Bitmain places urgent order with TSMC. How will the mining giant's IPO in the US go?

According to the supply chain, when TSMC's 7nm production capacity was in short supply, Bitmain once again placed an urgent order.

Bitmain has already booked 30,000 7nm chips in the third and fourth quarters from TSMC, the world's first manufacturer of mass-produced 7nm process. TSMC's 7nm process 12-inch wafers are expensive. According to previous rumors that TSMC's 7nm process 12-inch wafers cost nearly $10,000 each, 30,000 wafers means an order of about $300 million (about 2 billion RMB). Earlier rumors said that TSMC suffered losses from mining machine chips in 2018, so this order is different from the previous one, and may require Bitmain to pay a larger proportion of the deposit, or even pay the full amount before production can begin.

In April this year, Bitmain released a new Antminer "Antminer S17 Pro", which is equipped with chips produced by TSMC's 7nm process. Bitmain is also actively building up its AI field and was one of TSMC's top three customers in 2017.

It is understood that in order to respond to this batch of urgent 7nm orders, TSMC's senior executives in charge of 12-inch production recently made a special trip to Japan to finalize key semiconductor equipment and ensure that it can be delivered urgently, allowing TSMC to increase its 7nm production capacity by 10,000 wafers per month starting in November. It is expected that this will rapidly increase TSMC's contribution to 7nm revenue this year, which may be higher than the previously estimated 25% of full-year revenue.

Venture into the AI ​​chip blue ocean

When talking about Bitmain, “cryptocurrency company” is people’s first impression of it, and “mining tyrant” is a label it cannot get rid of.

In fact, Bitmain is an out-and-out computing chip company, and its products are mainly used in the two fields of blockchain and artificial intelligence. In the field of blockchain, its global market share of digital currency chips has reached 74.5%, which is an absolute leading position. High-performance chip design is the core competitiveness of Bitmain, which has the world's most advanced 7nm process design capabilities that only a few companies such as Huawei and Apple have mastered. Frost & Sullivan's 2017 revenue analysis shows that Bitmain is the second largest fabless chip design company in China and one of the top ten in the world.

In the second half of 2018, the mining industry entered a cold winter, and the government's strict supervision of virtual currencies made the situation even worse. Bitmain and other mining machine companies faced a sharp decline in their main business, and the "myth of making money" of cryptocurrency was shattered. In response, Bitmain was eager to get rid of the label of "mining tyrant" and hoped to transform into AI chips.

In recent years, Bitmain has been adopting the strategy of "digital currency" and "artificial intelligence" to walk on two legs at the same time. Based on the original mining machine business, Bitmain began to expand AI chips, including AI chips, boards, servers, and various hardware and software products and customer development platforms. The main directions of the layout are security, parks, smart cities, and the Internet.

It is understood that Bitmain's layout of artificial intelligence can be traced back to the end of 2015, but it was not until the launch of AI chips in 2017 that it became well known to the world. In the first half of 2017, Bitmain launched the AI ​​chip BM1680, which is a dedicated computing acceleration chip for deep learning applied to the cloud. It is the world's first publicly available dedicated chip for this application field. In March 2018, the second-generation cloud AI chip BM1682 was launched, which has a performance improvement of about 5 times compared with the first-generation product. At that time, in the tests of the leading Internet companies, the performance of some models exceeded that of mainstream products by 2 to 4 times. In July 2018, the first-generation terminal AI chip BM1880 focusing on deep learning reasoning for edge applications was successfully launched. In addition, various development and intelligent computing products based on these two chips were also released, including the Suanfeng intelligent server SA3, the embedded AI mini machine SE3 and the 3D face recognition intelligent terminal, as well as various development boards, AI modules, computing power sticks and other products.

The security field is an area where Bitmain focuses on layout. Xing Lianjun, vice president of Bitmain and president of AI business line, said that compared with machine vision companies and traditional engineering integrators, Bitmain's biggest advantage in entering the security field is its chip design capabilities. Currently, Bitmain has more than 2,500 employees, of which 45% are R&D personnel. In the early days of the AI+security era, most CV unicorns started with algorithms, but when it comes to products, solutions, and security scenarios, chips are always indispensable.

