Canaan Inc. (NASDAQ:CAN) Q4 2024 Earnings Conference Call March 25, 2025 8:00 AM ET

Company Participants

Gwyn Lauber - Investor Relations Director
Nangeng Zhang - Chairman and CEO
James Cheng - CFO
Leo Wang - VP of Capital Markets and Corporate Development

Conference Call Participants

Nick Giles - B. Riley Securities
Kevin Cassidy - Rosenblatt Securities
Kevin Dede - H.C. Wainwright
Bill Papanastasiou - KBW

Operator

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc.'s Fourth Quarter and Full Year of 2024 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 host today, Ms. . Gwyn Lauber, Investor Relations Director of the company.

Please go ahead, Gwen.

Gwyn Lauber

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, Jin "James" 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 or 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 20F for information on risks, uncertainties, and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call and webcast, we will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP financial measures, including reconciliation 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.

Nangeng Zhang

Hello everyone. This is NG, CEO of Canaan. Thank you for joining our call.

James, our CFO, and I are pleased to speak with you from our headquarters in Singapore and share our updates for the fourth quarter and the recent developments. In the fourth quarter of 2024, the trends of Bitcoin price and total network hash rate was relatively favourable for miners. Bitcoin price steadily rose from $61,000 at the beginning of the quarter to $93,000 at the end.

The total network hash rate also increased from 622 exahash per second to 842 exahash per second. That said, in Q4, Bitcoin price grew faster than the hash rate. We are seeing a typical electricity cost of $0.06% per kilowatt hour.

Miners using our A15 machines saw their growth margin rise from about 40% at the start of the quarter to as high as 60% by the end. This created a more profitable environment for mining and boosted miners' confidence. We fully leveraged this positive market trend and the push sales and the delivery of mining machines and to grow the energized hash rate for our mining operations.

We achieved approximately $89 million in total revenues this quarter, well above our guidance of $80 million. For the full year, we achieved almost $270 million in revenue, up 27.4% year-over-year. For mining machine sales, we focused on new product pre-sales.

The high performance A15 series officially entered mass product delivery in 2004, we sold 9.1% million tera hash per second of computing power, up 66% year-over-year, and up 24.7% quarter-over-quarter, reaching a record high in our company's history. This contributed $73 million to mining machine revenue, up 64% year-over-year, and making two-year quarterly high. In this quarter, we fulfilled large orders from North American public mining companies like Cipher, CleanSpark, and HIVE and received strong positive feedback.

For the full year of 2024, North America became our largest regional market, accounting for approximately 40% of mining machine sales, showing the success of our expansion in the region during the past years. The rising Bitcoin price also helps us clear prior generations inventory. In Q4, the prior generation products remain popular in regions with energy advantages like Southeast Asia and Africa.

To date, saleable inventory of traditional models like A16 and A14 has been mostly cleared and A15 has become our main product. This completes the upgrade of our inventory portfolio. Our first consumer product, the Nano 3 Mining Heater, continue to be welcomed by individual users around the world.

By year end, consumers from 80 countries around the global have ordered our products through our online shop. Since their launch, we received a total of 24,000 Nano orders, with more than 50% coming from customers in Europe and North America. This also helped increase our brand recognition in these regions.

In 2025, we launched several new Avalon Home products, including the Nano 3S, Avalon Mini 3, and Avalon Q. These new products are available on our website for pre-order with small batches being delivered in Q1. As of now, total orders for these new consumer grade products have reached 12,000 units, with total amount of over $5 million.

Some of these orders also come from distributor clients who have now established cooperation with us. Considering that the Northern Hemisphere will soon enter summer and the indoor heating demand will gradually decline, this level of pre-sale performance has greatly exceeded our expectations. It also shows that many individual customers are eager to try and participate in Bitcoin mining.

Our mining business also delivered a strong performance this quarter. We mined 186 Bitcoins, up 84% year-over-year. With higher online hash rates and stronger Bitcoin prices, our mining revenue reached $15.3% million, up 313% year-over-year.

We continued to take advantage of low electricity costs in Africa and expanded local mining capacity. By the end of 2024, our total installed mining hash rate reached 5.4% exahash per second, with 4.8% exahash per second energized. Our average all-in power cost remained at $0.04% per kilowatt hour.

With Bitcoin price trending up in Q4, our mining gross margin increased to 42%, much higher than the 22% in Q3. Our efficient mining operations also help grow our Bitcoin holdings. By the end of 2024, our owned Bitcoins on balance sheet reached 1,293, a new high.

The rising price of Bitcoin at quarter-end also resulted in a fair value gain to this asset. This gain shows the preliminary benefits of our mining operations as a long-term strategy and our decision to hold Bitcoins. As our mining business expands, we provide additional information to the capital market as is standard with other public miners.

Starting in January 2025, we began releasing monthly mining updates. By the end of February 2025, we announced that we had seven active joint mining projects worldwide. The 6.28% exahash installed and the 5.78% [indiscernible] exahash energized.

