Chinese mining rig maker Canaan says global expansion on track despite ‘crypto winter’

China-based Canaan Inc., one of the world’s biggest makers of computer equipment used in cryptocurrency mining, is pushing ahead with global expansion despite a slump in crypto prices and other challenges, senior vice president Edward Lu told Forkast in an interview. 

Speaking to Forkast from a Bitcoin mining conference in Miami on July 28, Lu said the U.S. is a focus this year and it plans to start its own crypto mining in the country, either with a partner or as a standalone.

Lu said the Nasdaq-listed company was prepared for the current so-called crypto winter and that its revenues are mostly driven by long-term partnerships with large, institutional clients, who are also “well-prepared” for market downturns.

The U.S. has seen an influx of Chinese miners since China intensified its crackdown on the industry in May 2021. Texas has been a popular destination, though recent heat waves forced many miners to halt operations as the state’s electrical grid neared capacity overload.

In the first quarter of this year, Canaan reported a surge in revenue growth to 1.36 billion yuan (US$213.9 million), up 236.7% year-on-year, despite what it called logistical issues and supply chain disruptions from the pandemic. Net income expanded to 441.6 million yuan (US$69.7 million) from 1.2 million yuan.

The company’s stock closed at US$3.81 in trading on Aug. 2, down 42% from this year’s high of US$6.52 on March 23.

This interview has been edited for language and brevity.

Timmy Shen: Could you tell us more about Canaan’s global expansion strategy?

Edward Lu: Canaan started focusing on global strategies from 2019 after our successful IPO on Nasdaq. Today our organizations are more international in terms of the establishment of offices and branches. We not only have headquarters in Beijing, we have also set up regional headquarters in Singapore and other business offices in the United States and Kazakhstan.

Shen: Canaan started a self-mining business in Kazakhstan last year. Do you plan to build up more self-mining operations in other regions as well?

Lu: Kazakhstan is the first country we stepped in as part of our global strategy. Canaan started as a high-tech ASIC miner manufacturer. We have all our expertise, resources in R&D (research and development) and experience in manufacturing. Mining is a new business for us, so we started prudently — slowly to learn from the experience in Kazakhstan. We are able, in fact, now to copy and paste that experience and business model to other countries.

We are doing pretty good in Kazakhstan in the scale of a startup, while we are quite successful in moving forward in the U.S. market now. You will probably soon see a similar type of performance in the U.S. market.

Shen: Could you share with us your plan for the U.S. market? What can we expect from Canaan for the rest of year when it comes to self-mining business or sales?

Lu: Our globalization strategy means that we are not only in China, we are in Kazakhstan, we are in European countries, we are in North America. 

When looking at the U.S. market, there are many interesting issues on the table. First of all, the U.S. is one of the most developed countries in terms of technologies and talent. The legal system is also very important and requires transparency as we are a public company. 

The U.S. market is very friendly in terms of policy towards the crypto mining business, so this is a key consideration for why we chose the U.S. market.

The infrastructure in the U.S. is very good and the electrical grid offers a mix of green energy, which is important for the environmental [aspect] of mining. We must go green if we want to be recognized by mainstream industries.

And, of course, the U.S. has talent in the form of skilled engineers and well-trained management staff.

We plan to build out our sales and marketing [capacity] in the country and you’ll see our services center built closer to our clients in various states.

Shen: Will the heat waves in Texas affect Canaan’s plan for the U.S. market?

Lu: Crypto mining can be seen as a user of energy and also like a reservoir of energy value. When there’s a [weather] challenge, the grid system will reduce power to crypto mining businesses in favor of regular manufacturers and daily life needs, but when the grid has surplus electricity, that can be sold to crypto miners, so it becomes an efficient and high-tech way of adding energy value.

Shen: What are the major challenges and opportunities for crypto miners and a rig maker like Canaan in a crypto winter like we’re experiencing now?

Lu: First, we were well-prepared. Nobody in our organization panicked. We knew this was going to happen. It’s a cycle issue.

Secondly, if you’re looking at the so-called crypto winter, it looks to me this time the cycle would probably be shorter than what we expected.

In terms of business, of course there’s an impact. Each time a downturn impacts the industry, there’s a clean [out]. But companies like Canaan that focus on R&D, solid production, solid business revenue balance and do not leverage financial products are going to stay.

This kind of downturn has especially damaged those using financial leverage.

At Canaan, we are used to [market downturns]. We are well prepared in terms of products, inventories and cash flow. We don’t see any challenge that’s out of our expectation.

At times like this, we don’t have to push ourselves to sell our rigs at a cheaper price. We can always use our inventory to do self-mining business, and when the price goes up, we can sell the machines. This is also one of the strategies we are using to handle cryptocurrency volatilities.

Shen: Canaan, along with other Chinese companies, have been put on U.S. SEC’s list of issuers under the Holding Foreign Companies Accountable Act, and may face delisting. Can you bring us up to date on that?

Lu: We have proactively responded to our inclusion on the SEC’s list on May 5, 2022, and we will continue to comply with all relevant laws and regulations in both China and the United States. We have seen progress in discussions between the Chinese and U.S. governments, and we hope that the two parties can reach an agreement in the near future regarding inspections and investigations of auditors’ work.

We will maintain and improve our strong corporate governance and compliance with local laws and regulations. We will continue to communicate with the capital markets and actively explore possible solutions to protect the interests of our stakeholders.

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