Regarding what changes Bitmain will bring to the security industry, Xing Lianjun said that it will rely on chip design capabilities to provide support for upper-level artificial intelligence algorithms, thereby promoting the overall development of the security industry. At present, the main customers in the field of AI+security include traditional leading security companies, algorithm manufacturers, application manufacturers, and integration manufacturers. At the China Mobile Global Partner Conference on December 7, Bitmain Technology and China Mobile Hangzhou Research Institute signed a memorandum of cooperation. Both parties stated that they will carry out long-term and close cooperation in the field of artificial intelligence, focusing on digital homes and quasi-homes, smart networks, smart security, smart tourism, smart inspections and other scenarios.

In addition, Bitmain is also actively exploring the "city brain", hoping to empower more industries with AI capabilities.

In January this year, Bitmain signed a memorandum of cooperation on the "City Brain" with Fuzhou City. Bitmain fully promoted the development of "Digital Fuzhou" by providing high-performance, low-power computing power. On May 7, Bitmain, Fujian Suanyu, and Minglu Technology Group reached a cooperation agreement to cooperate in AI application scenarios such as city brain and smart city in the fields of artificial intelligence and big data. On the 19th of the same month, Bitmain also signed a letter of intent for cooperation with Haidian District, Beijing, to accelerate the application of computing chip technology in multiple fields.

As AI chips are Bitmain’s main strategic direction, there is continuous good news.

Will the road to US IPO be smooth?

In addition to the launch of 7nm mining chips and the transformation to AI chips, Bitmain's IPO journey is also of concern.

In September 2018, Bitmain submitted a prospectus to the Hong Kong Stock Exchange. On March 26 this year, Bitmain announced that its IPO application had expired and suspended its listing plan, but it may restart it in the future. On June 22, Bloomberg reported that Bitmain plans to conduct its first public offering in the United States in July this year.

Last year, during the long bear market when the price of Bitcoin fell from its peak, Bitmain was caught in difficulties such as unsold mining machines, mine relocation, and internal personnel changes. Its co-founder Wu Jihan and the second largest shareholder Ge Yuesheng both resigned and left. Subsequently, Bitmain's IPO dream was shattered.

After Bitcoin and other cryptocurrencies entered a bull market again in 2019, Bitmain seemed to have regained its vitality. In April, Bitmain launched the second-generation 7nm mining machine S17. Once this mining machine was launched, it was sold out within 5 minutes. In June, AntPool, an ant mining pool under Bitmain, launched a new platform AntPool Labs, opening a new model for small-currency mining. It is understood that Bitmain has basically made up for the losses caused by the bear market last year in its main businesses such as mining farms, mining machines, and mining pools.

Bitmain, which is recovering, is also ready for another IPO. Unlike the high goal of raising $3 billion on the Hong Kong Stock Exchange, it plans to raise $300-500 million this time. Moreover, in order to motivate employees, a large-scale round of employee option contracts was signed at the end of June, and "almost all employees hold shares."

According to insiders, when Bitmain was sprinting for its Hong Kong IPO in the last round, those who received equity were all early employees of the company, but after the great turmoil at the end of last year and the beginning of this year, many key members who received options have already left the company. Therefore, this time the option incentive plan includes a wider range of people, in order to stabilize the new team members after the huge impact last year and do a good job in business during the bull market.

If Bitmain’s listing in the United States is successful, it will also mean the birth of the “first mining machine stock.”

But even for the "dark horse" in the field of chip design, the road to IPO is not easy. When Bitmain first applied for IPO, Wall Street broker Rosenblatt reported that in the context of the cryptocurrency bear market, Bitmain's revenue was too dependent on the mining machine business, and whether it could support a valuation of nearly 30 billion US dollars was a big question mark. Analysts at Zhongtai International also said that it would be more difficult to go public in the future. The qualification value of cryptocurrency mining machine companies is very consistent with the price of virtual currency. Due to the extremely large risks and volatility of virtual currency, exchanges will consider the business or assets of such companies to be quite high risk.

It is not clear whether the "listing suitability" problem that shut out Bitmain from the IPO in the United States will reappear. As early as January 2019, in response to the IPO of three mining machine manufacturers in Hong Kong, Hong Kong Stock Exchange CEO Li Xiaojia said in an interview: "For IPOs, the core principle of the Hong Kong Stock Exchange is listing suitability. Is the business model introduced by the proposed listed company to investors suitable for listing? For example, in the past, it made billions of dollars through business A, but suddenly said that it would do business B in the future, but there is no performance yet. Or the business model of B is better, then I think the business model of A that you used for listing is not sustainable. In addition, the supervision did not care before, but later the supervision began to care, then can you still do this business and make this money?" This is Bitmain's transformation from mining machine sales to AI chips.