Canaan Inc (CAN) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Canaan Inc. First Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded.

女士們，先生們，感謝各位的支持，歡迎參加嘉楠科技2021年第一季財報電話會議。 （操作員指示）請注意，本次會議正在錄製中。

Now I'd like to hand the conference over to your speaker host today, Mr. Shaoke Li, Board Secretary of the company. Please go ahead, Mr. Li.

現在，我想把今天的會議交給今天的主持人，公司董事會秘書李紹科先生。李先生，請發言。

Thank you very much. Hello, everyone, and welcome to our earnings conference call. The company's financial and operating results were released by our Newswire services earlier today and are currently available online. Joining us today are our Chairman and CEO, Mr. Nangeng Zhang; and our CFO, Mr. Tong He; Mr. Matthew Li from ICR, our IR consulting firm, will conduct the English translation throughout the call. In addition, Mr. Xiaoming Lu, our SVP, will also be available during the question-and-answer session.

非常感謝！大家好，歡迎參加我們的財報電話會議。公司財務和營運業績已於今天稍早透過我們的新聞專線發布，目前已在線上發布。今天參加會議的嘉賓包括董事長兼執行長張南庚先生和財務長何桐先生。來自我們投資人關係顧問公司ICR的李志強先生將全程提供英文翻譯。此外，我們的資深副總裁陸曉明先生也將出席問答環節。

Mr. Zhang will start the call by providing an overview of the company and the performance highlights for the quarter. Mr. He will then provide the details on the company's operating and financial results for the period before we open the call up for your questions.

張先生將首先介紹公司概況和本季業績亮點。隨後，何先生將詳細介紹公司本季的營運和財務業績，然後我們開始回答大家的提問。

Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies to this call, as we will be making forward-looking statements. Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled at the -- to the most comparable measures reported under generally accepted accounting principles in our earnings release and the filings with the SEC.

在繼續之前，我想請您參閱我們收益新聞稿中的安全港聲明，該聲明也適用於本次電話會議，因為我們將做出前瞻性陳述。另請注意，我們今天將討論非公認會計準則 (Non-GAAP) 指標，這些指標在我們的收益新聞稿和提交給美國證券交易委員會 (SEC) 的文件中進行了更詳盡的解釋和協調，並與根據公認會計準則 (GAAP) 報告的最具可比性的指標進行了比較。

With that, I will now turn the call over to our Chairman and CEO, Mr. Nangeng Zhang. Please go ahead, sir.

現在，我將把電話交給我們的董事長兼執行長張南庚先生。先生，請講。

[Interpreted] Hello, everyone. This is Nangeng Zhang, Chairman and CEO of Canaan Inc. I will now provide a brief overview of our progress in the first quarter of 2021.

[口譯] 大家好。我是嘉楠科技董事長兼執行長張南耕。現在，我將簡要介紹我們在2021年第一季的進展。

During the quarter, we significantly improved our financial performance as a result of the Bitcoin price rally, increasing customer demand and a substantial ramp-up of our mining production and delivery. As such, we reported total net revenues of USD 61.5 million and a non-GAAP adjusted net income of USD 21.9 million in the first quarter of 2021, a significant improvement from a non-GAAP adjusted net loss of USD 31.4 million in the full year of 2020.

本季度，得益於比特幣價格上漲、客戶需求成長以及我們礦機產量和交付量的大幅提升，我們的財務表現顯著改善。因此，我們報告2021年第一季淨收入總額為6,150萬美元，非公認會計準則調整後淨利為2,190萬美元，較2020年全年非公認會計準則調整後淨虧損3,140萬美元顯著改善。

With the mass production of new-generation mining machines, our product yield continued to improve. Through the close collaboration with our foundry partners, we have further enhanced our chip manufacturing process. As of today, such advances have led to industry-leading performances in our chip speed and yield. In the second quarter-to-date, in addition to our delivery of mining machines, we have also secured a number of large purchase orders of future contracts. Furthermore, we have locked in the fab capacities of our foundry partners for the next 12 months to fulfill these future contracts.

隨著新一代礦機的量產，我們的產品良率持續提升。透過與代工合作夥伴的緊密合作，我們進一步提升了晶片製造流程。截至目前，這些進步已使我們的晶片速度和良率達到業界領先水準。第二季至今，除了礦機交貨外，我們還獲得了多筆大額遠期合約採購訂單。此外，我們已鎖定代工夥伴未來12個月的產能，以履行這些遠期合約。

Although the Bitcoin price volatility in Q1 created some challenges in sales of mining machines, we expect our Q2 total shipments to either maintain or surpass our current growth rate. Due to the Bitcoin price volatility caused by recent policy and market uncertainties, we're not able to project the total net revenues for the second quarter in a precise manner. Hence, we expect our total net revenue for the second quarter to be in the range of USD 150 million to USD 200 million.

儘管第一季比特幣價格波動給礦機銷售帶來了一些挑戰，但我們預計第二季總出貨量將維持或超過目前的成長率。由於近期政策和市場不確定性導致比特幣價格波動，我們無法準確預測第二季的總淨收入。因此，我們預計第二季的總淨收入將在1.5億美元至2億美元之間。

In terms of mining machines' sales strategy, we have reprioritized our sales focus to our long-term and large-scale customers. As of May 31, 2021, we have had total order volume of over 149,000 mining machines with over USD 190 million of total customer transactions.

在礦機銷售策略方面，我們已將銷售重心重新轉向長期合作及規模客戶。截至2021年5月31日，我們的礦機訂單量已超過14.9萬台，客戶交易總額超過1.9億美元。

In regards to our future contracts, we have signed purchase orders of more than 10,000 mining machines with both Mawson, a U.S.-listed company; and Genesis, an international Bitcoin mining giant. In aggregate, we have had 29 different customers, each with purchase orders of more than 1,000 mining machines accounted for 94% of our total orders this quarter. Our partnerships with such large-scale customers generally involve multi-batch mining machine purchases over a long period of time. These characteristics have helped us to reduce the impact of short-term fluctuations in cryptocurrency prices and to ensure the stability of our production and delivery schedules. Since the second half of 2020, we have had our focus on overseas customers. As of May 31, 2021, our overseas revenues accounted for more than 70% of our total net revenues with purchase orders from overseas markets accounting for more than 70% of our total outstanding purchase orders.

