SanDisk (SNDK) Q2 FY2026 Earnings Call Transcript

Date: January 29, 2026 | Source: Motley Fool / SanDisk Investor Relations

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David Goeckeler (Chief Executive Officer, SanDisk): Thanks, Ivan. Afternoon, and thank you for joining SanDisk's fiscal second-quarter earnings call. In the quarter, revenue was $3 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Let me frame the NAND industry's evolution before discussing our end markets.

Supply certainty, longer planning horizons, and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market. As a result, we are engaged in discussions with customers to evolve from quarterly negotiations toward multiyear agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These dynamics reveal the true value of our NAND technology and reinforce the need for continued innovation and disciplined execution.

Our products are enabled by decades of sustained investment in R&D and innovation across NAND and system solutions, supported by substantial capital investments in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end market highlights, during the quarter we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business, with key customer programs progressing on schedule. Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure. The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio.

In this allocation environment, we are partnering with key edge customers to prioritize their mission-critical needs and optimize product mix within our available supply, ensuring the best long-term returns across our portfolio. In consumer, the mix shifted toward premium products and higher-value configurations, supporting storage content growth and profitability. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the BiCS 8 transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan. With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance.

Luis Visoso (Chief Financial Officer, SanDisk): Thank you, David. Before diving into the financials, I would provide a brief market overview. We believe that the NAND market is going through a structural evolution catalyzed by AI. As a result, NAND is an increasingly critical component of the AI infrastructure. It is our view that this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply. The framework we use to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together. Given the strength of the market, we were unable to fulfill demand for our customers this quarter. We continue to be prudent and are not changing our capital spending plans, which support mid to high teens bit growth through the BiCS 8 transition. In the current environment, we are committed to supplying our three end markets, as we believe that diversification maximizes value creation. In the quarter, we continue to make progress with customers in establishing shared commitments that improve the predictability of the business.

With that context, I will dive deeper into the quarter's results. Revenue for the second quarter was $3,025 million, up 31% quarter over quarter and 61% year over year. This compares favorably to our guidance of $2,550 to $2,650 million. The revenue over-delivery came from higher prices across segments, which strengthened during the quarter. Bits were up 22% year over year and low single digits quarter over quarter. In the second quarter, we saw strong sequential demand across all end markets. Edge revenue came in at $1,678 million, up 21% sequentially. Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41 to 43%. The gross margin over-delivery came from higher pricing. Unit cost reductions came in as expected, reinforcing margin improvement. Excluding these costs, our non-GAAP gross margin would have been 51.9%. As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. The non-GAAP EPS of $6.20 compares favorably to our guidance range of $3 to $3.40. The non-GAAP EPS beat reflects higher-than-expected revenue and lower costs.

Moving on to the balance sheet and free cash flow. This includes $1,019 million from operations, partially offset by $176 million from net cash capital spending. We anticipate the market to be more undersupplied than it was in the second quarter. We expect bits to be down mid-single digits due to lower-than-historical seasonality as we benefit from accelerating strength in the data center. Our forecast for non-GAAP gross margin for the third quarter is between 65 and 67%. With that, let me turn the call back to David.

David Goeckeler (Chief Executive Officer, SanDisk): Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. Fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our preexisting supply plans. Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand. With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required. With that, let's open up for questions.

Questions & Answers

Mark Newman (Bernstein): Hi. Thanks so much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third-quarter guidance. So clearly, what's happening is that prices are rebounding at unprecedented rates. I guess my question goes to Dave's comments at the beginning. When prices are going up so fast, you may not want so many long-term agreements, I guess. But I'd like to understand how you're thinking about that, how we should think about that in terms of your portion of agreements that are going longer-term, and how that may impact going forward, that'd be great. And if you could also just touch on the supply-demand balance longer term, if there's any plan to be adding supply, that would also be great.

