Sandisk (SNDK) Q1 Fiscal Year 2027 Earnings Call Transcript

And that the AI data center opportunity will approach the size of the NAND industry today.

End Markets: Data Center, Edge and Consumer

Turning to our end markets.

In data center, our portfolio addresses the full range of AI infrastructure requirements from performance-intensive enterprise SSDs to high-capacity platforms.

Demand remains strong and continues to grow. And we estimate that data center has expanded from approximately 20% of industry bits early in the decade to roughly half of the industry bits today.

This quarter, data center again delivered strong growth and continued to outpace the broader market as we allocated more supply to address the growing demand from this end market.

Edge is a large and strategically important market for Sandisk, spanning smartphones, PCs, automotive tablets, and an expanding range of physical AI applications.

Automotive is becoming an increasingly important growth vector in our edge business and a meaningful long-term growth opportunity. We have deepening engagements with leading customers Reinforcing our confidence that automotive can become one of the largest markets within edge over time.

Our consumer business remains a differentiated strategic asset. Combining direct brand engagement with hundreds of millions of end users and broad shelf presence across the world’s leading channel partners.

The consumer end market provides a durable foundation for our business. While its direct connection to the market informs product development and provides early insight into shifts in end-user demand.

Taken together, these results reinforce the durability model we outlined at our Investor Day. We have established a strong level of profitability and cash generation, and our focus from here is consistent execution across the portfolio.

With that, I’ll turn the call over to Luis for a detailed update on our business and outlook.

CFO Remarks: Q1 FY2027 Financial Results

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Thank you, David. We’re executing the strategies and plans that we outlined at Investor Day, and we’re delivering attractive financial results.

In the first quarter, we closed 2 NBMs. Because both deals closed before our fourth quarter earnings call, we announced these partnerships on that call.

We’re in active conversations with existing NBM customers that are evaluating extending existing agreements and with new customers that are evaluating new NBMs.

These long-term partnerships provide greater visibility into demand and financial performance, supporting a more durable financial model. We will remain patient and disciplined in selecting the right long-term partners as we define the optimal percentage of our bits that we allocate to NBMs, which is likely higher than our current levels.

Revenue for the first quarter was $11 billion, up 23% sequentially and 378% year-over-year. This compares favorably with our guidance range of $10.3 to $10.8 billion.

Both volume growth and higher pricing contributed to revenue growth, with approximately 60% of the increase attributable to volume growth and 40% to higher pricing.

Data center revenue was $4.8 billion, up 61% sequentially, outpacing estimated market growth for the quarter. Our leading products and strong customer partnerships including 3 U.S. hyperscalers, underpin our continued expansion in this fast-growing end market.

Edge revenue was $5.8 billion, up 7% sequentially, Reflecting resilience in premium and mainstream markets, partially offset by contraction at the lower end. Within edge, we saw strong growth with automotive and IoT Customers.

Consumer revenue was $397 million, down 29% sequentially as the market adjusts to higher pricing. We remain committed to serving all 3 end markets with a diversified portfolio that optimizes our performance over time.

Non-GAAP gross margin for the first quarter was 85.1%, up from 84.6% in the prior quarter, driven by higher volumes and pricing. This compares favorably with our guidance range of 83% to 85%.

Non-GAAP operating expenses were $513 million, representing 4.7% of revenue. Non-GAAP operating margin was 80.4% compared to 79.2% in the prior quarter.

Non-GAAP EPS was $49.51 Up from $39.25 in the prior quarter and $1.22 in the same quarter of the prior fiscal year. This compares favorably with our guidance range Of $44 to $46, we closed the quarter with 154 million diluted shares outstanding.

Key GAAP to non-GAAP reconciliation includes $91 million in stock-based compensation representing 0.8% of revenue and $513 million gain on equity securities primarily attributable to investment in Nanya.

Share Repurchases and Free Cash Flow

During the quarter, we repurchased approximately 3.2 million shares of our common stock for $5 billion. Over the past 2 quarters, we have repurchased 6 million shares representing approximately 4% of our total shares outstanding.

Our repurchases reflect our conviction in the long-term value of the business and our disciplined approach to capital allocation. We continue to invest appropriately in the business while returning 100% of excess cash to shareholders.

Moving on to free cash flow. Cash flow from operations was $6.4 billion.

Gross capital expenditures totaled $378 million, representing 3.4% of revenue. We expect gross capital spending to increase during the balance of the year and represent mid-single-digit percentage of revenue for fiscal year 2027.

During the quarter, we generated $5.7 billion in adjusted free cash flow. Representing approximately 52% margin. We closed the quarter with $5.1 billion in cash and cash equivalents and no debt.

8-for-1 Stock Split and Q2 FY2027 Guidance

Moving on to guidance. Our confidence in the long-term health of the market is reinforced by the structural growth of the AI infrastructure and the expanding role of NAND across inference workloads.

Before turning to our 2nd quarter outlook, I will announce that the Sandisk Board of Directors has approved an 8-for-1 stock split of the company’s common stock.

