Canaan Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 28, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by and welcome to Kannon Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in listen only mode. After the management's prepared remarks, we will have a question and answer session. Please note that this event is being recorded.

Operator

Now, I would like to hand the conference over to your speaker host today, Mr. Clark Sousi, Investor Relations Director of the company. Please go ahead, Clark.

Speaker 1

Thank you. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results were released by our Newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangun Jeong And our CFO, Mr.

Speaker 1

Jincheng James. In addition, Mr. Leo Wang, IR Senior Director Ms. Shi Zhang, IR Manager, will also be available during the question and answer session. Mr.

Speaker 1

Zhang will start the call by providing an overview of the company and performance highlights for the quarter. Mr. Chung will then provide details I would like to refer you to our Safe Harbor statement in our earnings press release. Today's call will include forward looking statements. These statements include, but are not limited to, our outlook for the company and statements that project that estimate or project future results of operations or the performance of the company.

Speaker 1

These statements speak only as of the date thereof 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, uncertainties and assumptions. 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 and uncertainties that may cause actual results 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 and not as a substitute for or in isolation from GAAP results.

Speaker 1

You can find additional disclosures regarding these non GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, which is posted on the company's website. With that, I will now turn the call over to our Chairman and CEO, Mr. Nangong Zhang. Please go ahead, sir.

Speaker 2

Hello, everyone. This is Angie, the CEO of K NN. Thank you for joining our conference call. James and I are at the company's headquarter in Singapore to share our quarterly results with you. During the Q3 of 2023, bitcoin prices continued to decline and remained within a low price range.

Speaker 2

At the beginning of the quarter, the bitcoin price was around US30000 dollars and reached its Quarterly low point of around 25,000 in September. It then stayed in the range of 25,000 to US27000 dollars until the end of the quarter. During the Q3, The total network hash rate remained fairly stable at around 400x. Partners faced same profit margins, and there was a lack of consolidation and not enough Capacity for further investments and the expansion of mining computing power. At the macro level, The U.

Speaker 2

S. Federal Reserve's rise interest rate by 25 basis points to 5.5%. The high interest rate environment limited bitcoin prices upward movement and Increased miner's financing and interest costs. As a result, the industry's purchasing and deployment converges were impacted. Meanwhile, inventory pressure on in store mining machine models continue to rise.

Speaker 2

As mining machine manufacturers reduce prices to clear inventory ahead of upcoming timing event, We observed considerable price concessions in computing power In the face of this challenging market environment, we achieved total revenue of US33.3 million dollars exceeding our guidance. At the same time, We kept carrying out our development strategies. This includes focusing on product R and D and the intention, Multichannel sales strategy and exploring mining partnerships, we also maintain prudent and flexible operational management to ensure stable cash flow and ongoing business operations. This will help us to prepare for potential market opportunities in the future. Now, let me go to more detail.

Speaker 2

First, we are committed to R and D and the investment in production capacity. This allows us To upgrade our products to achieve breakthroughs in machine hash rate performance and energy efficiency. During our 10th anniversary event in mid September, we officially launched our new generation of mining machine, So A14 series. The ARPU A1466 achieves a hash rate of 150 terahertz per second with a power efficiency of 21.5 joules per terahash. At the same time, we introduced The liquid cooled A1466i mining machine, which achieves power efficiency below 20 draws per terahash For the first time, it has 170 Terahash Per Second of Computing Power.

Speaker 2

Besides our current offerings, we are actively developing new products. Follow our euro practice, We will announce their performance once the machine testing is complete. We believe these products In the pipeline, we will align with next year's market mainstream production power efficiency level of 10 to 20 draws per terra hash. We are also in the process of delivering our air cooled and liquid cooled integrated site Solutions, which we have developed in house. These include the 40 foot and the 20 foot Air cooled mining box container products and the 40 foot liquid cooling iron box Mining container products.