David Goeckeler (Chief Executive Officer, SanDisk): Thanks, Mark. Appreciate the comments. So let me say a few words about what's happening in the business, and then we'll move on to the long-term agreements (LTAs). There are a number of things happening in the dynamics of our business that are contributing to the results you're seeing. First of all, it starts with the portfolio and innovation. Our BiCS 8 node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the two-terabit die — there are a lot of things that just position us very, very well. Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that we extended the JV, which we're very happy about, and that's going to continue for now another decade. That's enabling a very strong enterprise SSD portfolio. We saw 29% sequential growth in the first fiscal quarter, and now we just saw 64% sequential growth in the second fiscal quarter, and I think you'll see that accelerate from here in the second half of the fiscal year.

This Extreme Fit product that we announced this year is really a breakthrough product. It allows our customers to very seamlessly and affordably increase storage capacity of their devices. It's kind of an innovation in the USB space. We have great co-branded products with people like FIFA. When we look at our consumer business, we saw 50% year-over-year growth. So really strong performance there. This improving portfolio, innovation-driven excellence in the product, is allowing us to have a better portfolio mix. If we look back over the last several quarters, we're literally able to trade out the lowest margin business for the highest margin business, which provides a significant tailwind to the business as well. Then on top of all of that, you've got the supply-demand dynamics, which are pushing the entire market forward.

Moving on to LTAs, as we reach points where we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance, I think it's important to note in the market right now, this is a completely demand-driven phenomenon. We've been very transparent for well over a year about what our supply plans are. We're investing heavily in this market, investing hundreds of millions of dollars in R&D to push the roadmap forward. What's happening is we're just not getting enough visibility into what the demand side really is. If we look at the data center, we've had three forecast cycles now. Last quarter, we went from mid-20s to high-40s percent growth in that market. Now we're looking at high 60% exabyte growth in the data center market for 2026. I think our customers realize this, especially in the data center market — we're even talking to some of them about '29 and '30. For us, it's not about what demand is next quarter or the quarter after that. We want to get the long-term growth rate aligned with where the long-term sustained demand is, at attractive financials. Let me turn it over to Luis.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us and across geographies. So this is not just a few — we're really seeing a broad base. We're making significant progress with several of our customers who really want us to prioritize or assure supply. To your point, we're being very thoughtful about how we define these agreements; this should be value accretive and not the opposite.

Mark Newman (Bernstein): Great. Thanks very much. And any quick comments on how you're thinking about supply-demand longer term and any flexibility to add supply?

David Goeckeler (Chief Executive Officer, SanDisk): No. I mean, Mark, we've got our supply plans. We've been very clear on what our CapEx plans are, what our bit growth plans are. That's what they are. It's about meeting our customers' demand at that supply level and understanding how we allocate that. We just really need to get out of this idea that this is a transactional market where we only get a strong signal a quarter at a time. We get demand signals from our customers on a yearly basis, but we only transact that and negotiate price every quarter, which just makes it very, very difficult to increase any kind of spending because we just don't have visibility to the economics of it. The business practices are going to change, and I think that's all for the good. We got to get through those conversations over the next couple of quarters.

Joe Moore (Morgan Stanley): Seems like a pretty big market. Are you getting indications around that? Do you think there's — should take that as kind of straight math? And just the ramifications for what happens to data center NAND?

David Goeckeler (Chief Executive Officer, SanDisk): Yeah, Joe, we're working through that right now. We're working through it with NVIDIA and how they're thinking about it, and then we'll work through it with our customers about how they're going to configure it in deployments. So it's still a bit early. I'll say a couple things about it. First of all, none of that demand is in the numbers we're talking about at this point. It's a perfect example of how we all need to collaborate a little bit more on what future demand is going to be. Secondly, our initial looks at it, when we look at 2027 demand, we think that's roughly maybe 75 to 100 additional exabytes, and then a year after that, you can double that. NAND is just gonna be a big part of that architecture. It's the most scalable semiconductor storage technology. We're just trying to get our arms around it, and then we'll put it in the numbers, probably for the back half of this year going into 2027 and 2028.

Joe Moore (Morgan Stanley): Great. Thank you. And then as a follow-up, the enterprise SSD opportunity — how does that break down between TLC and QLC at this point, and how is that changing going forward?

David Goeckeler (Chief Executive Officer, SanDisk): You know, I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted toward TLC, especially for us. And then, you know, we haven't launched our Stargate product yet for the storage-class QLC. It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind to growth in our data center portfolio. And that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted toward TLC.

