A company projected to earn nearly 10 billion yuan in half a year is not experiencing the cash abundance one might expect.
Recently, Shenzhen Longsys Electronics Co.,Ltd. (ASX: 301308), riding the wave of storage price increases, released an explosive preliminary earnings report for the first half of 2026. The company expects to achieve net profit attributable to shareholders of 9.2 billion to 11 billion yuan, a staggering year-on-year increase of 62,204.03% to 74,393.95%.
In the same period last year, its profit was a mere 14.77 million yuan. Based on the lower end of the forecast at 9.2 billion yuan, Longsys averaged approximately 50.83 million yuan in daily profit this first half. The profit earned over the entire first half of last year could be matched in just about 7 hours this year.
This figure is dramatic enough.
However, focusing solely on the "700-fold profit surge" risks overlooking a more critical clue in Longsys's financials.
Prior to this half-year forecast, an anomaly had already surfaced in the company's first-quarter report for 2026: net profit attributable to shareholders reached 3.862 billion yuan, yet net cash flow from operating activities was negative 2.875 billion yuan.
This indicates that while profits have been rapidly realized, operational cash flow has not improved correspondingly.
The reason lies in inventory.
Storage products purchased at low prices in the past are now turning into profits amid rising industry prices. However, to continue capitalizing on this upward trend, Longsys is buying more goods at higher prices, effectively locking up more cash back in its warehouses.
Therefore, the truly noteworthy discussion point for Longsys is not just why profits surged 700-fold.
A more critical question is: after last year's slow-moving inventory transformed into a profit jackpot, can this year's newly acquired high-priced inventory deliver another big win?
Inventory Revaluation Transforms the Income Statement
The most intriguing aspect of Longsys's recent performance is its suddenly transformed profitability, which no longer resembles that of a typical storage product assembler.
In the first quarter of 2026, the company reported revenue of 9.909 billion yuan and net profit of 3.862 billion yuan. A rough calculation based on revenue and cost yields a quarterly gross margin of 55.53%. This is a stark contrast to the 152 million yuan loss reported in the same period the previous year.
A company that hasn't suddenly changed its business model or gained upstream wafer manufacturing capabilities has transformed from losses to high-margin, massive profits within a year. This shift indicates that the key lies not just in operational efficiency but in the dramatic reversal of storage product prices.
More precisely, Longsys's income statement has been rewritten by the substantial price gap between its inventory procurement costs and current selling prices.
The storage industry is unique: while products appear to be standardized components, their price volatility is extreme. For core storage products like NAND Flash and DRAM, once an upcycle begins, selling the same batch at different times can yield profits of entirely different magnitudes.
This is particularly crucial for Longsys.
It lacks the wafer fabrication capabilities of giants like Samsung, Micron, or SK Hynix and does not control upstream NAND Flash and DRAM production capacity. Its role is to purchase wafers from upstream manufacturers, then process them through controller chips, firmware, packaging/testing, product design, and brand channels into finished products like SSDs, memory modules, and embedded storage for sale.
Consequently, Longsys's windfall stems from the suddenly widened spread between its "purchase cost" and "selling price."
This explains why inventory has become so pivotal. For a midstream module manufacturer, inventory is not just warehouse stock; it's a record of the company's position within the industry cycle. It records whether the company bought goods at low or high prices and determines whether profits will be amplified or eroded when industry prices change.
The first half of 2025 was an awkward period for Longsys. The company achieved revenue of 10.196 billion yuan but net profit of only 14.77 million yuan. This translates to retaining roughly 0.14 yuan for every 100 yuan of products sold—more akin to maintaining turnover than generating profit.
Greater pressure was evident on the balance sheet.
As of the end of June 2025, Longsys's inventory stood at 8.076 billion yuan, accounting for 65.05% of its current assets. Such inventory levels were unappealing during an industry trough.
Storage prices had not yet truly recovered, downstream customers like smartphone and PC makers were still digesting their own inventories, and weak consumer electronics demand meant customers were in no hurry to buy, preventing products from fetching good prices.
This inventory tied up cash in warehouses and weighed on profit expectations in the financial statements.
If prices had continued to fall, they could have turned into inventory write-down losses. Longsys itself warned in its half-year report that if market supply/demand, raw material prices, and product gross margins deteriorated further, the company would face inventory devaluation risks.
In essence, during the first half of 2025, this inventory was far from a gold mine; it was more like an asset that couldn't be sold at a good price but couldn't be easily disposed of either.
The turning point arrived in the second half of 2025.
As smartphone and PC client inventories gradually normalized, and demand from AI data centers, enterprise storage, and edge AI devices heated up, the storage industry re-entered a price upcycle.
Simultaneously, upstream manufacturers shifted more capacity and resources towards AI-related products like HBM and high-end DRAM, tightening the supply of conventional storage chips.