Speaker 2

Our products are highly integrated, thus enabling rapid Deployment, making them well suited for mining in challenging natural conditions of Cold and Hot Weather. On the sales front, we are boosting sales in a number of channels, include large clients, distribution networks and online retail. We are also offering Favorable prices to reduce inventory. During the quarter, we achieved a total computing power sold of 3,800,000 terahash per second. This represents an 8.7% increase compared to the same period last year, contributing about $30,000,000 in revenue.

Speaker 2

In North America, We successfully completed the delivery of back orders to Stronghold, a listed mining company. In Southeast Asia, our computing power sales reached 1,300,000 taresh per second. This figure was a 90.7 percent quarter over quarter increase achieved through Deeper collaboration with channel clients. Our online store achieved computing power of 420,000 terahash per second this quarter, a 17% increase compared to the previous quarter. Our online store also expanded its reach to 5 new regions, including Poland and Peru, Bringing its total number of regions is customer orders to 42.

Speaker 2

Following the September release of a 14 series, we have received contract sales orders and the prepayments for computing power of about 2,000,000 terahertz per second from customers worldwide. In addition, our market channel sales efforts are bringing the planned destocking of our 12 and below traditional models closer to completion as expected. As Perez announced, our mining business in Kazakhstan has been temporarily suspended Since the Q3 due to the impact of new regulatory policies and we need to obtain the Relevant permits, we have also experienced a breach of contract by a mining project partner in the U. S. As a result, mining revenue for this quarter declined to US3.26 million dollars However, we believe money is a strategic part of our business And short term setbacks in certain regions will not affect our long term strategy.

Speaker 2

We will continue to prudently explore cooperation opportunities. During the quarter, We expect we expanded and diversified our mining footprint when we completed Deployment of several new projects in North and South America, notably the Latest batch of 2,000 of our A13,446 minutei machines was successfully deployed and the launch for our joint mining project with the listed mining company's stronghold in the 3rd quarter. As of the end Of the Q3, we had approximately 4 exahash per second computing power deployed. We also hold 860 bitcoins owned by us, reaching a historical high With the current market value of over US30 $1,000,000 Recently, we have been expanding our mining opportunities In South America and Africa, in the Middle East, we carried out our first pilot collaboration with our integrated liquid We have been we have also been addressing some previously announced issues. In Kazakhstan, we work together with local mining partners to obtain the Type 2 license required for mining equipment owners in mid November.

Speaker 2

We are currently working to Register our locally deployed mining machines and are in the discussion with our mining partners To prepare for the resumption of operations, we expect that our mining projects in Kazakhstan will Gradually resume around the end of 2023. For the project I just mentioned, where our U. S. Partners breached the contract. We have successfully taken possession of approximately all the mining machines involved.

Speaker 2

We have now restored about half of these machines. At the same time, we are carrying our legal procedures The marketing environment in the Q3 was challenging. We endeavor to maintain cash flows and operations and accumulate assets with strong growth potential. This will help us to allocate resources and lay for a foundation of full market after the next half. We have also recently managed cost more prudently and optimized and adjusted our company's organization.

Speaker 2

Operating cash outflows, smoothly navigating through the market downturn. These measures have Being gradually carried out in the Q4, we expected to see potential data reflecting these Changes starting from the Q1 of 2024. Meanwhile, due to the overall weakness In the market purchasing power, we further adjust price to quickly clear the inventory and generate cash inflow. However, these adjustments also result in some non cash provisions and impairments, leading to a considerable loss of this quarter. In term of financing, we announced today a sales of convertible preferred shares of up to US125 $1,000,000 subject to customary Carryout R and D and mass production of new product in case of tightening cash flow In the future bull market, we have not utilized our ATM since the Q3 to date.

Speaker 2

However, we recently adjusted our ATM project by appointing B. Riley as the new sales agent. Looking ahead, the Bitcoin price has been a notable rebound since mid to late October, which is encouraging. We are closely monitoring the market and Flexively adjusting our sales strategy and the supply chain to adapt to changing market demands. However, it's important to note that certain price increases in bitcoin often come with increased volatility.

