Driven by AI demand, Kioxia's Q3 revenue increased by 30.8% quarter-on-quarter, while net profit fell by over 60% year-on-year, and the profit guidance fell short of expectations | Financial Report Insights

On November 13, Kioxia, a major storage supplier for Apple's iPhone, announced its financial report for the second quarter of fiscal year 2025. The report showed that 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 was under pressure, with a net profit of 40.7 billion yen for the quarter, down over 60% year-on-year, mainly due to the increased proportion of low-margin smart device business. Key highlights from the financial report are as follows: Revenue of 448.3 billion yen, a quarter-on-quarter increase of 30.8% Non-GAAP operating profit of 87.2 billion yen, profit margin of 19.4%, a quarter-on-quarter increase of 6 percentage points Positive free cash flow of 41.3 billion yen for the seventh consecutive quarter Net debt-to-equity ratio decreased to 107% The guidance provided by the company also fell short of market expectations. Specifically, the company expects revenue for the third quarter of fiscal year 2025 to be between 500 billion and 550 billion yen, setting a new historical high, while market expectations are at 530 billion yen; however, the Non-GAAP operating profit guidance is set at 100 billion to 140 billion yen, below the market expectation of 141 billion yen and buyer expectations of over 150 billion yen. Despite short-term profits falling short of expectations, the market remains optimistic about the long-term prospects for storage demand driven by AI, with the company's stock price rising over 56% year-to-date. Product Structure Adjustment Affects Short-Term Profitability In the second quarter, the revenue share of smart devices rose to 35%, a quarter-on-quarter increase of 99%, mainly benefiting from seasonal demand for smartphones and the transition to the eighth-generation BiCS flash memory technology. Revenue from SSD and storage business accounted for 55%, with data center/enterprise-level business making up about 60% and PC and other businesses accounting for 40%. The rapid growth of the smart device business, while driving overall revenue growth, has dragged down the company's overall profitability due to its relatively low profit margins. Some hyperscale cloud service customers have requested a shift from SSD products to NAND chip supply, further impacting product structure and average selling prices. The company's management expects that in the fourth quarter and the first quarter, the product structure will tilt towards the SSD business, at which point profitability is expected to improve. The company will maintain a balanced allocation between server SSD and PC/smartphone businesses. AI Demand Drives Continued Supply-Demand Tension in the Industry Kioxia confirmed that the supply tightness in the NAND flash memory industry will continue, with an expected market bit growth rate of moderate double digits in 2025, reaching high double digits in 2026 under supply constraints. The demand growth driven by AI mainly comes from three aspects: accelerated replacement demand for traditional servers, a surge in SSD demand for AI inference workloads, and new demand for high-capacity QLC SSDs due to shortages of NL-HDD. Inventory in the smartphone and PC sectors has returned to normal, with a continued growth trend The Eighth Generation Technology Accelerates AI Market Layout Kioxia's three key initiatives for the fiscal year 2026 include: promoting the eighth generation BiCS technology to seize AI demand, mass production of 245TB QLC SSDs and other AI-specific products, and ensuring bit growth at least in line with the market. The main factory construction has been completed, and equipment installation will take place next year. Capital expenditures will remain prudent, focusing on investments in the eighth and tenth generation BiCS technologies. The eighth generation technology is expected to become a core product from the beginning of the fiscal year 2026, with new products such as the 245TB QLC SSD and tenth generation BiCS technology being gradually launched to the market. Regarding High Bandwidth Memory (HBM) technology, the company stated that it will continue to evaluate opportunities but has not yet committed to investment, currently focusing on high-speed SSD solutions that can enhance GPU performance. The company expects bit growth to at least keep pace with the market, steadily improving profitability through strategic investments