Bitmain’s profits were mainly from selling cryptocurrency mining hardware. The demand for this hardware increased last year as Bitcoin price increased.
Bernstein Research has released a report saying Bitmain made $3 billion to $4 billion in profits in 2017. The benefits are from selling Bitcoin mining hardware as well as from the Bitmain’s mining operations.
The research firm says Bitmain controls about 70 to 80 percent of the Bitcoin mining hardware markets. However, Bitmain’s Antpool and BTC.com mining pools contribute just over 40 percent of the computing power on the network servers maintaining and securing Bitcoin’s distributed transaction ledger.
Most of the Bitmain’s profits came from selling mining hardware. Additionally, the hardware price increased as the price of Bitcoin raised last year. This is even as the demand of the Bitcoin mining hardware increased as Bitcoin price increased. Bitcoin price reached $20,000 last year on December 17 according to CoinMarketCap data.
However, the report says the price adjustment was shrewd given that even as the price of one Bitmain’s AntMiner S9 reached near $5,000, production cost was the same for the company.
The research firm based the profit calculation on conservative estimates of gross margin of 75 percent and operating margin of 65 percent. Furthermore, the profit compares reasonably to Nvidia‘s $3 billion during the same period.
Many people mining Bitcoins prefer to use mining pools instead of individual miner hardware. Mining pools, which are alliances of server operators mining together and sharing rewards, prove to be more profitable. The operators also get a steady return from the operation.
Bitmain collects fees from operators who join their mining pools.
The company pioneered the creation of the Asics for crypto mining. Last year, it announced interest to create chips for artificial intelligence.
The report says that the fall in Bitcoin price may not so far guarantee Bitmain profits. However, the company is cautioned against “massive cash position” effect according to the report from Bernstein.
The report says,
“In the year 2018, Bitmain will likely lead the cryptocurrency asic industry and migrate some of its chips to 10nm and the most advanced 7nm,” the report said. “That will make the company one of the top five users of TSMC’s 7nm in 2018, with demand comparable with Qualcomm’s, HiSilicon’s, or AMD’s.”