Speaker 2

The U. S. Federal Reserve seem likely to keep Yes. Interest rates high for a while and rate cutting cycle may not happen for some time. The financing and operating cost of our downstream miner customers remain high And the basic landscape remains unchanged.

Speaker 2

Additionally, with Bitcoin halving approaching, Market sentiment will likely be more cautious. Taking these factors into consideration, I believe that the 4th quarter has shown signs of improvement compared to the 3rd quarter. However, we shouldn't expect best case scenario of rising both rising Price and volumes to happen quickly. Based on the overall situation mentioned above, We provide a highly cautious outlook for the Q4 of 2023. We expect revenue of the Q1 of 2023 to be approximately US34 $1,000,000 slightly higher than the 3rd quarter.

Speaker 2

This forecast is based on company's current Market and operational conditions and actual results may vary. Finally, I would like to discuss our AI business with you. After several years of hard work, we have built A solid foundation of our AIoT chip R and D and sales, especially with the industry Since the release of K230. This is a small step in our strategic plan. Given the significant changes in the AI industry over the past few months, we have been Strategically discussing the future of our AI business.

Speaker 2

In light of our current industry and the marketing environment, We believe that the development of our AI business should take a more defined, Independent and the long term direction. So we are internally restructuring The business with the goal to clearly separate the mining machine and the mining teams from AI business as different business units. This prepares us for the future independent operation and potential financing for AI Business. Both businesses will have enough scope for their future development. Personally, I'm really excited about this internal organization change.

Speaker 2

We operate in an industry full of variables and rapid changes, Creating new history every day. This truly tests our operational capabilities. Over the 10 years since Kna's inception, we have run into many difficulties and challenges. We have constantly improved our technical and operational Competitiveness to face and resolve these issues. Amid this number of uncertainties, One thing is certain, our strong confidence in the Bitcoin network.

Speaker 2

This emerging transaction system has operated remarkably stable over the past 14 years. Its user base and network hash rate have both continuously expanded. In recent years, more and more investment Institutions have shown increased interest in cryptocurrencies, especially Bitcoin. They have also recognized it as an important asset class. With ongoing process in the regulatory environment, the divided between the general public and Bitcoin is narrowing.

Speaker 2

I believe this will be a crucial driver for the next bull market. We remain committed to Growing alongside cutting edge technology partners to continuously upgrade cheap features. At the same time, we will support Bitcoin system and a range of other beneficial activities With robust computing power, we will continue to deliver superior products and services to our customer while contributing to societal progress. Thank you, everyone. This concludes my prepared remarks.

Speaker 2

Thank you. I will now turn the call over to our CFO, James. Thank you.

Speaker 3

Thank you, Angie, and good day, everyone. This is James speaking at our Singapore headquarters. As Anjie started the call with, I would like to say the market environment in the Q3 of 2023 was still unfavorable. First, after Q1 surge and Q2's companies, bitcoin price in quarter 3 showed a downward trend. It declined from US30 $1,000 in July to about US25 $1,000 in September, even though climbed near to US27000 dollars by the quarter end.

Speaker 3

Secondly, the miner's profits were still limited by the High level of total networking computing power around 400x hash per second and the miner's purchasing power was weakened by the High financing interest cost. Thirdly, along with the product upgrading, the price competition among Mining machine manufacturers was more fierce, especially the price of older generation machines continued to decline. These factors should be considered when analyzing our Q3 numbers. Despite the market downward volatility, Geopolitical headwinds, regulatory changes and other unfavorable factors from operations, We continued to execute our strategy and delivered the results through continuous investments in R and D, multiple channel sales development and prudent cash flow management. Let's start with profit and loss.