C. J. Muse (Cantor Fitzgerald): Yeah. Good afternoon. Thanks for taking the question. I'm not including KV cache, but you know, we were mid to high teens before, and I'm curious now, based on your conversations with customers and the demand trends that you're seeing, where do you think the new demand growth CAGR is looking out '26, '27, '28?

David Goeckeler (Chief Executive Officer, SanDisk): I think the best proxy we have for that right now, CJ, is just what we're seeing in exabyte demand in the data center. Last quarter, we were talking about mid-40s given the CapEx cycle. We're now looking at high sixties exabyte growth in data centers in our forecast. And that doesn't include any CapEx raises on this earnings cycle. So significant increase just quarter over quarter in demand, and we think most of that is driven by AI, obviously.

C. J. Muse (Cantor Fitzgerald): Perfect. Thanks. You only have $600 million outstanding. Probably can pay that down this quarter. So, curious, you know, when you're in a completely cash position, how should we think about capital return, particularly around share repurchases over the coming quarters?

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. We feel very proud of the progress we've made in reducing our debt, CJ. Our priority is to continue to invest in the business as we have been doing, and to build prudent cash resources. You know, this is a business where having cash on hand is helpful. We're not gonna waste your cash — don't worry. But we're gonna build prudent cash reserves, and we'll continue to reduce our debt. At the right time, we'll continue to expand and give you an update. But so far, those are our priorities.

Jim Schneider (Goldman Sachs): Good evening. Thanks for taking my question. First of all, on the supply side, I was wondering if you could give us a snapshot of the factory network across Yokohama and Kitakami and kind of where things stand now? And then maybe give us any kind of view on the industry greenfield capacity expansions that you see possible, given some of the announcements of some of your competitors recently?

David Goeckeler (Chief Executive Officer, SanDisk): So, first of all, we have two major sites, Yokohama and Kitakami. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokohama to coincide with the agreements in Kitakami, so they now are all run through 2034. That gives us really good supply assurance for the next nine years. We'll keep talking about what happens after that. But this has been an unbelievable relationship with Kioxia for decades now, and it's going to go on for quite some time into the future. We got past the underutilization a couple of quarters ago. They're running at full capacity. Kitakami is where we're expanding — we just opened the K2 fab, and so we have additional space there. The JV, led by Kioxia, has done really good capacity planning and has good plans about how we're able to expand into the Kitakami site as needed over the next many years. As far as the rest of the industry, it's a long lead time. We see some announcements recently — I would consider those kind of normal course. This is a market on the supply side where we've been very consistent. We're going to grow bits in the mid to high teens rate through innovation, and that innovation is going to take additional cleanroom space. I would expect to see continued spending to meet that number, but we don't see anything that's out of the ordinary.

Jim Schneider (Goldman Sachs): Thank you. And then maybe as a follow-up, could you maybe address — clearly you mentioned the qualification with another enterprise. Thank you.

David Goeckeler (Chief Executive Officer, SanDisk): Yeah. We're not going to put an exact number around that just yet, but I would say just stay tuned. Our business is going to continue to grow in this market. We've seen 29% sequential growth followed by 64% sequential growth. Without getting into too much detail, I think you're going to see a substantial step up next quarter as well. The compute-focused TLC product we have in the market is really driving that growth right now. We're going to see our BiCS 8 QLC product start shipping for revenue here in the next couple of quarters, which is going to be another tailwind for growth. So we continue to see very high interest in those products and work through the qualifications, and we'll look forward to continued growth.

Mehdi Hosseini (SIG): Yes. Thanks for taking my question. Two follow-ups for me. And this is for the team. When I look at your guide for the March fiscal year, assuming low single-digit bit growth, there's a big jump in ASP and blended. What I wanted to ask you is how should we think about the mix that impacts the ASP? Is there any way you can help me understand? Because just thinking about the ASP absolute may give us a wrong impression. So any help you can provide will be great, and I'll have a follow-up.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. So the mix impacts that we have are less related to changes in our end market and more related to the customers and how we serve the market. What you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products, and therefore, we're getting much better gross margins as a result of that. So there is a mix component in that, to your point, Mehdi, and there is some pricing as well.

