管理層發言
Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc's First Quarter 2025 Earnings Conference Call. At this time all participants are in a listen-only mode. After the management 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, Ms. Gwyn Lauber, Investor Relations Director of 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 Jiang. 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 I begin, I would like to refer you to our Safe Harbor Statement and 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 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. And finally, please note that during the call, all dollar amounts refer to U.S. dollars. With that, I will now turn the call over to our Chairman and CEO, Nangeng Zhang. Please go ahead.
Thank you, Gwyn. Hello, everyone. This is NG, the CEO of Canaan. Thank you for joining our conference call. Our CFO James and I are pleased to share our first quarter 2025 results and the recent developments from our headquarters in Singapore. In the first quarter of 2025, the global bitcoin mining industry faced serious macroeconomic challenges. On February 1, the US President signed an order under the International Emergency Economic Powers Act, IEEPA, imposing a 10% tariff on goods imported from China. This tariff was raised to 20% in early March. Then in April, the US further announced a 10% universal tariff on imports from all countries, along with higher reciprocal tariffs, targeting selected nations with tariffs on Chinese goods reaching as high as 145%. In response, China imposed up to 125% tariffs on US goods and introduced non-tariff measures, including export controls. These developments caused major volatility in global markets.
As a result, the bitcoin price dropped sharply from about $104,000 at the end of January to $76,000 in early March, before slightly rebounding to around $85,000 in late March. Despite the sharp price swings, the total network hash rate rose from 795 exahash per second to 856 exahash per second. This combination of falling bitcoin price and the rising hash rate significantly compressed miners' profit margins. Entering the second quarter, the bitcoin price dropped again to $74,000 in early April but gradually recovered. As of today's earnings conference, the price has risen back above $100,000, gradually reflecting bitcoin's value as a safe-haven asset. We have seen clear signs of recovery in global demand for mining machines, except in the US market due to the 10% universal tariffs imposed by the US on imported goods, along with higher reciprocal tariffs on some countries. Both Canaan and our competitors now face at least a 10% extra duty when shipping mining machines made in Southeast Asia to the US.
Fast-changing policies have created a great deal of uncertainty and confusion in actual customs operations. In some cases, the effective tariff rate has been even higher than 10%, and the customs enforcement standards and clearance times have been impacted. Since the value of bitcoin is globally unified, this has led to higher mining costs and greater uncertainty for American miners compared to miners in other regions, which has significantly reduced demand for mining machines in the US. We have observed that many US-listed mining companies are adjusting their business models and accelerating their transformation towards AI and high-performance computing businesses. Amid the complex and rapidly changing market environment, our team still delivered solid operational performance. In the first quarter, we achieved total revenues of $82.8 million, exceeding our previous guidance of $75 million.
This represents a 136% year-over-year increase and demonstrates our strong execution and resilience across global markets. The first quarter of 2025 is traditionally a slow season. However, thanks to the continued large-scale delivery of our A15 series mining machines, we achieved 5.5 exahash per second in total computing power sold during the quarter, up 62.6% year-over-year, with sales revenue exceeding $58 million. This includes ongoing deliveries of large pre-sale orders to public mining companies, such as HIVE. With the new generation high-performance A15 models becoming the main driver of shipments, our average selling price per terahash significantly increased to $10.5 per terahash, representing a 30% sequential growth. In overseas markets outside of North America, we are seeing continued growth in demand from regions such as Asia, South America, and Africa. We have made tangible sales progress in these areas.
Our Avalon Home Series of mining machines for individual consumers also achieved encouraging progress in Q1. Following the launch of several new models in this quarter, we generated $1.3 million in sales revenue and delivered around 6,000 units. In spite of summer approaching in the Northern Hemisphere, leading to a gradual decline in indoor heating demand, our Avalon Home Series, which features the dual functionality of mining and home heating, still sells well. This was beyond our expectations. We have ramped up production to ensure timely delivery. As of May 18, 2025, we have sold a total of over 17,600 units year-to-date, with total order value reaching over $6.6 million. Our self-mining business delivered strong results this quarter, with a total of 259 bitcoins mined, up 39% quarter-over-quarter. This was mainly driven by the continued growth of our energized hash rate and the optimization of several project partnerships.
