Phison Earnings Call: AI Ignites Storage Demand, NAND Supply-Demand Imbalance May Persist Through 2027–2028

Phison (8299-TW), a major NAND controller chip manufacturer, held its earnings call today (13th). CEO Pan Jiansheng stated that AI is driving a structural shift in global storage demand, with current NAND Flash supply extremely tight. Some products may remain in short supply through year-end and into early next year, and he expects supply-demand imbalance to persist through 2027 and 2028. As enterprise SSDs, embedded storage, and AI solutions grow rapidly, Phison is accelerating its transformation from a controller and storage module supplier into an AI data platform and system solutions provider.

Pan noted that second-quarter profitability surged significantly—not only due to benefits from past low-cost NAND inventory, but crucially because of the ongoing shift in product mix toward higher-end markets. Starting this year, Phison has integrated its enterprise SSD, boot drive, aiDAPTIV+, and AI networking businesses into a unified 'AI Ecosystem Solutions' segment. This segment accounted for 38% of revenue in Q2, up 68% quarter-on-quarter. Embedded products represented 32% of revenue, with sales more than doubling sequentially. In contrast, retail product revenue dropped below 5%.

He emphasized that Phison’s resources are now clearly focused on high-value markets such as enterprise, embedded, ODM, and industrial applications. The proportion of retail business will continue to decline over the coming quarters.

Despite weak end-demand in PCs and smartphones, Pan highlighted that Phison’s controller chip shipment volumes continue to rise, indicating growing market share in both PC and mobile markets. If the company can further expand its share between 2026 and 2027, it anticipates amplified growth benefits when the consumer electronics market enters a new replacement cycle from 2028 to 2029.

Compared to consumer electronics, Pan believes AI is the biggest future driver of NAND demand. As AI inference evolves from KB-scale text to MB-scale images and GB-scale video, future AI Agent applications could generate TB-scale data, causing storage capacity demand to leap forward.

Therefore, contrary to market expectations that NAND Flash supply-demand might rebalance by 2027–2028, Pan disagrees, stressing that the issue is no longer just price—but whether sufficient supply can actually be secured.

Phison’s net inventory balance reached NT$91.792 billion in Q2, with average inventory turnover days decreasing from 315 in the prior quarter to 297. Pan explained that current inventory is primarily allocated to enterprise, embedded, ODM, and industrial markets to prioritize support for higher-margin projects with stronger customer stickiness.

Regarding concerns about whether the Q2 gross margin exceeding 60% can be sustained, Pan acknowledged that as NAND prices continue to rise, the benefit from low-cost inventory will gradually diminish. Thus, margins cannot linearly increase forever. The true core supporting long-term profitability lies in high-intensity R&D and high-value-added products.

Accordingly, Phison’s R&D expenses reached NT$15.099 billion in Q2, accounting for 22.2% of revenue. The company will maintain high R&D investment in the second half, focusing on high-speed PC OEM, enterprise controllers, Bridge, custom ASICs, and new products like UFS 4 and UFS 5.

Pan emphasized that Phison is not a traditional module maker simply buying and selling NAND wafers. Instead, it integrates purchased NAND with self-developed controllers, firmware, and software to create high-value system products—delivering significantly greater value than standard modules.

On the enterprise front, Phison’s PCIe Gen5 SSDs have entered mass production. The PCIe Gen6 controller has already received first silicon, with plans to showcase a PCIe Gen6 enterprise SSD in November. The company has already received initial orders from some customers.

AI initiatives represent Phison’s next-phase transformation focus. Pan stated that the company is advancing 'Phison 3.0,' evolving from a controller and storage module supplier into an AI storage and edge AI platform provider. The existing aiDAPTIV+ is being progressively transformed into the 'Phison AI Data Platform.'

Currently, related AI solutions have entered commercial deployment, with shipments to over 10 banks, more than 30 hospitals, and over 20 SMEs in Taiwan. Phison expects its number of commercial clients to exceed 100 this year while expanding into North America, Southeast Asia, and India.

Additionally, the board approved a proposed interim dividend distribution, recommending a cash dividend of NT$60 per share. This represents approximately 32% of the first-half earnings per share of NT$187.43, lower than the previous payout ratio of around 55%. Pan explained that the company is currently in a high-growth and transformation phase, requiring more retained earnings for R&D, market share expansion, and AI platform development. Future dividend policy will be adjusted based on cash flow and operational performance.