NAND, eMMC in High Demand! Winbond Q2 EPS Reaches NT$3.91, Lu Zhiyuan: 80% Gross Margin Within Reach

The demand for AI servers and adjustments by international memory giants have led to a persistent shortage of SLC NAND, MLC NAND, and eMMC. Winbond Electronics (2337) delivered a stellar performance in Q2, with consolidated revenue of NT$191.25 billion, up 83% QoQ and 181% YoY. Gross margin soared from 40.8% in Q1 to 64.4%, with after-tax net profit reaching NT$7.736 billion and EPS at NT$3.91, setting new historical highs for both revenue and profitability.

Winbond's CEO, Lu Zhiyuan, stated during the earnings call that Q3 orders and pricing are expected to support high gross margins, and there is still upward momentum for eMMC pricing in Q4. Currently, some MLC NAND products have gross margins of 70-80%. If market prices do not reverse significantly, Winbond's overall gross margin could approach 80% with the addition of new capacity.

Winbond's Q2 operating profit was NT$12.32 billion, up 188% QoQ and 1,058% YoY. Operating profit was NT$8.968 billion, a 364% increase from Q1 and a significant turnaround from a loss of NT$1.079 billion in the same period last year. Operating profit margin rose from 18.5% in Q1 to 46.9%.

Winbond's CFO, Ye Peifu, noted that Q2 market demand was robust, with both price and volume contributing to a 23.6 percentage point increase in gross margin from Q1. This reflects product price adjustments and portfolio improvements, as well as benefits from inventory devaluation reversals.

Winbond's Q2 inventory devaluation reversal exceeded NT$900 million. Ye Peifu expects further reversals as inventory continues to decrease in the second half of the year. However, Lu Zhiyuan emphasized that the primary driver of Q2 profit growth was the increase in average selling prices (ASP), with increased production and shipments also contributing to operations.

Winbond's operating expenses for Q2 were NT$3.352 billion, primarily due to increased employee compensation following higher profits. Non-operating income was NT$2.32 billion, mainly from investment dividends and some foreign exchange gains. Pre-tax profit was NT$9.2 billion, and after deducting income tax expenses, after-tax profit was NT$7.736 billion, up 335% QoQ. Basic EPS was NT$3.91, EBITDA was NT$10.563 billion, and EBITDA margin was 55%.

Cumulatively, Winbond's first-half revenue was NT$29.593 billion, up 129% YoY, already surpassing the full-year revenue of NT$28.88 billion for 2025. First-half gross margin was 56.1%, operating profit margin was 36.8%, after-tax net profit was NT$9.515 billion, and EPS was NT$4.82.

From a product mix perspective, NOR Flash remains Winbond's largest product line, with Q2 revenue accounting for 48%, up 48% QoQ and 101% YoY. However, the revenue share of NAND (including eMMC) rose from 30% in Q1 to 43%, up 163% QoQ and 798% YoY, becoming the biggest driver of this performance surge.

Breaking down NAND and eMMC, eMMC revenue in Q2 surged 317% QoQ and 5,334% YoY, equivalent to a YoY increase of over 53 times. NAND standalone revenue increased 73% QoQ and 315% YoY. ROM revenue share dropped to 6%, but the amount still increased 40% QoQ and 37% YoY. Wafer foundry business accounted for 3%, remaining stable overall.

Lu Zhiyuan stated that SLC NAND and eMMC are currently in a state of 'severe supply shortage,' with market demand far exceeding the company's supply capacity. Future quarters will see continued increases in shipments, with new capacity primarily allocated to NAND and eMMC.

From the end applications of NAND (including eMMC), communication-related products accounted for 55% in Q2, consumer electronics 23%, industrial/medical/aerospace 14%, computer-related 7%, and automotive electronics approximately 2%. Among these, automotive-grade eMMC is expected to begin shipping in 2027, becoming another growth driver after new capacity is released.

Regarding market attention to memory price trends, Lu Zhiyuan stated that Winbond has not observed any signs of price weakening. Q3 orders and pricing are expected to support maintaining high gross margins, and there is still upward momentum for eMMC pricing in Q4.

Currently, Winbond's 8GB and 16GB eMMC production capacity is full, with 32GB eMMC expected to enter mass production in Q4. Due to shared limited capacity among different capacity products, there will be mutual competition for capacity. The company must adjust allocation based on customer demand and product value.