With demand rising and supply constrained, storage prices were pushed higher.
At this juncture, the wafers and products Longsys had purchased at low levels and held in its warehouses suddenly became a profit spring.
The same batch of goods that couldn't fetch a good price during the trough could now contribute staggering margins during the price surge. This is the core explanation for Longsys's profit explosion.
The company didn't suddenly become an upstream manufacturer, nor did its business model fundamentally change. What changed was that the low-cost inventory previously weighing on its books had caught the wave of rising storage prices.
The inventory that seemed to drag on cash flow and pose impairment risks last year was repriced by the industry cycle, directly transforming into the most powerful engine on this year's income statement.
A Calculated Gamble for High Stakes?
Many companies were aware of the storage price increases.
The real challenge was committing capital in advance, before prices had fully risen and profits had visibly thickened.
The magnitude of Longsys's profit elasticity stems not only from its legacy of low-cost inventory but also from its subsequent decision to replenish stock.
In hindsight, this move appears to have perfectly timed the cycle. However, placed back in 2025, Longsys was in an uncomfortable position: it had just endured a barely profitable half-year, and inventory in its warehouses was already substantial.
Normally, companies tend to become more conservative in such situations. Continuing to purchase goods means tying up more cash; if prices didn't subsequently rise, the new inventory would become a fresh financial burden.
Yet, Longsys didn't rush to lighten its warehouse load. Instead, it added more goods.
According to its Hong Kong IPO application materials, inventory turnover days increased from 170.4 days to 190.7 days in 2025, primarily due to the company proactively increasing inventory in the fourth quarter in anticipation of strong market demand.
By the end of 2025, Longsys's inventory had risen from 8.076 billion yuan at the end of June to 11.678 billion yuan, an increase of approximately 3.6 billion yuan in half a year.
This signifies that as the industry showed initial signs of recovery, before profits had truly materialized, Longsys had already converted more cash into wafers and storage products.
Executing this step relied first on its judgment of demand shifts.
After the second half of 2025, demand from AI servers, enterprise storage, and edge AI devices continued to heat up. Storage products were no longer just components in the smartphone/PC cycle but also became part of AI computing expansion. With the demand structure changing, price expectations shifted accordingly.
As more manufacturers began anticipating rising storage prices, companies that had secured supply in advance naturally held greater initiative.
Secondly, Longsys maintains stable upstream procurement relationships.
Storage wafer supply is highly concentrated. The top five global players hold about 90% of the NAND Flash market, and the top three hold over 90% of the DRAM market.
Within this industrial structure, for a storage product company to profit more during an upcycle, the prerequisite is securing wafers.
Longsys has long-term supply agreements with several leading manufacturers. During downturns, such relationships might mean not being able to easily halt purchases; during upswings, they become a ticket to supply in a tight environment.
Without a stable supply source, even the best market conditions mean watching others profit.
Looking further, Longsys also possesses its own brands and channels.
Its three brands—FORESEE, Lexar, and Zilia—cater to different clients and markets. Among them, Lexar has strong recognition in the consumer storage market, with products reaching over 60 countries across six continents through channels like Costco, Best Buy, and Yodobashi Camera.
It consistently ranks second globally in the professional imaging memory card segment and third in the overall branded SSD channel rankings, making it a leading global independent consumer storage brand. In 2025, its retail shipment scale remained at the forefront of the industry.
Having a supply source only solves the "where to buy" problem; having channels solves the "who to sell to" problem.
For a midstream storage company like Longsys, cycle judgment ultimately depends on sales execution. Correctly anticipating the price trend is just the first step; profits materialize only when inventory is actually sold.
This also distinguishes it from many smaller storage companies.
Even if a small company correctly reads the market, it may not secure sufficient supply; even with supply, it may lack the strong channels to digest it; with unstable channels, inventory can quickly turn from an opportunity into a burden.
Longsys's ability to capitalize on this cycle relies on a comprehensive set of capabilities: sourcing from upstream, manufacturing products, distributing to downstream customers, and withstanding the financial strain of inventory holding.
The last point, in particular, is often overlooked: building inventory in the storage industry is essentially exchanging cash for time.
Goods purchased don't immediately turn into revenue. Wafers need processing, products need warehousing, orders need fulfillment, and payments need collection. Throughout this process, significant capital remains tied up in inventory and accounts receivable.
Longsys's inventory turnover days approached 200 days in 2025, meaning the average cycle from purchase to final turnover could exceed half a year.
If a company lacks sufficient financial strength, even with correct cycle judgment, it might not last until prices actually rise.
Before the price increase fully materializes, inventory is merely a cash flow drain; only after prices rise does it become a profit spring.
Longsys's willingness to replenish inventory when profits were nearly zero was supported by long-term supply agreements, a global brand and channel network, and medium-to-long-term financing capabilities.