Mehdi Hosseini (SIG): Oh, I was just gonna say just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the raw NAND ASP trends?

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. I will provide that to you next quarter. I don't have anything to share with you at this point in the guide, Mehdi.

Mehdi Hosseini (SIG): Okay. Great. And one question for David. Look, we're sitting here, and there is increased shortage. It's intensifying. And as you highlighted, these projects take several years. Why isn't there more urgency? Why aren't your customers' customers willing to commit more? But when it comes to memory or NAND, I don't get a sense of urgency. How can I reconcile the two?

David Goeckeler (Chief Executive Officer, SanDisk): I have lots of thoughts on that, Mehdi. I mean, first of all, I would argue that there actually is a fair amount of urgency, and things are changing rather dramatically rather quickly. You're talking about a market that's operated the way it's operated for, arguably, decades. The way that market has operated is there's essentially been a quarterly auction for NAND that sets the price. And then on the supply side, we've tried to get it right on how much we supply, and often gotten it wrong. And when you get it wrong, the economics just completely crater. So we're trying to navigate out of that world. To change behavior on something you've been doing for a decade and just wake up within a quarter and decide to completely change the business practices of an industry is really, really hard to do. But I do think it's happening. I do think customers are starting to look further down the horizon, especially in the data center. It's a market that's been dominated by smartphones and PCs — what I view as traditionally being the commodity NAND market. The data center is not that market. I need extraordinarily high performance, and I need innovation, and I need a specific enterprise SSD that fits my configuration. So that market, now becoming the primary market and especially the primary growth engine, is really starting to challenge the business practices of the way the market has traditionally worked. We're talking $150 billion maybe this year. To see it change as fast as it's changing is pretty remarkable.

Ruplu Bhattacharya (Bank of America): Hi. It's Ruplu filling in for Wamsi. Can I ask Luis a question? This quarter OpEx came in lower. You said you had a benefit from how you're managing NPI. Can you just elaborate on that, what that benefit was? And as well as any capital return plans or M&A plans? Thank you.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. So let me try to unpack the OpEx question. We made a recurring change to how we sell our products. We're now moving into charging for our qualification units. In the past, we used to record cost as they were incurred — they were period costs. And this is the nonrecurring element, which is a gain of a one-time benefit as we move from period costs into inventories, as we're now selling these qualification units. So we're going to get an ongoing saving as we charge our customers for these qualification units, and there is a one-time benefit as we do the transition and go through inventory. On the capital allocation question, our strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business. We believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million. We're making great progress, and we'll continue to make progress there. We're fully funding the business from the BiCS 8 transition.

Vijay Rakesh (Mizuho): Hi, David, and Luis. Awesome quarter here, just phenomenal numbers. Just wondering on the 2026, '27, what you're looking at in terms of bit growth and, obviously, ASP pricing has been on a tear. If you can give us some color. Thanks.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. So the bit growth that we're seeing across '26, '27, '28 is consistent with what we talked about in February — mid to high teens bit growth every single year. And unless we see that demand is sustainable and profitable, we're not going to change our assumptions. On pricing across end markets, prices are moving pretty much at the same pace. NAND can flow to any market at the end of the day, so NAND will naturally flow to the markets that are most attractive. Prices go up pretty much across the board.

Karl Ackerman (BNP Paribas): Hi. Thank you for taking my question and congratulations on the very good quarter. Back to the roadmap. I think now your data center mix has reached 15%. So I think it's creating new requirements for performance. Can you update us with your production roadmap to meet these new requirements? Like, I think there are high IOPS SSDs and you have engagements with HEF. How are those new products looking like?