The additional shares are expected to be distributed on November 19th, and trading on a split-adjusted basis is expected to begin on November 20th.

For the 2nd quarter of fiscal year 2027, we expect revenue between $12.2 billion and $12.6 billion.

We expect non-GAAP gross margin between 84.5% and 85.5%. which includes modest like-for-like price increases.

On a pre-split basis, we expect non-GAAP EPS between $55 and $57, assuming 151 million fully diluted shares.

On an 8-for-1 split-adjusted basis, this equates to non-GAAP EPS between $6.88 and $7.13, assuming approximately 1,208 million fully diluted shares.

For context, we expect a strong market in calendar year 2027. Data center is expected to be again the engine of growth and represent over 55% of the market. With bit demand growing about 40% year-on-year, enabled by higher AI-driven capital spending.

This is after more than doubling in 2026. Our NBM pipeline exceeds our supply throughout the end of the decade.

With that, let me turn the call back to David.

CEO Concluding Remarks

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thank you, Luis. We continue to execute on the strategy we outlined at Investor Day, reinforcing our confidence in Sandisk’s long-term trajectory.

Our technology leadership, deep customer partnership, and disciplined financial management, supported by a structural increase in NAND demand driven by AI, position us to serve our customers, deliver growing and durable free cash flow, and return capital to shareholders.

Over the past year, we have transformed the earnings and cash generation power of the business and established a strong foundation for durable performance.

We remain focused on disciplined execution, sustained value creation, and delivering against our long-term financial objectives.

With that, Ivan, let’s open it up for questions.

Question-and-Answer Session

OPERATOR: At this time, we’ll begin the question and answer session. To ask a question, you may press star and then 1 on your telephone keypad.

If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, you may press star and 2. At this time, we will pause momentarily to assemble the roster.

Our first question today comes from Ben Reitzes from Melius Research. Please go ahead with your question.

NBM Pipeline and PC Market Demand

Ben Reitzes, Analyst – Melius Research: Hey guys, thank you very much. I appreciate it. Hey, Dave.

Wanted to ask 2 if I could. One on the NBMs.

You signed 2 before the last call. So I’m just wondering if we’re going to have a lot more of them because it seems like you’re already capacity constrained to agree to them. And then do you mind reminding us what the bits under contract will be the next few years, if that’s changed at all? And then I have a quick follow-up. Thanks.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, I’ll make a few— thanks, Ben. We appreciate it. Always good to hear from you.

So I’ll make a few comments on NBMs and then Luis will fill in.

Yeah, we’ve got a very strong pipeline of NBMs and you kind of hit on all the issues there as the portfolio gets more subscribed and more committed. And we’re at half the bits for this fiscal year and 2/3 for next year.

It’s a fitting exercise to get the next tranche of them in there, but the pipeline is very strong. I think we said last quarter— I know we said last quarter that we’re going to be patient and consider the next set of customers. And that’s exactly what we’re doing.

And we expect more of them over the next several months, several quarters as we continue to allocate the rest of the portfolio. So the pipeline is very strong. And growing, quite frankly.

And it’s become the predominant way we deal with our customers. And I expect that the percent of the portfolio committed to continue to go up over the next couple of quarters. So, Luis.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, I mean, just a few things because I think David covered most of it. We feel very good about where we are with the NBMs. As you know, we’ve been very selective, very strategic in who we chose to sign these deals with.

We’re looking at the companies we have and 95% of our NBMs are with companies that are investment grade. And they generated about $130 billion in operating cash flow. So we feel that we’ve made the right choices.

And as David just mentioned, we’ll continue to be patient. We’ll continue to be selective. And the pipeline is terrific. So you should expect us to continue to make progress.

I think in my prepared remarks I said that we expect the bits to continue to grow. We had shared with you that about 50% of our bits are under NBM for ’27 and about 2/3 for ’28. And we expect that number to continue to go a little bit higher. From the 2/3.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Hey, Ben, I’ll just make one more comment. You got to ask 2 questions, so I’ll make 2 comments. We’re also balancing customers that are coming back for more. That is a real thing.

And in general, we’re hearing from our customers that they have underestimated the amount of NAND they need to run their infrastructure. And so we have multiple customers coming back for a second round And then balancing that against bringing new customers into the portfolio.

So there’s a lot to sort out, and these are big, complicated agreements, but we feel very, very good about where we are. where the pipeline is, where the portfolio’s at, the products are resonating.

And we’ll continue to update you as we build out the portfolio of NBMs over the next couple of quarters.

Ben Reitzes, Analyst – Melius Research: Okay, great. And just a quick follow-up. You may have seen that Intel guided down for the next quarter due to PCs, and it really, the impact of the memory is more than anybody thought, at least with their guidance. Don’t know about anybody else.

Just wondering if you are seeing NBM interest from those in the PC market more. And how you— if there’s— if that market, with regard to some of the device makers, is something that will become an NBM or is actually now getting more attractive because they’re willing to pay more? How should we think about that as it looks like they’re starved for product and missing numbers in that segment?