Speaker 3

Overall speaking, in quarter 3, total revenue generated was US33.3 million dollars which beat our guidance of US30 $1,000,000 but down 54.9 percent quarter over quarter. Our revenue from machine sales was US29.8 million dollars and our mining revenue was US3.3 million dollars Regarding our machine sales, we delivered a total computing power sold of 3,800,000 Terahash per second, representing a year over year growth of 8.7 percent, but a sequential decline of 38.7 percent, As the average selling price declined from $9.5 per terahash per second in quarter 2 to $7.9 per terahash per second in quarter 3. The decrease in ASP was mainly due to the reduction in the selling price and the increase in the sales proportion of A12 Series in terms of stock clearance. Considering both factors of Power Solar and ASP, our revenue from mining machine sales was US29.8 million dollars decreased to 48.5 percent from US57.8 million dollars in the last quarter. Specifically, for our mining machine sales, we accrued US53.9 million dollars for inventories write down, prepayment write down and provision for reserve for inventory purchase commitments in this quarter.

Speaker 3

The inventory write down was recorded based on most recent subsequent selling price when we offered further price concessions for 13 series. Those write downs and provisions are made under U. S. GAAP rules, jeopardizing our gross profit and making the quarterly loss Bigger, but do not impact our cash status. If the above write downs and provisions were excluded, We would have a gross profit for our mining machine sales of $1,100,000 and a gross margin of 3.9%.

Speaker 3

Turning to our mining business. Our mining revenue was down 79.5% quarter over quarter and down 64.6% year over year. As we announced in August, we temporarily shut down 2 ex Harshu of our mining computing power in Kazakhstan since July to ensure legal compliance. It caused our total deployed hash rate to decreased to 4x hash per second and our installed hash rate to decrease to 1.9x hash per second in this quarter. As Engie previously stated already, by our active working with local partners and local government, We've already obtained all the relevant licenses in mid November.

Speaker 3

Despite these effects, we mined 117 bitcoins in this quarter and achieved 14.5 bitcoins for mining profit. Gross profit margin reached 10% for our mining business in this quarter. Please note here that mining profit or loss is defined as a proportion of mining revenues, deducting costs for energy and hosting in terms of mining revenues without consideration of depreciation. Shifting to our AI business. AI revenue was US0.2 million dollars in this quarter.

Speaker 3

As Anji mentioned, we are now restructuring the AI business as a more independent business segment from Mining Machine and Self Mining Business, which could benefit our long term development as well as open the possibility for AI to conduct independent financing. Now let us look at the expenses. Our R and D expenses were US17.2 million dollars in this quarter compared to US17.9 million dollars in the last quarter and US17.6 million dollars in the prior year period. Our sales and marketing expenses were US2.5 million dollars compared to US2.4 million dollars in the last quarter and US2.1 million dollars in the prior year period. Our general and administrative expenses in this quarter were US21.9 million dollars compared to US26.4 million dollars in the last quarter and US21.7 million dollars in the prior year period.

Speaker 3

Our operating expenses totaled US43.8 million dollars remaining year over year stable and decreasing 10.7% quarter over quarter. The sequential decrease was mainly attributable to the reduced staff costs. We have recently optimized and adjusted our organization through a series of measures, including reducing total headcounts, Increasing operational efficiency and lowering operating cash flows. These measures are a move that can help us with near term operating leverage against the fierce competition. The effects of these measures will begin to be reflected in our operating data from quarter 1 2024.

Speaker 3

The net result of the foregoing was an operating loss of US112.8 million dollars for this quarter compared to US119.1 million dollars in the last quarter. Benefited from foreign exchange gain and deferred tax The net loss was US80.1 million dollars compared to US110.7 million dollars in the last quarter. Turning to our balance sheet and cash flow. During quarter 3, we spent US36 $1,000,000 to Sustain the wafer supply and the machine production. Other cash payments included US15 $1,000,000 For operations, the cash flow totaling US51 $1,000,000 was partially offset by cash inflow of US26 $1,000,000 from sales.

Speaker 3

So net net, at the end of the third quarter, we had cash and cash equivalents of US41 $1,000,000 on our balance sheet. We are glad to announce today that our balance is further bolstered with a capital injection up to US125 $1,000,000 in the form of We intend to use the net proceeds from this capital raise to fund the R and D expansion of production scale and other general corporate purposes. As of the end of this quarter, we recorded Accounts receivable of US9.8 million dollars declining US0.3 million dollars compared to the end of quarter 2. We did not implement more installments in quarter 3 and will continuously evaluate market demand and adopt Corresponding credit policies with caution. Now turning our attention to our Bitcoin assets.