在期貨合約方面，我們與美國上市公司Mawson和國際比特幣礦業巨頭Genesis都簽署了超過10,000台礦機的採購訂單。總計，我們擁有29個不同的客戶，每位客戶的礦機採購量超過1,000台，佔本季總訂單的94％。我們與這些大型客戶的合作通常涉及長期的多批次礦機採購。這些特點有助於我們減少加密貨幣價格短期波動的影響，並確保我們生產和交付計劃的穩定性。自2020年下半年以來，我們開始關注海外客戶。截至2021年5月31日，我們的海外收入佔總淨收入的70％以上，來自海外市場的採購訂單占我們未完成採購訂單總額的70％以上。

Since the second half of last year, capacity shortages in the global semiconductor supply chain have become a common challenge for chipmakers around the world. In order to secure the production and supply of our products, we have initiated negotiations with our suppliers, opting to provide them with a higher unit price and longer upfront payments. As of now, we have paid our suppliers a total of approximately USD 200 million in upfront payment.

自去年下半年以來，全球半導體供應鏈產能短缺已成為全球晶片製造商面臨的共同挑戰。為了保障產品的生產與供應，我們積極與供應商協商，選擇提供更高的單價和更長的預付款期限。截至目前，我們已向供應商支付了總計約2億美元的預付款。

Additionally, in April of this year, we completed a direct offering of 13,492,065 of our ADS at USD 12.6 per ADS for a total amount raised of USD 170 million. The financial impact through our latest raise and through our recent large purchase orders will considerably enhance our cash position, aid us in supply chain improvements and enable us to secure sufficient production capacity for future deliveries. Going forward, we will continue to invest in our R&D capabilities to improve the quality and performance of our mining machines. We will also utilize our cash reserves to enhance our customer service capacity and expand our business segment and models.

此外，今年4月，我們以每股12.6美元的價格完成了13,492,065股美國存託憑證的直接發行，總融資額達1.7億美元。此次融資以及近期的大額採購訂單帶來的財務影響將顯著增強我們的現金狀況，幫助我們改善供應鏈，並使我們能夠確保充足的產能以滿足未來的交付需求。未來，我們將繼續投資研發能力，以提升礦機的品質和性能。我們也將利用現金儲備來提升客戶服務能力，並拓展我們的業務板塊和模式。

In anticipation of self-operated Bitcoin mining, we have already set up a wholly-owned subsidiary in Singapore and deployed an operational team in Kazhakstan. In the latter part of May of this year, we have also deployed the first batch of mining machines in Kazakhstan for our Bitcoin mining-related operations. We believe that our self-operated Bitcoin mining business will help us improve our financial performance as well as expand our business scope and customer base. As we integrate more industry resources into our operations, we believe this business segment will enable us to revitalize our mining machines inventory, shield us from Bitcoin volatility and ensure our inventory sufficiency during a market upturn.

為了更好地佈局自營比特幣挖礦業務，我們已在新加坡成立了全資子公司，並在哈薩克部署了營運團隊。今年5月下旬，我們也在哈薩克部署了首批用於比特幣挖礦相關業務的礦機。我們相信，自營比特幣挖礦業務將有助於我們提升財務業績，並擴大業務範圍和客戶群。隨著我們將更多行業資源整合到營運中，我們相信該業務部門將幫助我們盤活礦機庫存，有效抵禦比特幣價格波動，並確保在市場好轉期間保持充足的庫存。

As a technology company, we have always prioritized our investments in R&D as the driver of our core competitiveness. As such, our total R&D investments reached USD 8.9 million in the first quarter of 2021, with the majority of our R&D investments allocated to develop new products, improve capacity and yield, expand product lines and supply chains as well as invest in our R&D team.

作為一家科技公司，我們始終將研發投入視為核心競爭力的驅動力。 2021年第一季度，我們的研發總投入達890萬美元，其中大部分用於開發新產品、提升產能和良率、擴展產品線和供應鏈以及投資研發團隊。

Beyond our core mining machine business, we also achieved steady progress in advancing our other business initiatives during the period. The AI industry is still in the early stage of market cultivation. Since launching our first-generation for AI chip K210 series in 2018, we have made outstanding progress and continue to gain traction in the market for robotics, education and smart homes. We have cumulatively delivered 479,000 of the K210 series AI chips to our customers to date. In March 2021, we finished the chip-back process for our second-generation of AI chip, the K510 series. We have also completed the main function testing for all functional modules of this series and expect to launch in the second half of this year. As such, we plan to expand our K510 series in multiple application scenarios with a promising outlook that include high-end cameras, edge computing, video conferencing and more.

除核心礦機業務外，期內我們在其他業務領域也穩步推進。人工智慧產業仍處於市場培育初期。自2018年推出第一代人工智慧晶片K210系列以來，我們取得了顯著進展，並在機器人、教育和智慧家庭等市場持續獲得關注。迄今為止，我們已累計向客戶交付47.9萬片K210系列人工智慧晶片。 2021年3月，我們完成了第二代人工智慧晶片K510系列的晶片退片流程，並完成了該系列所有功能模組的主要功能測試，預計將於今年下半年上市。因此，我們計劃將K510系列擴展到多個前景看好的應用場景，包括高階攝影機、邊緣運算、視訊會議等。

Furthermore, we maintain an emphasis on education sponsorship with the establishment of a developer ecosystem. We recently became the sole technical support provider for the 2021 National Student OS Design Competition, an event organized by China's Ministry of Education. Using development board equipped with our K210 chips, students from over 120 colleges and universities across China participated in the competition. Concurrently, our Kendryte K210 chip also became the chip of choice for developers in many interesting application scenarios such as smart meter, eye-tracking VR applications, programmable robot dogs, et cetera.

