Mining rig manufacturers from China, such as Bitmain, Canaan, and Ebang, are likely to be walloped by the tariffs imposed by the Trump administration on Chinese mining rigs.
End of Good Times
Chinese cryptocurrency mining equipment manufacturers, especially Bitmain, have had a dream run since 2016, riding on the growing demand for their equipment. In fact, the firm enjoyed a monopoly in the space until recent competition from local and other international players.
In what may signal troubled times ahead for companies like Bitmain, Canaan, and Ebang, new tariffs effective since August are going to hit these firms hard. The steep hike in duties from zero a few months back to 27.6% now is a result of the escalating trade war between the U.S. and China.
Earlier in June this year, the office of the United States Trade Representative categorized Bitmain’s mining hardware (called Antminer S9) as “electrical machinery apparatus,” which is subject to a 2.6 % tariff. Before June, the equipment was classified as “data processing machine.”
While this reclassification doesn’t sound too bad, the kicker is that the goods now fall under a category that will attract an additional 25% tariff effective since August, taking the total duty to 27.6% on new shipments to the United States. Basically, Bitmain enjoyed a zero percent tariff up until this new reclassification.
Declining Revenues
The new tariff is going to impact the revenues of Chinese manufacturers, especially Bitmain as it is the most exposed to the U.S. market. Bitmain’s international sales contributed 51 % and 51.8 % of its revenue in 2016 and 2017, respectively, according to its IPO application. The firm, however, did not provide a specific geographic breakdown.
On the contrary, Canaan and Ebang International reported that overseas sales contributed 8.5 % and 3.8 % to their total revenue in 2017, respectively. The net result of this imbalance between the various companies is that Canaan and Ebang International are far less affected by the new trade tariffs.
Bitmain, which is the largest manufacturer of ASIC (Application Specific Integrated Circuit) chips, is already seeing declining revenues due to stiff competition from competitors like GMO and Canaan, who are launching faster and more power-efficient chips and mining hardware.
In a research report published in August, Mark Li, senior analyst at Sanford C. Bernstein, said that Antminer S9, launched in 2016, accounted for over half of Bitmain’s USD$2.5 billion revenue in 2017.
Li, in an October report, shared that Bitmain’s revenues from sales of mining hardware fell to USD$850 million in the second quarter of this year, down by more than 50% from the USD$1.8 billion recorded in the first quarter. Total revenues were down to USD$950 million from USD$1.9 billion in the first quarter.
“We believe Q2 2018 marks the beginning of a very rapid deterioration at Bitmain,” Li mentioned in the report.
IPO Plans Impacted
The new tariffs will make Chinese equipment less competitive compared to rival products from other countries. These developments are going to dampen the interest in the IPO applications filed by the three Chinese mining firms on the Hong Kong Stock Exchange (HKEX).
In September, Bitmain filed for a listing to raise USD$3 billion. Canaan and Ebang International are reported to be looking to raise USD$400 million and USD$1 billion through their respective IPOs.
Bitmain has mentioned in its prospectus that its revenues are likely to be impacted by changes in tax structure “due to economic and political conditions.”
Unfavorable business conditions like a drop in demand, competition from other rivals, and now trade tariffs from the U.S. have plagued Bitmain since the beginning of this year. The firm, along with its other Chinese competitors, needs to brace for tough times ahead.
What, in your opinion, will be the impact of U.S. trade tariffs on the Chinese mining rig manufacturers and their planned IPOs? Let us know in the comments below.
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