The Zhitong Finance App learned that after the US stock market closed on Thursday, SanDisk (SNDK.US) announced financial results for the first quarter of the 2027 fiscal year and held a conference call. Driven by a surge in demand for NAND flash memory driven by artificial intelligence infrastructure construction and rising product prices, the company's revenue for the quarter increased 378% year over year, and data center business revenue soared nearly 17 times. The company expects further revenue growth in the next quarter and announced the implementation of a 1-split 8-share split plan.
On the latest conference call, SanDisk management focused on sending a positive signal about future prospects: demand for AI inference is driving NAND into a structural growth cycle, data centers will continue to be a growth engine. Bitrate demand is expected to increase by about 40% over the 2027 calendar year, and the NBM long-term agreement pipeline has been extended beyond 2030, and demand exceeds supply. The company expects demand for NAND bits in PCs, smartphones, and data centers to grow positively next year. Automobiles are expected to become one of the largest markets in the edge business. QLC adoption is accelerating, and new technologies such as HBF are also advancing. Overall, management is confident in the long-term nature of AI-driven NAND demand and the visibility of its own profits, and promises to return 100% of the excess cash to shareholders.
I. Management statement
(1) Ivan Donaldson, Vice President of Investor Relations, opens
Before we begin the meeting, please note that today's discussion will include forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for the company's technology and product portfolio, business plans and performance, capital allocation priorities, market trends and opportunities, and financial results. The Company is under no obligation to update these statements. Please refer to the company's Form 10-K annual report and other documents submitted to the U.S. Securities and Exchange Commission (SEC) for more risk and uncertainty information that could cause actual results to differ materially from expectations. Additionally, today's discussion will cite non-GAAP financial measures. Reconciliation statements between non-GAAP and comparable GAAP financial measures are included in written materials posted in the investor relations section of the company's website.
(ii) Statement by CEO David V. Goeckeler
1. Performance highlights and core strengths
Thanks Ivan. Good afternoon everyone, and thank you for attending SanDisk's FY2027 first quarter results conference call. We began the 2027 fiscal year with another strong quarter, created value for our customers and shareholders, and delivered results that exceeded guidelines. Our strategy is working, and execution is delivering strong results. Revenue for the quarter was $11 billion, non-GAAP gross margin of 85.1%, and non-GAAP earnings per share of $49.51. We generated $5.7 billion in adjusted free cash flow and returned $5 billion to shareholders through share repurchases.
Our confidence in the long-term development trajectory of our business is built on three enduring strengths: technological leadership, deep customer partnerships, and strict financial management. These advantages are strongly supported by a structural increase in demand for NAND driven by AI, and through our new business model, the NBM partnership, customer signals have now been extended beyond FY2030. Together, these benefits enable us to confidently invest in technology roadmaps, strengthen and expand customer relationships, and achieve continuous growth and lasting free cash flow while returning capital to shareholders.
2. Technology roadmap and product progress
It all starts with our technological leadership. BiCS 8 is the backbone of our current production portfolio and the industry benchmark for TLC and QLC in terms of performance and density. BiCS 8 introduces our CMOS Direct Bonding Array (CBA) architecture, delivering the performance required by AI data center customers and establishing the framework for future generations of products. BiCS 9 combines a proven BiCS 8 storage unit array with next-generation CMOS to significantly improve interface performance while retaining a mature storage architecture. BiCS 10 promotes a full-node architecture on TLC and QLC, introducing 1Tb TLC chips designed for performance-intensive workloads, and 2Tb QLC chips that provide industry-leading density and twice the read/write bandwidth of BiCS 8. Together, these technologies will extend the foundation of BiCS 8 to meet the changing performance and capacity requirements of next-generation infrastructure.
Outside of the core roadmap, high-bandwidth flash memory (HBF) reached an important milestone in the first fiscal quarter. Our first HBF memory chip has been released, and manufacturing is currently underway. As we outlined on Investor Day, HBF is a new inference oriented storage architecture designed to achieve HBM read bandwidth while having greater capacity to support larger models, longer context lengths, and growing KV caches. It is designed to complement HBM by bringing NAND class capacity closer to the processor, and we are still expected to deliver the first samples of HBF-based products in the next calendar year. HBF is still a future innovation and is not part of the long-term financial model we launched on Investor Day. As customer adoption, product requirements, and manufacturing readiness become more defined, we expect to provide more perspectives on market opportunities.
Customers recognize our ability to innovate and increasingly view SanDisk as an important partner to achieve their growth goals. Through our NBM, we continue to evolve customer relationships into long-term partnerships based on innovation, collaboration, and shared commitment. Our recent customer engagements with leading global AI companies suggest there is room for further growth in demand for our technology. Our market-leading technology, product portfolio, and customer partnerships are the pillars of our strong financial position, enabling us to reinvest to maintain technology leadership and expand supply through capital expenditure focused on R&D.
3. AI-driven NAND requirements
Each of these advantages is strongly supported by AI Shunfeng. As inference workloads grow, demand for expandable memory and storage is expanding, making NAND increasingly an integral part of AI infrastructure. During the inference process, each generated token must reference the context in front of it, thereby creating a growing KV cache as the model's working memory. Longer prompts, more complex reasoning, multi-modal input, and persistent user contexts all significantly increase these storage requirements. HBM and DRAM support the highest levels of performance, while flash memory provides the capacity needed to efficiently preserve a wider range of contexts and avoid costly recalculations.
