Canaan Inc.

Ladies and gentlemen, thank you for standing by and welcome to Canaan Inc's fourth quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, we will have a question and answer session. Please note that this event is being recorded. Now, I'd like to hand the conference over to your speaker today, Gwynne Lauber.

investor relations for the company please go ahead gwen thank you operator hello everyone and welcome to our earnings conference call joining us today are chairman and ceo nangong jeng and our cfo jin james chang leo wong vice president of capital markets and corporate development and xi zhang Senior IR Manager will also be available during the question and answer session. Our CEO will start the call by providing an overview of the company and performance highlights for the quarter. Our CFO will then provide details on the company's operating and financial results for the period before we open up the call for your questions. Before we begin, I would like to refer you to our safe harbor statement in our earnings press release. Today's call will include forward-looking statements. These statements include, but are not limited to, our outlook for the company and statements that estimate or project future operating results and the performance of the company. These statements speak only as of today and the company assumes no obligation to revise any forward-looking statements that may be made in today's press release, call, or webcast. except as required by law. These statements do not guarantee future performance and are subject to risks, uncertainties, and assumptions. Please refer to the press release and the risk factors and documents we file with the Securities and Exchange Commission, including our most recent annual report on Form 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, we will discuss both GAAP financial measures and certain non-GAAP financial measures, which we believe are useful as supplemental measures of the company's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release, which is posted on the company's website. With that, I will now turn the call over to our Chairman and CEO, Nangong Zhang. Please go ahead.

Hello, everyone. This is NG, CEO of Canon.