Our operational computing power increased from 4.75 exahash per second at the end of 2024 to 5.97 exahash per second by the end of March 2025. However, with higher average bitcoin prices during the quarter, our mining revenue reached a record high of over $24 million, marking a 59% sequential increase. Thanks to our competitive electricity cost of $4.2 per kilowatt hour, we maintained a solid mining gross margin of 31% in Q1. By the end of the quarter, the number of bitcoin owned by the company reached 1,408, setting a new record. We continue to steadily deploy more hash rate, and by the end of April, our total deployed computing power reached 8.15 exahash per second. Notably, in the US, we fully deployed 3 exahash per second across four projects. Alongside the mass production and delivery of our A15 series, we have continued to work closely with our foundry partners on technical optimization.
As a result, chip yield now exceeds 90%. Compared to the figures from last year, the overall machine performance of the A15 series has improved by 15%, while power consumption has been reduced by 10%, effectively lowering the cost per unit of computing power. We have also introduced more advanced products across various cooling technologies, including hydro and emergent cooling. One recent example is our new A1566 hydro cooling model, which delivers close to 500 terahashes per unit and better energy efficiency than the air-cooled machine, making it an outstanding product in the industry. Looking ahead, our next-generation A16 series has successfully completed takeout in the first quarter. The corresponding products will be officially launched after full machine testing, and they are expected to deliver a significant performance upgrade. On the production and logistical front, our diversified geographic deployment over the past few years, especially the establishment of manufacturing capacity in Southeast Asia, has helped cushion the impact of recent US tariff adjustments.
Starting at the end of Q1, we set up a pilot production line in the United States and successfully completed trial production. This means our US-based manufacturing process is now essentially up and running. While the current production cost in the US is relatively high, we believe that taking this step holds strategic value. It allows us to be closer to the US market and our customers, while also reducing supply chain risks. We are now actively exploring the possibility of building a larger scale manufacturing facility in the US and identifying ways to significantly lower production costs, aiming to make US-based manufacturing commercially viable. This quarter, we noted that we maintained stability in our operations, with key indicators showing further improvement. Supported by higher average selling prices and continued growth in our mining operations, we achieved positive gross profit for the first time since the bear market began nearly two years ago.
While focusing on R&D investment, we also continue to enforce aligned expense control in our daily operations. As a result, our general and administrative expenses decreased by 39% quarter-over-quarter. This has narrowed our operating loss by 32% quarter-over-quarter and by 45% year-over-year to $37.6 million. Although the bitcoin price declined by approximately 12% from the end of the previous quarter, leading to a fair value loss in our cryptocurrency assets of $16.3 million, we remain committed to our bitcoin holding strategy. We strongly believe in the long-term appreciation potential of the asset, and we are pleased to see that as of today, bitcoin has returned to about the $100,000 level. On the balance sheet side, with the large-scale production of our A15 series underway, we have started to build up some inventory of new products to ensure uninterrupted deliveries. At the end of March, the company maintained a healthy cash balance of approximately $100 million.
In addition, we took advantage of the price pullback in bitcoin during the first quarter to further strengthen our crypto holdings. We purchased 27.46 bitcoins at an average price of $83,600 per bitcoin. As of the end of April 2025, the total number of bitcoins held by the company reached 1,424. Looking ahead to the coming quarter of 2025, we are actively adjusting our focus across key markets and setting up our sales efforts. Currently, we have secured a solid pipeline of 815 orders with delivery booked into June. We are also continuously coordinating our production capacity between self-mining and fulfilling customer orders based on evolving market demand. However, the new series of US tariff measures introduced in the first quarter have brought considerable execution risks and uncertainties. Demand from North American customers remains under pressure with no clear sign of recovery. In the capital market, uncertainty has also impacted stock performance and fundraising activities for many US-listed mining companies.