Our owned Bitcoin holdings had reached 1,355 by the end of February. As we previously announced, since Q1 2025, we have expanded to North American mining projects through upgraded partnerships. We are moving towards our mid 2025 goal of reaching 10 exahash per second deployed in North America and 15 exahash per second globally.

We expect our mining business to achieve a new high in revenue in the first quarter of 2025. Today, we are also pleased to announce that we recently signed new cooperation agreements with two partners to expand mining capacity sites in Pennsylvania and Texas. Once these two projects gradually go online in Q2 2025, we expect to increase our operated hash rate in North America to approximately 4.7% exahash per second.

We have already built a strong and experienced operations and a business development team in North America. And they are actively in discussions with several potential partners for joint mining. Based on our current observations, the cryptocurrency site resources in North America market still shows strong potential which is in line with our earlier strategic assessment.

The expansion of joint mining and hosted mining in North America has been progressing very smoothly. After manufacturing with miner research and development capabilities, we are increasingly welcomed by mining sites owners for joint mining ventures. The new U.S. administration is expected to ease regulations, provide more energy resources to the industry, and support Bitcoin mining at both the federal and state levels.

Recently, our key competitors, Crypto Affiliate Company has been added to the US entities list. We believe we will benefit from the growing tension and rising costs in the mining hardware supply chain. And that many mining sites owners will increasingly view Canaan as a preferred partner.

We also hope to reinvest more of the funds raised in US capital markets back to local projects, and gradually build ourselves into a company with a strong mining footprint in the United States. Both our mining machine sales and mining operations rely on continuous R&D efforts. In the fourth quarter, we successfully wrapped up mass production of A15 series.

Working closely with our foundry partners, we carried out ongoing process improvements to boost product performance and yield rate. Looking ahead, we expect to deliver more computing power using the same number of wafers, including more high-end A15 Pro models. In addition to our standard air-cooled miners, we continue to provide customized mining solutions based on clients' specific needs and their site conditions.

For example, in our previous collaboration with the public miner CleanSpark, we delivered 3,800 units of our A1566I Immersion Cooling Miners. These machines run stably on site, performed beyond the contract specifications, and received very positive feedback from the client. In 2024, although mining chips were generally not subject to US export control restrictions at the time, we continue to proactively manage our supply chain to prepare for potential regulatory changes in the future.

In January 2025, the US BIS issued new rules that suddenly imposed additional questions on the global semiconductor supply chain. Offshore assembly and testing vendors were now effectively limited to those on an approved white list, drastically narrowing available options overnight. Thanks to our early planning, we were able to swiftly transition A15 chip packaging to OSAT partners within the white list, minimizing delays in the manufacturing process caused by the new regulations.

Subsequently, through continued collaboration with our foundry partners to support license applications, we were informed this month that all our in-production wafers have received the necessary license to be released even to the OSATs without approved white list status. As a result, our choices of OSAT is largely no longer restricted. This put us in a strong position to scale up production and reduce costs more quickly in response to rising market demand.

It is the result of our longstanding commitment to compliance. We will continue to work to anticipate and mitigate the potential impacts of future policy changes. Additionally, we have completed R&D on our next generation A16 mining machines and finished the tape out process.

Once again, we are pushing the limits of manufacturing technology. Due to the advanced chip design of our products, the production is very complex and time consuming. But we continue to work closely with our foundry partners to bring the ultra-performance product to customers as soon as possible.

The standard IR code A16 is expected to reach nearly 300 terahash per second. As usual, we will release new products and send simple machines to customers after we finish the full system testing and obtain real-world data. In our consumer production product line, during the first quarter of 2025, we successfully launched several new additions to the Avalon Home series.

This includes the upgraded Nano 3S desktop mining heater, the Avalon Mini 3, a quiet home heater with integrated mining capabilities. And it's our own cue. Our first low noise home mining device that supports 110 volts and is compatible with major global voltage standards.

Through this portable, silent, aesthetically designed and functionally home-oriented consumer products, we aim to make Bitcoin mining more accessible to everyday users and in the future promote the concept of decentralization. We invite everyone to visit our official website to learn more about these products. On the operations side, we achieved significant positive changes in the fourth quarter, thanks to the large-scale delivery of our A15 products, strong growth in mining revenue, and continued cost optimization.

Our gross lost narrow sharply by 70.5% quarter-over-quarter to $6.4% million. At the same time, after excluding non-cash adjustments, such as fair value changes under prudent accounting treatment, we turned profitable at EBITDA level. In Q4, we achieved an adjusted EBITDA gain of $19.3% million.

This marks our first EBITDA profitability since the mining machines market downturn began two years ago. Looking into 2025, we will continue to push forward with the sale and mass delivery of our A15 series products. Thanks to their strong performance, the test bench of A15 products received high recognition from customers and others have been coming in actively.

