Now Kioxia coins gold from NAND shortage, with more coming

Unexpectedly high NAND selling prices drove Kioxia’s quarterly revenue and profits to record highs in its third fiscal 2025 quarter.

 Revenues in the quarter, ended December 31, were ¥543.6 billion ($3.6 billion), up 21 percent on a year ago and inside its guidance range, with net income 16 percent higher at ¥89.5 billion ($585 million).

 Financial summary:

• Free cash flow: ¥85.7 billion ($560 million) vs ¥77.8 billion ($522 million) a year ago.
• Cash & cash equivalents: ¥281.5 billion ($1.84 billion) vs prior quarters ¥235.5 billion ($1.51 billion)
• EPS: ¥165.3 ($1.08) vs ¥77.22 ($0.525) in previous quarter

It was Kioxia’s eighth successive positive free cash flow quarter.

There are three Kioxia business segments and their results reached record highs:

• SSD & Storage: ¥300.4 billion ($1.97 billion) vs year-ago ¥278.7 billion ($1.87 billion), up 7.8 percent Y/Y
• Smart Devices: ¥186.3 billion ($1.2 billion) vs year-ago ¥117.1 billion (785.9 million), up 59.1 percent
• Other (Retail & sales to Sandisk): ¥57 billion ($372 million) vs year-ago ¥54.2 ($363.8 million), up 5.2 percent 

The company has been steadily reducing its debt in relation to its equity, from 227 percent in its first fiscal 2024 quarter to the current 80 percent. Kioxia says: “We aim to continue improving the net D/E ratio by generating operating profit and further strengthening our ability to produce free cash flow.”

Kioxia, which has long term agreements (LTA) for volume supply (with quarterly price negotiations) with larger customers. The earnings call [PDF] revealed that it has “received proposals for LTAs from some hyperscaler customers that include CY2027 and CY2028 in their scope” and is negotiating them. 

More details were revealed about the increased fees Sandisk will pay as Kioxia’s fab joint venture partner when the Yokkaichi Plant contract period was extended to the end of 2034, similar to that for the Kitakami plant. Now Sandisk will pay Kioxia an extra ¥45 billion a year ($290 million) on top of what it has been paying annually; ¥200 billion annually (c$65.3 million). 

Previously revenue from Sandisk for contract manufacturing was based on an at-cost model. It has changed to a compensation for manufacturing services model. Kioxia believes: “This will further strengthen our cash flow and profitability over the coming years.”

It will record additional revenue from this cash compensation of approximately $131 million ( ¥20 billion) a year as an operating profit contribution for roughly nine years from February 2026 through December 2034.

Kioxia’s outlook is that “extremely strong” NAND demand is expected to exceed supply in calendar 2026 for three reasons; traditional server replacement, AI inferencing workloads, and nearline HDD shortage pushing demand to high-capacity QLC SSDs. PC and smartphone manufacturing costs are expected to rise and lower total unit shipments, leaving NAND demand there uncertain. Overall, it expects to see high-teens percent NAND market bit growth. 

Its high-capacity SSD progress is that it shipped 122 TB and 245 TB models for customer qualification at the end of CY2025, with an intent to start mass-production this calendar year. It says it will “continue to expand mass production and introduce to market new products tailored to AI-related needs,” which refer to KV Cache and, possibly, high-bandwidth flash (HBF) needs.

Concerning KV Cache NAND, it said: “We expect to start mass production around 2027, and we believe that it will be possible to accommodate this with our TLC SSDs using 8th generation BiCS flash” (218-layer). 

This comes down to a revenue forecast for next quarter of ¥890 billion +/- ¥45 billion ($5.8 billion +/- $294 million), providing full year revenues of ¥2.2 trillion ($14.5 billion) at the mid-point, a 27.7 percent increase on last year. This would be a fourth quarter and full year revenue record. It’s also forecasting next quarter net income at ¥340 billion +/- ¥30 billion ($2.2 billion +/- $196 million) which would also be a record, with record full year net income of ¥489.7 billion ($3.2 billion) at the mid-point.”

Kioxia CFO Hideki Hanazawa said: “The biggest driver is selling prices, which we expect to rise significantly across all applications. Although total shipments on a gigabyte basis are expected to decline, the ratio of data-center and enterprise SSD shipments is expected to increase.” The company is going to emerge financially much stronger from the NAND supply shortage than it was last year.