Canaan Inc. Q1 2023 Earnings Call
Speaker 2: For the management paper remarks, we will have a question and answer session.
Speaker 2: Please note that this event is being recorded. Now, I'd like to hand the conference over to your speaker host today, Mr. Clark Soucy, investor relations director of the company. Please go ahead, Clark.
Speaker 3: Thank you. Hello everyone and welcome to our Earnings Conference call. The company's financial and operating results were released by Newswire Services earlier today and are currently available online.
Speaker 3: Joining us today are our Chairman and CEO , Mr. Nan Geng Zhang, and our CFO , Mr. Jin Chung James. In addition, Mr. Leo Wang, IR Senior Director, and Ms. Shi Zhang, IR Manager.
Speaker 3: will also be available during the question and answer session.
Speaker 3: Mr. Chung will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Chung will then provide details on the company's operating and financial results for the period before we open the call up for your questions.
Speaker 3: Before we continue, I would like to refer you to our safe harbor statement in our earnings press release.
Speaker 3: Today's call will include forward-looking statements.
Speaker 3: These statements include, but are not limited to, our outlook for the company and statements that estimate or project future results of operations or the performance of the company.
Speaker 3: These statements speak only as of the date hereof and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call, or webcast except as required by law. These statements do not guarantee future performance and are subject to risks, and are not intended to be
Speaker 3: uncertainties and assumptions.
Speaker 3: Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 20-F for information on risks, uncertainties, and assumptions that may cause actual results.
Speaker 3: to differ materially from those set forth in such statements. In addition, during today's call and webcast, we will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to...
Speaker 3: the call over to our Chairman and CEO , Mr. Engy Zhang. Please go ahead. Hello everyone. I'm Engy, the CEO of Canet. Thank you for joining our conference call. Jamies and I are at the company's headquarters in Singapore sharing the corporate report of our conference call with you.
Speaker 4: Compared to Q4 of previous year, Q1 of 2023 has brought more hope to Bitcoin mining industry. Although the Bitcoin price still fluctuates, it has generally stepped out of the bear market at Shun and Kastur China.
Speaker 4: The confidence of miners has gradually recovered and coupled with the traditional peak season in the first quarter. There are signs of a revival in purchasing demand.
Speaker 4: Although the purchasing power of large miners is still limited by cash flow, pace of facility construction and the financing environment.
Speaker 4: This has not affected the positive trend of the market.
Speaker 4: Regrettably, the selling price in the mining machine market is still declining, and the first quarter is still in a bear market state.
Speaker 4: In this ever-changing market environment, we believe that maintaining strategic continuity and timely adjusting
Speaker 4: tactical decisions according to market dynamics.
Speaker 4: equally important.
Speaker 4: In other words, we need to keep investing in business and assets that bring long-term value, while also carefully handling our company's balance sheet.
Speaker 4: I would like to introduce to investors the four strategic focuses that we have been concentrating on and our actions in this area.
Speaker 4: First, we insist on long-term R&D and production capacity investment.
Speaker 4: Second, we continue to develop and improve our market-based sales system to connect and assist global customers.
Speaker 4: Sir, we adhere to our own mining strategy, overcome difficulties, and continue to expand mining deployment.
Speaker 4: Finally, we maintain a solid balance sheet and accumulate valuable assets with great potential.
Speaker 4: I will elaborate on these four points one by one.
Speaker 4: Firstly, we are committed to R&D and production capacity.
Speaker 4: Product development and capacity affluence remain our major input and investment in the first quarter of 2023.
Speaker 4: The specific data will be shared by James later. As a technology and a product-oriented company, the importance of product power in our industry is self-evident. We always put product development first.
Speaker 4: As mentioned in the last financial report, our latest generation A13 series mining machine was introduced in the industry's winter in late October last year. We insisted on
Speaker 4: maintaining close cooperation with upstream foundries.
Speaker 4: cooperation with upstream foundries. Next, we will conduct it in the first quarter.
Speaker 4: and further improve the yield and computing power efficiency through technical adjustments and process improvements.
Speaker 4: Our A13 series has reached and exceeded our previous design expectations in terms of yield rate and actual performance.
Speaker 4: In the first quarter, we have achieved stable supply.
Speaker 4: in actual use by customers.
Speaker 4: The excellent computing power consumption and quality of H13 series has also been recognized.
Speaker 4: and the volume is growing rapidly.
Speaker 4: Whether in a bear market or a bull market, we always insist
Speaker 4: on the integration and the trial to make the best mining machine.
Speaker 4: Even when A13 series was not yet mass-producted and market was at its most.
Speaker 4: was not yet mass-producted and the market was at its most bearish.
Speaker 4: Our new product deployment and development was always in full swing.
Speaker 4: We are well aware that the market requires the performance of mainstream products to take a big step forward about every half a year.
