Canaan Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 26, 2023

Key Takeaways

  • Machine sales revenue dipped to $43.7 M in Q1, down 7.6% quarter-over-quarter as ASPs fell and market inventory remained high despite a 126.8% jump in shipped computing power.
  • Mining business achieved a record Q1 revenue of $11.1 M by producing 476 BTC, with mining profitability improving as Bitcoin prices recovered and previously idled sites restarted.
  • A13 series miners entered stable mass production, driving 47% of Q1 machine sales and are forecast to make up 70–80% of full-year revenue thanks to enhanced efficiency and client adoption.
  • Secured major orders including 11,000 units for Cipher and 36,000 additional machines for delivery through Q4, underpinning Q2 revenue guidance of ~$72 M, though management remains cautious on market volatility.
  • Posted a Q1 net loss of $84.4 M (narrower by 8% sequentially) and ended March with $72 M in cash after investing $54 M in wafer supply and production capacity.
AI Generated. May Contain Errors.
Earnings Conference Call
Canaan Q1 2023
00:00 / 00:00

There are 7 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Canons Inc. 1st 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 Soussy, Investor Relations Director of the company. Please go ahead, sir.

Speaker 1

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. Joining us today are our Chairman and CEO, Mr. Nan Geng Zhang and our CFO, Mr.

Speaker 1

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

Speaker 1

Zhang will I'll start the call by providing an overview of the company and performance highlights for the quarter. Mr. Cheung will then provide details on the company's operating and Financial results for the period before we open the call up for your questions. Before we continue, I would like to refer you to our Safe Harbor statement in our earnings press release. Today's call will include forward looking statements.

Speaker 1

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. 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, uncertainties and assumptions. Please refer to the press release and the risk factors and documents We filed with the Securities and Exchange Commission, including our most recent annual report on Form 20 F for information on risks, 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 and 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. Angie Zhang. Please go ahead.

Speaker 2

Hello, everyone. I'm Angie, the CEO of Kannen. Thank you for joining our conference call. James and I are at the company's headquarters in Singapore Sharing the quarterly report conference call with you. Compared to Q4 of previous year, Q1 of 20 Industry has brought more hope to Bitcoin mining industry.

Speaker 2

Although the Bitcoin price still fluctuates, It has generally stepped out of the bear market and shown an upward trend. The confidence of miners has gradually recovered and coupled with the traditional peak season in the Q1, There are signs of our revival in purchasing demand. Although the purchasing power of large miners It's still limited by cash flow pace of facility construction and the financing environment. This has not affected the positive trend of the market. Regrettably, The selling price in the mining machine market is still declining, and the Q1 is still in a bear market state.

Speaker 2

In this ever changing market environment, we believe that maintaining strategic continuity and timely Adjusting tactical decisions according to market dynamics are equally important. 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, I would like to introduce to investors the 4 Strategic focuses that we have been concentrating on and our actions in these areas. First, we insist on long term R and D and production capacity investment. 2nd, We continue to develop and improve our market faced sales system to connect and assist Global customers. 3rd, we adhere to our own mining strategy, overcome difficulties And continue to expand mining deployment.

Speaker 2

Finally, we maintain a solid balance sheet and accumulate valuable assets This great potential. I will elaborate on these four points 1 by 1. Firstly, we are committed to R and D and production capacity. Product development and the capacity Assurance remain our major input and investment in the Q1 of 2023. The specific data will be As a technology and product oriented company, the importance of Product powers our industry is self evident.

Speaker 2

We always put product development first. 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 maintaining close cooperation with upstream foundries mass conducted in the Q1 and further improved the yield and the computing power efficiency through technical adjustments and the process improvements. Our A13 series has reached and exceeded our performance design expectations in terms of In the Q1, we have achieved a stable supply. In actual use by customers, The excellent computing power consumption and the quality of a 13 series has also been recognized And the shipment volume has grown rapidly.

Speaker 2

Whether in a bear market or a bull market, we always insist On integration and the strive to make the best mining machines, even when a 13 series was not yet mass Producted and the market was at its most bearish. Our new product deployment development 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. And the continuous launch of new products opened its continuous supply chain investment. In the Q1, Our mass production and investment in the supply chain exceeded US50 $1,000,000 I believe that our efforts and resource input will pay off in the subsequent product performance improvement and the supply chain stability. Secondly, we are dedicated to developing and enhancing our sales system to reach global customers.