Speaker 3

We held a record high 860 Bitcoins as our own holding asset of September 30, which is 113 more than 747 at the end of June. We also held 378 bitcoins received as customer deposit, which is the same as the balance of June 30. From August 29, 2023, the date we reported our quarter 2 financial results, To November 28, 2023, we neither utilized the ATM nor purchased any ADS. On November 10, we terminated the ATM agreement with the former sales agent and we Announced on November 13, we have adjusted our ATM project by appointing B. Riley as the new sales agent.

Speaker 3

In the future, we will prioritize shareholders carefully monitor cash flows and stock prices and flexibly Execute any potential ATM sales or stock repurchases. In quarter 4, We anticipate a revenue of US34 $1,000,000 In the end of 2023, The price of Bitcoin is still facing a challenging environment, and the price competition remains intense. Policy changes regarding cryptocurrencies and mining in different countries will also add uncertainty to industry operations. We may face unforeseen obstacles. Based on the above comprehensive situation, We give a cautious expectation for the Q4 of 2023.

Speaker 3

Now I would like To briefly walk you through our financial results for the quarter, revenues in the Q3 of 2023 were US33.3 US3 $1,000,000 as compared to US73.9 million dollars in the Q2 of 2023 and US140 US5.5 million dollars in the same period of 2022. Gross loss in the Q3 of 2023 was US69.1 million dollars compared to a gross loss of US70.1 million dollars in the Q2 of 2023 and a gross profit of US32 US43 $1,000,000 in the same period of 2022. Total operating expenses in the Q3 of 2023 were US43.8 million dollars compared to US49.0 million dollars in the Q2 of 2023 and US43.1 million dollars in the same period of 2022. Loss from operations in the Q3 of 2023 was US112.8 million dollars compared to a loss from operations of US119.1 million US dollars in the Q2 of 2023 and a loss from operation of US10.5 million dollars in the same period of 2022. Net loss in the Q3 of 2023 was US80.1 million dollars compared to a net loss of US110 US0.7 million dollars in the Q2 of 2023 and a net income of US6.3 million dollars In the same period of 2022, basic and diluted net loss per ADS in the Q3 of 2023 were US0.47 dollars As of September 30, 2023, the company had cash and cash equivalents of US40.6 million dollars This concludes our prepared remarks.

Speaker 3

We are now open for questions.

Operator

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 your questions to 3 questions at a time. If you have any follow-up questions after the Q and A session, the Investor Relations team will be available after the call. Please immediately repeat your questions in English.

Operator

One moment for the first question. First question comes from the line of Mr. Lucas Pipes from B. Riley Securities. Please go ahead.

Operator

Mr. Pipes, your line is now open. You may unmute locally.

Speaker 4

Thank you very much, operator. Good morning, everyone. Good evening. My first question is on the marketing And I wondered in the current environment, could you speak to what you Compete on, is it price? Is it financing?

Speaker 4

Is it the quality of your product? If you could maybe just share a little bit

Speaker 2

Yes. Good evening or good morning. I think for this industry's most important factors, Product performance and price. Regardless of the ways of competition, These two aspects should always be top priority. In addition, it's To establish our unique features, looking at the current and the future market, It's essential to make targeted adjustments and the customized product designs At the system level based on the specific needs of our customers.

Speaker 2

For example, We have dedicated a lot of effort recently to ensure our systems Can operate reliably in hash environments And this has received a lot of positive feedback from our customers. I believe we are industry leaders regarding product quality and customization. Right now, I think the key focus is on rapidly improving product performance While reducing the cost. Thank you.

Speaker 4

Very helpful. Thank you for that. And then I wanted to touch on the Chip procurement strategy at this time, kind of with where the market is today, How are you looking at making commitments to your suppliers? Thank you very much.

Speaker 2

Yes. I think given that we are currently in the Process of product integration and considering the volatile market conditions, We have adopted a sales driven production strategy. This means that we determine the Quantity of wafers to be ordered based on the number of contracts on sale side, Certainly, with a certain percentage added.

