Canaan Inc (CAN) 2025 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Canaan Inc.'s fourth-quarter 2025 earnings conference call. At this time, all participants are in a 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. Now, I'd like to hand the conference over to your speaker today, Gwyn Lauber, Investor Relations for the company. Please go ahead, Gwyn.

Thank you, operator. Hello, everyone, and welcome to our earnings conference call. Joining us today are our Chairman and CEO, Nangeng Zhang; and our CFO, James Jin Cheng. Leo Wang, Vice President of Capital Markets and Corporate Development; and Xi Zhang, Senior IR Manager, will also be available during the question-and-answer session. Our CEO will start the call by providing an overview of the company and performance highlights for the quarter. Our CFO 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 begin, 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 operating results and the performance of the company. These statements speak only as of today, 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 file 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, 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. 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's website.

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

Hello, everyone. This is Nangeng, CEO of Canaan. Welcome to our earnings call. Together with our CFO, James, we are calling from our Singapore headquarters to discuss our Q4 2025 business results and latest updates with you. Through the first quarter, Bitcoin prices, experienced significant volatility. In early October, Bitcoin briefly broke above its previous all-time high, reaching approximately $126,000. It then fell below $100,000 in mid-November, and, dropped to below $90,000 by the end of December.

At the same time, the wave of new hash rate that entered the pipeline during the price surge in the third quarter came online, pushing total network hash rate to a record high. This puts strong pressure on miners' profit margins.

Facing this highly volatile market, we managed our sales pace well at the beginning of Q4. We secured a large order from a major customer in North America and efficiently mobilized resources to support production and a smooth delivery. At the same time, we steadily expanded our self-mining operations and explored diversified mining partnerships, signing several pilot projects. As a result, our total revenue for the fourth quarter reached $196 million, up 30.4% quarter over quarter, and 121.1% year over year. This was our highest quarterly revenue in the past three years and exceeded the midpoint of our guidance range of $175 million to $205 million.

We achieved a major breakthrough in mining machine sales in this quarter, benefiting from our continued focus on the North American market, we secured a large-scale order of more than 50,000 A15 Pro models from a leading mining company. This milestone collaboration drove our strong sales performance and underscores the market's growing recognition of our product performance and delivery capability. To ensure high-quality delivery, our supply chain, production, and operation teams worked closely together to ensure smooth and high-quality execution. This resulted in an all-time high of 14.6 EH/s in computing power sold during the quarter, up 45.7% quarter over quarter, and 60.9% year-over-year.

While average selling price declined slightly due to volume discounts for large-scale orders, the surge in sales volume drove product revenue to $165 million, up 39.1% quarter over quarter, and 124.5% year over year. This marks our highest single quarter revenue in the past 13 quarters. We will continue creating value for customers through product upgrades and customized services to deepen our partnerships with global customers. And although the company focused most of its resources on rig sales in Q4, our self-mining operations continued to progress steadily under the principle of resource alignment and efficiency first. In Q4, we steadily expand and optimized global development.

At the end of the fourth quarter, total installed hash rate increased 8.6% quarter over quarter to 9.91 EH/s, of which 7.7 EH/s was energized. We mined approximately 300 Bitcoins during the quarter, further contributing to our cryptocurrency reserves. At the end of 2025, our crypto assets holding were [1,750 Bitcoins and 3,961 Ethereum]. This holding reflect the combined contribution from our mining activities and ongoing DAT management strategies. In the current market environment, this crypto portfolio not only provides liquidity, but also offers potential upsides if crypto prices recover.

We continue to explore innovative mining applications and promote deeper integration between computing and energy. In October, we partnered with local energy infrastructure provider in Canada to convert flared natural gas at wellheads into computing power. This project marks our initial step from utilizing standard energy toward a broader participation in energy infrastructure. It demonstrates the value of high-performance computing within emerging energy systems and opens up more space and the long-term sustainability for expansion of our mining business.

