toy sales could increase tenfold from this year to next, the actual growth is expected to be a gradual increase of at most three times, as it involves hardware, and the design, testing, and mass production cycles are relatively long. Currently, the company collaborates with domestic large model manufacturers, but there are no overseas partnerships yet.
Product Market Planning and Developer Community
Regarding product market planning, Wang Jue stated that Espressif is not only focused on the smart home sector but also on the broader IoT field, aiming to expand existing markets without venturing into new energy vehicles, mobile phones, and other areas. Besides smart homes, many customers come from industrial sectors, and future growth over the next 3 to 5 years will rely more on the launch of new products. According to the TSR report, the company ranks first globally in shipment volume in the Wi-Fi MCU sub-market and fifth in the large Wi-Fi market, only behind international giants, and is the first in mainland China. Zhang Ruian stated that the goal is to be in the top four globally, which is expected to be achieved next year.
The development of the developer ecosystem is a feature of Espressif. As of Q3 2025, there are a total of 115,000 ESP32 open-source projects on GitHub, with an average of 152 new projects added daily, a significant increase from the average of 123 new projects per day in the first half of the year. Some investors believe that the open-source ecosystem provides developers with a large space for customization, enriching the application ecosystem and increasing the probability of breakout products.
Zhang Ruian mentioned that Espressif will hold its global developer conference in November this year. The company adopts a B2D2B model (obtaining business opportunities through developers) and also employs a direct sales model for B-end customers. Espressif products can be sold directly in the developer community, but the growth of GitHub projects has not directly driven revenue growth. Espressif responded during institutional research that corporate orders follow an “annual procurement cycle,” while GitHub project growth is a medium to long-term positive indicator. The timing of the two is misaligned; it usually takes 1 to 2 years for technology validation and product introduction from developer influence to corporate orders, and the growth rate of projects does not correspond linearly to orders.
Can AI toys really support Espressif’s performance? We will have to wait and see!