Morgan Stanley: KIOXIA: December-quarter guidance unexpectedly slows; Morgan Stanley expects reacceleration in the March quarter

How fast was growth in the September quarter?

KIOXIA’s non-GAAP revenue for the September quarter was 2.48 trillion yen, up 40% quarter over quarter; operating profit was 1.99 trillion yen, near the low end of market expectations of approximately 2 trillion to 2.1 trillion yen.
Shipments measured in gigabytes of storage capacity rose by a percentage in the teens quarter over quarter, exceeding the company’s outlook for high-single-digit growth issued three months earlier, as the company accommodated customers’ requests to take delivery early.
The blended average selling price per GB in US dollars rose by a percentage in the twenties quarter over quarter; after adjusting for product mix, the price increase for comparable products was just over thirty percent. Gross margin adjusted for joint venture transactions was 86.7%, up 4.7 percentage points quarter over quarter.

Assuming an exchange rate of 1 US dollar to 157 yen, the company guided for non-GAAP revenue of 2.5 trillion yen in the December quarter, up just 1% quarter over quarter, and operating profit of 2 trillion yen. Morgan Stanley considers the guidance below expectations.
The company expects GB shipments to be roughly flat quarter over quarter: some orders were delivered early in the September quarter, while some data center and enterprise SSD shipments with longer delivery cycles shifted to the quarter ending March 2027.
The company expects prices to continue rising, particularly for data center and enterprise SSDs; however, a higher share of smart device products will limit the increase in the blended average selling price per GB in US dollars to the low single digits. Prices for about half of the December quarter’s GB shipments are still being negotiated.

The company expects GB shipments to grow in the quarter ending March 2027, with growth momentum accelerating. Morgan Stanley expects a higher share of data center and enterprise SSDs to provide upside to the blended average selling price.
Over the longer term, the company said all capacity for calendar year 2027 has been allocated; more than half of GB shipments for calendar year 2028 are covered by multiyear long-term agreements. Contracts vary by customer and typically have price floors but no price ceilings; the company has not prioritized seeking customer prepayments.

Morgan Stanley maintained its Overweight rating and 37,000 yen price target and plans to review its earnings forecasts. The bank believes the strong free cash flow outlook, shareholder return policy and growth potential from AI inference support its valuation at a free cash flow yield of approximately 10% for the fiscal year ending March 2028.
The company announced an interim dividend of 30 yen per share on a post-split basis and plans to return 100% of excess cash to shareholders starting in the second half of the fiscal year ending March 2027.
The bank noted that weaker end demand and capacity expansion by Chinese companies could weigh on NAND supply and demand; it estimates that each 1 yen appreciation of the yen against the US dollar reduces annual operating profit by approximately 6 billion yen.