Gigadevice (603986) Report Interpretation

Overview

This China AI Tour note summarizes Gigadevice management’s outlook for Specialty DRAM, SLC NAND and NOR Flash. Goldman Sachs maintains Buy, pointing to continued pricing and mix benefits in memory products, especially an anticipated acceleration in SLC NAND shipments during 2027E.

Core views

Goldman Sachs hosted Gigadevice management in Beijing on 10 September as part of its China AI Tour. Management remained positive on quarter-on-quarter growth in Specialty DRAM and NAND ASPs, while acknowledging that the growth rate should slow because comparisons are becoming more demanding. The discussion centered on Specialty DRAM, SLC NAND and NOR Flash, alongside the longer-term contribution from the company’s 3D DRAM projects with brand customers. For Specialty DRAM, management expects DDR4 pricing to continue rising quarter-on-quarter in 3Q26 and 4Q26, although the rate of increase should gradually narrow. The company’s Specialty DRAM revenue mix is approximately 30%-35% consumer electronics and about 40% networking and industrial products, leaving end-demand conditions in consumer electronics important. Near-term monthly production may fluctuate during the migration to DDR4, but management expects product-mix improvement to lift blended Specialty DRAM ASP and margins. Wafer shipments are expected to grow mildly in 2027E and then expand gradually as capacity rises. Management noted that Specialty DRAM wafer costs are set when production is completed, making cost trends closer to prevailing market conditions. SLC NAND was the strongest near-term growth area discussed. Revenue was approximately Rmb1.5bn in 1H26, compared with approximately Rmb500m in all of 2025, supported by both higher shipments and ASPs. Management expects strong SLC NAND wafer-shipment growth in 2027E as local foundry partners expand capacity. It also expects pricing to remain at high levels in 2027E because global-tier peers are transitioning from 2D NAND to 3D NAND to address AI demand. Gigadevice’s stated SLC NAND coverage spans 1G to 8G products. For NOR Flash, management expects mild ASP growth, led mainly by high-density NOR Flash products. Separately, Gigadevice continues to work with brand customers on 3D DRAM projects; management expects these projects to become a more meaningful revenue contributor in 2027E and 2028E. Profitability improved materially in 2Q26, with gross margin reaching 66.6% versus 57.1% in 1Q26. Management sees further gross-margin upside in 3Q26E and 4Q26E as prices increase. However, it expects margins eventually to stabilize as ASP growth slows and wafer-fabrication costs rise. Goldman Sachs maintains Buy and a 12-month Rmb391 target price. The valuation uses a 35.1x 2030E P/E multiple, discounted back to 2027E using a 12% cost of equity. The cost-of-equity inputs are beta of 1.3, a 3.5% risk-free rate and a 6.5% market-risk premium. The target multiple is derived from the relationship between peers’ P/E multiples and year-on-year net-income growth, applied to the company’s 2031E net-income growth. At the reported Rmb371.32 closing price on 11 September 2026, the target implies 5.3% upside.

Analysis framework

The report combines management commentary from the China AI Tour with product-level volume, pricing, mix and margin analysis. It assesses the timing of capacity expansion and product transitions across DRAM and NAND, then values Gigadevice using a forward P/E multiple linked to peer P/E versus net-income-growth relationships and discounts that value back to 2027E using a cost of equity.

Methodology notes

• Industry AnalysisSupply-demand framework

  Memory-product supply, capacity expansion, product migration and ASP analysis

  The report links foundry capacity expansion, peers’ transition from 2D to 3D NAND, product mix and end demand to expected shipment, ASP and margin outcomes for Gigadevice’s memory products.

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation tied to peers’ P/E and net-income-growth relationship

  Goldman Sachs applies a 35.1x 2030E P/E multiple based on peer P/E versus year-on-year net-income growth, then discounts the resulting value back to 2027E using a 12% cost of equity.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Gigadevice (603986.SH)

  Primary covered company; expected to benefit from Specialty DRAM mix upgrading, continued memory ASP gains and SLC NAND capacity-supported shipment growth.

  Strengths

  SLC NAND revenue growth supported by volumes and ASPs; broad 1G-8G SLC NAND coverage; expected Specialty DRAM blended-ASP and margin benefit from mix upgrade.

  Weaknesses

  High consumer-electronics exposure makes end demand relevant; near-term monthly production may fluctuate during DDR4 migration.

  Comparison

  Management expects global-tier peers’ transition from 2D to 3D NAND for AI demand to support high SLC NAND pricing in 2027E.

  Risks

  Weaker MCU demand and pricing, faster-than-expected NOR Flash capacity expansion, or more intense competition could pressure sales, prices, market share and margins.

Key data

• SLC NAND revenue~Rmb1.5bn in 1H26Versus ~Rmb500m in 2025; supported by shipment growth and higher ASPs.
• Specialty DRAM revenue mix: consumer electronics~30%-35%Consumer end demand remains important because of this exposure.
• Specialty DRAM revenue mix: networking and industrial~40%Management cited this share of Specialty DRAM revenue.
• Gross margin66.6% in 2Q26Up from 57.1% in 1Q26; management sees further upside in 3Q and 4Q26E.
• Target priceRmb391.0012-month target price based on 35.1x 2030E P/E discounted to 2027E.
• Closing priceRmb371.32As of 11 September 2026 close; the reported target-price upside is 5.3%.
• 2027E revenue forecastRmb19,903.3mnGoldman Sachs forecast, versus Rmb16,528.5mn in 2026E.
• 2027E EPS forecastRmb8.92Goldman Sachs forecast, versus Rmb7.56 in 2026E.

Impact & implications

The report argues that mix improvement and higher memory pricing can support near-term Specialty DRAM profitability, while local foundry capacity expansion could make SLC NAND the principal shipment-growth driver in 2027E. It also identifies 3D DRAM projects as a potential more meaningful revenue source from 2027E-28E, while expecting eventual margin stabilization as price growth slows and fabrication costs rise.

Risks

• MCU demand and pricing could be weaker than Goldman Sachs expects, causing substantially slower sales and a steeper margin decline.
• NOR Flash industry capacity could expand faster than expected, driving faster price declines and longer-term structural pricing weakness.
• Competition could intensify beyond expectations, resulting in market-share loss and margin pressure.

What to watch

• Quarter-on-quarter DDR4 pricing and whether its growth rate narrows in 3Q26 and 4Q26.
• Specialty DRAM product-mix progression, production fluctuations during DDR4 migration and 2027E wafer-shipment growth.
• Local foundry-partner capacity expansion and the resulting pace of SLC NAND wafer shipments in 2027E.
• SLC NAND pricing as global peers shift capacity from 2D NAND to 3D NAND for AI demand.
• Gross-margin progression in 3Q26E and 4Q26E as pricing gains contend with slower ASP growth and rising wafer-fabrication costs.
• The timing and revenue contribution of brand-client 3D DRAM projects in 2027E and 2028E.