Customers in the US have generally adopted a wait-and-see attitude towards orders. We have observed delays and adjustments in some orders currently under negotiation and in delivery schedules. Additionally, certain joint mining projects have faced increased costs due to import tariffs, which could delay the pace of hash rate deployment. Given the ongoing volatility in the global political and economic landscape, the company has decided to withdraw its previously issued full-year revenue guidance, as well as the mining hash rate deployment targets for the first half of 2025. Until there is greater clarity in the overall environment, we will focus on pivoting to respond to market fluctuations. To further insulate our business from the current uncertainty, we are actively shifting our self-mining strategy towards global expansion opportunities that align with our long-term growth objectives.
We are confident in our ability to identify and collaborate with experienced partners, both within and beyond North America, enabling us to scale efficiently and maintain operational excellence across diverse markets. Our track record of success outside the United States includes our operations in Ethiopia, where we recently reported an impressive average uptime of 98% during the first quarter and 95% uptime in April, despite minor power disruptions earlier in the month. These results reflect our team's ability to navigate local challenges while maintaining high performance and reliability. In the near term, the company is adopting a more cautious approach to expectations for the second quarter of 2025. We currently anticipate revenues of approximately $100 million for Q2. This forecast is based on the current market and operational conditions. However, given recent policy uncertainties and market volatility, actual results may differ from these expectations.
In response to recent market developments, including the US tariff measures impacting our share price, we believe that our current stock valuation is significantly below our company's intrinsic value and long-term growth potential. To address this disconnect and enhance shareholder value, we are actively evaluating a range of strategic initiatives, including a potential share-repurchase program. These initiatives are currently under review and may be subject to approval by our board of directors. Any implementation will be conducted in full compliance with all applicable laws and regulations. We will keep the market informed of any material developments through subsequent announcements. Amid a complex and rapidly evolving macro and industry environment, we remain focused on technology and product innovation, strengthening customer service, and advancing our global strategy as we prepare to address more opportunities and challenges ahead. This concludes my prepared remarks. Thank you, everyone. I will now turn the call over to our CFO, James. Thank you.
Thank you, NG. And good day, everyone. This is James, CFO of Canaan. I'm very glad to share our quarter one financial results with you today. As NG stated at the start of the call, in quarter one, especially in February and March, the bitcoin mining industry faced challenges as miners' profit margins were squeezed by bitcoin price volatility and the higher total network hash rate. Despite these volatile market conditions, we delivered solid performance results. Let me give a quick summary of our financial performance. First, driven by the growth in the computing power sold and average selling price, total revenue reached $82.8 million, exceeding our $75 million revenue guidance and up 136% year-over-year. Second, our mining operations grew steadily, fueled by the combined growth in the deployed mining capacity and average bitcoin price in the first quarter. Our mining revenue reached $24 million, up 132% year-over-year, with 259 bitcoins mined, up 33% year-over-year.
Next, due to product iteration and the mass delivery of the A15 series, our average selling price rose to $10.5 per terahash per second in the quarter, resulting in a return to gross profit for the first time in two years amid the bear market. Last but not least, our cash balance remained flat sequentially. We continued to manage cash prudently and streamline our expenses to ensure strategic items are prioritized. Turning to our profit and loss for the quarter, total revenue was $82.8 million, beating the guidance by $8 million. Mining revenue contributed $24 million, increasing 132% year-over-year. We mined 259 bitcoins in the quarter, a year-over-year increase of 33%. This increase was primarily driven by more computing power installed at our mining sites, which reached 6.6 exahash per second at the end of the quarter, increasing 22% from the end of last year. Now turning to product revenue, revenue from machine sales was $58.3 million, an increase of 149% year-over-year.