Welcome to our earnings call. Together with our CFO James, we are calling from our Singapore headquarters to discuss our Q4 2025 business results and the latest updates with you. During the first quarter, Bitcoin prices expressed significant volatility. In early October, Bitcoin briefly broke above its previous all-time high, reaching approximately It then fell below $100K in mid-November and dropped to below $90K by the end of December. At the same time, the wave of new hashrate that entered the pipeline during the price surge in the third quarter came online, pushing total network hashrate to a record high. This puts strong pressures on miners' profit margins. Facing this highly volatile market, we managed our sales pace well at the beginning of Q4. We secured a large order from a major customer in North America and efficiently mobilized resources to support production and smooth delivery. At the same time, we steadily expanded our self-mining operations and explored diversified mining partnerships, signing several pilot projects. As a result, our total revenue for the fourth quarter reached $196 million, up 30.4% quarter-over-quarter and 121.1% year-over-year. This was our highest quarterly revenue in the past three years and exceeded the midpoint of our guidance range of $175 million to $205 million. We achieved a major breakthrough in mining machine sales in this quarter, benefiting from our continued focus on the North American market We secured a large-scale order of more than 50,000 A15 Pro models from a leading mining company. This milestone collaboration drove our strong sales performance and underscores the market's growing recognition of our product performance and delivery capability. To ensure high-quality delivery, our supply chain production and operation teams worked closely together to ensure smooth and high-quality execution. This resulted in an all-time high of 14.6x hash per second in computing power sold during the quarter, up 45.7% quarter-over-quarter, and 60.9% year-over-year. While average selling price declined slightly due to volume discounts for large scale of orders, the surge in sales volume drove product revenue to $165 million, up 39.1% quarter-over-quarter and 124.5% year-over-year. This marks our highest single quarter revenue in the past 13 quarters. We will continue creating value for customers through product upgrades and customized services to deepen our partnerships with global customers. And although the company focused most of its resources on rig sales in Q4, Our self-management operations continue to progress steadily under the principle of resources alignment and efficiency first. In Q4, we steadily expanded and optimized global development. At the end of the fourth quarter, total installed hash rate increased 8.6% quarter-over-quarter. to 9.91x hash per second, of which 7.7x hash per second was energized. We mined approximately 300 bitcoins during the quarter, further contributing to our cryptocurrency reserves. At the end of 2025, our crypto assets holding were 1,750 and 3,961 ETH. This holding reflects the combined contribution from our mining activities and ongoing DAT management strategies. In the current market environment, this crypto portfolio not only provides liquidity, but also offers potential upsides if crypto prices recover. We continue to explore innovative mining applications and promote deeper integration between computing and energy. In October, we partnered with a local energy infrastructure provider in Canada to convert flared natural gas into computing power. This project marks our initial step from utilizing standard energy toward broader participation in energy infrastructure. It demonstrates the value of high-performance computing within emerging energy systems and opens up more space and the long-term sustainability for expansion of our mining business. In R&D and supply chain management, we maintain our focus on product performance, driving technological upgrades in tandem with capacity optimization. Last October, we officially launched the A16XP, our flagship next-generation air-cooled model. It achieved breakthroughs across multiple performance metrics by delivering over 300 terahash per second per unit, with an industry-leading power efficiency of 12.8 GHz per terahash. This showcases our deep technical and R&D expertise in the design of high-performance ASIC chips. After we continue to advance our product generation upgrades, we work closely with our wafer foundry partners to optimize manufacturing processes. These efforts have led to higher yields and lower costs for our A15 series, allowing us to deliver more computing power from the same amount of wafers. On the supply chain front, our production footprint across Malaysia, the US, and mainland China allow us to remain compliant with flexibility adapting to increasingly complex global trade environment. During the mass delivery of the large-scale order this quarter, Our team's cross-manufacturing, quality control, and logistics worked in close coordination, successfully withstanding the due pressure of shipment volume and tight timelines. By early January 2026, the entire order had been fully delivered, demonstrating the resilience and execution strength of our supply chain. In summary, 2025 was a challenging year. We navigated a complex international trade environment while continuing to expand our business across multiple dimensions. For the full year, total revenue was $530 million, surging 96.7% year-over-year. We strengthened our presence in North America, partnered with leading customers, and increased total computing power sold by 40.7% EO a year to a record 36.5 X head per second. In terms of products, we achieved mass production of the upgraded A15 series, launched the next generation A16 series and expanded our home series into a multifunctional product line-up, significantly improving revenue growth and brand influence. Our mining business reached a key milestone in 2025, with full-year revenue exceeding $100 million for the first time. Global installed hash rate rose 82%, and the energized hash rate grew 61% year-over-year. We now operate nine mining projects globally, with total power capacity exceeding 250 megawatts. We also expanded into innovative energy scenario by exploring wind power, starlit gas, and computing-generated heat reuse. driving deeper integration of computing and energy. We completed the deployment of assembly and production capabilities across Malaysia, the US, and mainland China, building a flexible and resilient global delivering system. We also established our digital assets T3 management framework, enhancing our crypto reserve capacity and capital allocation flexibility to support our long-term development. After we entered 2026, the internal environment remained highly volatile. Shifts in macroequality and risk appetite are making digital assets prices and industry demand more cyclical and phase driven. We do not base our operations on short-term views of price movements. Instead, we focus on navigating cycles through controllable factors, including product competitiveness, delivery and operational capabilities, inventory and cash flow discipline, compliance, as