In R&D and supply chain management, we maintained our focus on product performance, driving technological upgrades in tandem with capacity optimization. Last October, we officially launched the A16XP, our flagship next-generation air-cooled model.

It achieved breakthroughs across multiple performance metrics by delivering over 300 TH/s per unit with an industry-leading power efficiency of 12.8 J/TH. This showcases our deep technical and R&D expertise in the design of high-performance ASIC chips. As we continue to advance our product generation updates, upgrades, we work closely with our wafer foundry partners to optimize manufacturing processes. These efforts have led to higher yields and lower costs for our A15 series, allowing us to deliver more computing power from the same amount of wafers. On the supply chain front, our production footprint across Malaysia, the US, and mainland China, allow us to remain compliant with flexibility, adapting to an increasingly complex global trade environment.

During the mass delivery of the large-scale order this quarter, our teams across manufacturing, quality control, and logistics worked in close collaboration, successfully withstanding the due pressure of shipment volume and the tight timelines. By early January 2026, the entire order had been fully delivered, demonstrating that the resilience and execution strength of our supply chain.

In summary, 2025 was a challenging year. We navigated a complex international trade environment while continuing to expand our business across multiple dimensions. For the full year, total revenue was $530 million, surging 96.7% year over year. We strengthened our presence in North America, partnered with leading customers, and increased total computing power sold by 40.7% year-over-year to a record 36.5 EH/s.

In terms of products, we achieved mass production of the upgraded A15 series, launched the next generation A16 series, and expanded our Home Series into a multifunctional product line-up, significantly improving revenue growth and brand influence.

Our mining business reached a key milestone in 2025 with full-year revenue exceeding $100 million for the first time. Global installed hash rate rose 82%, and energized hash rate grew 61% year over year. We now operate nine mining projects globally, with total power capacity exceeding 250 MW. We also expanded into innovative energy scenarios by exploring wind power, stranded gas, and computing-generated heat reuse, driving deeper integration of computing and energy.

We completed the deployment of our assembly and the production capabilities across Malaysia, the US, and Mainland China, building a flexible and a resilient global delivery system. We also established our digital assets treasury management framework, enhancing our crypto reserve capacity and capital allocation flexibility to support our long-term development.

As we enter 2026, the external environment remains highly volatile. Shifts in macro liquidity and risk appetite are making digital assets prices and industry demand more psychological and fast rhythm. We do not base our operations on short-term views of price movements. Instead, we focus on navigating cycles through controllable factors, including product competitiveness, delivery and operational capabilities, inventory and cash flow discipline, compliance, as well as lower cost and more scalable energy and infrastructure capabilities.

This approach has enabled us to remain resilient and achieve growth in the complex environment of 2025. More importantly, we do not see Canaan's next stage as being defined merely as an equipment provider or a single-load computing player. We have a clear long-term vision. Computing and energy infrastructure are becoming increasingly integrated. Bitcoin mining and AI HPC collocation may appear to be two different business on the surface, but they are highly complementary at the infrastructure level.

They share electricity, facilities, power distribution, cooling systems, and human and technical resources for operations and maintenance. By leveraging different workloads characteristics, we can improve power utilization efficiency and overall project economics. At the same time, these applications can interact with power grid more attractively.

They can absorb energy when the power supply is abundant and reduce the load when the grid is constrained, ultimately contributing to a more resilient and dispatchable computing infrastructure. So in 2026, our strategy centers on two core pillars, with execution as our top priority, securing proven models, streamlining non-repeatable pilots, and laying the groundwork early for long-term capabilities. Our first track focus on power and the computing infrastructure.

We are shifting our strategy from securing power resources from an opportunistic asset-light approach to a more systematic upstream development path. To secure reliable and economic power resources and leverage our North American resources base built since 2022, we will prioritize applying for power directly rather than bidding for capacity with the existing third-party projects.