Our delivery schedule is now booked into May and June for this year. Our key focus now is to work closely with our foundry partners to ramp up production capacity and steadily increase our delivery volume. We also aim to future improve computing power and yield rate through process optimization, which will enhance probability, product competitiveness, and customer satisfaction.

In addition, we are actively balancing the allocation of mining machines between customer orders and our mining operations. Based on real-time market dynamics, we achieve better synergy between the two business segments. The first quarter is traditionally a slow season.

We completed the first phase of our supply chain compliance adjustment, mostly during the Lunar New Year holiday. So the impact on the chip production cycle was kept within a limited range. However, starting in February, major changes in the global political and economic environment have caused significant Bitcoin price volatility.

This has negatively affected market sentiment, future expectations, and especially financing activities across the markets. Given these combined factors, we are maintaining a very cautious outlook for the first quarter of 2025. We expected Q1 revenue to be approximately $75 million.

We expected that in Q2, the production capacity ramps up and our mining project deployment move towards completion. Our performance will see a big improvement compared to Q1. We currently estimate total revenue for Q2 of 2025 to be in the range of $120 million to $150 million. We are maintaining our previously issued full year 2025 guidance with total annual revenue expected to be in the range of $900 million to $1.1% billion.

This outlook is based on the company's current market and operational conditions. However, given the recent market volatility and uncertainty about how long it may continue, actual results may differ. From Beijing to Singapore to Silicon Valley, from delivering the first ASIC miners to going public on NASDAQ and launching home series mining machines.

Canaan has been ahead on the path of decentralization. Looking back at the past year, we remain firmly committed to R&D and to delivering high quality, high performance and customized Bitcoin mining solutions. Our A15 series has been embraced by demanding customers by the North American market.

Our Avalon Home series, which combines Bitcoin mining and home use functionality, is designed to meet the needs of a diverse global customer base. We have continued to strengthen our global presence, winning orders from and building our strategic partners with leading publicly listed miners in North America, thus rising our brand awareness and the market share in the region. As a NASDAQ listed company, we are impressed by -- is surprised by America, empowered by America, and dedicated to America.

We have actively leveraged the strength of US capital markets to support our growth, and we are rapidly advancing heavy FX projects such as money operations in the US, which is now beginning to take shape. At the same time, we continue to push forward our global strategy. We are optimizing our strategy for R&D, supply chain, manufacturing and logistics.

We are exploring local production to adapt to the evolving compliance environment. We remain confident in the long-term potential of Bitcoin. We will stay focused on innovation, operational excellence, and reinforcing our role as an important player in the Bitcoin ecosystem.

This concludes my prepared remarks. Thank you everyone. I will now turn the call over to our CFO, James.

Thank you.

James Cheng

Thank you NG, and good day, everyone. This is James, CFO of Canaan. I'm very glad to share our Q4 financial results with you today.

As NG stated at the start of the call, in quarter four last year the trends of Bitcoin price and total network hash rate were relatively favorable for miners. We fully leveraged this positive market trend, leading to increased sales and the delivery of mining machines and to the growth in energized hash rates of our own mining operations. Let me give a quick summary of our financial performance for the fourth quarter.

First, the computing power sold reached 9.1% million terahash per second, breaking our previous record. Total revenue reached approximately $89 million, beating our guidance of $80 million and resulting in year-over-year growth of approximately 81%, as well as the highest quarterly revenue in the past two years. Secondly, through the increased deployment in our mining operations, our mining revenue reached $15.3% million in this quarter and increased approximately 313% year-over-year, exceeding the pre-harving level in 2024.

We mined 186 Bitcoins in this quarter, an increase of 84% year-over-year. As we've reported in our monthly production updates, in quarter one we continued the trajectory of accumulating more Bitcoins. In the end of February, our total Bitcoin holding reached 1,355.

We are steadily advancing towards our target of achieving 10 exahash per second in North America and 15 exahash per second globally by middle of 2025. As announced today, we further expanded our North American mining capacity by signing agreements with two new partners in Pennsylvania and Texas, which will add 4.7% exahash per second to our North American mining capacity. This will bring our global deployed mining capacity to have potential to grow to 11 exahash per second with 6 exahash per second in North America.

Next, we completed the upgrade cycle of the product portfolio of our mining machines and the A15 series is now our main sellable product, leading to $73 million of machine sales revenue. More than 17,000 units of the A15 series were delivered in quarter four, of which over 80% came from the large orders of public mining companies, including Cipher, CleanSpark, and HIVE. These results demonstrate that our North American focus, which began just over two years ago, is having a positive impact on our business.

On the consumer front, our first home series consumer product, the Avalon Nano 3, continued to gain adoption by individual users globally. In 2024, the total orders for Avalon Nano 3 reached approximately 24,000 units and contributed $2.7% million to the full-year revenue. At the beginning of 2025, our Avalon Home series was further expanded, and to date, the orders for the new products reached more than 12,000 units valued at $5 million.