此外，我們持續重視教育贊助，並致力於建構開發者生態系統。我們最近成為由中國教育部主辦的2021年全國學生作業系統設計比賽的獨家技術支援提供者。來自全國120多所高校的學生使用搭載我們K210晶片的開發板參加了比賽。同時，我們的Kendryte K210晶片也成為眾多應用場景開發者的首選晶片，例如智慧電錶、眼動追蹤VR應用、可程式機器狗等等。

In summary, we have established the in-depth partnerships with various segments of the semiconductors industry value chain. These relationships will play an essential role in supporting our steady business expansion in the future. As we continue to accelerate our growth, we will generate increasing returns for our customers and investors going forward.

總而言之，我們與半導體產業鏈的各個環節建立了深入的合作關係。這些關係將對我們未來業務的穩定擴張發揮至關重要的作用。隨著我們持續加速成長，未來我們將為客戶和投資者創造更高的回報。

Now I will turn the call over to Mr. Tong He, our Chief Financial Officer, to go through financial details.

現在，我將把電話轉給我們的財務長佟何先生，來討論財務細節。

Hello, everyone. This is Matthew Li with ICR. I will now speak in English on behalf of Mr. Tong He.

大家好。我是ICR的Matthew Li。現在我代表何童先生用英語發言。

[Interpreted] Thank you, Nangeng. Now I will provide an overview of our first quarter financial results. Before I start, please note that all numbers are in RMB terms, unless otherwise noted. Total net revenues increased to CNY 402.8 million from CNY 68.3 million in the same period of 2020 and CNY 38.2 million in the previous quarter. The increases were due to the increase in our total computing power sold as we delivered more Bitcoin mining machines in the period.

[翻譯] 謝謝南庚。現在我將概述我們第一季的財務表現。首先，請注意，除非另有說明，所有數字均以人民幣計算。總淨收入從2020年同期的6,830萬元人民幣和上一季的3,820萬元增加到4.028億元。成長的原因是，隨著我們本季交付了更多比特幣礦機，總算力銷售量也隨之增加。

Cost of revenues increased to CNY 208.6 million from CNY 65.9 million in the same period of 2020 and CNY 29.2 million in the previous quarter. The increase in our cost of revenues were in line with the changes in our sales volumes of Thash and cost per Thash. As a result, we reported a gross profit of CNY 194.2 million in the first quarter of 2021 compared to CNY 2.4 million in the same period of 2020 and CNY 9.1 million in the previous quarter.

營業成本從2020年同期的6,590萬元人民幣及上一季的2,920萬元增加到2.086億元。營業成本的成長與Thash銷售量和單位Thash成本的變化一致。因此，我們2021年第一季的毛利為1.942億元人民幣，而2020年同期為240萬元人民幣，上一季為910萬元。

Gross margin further expanded to 48.2% from 3.5% in the same period of 2020 and 23.8% in the previous quarter. Research and development expenses were CNY 58.2 million compared to CNY 41.8 million in the same period of 2020 and CNY 40.1 million in the previous quarter. The increases were mainly due to higher share-based compensation expenses, which increased to CNY 24.1 million in the first quarter of 2021 as part of our amended 2018 shares incentive plan. The increases were partially offset by the decrease in contractor expenses and other expenses related to our R&D activities during the first quarter of 2021.

毛利率進一步提升至48.2%，高於2020年同期的3.5%和上季的23.8%。研發費用為5,820萬元，而2020年同期為4,180萬元人民幣，上季為4,010萬元。研發費用的成長主要由於股權激勵費用的增加。作為我們修訂後的2018年股權激勵計畫的一部分，股權激勵費用在2021年第一季增至2,410萬元。 2021年第一季度，承包商費用和其他與研發活動相關的費用的減少部分抵消了研發費用的成長。

Let's now take a look at our other operating expenses in the first quarter. Selling and marketing expenses were CNY 6.3 million compared to CNY 4.1 million in the same period of 2020 and CNY 6.1 million in the previous quarter. The increases were mainly driven by higher share-based compensation expenses in the first quarter of 2021, partially offset by lower advertising expenses. Our selling and marketing expenses in the quarter included CNY 3.0 million share-based compensation expenses.

現在我們來看看我們第一季的其他營運費用。銷售和行銷費用為630萬元人民幣，而2020年同期為410萬元人民幣，上一季為610萬元。費用成長主要由於2021年第一季股權激勵費用的增加，但部分被廣告費用的減少所抵銷。本季的銷售和行銷費用包含300萬元人民幣的股權激勵費用。

General and administrative expenses increased to CNY 143.4 million from CNY 27.6 million in the same period of 2020 and CNY 33.9 million in the previous quarter. General and administrative expenses in the quarter included CNY 114.8 million share-based compensation expenses. Consequently, our loss from operations in the first quarter of 2021 narrowed to CNY 13.7 million from CNY 71.1 million in the same period of 2020 and CNY 71.0 million in the previous quarter.

一般及行政費用從2020年同期的2,760萬元人民幣及上一季的3,390萬元增加到1.434億元。本季一般及行政費用包含1.148億元的股權激勵費用。因此，我們2021年第一季的營業虧損從2020年同期的7,110萬元人民幣及上一季的7,100萬元收窄至1,370萬元。

Net income attributable to ordinary shareholders was CNY 1.2 million compared to a loss of CNY 39.9 million in the same period of 2020 and CNY 72.0 million in the previous quarter. Non-GAAP adjusted net income, which excluded share-based compensation expenses, was CNY 143.2 million. In comparison, non-GAAP adjusted net loss was CNY 38.2 million in the same period of 2020 and CNY 73.1 million in the previous quarter. Diluted net earnings per ADS was RMB 0.01 compared to a loss of RMB 0.25 in the same period of 2020 and a loss of RMB 0.46 in the previous quarter.

