(Reuters) - Baidu (NASDAQ:BIDU) said its leading position in AI in China means it is well positioned to navigate an increasingly competitive market despite reporting a decline in quarterly revenue.
The comment came amid an AI price war in China, where companies have slashed prices of large language models used to power generative AI products.
"Competition will be fierce over the next 2 to 3 years." Baidu CEO Robin Li said in an earnings call following the company's Q2 release.
Li added that the company's Ernie platform handles over 600 million requests to its AI system daily, which he claimed is the highest among Chinese companies.
Baidu, China's dominant search engine, earns most of its revenue from ads. In recent years, it has increased investment in AI as part of its transformation into a "AI company".
For the three months ending in June, revenue dropped 0.4% to 33.93 billion yuan ($4.67 billion), compared with analysts' average estimate of 33.55 billion, LSEG data showed.
Baidu's online marketing business, which generates the majority of its revenue, fell 2% to 19.2 billion yuan.
The decline reflects a slowing Chinese economy still recovering from a property market slump, prompting advertisers to tighten their budgets.
Ernie, Baidu's large language model platform touted as a rival to OpenAI's GPT, has been embedded into various app services, aiming to improve user experience.
The company has also launched a paid version of its Ernie-powered chatbot for public use, while selling API services powered by Ernie to developers through its cloud computing offerings.
Li said generative AI contributed 9% to Baidu's cloud computing revenue of 5.1 billion yuan in Q2, up from 6.9% in Q1.
As part of its AI push, Baidu has also ramped up investment in autonomous vehicles. Its Apollo Go robotaxis are now operating in multiple Chinese cities, with the largest fleet of 500 vehicles running in Wuhan.
While this business has yet to significantly contribute to revenue, Baidu has said that Apollo Go operations in Wuhan are expected to reach break-even by the end of this year.
Adjusted net income fell 8% to 7.4 billion yuan but beat the 6.45 billion yuan expected by analysts.
U.S.-listed shares of Baidu were down 3.3% in early trading.
($1 = 7.14 Chinese yuan renminbi)