Speaker 4

That's very helpful. Good to hear as well. Thank you. And then one last one for me. I'm just curious how maybe the U.

Speaker 4

S. Market is holding up more specifically and also what Some of the key differences you might be seeing between the U. S. And other markets globally. Thank you.

Speaker 2

Yes. Okay. In the United States, minor customers are primarily institutional clients And the funding often comes from the capital markets. Currently, our financing costs In United States, we remain relatively high. However, we have observed that financing channels that So we're almost closed in the past year are gradually reopening.

Speaker 2

As a result, there are signs of recovery in mining machines demand in the US market, along with the reopening of financing channels. The U. S. Market has relatively high demand of mining machines And the competition is farings as well. It's necessary to provide both top Performance and competitive pricing, given that U.

Speaker 2

S. Market has constantly be a sizable one, It's become a highly competitive battleground. Yes. Thank you.

Speaker 4

Thank you very much for all the color and to you and to the team, best of luck.

Operator

Our next question comes from the line of Michael Donovan from H. C. Wainwright. Please go ahead.

Speaker 5

Thank you, operator. This is Michael Dobbin calling in on behalf of Kevin Beatty. Angie and James, congrats on the quarter. Can you discuss a A bit more about the inventory levels of older generation machines. Are they completely gone now?

Speaker 2

As planned, the destocking process of models up to 8 4th is now nearly complete. Yes. So our focus has recently shifted to clearing

Speaker 5

Okay. Thank you. That's helpful. Now for the order levels for the new A14 series, what are the trends you're seeing in the 4th quarter?

Speaker 2

Yes. Our newly launched A14 Series Mining Machines Yes, have a higher computing power and a much better power efficiency, making them more competitive. Since we start Presales in mid September, we have received future contracts for about 2,000,000 terahash per second. These orders are going to

Speaker 4

be making

Speaker 2

their ways into the supply chain for production.

Speaker 5

Yes. Okay, great. Now if we could switch to self mining, you have about 4 exahash Currently deployed, how much are you generating now in terms of the mid 4th quarter and how much more do you have to deploy?

Speaker 2

Yeah. Mining remains a long term strategic part of our business. So we continue to explore mining Cooperation Opportunities with Other Regions. In the Q3, the pilot batch of computing power for New projects in North and South America entered operation. The latest batch of 2,000 of Our 1340 fixed mining machines was successfully deployed and the launch for our front mining project with Stronghold.

Speaker 2

Yes. So at the end of the Q3, we have about 4 extra cash per second that's from our deployed. Also recently, we have expanded our mining team power in South America and Africa. In addition, we signed contracts for new projects in the Middle East during the Q4. This includes our first pilot collaboration with our in house Integrated Liquid Cooling Mining Solution, which is currently in the progress of Deployment and Installation Testing.

Speaker 2

Also about yes, Also, we already obtained the Type 2 license for our mining operations In Kazakhstan's time, in mid November, as required by the country's new mining policy, Opportunity this license means we are legally permitted to conduct Bitcoin mining activities in Kazakhstan. So at present, we are in the process We are projecting the mining machines deployed locally under this license. We are in discussions with our mining partners to prepare for the reception of operations. As all goes, mostly, we can expect our mining project in CapEx Plan will gradually resume operations around EndNote.

Speaker 5

Yes. Thank you. Thank you, Lindsay. I'll hop back in the queue.

Operator

Thank you for the questions. One moment for the next questions. Our next question comes from the line of Michael Lake from The Benchmark Company. Please ask your question.

Speaker 6

Thanks. Wanted to touch base on the preferred offering you're doing of $125,000,000 Can you talk about some of the terms of that, whether it's convertible, There's a dividend, board seat, etcetera. Just give us a little bit more information on that, please. Thanks.