We delivered a total computing power sold of 5.5 million terahash per second, representing a year-over-year increase of 63%. The first quarter of each year is typically our seasonally lower quarter due to the impact of the New Year and the Lunar New Year holidays. However, the mass delivery of the A15 series in this quarter drove the major year-over-year growth in both mining machine sales revenue and computing power sold. More than 19,000 A15 mining rigs were delivered in quarter one, contributing $45 million to the mining machine sales revenue and 3.9 million terahash per second to the computing power sold. In addition, driven by the mass delivery of our A15 series, the average selling price, or ASP, rose to $10.5 per terahash per second, up 53% from $6.9 per terahash in the same quarter of 2024. Turning to the revenue from our Avalon Home Series, in quarter one, we delivered approximately 6,000 units of our Avalon Home products, contributing revenue of $1.3 million.
From the beginning of 2025 to date, we have already received orders for more than 17,600 units of Avalon Home products, with a total amount of $6.6 million. As I mentioned earlier, due to the product iteration upgrades and the higher A15 delivery volume, gross profit turned positive, reaching $0.6 million in the quarter, the first time since the start of market downturn two years ago. Turning to expenses, our operating expenses totaled approximately $38 million compared to $31 million in the same period of last year. Please note, $2.4 million of disposal gain on our self-mining rigs was recorded in the first quarter of last year, which correspondingly offset the overall operating expenses. Excluding this non-routine impact, the operating expenses increased by $5.7 million year-over-year, mainly due to increased staff costs and R&D expenditures, including the staff we added for the development of our consumer-level mining products and mining solutions.
By the end of this quarter, the price of bitcoin decreased to around $83,000 versus around $95,000 by the end of 2024. The decreased bitcoin price on the last day of the quarter resulted in an aggregate unrealized fair value loss on crypto assets of $16 million. Encouragingly, the recent appreciation of bitcoin price has reversed these unrealized losses. In total, we recognized an adjusted EBITDA loss of $38 million, narrowed by 47% year-over-year. In March 2025, we issued 100,000 Series A-1 preferred shares with gross proceeds of $100 million. Additionally, the third tranche of the Series A preferred shares issued in quarter three 2024 was still recognized as a convertible liability at fair value by the quarter end. This financing incurred an excess of fair value over proceeds received and fair value changes. This non-cash accounting treatment affected our Q1 bottom line total by $33 million.
To represent our performance more accurately and comparably, we excluded the impact of this accounting treatment from our non-GAAP measures. Turning to our balance sheet and cash flow, at the end of quarter one, we held cash of $97 million on our balance sheet, remaining stable compared to the end of quarter four. In quarter one, we generated $51 million in cash inflow from sales, received $21 million from secured loans, and $18 million from export VAT refunds, and we paid $88 million for production and operation. We also paid $144 million to secure our wafer supply, primarily funded by the proceeds of $100 million from preferred shares financing and $42 million from ATM financing. Now, turning to our bitcoin assets, bitcoins held as our own holdings increased in the quarter, reaching a record high of 1,408 bitcoins as of March 31. This is 115 coins more than our 1,293 coins at the end of the last quarter.
On March 31, 2025, the fair market value of our owned bitcoins totaled around $117 million, and our holdover gain was approximately $49 million higher than the original value of the bitcoins we gained from mining or other operations. With the bitcoin price rebounding to over $100,000, the current market value of these crypto assets stands at approximately $147 million. As of April 30, our total bitcoin holdings increased to 1,424, as already disclosed. Turning to fundraising, as mentioned earlier in March 2025, we closed the Series A-1 preferred shares financing with gross proceeds of $100 million. From the end of 2024 to February 19, 2025, we utilized the ATM for fundraising with net proceeds of $42.5 million. These financings have been reported in the previous quarterly release. After that, we have not conducted any fundraising. We have also mutually agreed with the investor to terminate the agreement for the second tranche of Series A-1 preferred shares for another $100 million, effective April 30, 2025.
