TOKYO/HONG KONG -- Prices for bitcoin and its rivals may have been plunging through the first half of the year, but for BitMain Technologies Holding, the world's largest producer of the hardware used to create more virtual money, times were still good.
Beijing-based BitMain, which on Wednesday filed an application to list its stock in Hong Kong ending months of speculation about its intentions, recorded $2.85 billion in revenue for the first half of the year in its draft prospectus. That compared with revenue of $274.45 million for the same period last year.
"People are [still] getting into bitcoin mining at this moment because they believe the price will rise significantly in the future," said Matisyahu Greenspan, senior market analyst for financial trading platform eToro.
Although BitMain did not disclose how much it hopes to raise in its IPO, it reportedly is seeking billions of dollars. Its net profit rose to $742.72 million in the period ended June 30 from $82.97 million a year before.
"The sharp jump in revenue will be difficult to repeat considering the fact that the market has dropped significantly," said Zennon Kapron, founder of Shanghai-based financial technology research and consulting company Kapronasia.
Bitcoin has lost more than two-thirds of its value since peaking last December at close to $20,000 and there has been little sign of a halt to its slide.
Hints of the strains show below the company's headline revenue figures. Compare, for example, BitMain's official first-half figures for hardware sales, the source of 94.3% of its revenue, with its implied results for the second half of last year: On that basis, segment revenue was up 31.4% while gross profit slipped 0.2%.
BitMain's filing notes that the company took a $391.3 million write-down on the value of its inventories during the first half. It also took a $102.7 million write-off against the value of its cryptocurrency holdings, which it valued on its books at $886.93 million as of June 30. Many of its hardware customers pay in cryptocurrencies and BitMain itself also mines cryptocurrencies. Notably, a quarter of its hardware revenue related to cryptocurrencies other than bitcoin and spinoff Bitcoin Cash.
BitMain's first-half results may have been boosted by orders placed before bitcoin peaked in December. Kapron noted that the company did not break out separate results for the first and second quarters of 2018. BitMain only records sales as revenue after customers take delivery of their machines.
The operator of a bitcoin mining operation in western China told the Nikkei Asian Review that the wait for BitMain machines has shortened considerably in recent months. "But I don't plan to purchase any mining rigs this year," he said, referencing the fall in bitcoin prices.
BitMain's draft prospectus notes that there has been more volatility in cryptocurrency markets since June 30, which could require it to take more write-downs and lower prices on its hardware. Still the filing includes a projection from market research company Frost & Sullivan that industry hardware sales will rise this year to $5.8 billion from $3 billion last year, when BitMain had a market share of 74.5%.
Canaan Inc. and Ebang International Holding, the Chinese companies that are the next largest hardware producers after BitMain, each filed initial public offering applications in Hong Kong earlier this year, but neither has proceeded further with its share sale. While both generate more than 90% of their revenues from China, BitMain managed to get just over half its revenue from other countries last year.
In a sign of confidence in Britain's prospects amid the cryptocurrency markets' plunge, the company raised a combined $734.75 million in new funding from investors in June and August, the draft prospectus showed.
Among the latest investors were Palace Investments and Pavilion Capital Fund Holdings, which the filing noted are both beneficially owned by Singapore state investment fund Temasek Holdings. Temasek issued a statement on Aug. 30 after reports emerged of it investing in BitMain, calling that "false" news.
"Temasek is not an investor in BitMain, and has never had discussions with, or an investment in, BitMain," it said then.
Presented with Britain's filing, a Temasek spokesperson said Thursday that "Pavilion Capital is an investment company that operates independently of Temasek, but is owned by Temasek."
The company's filing said it intends to use the offering's proceeds for research and development and to expand production. Under new rules introduced earlier this year in Hong Kong, BitMain co-founders Zhan Ketuan and Wu Jihan will be able to enjoy extra voting rights compared with other shareholders.
Like Canaan and Ebang, BitMain is eager to reduce its dependence on the cryptocurrency market. All three have been focused on developing chips for artificial intelligence applications. Though BitMain began selling such chips late last year, receipts have yet to make much impact. AI hardware was grouped with revenue from repair services on BitMain's accounts as "other," a category that showed just $1.55 million in revenue in the first half.