Why did net profit decline quarter on quarter despite growth in revenue and gross margin?
- In the third quarter of 2026, GigaDevice reported revenue of 8.73 billion yuan, up 18% quarter on quarter and 226% year on year. Gross margin was 70.3%, up 3.8 percentage points quarter on quarter. Growth in memory product volumes and prices, growth in other products, and the lag in cost increases supported profitability.
- Net profit for the same period was 4.2 billion yuan, down 22% quarter on quarter but up 729% year on year. Morgan Stanley noted that non-recurring items affected net profit, mainly because investment revaluation gains in the second quarter turned into losses in the third quarter.
- Third-quarter earnings per share were 5.94 yuan, below the market consensus of 6.3 yuan; revenue, gross profit and net profit were all below Morgan Stanley’s expectations.
How long can tight memory supply and demand support high gross margins?
- Management expects the gross margin to remain high for a period, but to return to a normal level as average selling price increases slow and higher costs gradually feed through.
- Supply and demand conditions differ by product: the SLC NAND shortage is expected to continue; supply of high-density NOR remains tight, with prices rising slightly, while supply and demand for low-density products are balanced.
- High prices have already dampened consumer demand for some niche DRAM products, but capacity remains insufficient, and management expects prices to stay high over the long term. Seasonality in the fourth quarter and the first quarter of the following year will continue to affect operations, although the seasonal gap is narrowing.
How will growth drivers change in 2027?
- Management is targeting double-digit growth in microcontroller (MCU) revenue in 2027, with more of the momentum coming from new applications, new products and market share gains, and a smaller contribution from restocking.
- The company expects NOR and SLC NAND capacity to continue expanding next year. Standard niche DRAM will remain the main source of DRAM revenue, and customized memory is also progressing.
- Morgan Stanley rates GigaDevice overweight, with a price target of 750 yuan; its base-case valuation uses a residual income model.