As NG mentioned, the recent market dynamics, including US tariff hikes, have seriously impacted our stock price. We believe our current stock price is undervalued and disconnected from long-term growth potential. We are actively evaluating strategic initiatives, including a potential share repurchase program to enhance our shareholder value. We will promptly disclose relevant material developments in subsequent announcements. By the end of quarter one, 900 bitcoins were pledged for secured loans with an aggregate carrying value of $45 million, which we believe is at a reasonable interest level, and 100 bitcoins were transferred into a fixed-term product with a guaranteed minimum annual return. The secured loans enable additional liquidity, which we will use to fund our production expansion and operations. 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 bitcoins pledged or transferred into fixed-term products are recognized as cryptocurrency receivables on our balance sheet and the classification between current and non-current assets is consistent with the periods of corresponding secured loans or fixed-term products. Given the prevailing wait-and-see sentiment among North American customers and postponements in our mining project deployments caused by the significant uncertainties surrounding tariffs, we cautiously expect revenue for the second quarter to be approximately $100 million. This concludes our prepared remarks. We are now open for questions.
分析師問答
Thank you. We will now begin the question-and-answer session. We will take our first question. The first question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead.
Yes. Thanks for taking my question. Congratulations on the good results considering the market. I wonder, considering the market, if you could give a description of what happened with your ASP, what the equipment pricing trends were through the quarter as bitcoin prices went down. Do your ASPs per terahash come down with that or do they hold up? And if you can, can you give an idea of what to expect in the second quarter?
Yes. Thank you, Kevin. I think from an ASP perspective, in quarter one, we have already seen the ASP climbing up to $10.5. There are several reasons behind this increase. One reason is that the market sentiment in early quarter one, especially January and early February, was quite good. The demand was very strong. The second reason is that our A15 series received very positive feedback from early customers in quarter four, prompting many customers to place orders with us in quarter one. We had to adjust the urgency of these orders after some price increases that occurred during that time. We also still had some clearance on older generation products like A14 in quarter one, which kept the quarter one’s average price below $11, giving us room to continue developing our average selling price in quarter two. Even though market sentiment wasn't favorable in April, our locked contract sales prices in April and May still exceeded previous selling prices of the A15 series.
Additionally, we don't have significant A14 inventory in quarter two, which allows for the ASP to potentially improve in quarter two. While I don't have final figures for quarter two yet, I'm very optimistic about the development of our average selling price. However, looking at long-term expectations for quarters three and four, if US market demand remains under pressure while customers are still cautious about tariffs and policies, I cannot confidently predict the average selling price for those quarters. Currently, I would say that quarter two's average selling price looks promising. Does that answer your question, Kevin?
Yes. You made it very clear. Thank you, James. And maybe just a follow-up to that. A lot of bitcoin miners have employed a strategy to use their access to power for HPC or AI hosting. How is this changing your TAM for your equipment?
Hi Kevin, this is NG. I believe you are correct. Some customers have redirected their power towards emerging AI and HPC applications. However, in my view, this effort appears more like an experimental quick fix than a strategic solution to the underlying challenges. This is my personal view. Thank you.
Thank you. We will take our next question. Your next question comes from the line of Michael Donovan from HCW. Please go ahead.
Hi, NG and James. Thank you for taking my question. This is Michael Donovan on the call for Kevin Dede. Now, I understand you're not offering guidance for the full year for 2025, but can you add more clarity about expansion plans for self-mining?
Yes, before the US tariff policies were implemented, we had already shipped a batch of mining machines to the US for our self-mining. Our North American self-mining projects are still moving forward in quarters one and two. In April alone, we added over 1.5 exahash of new installed capacity through our partnerships with Luna Square and Mousen Hosting in Pennsylvania and Texas. With this addition, our total deployed global hash rate reached 8.15 exahash, with 6.2 exahash per second actively running. We managed to maintain a competitive all-in power cost of just $4.04 for operational hours across our manual operations, which shows the effectiveness of our focus on high-quality partnerships and our long-term global deployment strategy. Outside North America, our projects have shown strategic value. In Ethiopia, our joint mining operations have helped us avoid geopolitical and regulatory uncertainty while extending the equipment’s life cycle and leveraging low-cost, efficient local power.