Speaker 2

The industry we are in is fast growing and unpredictable. In each bear market bearable cycle, the industry undergoes reshuffling, With some miners leaving and the new ones joining, as miners continually seek and develop standard chip Energy worldwide, transforming wasted energy into reusable power. Both the density and the location of miners are constantly changing. Starting from the Q1 of this year, we accelerated The construction, development and the improvement of our comprehensive international sales system. Our sales system is now divided into 3 parts: large clients, channels and retail.

Speaker 2

And it is assisted by online stores and the original business development, allowing us to better reach and convert customers worldwide. In the Q1 of 2023, the overall industry was affected by inventory, competition, Financing conditions and cash flow. Although sales volume in the mining machine markets saw a slight recovery compared to Q4 of 2022, we still remain in a better market with a continuous decline in average selling price of computing power. A series of small and the medium sized bank failures in the U. S.

Speaker 2

Late in the quarter also had some impact, Causing delays in payment and shipment for some orders. These factors resulted In that the ideal sales revenue for this quarter, we achieved total sales of 4,220,000 terahits per second, Sequential growth of 126.8 percent, but the total quarterly revenue of 55,000,000 was below our expectations. However, we also see positive aspects. Although demand from large clients in U. S.

Speaker 2

Fluctuated, our expanding sales system quickly sees many sales opportunities in other regions. With the total number of purchase orders rising to over 500 in Q1, in the Q1, we actively developed Sales channels in Southeast Asia and established cooperation with local distributors in Thailand and Malaysia For the first time, our online store targeting overseas retail customers attracted orders from about 20 countries, Brazil, Mexico and the Philippines. As we enter Q2 and the market to go land, The interactive and the interactive and efforts we implemented in Q1 are starting to show more results. For instance, we recently signed a contract order of 11,000 units of our A13 product with Cipher, For public, we listed institutional mining clients in North America. Before that, the contract, We assisted the alliance to conducting extensive on-site tests for our products At their mindset in Texas, the client ultimately recognized excellent performance Our A13 series products under relative extreme weather conditions.

Speaker 2

Recently, We have also signed a series of large scale contract orders for an additional 36,000 mining machines in other regions, which are expected to be delivered in succession before the end of Q4 of 2023. The recent appearance of these large contract orders across multiple markets confirm that our business and product strategies are correct. Lastly, the return of contract sales orders will also help us improve our cash flow situation. Thirdly, we stick our mining strategy and continue to expand our mining deployment. Since the company started mining operations in the second half of twenty twenty one, we have faced many challenges.

Speaker 2

Despite this, we have firmly established mining as a strategy priority and secured a place for ourselves In the global rapidly developing industry of bitcoin mining. In the Q1 of 2023, The profitability of mining improved due to recovery of bitcoin prices and the stamp size that were Forced to shut down in the Q4 of 2022, we're able to restart operations. This quarter, we produced 4.76 Contributing a mining revenue of US11 $1,000,000 a slightly increase from the previous Quarter and new record high. We are continuously exploring more mining opportunities in different regions And reducing our comprehensive mining operation costs. Even though the total network computing power is still rising, The increase in Bitcoin price and the recent industry events like BRC20 have boosted money income During certain periods, we anticipate that the company's money income will reach a new high in the second quarter.

Speaker 2

As of March 31, 2023, we have deployed computing power of over 5x hash per second to our many slides. However, due to severe cold weather and the contract execution issues, So total power is installed is over 4 exahash per second. This figure is lower than our forecast In the previous quarter's financial report, we will continue to strive to improve our deployment, deploy Computational power data with our cash flow and operational capabilities. Lastly, we are dedicated to maintaining a healthy cash flow and accumulating assets with strong growth potential. Kainan has just completed a full decade from its inception in early 2013 to the Q1 of 2023.

Speaker 2

We've weathered many market ups and downs and have gained some unique Coin was mostly accurate, but the sales of our mining machines proved to be more difficult. We achieved improvements in sales and the return of contract sales orders in the 2nd quarter, which continue to contribute our revenue and cash flow. This also worth noting that The healthy and stable supply chain resources we accumulated over the years have helped us We see opportunities to mass produce and deliver mining machines at the price of bitcoin rises. Meanwhile, our bitcoin assets continue to grow. Once again, we emphasize our strategy of holding bitcoins.