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, I mean, Ben, we cannot talk about specific customers. What we’ve said in the past is we do have NBMs in the data center business. It’s data center-centric, but we also have customers on the edge.

And we’ve offered this construct to any customer that wants it and start a process where it makes sense. So we’re not trying to restrict it from any customer. We’re open for business.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: So, Ben, the other thing I’ll say to this, I mean, we were looking at this in our own reviews. We know that units were down this year. They’re going to be slightly down next year, low single digits.

I mean, these 2 calendar quarters right now are really the trough of the year-over-year compares where they’re the most negative. And so this is where we’re feeling the biggest amount of change in that market on a unit basis, on a year-over-year basis.

All that said, we expect the PC exabytes to grow next year.

And in fact, we think our internal models are every segment in the NAND market, PCs, smartphones, data center will all show positive growth next year because of content per device continues to go up. As you know, part of that is mixing to premium.

So there’s no doubt there’s been a market adjustment in many ways. We’re in the, as I said, from a unit basis, We’re in the teeth of that on a year-over-year basis. But we see improvement from here.

Ben Reitzes, Analyst – Melius Research: Thanks, guys.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Thank you.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thanks, Ben.

Data Center Growth and Penetration

OPERATOR: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Joe Moore, Analyst – Morgan Stanley: Great. Thank you. Seems like the underlying story here, in addition to just how good the market is, is your presence in data center. You’re up almost 20x year on year, up 61% sequentially.

Can you talk about— obviously the market’s good, but it seems like your participation is also a lot better. Is that because of BiCS8? Is that just because the market’s different? Just what is it that’s allowing you to get to those levels of penetration? And if data center is half of bits at some point, will you get to that in your own mix as well?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, Joe, so thanks for the comment. We feel very good about where we’re at in data center. I mean, anything where you see the kind of numbers we’ve posted year over year is a combination of things.

I mean, it starts with the fundamental NAND node, BiCS8 is a very good node. CBA gives you very, very clean CMOS, which is very good interface speeds, all those kinds of things. We built the right products.

We’ve had a TLC product in the market for several years now. It was just a couple of quarters ago that we started selling our QLC product for revenue and that, we expected that to ramp and that’s happening. So we got the right product at the right time based on the right technology.

And then, over the last quarter or so, there’s been a lot more refinement of the AI inference architecture is what I would say. When I look at the market and we kind of decompose it internally, customers are just getting more refined about how they’re using NAND, where they’re using TLC, where they’re using QLC, all different phases from KV cache to staging to fast data lakes and all the subparts of those markets, inference and agent orchestration, model pre-training, model post-training.

There’s just a general— we’re seeing NAND be applied in a more, I would say, nuanced way in the past. QLC is being used in the right places and you’re even seeing QLC from Some customers even move into KV cache where it can be supported.

On the other side of the spectrum, we’re seeing SLC being pulled into the architecture. It’s not really in sales yet. It’s more in architectural conversations and it’s not a performance type of conversation. It’s more endurance. During agentic workloads, the amount of endurance required.

And in that place, it’s kind of where can we substitute NAND for DRAM? And we think those kind of architectures will be very sticky over time. Once you make that transition, you’re going to stick with it given the price differential.

So we see all of these things working together. And I think these NBMs set us up for these very deep and strategic level conversations with our customers about how they’re using our product. Deep discussions with our engineers about how they could use our product to solve different use cases. And all of that is leading to a tremendous pull on our portfolio.

And like I said, our biggest customers, we’ve already signed one second tranche of an NBM and we’re in discussions in others. So the whole setup is very strong and we feel good about it. We appreciate your recognition of the performance on a year-over-year basis. It really is quite outstanding.

Joe Moore, Analyst – Morgan Stanley: Yeah, it is surprising. And where do you think the mix goes long-term in terms of could over half?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Oh yeah. So yeah, we’re working hard to catch up to have our portfolio mix, Equal what the market bits are, and we’re going to continue to make progress throughout calendar year ’27.

We’ll see if we actually catch up by the end of the quarter, but I think we’ll get to as soon. Substantially higher number on mix than we are if we look back at calendar year— or fiscal year ’26. We’ll continue to make progress here.

Joe Moore, Analyst – Morgan Stanley: Thank you.

Pricing Outlook, HBF and New NAND Tiers

OPERATOR: Our next question comes from Mark Newman from Bernstein. Please go ahead with your question.

Mark Newman, Analyst – Bernstein: Hi, thanks so much for taking the question. If I could just first of all talk about price and volume in the guidance. You talked about in the Fiscal Q1 that you just reported, I think you said 60% of the revenue growth from volume and 40% from pricing.