Finally, thanks to the significant narrowing of gross loss and the upward Bitcoin price, we achieved a gain of quarterly adjusted EBITDA of $19 million for the first time since the start of market downturn two years ago. Additionally, our cash flow from production and operations turned positive, contributing $17 million in this quarter, strengthening our cash balance and allowing us to end the year with $96 million. Moving to our profit and loss for the quarter.

Total revenue was approximately $89 million. As I mentioned earlier, mining revenue contributed $15.3% million in Q4, an outstanding year-over-year increase of 313%. We mined 186 Bitcoins in the quarter, year-over-year increase of 84%.

This increase was primarily driven by more computing power installed for our mining business, which reached 5.4% exahash at the end of this quarter, resulting in a historical high. As announced today, we have recently expanded our North American mining footprint by 4.7% exahash per second through two new projects in Pennsylvania and Texas. When fully operational, these additions will bring our worldwide mining capacity to have the potential to grow to around 11 exahash per second with 6 exahash per second in North America.

We will continue to disclose operational progress in our monthly mining report. Now turning to product revenue. Revenue from machine sales was approximately $73 million, an increase of approximately 64% year-over-year.

We delivered a total computing power sold of 9.1% million terahertz per second, representing a year-over-year increase of 66% and marking a record high quarterly sales volume. The average selling price, or we say ASP, remains stable at $8.1% per terahash per second, compared to $8.2% per terahash per second in the same quarter of 2023. With the destocking of our A13 and A14 series nearly completed, we expect the average selling price to return to a more reasonable level in the first quarter of 2025.

More than 17,000 A15 mining rates were delivered in Q4, of which nearly 80% were delivered to the public mining companies in North America, including Cipher, CleanSpark, and HIVE. Turning to the revenue from our Avalon Home series, by end of 2024, we received orders for approximately 24,000 units of our nano products, reaching customers in 80 countries, and contributing revenue of approximately $2.7% million since their launch. Our newly launched Avalon Mini and Avalon Q have also attracted significant attention to this consumer product line.

To date, we have received orders for more than 12,000 units of this new Avalon Home product with a total amount of $5 million. For our mining machine costs, we accrued $13.6% million for inventory write-down in the quarter. With a successful clearance of prior generation product inventory, inventory's write-down decreased 76% year-over-year.

The non-cash write-down is made on the US GAAP rule impacting on our gross profit, but with no impact on our cash balance. Excluding the above write-down, our mining machine sales would have breakeven for this quarter. Leveraging the rising Bitcoin price and our efficient management of our mining operating cost, our direct mining margin improved to 42%.

Please note that direct mining margin is calculated by subtracting our mining operation cost for energy and hosting from our mining revenues, but without the depreciation of deployed machines. Demonstrating our robust top-line growth and our effective cost optimization measures, our gross loss for the fourth quarter was $6.4% million, a substantial reduction of 88% year-over-year. Turning to the expenses, our operating expenses totaled $49.3% million, increasing $10.1% million year-over-year.

This rise was primarily driven by our global business expansion and our risk mitigation activities, including staff costs, professional service fees, and R&D expenditures. We recorded $9.3% million for one-off expenses in the quarter, including share-based compensation cancellation, one-time R&D expenditures, and consulting fees. If this one-off expenses were excluded, operating expenses would have been $39.8% million, remaining stable year-over-year.

As mentioned in quarter one 2024, we chose to adopt the FASB new accounting rules on cryptocurrency assets on January 1st, 2024. These new rules allow cryptocurrencies to be carried at their fair market value. In the fourth quarter, the price of Bitcoin increased to around $95,000 at the year end of 2024 versus around $63.5000% on September 30, 2024, contributing to an aggregate gain on crypto assets of $39 million during this quarter.

All things above considered, our adjusted EBITDA was a gain of $19.3% million, mainly driven by the solid revenue growth and significant narrow growth loss, as well as the upward Bitcoin price. This is the first time we achieved a quarterly EBITDA profitability since quarter one 2023. In quarter four 2024, we recorded a valuation allowance against our deferred tax assets, as well as unrecognized tax benefit liability.

This follows the conservatism principle in accounting and resulted in a non-cash income tax expense of $85 million. When we generate profits in the future, this deferred tax assets can still be used to offset our income tax expenses. In the quarter, we issued 30,000 Series A1 preferred shares with a gross proceeds of $30 million. The third tranche of the Series A preferred shares issued in quarter three 2024 was still recognized as a convertible liability at fair value as of the year end.

This financing incurred an excess of fair value over proceeds received and the fair value changes. This non-cash accounting treatment hit our Q4 bottom line for total $4.8% million. In order to represent our performance more accurately and more comparably, we excluded the impact of this accounting treatment from our non-GAAP measures.

Turning to our balance sheet and the cash flow, at the end of quarter four, we held a cash of $96 million on our balance sheet, an increase of around 34% compared to the end of Q3. During the quarter, our cash flow from production and operations turned positive, generating $17 million. A cash outflow of $71 million for production and operation was offset by a cash inflow of $82 million from sales and $6 million from export VAT rebounds.

