Canaan Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 29, 2023

There are 5 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Canin Inc. 2nd 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'd like to hand the conference over to your speaker host today, Mr. Clark Soussey, 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 for the Q2 were released by our Newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nan Dong Zhang and our CFO, Mr.

Speaker 1

James Jin Chung. In addition, Mr. Leo Wong, IR Senior Director and Ms. Shi Zhang, IR Manager, will also be available during the Mr. Zhang will start the call by providing an overview of the company and performance highlights for the quarter.

Speaker 1

Mr. Chung will then provide details on the company's operating and financial results for the period before we open up the call 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. 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 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 filed 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 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 website. With that, I will now turn the call over to our Chairman and CEO, Mr. Engie Zhang. Please go ahead.

Speaker 2

Hello, everyone. This is Engie, the CEO of Kannen. Thank you for joining our conference call. James and I are at the company's headquarters in Singapore and to share our quarterly results with you. During the Q2 of 2023, the price of bitcoin remained at around US28 dollars k to US30 dollars at both the beginning and the end of the quarter.

Speaker 2

However, for most of the quarter, it experienced A downward trend, while the overall network cash rate continued to steadily increased by about 15%. The rise in mining difficulty coupled with sluggish Bitcoin price did have certain adverse impact Both our remaining profitability and our willingness to make purchases. With the industry's inventory level Remaining relatively high, the hiring approaching and the pressure of product updates, All mining machine providers are eager to clear their inventory. As a result, the competition in the mining machine market Has intensified, and the price of computing power continues to be under pressure. In summary, The mining machine market remains in a bear market.

Speaker 2

Given this situation, our efforts are twofold. On the one hand, we are dedicated to upholding our financial resilience And ensuring stable operations. On the other hand, we are also actively allocating resources towards future Growth opportunities. I would like to take this opportunity to discuss several strategic points that we are focusing on. First, we are committed to long term investment in R and D and the production capacity to continuously upgrade and integrate our products.

Speaker 2

As we mentioned earlier, our A13 series products achieved stable supply and gain Customer recognition for their performance leading to a rapid increase in shipment volume in the Q1 of this year. During the Q2, computing power sales of A13 series significantly surpassed that of the A12 series. We are constantly investing in R and D to enhance product computing power, increase power efficiency at reduced costs. In the first half of this year, our products reached a power efficiency of 25 to 30 jars per terahash. In the second half of the year, we will further optimize the power efficiency range of new products These iterative products are in machine debugging and the small scale trial production stages.

Speaker 2

And we have started to take Customer preorders. Even in the current challenging market environment, continuous investment in R and D and supply chain It's cruel for us long term divestment. Furthermore, in alignment with our planned strategy, We are diversifying our product portfolio beyond mining machines. Following extensive period of R and D and testing, We are about to launch our proprietary integrated Arrow coat and liquid coat stack solutions. These solutions We will effectively assist miners in rapid deployment and adapt to mining operations in various harsh natural Our integrated 40 foot and 20 foot air cooled mining Container products and 44 liquid cooled out of the box mining container products have complete completed Product development and prototype testing.

Speaker 2

They have already received orders and are expected to be delivered to customer in the second half of this year. 2nd, we continue to develop and refine our sales system To connect and support customers worldwide, last quarter, we highlighted our We are building, developing and optimizing our comprehensive international sales system. We engaged with large clients, channels and retail customers to enhance our global reach and more effectively convert customers. This quarter, despite the market still being in bearish phase, our overall sales significantly improved Our total computing power cells reached 6,100,000 terahash per second, up 45% sequentially, contributing to product sales revenue about US57.9 million dollars With a brief surge in Bitcoin transaction fees in early May, There was a small upturn in the demand of computing power. Seizing the opportunity, we responded Deceivly by rapidly expanding into North American market, engaging key clients such as Cipher and Stronghold.

Speaker 2

Specifically, we received a significant order from Safran Mining, resulting in 1.21 Medium terahertz per second of computing power cells. In July, we also secured 220,000 terahertz per second sales order from Stronghold Digital Mining. This marks A significant milestone in our entry into U. S. Market.

Speaker 2

Meanwhile, in Southeast Asia, Our distribution channels are steadily expanding. In the Q2, dollars 3,900,000 of revenues Was contributed by contributor sales. This figure further grew in the 3rd quarter. Our online retail store cutting to overseas customers Continue to expand its global customer base in the 2nd quarter, reaching customers from Brazil, the UAE, Hungary, ceterus and Lativia for the first time. It was nothing that the world is vast And establishing a global sales system takes time.