We have made significant progress on a robust pipeline to secure direct power capacity in the US We are confident of securing substantial load by the year-end of 2026, potentially reaching the gigawatt scale. At the same time, we are exploring ways to integrate Bitcoin mining with AI HPC collocation. This approach can improve returns on invested capital, while supporting dynamic load management for the power grid and strengthening our existing positive relationships with grid operators. The development of power and the infrastructure is not a sprint, but a long journey with steady gains. The process spans multiple stages, includes site selection, land and the grid interconnection assessments, negotiation with power partners, contract structuring, engineering, construction, and commissioning.

Each step requires careful and disciplined execution. Accordingly, our primary objective of 2026 is to establish a pipeline of executable projects and clear development pathways. We do not intend to pursue a one-off large-scale capital outlay. Instead, we will move forward within a framework of capital discipline. We will leverage partnerships and project financing as key tools, relying on asset-level cash flows and project-level financing to support expansion. This approach limits unnecessary volatility in our overall financial position. This also means we will prioritize secure high-quality power resources that are well suited for AI HPC collocation.

Second, in the consumer and small to medium size business segments, we will take more systematic approach to building our 2C SMB business in 2026. Last year, we saw strong potential on both the demand side and the gross margin structure for these products. But we also understand that success in the consumer market is hard. Users expect excellent products experience, stability, and attention to detail and service, and we must treat this market with complete respect. That's why in 2026, we will continue to improve our product line and launch new models. At the same time, we will raise our standards and take more cautious approach. Long-term product reputation matters.

We will focus on stability, ease of use, noise control, and user experience as our top priorities. Also, we will continue to strengthen our product competitiveness while we will also focus heavily on building out our channels. A key priority of growing our 2C and SMB business. Our past experience has shown that the consumer market, the core competitiveness, comes not only from the product itself, but also from the strengthening of our channels and the service system. In 2026, we will make systematic investments in this area. This includes partnerships with online platforms, expanding our offline distributor network, improving after-sale services and content operations, and building more efficient user engagement and commission mechanisms.

Our message is clear, even in areas while we are still catching up, we are committed to putting in real efforts and resources. And for areas that are key to long-term success, we will go all in to make sure the business line become more stable and a cycle-resistant revenue contributor. Lastly, I will share our view on the operating pace for 2026 and our preparations.

From an operational standpoint, we expect 2026 to show a clear stage-by-stage characteristics. Industry demand and pricing may remain under pressure during the first half of the year. Our focus will on mainstreaming on maintaining a strong discipline in cash flow and inventory, strengthening product and delivery capabilities, and advancing key initiatives in power and infrastructure early on.

At the same time, we are preparing our supply chain and the solution teams for potential demand recovery later in the year. If the industry presents a clear structural opportunity, we will be ready to act quickly with strong execution and a healthy cost structure to capture market share and grow efficiently.

We believe that this strategy centered on execution and the long-term capability building will allow Canaan to remain competitive within Bitcoin mining value chain, and gradually become a trusted infrastructure participant with the computing power and energy ecosystem. Our goal is to create more sustainable long-term value for our customers, partners, and shareholders. Before concluding, I would like to note that the outlook above contains forward-looking statements.

Actual results may vary due to changes in macroeconomic conditions, industry cycles, regulations, and market dynamics. We will continue to communicate with transparency and respond to market expansions through clear, verifiable execution progress. Given recent global macroeconomic uncertainties, including ongoing monetary tightening involving geopolitical developments and heightened volatility in the digital asset market, we maintain a relatively cautious view about the market environment in the first quarter of 2026. As global miners have adopt a wait-and-see approach in response to the recent decline in Bitcoin prices, the sale of mining rigs are facing considerable challenges.

While we expect total revenue for the first quarter of 2026 to be in the range of $60 million-$70 million. This outlook is based on current market conditions and operating assumptions. However, actual results may differ due to policy uncertainty and market volatility. This concludes my prepared remarks. Thank you, everyone. Now I will hand it to our CFO, James.