In quarter four, we received $30 million from our preferred shares financing, and we paid $22 million to secure our wafer supply. With stable cash flow and the force having completed, we have leveraged strategic financing tools to secure product capacity through prepayments. These activities will allow us to capitalize on the upcoming bull market, while preparing for long-term mining demand despite short-term volatility of Bitcoin price.

At the end of 2024, we entered into an ATM agreement. From the end of 2024 to February 19, 2035. We utilized the ATM for fundraising with net proceeds of $42.5% million at an average price of $2.08% per ADS.

We did not utilize the ATM after February 19, 2025. In early March, we closed the first tranche of new Series A1 preferred shares with net proceeds of $99.7% million. Total proceeds of approximately $145 million will be used to fund the expansion of our production scale and manufacturing or investing in our mining operation in North America.

At the end of the Q4, the aggregate balance of inventory and prepayments and other current assets was $185.5% million, a decline of $40.6% million compared to the end of Q3. This decline was driven by the clearance of prior generation product inventory and upgraded inventory composition. Now turning to our Bitcoin assets.

Bitcoin held as our own holding asset increased in this quarter reaching a record high of 1,293 bitcoins as of December 31st. This is 81 more than 12-12 at the end of last quarter. On December 31st to 2024, the fair market value of our owned bitcoins totaled around $123 million.

And our HODL strategy again was approximately $66 million higher than the original value of the Bitcoins that we gained from mining or other operations. As of February 28th our total Bitcoin holding increased to 1,355 as already disclosed. By the end of 2024, we pledged 600 Bitcoins for secured loans with an aggregate carrying value of $24 million, which we believe is a reasonable interest level.

The secured loans enable additional liquidity for our production, expansion and operations. We also transferred 100 bitcoins into a fixed-term product with a guaranteed minimum annual return. In the future, as part of our HODL strategy, we will explore more ways to increase capital liquidity through our owned crypto assets.

Please note that Bitcoin pledged or transferred into fixed term products are recognized as crypto currency receivables in our balance sheet. And the classification between current and non-current assets is consistent with the series of corresponding secured loans of fixed term products. In the first quarter of 2025, as CEO mentioned, we anticipate the revenue of $75 million due to the seasonality of our business confounded by the uncertain economic environment as well as the volatility of Bitcoin prices. Based on our current visibility on orders and wafer capacity, we anticipate revenue of $120 million to $150 million for the second quarter of 2025.

This concludes our prepared remarks. We are now open for questions.

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you.

We will now take our first question. This is from the line of Nick Giles from B. Riley Securities.

Please go ahead.

Nick Giles

Thank you, operator, and good morning, everyone. NG and team, congrats on the progress here more recently. My first question is, can you give us an update on any site acquisition activity or how you're approaching procuring power infrastructure in the current environment.

I'm curious if you've observed any changes or challenges here in 2025 as demand for power assets remains very strong. Thanks very much.

Nangeng Zhang

Good morning. Let me take questions. I think we have been actively looking for the price in energy -- energy-rich regions across North America.

Our cooperation model is very flexible. We can do fixed rate hosting, joint mining with profit sharing, or even acquire and build our own sites. Right now, the site resources we've secured are high, actually more than enough to support our current deployment plan, which target is 10 exahash in the first half of the year.

Since the shift our focus to the US from last year, we have seen more opportunities than we originally expected. And recently, due to some changes in US policy, it seems that new power generation capacity may become available in the near future, which would benefit us even more. We have also noticed that some institutional players in North America are thinking about allocating part of their power resources to AI or HPC hosting.

We truly hope those efforts succeed. AI and HPC business can bring more predictable cash flow for our customers which in turn could attract more institutional interest and rise the overall valuation of their operations, would help broader their business, including having more power and capital available then they can go to Bitcoin mining to consume their electricity. So, well, Bitcoin mining has much lower CapEx needs for -- than AI or HPC.

It consumes far more energy. On the other hand, AI and HPC offer very stable cash flows. That's why we believe these two sectors are actually complementary in the mid to long term.

I hope we can see both Bitcoin mining and AI applications go side by side going forward.

Nick Giles

Thank you very much, NG. My next question is just on overall demand. Obviously, your 2Q guidance is a nice improvement from the 1Q guidance, and so, I was wondering if you could give us a sense for what the second half could look like.

Is demand still improving. Your annual guidance does imply a stronger second half. So wondering if you could comment on how you're seeing demand today, and particularly on the pricing side, and how that translates to your annual guidance.

Nangeng Zhang

Okay, I will say something and maybe James will add some numbers to your question. I think look, at our actual sales performance in Q4. It was quite good.

We sold 9.1% million terahash of computing power. And it's already achieved our best. Yes, it's already achieved our best results, historical results.

And it included deliveries to North American listed companies like Cipher, CleanSpark, and HIVE. This reflects the success we have had in expanding our presence in the North American market. In fact, customer order volume at the end of the year is driven by the rise in Bitcoin price starting in November.