Speaker 2

We are working diligently and we will share with you further positive 3rd, we remain committed our mining strategy and we will continuously explore Mining projects. During the Q2, our mining business successfully initiated several new projects. Through our partnership with the public listed company Stronghold, we have installed the initial batch of 0.4x ahead per second of computing power. Recently, we have reached an agreement with Stronghold To future expand our partnership, adding 0.2x hash per second of computing power, which is expected to be deployed and operational during the Q3. Since the Q2, we We also installed small scale computer power for testing in user OPR and Paragry, Marking the first expansion of our mining business into these regions.

Speaker 2

Although the total network computer power continued to rise in the 2nd quarter, Our mining operations achieved remarkable results. This was thanks to our increased uptime And industry events such as BRC20, which boosted Bitcoin rewards for mining activities. During this quarter, we produced 569 bitcoins, contributing mining revenue of US15.9 million dollars a sequential growth of 43.3 As previously announced, Our mining business has been affected by recent policy changes in Kazakhstan, leading to the temporary shutdown of approximately 2x ahead per second of installed mining power since early July. Furthermore, due to a default by a partner in U. S.

Speaker 2

Project, 13,000 mining machines That we that we already installed along with the remaining computer power to be installed will be affected. These two incidents are expected to impact the operation of close to 3xHash process and installs computing power starting in the Q3. As President, we We are actively working with local partners in Kazakhstan to apply for the relevant licenses And adjusting our whole collaborative approach to resume regular operations at the mine site. At the same time, we are working diligently to address the default issue with the partners in U. S.

Speaker 2

Project Through legal means, safeguarding the rights and interests for the company and our investors. It's important to note that we believe active global business expansion Intermittently comes with various difficulties and challenges and the setbacks are a normal part of This journey, the key point is that our fundamental direction remains unchanged. We continue to leverage Our advantages in computing power supply are to the upholding mining as a key development At present, we are taking proactive steps to minimize the losses with also Ensuring that the lessons learned are not even. We are absorbing the experience and proceeding cautiously, Expanding and exploring new mining project opportunities and accumulating high quality Bitcoin assets. Finally, we will pre service through challenges, We strive to maintain cash flows and ensure sustained operations.

Speaker 2

At the same time, we will accumulate assets with robust growth potential while Strategically allocating resources to be fully prepared for the upcoming bull market following the Next, we call Havin. This remains our unwavering strategies. Overall, the Market environment was weak in the Q2, yet our operational performance remained positive. However, the continued selling price decline has created a series of material noncash Financial statement of this quarter. In this challenging market environment, Our focus on cash preservation has intensified.

Speaker 2

During the quarter, we didn't Utilize our ATM facility or conduct financing activities. Our cash flow level experienced only a slightly sequential decline and was prudently managed overall. As we move further into the second half of twenty twenty three, U. S. Interest rate hikes I have not come to a complete stop.

Speaker 2

And the global economic outlook remains Increasingly uncertain. Amidst this uncertainty, unforeseen events still have the potential to caused significant fluctuations in the bitcoin price. We believe that the rotor market lacks Sufficient upward momentum. In addition, large The scale of miner's financing capabilities remain constrained. The recent harsh risk growth curve also indicates Notable decline in the overall industry's incremental Hash rate investment and deployment during the first three Quarters of this year.

Speaker 2

This trend aligns with our market assessment. Furthermore, policy changes concerning Cryptocurrencies and mining in various countries introduced Further uncertainty to both the industry and our operations. In some cases, these changes Good present and foreseen chances to our actual operations. Given all the factors I have just outlined, We have a highly cautious outlook for the Q3 of 2023. We expect that revenues from the for the quarter will be approximately US30 $1,000,000 This forecast reflects our current views on the market and operational conditions.

Speaker 2

And actually, results may be subject to change. Overall, as you might Already be aware, we have navigated several bitcoin cycles since our inception in 2013. Our task is to confront and resolve the challenges we encounter, much like BitCoin itself, Where every day, we create new history. With each new day, we become more expressed and stronger than the day before. We remain fully committed to performing ahead of the market curve.