Speaker 4: We are well aware that the market requires the performance of mainstream products to take a big step forward about every half a year. And we must keep up.
Speaker 4: and the continuous launch of new products open means continuous supply chain investment.
Speaker 4: In the first quarter, our mass production and investment in the supply chain exceeded $50 million. I believe that our efforts and resource input will pay off in the subsequent product performance improvement and supply chain stability.
Speaker 4: Secondly, we are dedicated to developing and enhancing our sales system to reach global customers.
Speaker 4: The industry we are in is fast growing and unpredictable. In each bear bull cycle, the industry undergoes reshuffling.
Speaker 4: with some others leaving and the new ones joining.
Speaker 4: As manners continually stick and develop standard shape.
Speaker 4: energy worldwide, transforming wasted energy into reusable power. Both the identity and the location of miners are constantly changing.
Speaker 4: Starting from the first quarter of this year, we accelerated the construction, development, and improvement of our comprehensive design.
Speaker 4: International Sales System. Our sales system is not divided into three parts large clients, channels and retail.
Speaker 4: and it is assisted by online stores and original business development.
Speaker 4: allowing us to better reach and convert customers worldwide.
Speaker 4: In the first quarter of 2023, the overall industry was affected by inventory, computation, binizing conditions, and cash flow.
Speaker 4: Although sales volume in the mining machine markets saw a slight recovery compared to Q4 of 2022, we still remain in a bear market with a continuous decline in average selling price of computing power.
Speaker 4: the mining machine markets saw a slightly recovery compared to Q4 of 2022, we still remain in a bear market with a continuous decline in average selling price of computing power. A series of
Speaker 4: Small and medium sized bank failures in the US late in the quarter also had some impact, causing delays in payment and shipment for some owners.
Speaker 4: These factors resulted in less than ideal sales revenue for this quarter.
Speaker 4: We'll achieve total cells of 4.22 million terahertz per second.
Speaker 4: a screenshot growth of 126.8%.
Speaker 4: But the total quarterly revenue of 55 million was below our expectations.
Speaker 4: However, we also see positive aspects.
Speaker 4: Although demand from large clients in US
Speaker 4: clients in the US fluctuated.
Speaker 5: our
Speaker 4: Expanding cell system quickly sees many cells opportunities in other regions.
Speaker 4: With the total number of purchase orders rising to over 500 in Q1,
Speaker 4: In the first quarter, we actively developed self-channels in Southeast Asia and established cooperation with local distributors in Thailand and Malaysia for the first time.
Speaker 4: Our online store targeting overseas retail customers attracted orders from about 20 countries.
Speaker 4: include first-time contacts in several countries such as Greece, the Netherlands, Argentina, Brazil, Mexico and the Philippines.
Speaker 4: After we enter Q2 and mark it to the line.
Speaker 4: The intactives and efforts we implemented in Q1 are starting to show more results.
Speaker 4: For instance, we recently signed a contract order of 11,000 units of our A13 product with Cypher.
Speaker 4: or publicly listed institutional mining clients in North America.
Speaker 4: Before that, the contract, we assisted the Alliance to conducting
Speaker 4: extensive on-site tests for our products at their mindset in Texas.
Speaker 4: The client ultimately recognized the excellent performance of our A13 series products under relatively extreme weather conditions.
Speaker 4: Recently, we have also signed a series of large-scale contract orders for an additional 36,000 mining machines in other regions.
Speaker 4: which are expected to be delivered in the section before the end of the fourth quarter of 2023. The recent appearance of these large contract orders across the multiple markets confirm that our business and product strategies are correct.
Speaker 4: Lastly, the return of contract sales orders will also help us improve our cash flow situation. Thirdly, we seek our mining strategy and continue to expand our mining deployment.
Speaker 4: Since the company started mining operations in the second half of 2021, we have faced many challenges.
Speaker 4: Despite this, we have formally established many other strategy priorities and secured a place for ourselves.
Speaker 4: in the global rapidly developing industry of Bitcoin mining.
Speaker 4: In the first quarter of 2023, the probability of mining improved due to the recovery of Bitcoin prices and some sites that were forced to shut down in the fourth quarter of 2022 and were able to restart operations.
Speaker 4: This quarter we produce 476 heat coils.
Speaker 4: contributing a mining revenue of 11 million US dollars, a slight increase from the previous quarter and the new record high. We are continuously exploring more mining opportunities in different regions and reducing our comprehensive mining operation costs.
Speaker 4: Even though the total network computing power is still rising, the increase in Bitcoin price and recent industry events like BRC20
Speaker 4: even though the total network computing power is still rising. The increase in Bitcoin price and recent industry events like BRC20 have boosted my income.
Speaker 4: during certain periods. We anticipate that the company's money income will reach a new high in the second quarter.