So yes, and other results, we clear our inventory, then we start to build our new inventory. Most of the wafers will come out, start from Q2 to Q3. The machines will come out majorly in Q2 and Q3.

So we can foresee that from Q2, the number will be much larger than Q1. For the second half, I think the key is about -- maybe about the Bitcoin price or the economic environment, which is really hard for us to predict today. But what I can say is, if the different price like, we don't need another historic high, maybe only like 100,000 is very significant for us to achieve our annual target.

James Cheng

Yes, I will add some color, Nick. I think from our guidance on Q1, it has already showed that in 2025 quarter one, the revenue is more than double of last year same quarter. So the demand was strong.

But as we both know, our orders and the revenue are highly correlated with Bitcoin prices. So recently, the turbulence in Bitcoin prices definitely has an impact on the speed of accumulating more contract orders and also the trajectory of the price increases. But it looks like our customer orders are still quite strong from the market.

And we also have our North American mining sites building up on target. That's why I think we are still confident to work on towards the full year target. And I think we are working on that and NG just shared the capacity perspective.

But demand perspective in quarter three or quarter four, we definitely need the macro environment turns to be more positive and the Bitcoin price climbs to new high and then at that time the demand could be strong and the price trajectory could be favorable to us and then we will try to maximize our revenue for the full year. But currently, I think we are still stick to the annual target, and we are working towards this target. Thank you, Nick.

Nick Giles

NG, James, thank you so much for all the comments and keep up the good work.

James Cheng

Thank you.

Nangeng Zhang

Thank you. Have a nice day.

Operator

Thank you. We'll now take our next question. This is from the line of Kevin Cassidy from Rosenblatt Securities.

Please go ahead.

Kevin Cassidy

Yes, thanks for taking my question. Congratulations also on the great progress. As we're talking about the full year revenue, can you say what your ASIC orders are with your foundry partner that may not be accounted for by customer orders just yet.

How far out are your orders with the foundry versus what's your backlog.

Nangeng Zhang

Thank you. Let me see. I think we are -- it just comes from bear markets.

We typically -- when in bear markets, we typically produce based on sales orders, which helps the company control the risks about the product inventory. Currently, we are just out of the bear markets and at the early stage of bull market for mining machines. And maybe this month we are in the turbulence of the bull market.

So we are gradually increasing our production, but we are not placing orders at maximum capacity. For the wafers, we must consider many factors, including, but not limited to our cost, how tight the supply chain is, and what is the miners' expected probability about hash price and the competitive landscape in the market for the next, say, six to 12 months. So for the commercial confidentiality reasons, we are not disclosing the exact number for how many wafers we read order at this time.

But appears that the machine production will continue through Q3. If the market demand doesn't increase significantly, it should be sufficient to meet both ourselves and our own mining operations. If demand increases, we still have time, so we have room to place additional orders to up a few tons of percentage of our capacity to fulfill the additional orders.

And if the demand weakens, we can increase our -- we can increase the allocate to the number to our oil mining operations. So I think for the current -- the capacity in the production line, it shouldn't be a major issue for the inventory.

Kevin Cassidy

Great, thanks. And you announced the A16 ASIC is 300 terahash per second. That's a great improvement.

Is there anything more than besides going to the better or lower process node, any architectural changes that you're making to the ASIC that's giving you this improvement.

Nangeng Zhang

Yeah, I think the ASIC indeed is using the very cutting edge technology like the GA technology and even smaller transistor sizes compared to A15. But it's not simply a straightforward part of our previous generation. I think if you look back into the history, every generation of our products has often achieved much more significant performance improvements.

And many different generations of our many machines is in one node process or even one node process upgrades or even using the same process. These performance gains are far greater than the percentage improvements indicated by wafer manufacturers during each process node iteration. This is because our designers are doing their innovations and many technical advancements are going.

And also, come to this phase, besides process and design, we are already at the DTCO, the Design Technology Co-organization stage to even increase the performance even more. Perhaps you can notice that each generation of our product shows about 20% to 30% of the improvements. But what I must say is, there isn't a magic number there to give us such a big improvement.

It's more likely that we have like 50, 80 individual technical improvements. Every contributes like less than 0.5% to lead to the -- then they collectively together to lead to the overall result. So as we move to advanced nodes, each new generation of technologies also needs a second time to improve.

And I think the performance of ASICs and the GPUs are the same. New process may also vary significantly. As a design company, we need to spend a lot of time in the early stages now to reduce these uncertainties and minimize the risks of the take-offs.

So maybe your question is maybe why there's many newcomers even when they try to have key technical talents from the industry, but still struggle to produce competitive products. Sorry for [indiscernible]. Thank you.

Kevin Cassidy

That's okay. No, thank you for the details. Just one other is, the 300 terahash per second is for traditional air-cooled.

Do you have an estimate of what it would be for immersion or just liquid-cooled.