Speaker 2

Next month, on September 12, We plan to celebrate the company's 10th anniversary in Singapore. Kainan stands as an industry veteran and They proudly hold the distinction of being the 1st net debt listed company in our industry. Over the past decade, Our evolution from a project group into a multinational company With leading chief design capabilities has been remarkable. As we step into the next decade of development, Canen potential achievements in the coming decade are exciting to consider. This concludes My prepared remarks.

Speaker 2

Thank you, everyone. 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 Angie started the call with, I would like to say the Q2 of 2023 was still a very dynamic bear market period For the Bitcoin mining machine industry with a complicated range of influences and mixed factors. First, as we observed in this period of interest rate hikes, there was no significant upside for the price of bitcoin in quarter 2. The bitcoin price settled into a range between US28 dollars k to US30 dollars k compared to the rapid growth from US16.5 dollars to US28.5 dollars in quarter 1.

Speaker 3

Secondly, in May, there was the BRC20 incident helping miners enjoy higher transaction fees, signaling the possibility of increased future mining revenue from these fees. Thirdly, the total Bitcoin hash rate continued to climb, increasing by 15% over the quarter. Total demand for mining machines increased compared to quarter 1. Moreover, we observed intensified competition Among mining machine manufacturers, inventory levels remained high and selling prices continued to decline in quarter 2 Compared to quarter 1, all the above factors should be considered when analyzing our Q2 numbers. Of course, we also did our best to deliver the numbers and keep our operation resilient.

Speaker 3

Let's start with profit and loss. Overall speaking, in quarter 2, Total revenue generated was USD 73,900,000 which beat our guidance of USD72 1,000,000 and it represents an increase of 33.7% quarter over quarter. Additionally, our mining revenue reached a record high of US15.9 million dollars and contributed more than 20% to our total revenue in this quarter. Regarding our machine sales, our revenue from mining machine sales was US57.8 million dollars in this quarter, 32.2% higher than US43.7 million dollars in the last quarter. We delivered a total computing power sold of 6,100,000 terahash per second, representing a sequential growth However, the average selling price still declined slightly from $10 per terahash per second in quarter 1 to US9.5 dollars per terahash per second in quarter 2, which resulted from fierce competition.

Speaker 3

Specifically, for our mining machine sales, we accrued US45.9 million dollars for inventories write down, prepayment write down and provision for reserve for inventory purchase commitments in this quarter. The inventory write down of US17.4 million dollars was recorded based on the most recent subsequent selling price where we offered further price concessions in August. This inventory write down decreased by 50% sequentially. Another US28.5 million dollars was mainly a result of 1 off inventory write down and a provision for commitment to reserve for previous generation wafers, which we no longer plan to produce into mining machines. Those write downs and provisions are made under U.

Speaker 3

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 $0.4 million and a gross margin of 0.6%. Turning to our mining business. Because of the Bitcoin price recovery and the increased Bitcoin rewards Driven from BRC20 across the network during this quarter, our mining revenue reached a record high of 15 US0.9 million dollars representing a sequential growth of 43.3 percent and a year over year growth of 1 As of the second quarter's end, our total deployed hash rate remained at more than 5x hash per second, and our installed hash rate reached more than 4.9x hash per second.

Speaker 3

We mined 569 bitcoins in this quarter and achieved 50.4 bitcoins for mining profit. Gross profit margin was 9.5% for our mining business in this quarter. Please note here that mining profit or loss is defined as the proportion of mining revenues deducting costs for energy and hosting in terms of mining revenues without consideration of depreciation. Now let us take a look at the expenses. Our R and D expenses were US17.9 million dollars in this quarter compared to US19.1 million dollars in the last quarter and US15.6 million dollars in the prior year period.

Speaker 3

The slight quarter over quarter decrease was due to the decreases in materials used for research and development purposes. The steady year over year growth reflected our continuing commitment to building a talented R and D team. Our sales and marketing expenses were US2.4 million dollars compared to US1.5 million dollars in the last quarter and US3.2 million dollars in the prior year period. Sales commissions increased quarter over quarter because of revenue upsizing from quarter 1 to quarter 2. Our general and administrative Expenses in this quarter were US26.4 million dollars compared to US17.6 million dollars in the last quarter and US22.1 million dollars in the prior year period.