Speaker 4: As of March 31, 2023, we have deployed computing power of over 5 X hash per second to our mining sites.
Speaker 4: However, due to zero cold weather and contract execution issues,
Speaker 4: The total power is installed is over 4 x the hash per second.
Speaker 4: This figure is lower than our forecast in the previous quarter's financial report.
Speaker 4: We will continue to strive to improve our deployment.
Speaker 6: deployed.
Speaker 4: computational power data with our cash flow and operational capabilities.
Speaker 4: Lastly, we are dedicated to maintaining a health cash flow and accumulating assets with strong growth potential.
Speaker 4: Canon has just completed a full decade from its inception in early 2013.
Speaker 4: completed a full decade from its inception in early 2013 to the first quarter of 2023.
Speaker 4: We've weathered many market ups and downs and have gained some unique experience in managing our fashion industry.
Speaker 4: In the first quarter of this year,
Speaker 4: Our prediction about the price of Bitcoin was mostly accurate, but the sales of our mining machines proved to be more difficult.
Speaker 4: We achieved improvements.
Speaker 4: in sales and the return of contract sales orders in the second quarter, which continued to contribute our revenue and cash flow. This also was noted that the healthy and the healthy
Speaker 4: The healthy and stable supply chain resources we have accumulated over the years have helped us seek opportunities to match the administrator tools and achieve Le righteous opportunities.
Speaker 4: produce and deliver mining machines at the price of Bitcoin prices.
Speaker 4: Meanwhile, our Bitcoin assets continue to grow. Once again.
Speaker 4: We emphasized our strategy of holding bitcoins. Bitcoins generated from mining are only used to pay for direct operation costs, such as electricity.
Speaker 4: Our self-developed and self-produced mining machines products and the mining power deployed to the mining sites.
Speaker 4: as important assets for producing Bitcoin contain huge growth potential as Bitcoin price continue to rise in the medium and long term.
Speaker 4: In some cases, already deployed mining machines can be restored with warranties.
Speaker 4: In this brand new industry, we are making history every day. Even for me, the first quarter of 2023 was a challenging start.
Speaker 4: So uncertainty in the reality has made our performance less ideal.
Speaker 4: However, our direction has not divided significantly.
Speaker 4: Since the second quarter, although the price of Bitcoin has not risen sharply, the company's operational results have been more positive, which is the result of the hard work of all C Senator Tony Sessions's enduring Pakakani senate.
Speaker 4: However, we must also see that the current economic environment is not optimistic.
Speaker 4: The cloud of uncertainty still looms over us.
Speaker 4: and the price of Bitcoin may still continue to fluctuate.
Speaker 4: At least in the United States, the financing ability and processing power of miners in large-money farms has not yet recovered.
Speaker 4: Couple with current situation where the industry inventory has not yet been completed, the decision has not yet been completed.
Speaker 4: Both sales prices and the growth profit will continue to be concentrated. Based on the above comprehensive situation, we are extremely cautious about expectations for the second quarter of 2023. The revenue for the second quarter of 2023 is expanded.
Speaker 4: to be about 72 million US dollars. This forecast is based on the current market and operating conditions of a company.
Speaker 4: and actual situation may vary.
Speaker 4: Thank you. Thank you, Harry.
Speaker 4: In the final section, I would like to share some new insights on my personal beliefs about de-centralization and equine.
Speaker 4: We often hear doubts about the utility of Bitcoin.
Speaker 4: In fact, the use of Bitcoin is complementary in the development of new technologies.
Speaker 4: and this function of a medium of payment and value storage has never changed.
Speaker 4: Over the past 10 years, the two pieces of puzzle leading to Web3 have been largely completed.
Speaker 4: namely blockchain-based digital currencies and smart contract technology.
Speaker 4: In our last owning call, someone asked me whether I think Bitcoin is a risk asset.
Speaker 4: I've thought more about this question since then. In the short term, Bitcoin indeed shows some characteristics similar to risk assets. But in the middle term, Bitcoin should be seen as a powerful hashing tool.
Speaker 4: against systematic, system needs risk and
Speaker 4: region in the current global free-lining system.
Speaker 4: and even as a tool against global political and economic uncertainties.
Speaker 4: a tool against global political and economic uncertainties. This isn't hard to understand.
Speaker 4: But in the long term, in the new information-driven world of Web3, blockchain-based digital currencies are likely to become mainstream applications and have broader prospects.
Speaker 4: Once, I had a long discussion with GPT-4 about the future of AGI becoming mainstream in the world.
Speaker 4: I'm almost certain that AGI will be the last piece of puzzle of Web3. The final creation of Web3 will be decentralized, individually distributed AI system.
Speaker 4: At that time, digital currency and smart contracts based on blockchain will reshape the financing system of the new world on the basis of consciousness.