well as lower cost and more scalable energy and infrastructure capabilities. This approach has enabled us to remain resilient and achieve growth in the complex environment of 2025. More importantly, we do not see Kenya's next stage as being defined merely as an equipment provider. or a single-load computing player. We have a clear long-term vision. Computing and energy infrastructure are becoming increasingly integrated. Bitcoin mining and AI HPC co-location may appear to be two different businesses on the surface, but they are highly complementary at the infrastructure level. They share electricity, facilities, power distribution, cooling systems, and human and technical resources for operations and maintenance. By leveraging different workload characteristics, we can improve power utilization efficiency and overall project economics. At the same time, These applications can interact with power grid more attractively. They can absorb energy when the power supply is suspended and reduce the load when the grid is constrained, ultimately contributing to a more resilient and dispatchable computing infrastructure. So in 2026, our strategy centers on two core pillars, with execution as our top priority, scaling proven models, streaming lying non-repeatable pilots, and laying the groundwork early for long-term capabilities. Our first track focuses on power and computing infrastructure. We are shifting our strategy from securing power resources from an optimistic asset-light approach to a more systematic upstream development path. To secure reliable and economic power resources and leverage our North American resources base built since 2022, we will prioritize applying for power directly rather than bidding for capacity with the existing third-party projects. We have made significant progress on a robust pipeline to secure direct power capacity in the US. We are confident of securing substantial load by the year end of 2026, potentially reaching the gigawatt scale. At the same time, we are exploring ways to integrate Bitcoin mining with AI HPC co-location This approach can improve returns on invested capital while supporting dynamic load management for the power grid and strengthening our existing positive relationships with grid operators. The development of power and infrastructure is not a spirit, but a long journey with steady gains. The process spans multiple stages, including site selection, land and grid interconnection assessments, negotiation with power partners, contract structing, engineering, construction, and commissioning. Each step requires careful and disciplined execution. Accordingly, our primary objective of 2026 is to establish a pipeline of accessible projects and clear development pathways. We do not intend to pursue one of large-scale capital overlay. Instead, we will move forward within a framework of capital discipline. we will leverage partnerships and project financing as key tools, relying on asset level cash flows and project level financing to support expansion. This approach limits unnecessary volatility in our overall financial position. This also means we will prioritize secure high-quality power resources that are well suited for AI HPC collocation. Second, in the consumer and small to medium sized business segments, we will take a more systematic approach to building our 2C SMB business in 2026. Last year, we saw strong potential on both the demand side and the gross margin structure for these products. But we also understand that success in the consumer market is hard. Users expect excellent product experience, stability, and attention to detail and service. And we must treat this market with complete respect. That's why in 2026, we will continue to improve our product line and launch new models. At the same time, we will rise our standards and take more cautious approach. Long-term product reputation matters. We will focus on stability, ease of use, noise control, and user experience as our top priorities. Also, we will continue to strengthen our product competitiveness, while we will also focus heavily on building out our channels, a key priority of growing our 2C and SMB business. Our product experience has shown that the consumer market, the core competitiveness comes not only from the product itself, but also from the stretching of our channels and the service system. In 2026, we will make systematic investments in this area. This includes partnerships with online platforms, expanding our offline distribution network, improving after-sales services and content operations, and building more efficient user engagement and communication mechanisms. Our message is clear. Even in areas while we are still catching up, we are committed to putting in real efforts and resources. And for areas that are key to long-term success, we will go all in to make sure the business line becomes more stable and a cycle-resistant revenue contributor. Lastly, I will share our view on the operating pace for 2026 and our preparations. From an operational standpoint, we expect 2026 to show clear stage-by-stage characteristics. Industry demand and pricing may remain under pressure during the first half of this year. Our focus will be on maintaining strong discipline in cash flow and inventory, strengthening product and delivery capabilities, and advancing key interactives in power and infrastructure early on. At the same time, we are preparing our supply chain and execution teams for potential demand recovery later in the year. If the industry presents a clear structural opportunity, we will be ready to act quickly with strong execution and a healthy cost structure to capture market share and grow efficiently. We believe that this strategy centered on execution and the long-term accountability building will allow Tenon to remain competitive within Bitcoin mining value chain and gradually become a trusted infrastructure, participate with the computing power and energy ecosystem. Our goal is to create more sustainable long-term value for our customers, partners, and shareholders. Before concluding, I would like to note that the outlook contains forward-looking statements. Actual results may vary due to changes in macroeconomic conditions, industry cycles, regulations, and market dynamics. We will continue to communicate with transparency and the response to market expansions through clear, verifiable execution progress. Given recent global macroeconomic uncertainties include ongoing monetary tightening involving geopolitical developments and heightened volatility in the digital asset market, We maintain a relatively cautious view about the market environment in the first quarter of 2026. After global miners have adopted a wait-and-see approach in response to the recent decline in Bitcoin prices, the sale of mining rigs are facing considerable challenges. We expect total revenue for the first quarter of 2026 to be in the range of 60 to 70 million US dollars. This outlook is based on current market conditions and operating patients. However, actual results may differ due to policy uncertainty and market volatility. This concludes my prepared remarks. Thank you, everyone. Now I will hand it to our CFO, James.