Thank you, NG, and good day, everyone. This is James, CFO of Canaan. I'm pleased to share our Q4 financial performance with you. To begin my part, I would like to echo NG's perspective on the fourth quarter industry environment. It was a very volatile quarter for the Bitcoin price. Bitcoin reached a new high in October, hitting $126,000, before dropping below $100,000 in November and below $90,000 in December. During the quarter, network hash rate also reached historical highs, significantly impacting the profitability of miners. Fortunately, our operation was robust in Q4. We successfully secured large-scale orders from key clients in the North American market and globally, and our strong supply chain relationships ensured timely production and delivery. In our mining operation, we continued our deployment and seized opportunities for new pilot agreements.

Overall, we delivered a solid quarterly results in Q4 despite the market dynamics. Let's take a close look at the details. First, I will highlight our strong top-line results in the fourth quarter and for the full year of 2025. In Q4, we delivered $196 million in total revenue, up 30.4% sequentially, and 121.1% year-over-year. Our total computing power sold also reached a record 14.6 EH/s. This growth was primarily driven by the massive delivery of our A15 series. Our revenue increased consistently throughout every quarter in 2025. This trajectory peaked at a new quarterly high for Q4. Consequently, our full year revenue reached $530 million, nearly doubling 2024 results.

Within product revenue, our Avalon Home Series also delivered exceptional growth in 2025, contributing approximately $25 million in revenue. Notably, our Q4 revenue mainly came from the North American market. Revenue from North American customers reached $125 million, accounting for over 75% of our total product sales. This demonstrates that top-tier institutional miners in North America continue to recognize Canaan as a primary long-term partner.

Regarding our mining operations and the treasury strategy, we continued to scale our infrastructure while maintaining a robust asset base. By the end of Q4, our installed computing power reached nearly 10 EH/s, up 7% from Q3. Our digital asset treasury also remains a core pillar of our financial strategy. As of December 31st, 2025, we held 1,750 Bitcoins and 3,951 Ethereums.

At year-end prices, these holdings were valued at approximately $166 million. While we manage through market fluctuations, this robust reserve provides a solid foundation for our balance sheet and long-term liquidity. Mining revenue in the full year of 2025 was $113.2 million, compared to $44 million in the full year of 2024. The increase was mainly due to the increased computing power energized for mining, especially the expansion in the United States.

On the operational front, we achieved notable gains in efficiency and supported our liquidity through disciplined capital management. Despite our business scaling up, our operating expenses in Q4 were $38 million, decreasing 6% quarter-over-quarter. This improvement reflects our efforts to streamline our organization and focus on core strategic projects. Our strong sales and financing activities have also strengthened our cash position.

In Q4, we generated approximately $75 million in cash inflow from sales, and received approximately $80 million from a strategic straight equity financing and the brief utilization of our renewed ATM. This healthy liquidity funded our Q4 payments of $100 million to secure our wafer supply and $89 million for production and operations.

These investments ensure our goal, flexible manufacturing footprint across Malaysia, the United States, and Mainland China. Consequently, we ended the quarter with a cash balance of $81 million. This aligns with our commitment to strict cash flow discipline, allowing us to navigate market cycles without compromising our strategic roadmap. Reflecting our strong confidence in the company's financial position and the long-term shareholder value, we have already repurchased approximately 2.8 million ADSs for $2 million under our $30 million stock repurchase program announced in December.

We intend to continue executing this plan opportunistically as market conditions allow, underscoring our firm belief in the company's prospects. Turning to our margins, we have taken a proactive approach to address market pressures and de-risk our balance sheet. In Q4, our gross margin was $14.6 million, compared to $16.6 million in Q3. This compression was primarily due to three factors. First, we delivered several large-scale institutional orders. These orders are strategically essential for securing our long-term market share in North America. Second, Bitcoin price softened in the latter half of the quarter. This trend weakened the market demand. These headwinds lowered our average selling price. Last but not least, we prioritized the delivery of industrial machines to strategic customers instead of the Avalon Home Series in Q4.