In Q1, our local project achieved strong 98% machine uptime. Even with minor power disruptions in early April, our partner responded quickly, and uptime for the month still reached 95%, which is above the industry average. Looking ahead, we will continue to stay proactive globally, optimizing our partnership models and technical deployments. We are actively reviewing our options for scaling up existing projects and discussing new site developments. Thank you.
Thank you, NG. That's helpful. I want to follow up. I know it may be too early to tell, but has the 90-day tariff truce resulted in an increase in rig orders for May versus April?
Yes, I think regarding the tariff situation, the US raised import tariffs by at least 10% across most major economies, which affects US miners in two key ways. First, the tariffs add at least 10% to the cost of imported mining machines, impacting not just us but all our peers in the industry. Second, there are also tariffs on power-related infrastructure and other equipment needed to build mining farms. For us, these two impacts include higher import costs slowing down purchases from US customers and delays in our planned mining deployments due to increased import costs. Because bitcoin doesn't carry a 'made in' label, with bitcoin prices recently breaking through $100,000 again, slower deployment in the US has moderated global hash rate growth in Q2, creating opportunities for miners outside the US, especially where energy costs are favorable. We are actively using our global sales network to capture these opportunities and close more deals. Simultaneously, we have already built a solid mining presence outside the US and are now evaluating expansions and exploring new project partnerships beyond the US, allowing us the flexibility to allocate mining machines based on market conditions.
Yes, my perspective here, Michael, is that in April, market sentiment was quite poor. However, as bitcoin prices climbed back in May, sentiment improved. Nevertheless, the tariffs add a solid 10% to the cost burden, which is something miners have to bear, making US miners comparatively less competitive. While the situation remains uncertain, we will see how the next 90 days unfold regarding tariffs and their impact on countries like Malaysia and Thailand, and other Southeast Asian nations. Just my two cents.
I would like to add that current operational data suggests that we are roughly in the middle of Q2. The number of orders we have in non-US regions is equal to the volume of the entire Q1 non-US region orders. From a practical standpoint, sales in other regions are indeed linked to the recovery of the bitcoin price. However, in the US, we have not seen any improvement in sales. Thank you.
Thank you, Michael.
Thank you. We will take our next question. Your next question comes from the line of Mike Grondahl from Northland. Please go ahead.
Hey guys, thanks a lot. Could you give us some insight into what you would need to see? How much lead time do you need for orders for Q3 or Q4 to be better than Q2?
Sorry, are you asking about the machine lead times or machine sales? I think we started mass production of our A15 series in the second half of last year. During that time, most customers were suffering with lead times of about three to five months. However, we are currently building up some inventories. If you were to order today, our pipeline is expected to provide machines by June, which is about six to eight weeks lead time. It's much better now. For future lead times, it depends on demand and supply dynamics. If everything goes well, I think we can expect lead times to be between one and two months.
Got it. And in terms of CapEx for the rest of the year, what is a good range for your committed CapEx or growth CapEx for the rest of the year?
Mike, I can answer this question by addressing two aspects of spending. The first way relates to our wafer supply. This could be viewed both as an inventory and also as a part of our CapEx in the machine sales business. The other aspect pertains to our self-mining operations. In this area, the only CapEx we invest in the current business model is related to the machines themselves. Overall, all CapEx is tied to machines, wafer supplies, and wafer preparations. With this in mind, I can say that we already have a kind of inventory planned for Q2 and beyond. In Q1, for example, cash spending reached around $144 million for wafer supplies. I can tell you that in Q2, we will continue to invest in this area. So from a full-year perspective, the amount could exceed $400 million; however, it's contingent on market demand and supply. This is a rolling forecast process; we need to monitor market demand every six months, and manage our cash flow accordingly. While I don't have a precise number now, I am confident total CapEx spending in 2025 will exceed $400 million.