Baked into your guide, I mean, how do you expect that mix to progress? Any comments on pricing? Appreciate that you’ve got a very high portion of the volumes on these NBMs, but still wanted to get some clarity on pricing. I think there’s a comment that modest improvements in pricing in FQ2. Any further of clarity on that. And then I have a follow-on question on HBF and some of the new NAND technologies as well.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, so let me take the first one. Yes, you’re right. We reported about 60% of the revenue growth came from volume and 40% from pricing in Q1 roughly.

And we do expect both to contribute in the next quarter. We normally don’t break this mark into its pieces, but we do expect some modest pricing as we put in our prepared remarks. So we do expect both to contribute during the quarter and we expect pricing to continue to increase modestly throughout the year.

Mark Newman, Analyst – Bernstein: That’s helpful. Fair enough. And follow-up question is on HBF and other new NAND technologies in the data center. So there was a comment about some progress on HBF. which was great to hear, but wondered if there’s any more comments on progress and discussions with partners and customers, anything there.

And the other thing, Dave, you mentioned about some of the other new NAND technologies in the data center, StorageNext, and then there’s also this CMT. context memory. Just, what’s your view on all these types of new NAND tiers in the data center? Do you think that they all win? Just any kind of comments on the interplay of all these and the roles for each and how Sandisk plays in them and the timing would be really appreciated. Thanks.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Sure. So Mark, no, the conversations with potential customers on HBF are robust and continue to be, We’ll continue to have those conversations as we go into putting product samples in their hands that they can start to use and understand how it’s going to fit in their system. So we’ll continue to update on that. But it’s kind of an always-on conversation.

Your second question, I think this is very, very healthy for where AI inference is, which is as it scales out, it needs to be— the architecture is just being relentlessly refined for economics.

And that’s a very good thing because it’s going to, it makes, if it’s going to scale, the more economic it is, the better. And that’s pulling NAND into more parts of the architecture. Because NAND is the most scalable semiconductor technology, right?

So we’re seeing, like I said, if you would go back a couple years ago, it was all about going for more density again, going from TLC to QLC. We’re still doing that, right? That’s still a big part of the strategy. But now there’s some of it even going in the other direction.

How do I get more endurance in specific parts of the architecture. Is the endurance and the performance I get out of NAND good enough to solve the use case at a part of the architecture where I can use it over competing technologies that may be significantly more expensive and difficult to acquire. So I would say this is a very, very dynamic discussion.

There’s a lot of ideas on the table. I think there should be a lot of ideas on the table. I think they’ll all be pursued. And I think that it’s the most important thing is to stay close to the people That are spending the money to scale the infrastructure, because in the end they’ll make the decisions of what’s right for them based on the use cases they’re trying to solve at scale and where they’re putting all this money behind it.

And we’re deeply engaged in those conversations. And I expect them to continue to be very robust and have a lot of different ideas about how we could stretch our technology in different directions. to fit more and more use cases.

And in building a product, it’s always the same thing. I want the right technology at the right time and the right intensity at the right cost. And really not anything less or anything more.

And that’s what building a product is all about, because you can deliver it at the right price and then you can get the right return on it. So that process is full on in AI inference architecture working with our customers.

Mark Newman, Analyst – Bernstein: Fantastic. Thanks for the color.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Sure.

BiCS Node Transitions and Data Center Supply Allocation

OPERATOR: Our next question comes from David Gibson from MST Financial. Please go ahead with your question.

David Gibson, Analyst – MST Financial: Thanks, guys. Really great quarter. Well done. I’m just curious, can you hear me? Sorry.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yes. Yes. Hi, David.

David Gibson, Analyst – MST Financial: Just wondering if I— thanks very much for your time today. Just a quick one. Just wondering whether you’re looking to accelerate the BiCS transition from 8 to 9, 10, and so forth. As a way to accelerate the bit growth in the short term and satisfy some of that very strong customer demand?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: No, I mean, we’re committed to the bit growth we talked about, mid to high teens. Those nodal transitions require a lot of planning and tool purchases and where lines are set up.

So we’re still— we have that fab plan set up for the kind of bit growth we’ve been talking about for a long time. So no plans to change that at this point.

David Gibson, Analyst – MST Financial: Okay, thank you. Just one follow-up. You talked about earlier about allocating more supply to the data center in Q1. Are there any limits to increasingly allocating your bits to data center?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Well, I mean, it’s very— in some ways, yes. I mean, out of the fab, you come out with a certain mix of TLC, QLC, certain die mix, all these kinds of issues. So it’s a constant fitting exercise of getting the right product to the right customer.

And then there’s a lot of magic that goes on in the organization. And Luis’s organization is a big part of that, working with our sales teams of what is the available inventory, what’s coming out of the fab, what’s the mix, and where is it all going to go? So you want to say a little bit more about that?

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, I think the only thing I would add, obviously changes depending on the timeframe you’re looking at. Over the short term, it’s almost impossible to do Anything, it takes 120 days or so to produce a wafer. But obviously, as you look further out, there are more degrees of freedom.

David Gibson, Analyst – MST Financial: Okay, that’s great. Thanks very much.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thank you, David.

