CITIC Securities: Storage Industry Remains Strong, Follow-up Focus on LTA Progress and Shareholder Returns

The Zhitong Finance App learned that CITIC Securities released a research report saying that the stock price correction of the world's major storage companies from June to July was not due to weak performance; it was more a concentrated release of market concerns after price increases peaked. Overall, the Q2 performance of related companies was in line with expectations. The products are still in an upward cycle of price increases, and the share of AI-driven data center revenue continues to rise. Looking forward to the future, although the price increase of storage products has slowed, considering that the storage industry is still in short supply in 2027, it will effectively support the gross margin and profitability of industrial chain companies in the future. Furthermore, for LTAs that receive the most attention in the market, it can be seen that related companies are currently using 3-5 year LTAs to target the needs of large customers. Flexible pricing mechanisms and lower price limits are also expected to reduce profit fluctuations and increase valuations. It is recommended to focus on HDD, DRAM, and NAND tracks.

Revenue continued to grow strongly, mainly driven by ASP.

1) The overall revenue growth rate of related companies in Q2 reached between 12%-76%. The revenue growth rate of NAND related companies was significantly higher than that of DRAM companies, followed by HDD companies. 2) The month-on-month increase in revenue was mainly driven by ASP price increases. Overall, although the increase in storage prices slowed in 26Q2, there was still a significant month-on-month increase. Among them, DRAM increased by more than 30%-45% month-on-month, NAND increased by more than 50% month-on-month, and HDD increased at a high single-digit level.

Revenue structure: The share of data center revenue has increased steadily.

Judging from the financial data for the second quarter, the share of revenue of various companies in the data center sector continued to increase: 1) Micron's share of DRAM and NAND in the data center sector reached 61% of the revenue in CY26Q1, while the share of revenue on the consumer side fell to 28%. 2) Hynix's use of DRAM (HBM, DRAM for traditional servers) in the data center sector accounts for about 70% of revenue, and the share of mobile and consumer devices has dropped to about 20%. 3) Focusing on SanDisk and Kioxia in the NAND field, the CY26Q2 data center revenue share increased to 33% and 41%, respectively. 4) In the HDD field, Western Digital and Seagate's CY26Q2 data center revenue share stabilized between 80% and 90%.

Changxie: Cooperation with CSP continues to be implemented, reflecting the high prosperity of the industry.

1) Driven by AI/data center demand, major storage vendors are seizing production capacity with 3-5 year LTAs, and the locked ratio of Changxie's production capacity is generally above 50% (SanDisk, Samsung, Kioxia, etc.). Judging from Changxie's pricing mechanism, most manufacturers use a flexible pricing mechanism and will differentiate pricing according to customer circumstances and differences in product pricing. Some companies set the lowest prices to guarantee subsequent profitability. Judging from the signing of Changxie, Changxie mainly focuses on data center CSP companies, reflecting the upward trend in AI/data center demand.

2) Judging the level of prosperity: Overall, the seven companies are highly consistent — the storage industry will be in a pattern of tight supply and demand or even widening gaps in the next 1-2 years (DRAM/NAND until 2027, HBM until 2028 and beyond), and AI-related categories such as HBM may be in short supply for a longer period of time.