Additionally, considering the severe Bitcoin price volatility in early 2026, we recorded the inventory write-downs of $13.9 million in Q4. These impairments are based on management's latest estimates and reflect our cautious expectations under current conditions. Below gross profit, the year-end dip in Bitcoin prices resulted in a $44 million non-cash fair value loss. Another $15 million non-cash fair value loss was recorded for the conversion of the final batches of preferred shares. There will not be any fair value loss regarding preferred share conversions for the next quarter. These non-cash items led to an adjusted EBITDA loss of $40.5 million. It is important to note that our cash position remains stable, providing us with sufficient liquidity to fund our operations and R&D plans.

Furthermore, our ongoing expansion into the consumer and the small and medium-sized business segments is expected to contribute to a more balanced and resilient margin profile over the long term. Finally, I want to outline our cautious yet resilient outlook. We are monitoring the very volatile Bitcoin price in the first two months of 2026. On February 5, the Bitcoin price dropped to $60,000. Low Bitcoin price triggered the machine shutdowns and operations closures for higher-cost miners. Profitability of existing miners is also under pressure recently, including our own mining operations. Given the headwinds and uncertainties, we are taking a very prudent approach to provide our Q1 guidance. We estimate our revenue will be in the range of $60 million-$70 million. In Q1, our priority is to maintain a healthy cash position and de-risk our balance sheet.

We will allocate our capital carefully between power source investments and wafer supply for computing hash rate, and we will prepare to capture the next market recovery. This concludes our prepared remarks. Now we are open for questions.

(Operator Instructions) Ben Summers, BTIG.

Hey, good morning, and thanks for taking my question. It's good to hear about the strong progress in the supply chain efficiency. Kind of curious how the A16 mass production is progressing and kind of any updates around the timeline there?

I think you're asking about our new generation rigs, right?

Yeah.

Yeah. Right now, we are sending the A16 machines to our customers, and I think they are doing the testing phase. We are moving ahead with mass production preparations right now. And I think the mass production will be start after the Lunar New Year holiday. And we expect to begin volume ramp-up by the end of the first quarter. Currently, we don't have any issues or anything can block us. On the chip side, the chips are already in the mass production. And on the production side, our main focus now is refining the product at a system level. And also, you know, besides the air-cooled version, we have to.

We will have the liquid-cooled and the immersion-cooled models. So now we are working on this different models, so we can better match different customer deployment needs and site conditions. I hope this answered your question. Thank you.

No, awesome. That was super helpful. Then just kind of, I know you touched on it briefly, but just curious for a little bit more color on the difference in the margin profile between the Home Series and the A15, and kind of how you think this can potentially, you know, help keep margins strong moving forward?

I will take this question, Ben. I think, currently, we observed the market price has some influence from the Bitcoin price. So seems like the industrial machines profitability seems to be under pressure, but looks like the Home Series continued without serious competition in the market, so we can still maintain the good profitability. But in Q4, the delivery side, we prioritize the industrial orders because it's from the strategically important customers from North America. Looking forward, I think, we will continue to see Home Series play a more important role in our category to generate profit. I don't know if I answered your questions, Ben.

No, that was super helpful. And, thank you guys for the update.

Thank you, Ben.

Thank you.

Nick Giles, B. Riley Securities.

Good morning. This is William Chan speaking on behalf of Nick. Thank you for taking my question, and congratulations on the quarter. It was good to see your heat recovery proof of concept announcement in Canada in early January. I wonder, can you speak to the size of the TAM for this opportunity, ideally in megawatt terms? And as a follow-up, how scalable is this specific solution, and what are some other ways that you can expand your energy efficiency initiatives going forward? Thank you.

Hello. Morning. I think I fully understand the market's interest in the new energy and the ESG-related computing products. I think the core value for these objectives is transforming waste heat and concentrated energy into measurable, treatable computing power, and even for the cash flow. Yeah, but however, I'd like to be more candid. These opportunities are highly dependent on specific scenarios, such as resource availability, grid connection conditions, and even compliance pathways, and also the operational capacity.