Speaker 2

Bitcoins generated from mining are only used to pay for direct operation costs such as electricity. Our self developed and self produced mining machines products and the mining power deployed to the mining sites As important assets for producing Bitcoin contain huge growth potential Our bitcoin price continues to rise in the medium and long term. In some cases, already deployed mining In this brand new industry, we are making history every day. Even for me, the Q1 of 2023 was a challenging start. The uncertainty in the reality has Our performance less ideal.

Speaker 2

However, our direction has not divided significantly. Since the Q2, although the price of bitcoin has not risen sharply, the company's operational results have been more positive, which is a result of the hard work of all K and N employees. However, we must also see that The current economic environment is not optimistic. The cloud of uncertainty Steel rooms overall and the price of Bitcoin may still continue to fluctuate. At least in the United States, The financing ability and the processing power of miners in large miners' farms have not yet recovered.

Speaker 2

Coupled with current situation where the industry inventory Has not yet been completed or the decision has not yet been completed. Both sales prices and the gross profit will continue to be Based on the above comprehensive situation, we are extremely cautious about Expectations for the Q2 of 2023. The revenue for the Q2 of 2023 is expected to be about US72 $1,000,000 This forecast is based on the current market and operating conditions of the company And actual CTO, Shenmeng, Larry. In the final section, I would like to share some new insights on my personal beliefs about decentralization and Bitcoin. We open here doubts about the utility of Bitcoin.

Speaker 2

In fact, the use of Bitcoin is Complementary in the development of new technologies and this function as a medium of payment and value storage Has never changed. Over the past 10 years, the 2 pieces of puzzle leading to Web3 has been largely completed, namely blockchain based digital currencies and the smart contract technology. In our last earnings call, someone asked me whether I thinking bitcoin is a risk asset. I've spoken more about this question since then. In the short term, Bitcoin indeed shows some Characterized risk is similar to risk assets, but in the medium term, Bitcoin should be Again, system needs risk and certain region in the current global financing system and even as a tool against global political and economic uncertainties.

Speaker 2

This isn't hard to understand, 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. Once I had a long discussion with GPT-four about the future of AGI becoming mainstream in the world, I'm almost certain that AGI will be the last piece of puzzle of Web 3. The final creation of Web 3 will be decentralized individually distributed AI system. At that time, Digital currency and smart contracts based on blockchain will reshape the financial financing System of the new world on the basis of cost success. Most trustworthy, efficient, transparent, briefly improving the level of productivity and promoting the process of Today, we are a provider of computing power products and services in the blockchain industry.

Speaker 2

Going forward, I hope to further expand our technology and have the opportunity to participate in the Broader changes in the future bring value to customers with computing power products and services and support the progress of society. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.

Speaker 3

Thank you, Wang Chi, and good day, everyone. This is James speaking our Singapore headquarters. Firstly, I would like everyone to notice That we have changed our reporting currency. Starting from January 1, 2023, we've decided to change our reporting currency From renminbi or so called Chinese yuan to U. S.

Speaker 3

Dollars, the change of the reporting currency will better illustrate the results of our global sales and is another important step in our internationalization strategy. We have applied the change of reporting currency retroactively to our historical results of operations and financial statements. It will also be easier for our investors to read and analyze our financial reports in one currency. As NGS started the call with, the Q1 of 2023 was challenging due to the revised We kept investing in R and D and production capacity. We developed and upgraded our sales system To reach global customers, we continue to expand our mining deployment and we strive to maintain a healthy cash Overall speaking, in quarter 1, total revenue generated was $65,200,000 which did not meet our guidance of US65 $1,000,000 The GAAP consisted Let's begin by discussing our machine sales.

Speaker 3

Our revenue of mining machine sales was 43.7 US1000000 dollars in this quarter, 7.6 percent lower than US47.3 million dollars for the last quarter. In the Q1 of 2023, the industry was affected by inventory competition, financing environment and cash flow. Our sales volume in computing power, reaching 4,200,000 terahash per second, with a substantial increase of 126.8% compared to Q4 last year. However, the average selling price dropped to $10 per terahertz per second. As we needed to adjust Our prices in line with the overall market for Bitcoin mining machines.

