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Sept.28 (NBD) -- Bitmain Technologies Ltd (Bitmain), the world's largest provider of ASIC-based crypto miners, filed for IPO Wednesday on the Hong Kong Stock Exchange. 

Net profit surges over past three years

Founded in China around five years ago by Jihan Wu and Micree Zhan, Bitmain is a dominant player in selling cryptocurrency-mining equipment, with a market share of 74.5 percent in China.

Bitmain has seen surging revenue over the past three years. According to its prospectus, the company's revenue increased from 137 million U.S. dollars in 2015 to 2.5 billion U.S. dollars in 2017 with a compound annual growth rate of 328.2 percent.  

In the first half of this year, Bitmain generated roughly 2.85 billion U.S. dollars in revenue, representing a nearly 10-fold increase from a year ago. Similarly, net profit for the period rose steeply to 742.7 million U.S. dollars from 83 million U.S. dollars.

But it is worth noting that 94.3 percent of revenue for the first six months of this year came from mining hardware sales, reflecting the firm's heavy dependence on mining hardware.

To supplement the mining hardware business, Bitmain offers customers custodian services through mining farms. As of June 30, 2018, the company had opened 11 mining farms in China with an aggregated capacity to store approximately 200,000 sets of mining hardware. In addition, it runs two Bitcoin mining pools, BTC.com and Antpool, currently the world's largest and second largest Bitcoin mining pools.

Challenges remain 

Despite surging revenue, gross margin of the company declined from 52 percent for 2015 to 36.2 percent for the first half of 2018, which drives Bitmain to seek new growth momentum.

According to its prospectus, money raised through IPO will be used to enhance R&D capabilities and expand the production output of AI ASIC chips and AI applications. As early as May this year, Bitmain CEO Jihan Wu said that 40 percent of the company's revenue is expected to come from its AI department in five years. But judging from the current status, it is still a long way to go.

Competition among miners heats up as the cryptocurrency market is growing larger. NBD noticed that Canaan Inc, Ebang International, and Japan's GMO are Bitmain's major rivals, and the first two have already filed for Hong Kong IPO not long ago.

Besides, following the magic surge last year, Bitcoin and other digital currencies experienced volatility in the first half of this year. Bitmain accordingly recorded 103 million U.S. dollars in impairment loss of cryptocurrencies for the six-month period. 

Expanding the supplier team represents another challenge for Bitmain. According to its prospectus, TSMC has been the miner's only third-party foundry partner. The value of the ICs it purchased from TSMC accounted for 44.8 percent, 58.5 percent, 58.6 percent and 59.2 percent, respectively, of the total procurement for 2015, 2016, 2017 and the first half of 2018. It is important for Bitmain to develop ties with other foundry service providers to ensure adequate product supply to meet customer demand. 

Email: tanyuhan@nbd.com.cn