Thank you, NG, and good day, everyone. This is James, CFO of Canon. I'm pleased to share our Q4 financial performance with you. To begin my part, I would like to echo NG's perspective on the fourth quarter industry environment. It was a very volatile quarter for the Bitcoin price. Bitcoin reached a new high in October, hitting $126,000, before dropping below $100,000 in November and below $90,000 in December. During the quarter, network cash rate also reached historical highs, significantly impacting the profitability of miners. Fortunately, our operation was robust in Q4. We successfully secured large-scale orders from key clients in the North American market and globally, and our strong supply chain relationships ensured timely production and delivery. In our mining operation, we continued our deployment and seized opportunities for new pilot agreements. Overall, we delivered a solid quarterly results in Q4 despite the market dynamics. Let's take a close look at the details. First, I will highlight our strong top line results in the fourth quarter and for the full year of 2025. In Q4, we delivered $196 million in total revenue. up 30.4% sequentially and 121.1% year over year. Our total computing power sold also reached a record 14.6 exahash per second. This growth was primarily driven by the massive delivery of our A415 series. Our revenue increased consistently throughout every quarter in 2025. This trajectory peaked at a new quarterly high for Q4. Consequently, our full-year revenue reached $530 million, nearly doubling 2024 results. Within product revenue, our Avalon Home series also delivered exceptional growth in 2025, contributing approximately $25 million in revenue. Notably, our Q4 revenue mainly came from the North American market. Revenue from North American customers reached $125 million, accounting for over 75% of our total product sales. This demonstrates that top-tier institutional miners in North America continue to recognize Canaan as a primary long-term partner. Regarding our mining operations and the treasury strategy, we continued to scale our infrastructure while maintaining a robust asset base. By the end of Q4, our installed computing power reached nearly 10 exahash per second, up 7% from Q3. Our digital asset treasury also remains a core pillar of our financial strategy. As of December 31, 2025, we held 1,750 Bitcoins and 3,951 ETH. At year-end prices, these holdings were valued at approximately $166 million. While we managed through market fluctuations, This robust reserve provides a solid foundation for our balance sheet and long-term liquidity. Mining revenue in the full year of 2025 was $113.2 million compared to $44 million in the full year of 2024. The increase was mainly due to the increased computing power energized for mining, especially the expansion in the United States. On the operational front, we achieved notable gains in efficiency and supported our liquidity through disciplined capital management. Despite our business scaling up, our operating expenses in Q4 was $38 million, decreasing 6% quarter over quarter. This improvement reflects our efforts to streamline our organization and focus on core strategic projects. Our strong sales and financing activities have also strengthened our cash position. In Q4, we generated approximately $75 million in cash inflow from sales and received approximately $80 million from strategic straight equity financing and the brief utilization of our renewed ATM. This healthy liquidity founded our Q4 payments of $100 million to secure our wafer supply, and $89 million for production and operations. These investments ensure our goal flexible manufacturing footprint across Malaysia, the United States, and mainland China. Consequently, we ended the quarter with a cash balance of $81 million. This aligns with our commitment to strict cash flow discipline, allowing us to navigate market cycles without compromising our strategic roadmap. Reflecting our strong confidence in the company's financial position and the long-term shareholder value, we have already repurchased approximately 2.8 million ADSs for $2 million Under our $30 million stock repurchase program announced in December, we intend to continue executing this plan optimistically as market conditions allow, underscoring our firm belief in the company's prospects. Turning to our margins, we have taken a proactive approach to address market pressures and de-risk our balance sheet. In Q4, our gross margin was $14.6 million compared to $16.6 million in Q3. This compression was primarily due to three factors. First, we delivered several large-scale institutional orders. These orders are strategically essential for securing our long-term market share in North America. Bitcoin price softened in the latter half of the quarter. This trend weakened the market demand. This headwind lowered our average selling price. Last but not least, we prioritized the delivery of industrial machines to strategic customers instead of the Avalon Home series in Q4. Additionally, considering the severe Bitcoin price volatility in early 2026, we recorded the inventory write-downs of $13.9 million in Q4. These impairments are based on management's latest estimates and reflect our cautious expectations under current conditions. Below gross profit, the year-end dip in Bitcoin prices resulted in a $44 million non-cash fair value loss, another $15 million non-cash fair value loss was recorded for the conversion of the final batches of preferred shares. There will not be any fair value loss regarding preferred shares conversions for the next quarter. These non-cash items led to an adjusted EBITDA loss of $40.5 million. It is important to note that our cash position remains stable, providing us with sufficient liquidity to fund our operations and R&D plans. Furthermore, our ongoing expansion into the consumer and small and medium-sized business segments is expected to contribute to a more balanced and resilient margin profile over the long term. Finally, I want to outline our cautious yet resilient outlook. We are monitoring the very volatile Bitcoin price in the first two months of 2026. On February 5th, the Bitcoin price dropped to $60,000. Low Bitcoin price triggered machine shutdowns and operations closures for higher cost miners. Profitability of existing miners is also under pressure recently, including our own mining operations. Given the headwinds and uncertainties, we are taking a very prudent approach to provide our Q1 guidance. We estimate our revenue will be in the range of $60 million to $70 million. In Q1, our priority is to maintain a healthy cash position and de-risk our balance sheet. We will allocate our capital carefully between power source investment and wafer supply for computing hash rate. And we will prepare to capture the next market recovery. This concludes our prepared remarks. Now we are open for questions.