歸屬於普通股股東的淨利為人民幣120萬元，而2020年同期虧損3,990萬元，上季虧損人民幣7,200萬元。非美國通用會計準則調整後淨利（不含股權激勵費用）為人民幣1.432億元。相較之下，2020年同期非美國通用會計準則調整後淨虧損為人民幣3,820萬元，上季為人民幣7,310萬元。每股美國存託憑證攤薄淨收益為人民幣0.01元，而2020年同期虧損0.25元，上季虧損0.46元。

Turning to our balance sheet. Contract liabilities as of March 31, 2021, increased to CNY 1,210.6 million from CNY 430.4 million as of December 31, 2020. The increase was driven by the increased downpayment for the sales order of our Bitcoin mining machines, which are scheduled for delivery in the following quarter of 2021.

回顧我們的資產負債表。截至2021年3月31日，合約負債從2020年12月31日的4.304億元增加至12.106億元。合約負債的增加是由於我們增加了比特幣礦機銷售訂單的預付款，這些礦機計劃於2021年下一季交付。

As of March 31, 2021, we had cash and cash equivalents CNY 1,337.8 million compared to CNY 391.3 million as of December 31, 2020. Short-term investments as of March 31, 2021, decreased to CNY 8.5 million from CNY 62.4 million as of December 31, 2020, as we redeemed a portion of our short-term financial products during the period. We purchased the short-term financial products to receive higher returns, but at the same time, can withdraw at any time.

截至2021年3月31日，我們的現金及現金等價物為13.378億元人民幣，而截至2020年12月31日為3.913億元。短期投資從截至2020年12月31日的6,240萬元減少至2021年3月31日的850萬元人民幣，原因是我們在此期間贖回了部分短期理財產品。我們購買短期理財產品是為了獲得更高的收益，但同時也可以隨時提領。

Looking ahead into the second quarter of 2021. As we have begun mass producing our new generation of Bitcoin mining machines, we believe that our product yields and deliveries will substantially increase on a year-over-year basis. However, the volatility in Bitcoin pricing in late May of this year has made it difficult to predict the future trends in Bitcoin prices. As a result, we will not provide financial guidance for the coming quarter.

展望2021年第二季。隨著我們新一代比特幣礦機的量產，我們相信產品產量和交付量將比去年同期大幅成長。然而，今年5月下旬比特幣價格的波動使得未來價格走勢難以預測。因此，我們將不會提供下一季的財務指引。

This concludes our prepared remarks for today. Operator, we're now ready to take questions.

今天的準備發言到此結束。接線員，我們現在可以回答問題了。

(Operator Instructions) The first question is coming from the line of Akida Elerkin from China Securities.

（操作員指示）第一個問題來自中國證券的 Akida Elerkin。

(foreign language) I'm going translate myself quickly. My first question is about how do you consider the impact of financial regulation on the Bitcoin mining industry in companies like Canaan?

（外語）我快速翻譯一下。我的第一個問題是，您如何看待金融監管對嘉楠耘智等公司的比特幣挖礦行業的影響？

[Interpreted] In terms of policy environment, I believe every new and emerging industry is subjected to the testing for market evolution and regulatory compliance. Since 2020, cryptocurrency represented by the Bitcoin is increasingly accepted by the market. The Bitcoin has gone through a long process for being doubted to being recognized by the market.

【解讀】在政策環境方面，我認為每個新興產業的發展都會經歷市場演進和監管合規的考驗。自2020年以來，以比特幣代表的加密貨幣越來越受到市場的認可。比特幣經歷了一個漫長的從被質疑到被市場認可的過程。

Similarly, in terms of regulatory supervision, I believe the Bitcoin and the mining industry also needs to go through a process of regulatory compliance.

同樣，在監管方面，我認為比特幣和挖礦行業也需要經歷一個監管合規的過程。

The particularity of the cryptocurrency mining industry is the combination of technology-driven and strong financial feature. As the Vice President of the PBOC, Mr. Li Bo expressed at the Boao Forum for Asia recently, "If we consider Bitcoin as an investment instrument, we need to develop regulatory policies to efficiently manage potential financial risks, which mainly refer to: one, activities to cause market disorders, such as financial fraud; and two, preventing individual investment risks from extending into the overall financial system. As such, we believe regulatory supervision is constructive to the development of the Bitcoin mining industry, not destructive. In the long run, regulatory provision is positive for the healthy and orderly development of the industry."

加密貨幣挖礦產業的特殊性在於其技術驅動與金融屬性的結合。正如中國人民銀行副行長李波近日在博鰲亞洲論壇上所言：「如果將比特幣視為一種投資工具，我們需要製定監管政策來有效管理潛在的金融風險，這些風險主要包括：一是金融欺詐等導致市場混亂的行為；二是防止個體投資風險蔓延至整個金融體系。因此，我們認為對比特幣礦業的發展是對比特幣礦業的發展是遠挖且有利於產業發展的風險。

From the market perspective, currently, majority of our customers are overseas companies, including public companies, well-established mining companies and professional financial institutions. Policy changes in China might cause some domestic mining companies or vendors to undersell Bitcoin mining machines to medium and small miners abroad, which will cause price volatility of mining machines in international markets. Majority of our customers are large-scale institutions and professional mining companies. The large amount of upfront payments received from these customers will enable us to smoothen the price volatility caused by the underselling of mining machines.

從市場角度來看，目前我們的客戶主要為海外公司，包括上市公司、知名礦機公司、專業金融機構。中國的政策變化可能會導致一些國內礦機公司或供應商以低價向國外中小型礦工出售比特幣礦機，導致國際市場礦機價格波動。我們的客戶主要為大型機構和專業礦機公司。從這些客戶收到的大量預付款將使我們能夠平滑礦機低價出售造成的價格波動。

(foreign language) My second question is, what is the attitude of overseas government towards cryptocurrency currently? Will Bitcoin and Bitcoin mining save pricing regulation globally?