Speaker 4: Most trustworthy, efficient, transparent, greatly improving the level of productivity and promoting the process of the entire society.
Speaker 4: Today, we are a provider of computing power products and services in the blockchain industry.
Speaker 4: Going forward, I hope to further expand our technology and have the opportunity to participate in the broader changes in the filter.
Speaker 4: bringing value to customers with computing power, products, and services.
Speaker 4: and support the progress of society.
Speaker 4: This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO James. Thank you.
Speaker 7: Thank you, M.G. and good day everyone. This is James speaking in our Singapore headquarters.
Speaker 7: Firstly, I would like everyone to notice that we have changed our reporting currency.
Speaker 7: Starting from January 1, 2023, we decided to change our reporting currency from renminbi, or so-called Chinese yuan, to US dollars. The change of the reporting currency will better illustrate the results of our global sales.
Speaker 7: And it is another important step in our internationalization strategy.
Speaker 7: We have applied the change of reporting currency retroactively to our historical results of operations and financial statements.
Speaker 7: It will also be easier for our investors to read and analyze our financial reports in one currency.
Speaker 7: As NGS studied the core ways, the first quarter of 2023 was challenging due to the revised but still weak market demand and declining selling price.
Speaker 7: From company perspective, we are committed to maintaining our strategic continuity. We kept investing in R&D and production capacity. We developed and upgraded our sales system to reach global customers. We continue to expand our mining deployment.
Speaker 7: and we strive to maintain a healthy cash flow and accumulate assets with strong growth potential for our shareholders.
Speaker 7: Overall speaking, in Quarter 1, total revenue generated was $65.2 million, which did not meet our guidance of $65 million.
Speaker 7: The gap consisted of approximately $6 million in machine sales and $4 million in mining business.
Speaker 7: Let's begin by discussing our machine cells.
Speaker 7: Our revenue of mining machine sales was 43.7 million US dollars in this quarter, 7.6% lower than 47.3 million US dollars for the last quarter.
Speaker 7: In the first quarter of 2023, the industry was affected by inventory, competition, financing environment and cash flow.
Speaker 7: as the average selling price of computing power continued to decline.
Speaker 7: We actually increased our sales volume in computing power, reaching 4.2 million THS.
Speaker 7: with a substantial increase of 126.8% compared to Q4 last year. However, the average selling price dropped to $10 per teraflage per second.
Speaker 7: as we needed to adjust our prices in line with the overall market for Bitcoin mining machines.
Speaker 7: Additionally, affected by a series of U.S. bank failure events in mid-March, payment and shipments of some orders have been delayed.
Speaker 7: After that period, we received more orders and recorded customer advances of US$8.3 billion at the end of March. This laid a good foundation for the machine sales revenue in the second quarter.
Speaker 7: Our gross profit for mining machine sales was $5.2 million US dollars and our gross margin rate for mining machine sales was 11.9% in this quarter.
Speaker 7: Our gross profit for mining machine sales was $5.2 million, and our gross margin rate for mining machine sales was 11.9% in this quarter. Turning to our mining business.
Speaker 7: Our mining revenue was $11 million in this quarter.
Speaker 7: 3.3% sequential increase compared to US$10.7 million in quarter for last year.
Speaker 7: It's a new record high. However, this revenue did not meet our expectation. We temporarily shut down the machines at several mining sites during January due to low Bitcoin prices. We believe this was a necessary measure to minimize operating losses.
Speaker 7: This had an impact on the quarterly mining revenue results.
Speaker 7: In this quarter, our total deployed hashrate reached more than 5 extra hashes per second. Now we installed the hashrate reached more than 4 extra hashes per second.
Speaker 7: We mined 476 bitcoins in this quarter and achieved 19.8 bitcoins for mining profit.
Speaker 7: Gross profit was 0.2 million US dollars for a mining business in this quarter.
Speaker 7: Please notice here that mining profit or loss is defined as a proportion of mining revenue deducting costs for energy and hosting in terms of mining revenues without consideration of depreciation.
Speaker 7: Now talking about our AI business.
Speaker 7: Now talking about our AI business, we recorded it.
Speaker 7: 0.41 million US dollars for AI revenue in this quarter. It is 68.6% increase compared to 0.24 million US dollars for quarter four. The sequential revenue growth was mainly driven by the increased sales volume for AIoT customers.
Speaker 7: Switching to the expense, our R&D expenses stood at US$19.1 million in this quarter, compared to US$33.4 million in the last quarter and US$15.2 million in the prior year period.
Speaker 7: The quarter-over-quarter decrease was due to the one-off expenditure for our new generation chips incurred in the last quarter. Excluding this one-off expenditure impact, the one-off expenditure was also included in the last quarter.