I think the, you know, we have working on this for more than one year, so the scale of each individual projects typically ranges from a few megawatts to several tens megawatts. The true total addressable market largely comes from the number of these points. But we want to cautious against the overly optimistic calculations like, okay, we only have a few megawatts for each side, and there's thousands of points there, and so there's multi gigawatts business. We, again, that is too optimistic, because the business model is still relatively fragmented, and the pace of progress must be steadily.

So over the past year, we was started systematically screening potential sites for several POC projects. And we already have implemented some of them, collecting initial operational data. Not only the Canada one, there's many others. But moving forward, our focus will be on three key areas. First is the data and methodology standardization. The second is product productization and modularity. We aim to turn the POCs into replaceable modular solutions. And third is replication and expansion. This is the third phase. When we reach the third phase, then we will continue to expand similar projects faster. I hope I answered your question. Thank you.

Yep, that's very helpful. Thank you, and continued best of luck.

Thank you. We will take our next question. Your next question comes from the line of Mark Palmer from Benchmark. Please go ahead.

Yes, good morning. As you think about Canaan's manufacturing footprint from a long-term standpoint, what would that look like? And where would the company's US manufacturing place, you know, to adjust for the tariff environment, fit into that?

Yeah, I think over the last year, the external environment has been very dynamic. Trusts move back and forth. Compliance requirements become tighter in many markets, and it's very volatile. The big Bitcoin, in this context, competition is not only about the price and the efficiency, it's also about the compliance, comparability, discipline, and how fast you can adjust. So now the supply chain issue is combined with compliance. So, but we treat, you know, we treat compliance as a baseline, so we keep high standards across sales, delivery, and regional operations. With multiple policy changes last year, we did not take any meaningful surprise loss from policy swings.

This is not always the case in this industry. More particularly, some peers have a heavier fixed assets exposed in certain regions, and so the policy or the market changes quickly, their adjustment cost is higher. We have, you know, firstly, our self-mining is 100% outside China. And also we build multiple region production and assembly setup across mainland China, South Asia, Malaysia, and even in California, North America. So this really give us resilience and continuity continues to become region region become less predictable. So, you know, I think for your question, North America is our most important market.

Last year, we built thousands of machines from our US manufacturer facilities. This year, we will carefully review the whole supply chain and make it safer for US customers and expansion our US, maybe USA., products. Yeah. Thank you.

That's helpful color. Thank you.

Kevin Cassidy, Rosenblatt Securities.

Hi. Yeah, thanks for taking my question. I wonder, at what point, price, do your-- is the breakeven for your, customers for Bitcoin mining? I think it had been $90,000. Has that changed?

Thank you, Kevin. I think we have two lines for this, you know, breakeven point. One, including depreciation of the machines, we say it's all-in payback level. I think it's almost like a $100,000 to $110,000 range for Bitcoin price stay there. And, you know, the hash price should be, like, $55 per PH per day. Something between that, that's the all-in payback level. Another interesting metric to measure this is the marginal shutdown level, because we only consider the energy cost, the variable cost, when we start the operation, because the CapEx already a sunk cost already. So, in this kind of scenario, it's quite lower compared to the previous all-in payback level.

For different miners, of course, it's different. If we use our competitor's machine as a comparison, if the electricity cost is like 6 cents, and we use our competitor's S21+, and we see the shutdown price is like $50,000, and if it's S19 XP, it's $66,000. Then look back to ourselves, our mining operation, our average cost is like $0.043 globally. So our shutdown price for A15 Pro version is like $37,000. When Bitcoin price hits like $37,000, so we have to shut down the machine. But of course, in our mining sites, we do have some older generation machines, so it varies from, you know, like $40,000 to $50,000 to $60,000 in certain cases.

So, I think that's, that's the, that's the part. If we change that to the A16 series, it's a 12.8 J power efficiency, and the shutdown price is about $30,000, you know, for Bitcoin price. So I think this calculation is based on the latest hash price. It always change because of the network, the total network hash rate changes, and also the Bitcoin price changes. So I, I think in current stage we have already observed in December, early January, and early February, some of the operations in the network has been shut down, and the total hash rate moves back to like 900 EH from previously 1,100 EH.