Lu Zhiyuan believes that this wave of customer pull is mainly driven by actual end demand, not large-scale preventive stockpiling. Winbond will also verify the source of each order to avoid duplicate orders or excessive inventory buildup by customers.

Regarding weaker demand in some consumer electronics markets in the second half of the year, Lu Zhiyuan frankly admitted that memory price increases may indeed affect some customers' affordability. However, Winbond has not yet seen a significant weakening in consumer demand, and overall market demand remains strong.

Lu Zhiyuan pointed out that the gross margins of Winbond's 3D MLC NAND and 2D MLC NAND are currently both very good, around 70% to 80%. With new capacity gradually coming online, if product prices do not undergo a significant reversal, the company's overall gross margin still has room to continue rising.

However, Lu Zhiyuan also warned that gross margins cannot rise indefinitely and will be affected by manufacturing costs, R&D investments, and product mix. In other words, the 'gross margin approaching 80%' is based on the conditions of sustained supply-demand tightness, ASP maintaining high levels, and new capacity being successfully released, and is not an official financial forecast.

In addition to the NAND and eMMC supply gap, AI servers have also become an important growth driver for Winbond's high-capacity NOR Flash. Lu Zhiyuan stated that as NVIDIA's GPU platform evolves from Hopper, Blackwell to Rubin, the high-capacity NOR Flash required by each AI platform has increased exponentially. Winbond's strategy is not to fully attack all NOR markets but to focus on high-reliability, high-capacity, and high-value-added products.

In Q2, Winbond's NOR revenue was dominated by computer-related applications (48%), communication-related (21%), industrial/medical/aerospace (13%), automotive electronics (11%), and consumer electronics (7%). Among these, computer-related NOR revenue increased 63% QoQ and 177% YoY, reflecting the impact of AI servers and high-performance computing demand.

Regarding the automotive market, Lu Zhiyuan stated that the demand for automotive Flash solutions remains stable, and automotive customers who previously adjusted inventory have gradually returned. The demand for industrial, medical, and aerospace markets, which require high reliability and long-term supply, also continues to grow.

To meet the demand for NAND, eMMC, and high-capacity NOR, Winbond's board of directors approved an additional NT$1.58 billion in capital expenditure, adding to the NT$2.2 billion planned at the beginning of the year, bringing the total investment budget to approximately NT$3.78 billion.

Ye Peifu stated that new equipment will gradually arrive starting in the second half of this year, with the main capacity contribution expected in 2027. In the first half of the year, some Flash capacity will be increased, and in the second half of the year, new 3D NAND capacity will gradually be released. New equipment is expected to begin depreciation in 2028.

Lu Zhiyuan pointed out that the additional NT$1.58 billion investment can increase monthly production capacity by approximately 4,000 to 5,000 12-inch wafers, raising the 12-inch fab's monthly capacity from the current approximately 25,000 to over 30,000.

Of the new investment, approximately NT$1.1 billion will be used for production process equipment, NT$300 million for facility, automation handling, and crane equipment, and the remaining less than NT$100 million for back-end testing equipment. New capacity will be prioritized for NAND and eMMC products.

Lu Zhiyuan explained that the investment amount for high-density 3D NAND production lines is enormous, and if an increase of 10,000 wafers per month is desired, the investment amount could reach NT$10 billion. In comparison, this additional NT$1.58 billion investment, if market prices do not collapse, has the opportunity to be recovered in less than two years, so Winbond decided to seize the current supply-demand gap to expand production.

There is no new factory space, and the difficulty in obtaining land in the science park is a challenge for expansion. Winbond's 8-inch fab utilization rate is already close to 100%, with a monthly capacity exceeding 130,000 wafers. The 12-inch fab is also in a fully loaded state. New equipment will be placed in existing factories, and the company plans to convert some office and warehouse space for production purposes. There are no definite plans for new factory construction or factory leasing in the short term.

However, Lu Zhiyuan admitted that the difficulty in obtaining land in the science park has become a challenge for the company's future expansion. If market demand continues to grow, how to obtain new production space will be a problem that Winbond must solve in the next stage.

In terms of technology layout, Winbond's 48-layer and 96-layer 3D NAND have entered mass production, with 192-layer products expected to enter mass production in 2027. There are currently no plans for mass production of 300-layer products. 3D NAND is mainly invested in MLC and eMMC products, with SLC still mainly using 2D NAND. Currently, more than 70% of NAND is