（外語）我的第二個問題是，目前海外政府對加密貨幣的態度如何？比特幣和比特幣挖礦會拯救全球的定價監管嗎？

[Interpreted] The supervision on Bitcoin from world's major economy has long been existed. Most economies from a developmental perspective, according to the statistics of Coin Dance, among 257 economies in the world, over 52% or 132 economies currently recommends Bitcoin as legal currency and do not impose restrictions on it. Only 14 economies consider Bitcoin illegal and restrict it.

【解讀】世界主要經濟體對比特幣的監管由來已久。從發展角度來看，大多數經濟體都存在監管，根據Coin Dance統計，在全球257個經濟體中，目前超過52%（132個）的經濟體推薦比特幣作為法定貨幣，不對其進行限制。僅有14個經濟體認為比特幣非法，並對其進行限制。

In terms of the nature of Bitcoin, more than 60% of the economies believe that it has monetary properties, which means it could be used as a means of payment. Nearly 30% of the economies regard it as a commodity. More than 10% of economies treat it as property.

關於比特幣的性質，超過60%的經濟體認為比特幣具有貨幣屬性，可以作為支付手段；近30%的經濟體認為比特幣是一種商品；超過10%的經濟體認為比特幣是一種財產。

And recently, many countries such as Turkey and India contended that they may join the list of economies who will restrict or prohibit Bitcoin since the pandemic has worsened the growth of their economies. Their domestic inflation has clearly risen. The attitude towards Bitcoin regulation of these economies varies over time.

最近，土耳其、印度等多個國家聲稱，由於疫情影響了其經濟成長，它們可能加入限製或禁止比特幣的經濟體名單。這些國家的國內通膨率明顯上升。這些經濟體對比特幣監管的態度也隨著時間的推移而改變。

(foreign language) My third question is, so recently opinion leaders, both domestically and also internationally, have raised their concerns about the high energy consumption of Bitcoin mining. So what do you think of this kind of sale? And also will be closing down of Bitcoin mining firms in Inner Mongolia cause a chain reaction in other premises in China?

（外語）我的第三個問題是，最近國內外的意見領袖都對比特幣挖礦的高能耗表示擔憂。您如何看待這種出售行為？內蒙古關閉比特幣礦場是否會在中國其他地區引發連鎖反應？

[Interpreted] The establishment of a whistleblower platform for digital currency mining companies in Inner Mongolia is not a new move. Xinjiang has issued similar policies before. At present, the development of the Bitcoin mining industry relies on low-cost power resources. There are 2 main types of resources, thermal power and hydro power. The Northern Western region is dominated by thermal power, which is against the inherent environmental protection principle of carbon neutrality. This is one of the fundamental reasons for the withdrawal of local mining in Inner Mongolia.

【解讀】內蒙古設立數位貨幣挖礦企業檢舉平台並非新鮮事，新疆先前也曾推出類似政策。目前，比特幣挖礦產業發展仰賴低成本的電力資源，主要分為火力發電和水力發電兩大類。西北地區以火力發電為主，與內蒙古固有的碳中和環保原則相悖，這也是內蒙古本地挖礦退出的根本原因之一。

Secondly, many mining companies engage in mining activities pretending to be data centers enjoying policy subsidies granted by the country, but failing to fulfill their corresponding social responsibility. A withdrawal of these companies will help standardize the operations of domestic mining companies.

其次，不少礦機企業假借資料中心名義進行挖礦，享有國家政策補貼，卻沒有履行相應的社會責任。這些企業的退出，將有助於規範國內礦機企業的營運。

Although the mining industry consumes electricity, it uses waste electricity to a large extent. Miners prefer to choose areas with low electricity prices to engage in mining activities out of profit-making purposes. The low electricity price indicates that the local power supply is greater than the actual demand, and there is a waste of energy. Before the emergence effective means to displace with the electricity, Bitcoin mining is a solution to transform waste electricity to a store of value.

挖礦雖然消耗電力，但很大程度利用的是廢電。礦工出於獲利目的，更傾向於選擇電價較低的地區進行挖礦。低電價意味著當地電力供應大於實際需求，有能源浪費。在替代電力的有效手段出現之前，比特幣挖礦是將廢電轉化為價值儲存的解決方案。

At present, certain degree of power abandonment exist in many cryptocurrency mining areas in China, such as the Northwest and Southwest regions. Bitcoin mining has contributed a lot to the finances, employment and income of residents in poverty areas. It also helps new energy facilities to generate income and further expand their scale. Hope that answers your question.

目前，中國西北、西南等地不少加密貨幣礦區存在一定程度的棄電現象。比特幣挖礦為貧困地區居民的財政、就業和收入做出了巨大貢獻，也幫助新能源計畫創造收入並進一步擴大規模。希望以上內容能解答您的疑問。

The next question is coming from Martin Chien from Ten Assets.

下一個問題來自 Ten Assets 的 Martin Chien。

(foreign language) We still poor revenue growth in the second quarter. Maybe you can give us some color of the second quarter mining machine output and the price compared to the first quarter of 2021.

（外語）我們第二季的營收成長仍然不佳。您能否介紹一下第二季礦機的產量以及與2021年第一季相比的價格狀況？

[Interpreted] As we discussed last quarter, we still expect 70% to 80% of our Q2 orders to be future contracts. Driven by our optimizing supply chain, continuous ramp-up of our capacity and the improvement of product yield, our product throughput has been considerably elevated. As a result, we expect shipment of mining machines in Q2 to be more than tripled from that in Q1.

[解讀] 如同我們上季所討論的，我們仍預期第二季70%到80%的訂單將為遠期合約。由於我們不斷優化的供應鏈、持續提升的產能以及產品良率的提升，我們的產品產量已顯著提升。因此，我們預計第二季礦機出貨量將比第一季成長三倍以上。

(foreign language) Do we see any impact on the Bitcoin price fluctuation in the second quarter or second half 2021?

(外語) 2021年第二季或下半年比特幣價格波動會受到什麼影響？

[Interpreted] Recently, we have observed considerable fluctuation and retracement of the Bitcoin price and also heard different voices on the market. The overall return for Bitcoin miners remains at a relatively high level. Under most circumstances, the cost of mining machines does not exceed 1/3 of a miners' income. In addition, total computing power of the Bitcoin network declined recently due to policy change in China and the transition between dry and wet seasons. There is a minor decline of overall return for miners, but the change is significantly less than the retracement of Bitcoin prices.

