Goldman Sachs on Kioxia's earnings "revelation": NAND supply shortage may persist until 2027, strongly bullish on Samsung Electronics and SK Hynix

On October 30, Kioxia, the Japanese NAND flash memory manufacturer, reported its results for the third quarter of calendar year 2026 (i.e., the second quarter of fiscal year 2026). Goldman Sachs analyzed the implications for the Korean memory giants it covers, SK Hynix (rated "Buy") and Samsung Electronics (rated "Buy"). Key takeaways include: 1) Third-quarter calendar 2026 results were solid; due to shipment timing adjustments and differing base effects, Kioxia's fourth-quarter calendar 2026 outlook differs from those of Samsung Electronics and SK Hynix; 2) The tight NAND flash supply-demand situation is expected to persist through calendar 2027, providing room for further price increases; 3) Multi-year long-term supply agreements (LTAs) provide strong visibility into demand beyond 2027-2028. 1. Third-quarter calendar 2026 results were solid; due to shipment timing adjustments and differing base effects, Kioxia's fourth-quarter calendar 2026 outlook differs from those of Samsung Electronics and SK Hynix Goldman Sachs noted that in the third quarter of calendar 2026, Kioxia's blended average selling price (ASP) in USD rose 20% to 25% quarter-on-quarter, with comparable product prices up 30% to 35% QoQ; bit shipments grew 10% to 15% QoQ, mainly driven by strong data center and enterprise market demand. For the fourth quarter of calendar 2026, Kioxia expects revenue to grow slightly QoQ (bit shipments expected to be roughly flat, with ASPs expected to rise modestly), as shipments of products with longer lead times, including data center and enterprise SSDs, shift into the first quarter of calendar 2027. Although Kioxia's fourth-quarter calendar 2026 guidance is overall below Goldman Sachs' expectations for Samsung Electronics and SK Hynix, the bank noted this may be due to changes in shipment timing, as well as Kioxia's higher third-quarter calendar 2026 base compared with the Korean suppliers. 2. The tight NAND flash supply-demand situation is expected to persist through 2027, providing room for further price increases Looking ahead to calendar 2027, Kioxia expects NAND flash supply-demand conditions to remain tight, supported by continued strong data center and enterprise market demand, with room for further ASP increases. Although management expects the pace of price increases to slow after the sharp rises from early to mid-calendar 2026, the company stressed that there are currently no signs of ASP declines. Goldman Sachs believes this is broadly consistent with its view on Samsung Electronics and SK Hynix. Although price momentum will relatively slow compared with the sharp 279%/254% increases in calendar 2026, the bank still expects NAND flash prices to rise 34%/30% year-on-year in calendar 2027. 3. Multi-year long-term supply agreements provide strong visibility into demand beyond 2027-2028 Kioxia said its calendar 2027 capacity is effectively fully sold out, while more than 50% of calendar 2028 shipments are already secured through multi-year long-term supply agreements (LTAs). For the remaining calendar 2028 capacity, the company is considering whether to further lock in customer commitments or retain some capacity to capture potential upside demand opportunities, with related discussions still ongoing. With calendar 2027 capacity fully allocated and a considerable proportion of calendar 2028 capacity secured, Kioxia has also begun discussions with customers on supply arrangements for 2029-2030. Goldman Sachs believes that LTA discussions extending to 2029-2030 indicate the supply shortage may last even longer, with customers seeking to lock in supply well beyond 2028. This trend is broadly consistent with what the bank has observed at Samsung Electronics and SK Hynix: customers are signing five-year long-term supply agreements and requesting longer-duration supply guarantees. For Samsung Electronics, Goldman Sachs derives a 12-month target price of KRW500,000 for common shares based on a sum-of-the-parts (SOTP) valuation using average 2026E-2027E enterprise value/EBITDA (EV/EBITDA). For preferred shares, the bank's 12-month target price is KRW380,000, applying a 24% target discount rate for preferred shares relative to common shares. This discount rate is the average of: 1) the preferred share discount rate derived from a two-factor model; and 2) the historical average discount rate of preferred shares relative to common shares over the past year. Goldman Sachs rates both Samsung Electronics common and preferred shares "Buy." Key downside risks: 1) significant deterioration in memory supply-demand conditions; 2) significant contraction in smartphone margins; 3) loss of mobile OLED market share. For SK Hynix, Goldman Sachs derives a 12-month target price of KRW3,500,000 based on average 2026E/2027E price-to-earnings (P/E) valuation, corresponding to a target P/E of 7.0x. Key risks include: 1) significant deterioration in memory supply-demand conditions and delays in technology migration; 2) weak demand for smartphones, PCs, and servers, affecting overall conventional memory demand; 3) positive progress in Samsung Electronics' HBM business, affecting SK Hynix's HBM revenue and profit; 4) a decline in AI-related capital expenditure, which would affect overall HBM demand and in turn the company's HBM revenue and profit.