Speaker 3

Thank you, Michael. James speaking. I think today, we announced sales of convertible preferred shares of up to US125 $1,000,000 with multiple tranches subject to the customary closing conditions. I think the specific preferred share details are available in the documentation released today On our Phone 6 ks, I think we intend to use the net proceeds from this capital raise To fund our R and D and expansion of production scale and other general corporate purposes, I think that's the basic idea of doing this fundraising. Thank you, Michael.

Speaker 6

Okay. I'll check the 6 ks for the details. And then just I want to follow-up on Michael's question on the inventory. What percent is finished goods A14s of the inventory and what part how much of it is still raw materials versus all the models?

Speaker 3

Michael, currently, A14 Series is still a purely new product. So we are placing the orders of wafers, And then we can get the finished goods in late quarter 1. I think that's the schedule. So currently, we don't have any finished goods, I mean the current stock, we will wait for the wafers coming out and produce The chips and then assemble the machines and deliver to our customers later.

Speaker 6

Okay. So of the $217,000,000 of inventory, how much is raw materials versus older finished goods?

Speaker 2

Okay. I think, Yes. Most I think about maybe onethree of The numbers is the finished goods for AE 13 series. And another 2 services, I think it's diversified to many different stages like the chips or already assembly the PCB, but not still waiting for assembly to the machines. And maybe There's also some percentage still at the wafer level.

Speaker 2

Yes, but I think there's no Wafer is still in process.

Speaker 3

Yes.

Speaker 6

Okay. And then just one last question. Can you comment on where you think your market share is today and when you How are you seeing your sales versus your competition? Thanks.

Speaker 2

Yes. I think, Yes. It's a very volatile market this quarter. But for the Q3, it's quite a boring quarter. So I don't think the market share numbers have some significant change in sort of quarter 3.

Speaker 2

Usually, we think it's about 20% or close to that number is our market share. For the Q1, We can observe the significant sales Spark in yes, but still there is about 1 month to go. So And also we can observe that many that there is a significant hash rate increase in Quarter 4. So we are still we're waiting for that number, yes.

Speaker 5

Okay. Thank you. Congratulations. And Michael,

Speaker 3

as you know, our 2 major competitors, they are private companies, so they don't disclose Their result, so we have no accurate number of the whole market share. N. J. Has described The sense about the market share.

Speaker 6

Okay, great. Thank you.

Operator

The questions. Our next question now comes from the line of Shuang Sun from Korshun Securities. Please go ahead.

Speaker 7

Hello. So can you hear me?

Speaker 2

Yes, please.

Speaker 7

Okay. My first question is, how has computing power price recovered

Speaker 2

Yes. Thank you. Thank you for question. From what we've seen so far, the demand was quite low throughout the entire Q3. However, as we move to the Q1, we noticed that Increase in demand, especially in past few weeks.

Speaker 2

But There has no been a significant increase in the average sales price. It's important to note that Bitcoin price has only experienced a noticeable upturn in the past few weeks And the market typically does not react so quickly.

Speaker 7

Okay. Yes.

Speaker 2

Thank you.

Speaker 7

Okay. Thank you. My second question is that with increasing demand From AI Computing Power Nowadays, can you secure enough wafer supply with the foundry? What's the cheap process node of your mainstream products and which foundry do you collaborate with now?

Speaker 2

Yes. The chips used in our mining machines Adapt a different process node and we are fabricated on a different production line from our mainstream Cloud based AI Computing Chips. And I think the current botnet in AI chip production, Primarily in advanced packaging. So from my observation, it has not yet impacted the production capacity of the advanced process node. So And the fabrication process of our current mainstream products aligns with That of our peers, the capacity for this advanced process It's only available from selected few top tier semiconductor foundries.

Speaker 2

And also we have established long term partnerships with these funders.

Speaker 7

Okay. Thank you.

Operator

Thank you for the questions. And in interest of time, I would like to turn the call back over to the company for any closing remarks.

Speaker 1

Hello, everyone, and thank you again for joining our Q3 earnings conference call today. If you have any further questions, Please feel free to reach us through the contact information provided on our website. And thank you again.

Operator

That concludes the call today. Thank you everyone for attending. You may now disconnect.

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