Nangeng Zhang

Yes, I think for today, the immersion of the machines is more common in the market, not constrained to US market. Many different markets we see, we already observe this. So yes, I think maybe the reason is mining machines is now filled with much higher energy density and needs better energy efficiency.

This will bring more strict environment control needs. So liquid cooling can help to manage heat more effectively. So, another reason may be the mining hardware now must stay in use longer than old days.

So this makes it worthwhile to invest more in the site setup to improve the stability and uptime.

Kevin Cassidy

Okay. Thank you.

Operator

Thank you. We'll now take our next question. This is from the line of Kevin Dede from HCW.

Please go ahead.

Kevin Dede

Hi, NG. Hi, James. Thanks very much for having me on the call.

I think firstly, I'd just like to congratulate you on managing your supply line and deliveries to the US in light of the regulatory changes. I just thought that was very savvy of you gentlemen and the team. First, I was hoping you could offer a little more detail on how customer service has changed over the years.

I've been following you for a long time and I just like to understand what you think you're doing better now in the US in winning customers.

Nangeng Zhang

Hi, Kevin. Yes. I think in recent years as Bitcoin mining has become more global, the company has to provide maintenance and support service in a way that's closer to our customers.

In addition to our standard one year warranty for mining re-orders. We have now 26 service stations or spare parts, spare houses worldwide. This helps shorten the parts delivery cycle time and allows us to provide more time maintenance and parts replacement services for our customers.

We also adjust the location of our service points based on customer distribution to future improve service efficiency. Additionally, based on customer feedback, our products have shown strong operational stability. Part of that, particularly in very high temperature and fume environments where they continue to run effectively and very reliable.

And also the return of the repair is actually very low now, especially for the A15 models. We also offer onsite customized mining solutions based on customers' specific needs, such as Immersion liquid cooling and co-development for some systems. To just ensure that our products and services can closely align and adaptable to our customers' diverse needs.

We are receiving positive feedback. Thank you for recognizing our success, but we're still striving for improvement. We believe we can do even better.

And we aim to outperform two of our Chinese competitors in the following areas. First, we want to keep the failure rate of our products below the industry average, which comes from better design and high quality control during the production process. This approach particularly benefits for the high labor costs regions like the US.

Second, we aim to ensure our North American team and management in Singapore work as one cohesive unit. Myself, along with our CFO and R&D and the supply chain leaders are all committed to ensure high customer satisfaction. Finally, from the very beginning, we have been accompanied by the value of decentralization.

Therefore, we remain open to all customer requests, evaluating them only based on whether they make business sense and benefit the industry development. We don't want to limit customers' options proactively.

Kevin Dede

NG, can you talk a little bit about your North American customer pipeline and what the sales funnel looks like. The press release alluded to a new customer for the A15 XP. Can you talk about that a little bit and maybe give us a little more comfort regarding where or how you see the second half coming together.

Nangeng Zhang

I think last year we actively expanded into the North American market and secured several major clients like Cipher, HIVE, and CleanSpark. North American customers' orders now represent about 40% of our product sales revenue in full year 2024. In Q4, with the large scale delivery of A15 orders to North America, sales from the region reached a historical high.

I think in our -- and also we are in the second half of this year, ourselves, system now is increasing their global market courage. Last year, we had nearly 200 professional offline customers. And following we launched the Avalon Home series.

We attracted a large number of retail customers resulting in exceptional growth in customer numbers. And in 2024, the total number of customers who have placed orders reached about 2,000. Now the company continue to go globalize.

We have established special teams in regions such as North America and South Asia, creating multi-layered and comprehensive sales teams that reach customers worldwide. Currently, the number of new customers is substantial and they generally have strong competitive abilities and high purchasing intention. However, I think large orders from new customers typically take some time to settle down.

If the global political and economic situation along with the Bitcoin price influence by these factors continue to rise steadily, I think this process will certainly accelerate. So because in Q2 and Q3, our inventory -- I think with our capacity, I mean the machines will come out majorly in Q2 and Q3. I think the capacity issue happens especially in Q1 will be much more sensitive.

So I think personally we are -- I mean I'm quite optimistic in Q2 and Q3.

Kevin Dede

Last question from me NG. You mentioned that the A16 is now taped out. I'm wondering when you start placing orders for wafers for those machines.

Nangeng Zhang

We start to place orders back to -- I think, our first big batch is in October to November last year. And we have a second batch for those in December. So the wafers will continue to come out from Q1 this year, and we are in the ramp up stage. The major part will come out in Q2 and Q3.

Kevin Dede

Okay, thank you very much gentlemen.

Nangeng Zhang

Sorry, I think that your question is about A16.

Kevin Dede

Yes, A16, right.

Nangeng Zhang

Oh, sorry, sorry.

Kevin Dede

Yes. No, no. Okay.

Yes, I was just wondering about the tape out in orders.

Nangeng Zhang

Okay. A16, We will send the signal machines [indiscernible] to our customer in Q -- I think it is in Q3. So we will follow the risk run and our first mass production batch at a time.