Thank you. We will now begin the question and answer session. As a courtesy to other investors and analysts who may wish to ask a question, please limit yourself to one question and one follow-up. If you have any additional questions after the Q&A session, the investor relations team will be available after the call. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. To ask a question, you will need to press star 1, 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1, 1 again. We will take our first question. The first question comes from Ben Summers from BTIG. Please go ahead.

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

I think you're asking about our new generation rigs, right? Yeah. Yeah. Right now, we are sending the A16 shipping machines to our customers and I think they are doing the testing phase. We are moving ahead with mass production preparations right now and I think the mass production will start after the Lunar New Year holiday. and we expect to begin volume ramp up by the end of the first quarter. Currently, we don't have any issues or anything can block us. On the chip side, the chips are already in the mass production. And on the production side, our main focus now is refining the product at the system level. And also, besides the error code version, we will have the liquid code and the emerging code models. So now we are working on these different models so we can better match different customer deployment needs and size conditions. I hope this answers your question. Thank you.

No, awesome. That was super helpful. Then just kind of, I know you touched on it briefly, but just curious for a little bit more color on the difference in the margin profile between the home series and the 815 and kind of how you think this can potentially, you know, help keep margins strong moving forward.

I will take this question, Ben.

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

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

Thank you, Ben. Thank you.

Thank you. We will take our next question. The question comes from Nick Giles from B Riley Securities. Please go ahead.

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

Hello. Morning. I think I fully understand the market's interest in the new energy and the ESG-related computing projects. I think the core value for these inductives is transforming wasted and concentrated energy into measurable, treatable, convenient power, and even for the cash flow. However, I'd like to be more candid. These opportunities are highly dependent on specific scenarios. such as resource availability, grid connection conditions, and even compliance pathways, and also the operational capacity. I think we have been working on this for more than one year, so the scale of each individual project typically ranges from a few megawatts to several tens of megawatts. The true total addressable market largely comes from the number of these points, but we want to caution against overly optimistic calculations like, okay, we have a few megawatts for each side and there's thousands of points there and so there's multi gigawatts business. We were against that. It's two mistakes because the business model is still relatively fragmented and the pace of progress must be steady. So over the past year, we started systematically screening potential sites for several POC projects. And we already have implemented some of them, collecting initial operational data. Not only the Canada one, there's many others. But moving forward, our focus will be on three key areas. First is the data and methodology standardization. The second is productization and modularity. Yeah, we aim to change POCs into replaceable modular solutions. And third is replication and expansion. This is the third phase. Yeah, I think when we reach the third phase, then we will continue to we will continue to expand similar projects faster. I hope I answered your question. Thank you.

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

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

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

Yeah, I think over the last year, the external environment has been very dynamic. Traps move back and forth. Compliance requirements become tighter in many markets, and it's very volatile. The Bitcoin in this context, competition is not only about the price and the efficiency. It's also about the compliance, compatibility, discipline, and how fast you can adjust. So now the supply chain issue is combined with compliance. But we treat complex as a baseline, so we keep high standards across sales, delivery, and regional operations. With multiple policy changes last year, we did not take any meaningful surprise loss from policy swings. This is not always the case in this industry. More particularly, some peers have heavier fixed assets exposed in certain regions, and so the policy or the market tends quickly, their adjustment cost is higher. We do, we have, you know, firstly, our self-mining is 100% outside China, and also we build a multiple region production and assembly set up across mainland China, South Asia, Malaysia, and even in California, North America. So this really gives us resilience and continues to become less predictable. So I think for your question, North America is our most important market. And last year we built thousands of machines from our U.S. manufacturer facilities. So this year we will carefully reveal the whole supply chain. and make it safer for U.S. customers and expansion our U.S., Mid-USA products. Yeah, thank you.