【解讀】近期，我們觀察到比特幣價格出現較大波動和回調，市場也出現了一些不同的聲音。比特幣礦工整體收益仍維持在較高水平，礦機成本在大多數情況下不超過礦工收入的三分之一。此外，受國內政策變化以及雨水季節交替等因素影響，近期比特幣網路總算力下降。礦工整體收益雖然略有下降，但降幅遠小於比特幣價格的回檔幅度。

And the price of mining machines depends on multiple factors. Without considering the impact of policy change, we see a strong correlation between the price of mining machines and return of mining. However, the recent policy uncertainties and the volatility of Bitcoin prices have cultivated an overwhelming watching atmosphere in our domestic market. As domestic miners consider going abroad, overseas demand for secondhand mining machines boomed, which caused the short-term turbulence in market supply and demand.

礦機價格受多種因素影響。在不考慮政策變動影響的情況下，我們發現礦機價格與挖礦收益之間有強烈的相關性。然而，近期政策的不確定性以及比特幣價格的波動，導致國內市場觀望情緒高漲。隨著國內礦工考慮出海，海外對二手礦機的需求激增，導致市場供需出現短期波動。

From our experience and current market situation, we believe the major impact from policy uncertainty and fluctuating Bitcoin price is not the price of mining machine itself, but the timing of placing purchase orders. While domestic customers wait for a clearer policy environment, overseas customers inclined to a more stable Bitcoin price. Currently, most of our overseas customers have resumed ordering for spot sales of futures contracts. And the impact on overall price is not material, especially minor on the price of futures contracts. Depending largely on the Bitcoin price, current price of mining machines for spot sales is 20% to 30% lower compared with that when Bitcoin price was USD 60,000.

根據我們的經驗和當前的市場狀況，我們認為政策不確定性和比特幣價格波動的主要影響並非礦機價格本身，而是下單時機。國內客戶仍在等待更明朗的政策環境，而海外客戶則更傾向於更穩定的比特幣價格。目前，我們大部分海外客戶已恢復期貨合約現貨的訂購。對整體價格的影響並不顯著，尤其對期貨合約價格的影響較小。目前現貨礦機的價格主要受比特幣價格影響，與比特幣價格在6萬美元時相比，價格下跌了20%到30%。

(foreign language) About our shipment, we already tripled our shipment in the second quarter compared to first quarter. Can we continue to increase shipments in the second half?

（外語）關於我們的出貨量，我們第二季的出貨量已經比第一季成長了兩倍。下半年我們還能繼續增加出貨量嗎？

[Interpreted] In terms of our total shipments in this year, we currently expect it to be around 300,000 Bitcoin mining machines delivered to our customers in this year. However, in terms of revenue and profit, we are not able to give you a clear guidance at this point. I think they are closely related to the price of Bitcoin.

[解讀] 就我們今年的總出貨量而言，我們目前預計今年將向客戶交付約30萬台比特幣礦機。不過，就收入和利潤而言，我們目前無法給出明確的期望。我認為這與比特幣的價格密切相關。

(foreign language) I also want to know, do we have any strategy to get rid of the Bitcoin cycle and maintain a profitability for a long time?

（外語）我也想知道，我們有什麼策略可以擺脫比特幣週期並保持長期獲利？

[Interpreted] This is a very good question. Firstly, as we are in a fast-developing, emerging new industry, we believe stable profitability is not the top priority of our business operation. We are working on maximizing our profit and managing the risks of losses at the same time. Our operating performance used to be significantly affected by the change of Bitcoin price. The impact was sometimes even magnified on our operating performance. This is natural due to the simplicity of our business model and product line. As a result, we have carried out the following initiatives to increase and stabilize our profitability.

[解讀] 這個問題問得非常好。首先，由於我們身處一個快速發展的新興產業，我們認為穩定的獲利能力並非我們業務營運的首要任務。我們致力於在最大化利潤的同時管理虧損風險。我們的營運表現過去曾受到比特幣價格變動的顯著影響，有時甚至會被放大。由於我們的商業模式和產品線較為簡單，這很正常。因此，我們採取了以下措施來提升和穩定我們的獲利能力。

The first initiative is the selection of customers and sales models. We enter into long-term supply agreements with select customers and suppliers to stabilize our supply chain, sales and profit. And we also reserved a small portion of the mining machines for spot sales in market upturn to increase our profitability.

第一項舉措是選擇顧客和銷售模式。我們與精選客戶和供應商簽訂長期供應協議，以穩定我們的供應鏈、銷售和利潤。此外，我們也預留了一小部分礦機用於市場好轉時的現貨銷售，以提高獲利能力。

Our second initiative is to expand into new business segments, such as self-operated mining business to diversify our business model. This is a critical segment for a hardware manufacturer to share the development dividend of the blockchain industry. In addition, as a derivative business model of the blockchain industry, it is the fundamentals for computing power leasing, cloud computing sales and even computing power contracts. As the industry evolves, the entry barriers for cryptocurrency mining has become too high for most participants on our call today to build and operate a tens of millions of dollars large-scale mining facility. This entry barrier has essentially discouraged investments in this field. The business model of pure hardware manufacturing is out of date. We should promote the hardware plus service model or even pure service model, Mining as a Service, or MaaS, to become the mainstream model.

