Two Interim Disclosures Show Functional Diamond Is Not Profitable Yet

In April, my reading of Chinese annual reports was that CVD diamond had moved beyond the lab-grown jewellery narrative into functional materials, including thermal management for AI chips. Profitability, however, would depend on production ramp, customer qualification, product mix, and cash-flow quality.

Two disclosures in late July provide a useful cross-check: Huanghe Whirlwind’s interim earnings forecast and Power Diamond’s formal half-year report. One company remained loss-making and the other reported strong profit growth. Neither established functional diamond as a separately verifiable source of profit.

Huanghe Whirlwind: “in production” but not materially affecting operations

Huanghe Whirlwind forecast a first-half net loss attributable to shareholders of RMB 220 million, an improvement from a RMB 299.26 million loss in the prior-year period.

The important wording was not only that functional-diamond technology had made substantive progress and related products had entered production. The company immediately added that these products had not yet had a material effect on production or operations.

That second clause defines the evidence boundary. The forecast did not disclose yield, output, customers, or stand-alone revenue. “In production” therefore cannot yet be translated into commercially meaningful scale or verified profit.

Power Diamond: what actually drove 248% profit growth?

Power Diamond reported first-half revenue of RMB 438 million, up 80.94%, and net profit attributable to shareholders of RMB 90.08 million, up 247.61%.

The disclosed drivers were established businesses. Large-particle diamond generated RMB 297 million of revenue, up 141.93%, at a 34.87% gross margin, while lab-grown diamond exports recovered. The report did not present heat spreaders or functional materials as a separate revenue category.

Three details are especially useful.

• Investment income was RMB 28.02 million, equal to 24.28% of total profit. The company attributed it mainly to returns on wealth-management products.
• On June 29, shareholders approved reallocating RMB 1.028 billion of unused funds from the Shangqiu Power Diamond Technology Centre and Smart Lab-Grown Diamond Factory project to a newly established functional-diamond material production and R&D project. With the reporting period ending on June 30, the new project had almost no time to generate substantive investment or operating results.
• A separate, larger Phase II diamond and lab-grown diamond smart-factory project had planned investment of RMB 1.599 billion. Cumulative investment reached RMB 791 million, or 53.03%, by period end. The two projects should not be combined, but together they show that the company was still carrying two unfinished capacity programmes.

Power Diamond had already stated in a May 26 unusual-trading notice that diamond thermal-material applications had not reached large-scale commercialization, remained highly uncertain, and had not affected its main business or revenue.

Why the two disclosures point in the same direction

The companies had different earnings outcomes and used different disclosure formats. Their common feature was that functional materials had not been isolated as a verifiable profit contributor.

First, technical progress still has to cross an engineering gap before stable volume production. Jewellery- or industrial-grade diamond and semiconductor-oriented functional material are not simply different capacity levels. Nitrogen control, defect density, wafer-scale consistency, finishing, and repeatability create a different process challenge. Huanghe Whirlwind disclosed no supporting parameters, while Power Diamond’s new project had only just been approved.

Second, the application market has not been demonstrated at scale. Producing material and selling it in repeat volume are different milestones. Both companies used cautionary language: no material operating effect and no large-scale market adoption. The decisive evidence will be customer qualification and repeat orders, not thermal-conductivity claims alone.

Third, established businesses still determine the financial baseline. Recent improvement came from pricing, export recovery, and scale in older product lines. Functional materials remained in construction and validation rather than operating as an independent profit engine.

A reusable test for commercialization

When assessing whether a diamond company’s functional-material business is genuinely profitable, I would check three items:

1. Does the financial report disclose functional materials or heat spreaders as a separate revenue line?
2. How much capital has actually been invested, and which specific project received it? Project approval is not the same as deployed capital or operating capacity.
3. How much profit came from operations, and how much came from investment income, subsidies, asset disposals, or other non-operating items?

None of this means that the direction is wrong. AI-chip thermal constraints are real, and diamond’s physical properties are real. The two disclosures place the sector at a more specific stage: technology is moving from breakthrough toward production, applications remain under validation, and established businesses are still financing the transition. That timeline is longer than market narratives often imply.

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