That's helpful, Keller. Thank you.

Thank you. We will take our next question. The question comes from Kevin Cassidy from Rosenblatt Securities. Please go ahead.

I wonder at what point is the break-even for your customers for Bitcoin mining? I think it had been $90,000. Has that changed?

Thank you, Kevin. I think we have two lines for this break-even point. One, including depreciation of the machines, we say it's an all-in payback level. I think it's almost like $100,000 to $110,000 range for Bitcoin price, stay there. And the hash price should be like $55 per pH per day, something between that. That's the all-in payback level. Another interesting metric to measure this is the marginal shutdown level because we only consider the energy cost, the variable cost when we start the operation because the capex already sunk cost already. In this kind of scenario, it's quite lower compared to the previous all-in payback level. For different miners, of course, it's different. If we use our competitor's machine as a comparison, if the electricity cost is like six cents and we use our competitors S21+, and we see the shutdown price is like 50,000. And if it's S19 XP, it's 66,000. And then look back to ourselves for our mining operation. Our average cost is like 4.3 cents globally. So our shutdown price for A15 Pro version is like $37,000. When Bitcoin price hits like $37,000, so we have to shut down the machine. But of course, in our mining sites, we do have some older generation machines. So it varies from like $40,000 to $50,000 to $60,000 in certain cases. So I think that's the part If we change that to the A16 series, it's a 12.8 joules power efficiency, and the shutdown price is about 30,000 for Bitcoin price. So I think that this calculation is based on the latest hash price. It will always change because of the network, the total network hash rate changes. and also the Bitcoin price changes. So I think in current stage, we have already observed in December, early January and early February, some of the operations in the network has been shut down. And the total hash rate moves back to like 900 extra hash from previously 1,100. So we do see a lot of needs. In short term has not been released to the manufacturers, but in longer term, when the electricity has already been prepared for mining, they will come back for asking for better machines, for the latest generation machines. That's something happened in the past cycles, no matter bear market or bull market. Kevin, I think this answers your question.

That was a great answer. Thank you. Yeah, very good. Thank you, Kevin. As you get more orders for the leading edge, what is the foundry availability on the A16, and what's the cost difference for a wafer versus A15?

Yeah, I'll do this one. Since last year, with our assignment of market cycles, we have maintained a decentralized unitary strategy with low stock levels, but we still secured critical foundry capacity and the supply chain resources in anticipation for market recovery this year. Currently, global fund rate capacity is indeed very tight, particularly for advanced nodes which are seeing surging demand for AI related sectors. But we secured our position earlier and maintain because we have long-term partnerships, we utilize rolling forecasts, prepayments, and collaborative wrap-up mechanisms, so our access to WIFRS and the key components remains stronger than the industry average. What I can say is, yeah, industry average. And regarding the cost, We cannot disclose a specific product. The unit cost for A16 faces upwards pressure in wafer packaging and certain system components compared to A15. I think this is for sure. Even the metal is rising price. Our plan is to offset these costs through yield improvements, testing optimizations, and design more efficient systems. Overall, what I can say is we expect the unit cost increase for A16 to remain with a manageable range. Ultimately, we measure competitiveness by our customers' lifecycle economics, including power efficiency, returns, stability, and delivery certainty. So I think if the market recovers, our cost and our performance can give you an opportunity to have a good ASP at that time. Yeah, thank you.

Okay, thank you.

Thank you. We will take our next question. Your next question comes from the line of Kev Didi from HC Wainwright. Please go ahead.

Hi, Angie. And James, thanks for having me on the call. A couple of things for you. One is just, I know you spoke to strategic priorities, but I just like to understand the one gigawatt facility objective and what that pipeline looks like. Maybe you could add some color there, please.

