Driven by AI demand, Kioxia’s Q3 revenue rose 30.8% quarter-on-quarter, but net profit fell over 60% year-on-year; profit guidance below expectations | Earnings Report Insights

On November 13, Kioxia, the main storage supplier for Apple’s iPhone, released its financial report for Q2 of fiscal year 2025. The report showed that, driven by AI demand, the company achieved revenue of 448.3 billion yen, a quarter-on-quarter increase of 30.8%, but a year-on-year decline of 6.8%. Profitability remained under pressure, with net profit for the quarter at 40.7 billion yen, a year-on-year decline of more than 60%, mainly due to the increased share of low-margin smart device business. Key data from the financial report: - Revenue: 448.3 billion yen, up 30.8% quarter-on-quarter - Non-GAAP operating profit: 87.2 billion yen, with a profit margin of 19.4%, up 6 percentage points quarter-on-quarter - Positive free cash flow for the seventh consecutive quarter: 41.3 billion yen - Net debt-to-equity ratio dropped to 107% The company’s guidance was also below market expectations. Specifically, the company forecasts revenue for Q3 of fiscal year 2025 at 500–550 billion yen, a record high, while market expectations are 530 billion yen; however, the Non-GAAP operating profit guidance is 100–140 billion yen, lower than the market’s expectation of 141 billion yen and buyers’ expectations of over 150 billion yen. Despite short-term profits missing expectations, the market remains optimistic about the long-term outlook for AI-driven storage demand. Since the beginning of the year, the company’s stock price has risen by over 56%. Product Structure Adjustment Impacts Short-term Profitability In the second quarter, smart device revenue share rose to 35%, up 99% quarter-on-quarter, mainly benefiting from seasonal demand for smartphones and a transition to eighth-generation BiCS flash memory technology. SSD and storage business accounted for 55% of revenue, with data center/enterprise business contributing about 60% and PC and other businesses 40%. The rapid growth of the smart device business, while boosting overall revenue, dragged down the company’s overall profitability due to its relatively low profit margin. Some hyperscale cloud service customers requested a switch from SSD products to NAND chip supply, further affecting product mix and average selling price. Company management expects the product mix will shift toward SSD business in Q4 and Q1, and profitability is expected to improve accordingly. The company will maintain a balanced allocation between server SSDs and PC/smartphone business. AI Demand Drives Continued Tight Supply in the Industry Kioxia confirmed that the NAND flash supply shortage will persist. It’s expected that market bit growth rate in 2025 will reach mid double-digit percentages, and, with supply constraints, will reach high double-digit percentages in 2026. AI-driven demand growth mainly comes from three sources: accelerated replacement of traditional servers, surging demand for SSDs for AI inference workloads, and additional demand for higher-capacity QLC SSDs due to NL-HDD shortages. Inventory has normalized in the smartphone and PC sectors, and the growth trend is ongoing. Accelerated Commercialization of Eighth-Gen Technology Expands AI Market Presence Kioxia’s three major initiatives for fiscal year 2026 include: promoting the eighth-generation BiCS technology to capture AI demand, mass-producing AI-specific products such as the 245TB QLC SSD, and ensuring bit growth at least keeps pace with the market. Construction of the company’s main production facilities is complete, with equipment installation planned for next year. Capital expenditures will remain prudent, chiefly invested in eighth-generation and tenth-generation BiCS technology. Eighth-generation technology is expected to become the core product from the start of fiscal year 2026; new products, including the 245TB QLC SSD and tenth-generation BiCS technology, will be gradually brought to market. Regarding high-bandwidth memory (HBM) technology, the company stated it will continue to evaluate opportunities but hasn’t committed investment yet, currently focusing on high-speed SSD solutions to boost GPU performance. The company expects bit growth will at least keep pace with the market and aims to steadily enhance profitability through strategic investments. Risk Warning and Disclaimer The market contains risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investment based on this information is at your own risk.