Speaker 3

Additionally, Affected by a series of U. S. Bank failure events in mid March, payments and shipments of some orders have been delayed. After that period, we received more orders and recorded customer advances of US8.3 billion dollars at the end of March. This laid a good foundation for the machine sales revenue in the Q2.

Speaker 3

Our gross profit for mining machine sales was $5,200,000 and our gross margin rate for mining machine sales was 11.9% in this quarter. Turning to our mining business. Our mining revenue was US11 $1,000,000 in this quarter, 3.3% sequential increase compared to US10.7 million dollars in Q4 last year. It's a new record high. However, this revenue did not meet our expectation.

Speaker 3

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, this had an impact on the quarterly mining revenue results. In this quarter, our total deployed hash rates reached more than 5xash per second and our installed Rates reached more than 4 exahash per second. We mined 476 bitcoins in this quarter and achieved 19.8 bitcoins for mining profit. Gross profit was 0 point US2 $1,000,000 for our mining business in this quarter. 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 3

Now talking about our AI business. We recorded US0.41 million dollars for AI revenue in this quarter. It is a 68.6% increase compared to US0.24 million dollars for Q4. The sequential revenue growth was mainly driven by the increased sales volume for AIoT customers. Switching to the expense.

Speaker 3

Our R and D expenses stood at US19.1 million dollars in this quarter compared to US33.4 million dollars in the last quarter and US15.2 million dollars in the prior year period. 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, our R and D expenses remained stable sequentially. The steady year over year growth reflected our continuing commitment to building our talented R and D team. Our sales and marketing expenses were US1.5 million dollars compared to US1.1 million US dollars in the last quarter and US3.0 million dollars in the prior year period.

Speaker 3

Sales commissions reduced year over year because of Our general and administrative expenses in this quarter was US17.6 million dollars compared to US24.6 million dollars in the last quarter and US19.8 million dollars in the prior year period. The decrease was mainly due to US2.6 million dollars We realized gain on bitcoin sold in this quarter for electricity costs, which offset our G and A expenses. Please note, when we do disposal of Bitcoin, the gain or loss of unbanked booking value will be recorded into G and As. The net result of the foregoing was an operating loss of US85.7 million dollars for this quarter, which is 31.4 percent narrower than the last quarter. The net loss was recorded at $84,400,000 which is 8% narrower than the last quarter.

Speaker 3

It is important for us to keep our eyes on the cash flow. We held cash and cash equivalents of US72 $1,000,000 at March 31. As our CEO shared, we committed to securing future capacity during this quarter. We spent US53.9 million dollars To secure wafer supply and the machines production, other cash payments included US28.6 million dollars For operations and $4,700,000 in the tax expenses. Please note that As we paid the year end bonus in January, the outflow of operation was higher than usual run rate.

Speaker 3

The cash out totaling US87.1 million dollars was net of by inflows of US54.8 million from sales and the proceeds of $3,100,000 by the ATM facility. Turning our attention to our bitcoin assets. We held 623 bitcoin as of March 31, decreased from 757 bitcoins by the end of 2022. 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. That is, at the beginning of each month, we will exchange bitcoins to U.

Speaker 3

S. Dollars based on the current price in advance For the monthly electricity costs, 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, this aforementioned resulted in a decline of 134 basis points Quarter over quarter, it is a one time change. From March 7, 2023, The date we reported our financial results for the Q4 of 2022 to May 25, 2023, we utilized the ATM for a small amount of fundraising to test the financing facility. During the above period, we sold 1,500,000 32,219 ADSs With net proceeds of approximately US4.2 million dollars at an average price of US2 US0.73 dollars per ADS.

Speaker 3

We executed above sales within 10 trading days in March, And we did not utilize the ATM after March 31. From March 7, 2020 The date we reported our financial results for the Q4 of 2022 to May 25, 2023, We did not purchase any ADS Bags. In future, we will prioritize our shareholders, carefully monitor Cash flows and stock prices and flexibly executed ATM or stock repurchase. In quarter 2, we anticipate the revenue of US72 $1,000,000 A 30% increase from quarter 1. Despite the market's gradual recovery, we have secured some contract sales orders from major clients and distributors.