This is our [Multiple Speakers].

Kevin Dede

Okay. Thanks, NG.

Nangeng Zhang

Thank you. Have a nice day.

Operator

Thank you. We'll now take our next question. This is from Joe Flynn from Compass Point Research and Trading.

Please go ahead.

Joe Flynn

Hi, thanks for the question. I was hoping if you could just touch on the ramp of A15 in a little more detail. I was curious how much of the initial capacity was ultimately covered by North Americans' upfront deposits.

And is there any balance on those going forward. And then ultimately, how do you -- what's ultimately the strategy of managing the liquidity risk given the six-monthly times. And what approaches are you ultimately going to continue pursuing from that end.

Nangeng Zhang

I think our A15 orders, we will -- I think we can deliver most of them in May. In May, yes. Yes, they are pre-order.

Joe Flynn

I'm sorry, I was talking about the upfront deposits from the North American customers as it relates to the securing fab capacity.

Nangeng Zhang

I think that mostly comes from North America, yes. And most of them is prepaid for about 50%, yes, down payment.

Joe Flynn

So then what's ultimately kind of the approach to funding the additional [indiscernible] six months out as those start to roll off. Given the kind of the liquidity risk of the lead times. I think the production for the machines is about -- I think today is about five months.

But usually our customers cannot wait for like five months from the first payment to receive the machines. So usually we will keep our pipeline in about like three to four months. That means our customers will pay the first down payment like 40%, 45%, 50% and then pay the other 50% before we ship the machines or they receive the machines in three or four months.

Yes.

Joe Flynn

Thanks. That's helpful. Most of my questions were asked, but maybe I'll go in different directions.

Just curious if there was any portion of the R&D still dedicated to the [indiscernible] A6, because there's a lot of reports out there that expect to see huge increased demand in China and I was wondering if there was anything came about of the partnership with Alibaba a few years ago and if you guys ultimately have the opportunity to compete that market at all.

Nangeng Zhang

Yes, I think it's a very sensitive question. I think given the tightening regulations environment, we've observed recently, especially from middle January. What I can say is, we are staying very, very cautious about developing anything related to AI now.

So, yes, so that's right. We are actively prepared for the future. Over the next two years, our plan is to invest more in building out our infrastructure in the US, what I already mentioned tonight. This is our -- I mean, personally, I think this is our way to hedging against the risk of missing out the AI phase in the next, maybe two or three years.

If one day AI and HBC becomes the mainstream computing use case, replacing mining, we want to be ready with the power and the size and all infrastructures and technologies there. We are already in place. We will be in a very strong position to pivot quickly into the new direction.

This is what I can say today. Thank you.

Joe Flynn

Thank you.

Operator

Thank you. We'll now take our next question. This is from the line of Bill Papanastasiou from KBW.

Please go ahead.

Bill Papanastasiou

Good morning, and thank you for taking my questions. NG, may you share some color on your progress of reaching self-mining hash rate growth targets and how this may impact external sales of hardware. Can internal production of mining equipment sustain self-mining growth targets while also ramping your external sales to grow market share.

Thank you.

Nangeng Zhang

Hi, hello. Yes, in the end of February this year, our company operations seven -- we have seven active mining partnership projects globally with a total deploy hash rate of more than 6 exahash, and the power is close to 6 exahash per second. And in Q1, we further expanded to existing North American mining projects through upgrades to increase their capacity.

So we are keeping our target as 10 exahash in North American in the first half of this year. In the first quarter, I think our North American self-mining business will be very close to 5 exahash per second, because I think for a country, the company's operation is very smoothly and we will build our mining, follow our cash flow and keep our cash flow remain healthy. I think the US government is implementing a series of politics supporting the cryptocurrency industry, the trend towards Bitcoin bull market remains intact despite short-term price fluctuations.

Since the advanced process capacity required by our industry must be deployed in advance. We have chosen using financing tools to fund raising to lock production capacity and fulfill our machine sales and self-mining. For how to expand our market share.

We are a non-significant Singapore company alongside these two private Chinese companies. Our market share is still small compared to our major main actors. So for us, we have opportunities and we must focus on how to gain market share, then we can have much higher revenue.

Historically, I think our major competitors have industry-leading products and early-mover advantages in North America. They spend their influence with global Chinese [Technical Difficulty].

Operator

Participants please do stand-by while the speaker reconnects. Participants, please continue to hold the line. We're just waiting for the speaker to rejoin.

Please continue to stand by. Please continue to stand by whilst we wait for the speaker to rejoin. Thank you.

Leo Wang

Hi, this is Leo Wang, Vice President of Capital Markets and Public Development. I think NG is offline because of technical difficulties. We are more than happy to take your questions after this.

I suggest we conclude this session.

Operator

Thank you. In that case, I will turn the call back over to the company for any closing remarks. If there were no further closing remarks, then we can conclude the call today.

Thank you everyone for attending and you may now disconnect.