So we do see a lot of needs in short term has not been released to the manufacturers. But in longer term, when the electricity has already been pre-prepared for mining, they will come back for asking for better machines, for the latest generation machines. That's something happened in the past cycles, no matter bear market or bull market. Kevin, I think this answers your question?

That was a great answer. Thank you. Yeah, very good.

Thank you, Kevin.

As you get more orders for the leading edge, then what is the foundry availability on the A16, and what's the cost difference for a wafer versus A15?

Yeah, I'll take this one. You know, since last year with our assessment of market cycles, we have maintained this pricing strategy with low stock levels. We secured, but we still secured critical foundry capacity and the supply chain resources in anticipation for a market recovery this year. Currently, global foundry capacity is indeed very, very tight, particularly for advanced nodes, which are seeing surging demand for AI-related sectors. But we secured our position earlier. So we maintain because we have long-term partnerships, we're utilizing rolling forecasts, prepayments, and collaborative ramp-up mechanisms.

So our access to wafers and the key components remains stronger than the industry average. What I can say is, yeah, industry average. So, and regarding the cost, we cannot disclose specific product. The unit cost for A16 faces upward pressure in wafers, packaging and certain system components compared to A15. I think this is for sure, you know, even the metal is rising price. So, our plan is to offset these costs through yield improvements, testing optimizations, and design more efficient systems. So, overall, what I can say is, we expect the unit cost increase for A16 to remain with a manageable range.

Ultimately, we measure competitiveness by our customers' lifecycle economics, including power efficiency, returns, stability, and delivery certainty. So, I think, if the market recovers, our cost and our performance can give you an opportunity to have a good ASP for at that time. Yeah. Thank you.

Great. Okay. Thank you.

Thank you. We will take our next question. Your next question comes from the line of Kevin Dede from H.C. Wainwright. Please go ahead.

Hi, NG and James. Thanks for having me on the call. A couple of things for you. One is just I know you spoke to strategic priorities, but I'd just like to understand the 1 GW facility objective and what that pipeline looks like. Maybe you could add some color there, please?

Yeah. Okay. Hello, good morning. Yeah, we will share more details when the time comes. But currently, we are quite confident in the gigawatt level power opportunities, which is based on our results from work at this stage. We already work on this for month for maybe close to one year, I think. Yeah. Second, yes, we believe our goal is to co-locate AI, HPC and be combined together. So we are talking. Our talking is high quality power resources. Yeah.

Okay. Thanks, NG. James, you mentioned, I think, cash outlay of $100 million for wafers and $89 million in operating costs, I think, in the fourth quarter. Can you offer more detail on the wafers you secured? And of the 14 EH sold, usually give us sort of an average price per terahash, and I was wondering if you could offer some color on that and whether or not that figure would include the Home Series.

Yeah. Thank you, Kevin. I think we start from the average selling price. I think the Q4 average selling price is $11.3, slightly lower than Q3. But I have explained a little bit on the margin side, just because our average selling price for the institutional miners in a big order usually is lower than the small orders for the retail miners. I think that's the case. And also, we prioritize the industrial miners in Q4 instead of the Home Series, even the margin side, Home Series is better. But we have to make sure our strategic partner, the client, feels satisfied to get our delivery on time. So we tried our best in Q4 and, you know, still a few batch delayed to the early January.

But we completed the most of the deliveries in Q4. I think that's very helpful to the client. But not helping our financials, it looks like the profitability part is not as good as we expected for Q4. But we streamlined the expenses as well. Just like I mentioned, the $38 million is the total expense for Q4, which is slightly lower than Q3, because we did some work in streamlining the organization. And I think the wafer supply side, the $100 million secured is the most likely the wafer, you know, delivered to the customers and also some of the inventories carried to Q1. It's ongoing. We still continue that trajectory in Q1, but with a smaller volume of payment to our wafer partner. I think that's something, some color I added to this question, Kevin.