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

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

Yeah, thank you, Kevin. I think we start from the average selling price, I think a Q4 average selling price is $11.3, slightly lower than Q3, but I have explained a little bit on the margin side just because our average selling price for the institutional miners in a big order usually is lower than the small orders for the retail miners. I think that's the case. And also, we prioritize the industrial miners in Q4 instead of the home series. Even the margin side home series is better. But we have to make sure our strategical partner, the client, feels satisfied to get our delivery on time. So we tried our best in Q4. And still a few batch delayed to the early January, but we completed most of the deliveries in Q4. I think that's very helpful to the client, but not helping our financials. It looks like the profitability part is not as good as we expected for Q4. But we streamlined the expenses as well. Just like I mentioned, $38 million is the total expense for Q4, which is slightly lower than Q3 because we did some work in streamlining the organization. And I think the wafer supply side, the 100 million secured the most likely the wafer delivered to the customers and also some of the inventories carried to Q1. It's ongoing. We still continue that trajectory in Q1, but with a smaller volume of payment to our wafer partner. I think that's something, some color I added to this question. Kevin?

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

Thank you, Kevin. Thank you.

Thank you. Once again, if you wish to ask a question, please press star 1, 1 on your telephone. We will take the next question. The question comes from Kev Didi from HC Wainwright. Please go ahead.

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

Yeah, I think the It's an open question. I think for the A16 CRS, Currently, we achieved a 12-point address for the ASIC-NEXT-P with a manageable cost rise, so our target is to When the market recover, you know, currently because deep dive for the equivalent price, so the whole market is some kind of freezing for a few weeks maybe. And after the market recovery, we can, the competition comes back. We can have a very competitive cost and performance to our competitors. and give benefits to our customers. And for the next generation, yes, we already moved to the next generation development for the chips. But, you know, because, yeah, You know, because it's already at sub-nano process node, I think the benefits from the process itself is very tight now. And also the cost for the manufacture of the chips is rising a lot. We are trying different methods to further improve the energy efficiency, but it looks like after the 12 Joules stage, when it comes to the sub-10 Joules products, it's very hard to say that the manufacture cost is still manageable if we are using today's standard. We already observed that our competitors' products have to price very high because we know the roughly cost for the flow system. you cannot sell at a loss forever. Currently, in the many internal meetings, what we are continuing to discuss is if our target is the best power efficiency, then we maybe pay for twice or triple the cost. How can we avoid this kind of situation? Because the most important part is to let the TTO for our customers. Also, we also start the big scale infrastructure So I think in the operational side, we are not only the equipment provider. We also get involved with the operations. Any pains our customers have previously will react to ourselves. So we are thinking about this more and more carefully. So currently, I think, in conclusion, I think the development for the new system will not accelerate, but also it will not delay. It will just go at the very natural progress. I think we will have new, we're sure we will have new products this year. uh and uh uh yeah and also um you know the uh we hope at that time uh you know the aihpc will not relocate uh will not locate 100 of the the semiconductor capacity uh yeah and also we don't have like the dram and hbm kind of memories, so sometimes we are at a very good position. Still, we can use the rapid... Sometimes the peak capacity is released from the foundries. We can use this kind of capacity to get one-time deals to fill our inventory. This is good. We are waiting for this kind of opportunities. Basically, I think the industry is not coming to the end. It's still going at a normal speed. This is my personal view. Thank you.

Okay, okay, Angie. Yeah, thank you for the detail there. Does Kanaan have a stealth mining target for 2026? Congratulations for reaching 10x to hash. I know that was a target in 25. I was wondering if you thought about and are willing to communicate where you hope to be at the end of this year.

Uh...

I think our priority is R&D and deliver to our customers first. And because of the current market situation, personally, I move the priority to allocate energy resources instead of just put more rigs on shelf. So yeah, the infrastructure will give our ability to scale it up when the right window opens. Yeah, so currently I think I don't have a fixed number for this year, but we have internal goals for electricity infrastructure After that, if the window opens, we will rapidly ramp up the hash rate. I think controllable energy resources and the facilities will give us more opportunities to try different business models. to provide different kinds of products to our customers. I hope the half-rate sales can come true to our mainstream maybe next year.

Thank you. As there are no further questions now, I'd like to turn the call back over to the company for any closing remarks.

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

Thank you.

That concludes the call today.

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