This article first appeared on GuruFocus .
Release Date: August 13, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Record-high Q2 revenue of NT$67.8 billion and EPS of NT$118, with first-half revenue exceeding NT$108 billion.
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AI ecosystem solutions now represent 38% of total business, growing 68% QoQ, driven by enterprise and AI networking design wins.
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Gross margin reached a record 65.3% in Q2, up 7.5 percentage points YoY, reflecting strong product mix and engineering value.
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Gained market share in mobile and PC OEM controllers despite declining unit shipments, supported by heavy R&D investment.
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Expanding into new AI data platform business with commercial shipments to banks, hospitals, and SMEs, and plans to scale globally.
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Strong cash flow and balance sheet, with no debt after repaying bank loans, and inventory levels considered adequate for near-term demand.
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New design wins in enterprise boot drives and main drives, including six AI networking programs and two new OEM wins.
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Adaptive technology validated through POCs with partners like MINATECH, enabling DRAM reduction in AI inference.
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Company policy to maintain conservative inventory write-downs ensures clean inventory and future profitability.
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Established corporate VC to invest in ISVs, fostering ecosystem growth for the AI data platform.
Negative Points
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NAND supply remains extremely tight, with management indicating supply will be insufficient to meet demand through end of 2026 and into 2027.
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Inventory levels are considered too low relative to forecasted demand, posing a risk of not fulfilling customer orders.
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Consumer and retail business is declining, with retail expected to remain below 5% of revenue until 2028.
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R&D investment increased significantly (6.5x YoY), pressuring near-term profitability despite strong earnings.
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Dividend payout ratio reduced to 2.87% for the half-year, disappointing shareholders expecting higher returns.
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Gross margin may face pressure as NAND prices continue to rise, potentially leading to margin normalization.
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AI data platform revenue is still small and not yet material, with significant investment required before meaningful contribution.
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Dependence on NAND suppliers for allocation, with limited ability to secure additional supply despite high demand.
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Potential dilution from convertible bond issuance, though management notes it is low single-digit percentage.
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Management acknowledges that if NAND prices keep rising, gross margin cannot remain linear, requiring new product innovations to offset.
Q & A Highlights
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Q: Can you provide an update on the current NAND supply conditions, including the number of suppliers under LTAs, and what can we expect for incremental bit allocation in the second half of 2026 or 2027? A: KS Pua (CEO): We are still able to secure supply, but it is not enough to meet our needs. We met with all suppliers at FMS in San Jose last week, and they recognize Phison's value. We are converting ourselves into NAND users through our AI data platform business, which surprised them. We cannot disclose specific LTA details or bit amounts due to competitive sensitivity, but I can commit that we have enough supply, though it is still insufficient for our full requirements.
Q: How do you see NAND price trends in the second half compared to the first half? Sandisk mentioned price increases will moderate. Does this match your view, and how should we think about gross margin going forward? A: KS Pua (CEO): I said back in March that memory companies' gross margins would hit 80% and possibly 85%. Now I'm saying 90% gross margins may happen in 2026, but I don't think that's healthy for the industry. Supply is too tight and demand is too strong, so prices will definitely continue to rise, but 85% is more than enough. I advise against pushing for 90% as it could kill the industrial and consumer segments.
Q: Your AI-related business is 38% of revenue. Is enterprise SSD the majority of that, and how big can this exposure grow into next year? A: KS Pua (CEO): Within that 38%, main drives are around 30% plus. Boot drives play a big role in AI systems and networking, where we've won many programs and gained share. The adaptive data solution is still small, but we are converting it into the AI data platform. Hopefully, from Q4 2026 to Q2 2027, we will see significant numbers from this segment.
Q: What is your rough market share in the enterprise SSD business? Also, will weakness in consumer NAND prices impact your enterprise SSD pricing? A: KS Pua (CEO): We are not a NAND manufacturer, so we don't aim for enterprise SSD market share. We take our limited supply and mainly allocate it to customers for customized products, which is why we enjoy better gross margins. I read a report that Phison's share is around 1.9% of enterprise SSD. Regarding consumer NAND, downgrade NAND supply is declining because 3D NAND longevity is much longer with high yield rates, so there's less downgrade inventory. Consumer NAND weakness won't impact AI NAND. In June and July, we spent over $450 million buying NAND wafers from Shenzhen module houses at cheaper prices, but that spot price is not the regular price.
Q: Longsys recently showcased a general DRAM offload solution with UniSoC and is collaborating with AMD on HLC plus SPU. How does Phison respond? A: KS Pua (CEO): At the China FMS in March, the Longsys chairman presented this, and I told him not to copy us. We are the innovators and inventors of this technology, having promoted it for three years. We have our own weapons and solutions, and we're not worried. Many countries still respect intellectual property, so we'll wait and see.
Q: How long do you think NAND prices will keep rising, and when will they stabilize? A: KS Pua (CEO): I wish 85% gross margin is really gooddon't ask for 90%. Prices are still rising, but the rate of increase is getting smaller and will eventually saturate. When suppliers hit a certain gross margin level they're happy with, they'll start picking who to ship to. The shortage will last many years, not just next year. I asked a top-level NAND manufacturer about capacity expansion, and they said it takes four years from investment to production, not two.
Q: Your inventory value is over NT$90 billion. Is this at book value, and is it enough given the tight supply? A: KS Pua (CEO): We never revalue inventory; we only write down. To me, the inventory is actually too low according to my forecast. I have to manage inventory carefully because customers don't buy everything at oncethey buy over a year. Next year, supply will be much, much more difficult, so I need to ensure I can fulfill design-in programs over 24 months. If I sell components now and can't buy back next year, I'll be in trouble.
Q: You raised an $800 million ECB recently. Have you used the proceeds, and will you need additional funding to build inventory? A: KS Pua (CEO): The ECB proceeds have already been usedturned over one and a half times already. By end of March, we had significant bank debt, but by July we paid back almost everything and now have no debt. Our balance sheet is very healthy. If I need cash in the next six months, I can use bank facilities. But if business keeps growing strongly in the second half and next year, yes, I may need to raise additional funds.
Q: Your Q2 revenue grew 65% QoQ. Is this more price-driven than volume-driven? What is your overall product volume growth trend? A: KS Pua (CEO): By bit shipment, we grew, and price also grew. Overall product volume is actually declining in consumer modules, but enterprise modules will increase because we had nothing last year. Controllers will increase. Combined, controller units are increasing and bits are increasing. Demand is strong, but I need to manage inventory carefully to ensure I can supply over the long term.
Q: Do you think CSPs or companies like Nvidia, Google, or AMD will try to de-spec memory or pressure prices as NAND margins normalize? A: KS Pua (CEO): They have to, and this is already happening. Since the end of last year, we've seen systems cut DRAM in half. But do they cut storage? No. Storage is income. Inference has two parts: power and storage. DRAM can be reduced with algorithms or by sacrificing performance, but storage is money. Adaptive uses flash to complement DRAM, which is our differentiator.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