NBM Visibility, CapEx and Customer Deposits

OPERATOR: Our next question comes from C.J. Muse from Cantor Fitzgerald. Please go ahead with your question.

C.J. Muse, Analyst – Cantor Fitzgerald: Yeah, good afternoon. Thank you for taking the question. I guess the question on the comment around your NBM pipeline exceeding supply through the end of the decade in the slide deck, I guess, can you elaborate on that?

And how is that changing kind of your thought process around what bit supply will look like for the industry over the next handful of years? And How are you adjusting, if at all, your CapEx plans? I know you talked about mid-single digits, which implies roughly $2.5 to $3 billion gross CapEx. Fairly low kind of numbers. So we’d love to hear kind of your thoughts on how the visibility is impacting your thoughts around bit growth and supply.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Well, I mean, I think my first thing I say about it, CJ, is the process is working. I mean, it was only 2 or 3 quarters ago we talked about even instituting this kind of business model. And we had some customers that were like-minded and we made some very good progress.

And here we are a couple quarters later and it’s, we talked about this after our Investor Day. customers coming to us offering NBMs. And that now becomes— it’s not the only way we do business. There’s lots of customers with lots of different volume levels and different products. And we want to meet our customers where they are.

There’s no doubt about that. But it’s very good to see that we have a robust pipeline now through the end, through 2030. And we’re even getting beyond that, as we talked about. of customers that are really willing to give us their demand signals. And financial commitments.

And to the question earlier, those kinds of things will allow us, if we choose to, to eventually start changing supply and demand and all those kinds of things. But we’re just not there yet, right? We got to go through negotiations on all of those. We’ve got to get commitments. We’ve got to get everything all aligned.

But I would say that the process is working well, and we’re very happy with where it’s at. And it gives us a lot more visibility into how we plan. But the process is still underway, right? It’s still underway. And as I said, we’ll continue to update you over the next couple of quarters as we make progress.

C.J. Muse, Analyst – Cantor Fitzgerald: Just a quick follow-up for Luis on these contracts and considering some have deposits. Are you able to use those deposits for buybacks or is that cash restricted? Thanks so much.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, in theory we could, CJ, but as we explained at Analyst Day, the vast majority are financial guarantees which are held by third-party financial institutions. So they’re not in my balance sheet. The only thing that’s in the balance sheet is prepayments, and that’s by far the smallest amount. But there is no legal restriction on that.

C.J. Muse, Analyst – Cantor Fitzgerald: Great. Thanks so much.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thank you. Thanks, CJ.

Enterprise SSD Content per Server and Market Share

OPERATOR: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question.

Karl Ackerman, Analyst – BNP Paribas: Yes, thank you. It’s encouraging to see increasing NAND content per XPU in AI servers to support KV cache demand, which I think compares to a reduction in memory content in some server SKUs.

But Dave, could you discuss how you see enterprise SSD content per server progressing in 2027 in the context of this agentic AI proliferation? Because it’s certainly becoming a larger portion of your portfolio.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, that’s a big question, Karl. I mean, look, what we’re doing is, there’s no doubt in inference and agent orchestration that our product is tied to kind of CPU demand for those type of applications. I mean, we know at a pretty granular level the amount of demand that we expect. Per CPU, something 60 to 90 gigabytes per CPU is what we see in those kind of applications.

I haven’t run the math against what the server TAM is and kind of what the elasticity is between those 2, but we can follow up on that. But as I said earlier, We continue to see more NAND being pulled into the inference architecture. in all parts of the architecture and in very different ways, right?

TLC, QLC, and as I said earlier, now people looking for high endurance solutions that’ll fit workloads parts of the workload where they don’t need to use DRAM and they can use that type of NAND. So it’s all very encouraging and we’ll continue to stay close, but we’ll do some work on the 2 TAM analysis and what the trade-offs are between them.

Karl Ackerman, Analyst – BNP Paribas: Sure. If I may, a quick follow-up. Do you have an updated view or progress on your goal for enterprise SSD share? I mean, can you achieve perhaps that low to mid-teens share in 2027? Because you’re seeing quite successful right now. Thank you.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, we’ve tried not— I mean, in the past, many, many years ago, we put some share goals out there, and I’ve tried very hard not to put share goals out there because sometimes it leads to kind of perverse choices in the portfolio. We want to maximize the value of the portfolio across all time horizons— near-term, midterm, long-term. So we want to keep some balance into it.

Clearly, we’re going to mix higher into data center. I mean, you see that. We talked about that earlier. I think 17x growth year over year. You don’t see a 17x very often in a business at this scale. And as I said, I expect that to go higher as we go through ’27.

And the balance point in some ways will depend quarter by quarter of what we see and then what NBMs we sign. Right. Those will give us a lot of visibility over the next several years where we see that mix going. So it’s going higher, but I’m not going to put a specific target out there.

Karl Ackerman, Analyst – BNP Paribas: Thank you.

