Canaan’s Prospectus Highlights Potential Risks and Re-emphasizes AI’s New Market Impact
Canaan Inc. has officially submitted the IPO prospectus to the securities and Exchange Commission (SEC) on October 28, which states that the company intends to raise $400 million through this IPO. If all goes well, Canaan will be listed on the Nasdaq Global Select Market under the symbol "CAN."
The prospectus submitted to the SEC is the third attempt of Canaan’s IPO journey. Canaan previously made attempts to become publicly listed in mainland China and Hong Kong. If it successfully lands in the US stock market, Canaan will become the first mining machine public company.
In the prospectus, Canaan stated in detail about its potential risks from its industry, geographical location, regulatory policies, etc., of which the most important risk came from its industry business. The company said a significant portion of its revenue is from Bitcoin mining machines. The AI market or other new application markets haven’t generated much revenue yet. In the short-run, the investment in AI market or other new application market will affect its revenue growth prospects and financial situation.
Some of the potential risks mentioned in the prospectus are as follows:
1)The company’s results of operations have been and are expected to continue to be negatively impacted by sharp Bitcoin price decreases.
2)The company derives a significant portion of its revenues from our Bitcoin mining machines. If the market for Bitcoin mining machines ceases to exist or diminishes significantly, Canaan’s business and results of operations would be materially harmed.
Another cryptocurrency displaces Bitcoin as the mainstream cryptocurrency, thereby causing Bitcoin to lose value or become worthless, which could adversely affect the sustainability of our business;
Bitcoin fails to gain wide market acceptance and fails to become a generally accepted medium of exchange in the global economy due to certain inherent limitations to cryptocurrencies
Over time, the reward for Bitcoin mining (in terms of the amount of Bitcoin awarded) will decline, which may reduce the incentive to mine Bitcoin. Specifically, the next halving event is designed to occur in 2020, and Bitcoins are expected to be fully mined out by the year 2140. Therefore, Bitcoin mining machines may become less productive as the available rewards for Bitcoin mining decrease.
3)If the company fails to succeed in the AI market or other new application markets it seeks to penetrate into, its revenues, growth prospects and financial condition could be materially and adversely affected.
4)A substantial majority of Canaan’s revenues are generated from sales to customers in the PRC. Any adverse development in the regulatory environment in the PRC could have a negative impact on its business.
5)Changes in the Bitcoin algorithm or the mining mechanism may materially and adversely affect our business and results of operations.
6)Substantial increases in the supply of mining machines connected to the Bitcoin network would lead to an increase in network capacity, which in turn would increase mining difficulty. This development would negatively affect the economic returns of Bitcoin mining activities, which would decrease the demand for and/or pricing of our products.
7)We may be unable to make the substantial research and development investments that are required to remain competitive in our business.
8)Our Bitcoin mining machine business mainly depends on supplies from a single third-party foundry, and any failure to obtain sufficient foundry capacity from this foundry would significantly delay the shipment of our products. TSMC has been our major third-party foundry partner for our Bitcoin mining machine business.
9)Bitcoin exchanges and wallets, and to a lesser extent, the Bitcoin network itself, may suffer from hacking and fraud risks, which may adversely erode user confidence in Bitcoin which would decrease the demand for our Bitcoin mining machines.
10)If any person, institution or a pool of them acting in concert obtains control of more than 50% of the processing power active on the Bitcoin network, such person, institution or a pool of them could prevent new transactions from gaining confirmations, halt payments between users, and reverse previously completed transactions, which would erode user confidence in Bitcoin.
11)The administrators of the Bitcoin network’s source code could propose amendments to the Bitcoin network’s protocols and software that, if accepted and authorized by the Bitcoin network’s community, could adversely affect our business, results of operations and financial condition.
12)The acceptance of Bitcoin network software patches or upgrades by a significant, but not overwhelming, percentage of the users and miners in the Bitcoin network could result in a “fork” in the blockchain, resulting in the operation of two separate networks that cannot be merged. The existence of forked blockchains could erode user confidence in Bitcoin and could adversely impact our business, results of operations and financial condition.
13)Power shortages, labor disputes and other factors may result in constraints on our production activities.
14)Our assembly plant is located on property whose owner has not obtained the approval of relevant authorities, and we may be ordered to relocate from that property.
15)Changes in international trade policies and international barriers to trade may have an adverse effect on our business and expansion plans.