Speaker 3

The year over year and the sequential increases were mainly due to US8.8 million dollars in impairment of property and equipment. As we announced on August 2018, we temporarily shut down 2x hash of our mining computing power in Kazakhstan since July 2023 in order to ensure legal compliance. And we initiated the dispute resolution process with our partner at a U. S.-based mining project. These challenges are anticipated to substantially affect our operational mining computing power starting in the Q3 of 2023.

Speaker 3

Therefore, we recorded US0.6 million dollars and US8 US2000000 dollars impairment for the related machines deployed in Kazakhstan and the United States, respectively. This is also necessary action under U. S. GAAP, fitting profit and loss, while having no immediate impact on Q2 cash The net result of the foregoing was an operating loss of US119.1 million dollars for this quarter compared to US85.7 million dollars in the last quarter. The net loss was US110.7 million dollars compared to US84.4 million dollars in the last quarter.

Speaker 3

The loss included a series of necessary write downs of inventory, one off reduction of holding prepayments and PPE Turning to our balance sheet. First of all, let us keep eyes on the cash status. We held cash and cash equivalents of US66 $1,000,000 as of June 30, with a US6 $1,000,000 decrease compared to US72 $1,000,000 at the end of March. And in quarter 2, we spent US76 $1,000,000 to sustain the wafer supply and the machine production. Other cash payments included US21 $1,000,000 for operations and US3 $1,000,000 in tax expenses.

Speaker 3

The cash out totaling US100 $1,000,000 was net off by inflows of US93 $1,000,000 From sales and accumulated value added tax refund for exporting sales. As previously mentioned, I'd like to reemphasize that we've recorded a series of Material non cash accruals or provisions in this quarter, including inventory write down, one off This non cash accounting treatments were based on U. S. GAAP requirements and resulted in expanded current losses. However, these non cash accruals and provisions Did not materially influence our cash flow.

Speaker 3

As of the end of this quarter, we recorded account receivable of In order to strengthen collaborations with key clients, we have implemented an installment Policy for certain key account customers who meet certain conditions, resulting in account receivable at the end of this quarter. In the future, we will continuously evaluate market demand and customer credit prudently and adopt corresponding credit policies. Now turning our attention To our bitcoin assets, we held 747 bitcoins as our own holding asset as of June 30, which is 124 more than 623 at the end of March 31. For the first time, we also held 378 bitcoins received as customer deposits, which is new to our balance sheet. From May 25, 2023, The date we reported our financial results for the Q1 of 2023 to August 29, 2023, We neither utilized the ATM nor purchased any ADS.

Speaker 3

In the future, we will prioritize shareholders' value, In quarter 3, we anticipate a revenue of US30 $1,000,000 In the second half of twenty twenty three, 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 uncertainties To industry operations, we may face unforeseen obstacles. Based on the above comprehensive We give a cautious expectation for the Q3 of 2023. Now, I would like to briefly walk you through our financial results for the quarter. Revenues in the Q2 of 2023 were USD 73 US0.9 million dollars as compared to US55.2 million dollars in the Q1 of 2023 and US245.9 million dollars in the same period of 2022.

Speaker 3

Gross loss in the Q2 of 2023 was US70.1 million dollars compared to a gross loss of US47.5 million dollars in the Q1 of 2023 and a gross profit of US138.3 million dollars in the same period of 2022. Total operating expenses in the Q2 of 2023 were US49.0 million dollars compared to US38.1 million dollars in the Q1 of 2023 and US45.4 million Loss from operations in the Q2 of 2023 was US119.1 million dollars compared to a loss from operations of US85.7 million dollars In the Q1 of 2023 and income from operations of US93.0 million dollars in the same period of Net loss in the Q2 of 2023 was US110.7 million dollars compared to a net loss of US84.4 million dollars in the Q1 of 2023 and a net income of US90.1 million dollars in the same period of 2022. Basic and diluted net loss per ADS As of June 30, 2023, the company had cash and cash equivalents of $66,100,000 This concludes our prepared remarks. We are now open for questions.

Operator

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 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. Thank you. We'll now take our first question.

Operator

And your first question today comes from the line of Mike Legg from The Benchmark Company. Please go ahead.

Speaker 2

Thanks and good morning. I'm curious about your focus on rig efficiency and how you view your product versus the competition, specifically versus What's Miners and Antriminers? And then also wanted to understand your viewpoint on self mining versus hosted environments given the release last week. Thanks. Hi.