BiCS Roadmap Supply and SLC Demand

OPERATOR: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Vijay Rakesh, Analyst – Mizuho: Yeah. Hi, Dave. And it’s just a great quarter and guide. Just a quick question. As you look at data center, your 2027 looks like you mentioned 40% demand bit growth, which is massive. As you look at this BiCS8, BiCS9, BiCS10 transition, do they help you drive some bits to meet that demand? How is the supply on that side? I guess a quick follow-up.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: I mean, look, I mean, BiCS8, BiCS9, BiCS9 is a big part of a data center strategy of being able to get faster interface speeds with the same cell and kind of what CBA gives us that flexibility. We talked about that at Investor Day. So in that sense, yeah, those are big parts of the strategy. There’s no doubt about it.

So as I said earlier, It’s about getting the right product to the right customer. And the TLC product has been performing very, very well for quite some time now. And now we’re seeing the ramping of QLC and we’ll see some ramp of BiCS9.

But BiCS10 is still a little ways out, right? I mean, we announced BiCS10, but we’re still ramping BiCS8. So We’ve got a ways to go before we get out to some of those future BiCS nodes.

Vijay Rakesh, Analyst – Mizuho: Got it. And then on the endurance side, as you mentioned, some of your peers are talking about SLC NAND out there. Any thoughts how that plays out next year. Obviously, that could tighten up the NAND market as well. In addition to what you’re seeing in just overall demand growth, I guess.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: I think, yeah, I think it’s a little early to have a very strong view on that, right? We are talking to some customers that are giving us some signals of demand for SLC?

I mean, clearly you start mixing SLC and you’re going to take away, there’s a clear trade ratio of 3 to 1, 4 to 1, whether it’s TLC or QLC. So it will impact the overall supply in the market depending on how much SLC is used and how much really gets deployed. But it’s a little early to put a specific forecast on it right now.

What I would say, it’s an architectural discussion and a request from customers of better understanding the technology and how it could fit parts of the use case as they build out their inference architecture. So we’ll update you as we go over the next couple of quarters and we’ll see how this develops. But definitely something to keep an eye on.

Vijay Rakesh, Analyst – Mizuho: All right. Thank you.

Fiscal Q3 Seasonality and Share Buybacks

OPERATOR: Our next question comes from Jim Schneider from Goldman Sachs. Please go ahead with your question.

Jim Schneider, Analyst – Goldman Sachs: Good afternoon. Thanks for taking my question. I was wondering maybe on a more tactical basis, your consumer business obviously has seasonality in Q1 historically. And obviously the PC business does too, but data center is in sort of secular growth mode.

So Luis, based on your visibility at this point, I’m just wondering if you could maybe give us any kind of color on whether you’d expect Q1 to be sequentially up, down or sideways roughly.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: So fiscal Q3, you mean?

Jim Schneider, Analyst – Goldman Sachs: Yes, fiscal, the March quarter.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah. So if you look at historically, right, our Q3 is normally our weakest sequential quarter. So last quarter, for example, our bits were down 19% sequentially.

So if I— we’re not guiding Q3, but for modeling purposes, I would be conservative in your sequential growth from Q2 to Q3.

Jim Schneider, Analyst – Goldman Sachs: Thank you.

And then just as a matter of principle on the buybacks, good to see the continued execution there. I’m sort of curious as you sort of start to run down the authorization, would you expect the board to re-up their authorization on a quarterly basis? Or maybe you can provide us any more color on how you’re thinking about executing on the actual buybacks given the much lower stock price today. Thank you.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah. So we have a very clear strategy. 100% of excess cash is going to go back to shareholders. We’re going to execute that aggressively or appropriately. And I know how to get a hold of the board. We have meetings every quarter. And so I don’t expect any impedance on that side of the— from us about how we execute.

I expect us to continue to be— I don’t expect us to be, we will be, continue to be faithful to our strategy, which is we’re going to return 100% of excess cash to shareholders. We’re off to a good start, I think, over the last couple of quarters. Totally. I think we bought back 4% of the market cap or of the shares outstanding of where we started. And we’re going to continue to execute that program appropriately.

Jim Schneider, Analyst – Goldman Sachs: Thank you.

TLC vs. QLC Mix and Mobile Bit Growth

OPERATOR: And our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question.

Stephen, Analyst – TD Cowen (on behalf of Krish Sankar): Hi. Thanks so much for taking my questions. This is Stephen calling on behalf of Krish. First question I have for Dave, I guess looking at your CSP customer base, Kind of wanted to get some color on what the prevailing demand currently is between TLC versus QLC bits. And kind of going forward with the NBMs in place, does that TLC versus QLC mix shift meaningfully later this decade?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: We’re still at that 70-30 number on TLC to QLC. TLC has been a big driver of the portfolio.

We are hearing more from our customers about a reacceleration of QLC in different use cases. And so we’ll see how that plays out, as you said, through the end of the decade. But that’s where it is.

