Sandisk Corporation (SNDK) Earnings

Management highlights

### Strategic Position & Market Opportunity - SanDisk has built a strong strategic foundation after a year of targeted actions, including technology leadership, long-term customer partnerships, financial flexibility, and strong operational capabilities, positioning the firm for long-term growth and shareholder returns. - AI inference has created a large, long-term tailwind for NAND demand: NAND is the most scalable semiconductor technology and a critical component of AI architecture, with demand anchored by large long-term infrastructure investments from the world's largest technology companies. - Multi-year new business models (NBMs) with key customers give SanDisk clearer demand visibility, more stable cash flow, and a stronger foundation for long-term planning and investment. ### Technology & Product Innovation - SanDisk maintains industry-leading BICS technology across TLC and QLC NAND, and has ramped BICS 8 to the majority of its bit production, delivering industry-leading performance, density, and power efficiency. - The company has begun revenue shipments of its QLC Stargate platform for data centers, completing a complementary product portfolio that covers both performance-intensive compute workloads and high-capacity AI data lakes. - SanDisk is investing in emerging technologies including high bandwidth flash (HBF) that could reshape the AI memory storage hierarchy, and maintains an active product roadmap for continued innovation. ### New Business Model (NBM) Progress - Since announcing 5 NBMs in April 2026, SanDisk has signed 5 additional NBM agreements: 3 with new customers, 2 expansions of existing deals, bringing the total to 8 NBMs with diverse data center and edge customers. - NBMs have a maximum length of 5 years, with a weighted average duration of over 4 years. They include both fixed and variable pricing, with variable prices subject to floors and ceilings, and still deliver attractive margins even at floor pricing. - Total minimum expected revenue from all signed NBMs (at floor pricing) is $93.9 billion, with remaining performance obligation (RPO) of $59.8 billion at quarter-end ($91.1 billion including post-quarter NBMs). $16.5 billion in financial guarantees from customers protect SanDisk from purchase obligation default. - Management will remain highly selective in evaluating future NBMs, prioritizing strategic customers that value SanDisk's products, 5-year duration agreements, growing volume requirements, and attractive financial returns. ### Operational Advantages - SanDisk maintains end-to-end vertical integration across NAND design, wafer manufacturing, controller design, and final assembly/test, with proprietary BICS expertise and market diversity that allows the company to allocate capacity to highest-value use cases. - Growth is driven primarily by nodal technology transitions rather than new wafer capacity additions, delivering mid-to-high teens bit growth annually with declining capital intensity as a percentage of revenue, creating a structural advantage for strong cash generation.

Guidance

- Overall AI-driven NAND market growth: Management expects the total NAND market to exceed $300 billion in calendar year 2026 (up 3x year-over-year), and approach $500 billion in calendar year 2027. Data center's share of total NAND demand is projected to grow from ~30% in CY2025 to ~50% in CY2026, and will continue to outpace overall market growth in CY2027. - Demand outpaces supply: Customer demand is growing faster than SanDisk's supply, so bit supply will remain allocated beyond calendar year 2027. - Q1 FY2027 guidance: Revenue is expected to be between $10.3 billion and $10.8 billion, with sequential growth driven by both bit growth and higher pricing. Non-GAAP gross margins are projected between 83% and 85%, non-GAAP operating expenses between $520 million and $540 million, and non-GAAP EPS between $44 and $46 (based on 155 million fully diluted shares). - Full FY2027 guidance: Capital spending will increase year-over-year to support BICS 8 and BICS 10 transitions, but will decline to ~6% of revenue for the full year. Higher inventory levels will be maintained to support NBMs and offset higher component costs, reducing sellable bit growth to the mid-teens for the full year. - Capital allocation: The SanDisk Board has authorized an additional $14 billion share repurchase program, bringing total remaining authorization to $15.5 billion. The top capital allocation priority remains investing in the business to support long-term growth, followed by returning excess cash to shareholders via share repurchases.

Segment performance

For Q4 FY2026: Total revenue was $8,965 million, up 51% sequentially and 372% year-over-year. Data Center: $2,977 million, up 103% sequentially, representing 33.2% of total Q4 revenue. Edge: $5,432 million, up 48% sequentially, representing 60.6% of total Q4 revenue. Consumer: $556 million, down 32% sequentially, representing 6.2% of total Q4 revenue. For full FY2026: Total revenue was $20,248 million, up 175% year-over-year, with mid-teens bit growth in line with plan. Data Center: $5,153 million, up 437% year-over-year, representing 25.4% of full-year revenue. Edge: $12,160 million, up 195% year-over-year, representing 60.1% of full-year revenue. Consumer: $2,935 million, up 29% year-over-year, representing 14.5% of full-year revenue. A year ago, Data Center represented only 12% of SanDisk's total bit volume; exiting FY26, it represents 38% of the company's portfolio and is the fastest growing end market.

Risks & headwinds

No specific material risks or operational failures were discussed or disclosed during this earning call. Management noted that forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from expectations, and directed investors to review the company's SEC filings for a full discussion of potential risks.

Analyst Q&A

• Q: NBM margins were previously guided to around 80%, is that still the range? Also, what buyback pace should investors expect going forward? /

  A: NBM margins are still expected to be around 80%, with some upside if market prices continue to rise. For share buybacks, management expects to execute very consistently, and has high confidence in the business's ongoing cash generation. The company has already executed $4.5 billion in repurchases under the prior $6 billion authorization, and the new $14 billion authorization supports continued consistent returns to shareholders.

• Q: Is NVIDIA's CMX memory standard an opportunity for SanDisk, and when will HBF samples be available with the new global standard with SK Hynix? /

  A: All new memory architecture innovations for AI inference are opportunities for SanDisk, as inference is a memory-bound problem where NAND storage plays a critical role. Management will share more detail on the technology roadmap at the upcoming Investor Day. HBF development has progressed significantly from an R&D concept 1.5 years ago to deep customer engagement now, with more details on timing and commercialization coming at Investor Day.

• Q: How does SanDisk think about NBM customer mix across edge, data center, and hyperscalers, and will the company pursue additional hyperscaler NBMs? /

  A: SanDisk is open to NBMs with any customer that meets its criteria: highly strategic, values SanDisk's technology, has growing volume requirements, and supports attractive long-term financials. To date, NBMs have been signed with customers across both data center and edge, with deep long-term relationships that provide more operational and commercial visibility than ever before. Over half of FY27 supply and two-thirds of FY28 supply are already committed via NBMs, with many existing customers already increasing their demand commitments, and management remains in deep discussions with additional potential customers while remaining selective on new deals.

• Q: Why is gross margin guided slightly lower for Q1 FY27 despite sequential pricing increases, and what gives management confidence that NBMs will support a durable cycle? /

  A: The slightly lower guided margin range reflects prudent assumptions around component costs, and the mix of committed NBM supply (at ~80% margin) with floating market-priced supply. NBMs have aligned incentives between SanDisk and its customers, with $16.5 billion in aggregate financial guarantees to protect SanDisk if customers default. Management has over four years of committed demand visibility, with customers already returning to increase their commitments just one quarter after signing initial deals, reflecting extremely strong and growing long-term AI-driven demand that supports durable profitability.