Three questions to understand the impact of Bitcoin mining machines on the semiconductor industry chain in 2018

The current network computing power (the number of hash algorithms that can be executed per second, usually expressed in hashes per second, or Hashrate) is 19.3EH/S, equivalent to 1.5 million Antminer S9s (based on the S9 computing power of 13TH/s, the official 14TH/s is not fully used in actual use). During the period from October 2017 to January 2018, about 900K S9s were shipped and connected to the network.

Total Bitcoin hash rate of the entire network:

2018.2～20EH/S

2017.10～8 EH/S

2017.6～4.8 EH/S

l 2017.2〜3 EH/S

The source of the network computing power data: https://btc.com

In the past year, the surge in Bitcoin prices has triggered widespread discussions about blockchain and mining machines. In particular, after Gu Wenjun, an analyst at Strategy Analytics, revealed earlier that Bitmain, the global mining machine leader from China, had chip sales of 14.3 billion yuan in 2017, becoming the second largest Fabless in China after Huawei HiSilicon, the industry's discussion on the impact of mining machines and their chips on the semiconductor industry chain has reached a peak. Various reports have frequently appeared in newspapers.

However, the editors have found that many statements about the impact of Bitmain or mining chips on the semiconductor industry are somewhat exaggerated. In order to let everyone have a more accurate understanding of the impact of virtual currency (mainly Bitcoin) on the semiconductor industry, we will conduct an in-depth discussion on the following issues.

Question 1: How many mining machines are there online now?

Understanding this data is fundamental to calculating the impact of mining chips on the semiconductor supply chain, but before we begin, let’s briefly introduce the principles of mining:

From the report of Haitong Securities we can see:

The blockchain mechanism represented by Bitcoin can be understood as a ledger system. All transactions and their electronic signatures within a period of time need to be recorded on the block. These blocks are connected in the order of generation to form a blockchain, which is a record of all transaction histories in the system. As transactions continue to be generated, the system needs to generate new blocks regularly to record them.

According to the design principle of Bitcoin, the entire network generates a block every 10 minutes or so, and each new block contains 50 bitcoins. In order to limit the total issuance, the number of bitcoins contained in each new block is halved every 4 years, and is currently 12.5.

In order to maintain security and stability, the system will automatically adjust the difficulty according to the speed of the whole network. The result of its algorithm is that the "expected number of operations required to mine a new block" is proportional to the "difficulty" and is highly linearly positively correlated with the computing power of the whole network. As a result, the more computing power is added, the lower the probability of successful solution of the original computing power.

Mining difficulty adjustment mechanism (source: Haitong Securities)

Based on the above principles, we can easily calculate the number of mining machines in the entire network.

It is understood that the current mainstream Bitcoin mining machine is the Antminer S9 produced by Bitmain. According to the real-time computing power data on the website (https://btc.com/), as of January 24, 2018, the computing power of the entire network was 19.3EH/S, while the computing power of the Antminer S9 was 13.5TH/S. According to the conversion of 1E=1000000T, it means that the Bitcoin mining machines in the entire network are equivalent to 1.43 million Antminer S9s.

This brings up a question that everyone is concerned about: what is Bitmain’s approximate monthly shipment volume?

Using the same calculation method, we can estimate Bitmain’s Ant S9 mining machine shipments in the past few months.

In October 2017, the total Bitcoin hashrate was 8EH/S. It is expected that by February 2018, the total Bitcoin hashrate will reach 20EH/S. In this way, the hashrate has increased by 12EH/S in the past four months, which is equivalent to an increase of about 890,000 Antminer S9 mining machines in the past few months. According to people familiar with the matter, Bitmain accounts for about 80% of the Bitcoin mining machine market, which means that Bitmain has shipped about 710,000 Antminer S9 mining machines.

Since Bitmain is selling as many mining machines as it can, according to this method, it is roughly estimated that the average shipment of mining machines by Bitmain in the past four months (October 2017 to February 2018) was about 177,500 units.

Question 2: The impact of mining machines on the semiconductor supply chain in 2017

Since we are unable to make a specific classification and calculation of the mining machines shipped globally by Bitmain, Canaan Creative and Ebang Technology, the following calculations are all converted using Bitmain's Ant S9 as the equivalent unit.

First, let’s look at the impact of mining machines on the semiconductor industry in 2017.

Back to a year ago, on December 29, 2016, the total network computing power was 2.27 EH/s. By January 1, 2018, the computing power increased to 13.82 EH/S, which is equivalent to Bitmain shipping 850,000 Antminer S9s in the past year. Based on Bitmain's 80% market share, Bitmain shipped about 57,000 mining machines per month in 2017.

Let's take a look at the impact of mining machines on the semiconductor industry chain. According to the cost structure disclosed by Canaan Creative in its public transfer instructions, the company's wafer processing is all outsourced to TSMC, and packaging and testing are mainly outsourced to ASE and JSCK (mainly ASE). I believe this also appears in Bitmain's products.

According to an analyst named James Wang, Bitmain alone currently purchases 10,000 16nm wafers from TSMC every month, and in the new quarter, this number will reach 20,000. Insiders also revealed that any idle production capacity of TSMC will be seized by Bitmain.

Bloomberg News stated that 90% of the world's "special application chips for mining" (ASIC) are produced by TSMC. As the market currently expects iPhone X shipments to slow down, coupled with the decline in demand for smartphones in China, cryptocurrency mining chips are likely to account for up to 10% of TSMC's revenue this year, becoming the fastest growing area.

As for the impact on packaging and testing, Haitong Electronics' analysis data shows that, referring to the trend of accelerated growth in global computing power, we believe that the annual orders for 2017 should be around 320 million pieces. According to the information disclosed in Canaan Creative's public transfer instructions, the company achieved sales of 253 million yuan from January to April 2017, and spent 6.695 million yuan on packaging procurement costs. Referring to the unit price of 9,425 yuan for its main product A741 mining machine and the usage of 88 ASIC chips, the corresponding total number of chips and single packaging costs are 2.36 million pieces and 2.84 yuan per piece, respectively. It can be concluded that the mining machine chip packaging market for the whole year of 2017 is about 900 million yuan.

Question 3: The impact of mining chips on the semiconductor industry chain in 2018

According to industry insiders, by the end of 2018, the total network computing power will reach 100EH/S. In other words, 6 million Antminer S9s (converted to S9) will be needed, equivalent to 300K 10nm or 12nm wafers. This will bring considerable revenue to the semiconductor foundry industry and packaging and testing industry in 2018.

Based on the selling price of about $10,000 per 10nm/12nm wafer, and considering factors such as yield, loss, and NRE, the contribution of mining machine chips to the foundry market is expected to reach $4-5 billion in 2018. Since there are only a handful of foundries with advanced process technology capabilities of 16nm and below, and in order to control risks, foundries often do not put all their eggs in one basket, it is expected that there will be competition and tension in production capacity.

As for packaging and testing, Haitong Securities believes that the market size of mining machine chip packaging and testing in 2018 should be between 3.63 billion and 9.98 billion yuan, with a neutral estimate of 6 billion yuan. Among them, Chinese packaging and testing manufacturers will have the opportunity to make a fortune!