I mean, that 70-30 number is a pretty good number. And of course, there’s some fluctuation quarter to quarter, a little bit up and down here and there. But that’s where it’s been and that’s where we expect it to be at least for the next— the rest of this fiscal year. Let me put that time horizon and then we’ll see what customers are thinking about QLC as we continue to have those discussions.

Stephen, Analyst – TD Cowen (on behalf of Krish Sankar): Okay.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: But I will say the ramp— the Stargate product has been, which is our QLC product, I don’t use too many internal names here, but it’s been very well received.

It was not that many quarters ago that we were talking about going through qualifications. That’s all 100% behind us. Customers are ramping. It’s been a very, very well-received product and a very key part of the portfolio.

Stephen, Analyst – TD Cowen (on behalf of Krish Sankar): Gotcha. And as a quick follow-up question on the mobile edge market, just given the double-digit unit declines in that market this year as well, but albeit concentrated in the kind of entry and mid-tier of the market. I’m kind of curious, from the demand signals that some of your customers in that market are giving you, can your mobile bits still grow next year overall?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, I think let’s talk about the market first. I mean, you got it. I mean, the low end is under pressure, but that leads to a unit decline. But content per unit increasing. So when you add it all up, we expect growth of exabytes in that market next year. on a slightly declining unit count.

As far as our portfolio, I mean, again, it’s kind of like data center. I don’t want to make projections on individual markets. We will manage the portfolio with agility and flexibility. We’ve been very clear that we want balance in the portfolio.

But we’re going to optimize the financial outcome Over the short, mid, and long term, kind of integrate those to get the best outcome. And we’ll update you on what the mix of mobile is as we go forward.

Stephen, Analyst – TD Cowen (on behalf of Krish Sankar): Perfect. Thank you so much.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thank you.

AI Customer Demand, Neo-Cloud Credit and Receivables

OPERATOR: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question.

Wamsi Mohan, Analyst – Bank of America: Yes, thank you so much.

In your slide deck, you say leading AI companies could indicate further demand upside. I was wondering if these are AI labs or neo-clouds, and are any of the credit concerns around the neo-clouds filtering back to you in any way that you can see at the moment? And I will follow up.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Yeah, we haven’t seen any of that. To the contrary, we’re seeing very strong demand from our customers. And as I said, if I look at our largest customers, they are basically all investment-grade companies. generating very strong cash. So we’re not seeing any impacts from any credit issues whatsoever if they are out in the market.

And demand from our customers is, if anything, strengthening versus what it was a quarter ago.

Wamsi Mohan, Analyst – Bank of America: So to clarify there, Luis, when you say leading AI companies, are you referring to AI labs over there?

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: We sell to everybody in our business. We sell to hyperscalers, we sell to model makers, we sell to everybody.

Wamsi Mohan, Analyst – Bank of America: Okay. Thanks, Luis. And then just on linearity in the quarter, it seems like receivables picked up a little bit. Is that something that we should expect because of payment terms as more bits go under NBM, or was there something else in the quarter?

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: No, we basically saw a little bit of a change in customer mix. And that has a little bit of an impact on our receivables, a little bit on linearity, but it’s mostly customer mix.

Wamsi Mohan, Analyst – Bank of America: Okay. Thank you so much.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Thanks, Wamsi.

Capital Structure and HBF Milestones

OPERATOR: Our next question comes from Amit Daryanani from Evercore ISI. Please go ahead with your question.

Amit Daryanani, Analyst – Evercore ISI: Yep. Thanks a lot. I have 2 as well. I guess, David, just to start with on the capital allocation side, as you transition towards becoming a more predictable NBM-driven business model, does that change how you think about your capital structure and historically, I think memory is perceived to be more cyclical, so balance sheet flexibility has been important.

But as you become structurally, I think, less cyclical, would that support a willingness to take on leverage and potentially accelerate the capital returns? Or is there comfort still with the $5 billion a quarter buyback, which is fairly impressive? I’m just wondering, at what point do you say we can take on more leverage and take advantage of the fact that we’re less cyclical?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Yeah, I mean, we put a financial model out. I mean, we just spent 3.5 hours talking about this in our Analyst Day, and we committed to a financial model through 2030, which I think was pretty impressive.

And we plan to execute that, and we’re very comfortable with the strategy we have of staying debt-free, very strong balance sheet, and then investing in our business. We have a growing business. And lots of opportunities for internal innovation, which we’re going to continue to invest in, like HBF and 3D Matrix Memory, in addition to the BiCS roadmap and all the great products we build.

And after we do that, we’re going to return 100% of the cash flow to shareholders. And that’s the plan. And we’re going to go execute that. For the foreseeable future until we get up at another point and tell you we’re going to change it. But I don’t anticipate that. I don’t anticipate that happening in any kind of near-term timeframe.

Amit Daryanani, Analyst – Evercore ISI: Fair enough. And then maybe just on HBF, and rather than trying to ask you to frame how big this TAM could be, could you just talk about what the scaling variable really is over here as inference models and context windows expand?