Speaker 7: Our R&D expenses remained stable sequentially. The steady year-over-year growth reflected our continuing commitment to building our talented R&D team.
Speaker 7: Our sales and marketing expenses were 1.5 million US dollars.
Speaker 7: compared to 1.1 million US dollars in the last quarter and 3.0 million in the prior year period.
Speaker 7: Sales Commission reduced year-over-year because of revenue downsizing. Our general administrative expenses in this quarter were 17.6 million US dollars.
Speaker 7: compared to $24.6 million in the last quarter and $19.8 million in the prior year period.
Speaker 7: The decrease was mainly due to US$2.6 million or realized gain on Bitcoin sold in this quarter for electricity costs.
Speaker 7: which offset our GNA expenses. Please note when we do disposal of Bitcoin, the gain or loss of our booking value will be recorded into GNA.
Speaker 7: The next result of the foregoing was an operating loss of 85.7 million US dollars for this quarter.
Speaker 7: which is 31.4% narrower than the last quarter.
Speaker 7: The net loss was recorded at $84.4 million.
Speaker 7: which is 8% narrower than the last quarter. It is important for us to keep our eyes on the cash flow. We held cash and cash equivalents of 72 million US dollars on March 31st. As our CEO shared, we committed to securing the last quarter.
Speaker 7: and 4.7 million US dollars in the tax expenses.
Speaker 7: Please note that as we paid the year-end bonus in January , the outflow on operation was higher than usual run rate.
Speaker 7: The cash out totaling $87.1 million was net of by inflows of $54.8 million from sales and the proceeds of $3.1 million by the ATM facility.
Speaker 7: Turning our attention to our Bitcoin assets.
Speaker 7: We held 623 bitcoins as of March 31st.
Speaker 7: decreased from 757 bitcoins by the end of 2022.
Speaker 7: First, we mined 476 bitcoins in this quarter. In order to reduce the effect of bitcoin price fluctuation on the profitability of our mining business, we implemented a pre-exchange plan in this quarter.
Speaker 7: That is, at the beginning of each month we would exchange Bitcoin through US dollars based on the current price in advance for the monthly electricity cost.
Speaker 7: This new process eliminated possible risks triggered from significant Bitcoin price fluctuations. In total, we exchanged 699 bitcoins for the electricity cost in this quarter.
Speaker 7: This aforementioned result in a decline of 134 Bitcoin quarter over quarter.
Speaker 7: It is a one-time change. From March 7, 2023, the date we reported our financial results for the fourth quarter of 2022 to May 25, 2023, we utilized the ATM for a small amount of time.
Speaker 7: small amount of fundraising to test the financing facility.
Speaker 7: During the above period, we sold 1.5 million 32,219 ADSes with net proceeds of approximately US$4.2 million at an average price of US$2.73 per ADS.
Speaker 7: We executed the above cells within 10 training days in March, and we did not utilize the ATM after March 31st.
Speaker 7: From March 7, 2023, the data will report our financial results for the fourth quarter of 2022 to May 25, 2023. We did not purchase any ADS-BAS. In future, we will prioritize our shareholders, carefully monitor cash flows and stock prices, and flexibly execute a-
Speaker 7: self orders from
Speaker 7: major clients and distributors. This has bolstered our cash flow and allowed us to invest in strategic areas of focus.
Speaker 7: However, it is important to note that we operate in a dynamic market with uncertainties. So our estimation reflects our current perspective and understanding of the operation. Now I would like to briefly walk you through our financial results for the quarter.
Speaker 7: Revenues in the first quarter of 2023 were $55.2 million US dollars as compared to $58.3 million US dollars in the fourth quarter of 2022 and the $201.8 million US dollars in the same period of 2022.
Speaker 7: Gross loss in the first quarter of 2023 was $47.5 million US compared to a gross loss of $64.1 million US in the fourth quarter of 2022 and a gross profit of $123.5 million US in the same period of 2022.
Speaker 7: Total operating expenses in the first quarter of 2023 were 38.1 million US dollars, compared to 60.8 million US dollars in the fourth quarter of 2022 and 38.0 million US dollars in the same period of 2022. From operations in the first quarter of 2023.
Speaker 7: question
Speaker 7: Net loss in the first quarter of 2023 was $84.4 million compared to a net loss of $91.6 million in the fourth quarter of 2022 and a net income of $65.1 million in the same period of 2022.
Speaker 7: Basic and diluted net loss per ADS in the first quarter of 2023, or $0.51 US dollars.
Speaker 7: As of March 31, 2023, the company had cash and cash equivalents of $72.0 million.
Speaker 7: This concludes our prepared remarks. We are now open for questions.
Speaker 2: Thank you. We will now begin the question and answer session as a courtesy to other investors and analysts who may wish to ask a question. Please limit yourself to two questions at a time. If you have any follow-up questions after the Q&A session, the investor relations team will be available after the call.
