Longsys Q3 2026: The Wafers Bought in Spring Reached Cost of Sales. Margin Fell 16.5 Points; the Cash Came.

The setup

Longsys sold 3.2% more memory in the third quarter than in the second and earned 44.2% less for its shareholders, because the wafers it bought at first-half contract prices finally reached cost of sales and took gross margin from 61.26% to 44.74%. Our call is that this is the warehouse's cost basis catching up, not the cycle turning, and the test is dated: fourth-quarter gross margin in the 2026 annual report, due by April 30, 2027, at or above 40%; below 35% refutes it.

Longsys (江波龙, 301308.SZ; 09976.HK) filed its third-quarter report on October 29, 2026. Revenue was RMB 14.63B (~US$2.20B at ~6.66 CNY/USD, approximate), up 123.74% on the year. Net profit attributable to shareholders was RMB 3.74B (~US$562M), up 436.60%. Ex-items profit was RMB 4.16B, up 832.09%, and the company adds that it was RMB 4.434B before share-based pay. For the nine months, revenue was RMB 38.72B (+131.37%) and attributable profit RMB 14.32B (+1,909.68%), against RMB 1.42B for the whole of 2025. The A-shares closed October 30 at RMB 212.17 (~US$31.86), down 4.22% on the day; the Hong Kong shares closed at HK$140.60 (~US$18.07 at ~7.78 HKD/USD, approximate) (market data, not a filing figure).

The year-on-year numbers are the least useful thing in the release. A year ago Longsys was earning RMB 697.9M a quarter on an 18.92% gross margin, before the memory makers turned their capacity to AI parts and commodity DRAM and NAND went short. The comparison that matters is the second quarter, when Longsys printed RMB 6.71B of attributable profit on RMB 14.18B of revenue and a 61.26% gross margin. Against that quarter, revenue rose RMB 450.2M and gross profit fell RMB 2.14B.

In August we called Longsys's margin a holding-period margin: the spread between what it paid for wafers and what the finished goods now clear at, not a manufacturing margin, because Longsys owns no memory fab. The thesis library calls that the warehouse is the position. The third quarter is the first print where the position's cost basis moved faster than its selling price. Cost of sales rose 47.2% on the quarter while revenue rose 3.2%. That is what happens when cheap stock is used up and the stock bought at spring prices starts to ship, and it is a different event from prices falling.

The other half of the August call was cash. We wrote that the print was a price event and the next print would be a cash event. It was. Operating cash flow was RMB 877.4M in the quarter, the first positive quarter since the third quarter of 2025, after RMB 5.27B of outflow over the three quarters before it. Cash on the balance sheet went from RMB 3.11B to RMB 13.46B, almost all of it from the Hong Kong listing and an A-share placement, and net debt fell from RMB 13.55B to RMB 4.09B.

The numbers

Longsys reports under PRC accounting standards and the third-quarter report is unaudited. It carries a nine-month income statement and cash-flow statement, not three-month ones, so every third-quarter flow here is the nine-month figure less the half-year figure, and every second-quarter flow is the half-year figure less the first quarter. Balances are as reported. Borrowings are short-term borrowings, long-term borrowings and the current portion of non-current liabilities. A dash means the line was not broken out for that period in a way we could derive cleanly.

Three things stand out before any argument. Gross margin fell 16.52 points in one quarter, the first quarterly fall in the seven-quarter series. Revenue still grew, so the fall is a cost event, not a volume event. And the two lines that measure how the company deals with its trading partners both rose by about RMB 1B: customers paid RMB 956.3M more in advance, and Longsys paid its suppliers RMB 984.7M more in advance.

The release explains the quarter in one sentence: "DRAM and NAND Flash price increases narrowed markedly from the earlier period because of the high base, and the marginal contribution of rising storage wafer prices to the company's profit slowed significantly." Decode: the company is telling you that its profit was the price move, and that the price move slowed. It does not say prices fell. SK hynix, on our page two days earlier, put third-quarter DRAM selling prices up in the high-20s percent and NAND up in the mid-20s. Prices rose; Longsys's cost of the goods it sold rose faster. That is the warehouse mechanism working in reverse of the first half, and it is the most important sentence in the filing.