LITE260417C930000.US

$TWSC(001309.SZ)

$GIGADEVICE(03986.HK)

In the second quarter, to boost revenue, the company increased shipments of low-priced consumer-grade storage; the proportion of high-margin AI enterprise-grade storage declined, diluting the overall average selling price and gross margin.

Simply put: more units sold, but a higher proportion of cheap goods, leading to a decline in overall profitability.

Six. A one-sentence summary of the 640 million profit disappearance path:

Q1 one-time release of low-cost inventory gains → Q2 low-cost inventory exhausted, upstream memory chip prices rise → significantly increased new revenue costs + capital tied up in stockpiling + rising expenses like interest/R&D + higher proportion of low-margin products. Multiple factors combined directly led to revenue growth but a quarter-over-quarter shrinkage in net profit.

Additional risk warning:

Company profits are highly dependent on the memory cycle and low-cost inventory. If memory prices weaken subsequently, high inventory will lead to further provision for price decline losses, putting continued pressure on profits.

Information is for reference only and does not constitute investment advice.

GigaDevice vs Demingli: Profit destinations are completely opposite, let's clarify the core differences first.

I. Core performance contrast (understand the basic data first)

1. Demingli (Module Manufacturer)

Q1 revenue 7.5B, net profit 3.34B; Q2 revenue rose to 9.5B, but net profit fell to 2.7B. Revenue increased without profit growth; profits were taken by upstream suppliers and channels.

2. GigaDevice (Memory Design + In-house NOR/Niche DRAM)

Q1 net profit attributable to parent 1.461B; Q2 single-quarter net profit 5.439B, a 272% quarter-over-quarter surge. Revenue and profit rose sharply simultaneously, making it one of the midstream design houses benefiting the most from this price hike cycle.

II. GigaDevice's profits were not taken by others; instead, it is sharing the industry's price hike benefits.

1. Why didn't its profits get swallowed by upstream suppliers like Demingli?

Demingli: Pure module assembly, 100% externally purchases SK Hynix/Samsung memory chips, raw material costs account for 80%, has zero pricing power. Chip price hikes directly eat into gross margin.

GigaDevice: In-house chip design, wafers mainly sourced from domestic foundry CXMT, with long-term foundry agreements locked in with CXMT. The wafer procurement price increase is far lower than the spot price hike for overseas memory chips, keeping the cost side controllable.

Market misalignment: Samsung and SK Hynix actively cut mature NOR and niche DRAM capacity, focusing fully on high-margin HBM. GigaDevice precisely fills the mature memory market vacated by overseas majors, directly raising product prices and keeping the price hike benefits for itself.

2. GigaDevice's excess profits came from 3 sources (how the extra money was made)

1) Appreciation of low-cost inventory (largest profit source)

Locked in a large amount of low-cost CXMT wafer inventory at the 2025 bottom. Q1 and Q2 continued to digest this low-cost inventory while current product selling prices doubled. The inventory price scissors difference released huge gross profit, pushing gross margin to 57%.

2) Continuous product price increases, downstream customers bear the cost

NOR and niche DRAM prices increased 50%-70% quarter-over-quarter. Automotive, industrial, and AI edge devices are rigid demand, customers accepted the price hikes. Incremental revenue was almost entirely converted into profit, without needing to give significant discounts to channels to boost volume.

3) Scale dilutes fixed costs

H1 revenue 11.5B, up 177% YoY. R&D, management, and factory fixed costs were spread over more products, leading to a continuous decline in the expense ratio. Q1 financial expenses were only 96.52M, with minimal interest pressure, unlike Demingli which relies on borrowing to stockpile goods and bears high interest.

4) Fair value gains from securities investments boost earnings

Held semiconductor-related equity assets appreciated with the market, bringing additional non-recurring profits.

$Corning(GLW.US)270 didn't sell, now down 5 points

$Marvell Tech(MRVL.US)Profits from the portion of the position I didn't sell last time are almost gone too

$Lumentum(LITE.US)Down 15%

$Bloom Energy(BE.US)Starting to lose principal

Account hits a new low😑

Perhaps the world doesn't lack smart people right now

Especially in the stock market, how many from Tsinghua and Peking University

All kinds of IQs 130+ are gambling foolishly

Not to mention quantitative software

Comparing who's smarter than whom

Competing to see who makes a few more percentage points today

The Chinese are accustomed to the law of the jungle, a zero-sum game field

Therefore, ordinary people should follow the path of simplicity

Admitting one's own stupidity might bring good luck

Respect time

When others don't want to compete

When institutions have KPI pressures

You're still on the field

Because you believe in the world

Good enterprises lie in entrepreneurial value

Especially thinking you can make money by reading those short articles about Deming Li

With 1,000,000+ year-on-year growth

Rush in, but without understanding the underlying logic

How many domestic companies can achieve such year-on-year numbers?

Learn to look at more data, financial reports (although financial reports are all...

But relatively more truthful for ordinary people

Module profits were all taken by upstream players, Q2 data was poor)

Deming Li Q1 revenue 7.5 billion, net profit 3.34 billion

Q2 revenue 9.5 billion, net profit 2.7 billion, where did the missing 640 million in profit go?

I. Core underlying logic: Q1 profit relied on low-cost inventory dividends

Q2 dividends faded

1. At the end of 2025, the company stockpiled on a large scale in advance, with extremely low particle procurement costs; The goods sold in 26Q1 were mostly this batch of low-cost inventory, with selling prices rising along with storage price increases, single-quarter gross margin surged to 44%, with inventory appreciation contributing over 2 billion in profit.

2. By Q2, the low-cost old inventory was basically digested, and the price of newly procured storage particles rose significantly, unit product raw material costs increased; Although revenue increased from 7.5 billion to 9.5 billion (selling 2 billion more goods), the gross profit margin for each sale was compressed, and the comprehensive gross margin declined significantly quarter-on-quarter.

II. Capital flow 1: Operating costs significantly eroded profits (largest destination)

Revenue increased by 26.7%, but upstream wafer and NAND particle procurement cost increases far exceeded revenue growth rate:

Q1 revenue 7.538 billion, operating cost only 3.21 billion;

Q2, to boost revenue, increased stockpiling and procured goods at high prices, the corresponding carryover costs for sales increased significantly, incremental revenue was almost eaten up by raw material price increases, and incremental income could not be converted into net profit.

III. Capital flow 2: Inventory occupied a large amount of cash, book profit did not turn into cash flow

As of the end of 26Q1, inventory was 12.192 billion yuan, a surge of 72.73% compared to the end of 2025, accounting for 66% of total assets.

In Q2, to fulfill orders, continued to increase stockpiling:

1. The book profit earned was all used to buy storage particles and produce finished goods, reflected in the balance sheet as "inventory," not retained as net profit;

2. Operating cash flow was negative, the company relied on short-term borrowing to stockpile, and financial interest expenses continued to increase.

IV. Capital flow 3: Various period expenses increased quarter-on-quarter

1. R&D expenses: Expanded enterprise SSD, main control chip R&D, increased personnel and equipment investment;

2. Financial expenses: Inventory expansion relied on borrowing, short-term loan scale increased, interest expenses continued to rise;

3. Sales/administrative expenses: Revenue expansion required supporting sales teams, channel expansion, capacity management, expenses increased accordingly, further squeezing net profit.

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