The United States imposes a 25% tariff on Chinese mining machines, and the overseas market for mining machines will be hindered

Bitmain may face high new tariffs on its mining machines exported to the United States.

In June, the office of the United States Trade Representative classified Bitmain’s mining hardware Antminer S9 as “electrical machinery equipment” subject to a 2.6% tariff, according to the South China Morning Post. Previously, these goods were classified as “data processing machines.” The reclassification put mining equipment on a list of Chinese goods subject to an additional 25% tariff.

The tariff policy came into effect in August this year. Under the new tariff policy, Chinese cryptocurrency mining equipment manufacturers are currently facing a US export tariff of up to 27.6% , which is much higher than the previous zero tariff. This tariff will affect all Chinese cryptocurrency mining equipment manufacturers exporting to the United States. The South China Morning Post believes that the IPO plans of three Chinese mining machine companies, Bitmain, Canaan Creative and Ebang, will be affected by the new US tariff policy, among which Bitmain may be one of the companies most affected by the new tariff policy.

The prospectus released by Bitmain recently also states that Bitmain operates globally, and most of its revenue comes from overseas sales. According to the data in the prospectus, overseas sales revenue accounted for 65.3%, 51.0%, 51.8% and 62.8% of the total revenue in 2015, 2016, 2017 and the first six months of 2018, respectively.

The data in the prospectus did not provide sales information for specific regions, but it also mentioned that Bitmain's main customer groups are from China, Asia (other countries except China), the United States and European countries . At the same time, as of December 31, 2017, in terms of revenue, about 35.7% of Bitmain's overseas sales of mining machines came from North America.

In addition, the prospectus also clearly points out several possible risks related to overseas business, including the risk warning about tariffs:

Government policies or trade barriers that favor domestic companies in certain foreign markets, including export regulations, tariffs, taxes and other restrictions and levies… and related government policies or trade barriers could increase the prices of our products and make us less competitive in those countries.

According to reports, Canaan Creative and Ebang International's overseas sales accounted for 8.5% and 3.8% of their total revenues respectively in 2017. Compared with Canaan Creative and Ebang International, Bitmain's huge overseas sales volume is indeed not optimistic under the new tariff storm.

The Antminer S9, launched by Bitmain in 2016, accounted for more than half of the company’s $2.5 billion in revenue in 2017, Sanford C. Bernstein senior analyst Mark Li said in an August research note.

According to Bitmain's prospectus, mining machine sales are Bitmain's largest source of revenue, accounting for 94.3% of its revenue in the first half of 2018. As the mining enthusiasm in the cryptocurrency market has declined, the average selling price of the 1.87 million BTC/BCH mining machines sold by Bitmain in the first half of this year has dropped to $1,012. The price of other cryptocurrency mining machines has dropped from more than $1,400 to less than $1,000.

The data in the prospectus also revealed that Bitmain's gross profit margin has dropped significantly, from the initial 52% to 36% this year. In addition to the fluctuations in the market value of cryptocurrencies, the decline in the price of mining machines is also one of the main reasons for the sharp drop in gross profit margin.

It is still unknown who will bear the cost of the tariffs after the additional tariffs are imposed.

Mark Li believes that in addition to the pressure of new tariffs, Bitmain is also facing fierce competition in technology... After all, GMO and Canaan Creative are developing more advanced chips and mining hardware that are faster and more energy-efficient than Bitmain's Antminer S9.