Speaker 2: For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your questions in English.
Speaker 2: To ask a question, please press star 1 1 on your telephone and wait for a name to be announced. To cancel your request, please press star 1 1. There will be a short silence while questions are being collected.
Speaker 2: One moment for the first question. We have the line. Your first question today comes from the line of Kevin Deeby from HC Renry. Please go ahead.
Speaker 8: Thank you very much for taking my question.
Speaker 8: I was wondering if you might be able to offer a self-mining hashrate target for the year. Maybe disclose a little bit on what you're seeing in terms of the availability of hosting sites.
Speaker 8: And then secondly, I was hoping you could share a little bit more geographic information on equipment sales. It's very comforting to see that sales are growing outside of North America. And I was wondering if you might be able to segment sales from Asia, North America, and European.
Speaker 9: Have a good week!
Speaker 4: As we mentioned, as of March 31st,
Speaker 4: The deployed computing power at our mining farms exceeded 5 X hash per second.
Speaker 4: However, in the first quarter, the installment of computing power was slower than expected due to variable conditions and contract excitation issues.
Speaker 4: resulting in total installed hash rate was over 4x hash per second. In the second quarter, we enter into a mining partnership with Stronghold in early May, which involved 4,000 mining machines, with a total capacity of 0.4x hash per second.
Speaker 4: geographical regions.
Speaker 4: where we had no problems processing.
Speaker 4: The local, critical, economic, and infrastructure conditions in these areas are complex and subject to change, which pose challenges to our discrimination and development efforts.
Speaker 4: This further tests our team's operational capabilities and the ability to adapt to changes. Therefore, we have a more conscious outlook on mining expansion.
Speaker 4: We currently estimate that the installed manual hash rate in Q2 will be around 4.5x hash. This forecast is based on the current operating conditions and the actual situation may be different.
Speaker 4: Mining is a long-term strategic focus for us. And as it complements our mining machine's sales business and allows for the effective utilization of more inventory.
Speaker 4: We will actively and pro-gently collaborate opportunities, negotiate in terms of cooperation and strive to continuously increase the installed mining hatchery to generate Bitcoin mining and real estate Coinbase cheering redefrue, sustainable integrated, live should long adopt amakerite or classic gold ARE ALL
Speaker 7: I will take the second question from Kevin. It's about the geographical situation of the mining industry. I think the leading market is still United States, but it looks like the inventory is still they are in New Malaysia with down to 13%.
Speaker 7: no matter new machines or secondhand machines are still quite sufficient inside the whole North America market. So it looks like the more opportunities come from Southeast Asia, Middle East, and even South America market. And we noticed some retail
Speaker 7: customers are ordering machines, even from Africa and from West Europe .
Speaker 7: It depends on the energy of the local level usage. I think that the mining business will grow as we expect it to global level and more and more areas will join this mining business.
Speaker 7: And it will rapidly change because of different locations, may have different regulations coming out related to mining. But from our perspective, we would like to see all kinds of opportunities, especially like in this quarter, we have the connection with Malaysia and Thailand distributor, which will be quite interesting.
Speaker 7: I would like to continue the dialogue with big clients in North America. Cyber is just the beginning of us, so we have confidence to discuss with more customers and let them enjoy the A13 series machines.
Speaker 8: for their mining purpose. So I hope that answers your question Kevin. Yes, so phenomenal, I really appreciate the detail. I hear great things about the A13, but I cannot leave the call without hearing from NZ what Bitcoin price is going to be this year.
Speaker 4: Okay, I think in short term, I think we have no need to meet a more long-term prediction of Bitcoin. But for short term, I think the Bitcoin price is related to the...
Speaker 4: economical environment, especially for U.S. So I think you know the answer. I think you know the number.
Speaker 8: I hope that we will arrive in the second half of this year. I close my papers. Thank you very much gentlemen. I appreciate the opportunity to ask questions. Thank you very much.
Speaker 8: arrives in the second half of this year. I cross my fingers. Thank you very much gentlemen. I appreciate the opportunity to ask questions. Thank you very much. Thank you.
Speaker 2: One moment for the next question. Next we have the live from Shuang Sun from Guo Shen Securities. Please go ahead.
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Speaker 4: important part. I think the reason why the AI industry has not developed as expected over the years.
Speaker 4: I think the reason why the AI industry has not developed as expected over the years is not due to AI itself.
Speaker 4: but rather like many other industries, it is the result of a contradiction between the user's expectations for the product capabilities and what the industry can provide.
Speaker 4: many other industries. It is the result of a contradiction between the users' expectations for the product capabilities and what the industry can provide at a certain cost.
Speaker 4: When AI products can truly bring significant benefits to users, then you see the result. The response is very positive.