Thank you very much, James and NG. I appreciate being on the call.

Thank you, Kevin.

Thank you.

Thank you. Once again, if you wish to ask a question, please press star one, one on your telephone. We will take the next question. The question comes from Kevin Dede from H.C. Wainwright. Please go ahead.

Hi again, gentlemen. I figured I'd hop on again, given the opportunity to do that. MG, can you talk a little bit about your product development? Understand the 12 J/TH target for the A16, but you also mentioned chip development that could push you down to maybe 5J/TH or 6 J/TH. Can you talk about that? And whether or not you see a product cycle shortening, and when you might think that latest generation chip might be in the market.

Yeah, I think it's a open, very open question. Yeah. Let me think about it. I think for, you know, for the A16 series, currently we achieved 12.8 J/TH for the A16XP, with manageable cost rise. So our target is to, when the market recovers, you know, currently because the deep dive for the Bitcoin price, so the whole market is some kind of freezing for a few weeks maybe. And after the market recovery, we can. The competition comes back, we can have a very competitive cost and performance to our competitors, and give benefits to our customers.

For the next generation, yes, we already moved to the next generation development for the chips. But you know, because yeah, you know, because it already at the subnano process node, I think the benefits from the process itself is very tight now. And also the cost for the manufacturer of the chips, it's rising a lot. We are trying different methods to further improve the energy efficiency.

But it looks like, after, I mean, after the, like, the 12 joules stage, when we comes to the sub-10 joules product, it's very, very hard to say that the manufacture cost is still manageable if we are using today's standard. We already observed that our competitors' products is they have to price very high because we know, we know the roughly cost for the system. You cannot sell at loss forever, right? So, currently, we, in, you know, in the many different internal meetings, we are, we are what we are-...

Continuing the discussion is, oh, if our target is the best power efficiency, then we maybe pay for like 2x or 3x the cost. How can we avoid this kind of situation? Because the most important part is to let the TCO for our customers. Yeah, so also we, you know, we also start the big scale infrastructure in the US So I think the in the operational side, we are not only the equipment provider, we also get involved the operations. Any pains our customer have previously will, we will react to ourselves. So we'll, we are thinking about this more and more carefully. Yeah.

In conclusion, I think the development for the new system will not accelerate, but also it will not delayed. It will just goes at the very natural process, progress. I think we will have new -- we're sure we will have new products this year. And also, you know, we will hope at that time, you know, the AI HPC will not relocate, will not allocate 100% of the semiconductor capacity. Yeah, and also, we don't have like the DRAM and HBM kind of memories. So sometimes we are at a very good position.

Still we can use the rapid or... You know, sometimes there are peak capacities released from the foundries. We can use this kind of capacity to get some one-time deals to fuel our inventory. So this is good. We are waiting for this kind of opportunities. Yeah. So, basically, I think the industry is not coming to the end. It's still going at a normal speed. Yeah, this is my personal view. Yeah. Thank you.

Okay. Okay, NG. Yeah, thank you for the detail there. Does Canaan have a self-mining target for 2026? Congratulations for reaching 10 EH. I know that was a target in 2025. I was wondering if you thought about and are willing to communicate where you hope to be at the end of this year?

I think we... Our priority is R&D and deliver to our customers first. And because the current, you know, the market situation, so we personally, I move the priority to allocate energy resources instead of just put more rigs on shelf. So, the infrastructure will give our ability to scale it up when the right window opens. So, currently, I think we don't have a fixed number for this year, but we have internal goals for electricity infrastructure. So, and after that, we if we, if it, the window opens, we will rapidly ramp up the hash rate.

I think controllable energy resources and the facilities will give us more opportunities to try different business models, and, you know, provide different kind of products to our customer. Yeah, I hope, you know, the, like the hash rate sales can come through to our mainstream in the maybe the next year. Yeah.

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.

Thank you for joining the call today, and we look forward to speaking with everyone throughout the quarter. Thanks.

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