On June 17, the markets were set ablaze by speculation that Huawei might retract certain aspects of its Ascend  server business, leading to a significant drop in the shares of various companies connected to HuaweiThe stock of Digital China, a company deeply entwined with Huawei, was particularly affected, plummeting and resulting in a staggering loss of approximately 2.1 billion yuan in value over two trading daysDigital China's partnership with Huawei dates back to 2011, and the Ascend servers represent a core segment of its business operations focused on independent innovation.

Rumors can serve as a double-edged sword; while they may ignite panic, they can also stir curiosity about the underlying business dynamicsIn this instance, the rumor that Huawei might take back some assembly operations of its Ascend servers created a knee-jerk reaction in the stock market

Investors reacted swiftly, leading to a dramatic downturn for Digital China, which saw its stocks hit a daily limit downBy the end of trading on June 18, the stock of Digital China had decreased by 1.87%, closing at 24.20 yuan per share, thereby marking a remarkable loss of around 2.1 billion yuan in market capitalization.

In light of these events, Digital China issued a statement assuring stakeholders that business operations were running normally and that they had not received any notifications regarding the speculative newsHuawei also released a clarification, indicating that no final decisions had been made regarding the assembly operations and that discussions were still in the preliminary stages.

Digital China's long-standing collaboration with Huawei has transformed significantly since its inceptionInitially signed in 2011, this partnership over the years evolved into a crucial channel for numerous Huawei product lines

• Hang Seng Electronics Eyes Further 5% Stake
• Can Gold Prices Hold Support?
• A 12 Billion Setback: How Helitai's Missteps Hurt BYD
• Precious Metal Frenzy Ignites Stock Prices
• Tesla Surges Over 27% in Just 10 Days!

For Digital China, the Ascend business represents one of the integral parts of its overall business strategyBy 2020, the company launched its own brand, "Digital KunTai" servers, leveraging the Huawei Kunpeng and Ascend ecosystem and continuing to play a vital role within Huawei's broader market environment.

The origin of this turmoil can be traced back to the news surfacing about Huawei's potential move to shift its partner-based business model to a direct sales structure, raising questions about how such an evolution would impact Digital China and the overall supply chainWith the AI and computing industry rapidly evolving, the ramifications of such a shift could drastically affect the future growth prospects of affiliated companies.

The scale of this market reaction underscores the significant implications dependent on Huawei's decisions regarding its Ascend business, especially for companies like Digital China

Notably, Digital China has responded to concerns with transparency, declaring that the company remains in a healthy operational stateDespite reassurances, investor sentiments remained pessimistic, as indicated by the stock value decline over the two-day trading period.

Analyzing Digital China's revenue structure reveals that the company operates three primary business segments: IT distribution, cloud computing and digital transformation, and independent brands (Xinchuan). Historically, IT distribution has served as the backbone of Digital China's revenue, accounting for an impressive 91% of total revenues in 2023.

However, the significance of the Ascend server business within Digital China's overall portfolio has steadily grownAlthough the revenue derived from Ascend servers remains relatively small in comparison to their total earnings, the independent brand business has shown substantial growth

In 2023, Digital China's total income from independent brands reached 3.829 billion yuan, marking a notable 71% increase from previous figures.

Even though the revenue from Ascend servers accounts for a minor share of overall income, Digital China's manufacturing capabilities are set for expansionWith existing server production capacity at 46,800 units annually and a new production line under construction in Hefei, the company anticipates a large-scale increase of 150,000 units upon completion.

Industry experts convey a broader optimistic sentiment about the long-term growth potential in AI server marketsForecasts from IDC predict the market in China will balloon to $9.1 billion in 2023, a striking year-on-year growth of 82.5%, and blossom further to $13.4 billion by 2027, illustrating significant compound annual growth of 21.8% over a five-year span.

Recent performance figures reflect this promising trajectory, with Digital China's first quarter of 2024 showcasing a substantial $1.25 billion in revenue attributed to independent brands, alongside a remarkable year-on-year growth of 166% in the Xinchuan vertical

While this sector still comprises a relatively small component of overall income, its growth rate is impressive.

The intertwined relationship between Digital China and Huawei extends beyond simple business arrangements, reaching into strategic objectives pivotal for growthThis collaboration began firmly in 2011, where Digital China emerged as the primary distributor for Huawei's enterprise solutionsAs the partnership advanced, it encompassed an expansive range of products, culminating in the establishment of the Huawei Business Group in 2018, inspired by a strategic alignment that promoted integration across the various dimensions of operations.

With a strong foundation in cloud computing established in 2017, Huawei soon emerged as Digital China's key public cloud partner, paving the way for comprehensive cooperation in cloud computing and digital transformation initiatives

Consequently, Digital China’s positioning within the Huawei ecosystem deepened amidst complex dynamics, significantly influencing the trajectory of its autonomous brand endeavors.

As a testament to this collaborative synergy, Digital China has witnessed impressive stock growth, with share prices soaring over 60% since the latter half of 2022. Its partnership with Huawei solidifies a competitive edge in the rapidly evolving tech landscape, promising potential for future gains.

In the competitive environment of tech giants, Digital China’s server offerings, deriving from Huawei's architecture, are notably significantThe ARM architecture-based “KunTai” servers leverage Huawei's cutting-edge Kunpeng 920 processors, catering to a spectrum of emerging applications in the AI sector.

Moreover, Digital China's strategic engagement with other firms to secure significant contracts further highlights its ambitions

Recently, it has established agreements with companies like Shanghai Hengwei Intelligent and Shenzhen Haishang Zhiyun Technology, totaling significant orders for Ascend servers, signaling robust demand across its client base.

Moreover, Digital China's meteoric rise can be traced back to its management under Guo Wei, a figure of considerable influence within the tech communityHis control over 23% of the company's shares speaks to the significant impact he bears on its strategic direction, guiding it through complexities inherent in the tech landscape of today.

Guo Wei has a storied history, once considered one of the 'five young masters of Lenovo’, and has played extensive roles within Lenovo’s senior management for years, solidifying his reputation as a thought leader in this domainFollowing Lenovo's operational split in the early 2000s, Guo successfully stewarded the fortunes of the 'Digital China' faction, which has since flourished under his leadership.

Now, with its expansive market footprint, Digital China stands at the forefront of operations amidst four publicly listed subsidiaries, strategically positioned to synergize operations across domains