Samsung is late to the party: Producing Bitcoin mining chips to explore new profit points

Canadian media The Bell quoted an anonymous Samsung manager as saying that Samsung Electronics, commissioned by Chinese customers, began producing chips for Bitcoin mining machines this month.

This means that virtual currency mining chips may become Samsung's latest source of profit, and the competition between the foundry giant and international rivals such as Taiwan's TSMC will become more intense.

Samsung completed the ASIC semiconductor chip foundry project for mining machines last year. But in fact, the giant has already been late.

Wall Street Journal previously mentioned that TSMC had already been involved in the foundry of virtual currency mining machine chips two years ago. The WeChat public account "Understanding the New Third Board" said that Canaan Creative's revenue in 2015 was 55.31 million, and the fees paid to TSMC were as high as 58.12 million, which exceeded the total revenue; in 2016, the revenue was 316 million yuan, and the payment to TSMC was 186 million yuan, accounting for 58% of the total revenue. In 2017, it is estimated that about 500 million yuan was paid to TSMC.

According to existing information, the world's top three digital currency mining machine manufacturers are all in China, namely Bitmain's Antminer, Canaan Creative's Avalon, and Ebang Technology's Ebit.

Mining machine profits are amazing

The popularity of encrypted digital currencies has driven the mining machine industry to take off.

Hangzhou Canaan Creative, one of the three largest (Bitcoin) mining machine chip manufacturers in China, submitted an application for listing on the New Third Board in August last year. Its prospectus revealed a glimpse of the high profits in the mining machine industry.

According to the prospectus, as of the end of April 2017, Canaan Creative has sold about 160,000 Avalon series mining machines, with a global market share of 22%. Almost all of its revenue comes from mining machine sales, with a net profit of 2.24 million in 2015 and 32.69 million in January-April 2017. Last year, sales exceeded 1.2 billion and profits exceeded 300 million. This means that profits have increased 125 times in two years. Surprisingly, such high revenue was achieved with "only 4 sales staff."

The mining chip foundry industry chain has also become active. Last year and the year before, this business gradually became one of TSMC's main sources of income.

Bloomberg News said that the Bitcoin craze has contributed as much to TSMC as the new iPhone. This year, Bitmain alone has placed orders for 100,000 mining chips, and other virtual currency companies have also expanded their chip production, making TSMC's first quarter revenue not slow despite the off-season.

TSMC's fourth-quarter report released in the middle of this month showed that its net profit for the quarter was NT$99.29 billion (approximately US$3.36 billion), approaching the historical peak of NT$100.2 billion set in the fourth quarter of 2016, and significantly exceeding market expectations of NT$97.23 billion.

Behind the good performance, in addition to the contribution from old customer Apple's iPhone, TSMC's Chief Financial Officer and spokesperson He Limei said that the continued demand for virtual cryptocurrency mining computing also brought revenue growth to the company.

Samsung seeks breakthrough

Wall Street Journal mentioned earlier this month that Samsung is looking for new profit growth points as chip industry profits may have reached their peak.

Samsung's earnings forecast released earlier this month showed that the company expects its revenue in the fourth quarter of last year to increase by 63.8% year-on-year. Although Samsung expects its revenue to hit a new record high, this increase is lower than market expectations.

Morgan Stanley said in a research report last November that the chip industry is close to reaching its peak due to falling prices for flash memory chips.

Samsung, which is busy seeking transformation, has set its sights on autonomous driving and the Internet of Things, hoping to drive performance growth.