Speaker 3

This has bolstered our cash flow and allowed us to invest And strategic areas of focus. 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. Revenues in the Q1 of 2023 were 55 US5.2 million dollars as compared to US58.3 million dollars in the Q4 of 2022 and US201.8 million dollars in the same period of 2022.

Speaker 3

Gross loss in the Q1 of 2023 was US47.5 million dollars compared to a gross loss of US64.1 million dollars in the Q4 of 2022 and a gross profit of US123.5 million dollars in the same period of 2022. Total operating expenses in the Q4 of 2023 were US38.1 million dollars compared to US60.8 million dollars in the Q4 of 2022 and US38 point US0 $1,000,000 in the same period of 2022. Loss from operations in the Q1 of 2023 was $85,700,000 compared to a loss from operations of $125,000,000 In the Q4 of 2022 and an income from operations of US85.4 million dollars in the same period of 2022. Net loss in the Q1 of 2023 was US84.4 million dollars compared to a net loss of US91.6 million dollars in the Q4 of 2022 and a net income of US65.1 million dollars in the same period of 2022. Basic and diluted net loss per ADS in the Q1 of 2023 were $0.51 As of March 31, 2023, the company had cash and cash equivalents of $72,000,000 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 investor and analysts You may wish to ask a question. Please limit yourself to 2 questions at the time. If you have any follow-up questions after the Q and A session, the Investor Relations team will be available after the call.

Operator

Please immediately repeat your questions in English. One moment for the first question. We have the line Your first question today comes from the line of Kevin Dede from H. C. Wainwright.

Operator

Please go ahead.

Speaker 4

Thank you very much for taking my question. I was wondering if you might be able to offer a self mining hash rate Target for the year. Maybe disclose a little bit on what you're seeing in terms of the availability of hosting sites? 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.

Speaker 4

And I was wondering if you might be able to segment

Speaker 2

As we mentioned, as of March 31, The deployed computing power at our mining farms exceeded 5% cash per second. However, in the Q1, the installment of computing power It was lower than expected due to weather conditions and the contract execution issues, Resulting in total installed hash rate was over 4x hash per second. In the second quarter, we entered into a mining partnership with Stronghold in early May, which involved 4,000 manual machines, At the same time, we are also exploring more mining partnership opportunities in regions with abundant energy resources around the world. Our mining business has expanded into many geographical regions where we had no previous crisis. The local, critical economic And the infrastructure conditions in these areas are complex and subject to change, which pose challenges to our exploration and development efforts.

Speaker 2

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. We currently estimate that the installed money hash rate in Q2 will This forecast is based on the current operating conditions And the actual situation may be different. Mining is a long term strategic focus for us And update complements our mining machine sales business and allow for The effective utilization of more inventory, we will actively and Progentle cooperation of alternatives negotiated terms of cooperation And strive to continuously increase the installed mining pattern to generate bitcoin mining income.

Speaker 3

Yes. 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, No matter new machines or secondhand machines are still quite sufficient inside the whole North America market. So So it looks like the more opportunities come from Southeast Asia, Middle East and even South America market. And we noticed some retail customers are ordering machines even from Africa And from Western Europe, I think it depends on the Energy of the local level usage, I think that the mining business will grow As we expected to global level and more and more areas will join this mining business And it will rapidly change because of different locations.

Speaker 3

We have different regulations coming out related to mining. From our perspective, we would like to seize all kinds of opportunities, Especially like in this quarter, we had the connection with Malaysia and Thailand distributor, which enabled us To touch the customers locally in those two countries, we will develop more, as CEO said, Build up our sales channels to make sure we get in touch with our customers locally. And we also would like to continue the dialogue with big clients in North America. Cyber is just a beginning of us. So we have confidence to discuss more customers, discuss with more customers And let them enjoy the A13 series machine for their mining purpose.

Speaker 3

So I hope that answers your question, Kevin.

Speaker 4

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 2

Okay. I think In short term, I think that we have no need to do mid term or long term prediction of bitcoins. But for short term, I think the big comprise is related to the economical environment, especially for U. S. So I think you know the answer.

Speaker 2

I think you know the numbers. Yes.

Speaker 4

Thank you very much, gentlemen. I appreciate the opportunity to ask questions. Thank you very much.