Speaker 4: Therefore, I am currently restructuring the company's AI department.
Speaker 4: and business to ensure that our technology and investments can embrace the future of AGI, artificial intelligence, I mean, world in the short to medium. But in the short to medium term.
Speaker 4: sensor data into text and code, or code information that can be understood by large language models like JetGPT. While complex decision making is not a strength for HAI. Today.
Speaker 4: This is where large language models excel. Our K230 chip has highly efficient HAI capabilities and advantages in terms of low cost and low power consumption.
Speaker 4: Therefore, we are adjusting the direction of our product applications to adapt to this trend.
Speaker 4: In the long run, as I mentioned in the CEO remarks, I will explore ways to horizontally expand our technology and participate in future and broader transformations.
Speaker 4: We aim to bring value to our customers through more general purpose computing power, products, and services.
Speaker 4: and support sociality progress. Thank you.
Speaker 4: support sociality progress. Thank you.
Speaker 10: the design be were you have to catch Middlesex Mildred him offline cochlea I was him eyelids as
Speaker 10: Is there any upside to the company mining business going forward due to the very high transaction fees?
Speaker 4: Yeah, I think according to Satoshi Nakamoto's vision.
Speaker 4: transaction fees will become an important complement for a minor's income after multiple halving.
Speaker 4: it appears that the industry is developing as expected.
Speaker 4: So recently due to events like BRC20, the increase in Bitcoin transaction fees has been
Speaker 4: beneficial for both miners and our own mining business. In a situation where the network's total computing power remains constant.
Speaker 4: Manors can earn more money face. So we hope that Manors and ourselves can improve our financial situation and that our customers can recover their processing power.
Speaker 4: Manors can earn more money face. So we hope that Manors and ourselves can improve our financial situation and that our customers can recover their processing power more quickly.
Speaker 4: So we hope that Mannerz and ourselves can improve our financial situation and that our customers can recover their processing power more quickly. Thank you.
Speaker 10: Qie xie, ji sian go wen di shi, zhui zhe gong su wei lai shiou bi te bi de zhong jian gong su shi for hui kou lu shou chu ji ji bi te bi. Overall as your company has a growing supply of bitcoin on your balance sheet, what is your strategy for potentially selling them? Currently we do not have any plans to sell our bitcoin.
Speaker 4: which helps minimize our cache outflow.
Speaker 4: Regarding whether we will sell the Bitcoin we hold to profit from future price appreciation, we have recently heard this question from several investors.
Speaker 4: We have had many internal discussions on this topic, but due to our belief that Bitcoin is undervalued, combined with our long-term confidence in its global adoption, we have not yet seen a
Speaker 4: We are currently not considering selling our Bitcoin in the upcoming quarters. If the price of Bitcoin experiences a significant increase, we will revisit this topic and evaluate it.
Speaker 2: Thank you. Thank you. Questions? One moment for the next question. Next up, we have the line from Mike Lake from the Benchmark Company....
Speaker 11: Thank you. Good morning. Could you comment a little bit about the site for 11,000 units sale plus you mentioned had 36,000 units being sold. Can you comment on what you're seeing from a pricing environment with that and how margins are holding up there?
Speaker 11: Could you comment a little bit about the site for 11,000 units sale plus 36,000 units being sold? Can you comment on what you're seeing from the pricing environment with that and how margins are holding up there? It'smaking snap, nine seven Romanians selling travelling.
Speaker 7: Thank you. Thank you, Michael. This is James. I think, yeah, recently we have secured more large-scale orders, including the agreement with CIPER, 11,000 machines. We are going to join the meetings with CIPER team.
Speaker 7: in New York and also in Singapore. Honestly, I really like their strategic ambition and their professional execution capability. So I'm happy they consider our A13 series very suitable for their new mining operation in West Texas.
Speaker 7: I think that the dual benefits both cyber and the Kalen. In terms of the price trend about the whole current price environment, it looks like the customer demand is coming back step by step. It looks like the demand is coming back step by step, because the zero assets are coming back.
Speaker 7: The inventory of the market, no matter new machine or secondhand machine, are still quite sufficient, especially in North America. So the price did not coming up. Instead, in quarter one, we saw the price going down.
Speaker 7: So it looks like currently the demand is getting back, but the price is still low.
Speaker 7: It looks like the Bitcoin price continues to increase a little bit with some turbulence recently, but we still anticipate in the coming months, the Bitcoin price could come up again. And that trend, the selling price has changed.
Speaker 7: to going up, but currently nobody can assure that. So I just let you, frankly, express myself and let you know my thinking.
Speaker 11: Thank you Michael. Thanks. And then just a follow up, can you comment on the inventory, how much of it is finished goods versus raw materials, chips, and then also how long do you depreciate your mining equipment for on the Bitcoin mining side?