Speaker 2

Good evening or good morning. Yes. For the in terms of the power efficiency, I think it's a critical factor for customers. In the first half of this year, Our products have already entered the range of 25 to 30 draws per terahash. This is a significant improvement compared to last year.

Speaker 2

And by the second half of this year, the power efficiency of the products We've seen hold for customers. It's already below $25 This Fulfilled our commitment. The progress in our products, our efficiency improvement is on track And as planned, we are gradually narrowing the gap with our main competitors. Yes. I think the R and D and the switch, the phone release takes some time.

Speaker 2

Yes, we are closing. So I think beyond that, I mean, beyond the power efficiency number, our products are balanced in term of Stability, environmental adaptability and cost effectiveness And our production product line is divorced. So the manners I think the manners return on investments and profitability are influenced by both OpEx And our goal is to have an advantage in both of these indicators, Making our products is preferred is a preferred choice for customers. Yes. About the self mining, Regarding the policy environment, Hazaktan has issued new Regulatory policies related to mining.

Speaker 2

Since the detailed regulations came into effect In early July, the company immediately initial The applications for licenses. However, in the actual process, We found that due to the early stage of the entire regulatory process, there are specific requirements In execution, which lead to the license applications taking longer than Initially anticipated. For instance, we learned through Particular operations that we need to wait for our mining partners to obtain a Type 1 license Before we can submit applications for Type 2 license, as far as we know, the progress Of obtaining a Type 1 license for local mining facilities are generally being slow. It seems that because the execution for new regulations is still in the early stages. The specific execution procedures will take time to wrap up and will impact the process We're assuming our local mining projects.

Speaker 2

The company and our local mining partners Activity progressing with required assets, applications. We are also exploring various ways To adjust our cooperation agreements to continue working with local miners in compliance with laws and regulations. Furthermore, we are exploring more valuable mining corporation opportunities globally. Our business has reached many geographic regions where we haven't said what's before. The political and the economic environment's legal policies and infrastructure conditions in different places Complex and subject to change, which presents challenges to Our explanation and development, where there is business, there is associated At risk, we closely monitor policy and operational environment changes in the countries and regions of our projects and to make operational adjustments as necessary.

Speaker 2

As a public company, we will also Regarding to the counterparty risk, we have knowledge that in any business market, there may be Someone do not act in good faith. We are Resultfully addressing issues encountered in projects through legal measures. At the same time, we are learning lessons from experience, being more cautious since selecting partners Taking preventive measures, balancing risk and the rewards and progressing projects Considerably. Yes, thank you. Thank you very much.

Operator

Thank you. We'll now take our next question. Please standby. This is from the line of Kevin Dede from H. C.

Operator

Wainwright. Please go ahead.

Speaker 4

Hello, gentlemen. Thank you so much for taking my questions. Angie, You spoke a little bit to inventory, I think so did James, inventory levels worldwide. Could you give us a little more color On what you're seeing, clearly, there's lots of pressure on pricing. But I was wondering if you could compare Global inventory levels with the end of March.

Speaker 4

Do you think they're still high? Do you think they've come down a little bit? Clearly, you're seeing you've sold more of the A13 series, so congratulations on that. I'm just kind of curious About future price per carahash trends.

Speaker 2

Thank you. Good morning. I think in the past few months, the money machine market's Mainly focus has been on product upgrades and Including inventory. So as a result, the overall market inventory has gradually decreased. However, it's important to note, the market inventory still remain at a relatively high level.

Speaker 2

Taking a global view of the market, I think with the gradual Recovery of Bitcoin price this year, both the company and some ambitious clients Worldwide have been positioning themselves ahead of the next housing and the next to market. However, it is crucial to understand that the current market Sentiment is somewhat fragile and short term policy changes and the different price So due to the competitive reasons, we cannot Disclosed specific clients' improvement plans, but the overall trend of the second half of the year is clear. High quality expansion minded clients will prepare for the next few years While many small and the medium sized miners will So due to the current instance of competition in the mining machine market, Computing power price is generally at a minimum office or even active margin levels. So I think from the perspective of mining machine prices, the current year represents a big opportunity

Speaker 4

So, MG, you also spoke to maybe holding back on your wafer orders from your foundry suppliers. I'm curious on how you see Being able to resume those orders, if and when the mining machine market returns to strength, Are you at all concerned that you will not be able to get wafers that you need to build new inventory? How concerned are you about your supply chain?