Operator

Thank you. Thank you. One moment for the next questions. Next, we have the line from Shuang Sun from Guoshun Securities. Please go ahead.

Speaker 5

So I want to ask that please introduce

Speaker 2

Recently, the AI industry represented by products like Jet GPT Has revealed an important part. The reason I think the reason why the AI industry has not Involved as development as expected over the years, it's not due to AI itself, But rather like many other industries, it is a result of Contradiction between the users' expectations for the product capabilities And what the industry can provide at a certain cost. When AI Products can truly bring significant benefits to users, then you can you see the results. The response is very positive. Therefore, I'm currently restructuring the company's AI department and the business to ensure that our technology and investments can embrace the Future of AGI, artificial general intelligence, I mean, work in the short to medium.

Speaker 2

But in the short to medium term, we believe that an important function of AIoT And Edge AI is to convert real world like images, Sounds and sensor data into text and code Our code information that can be understood by large language models like JetGPT. Well, complex decision making is not a strength for SAI today. This is our large language models excel. Our K230 chip has Highly efficient HAI capabilities and advantages in terms of low cost and low power consumption. Therefore, we are adjusting the direction of our product applications to adapt to this trend.

Speaker 2

In the long run, as I mentioned in the CEO remarks, I will We explore ways to horizontally expand our technology and participate in future and broader transformations. We aim to bring value to our customers through more general purpose computing power, products and services And support society progress. Thank you.

Speaker 5

Is there any upside to the company's mining business going

Speaker 2

Yes. I think according to Satoshi Nakamoto's region, Transaction fees will become an important complement for miner's income after multiple halvings. It appears that the industry is developing as expected. So recently, due to events like BRC20, The increase in bitcoin transaction fees has been beneficial for both miners And our own mining business. In a situation where network's total computing power It's constant.

Speaker 2

Managers can earn more mining fees. So we hope that Managers and ourselves Our financial situation and that our customers can recover their purchasing power more quickly. Thank you.

Speaker 5

Overall, as your company has a growing supply of recalling on your

Speaker 2

Currently, we do not have any plans to sell our Bitcoin. And there are several reasons for that. Firstly, our mining operations are still in the Early stages of scaling up. So we have been focused on the development. You may notice that we do Now mine bitcoin to cover our mining facilities, the electricity costs, which helps minimize our cash outflow.

Speaker 2

Regarding whether we will sell the bitcoin, We hope to profit from future price appreciation. We have recently heard this question from several investors. We have had many internal discussions on this topic. Due to our belief that Bitcoin is undervalued, combined with our long term confidence in its global adoption, We are currently not considering selling our bitcoin in the upcoming quarters. If the price of bitcoin experienced a significant increase, we will revisit this topic and reevaluate.

Speaker 2

Yes. Thank you.

Operator

Questions. One moment for the next questions. Next up, we have the line from Mike Lake from The Benchmark Company. Please go ahead.

Speaker 6

Could you comment a little bit about the size for 11,000 unit sale plus you mentioned that about 36 1,000 units being sold. Can you comment on what you're seeing from the pricing environment with that and how margins are holding up there?

Speaker 3

Thank you, Michael. This is James. I think, yes, recently, we have secured more large scale orders, Including the agreement with Cyber 11,000 machines. I personally joined the meetings with Cyber team In New York and also in Singapore, honestly, I really like their strategic ambition and their professional execution capability. So I'm happy to consider our A13 series very suitable for their new mining corporation in West Texas.

Speaker 3

I think the deal benefits both Cyber and Cadence. 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 inventory of the market, no matter new machine Our second hand machine are still quite sufficient, especially in North America. So the price did not coming up. Instead, in quarter 1, we saw the price going down. So it looks like Currently, the demand is getting back, but the price is still low.

Speaker 3

It looks like the bitcoin price continue to increase a little bit with some turbulence recently, But we still anticipate in the coming months, bitcoin price could coming up again. With that trend, the selling price has challenged to going up, but currently, nobody can assure that. So I just let you know frankly express myself and let you know my thinking. Thank you, Michael. Thanks.

Speaker 6

And then just a follow-up. Can you comment on the inventory, which 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 2

Currently, I think looking at the overall situation in the mining machine market, customer purchasing demands have Partly recovered and also reflected in a significant growth of 100 and 26.8 is the company's 1st quarter computing power cells compared to the previous quarter. However, I think the financial situation of miners is still not optimistic. So the lack for second power. On the other hand, the market inventory supply is relatively abundant. So after selling price, mining machines remains at a low level.

