Bernstein: KIOXIA’s third fiscal-quarter guidance falls well short; delayed enterprise SSD deliveries expected to be recovered in the fourth quarter

Why did the third fiscal-quarter guidance surprise analysts?

In the second quarter of fiscal 2026, KIOXIA reported revenue of 2.48 trillion yen, up 40.3% quarter over quarter, and operating profit of 1.995 trillion yen, up 57.1%. Each result was 0.6% above market consensus, broadly in line with expectations.
The company guided for third fiscal-quarter revenue of 2.5 trillion yen and operating profit of 1.995 trillion yen, respectively 15.4% and 16.4% below market consensus. Compared with the second fiscal quarter, the figures represent growth of just 0.8% and no change, respectively.
The company explained that some data-center enterprise SSDs with longer delivery lead times were delayed until the fourth fiscal quarter. As a result, third-quarter bit shipments are expected to be flat quarter over quarter, with only a slight increase in average selling prices.

Following the delay in enterprise SSD deliveries, lower-priced smart-device products accounted for a larger share of the mix. Together with smaller NAND price increases for PCs and phones, this weighed on third fiscal-quarter average selling prices. The company guided for an operating margin of 79.8%, down 0.6 percentage points from the second fiscal quarter.
The company expects the delayed enterprise SSDs to provide a boost in the fourth fiscal quarter and guided for bit shipments to rise by approximately a high-single-digit percentage to 10% quarter over quarter, compared with a typical seasonal decline of approximately 10%. As the product mix shifts back toward enterprise SSDs, average selling prices may also rise, but prices remain under negotiation and the company did not specify the size of any increase.
By comparison, NAND average selling prices rose approximately 25% quarter over quarter in the second fiscal quarter, while prices for comparable products rose by just over 30%.

KIOXIA expects the supply shortage to persist throughout calendar year 2027. Capacity for that year is already sold out, and average selling prices are expected to trend upward, though visibility into the size of the increases is limited.
The company expects demand to remain strong in calendar year 2028, with more than half of shipments already covered by long-term agreements reportedly carrying no price caps. Bernstein noted that no prepayments have yet been seen under these agreements.
On products, the company expects QLC’s share of bit shipments to rise from 30% in calendar year 2027 to 40% in 2028. The report says QLC is used mainly for storage, while TLC benefits from demand for KV cache.

KIOXIA plans to return 100% of excess cash over the medium to long term, up from its previous guidance of approximately 50%. The amount of excess cash, however, depends on strategic investment needs, including capital expenditure, research and development, and mergers and acquisitions.
The company announced an interim dividend of 90 yen per share on a pre-stock-split basis and plans to maintain a progressive dividend and flexible buybacks. It did not announce a new buyback program this time. Its capital expenditure target for the next three years remains 470 billion to 480 billion yen annually, with spending expected to be weighted toward the earlier years.
Bernstein believes the delivery delays could trigger a negative market reaction and maintains its Underperform rating on KIOXIA.