Speaker 4: Currently, I think looking at overall situation in the mining machine market, customer purchasing demands have partly recovered.
Speaker 4: and also reflected in the significant growth of 126.8 in the company's first quarter, computing power cells compared to the previous quarter. However, I think the financial situation of miners is still not optimistic.
Speaker 4: So they lack processing power. On the other hand, the market inventory supply is relatively abundant.
Speaker 4: Thus, the selling price of mining machines remains at a low level. I think compared to the end of December , we have seen a rebound in Bitcoin price in the past over one quarter. This has brought better mining profits to miners and helped improve their financial situation.
Speaker 4: In the industry cycle, some miners have undergone restructuring and the new miners continue to enter the market, driving the continuous increase in the network computing power.
Speaker 4: as manual farm construction gradually completes and the weather in the northern
Speaker 4: hemisphere warms up, lead to abandoned hydroelectricity resources. It is expected to future stimulate the demand of computing power and provide support for the selling price. It was planned to expand the manufacturing space by 2028.
Speaker 7: I think Michael asked about the depreciation of mining machines deployed in the mining farms. Actually, it's 18 months is our depreciation policy. Usually, after 18 months, all the depreciation will be completed. And about the inventory combination.
Speaker 7: I should say the finished goods are not that huge inventory. It's less than 50% of the total inventory we put. And also some are still wafers and still cheap. And it takes time to assemble those materials into machines.
Speaker 7: So, so far we also control the speed of the assembling, make sure the inventory is just as efficient, not too much to increase the storage cost or too small to have shortages. So I think that's our inventory status. I don't know if I answered your question, Michael? Yes, that was perfect. Thank you very much. I appreciate it. And congrats on completing the quota.
Speaker 10: May revenue contributions for a 13 series products this year. And also in terms of the pricing strategy, do we see any increase room for overall ASP attached in Q3 or Q4?
Speaker 10: revenue contributions for A13 series products this year? And also in terms of the pricing strategy, do we see any increase room for AASP per touch in Q3 or Q4? That's my first question.
Speaker 7: I think this is a very specific question about the A12 and A13 series. We have this transition period to try to clear the inventory of A12 models and also the A13 series after launching the customer's test and also they start to place orders in quarter one.
Speaker 7: It looks like the performance of A13 series is better than what we expected. In quarter one, the total revenue of A13 series is already occupying 47% of total machine sales revenue.
Speaker 7: So we have confidence that quarter two A13 theories will definitely become our biggest revenue source. And for A12 theories, I think our target is trying to clear the inventory before end of quarter three. But of course, as soon as possible, we...
Speaker 7: we do have a very low price for its A12 currently. About our price strategy in the coming quarters, I think as previously mentioned, the demand currently is still in the weak level.
Speaker 7: And it looks like we need time to collect the demand back and also getting the price come back to normal. So I think quarter three will be the quarter we see the price going up most likely. We hope it will happen. And we also...
Speaker 7: consider there is possible increase of A13 series price, but currently in quarter two, we didn't do that because the market inventory digestion is still ongoing. So hopefully in quarter three and quarter four, we can see more positive changes.
Speaker 10: That's my answer. I have a follow-up because I remember that last quarter we mentioned that we expect maybe A13 series field accounts for 70-80%.
Speaker 10: of total revenue for the whole year. So I'm just wondering if this number will improve a little bit given the better performance on A13 Series product. Yeah, currently I still think A13 Series could be higher than 70% of your total revenue.
Speaker 7: have a good sales in quarter four. So during the whole year I still think A13 series could be 70% to 80% of total sales.
Speaker 7: And yeah, and I think let's hope it happens because the price can even have an upside that will be better. Thank you, Venice. Okay, got you. And my second question is in terms of the mining business revenue contribution. I know that in...
Speaker 10: How should we think the reasonable revenue contribution for mining business, maybe in a longer term consideration? Yeah, Manis, I think this is a very good question. From a company we...
Speaker 7: We do both machine sales in semiconductor design field and also do mining business. I think from our current view is like our mining revenue is about 20% of the total business. We expect it to remain within the range like 15 to 20% in the future. Of course we...
Speaker 7: Looks like in quarter one the machine sales we are still in the bear market. That makes 20% of mining business. Actually, from long-term perspective, my personal view is it should be like 20% to 30% in our total business.
Speaker 7: We are still a company majoring in manufacturing and design machines. And then the mining business will continue to grow, but we will leave more room to our customers.
Speaker 10: in a modest way. Thank you very much.
Speaker 2: As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.
Speaker 3: Thank you again everyone for joining our call today. If you have any further questions, please feel free to reach out through us through the contact information provided on our website. And thank you again. Thank you. That concludes today's call. Thank you everyone for attending. You may now disconnect.
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