David Goeckeler (Chief Executive Officer, SanDisk): Yeah. So I think this is a very good example of the amount of innovation that's going on and being driven out of data center. You're right, what we call the compute focus — the TLC high-performance drive — is what's been driving the portfolio at this point. As I said, we just saw 64% sequential growth. So we continue to see really strong pull for those high-performance products. As we start to migrate those to BiCS 8, we feel like we're extremely well-positioned. But there's also a bunch of new innovation going on — how are we going to satisfy the demands for the storage of AI. We had our own ideas about this two years ago, and we talked about it at our Investor Day — we believed there was a chance to re-architect NAND to bring it into AI. We trademarked that high bandwidth flash. Over the last year, that's become a more recognized path forward, and there's now lots of folks working on that. We continue to work on it — we're designing the NAND die, we're building the controller. We're just in the very early innings of driving this technology and scaling it around the globe.

Michael Sadnoff (Wells Fargo, for Aaron Rakers): Hi, guys. Thank you. This is Michael Sadnoff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet? I know you kind of alluded to it.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. We've signed and closed one agreement so far. We're not disclosing the terms. But that's what I would say, Michael. So we have one and several in the queue.

Asiya Merchant (Citigroup): Great. Thanks for taking my question and great results here. David, last quarter, I think you shared some thoughts on how you thought about the edge market, PCs, smartphones, maybe even the consumer market. Just how you're thinking about and what signals your customers, your OEM customers, are providing to you regarding those markets and how that changes your demand outlook through '26 and into '27. And if I can squeeze one in for Luis as well — structurally, NAND is going through this dynamic where it's obviously a highly strategic product. How are you thinking about your through-cycle margins, gross margins? It seems like quite a long time ago when you were hitting those levels. How are you thinking about gross margins here structurally?

David Goeckeler (Chief Executive Officer, SanDisk): Okay. Thanks, Asiya. So look, a couple of thoughts on this. First of all, on the consumer market, I'm very happy with where the consumer portfolio is. As I said, we just turned in over 50% year-over-year growth. We think we're able to drive value there with the value of the SanDisk brand. In some of the other markets — you just look at '26, I don't think anybody would have picked that number at the beginning of the year. So continued very strong results in these markets, in unit growth, content growth. As we go into '26, we're going to see some base effect of that, of some declines in units. But we're still getting very strong signals from customers in those markets of wanting supply. In this period of the market, it's extremely important to stay close to our customers. You're going to get some base effects there on units. I just think that's normally how this market works. So those are still strong markets. We've had a strong edge presence for a long time, and we'll continue that. With the AI deployments in the cloud, that market becoming the largest market in NAND is just changing the dynamics of the way this whole industry works. We've invested an enormous amount of R&D over the last twenty-five years and an enormous amount of capital. I think we're finally starting to get to the point where the value of that intellectual property and that intensity is being recognized in our own results.

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. And I think the way I would answer your question about through-cycle margins is similar to what David said, which is, in a high CapEx, high R&D industry or company, frankly, 35% is not where we would like to be. So we're not going to give you a new number today. But clearly, that's not where we want to be. What I'll tell you is this is the first quarter that we are above 35% with 51%. We're guiding, call it, a midpoint of 66. So we're making progress, and we're getting to a place where we believe we can justify the CapEx and the investments in R&D that the business requires.

Blayne Curtis (Jefferies): Hey, guys, congrats and thanks for squeezing me in. I just want to talk about the model. Obviously, I mean, doubling sales over two quarters. I want to make sure I understand how you're going to handle OpEx. I think the percentage of revenue is now halved, right? So, are you going to accelerate the way you look at investing in R&D? And then the tax rate as well, which is just dramatically higher profitability. Is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20% at some point. Is that sooner than later?

Luis Visoso (Chief Financial Officer, SanDisk): Yeah. So in terms of OpEx, the first thing you should know is about 75% of our OpEx is R&D, right? So that's where we're putting our money, because this is a technology company where innovation is our lifeblood. You should not look at this quarter's OpEx as an indication of where we should be, because, as I mentioned earlier, it has a nonrecurring benefit. If you want to quantify that number, it is around $35 million. We think OpEx should not go significantly higher from where it is today. We believe that the run rate is healthy. We will always be looking at where we need to invest and make sure that we fund innovation. On the tax rate — once we have enough history, we will provide a better sense of where the tax rate is going to settle.

David Goeckeler (Chief Executive Officer, SanDisk): All right. Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank you.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.