Thus, while the profit surge appears like a sudden windfall, Longsys wasn't merely standing by waiting for money to fall.
It maintained its supply relationships during the industry trough, replenished inventory before prices rebounded, and utilized its brands and channels to sell that inventory.
The cycle provided the opportunity, and the company had strategically positioned its warehouses and finances to seize it.
Profits Soar, Yet Cash Flow Remains Strained
Despite the massive profits, Longsys has not found itself in an easier position.
The half-year earnings forecast is undoubtedly explosive.
However, looking back slightly earlier, the first-quarter report had already revealed another clue.
In the first quarter of 2026, Longsys's net profit attributable to shareholders reached 3.862 billion yuan, while net cash flow from operating activities was negative 2.875 billion yuan.
This means that alongside rapid profit realization, the company's operational cash flow did not improve in tandem. During a storage upcycle, midstream module manufacturers commonly experience temporary negative operating cash flow, primarily due to funds being tied up in advance purchases to secure supply—a characteristic financial feature of the cyclical expansion phase, not indicative of deteriorating operations.
The reason, again, is inventory.
Storage products purchased at low prices in the past are being sold at higher current prices, naturally boosting profits. Simultaneously, to continue capturing the benefits of the rising market, Longsys is procuring new wafers and products at even higher prices.
Profits are booked, but cash flows back into the warehouse. This explains why Longsys is earning massively while its cash flow remains tight.
At the end of 2025, Longsys's inventory was 11.678 billion yuan. By the end of the first quarter of 2026, this figure had increased to 17.961 billion yuan, a rise of 6.283 billion yuan in three months.
During the same period, prepayments increased from 658 million yuan to 3.551 billion yuan, and long-term borrowings rose from 4.377 billion yuan to 9.431 billion yuan.
Connecting these figures paints a clear picture of Longsys's current state: profits from the previous round of low-cost inventory are being realized, while a new round of higher-cost inventory is steadily accumulating on the balance sheet.
This has practical justification. During a phase of rising storage prices and tight upstream supply, the greatest fear for a midstream storage company is being caught without inventory. No inventory means no shipping capacity; without shipping capacity, even the strongest upcycle is merely an opportunity to watch others profit.
Longsys's previous round proved that holding inventory in advance can indeed amplify profits when prices rise. However, the same action carries entirely different risks at different price points.
Last year's low-cost inventory was a profit spring. This year's newly acquired high-cost inventory comes with significantly elevated purchase prices.
If storage prices continue to rise, this inventory can still contribute to profits. However, if future storage prices experience a sustained, significant decline, the realizable value of the high-priced inventory could fall below its book cost, triggering substantial inventory write-downs that would directly erode current profits. If prices only fluctuate mildly or maintain a gentle uptrend, the high inventory levels could continue to support earnings.
Longsys has been burned by this before.
In 2023, the company recorded inventory devaluation losses of 356 million yuan. In 2024, this figure increased further to 566 million yuan. Over two years, cumulative write-downs totaled 922 million yuan—over 900 million yuan erased from profits.
This highlights the most brutal aspect of the storage industry. The same batch of inventory can be a winning chip in an upcycle and a crippling burden in a downcycle.
Even upstream manufacturers struggle to escape this cyclicality.
In the first quarter of 2023, impacted by continued client inventory digestion and declining storage demand, Samsung's DS division, responsible for memory chips, reported a quarterly operating loss of 4.58 trillion won.
If a global leader with production control and technology can be dragged into losses by falling prices, a midstream player like Longsys naturally needs to be even more vigilant about inventory turning against it.
Therefore, the real test for Longsys is not whether it can profit during the upcycle, but whether, after earning those profits, it can control the rhythm of inventory scale relative to its cash flow.
If the storage market continues upward, high inventory will be seen as proactive aggression. If the market suddenly cools, the same inventory becomes a performance pressure point.
The most dangerous moment in the storage industry is often not when no one is making money, but when making money becomes too easy. Because the thicker the profits, the more likely companies are to linearly extrapolate continued market gains; the higher prices rise, the harder it becomes for companies to proactively scale back procurement at the peak.
Longsys currently finds itself in this exact position.
A projected first-half profit surge of up to 744-fold confirms it has fully captured the红利 of this storage price upcycle. Conversely, the negative operating cash flow in the first quarter serves as an early reminder that this红利 comes with a financial cost.
Last year's backlog of low-cost inventory has already delivered a 700-fold performance jackpot for Longsys. Yet, the cash flow shift in the first-quarter report also warns the market: to continue capitalizing on this trend, the company is persistently channeling substantial cash back into its warehouses.
Whether this year's continuously acquired high-priced inventory will become the next cyclical prize or the next round of performance burden remains an open question.
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