Why did Canaan Creative, the first Chinese mining machine/blockchain stock, fall behind? (Including exclusive market information)

Canaan Creative, bad luck.

It was the first in the world to release an ASIC mining machine, but the market was later occupied by Shenma, Xindong, and Bitmain; it was the first in the world to release a 7nm chip, but it was unable to mass-produce it and had to switch to Samsung's 8nm; it was the first mining machine company in the world to apply for a IPO, but it failed many times.

Canaan recently submitted its prospectus to the US stock market. Many people lamented that Canaan had gone through untold hardships and overcome numerous difficulties before finally going public. But on the other hand, Canaan's actual operating conditions have reached a very difficult stage. According to multiple insiders, Canaan's revenue in 2019 was only about a quarter of Shenma's and one-tenth of Bitmain's.

However, Canaan's updated prospectus shows that with the recovery of the currency price, the revenue and profit in the third quarter have improved a lot. Some miners also said that Canaan's recent delivery speed is faster than Shenma. If it goes public smoothly, as the "first stock" of China's mining machine companies, it may be able to complete self-rescue.

Bull market falls behind

Canaan's prospectus shows that in the first three quarters of this year, Canaan Creative's total revenue was approximately 960 million yuan, a decrease of 60.5% compared to the total revenue of 2.43 billion yuan in the first three quarters of 2018; the net profit was approximately -240 million yuan, a decrease of nearly -260% compared to the net profit of 150 million yuan in the first three quarters of 2018.

What is puzzling is that the price of Bitcoin has started to pick up in the second quarter of 2019, and reached a high of $10,000 in May, and then even reached $14,000. Bitmain and Shenma Mining Machine made a lot of money in the second and third quarters, but Canaan fell behind.

According to revelations and confirmations from multiple insiders, Canaan's revenue in 2019 was only about one-tenth of Bitmain's and one-quarter of Shenma's.

There are two reasons for falling behind: first, the development of 7nm chips failed and returned to 16nm, and its technical strength lags behind the latest mining machines of Shenma and Bitmain; second, the production capacity of high-quality chips is insufficient. TSMC's production capacity is supplied to Bitmain, and Samsung supplies to Shenma. Canaan cannot obtain enough high-quality production capacity on both sides.

(The picture is from a blockchain book. The lower the efficiency ratio, the stronger the mining machine.)

Technical bottleneck

Canaan Creative once released TSMC's 7nm mining chip first, and brought in the government to support it, claiming it to be "the world's first 7nm chip." However, according to a blockchain report, almost no miners have ever seen Canaan's 7nm mining machine.

Unlike Bitmain's rapid iteration of 7nm chips, Canaan, the "world's first 7nm" chip, abandoned 7nm for its subsequent A10 product and switched back to 16nm. The prospectus revealed that the latest product A11 uses an 8nm chip suspected to be from Samsung, and does not use a 7nm chip. Due to the impact of the Japan-South Korea trade war, Samsung's photoresist was banned, so product shipments were affected.

This shows that Canaan's technical capabilities are somewhat behind. In fact, Canaan has a small number of technical personnel, with only 127 technical R&D personnel in the entire company, half of whom are from the AI ​​business with an annual revenue of less than 300,000 yuan. Not only can it not be compared with mainstream chip manufacturers, but it also has only one-fifth of the number of R&D personnel of Bitmain.

According to rumors, TSMC and Bitmain signed a secret bet agreement on 7nm chips, so 7nm chips will no longer be supplied to other mining machine manufacturers. This also forced Canaan, Shenma and other former TSMC customers to turn to Samsung. Samsung and TSMC could have been evenly matched, but due to the Japan-South Korea trade war, Samsung had difficulty shipping, and Shenma and Canaan's products were constantly delayed. Although Bitmain was constantly in turmoil, it also benefited from this.

"Face-saving project"

Bitmain, Shenma, and Canaan are all trying to engage in the research and development and manufacturing of AI chips and products in addition to mining machine chips. In addition to responding to the government's call and building good government relations, it is also because AI chips and mining machine chips have similarities, the technology can be used interchangeably, and there is indeed market space for AI chips.

However, judging from the prospectus, Canaan's AI chip is doubtful and is a vanity project. In 2018, Canaan's AI business revenue was only 275,000 yuan; in the first half of 2019, the business generated 468,000 yuan, accounting for 0.2% of the total revenue. In comparison, the revenue of Bitmain's AI business in 2019 was about 100 million yuan, according to Zhan Ketuan.

More than 60 technicians made a product with only 500,000 yuan in revenue, which is probably not even enough to cover the salary of one technician? As a chip company favored by Zhejiang Province, whether Canaan's AI chips are just a face-saving project for the government can only be verified by subsequent market feedback.

Finally, let me share with you some gossip. Although the comments made by Canaan Chairman Kong Jianping in his internal WeChat group are old news, it is still quite interesting to share some gossip.