我們的第二個舉措是拓展新的業務領域，例如自營挖礦業務，以豐富我們的商業模式。對於硬體製造商而言，這是分享區塊鏈產業發展紅利的關鍵環節。此外，作為區塊鏈產業的衍生商業模式，自營挖礦是算力租賃、雲端運算銷售甚至算力合約的基礎。隨著產業的發展，加密貨幣挖礦的進入門檻已經過高，對於今天我們電話會議的大多數參與者來說，建造和運營一個價值數千萬美元的大型礦場幾乎是不可能的。這種准入門檻實際上阻礙了該領域的投資。純硬體製造的商業模式已經過時。我們應該推動「硬體加服務」模式，甚至純服務模式，也就是「挖礦即服務」（MaaS），成為主流模式。

And the third point is diversification. Essentially, we are a chip company. Our core competence is the capability of designing chips and the massive production of it. It will be too narrow if we limit our technological advantage and a strong balance sheet only in the development of mining chips. As such, we are developing homologous technologies to be applied to completely different AI devices and edge AI chip. Although this new business segment is still in the early stage of market cultivation, it is generally acknowledged that AI chip is an important industry in the future with huge market potential. We hope to be prepared for potential business opportunities in the future. Thank you. Hope this helped.

第三點是多元化。本質上，我們是一家晶片公司。我們的核心競爭力在於晶片設計及其量產的能力。如果我們將技術優勢和強大的資產負債表僅限於挖礦晶片的開發，那就太過狹窄了。因此，我們正在開發類似的技術，以應用於完全不同的AI設備和邊緣AI晶片。雖然這個新的業務領域仍處於市場培育的早期階段，但普遍認為AI晶片是未來一個重要的產業，擁有巨大的市場潛力。我們希望為未來的潛在商機做好準備。謝謝。希望這些對您有所幫助。

(foreign language) We would like to know how is our current next-generation machine progress? Which country are we profiting -- cooperating with? And which node are we using? And any roughly status of publication?

（外語）我們想知道我們目前的下一代機器進度如何？我們與哪個國家合作並從中受益？我們目前使用哪個節點？以及大致上的出版情況如何？

[Interpreted] In order to avoid causing confusions for the market, we normally don't separately launch a single new chip due to the simultaneous iteration of technologies and massive production by multiple foundry partners. Uncertainty is always associated with any R&D project. As such, there might be change to our following discussions and expectations.

[解讀] 為避免造成市場混亂，由於技術同步迭代，且多家代工廠商正在大規模生產，我們通常不會單獨發布一款新晶片。任何研發項目都存在不確定性。因此，我們後續的討論和預期可能會有所調整。

The next-generation chip is the second iteration of our existing technology. We expect to gradually adopt the next-generation chip in the second half of this year. Compared with current products, we expect the overall improvement to be 10% to 15% in terms of performance, cost and power consumption.

下一代晶片是我們現有技術的第二次迭代。我們預計將在今年下半年逐步採用下一代晶片。與現有產品相比，我們預期在效能、成本和功耗方面，整體提升將達到10%至15%。

In terms of the R&D process of the next-generation chip by our foundry partners, the full function testing chips have been put into production, and mass production is up to the foundry partner's schedule. Current expectation is next year. Compared with current products, we expect overall improvement to be in the range of 20% to 30%.

就晶圓代工合作夥伴的下一代晶片研發進度而言，全功能測試晶片已投入生產，量產進度按照晶圓代工合作夥伴的計畫進行。目前預計明年上市。與現有產品相比，我們預期整體效能提升將在20%至30%之間。

In addition, we're also in the process of developing the 5-nanometer chip. We expect to launch the N5 products in next year. Instead of the challenges of the R&D itself, the long process and capacity constraints are the major obstacles for its launch.

此外，我們也正在研發5奈米晶片，預計明年推出5奈米產品。與其說是研發本身的挑戰，不如說是漫長的製程和產能限制才是5奈米晶片上市的主要障礙。

In terms of our cooperation with Samsung, the manufacturing of mining chip requires large volume wafers. Under the current supply shortages of wafers, we're only able to utilize foundry's surplus capacity from time to time. As such, our demand is not prioritized by the foundry partners. Foundries who have multiple cutting-edge fabrication production lines are important potential partners for us. The performance and cost of our 8 nanometers chip produced by Samsung was very good. Limited by Samsung capacity constraint, we suspended our cooperation for several months in this year. We plan to resume our cooperation with Samsung for the production of our new chip in later this year or next year.

就我們與三星的合作而言，生產挖礦晶片需要大量晶圓。在目前晶圓供應短缺的情況下，我們只能偶爾利用代工廠的剩餘產能。因此，我們的需求並未得到代工廠合作夥伴的優先考量。擁有多條尖端生產線的代工廠是我們重要的潛在合作夥伴。三星生產的8奈米晶片性能和成本都非常出色。受三星產能限制的影響，我們今年暫停了幾個月的合作。我們計劃在今年稍後或明年恢復與三星的合作，生產我們的新晶片。

As far as strategic plan of developing our mining machines, currently, the mainstream Bitcoin included only the Bitcoin, Ethereum and Litecoin. In addition to our existing Bitcoin mining machines, we are developing mining machines for Ethereum or ETH. We hope to improve the performance of the new machine by 1 to 2 orders of magnitude compared with the current mainstream GPU. As a result, the R&D of new ETH mining machines is complicated and difficult. So we expect to launch our ETH mining machine next year. In light of the current supply shortages on the market, we think it's difficult for anyone in the industry to put ETH mining machines into mass production in this year due to the severe short of supply for logic wafers, DRAM wafers and package.

關於礦機研發的策略規劃，目前主流的比特幣只有比特幣、以太幣和萊特幣。除了現有的比特幣礦機，我們也正在研發以太坊或ETH的礦機，希望新礦機的效能能比目前主流的GPU提升1到2個數量級。因此，ETH礦機的研發工作非常複雜，難度也很大。我們預計ETH礦機將於明年上市。鑑於目前市場供應短缺的現狀，我們認為今年業內任何一家公司都很難實現ETH礦機的量產，因為邏輯晶圓、DRAM晶圓以及封裝都嚴重缺貨。

The next question is coming from the line of Dan Weiskopf from Toroso Investments.

下一個問題來自 Toroso Investments 的 Dan Weiskopf。

Unfortunately, I don't speak Chinese. So I'm going to just thank you for trying to give the transparency on this call and to all the great questions. Congratulations on a good quarter.