Thank you. We will take our next question. Your next question comes from the line of Bill Papanastasiou from KBW. Please go ahead.
Good morning, and thanks for taking my questions. Just a quick one for me, and apologies if it was already touched upon. Acknowledging that the tariff landscape has brought significant uncertainty, just curious as part of your evaluations with respect to ASIC manufacturing, is there any capacity to shift a portion of your manufacturing to the United States to limit the impact of heightened tariffs? What does management think the best option is here?
Yes, that's a challenging question.
Yes, I think we mentioned we started a small-scale trial production in the US since late Q1. The process works, but manufacturing in the US doesn't imply that everything from refining sand to building wafers, aluminum to heat sinks, and iron ore into machines will all be done in the US. Practically speaking, we found it extremely complicated to do proper tariff planning for all imported materials. We already manufacture PCBs and do the SMT sorting inside the US. However, the policy environment is changing almost daily, which is costly for operations. We have set an internal target to limit the overall cost increase of US-based production to no more than approximately 15% to 20% compared to manufacturing in Malaysia. We are working hard to reach that target, but our timeline remains uncertain until the tariff situation stabilizes.
Adding some context to this question, it's all about cost reductions and the economics of this issue. If demand does not rise significantly from the US, building a factory there will be challenging. However, if tariffs are resolved favorably in Southeast Asia, we may not need to establish manufacturing in the United States. It’s a dilemma that relies heavily on market demand and supply. If our customers require 'Made in USA' machines and our cost structure matches the criteria, then we should consider US manufacturing. But if US market demand is low, amortizing costs across units becomes even more challenging. So the future remains uncertain, but our supply chain team is supporting pilot runs, which have been successful. Ultimately, our decision will hinge on economic considerations.
Thank you. The next question comes from Nick Giles at B. Riley Securities. Please go ahead.
Thank you, operator. Hi, NG and James. Just wanted to go back to how you're thinking about site acquisitions, whether or not the tariff landscape is really increasing your desire to add more sites in the US and whether it's increasing your desire to pursue HPC or AI. Where do you stand there? Thank you very much.
Thank you, Nick. For now, with respect to all the sites we are involved in, we haven't seen major changes in energy prices. Conditions have remained quite stable. Looking ahead, I am quite optimistic that policy changes in the US may unlock more energy supplies in the future, which could improve the outlook for power availability over the long term.
Thank you. We will take our next question. Your next question comes from the line of Joe Flynn from Compass Point Research and Trading. Please go ahead.
Hi. Just based on the comment regarding the CapEx spend of $400 million for what ultimately breaks down to wafer costs, I was curious, with the uncertain macro environment and the wait-and-see sentiment from US customers who are securing strong pricing in exchange for higher volumes of wafers, have you looked at how you think about these relative to each other going forward? Because based on those numbers, it seems like you're still ultimately buying your allotment, which is akin to a take-or-pay or a written deposit.
I think you're asking about our supply chain strategy, right?
Yes. I'm just explaining that we continue to maintain strong and long-term partnerships with our wafer foundry partners. Currently, the supply of wafers is manageable. We have secured production capacity through prepayments. As I mentioned earlier, our current in-progress wafers are sufficient to support our production needs through Q3. Given the sales slowdown we anticipated at the beginning of the year, inventory could carry us to Q4 too. This is supported by our process optimization efforts, which allow us to derive more hash rate from a certain number of wafers. We are closely monitoring the market, and if US tariff policies stabilize, and if market expectations become clearer, there is potential for recovery in the US market. Should demand surge, we will certainly put in more orders with our foundry partners.
Thank you. As there are no further questions, I'd like to turn the call back to Gwyn Lauber for any closing remarks.
Thanks everyone for joining us today. If you have any further questions, please feel free to reach out to us with the contact information on our website. Thanks very much, everyone.
Thank you. That concludes the call today. Thank you everyone for attending. You may now disconnect.