Should we think HBF capacity will grow in line to GPU compute or potentially faster? And I think you said you’ll start initial sampling in ’27. What are the key milestones from there to becoming a meaningful revenue ramp as well. Thank you.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Well, I mean, so it’s a little early for your first question, but on the second question, we get the buyback, we have the base die, which we’ll tape out, which is the controller. We’ll put them together, put it in customers’ hands, and then they start to see how the product’s going to work in their infrastructure.

We’ve obviously done a lot of modeling on that, but actually having the actual product and then doing the integration work, that kind of feedback from the customer will then lead to be able to start to answer some of the questions that people have, like What’s the market opportunity? How fast is it going to happen? What’s the TAM? Where exactly is the architecture going to fit?

We’re going to follow our customers on that. But the big step is to actually put a product in their hands. And then that leads to a whole other set of conversations with them where we actually have the device that we’re— instead of running simulations, we’re seeing exactly how it performs in their infrastructure and does it deliver the results of what they’re expecting?

And we’ll also— that also helps you continue to expand the set of use cases, right? At this point in the development process, you want to be a little bit careful you don’t engage too much because you’re overwhelming your engineering team with 1,000 ideas of how the product can be used.

So as we get an actual device that we can put in people’s hands, we can open the aperture on those kind of conversations. Which will, I think, will lead to more use cases for the product. But that’s still TBD.

So I think a lot of things start to happen when you get to that next milestone of actually having a real product that people can start to use and understand how it impacts what they’re trying to do, which is deliver a world-class inference architecture at the best cost point possible. And we think this is a fantastic technology for doing that. But we’ll see when we get there and we produce it.

Amit Daryanani, Analyst – Evercore ISI: Perfect. Thank you very much.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: Thank you.

SLC Demand and DRAM Substitution

OPERATOR: Our next question comes from Mehdi Hosseini from SIG. Please go ahead with your question.

Mehdi Hosseini, Analyst – Susquehanna International Group (SIG): Yes, thanks for taking my question. David, I want to go back to— sorry for the audio. David, I want to go back to what you said earlier. You said that AI inferencing is being refined, having an impact, and more SLC needed. And my question to you is, is this having an adverse impact on adoption of TLC or the growth of TLC, or SLC is additive to the bit demand by TLC and QLC?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: No, I don’t think it’s a cannibalization of other NAND products. I think it’s an expansion of the TAM into areas that you need different attributes of the technology. You need different endurance, you need different performance.

And we can take our product and we can run anything out of the fab in an SLC mode. So there’s a lot of flexibility in the product. And I think our people are discovering that and starting to understand how can I apply this in ways where I get the attributes I want for the problem I’m trying to solve.

So it’s just a more refined view of the architecture, but I don’t see it as cannibalizing other parts of the NAND stack. If anything, I see it as, And I want to be careful on this because it’s still early, but it’s, is it good enough to replace places where I’m using DRAM, right? Can I get enough endurance? Can I get enough performance if I run NAND in an SLC mode? Because the cost differential is huge, 20 to 40x.

So I take it as a very healthy sign on many ways, Mehdi. One is that very, very real about how you scale an architecture. When you scale an architecture, you got to do it the most cost-effective way possible.

And again, NAND is the most scalable semiconductor technology. And so it doesn’t surprise me that people are finding more ways to use it. In many ways, I think scalable technology Kind of attract TAM. And I think that that’s what’s happening here is these architectures are getting more detailed and more refined.

Mehdi Hosseini, Analyst – Susquehanna International Group (SIG): Okay. Let me come at it from a different angle. And if there is this demand for more enduring SLC and as customers wait for commercialization of HBM, What is the JV’s flexibility in adding some SLC capacity to meet that short-term demand?

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: No, we don’t. I mean, there is no— I mean, I wouldn’t think of it as SLC capacity. You can take any— our cells are flexible enough that we can run them in whatever mode we want. SLC, MLC, TLC. So we can supply the market with the wafers we have, right? That’s how we think about it.

And I understand the question of wanting to go to the supply question right away, but it’s just super early for that. These are just conversations at this point. exploring how they can use the technology, starting to get some idea of what their demand would be if they use it this way.

Something to keep your eye on. It will impact the market, there’s no doubt about that, because a little bit of SLC is a lot of QLC. But more, I guess, more to come, Mehdi.

Mehdi Hosseini, Analyst – Susquehanna International Group (SIG): Okay, got it. Thank you. Thanks for all the details.

Closing Remarks

OPERATOR: And at this point, ladies and gentlemen, we’ll be ending today’s question and answer session. I’d like to turn the floor back over to management for any closing remarks.

David Goeckeler, Chairman and Chief Executive Officer – Sandisk: All right, everyone, thanks for joining us on the call. We appreciate it. Great conversation, and we look forward to seeing you throughout the quarter. Thank you.

Luis Visoso, Executive Vice President and Chief Financial Officer – Sandisk: Thank you.

OPERATOR: And with that, we’ll conclude today’s conference call and presentation. We do thank you for joining. You may now disconnect your lines.

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