很遺憾，我不會說中文。所以我只想感謝你們在這次電話會議上保持透明度，並解答了所有重要的問題。恭喜你們取得了一個好的季度業績。

Thank you. Let me translate for the management.

謝謝。我來為管理層翻譯一下。

That was my only question.

這是我唯一的問題。

The next question is coming from the line of Craig Ellis from B. Riley Securities.

下一個問題來自 B. Riley Securities 的 Craig Ellis。

And I will ask for help in translating the following. First, regarding the order intake that the company is seeing, I believe that's leading to the company believing it can ship 300,000 units this year. But the question is really on 2022. Are you taking orders currently for 2022 shipments? And can you quantify the magnitude of orders that you might have taken year-to-date for next year?

請幫忙翻譯以下內容。首先，關於公司目前的訂單量，我相信這使得公司相信今年可以出貨30萬台。但問題其實在於2022年。你們目前是否正在接受2022年出貨的訂單？您能否量化一下今年迄今可能已經接受的明年訂單量？

Thank you for your question. (foreign language)

感謝您的提問。 （外語）

Okay. This is Edward Lu responsible for overseas sales. Yes, the first is sure, we have taken orders until 2022 quarter 1. This answer helps you or not?

好的。我是負責海外銷售的Edward Lu。是的，首先可以肯定的是，我們已經接了到2022年第一季的訂單。這個答案對你有幫助嗎？

It does. But I was hoping you could also quantify the degree of orders that you've taken for 2022 in addition to whether you're taking them or not.

是的。但我希望除了是否接單之外，您還能量化2022年接單的程度。

Yes. We have taken orders for impact. And the preorder sales, as Nangeng Zhang, the Chairman and CEO, mentioned in his previous sayings, 2021, we have preorders. But also, we have preorders for quarter 1 for 2021, every month with a long-term overseas partners as well by monthly phasing. So very well organized monthly phasing orders which, of course, helps us a lot in the allocation of production capacity and also stabilize our business pipeline. Thank you.

是的。我們已經接到了訂單，以產生影響。正如董事長兼執行長張南庚之前所說，2021年我們有預購訂單。此外，我們每個月都有與長期海外合作夥伴的2021年第一季預購訂單，並且是按月分階段進行的。因此，每月分階段的訂單安排非常有序，這當然對我們分配產能和穩定業務管道有很大幫助。謝謝。

That's helpful. I have a second question, if I could. In the press release, the company disclosed there was a CNY 56 million order cancellation in the calendar second quarter. And the question is related to that order cancellation. Can those systems be redeployed to other customers? Or would those systems be redeployed to the company's internal mining operation? Can you just confirm what happened with the systems associated with that order cancellation?

這很有幫助。如果可以的話，我還有第二個問題。公司在新聞稿中披露，第二季有一筆價值5,600萬元人民幣的訂單被取消。問題與這筆訂單取消有關。這些系統可以重新部署給其他客戶嗎？或者這些系統會被重新部署到公司內部的採礦業務？您能否確認與這筆訂單取消相關的系統發生了什麼情況？

A cancellation of one of our customers in the North America. And of course, customers have the right to decide to purchase or to cancel. And also, this cancellation doesn't impact our business as the miners' sales and demand, you can see from the report, are stable and healthy. Thank you.

我們北美的一位客戶取消了訂單。當然，客戶有權決定購買或取消訂單。此外，此取消訂單不會影響我們的業務，因為您可以從報告中看到，礦機的銷售和需求穩定且健康。謝謝。

That's also helpful. Just if I could ask...

這也很有幫助。如果我可以問的話…

[That's 2 questions], aren't you?

[這是兩個問題]，不是嗎？

Go ahead.

前進。

[Interpreted] And in light of the current short of supply situation in the market, especially for the second half of this year. We actually see the cancellation of this certain customer as a positive impact on our full year performance since we already signed a contract with a new customer at a higher price. Thank you.

[譯] 鑑於目前市場供應短缺，尤其是今年下半年。我們實際上認為，這位客戶的取消將對我們全年業績產生積極影響，因為我們已經以更高的價格與一位新客戶簽訂了合約。謝謝。

That's very helpful and kind of opportunistic. Finally, I just wanted to get some further color on some of the supply dynamics in the market. The company indicated that it's prebooked capacity with foundry suppliers in the back half of the year. If demand continues to grow through the year, can you get upside to your current capacity for this year and exceed the unit shipment target of 300,000 rigs?

這很有幫助，而且有點機會主義。最後，我想進一步了解市場供應動態。該公司表示，已經預訂了下半年代工廠的產能。如果全年需求持續成長，你們今年的產能能否提升，並超過30萬台鑽孔機的出貨量目標？

Let me take a second to translate for the management.

請容許我花一點時間為管理階層翻譯一下。

[Interpreted] Yes. Actually, we don't see a further potential for increasing manufacturing capacity in this year given the supply and demand situation on the market. What we can do actually is to increase and improve the performance and yield of our products, so that will enable us to deliver more terahash to our customers. In terms of the manufacturing capacity, we hope we will be able to lock in more capacity to address the increasing market demand in next year. Thank you.

[翻譯] 是的。實際上，鑑於市場供需狀況，我們認為今年沒有進一步提升產能的潛力。我們實際上能做的是提高和改善產品的性能和產量，以便我們能夠為客戶提供更高的算力。就產能而言，我們希望能夠鎖定更多產能，以滿足明年不斷增長的市場需求。謝謝。

There are no further questions at this moment. I will hand the call back to the management for any closing remarks. Take over.

目前沒有其他問題了。我會把電話轉回給管理階層，請他們做最後發言。請接聽。

Thank you, everyone, for joining us today. If you have any further questions, please do not hesitate to contact us. Thank you. Bye-bye.

感謝大家今天的參與。如果您還有其他問題，請隨時與我們聯繫。謝謝。再見。

Bye-bye.

再見。

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[本記錄中標記為 [已翻譯] 的部分由現場翻譯人員朗讀。 ]