Speaker 2

Let me see. I think currently we are building the machines from when we have when we start Contract with our customers. Recently, I think that the semiconductor foundries We have a relatively ample production competitive. So With a good wafer price. However, the in order since wafer for advanced The process node is have a higher cost due to the high technology and the lower supply.

Speaker 2

So Yes. So I think for the next Maybe 2 quarters. The supply chain is not primarily Probably for us. We will focus on our sales system and provide Machine with best performance in the market continue to invest in our R and D, yes.

Speaker 4

Okay. Last question for me, Angie. Understand maybe 2x to Hash not running in Kazakhstan and perhaps 2x the Hash not running in the U. S, given about 5x the Hash installed, can you talk to what you expect Your self mining hash rate to be through the September quarter And what your investment thinking is regarding Kanan's self Hash rates for the balance of the year?

Speaker 2

Say for the numbers, I will pass this question to James.

Speaker 3

Yes. Kevin, this is James. We are talking about total 4.9x Hash of mining power And the loss from Kazakhstan is about 2x Hush, as you said, but the loss from U. S. It's only 1 ex Hash, it's not 2.

Speaker 3

So the total loss here is 3 ex Hash Compared to the total 4.9 ex Hash and also in quarter 2, we have already successfully Deployed 0.4 ex Hash with Stronghold in United States, And we have another 0.2 exahash to collaborate with Stronghold as well as in United States. And also in quarter 3, we start to brought some pilot runs in the new cooperative sites In Africa, South America and North America. But of course, getting electricity is slow progress. It will take some time. So in my estimation about quarter 3, we definitely will lose At least half of our total capacities, if the Kazakhstan machines could not Recover quickly.

Speaker 3

So that's also reflected in our total revenue estimation about quarter 3. But we are looking for different sites in different locations. So we can recover this Quickly in quarter 4. So from my estimation, in quarter 4, we will have a bigger chance to Recall in the mining operation, harsh rate, and we will continue To take mining as one of our important strategies and execute the strategies consistently. Thank you, Paul.

Speaker 4

Well, thank you, James. I really appreciate it. Thank you for chiming in and thank you so much, ENGIE, for offering additional color. Thanks, gentlemen.

Speaker 2

Thank you. Thank

Operator

you. We'll now take our next question. This is from the line of Shuang Sun from Guoxing Securities. Please go ahead. Hi, Sisi, operator.

Operator

Shuang Sang, your line is not too clear. Could you please try asking your question again? Okay. My first question is when do you expect to clear out the Atel inventory?

Speaker 3

Thank you, Shuang. I think we are actively working on clearing the inventory of And the progress has been a little bit slower than we anticipated. At this point, we expect to complete the clearance by the Q4 of this year for A12 series. Thank you.

Operator

Thank you. My second

Speaker 3

Yes. As just now, I referred to Kevin. We have lost the 3 ex Hashis In Kazakhstan and also one site in United States, we Quickly installed another 0.4 exahashes during quarter 2 with Stronghold, One of our important mining partners in United States, and we implemented another 0.2x hashes In quarter 3, we had strong hold. And also, we deployed some new sites In Africa, South America and North America during quarter 3 with pilot runs, those small sites together, I don't think we can recover 100% of the total hash rate back to 4.9xash@quarter2. That means we definitely will lose some of our capacity in quarter 3, but we will step by step recover That in quarter 4, with all the new sites ready and we have the shipment scheduled to Make our total capacity come back to the bigger ones.

Speaker 3

So I think To your question, I will still consistently say we put mining as our important strategy And we will consistently invest and deploy machines to support that strategy. Thank you. Thank you, Fang.

Operator

Thank you. And the last question is, how do you expect

Speaker 2

Okay. Good evening. As previously mentioned, we observed 2 trends In the past half year, on one hand, our high quality and expansion minded customers Opting to procure the latest machines, models through futures contracts. On the other hand, a significant number of small to medium sized miners are hedging the high risk By purchasing older models at lower prices. So in general, The market demand is recovering with fluctuation.

Speaker 2

However, due to the relatively high Market inventory and intense competition, the mining sector will continue to experience pressure on computer power prices.

Operator

Yes. Okay.

Speaker 3

Thanks for

Operator

your answer. 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

Hi, everyone. This is Clark. Thank you so much again for joining us today. If you have any further questions, Please feel free to reach out to us through the contact information provided on our website, and have a nice day.

Operator

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

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