Speaker 2

I think compared to the end of December, we have seen a rebound in the decline price in the past over 1 quarter. This has got better mining profits to miners and help improve their financial situation. So in the industry cycle, some miners have under core and restructuring And the new miners continue to enter the market. Driving the continuous increase in the network computing power, As mining from construction gradually completes and the weather in Northern Hemisphere Warms Up, Leaded to Abandoned Hydroelectricity Resources, it is expected to future stimulate The demand of computing power and provide support for the selling price.

Speaker 3

I think, Michael, you asked about the depreciation of our mining machines deployed in the mining farms. Actually, it's 18 months is our depreciation policy. Usually, we after 18 months, all the depreciation will be completed. And about the inventory combination, 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 steel wafers and steel chips.

Speaker 3

And it takes time to assemble those materials into machines. So, so far, we also control the speed of the assembling, make sure the inventory is just sufficient, not too much to Increase the storage costs are too small to have shortages. So I think that's our inventory status. I don't know if I answered your question, Michael.

Speaker 6

Yes, that was perfect. Thank you very much. Appreciate it and congrats on completing the quarter. Thanks.

Speaker 3

Thank you, Michael.

Operator

Thank you for the questions. Our last question comes from the line of Gerard Chu from China Renaissance. Please go ahead.

Speaker 5

To A13 series, Just want to know what is the estimated revenue contribution for a 13 series product this year? And also in terms of the pricing strategy, do we see any increased room For all of your ASP per cash in Q3 or Q4, that's my first question.

Speaker 3

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 model and also the A13 series After the launch, the customers test and also they start to place orders in quarter 1. It looks like the performance of A13 series is better than what we expected. In quarter 1, the total revenue of A13 series is already occupying like 47% of total Machine sales revenue. So we have confidence that quarter 2 A13 series will definitely becoming our biggest revenue source.

Speaker 3

And for A12 series, I think our target is Try to clear the inventory before end of quarter 3, but of course, as soon as possible, We do have a very low price for A12 currently. About our Price strategy in the coming quarters, I think as previously mentioned, the demand currently It's still in a weak level, 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 3 will be the quarter we see the price going up Most likely, we hope it will happen. And we also Consider there is possible increase of A13 series price, but currently in quarter 2, we didn't do that because The market inventory digestion is still ongoing. So hopefully, in quarter 3 quarter 4, We can see more positive changes.

Speaker 3

That's my answer.

Speaker 5

I have a follow-up because I remember that last quarter's call, we mentioned that we expect maybe A13 series bill accounts For 70% to 80% 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.

Speaker 3

Yes. Currently, I still think A13 series could be higher than 70% So the total year sales because like in quarter 4, if we if our projection about The Bitcoin price is very correct. Then in quarter 4, we'll become a peak season. At that time, A13 series will You know, have good sales in quarter 4. So during the whole year, I still think A13 series Could it be 70% to 80% of total sales?

Speaker 3

And yes, and I think Let's hope it happens because the price can even have an upside that will be better. Thank you, Ennis.

Speaker 5

Okay. Got you. And my second question is in terms of the mining business revenue contribution. I know that in Q1, the revenue contribution was to around 20%, right? So Just wondering in a longer term basis, what's the reasonable revenue mix is?

Speaker 5

How should we think the reasonable revenue contribution for mining business, Maybe in a longer term consideration.

Speaker 3

Yes, Meny, I think this is a very good question. From a Company, we do both machine sales in semiconductor design field and also to 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 should try our best to expand our deployed machines and increase our Hash rate in future, but I think the thing is based on we can sell more machines rather than quarter 1.

Speaker 3

It looks like in quarter 1, the machine sales, we are still in the bear market. That makes the 20% of mining business. Actually, from long term perspective, my personal view is it should be like 20% to 30% In our total business, we are still a company majorly in doing in manufacturing and design machines. And then the mining business will continue to grow, but we will leave more room to our customers Thank you, Ben.

Speaker 5

Okay. Got you. Very clear. Thank you very much.

Operator

Thank you. As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.

Speaker 1

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.

Operator

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

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