We think this is a long-term dynamic that is expanding NAND's role in the AI stack. The memory hierarchy defines the role of each NAND architecture. TLC provides the lower latency, higher write performance, and higher durability required for active data sets, checkpoints, and latency-sensitive KV cache workloads. In the AI lab comparison we presented on Investor Day, systems using SSDs have about 3 times the token throughput compared to similar systems that rely only on volatile memory, while energy consumption is about 75% lower. QLC further increases storage density and is suitable for capacity-intensive applications such as data lakes and vector databases that support AI search and retrieval repositories.
Between these levels, a growing hierarchy of persistent context establishes data that needs to be preserved and recalled rather than regenerated. As inference costs fall, we expect adoption and usage to expand, which supports our view: by the end of this decade, KV caches will account for about one-third of the AI data center flash memory market, and AI data center opportunities will approach the size of today's NAND industry.
4. Terminal market performance
Speaking of our terminal market. In the data center, our product portfolio meets the full range of AI infrastructure needs, from performance-intensive enterprise-class SSDs to high-capacity platforms. Demand remains strong and continues to grow, and we estimate that the share of data centers in the industry's bits has expanded from around 20% at the beginning of this decade to about half of what it is now. This structural shift in the customer structure is reshaping the industry's economic landscape and is at the core of SanDisk's ongoing transformation. The data center once again experienced strong growth this quarter and continued to outperform the overall market as we allocated more supply to meet the growing demand in this end market.
Edge is a large and strategically important market for SanDisk, covering smartphones, PCs, cars, tablets, and ever-expanding physical AI applications. Automobiles are becoming an increasingly important growth engine in our edge business, and a meaningful long-term growth opportunity. Our deepening engagement with leading customers has strengthened our confidence that automotive is poised to become one of the largest markets in the edge business over time. Our consumer business remains a differentiated strategic asset, combining direct brand interaction with hundreds of millions of end users and extensive shelf coverage of leading global channel partners. The consumer terminal market provides a lasting foundation for our business, while its direct connection with the market informs product development and enables the company to gain early insight into changes in end user needs.
Taken together, these results reinforce the durability of the model we outlined on Investor Day. We have built strong profitability and cash flow generation capabilities, and our focus from now on is consistent execution across our product portfolio.
(3) Statement by Chief Financial Officer Luis Visoso
Thanks David. We are implementing the strategies and plans outlined on Investor Day and have delivered attractive financial results. In the first quarter, we closed 2 NBM deals. Since both of these deals were completed prior to our fourth quarter earnings call, we announced these partnerships during that call. We are actively communicating with existing NBM customers who are evaluating extending existing agreements and evaluating new NBM with new customers. These long-term partnerships provide greater visibility into demand and financial performance, supporting a more durable financial model.
We will be patient and disciplined in determining the best bit ratio to allocate to the NBM, which is likely higher than the current level. First-quarter revenue was $11 billion, up 23% month-on-month and 378% year-over-year. This is a good performance compared to our $10.3 billion to $10.8 billion guidance range. Increased sales volume and price increases combined to drive revenue growth. About 60% of the increase was due to increased sales volume and 40% from higher prices. Data center revenue was $4.8 billion, up 61% month-on-month, exceeding the estimated market growth rate for the quarter. Our leading products and strong customer partnerships, including 3 US hyperscale cloud vendors, support our continued expansion in this rapidly growing terminal market. Edge revenue of $5.8 billion, up 7% month-on-month, reflects the resilience of the high-end and mainstream markets, partially offset by the contraction of the lower end market. In the edge business, we're seeing strong growth in automotive and IoT customers. Consumer revenue was US$397 million, down 29% month-on-month as the market adapted to higher prices. We remain committed to serving all 3 end markets through a diverse product portfolio to optimize our performance over time.
Non-GAAP gross margin for the first quarter was 85.1%, up from 84.6% in the previous quarter, driven by increased sales and pricing. This is a good performance compared to our 83% to 85% guideline range. Non-GAAP operating expenses were $513 million, or 4.7% of revenue. The non-GAAP operating margin was 80.4% compared to 79.2% in the previous quarter. Non-GAAP earnings per share were $49.51, up from $39.25 in the previous quarter and $1.22 in the same period last year. This is a good performance compared to our $44 to $46 guideline range. At the end of the quarter, the number of diluted tradable shares was 154 million shares. Key GAAP to non-GAAP adjustments include $91 million in stock compensation, 0.8% of revenue, and $513 million equity securities earnings, mainly due to our investment in South Asian technology.
During the quarter, we repurchased approximately 3.2 million shares of common stock for $5 billion. Over the past two quarters, we have repurchased a total of 6 million shares, or about 4% of our total outstanding shares. Our buybacks reflect our confidence in the long-term value of our business and our strict approach to capital allocation. We continue to properly invest in the business while returning 100% of the excess cash to our shareholders.
Next is free cash flow. Operating cash flow was $6.4 billion. Total capital expenditure was $378 million, or 3.4% of revenue. We expect total capital expenditure to increase for the rest of the fiscal year, and fiscal 2027 will account for the middle single digit percentage of revenue. We generated $5.7 billion in adjusted free cash flow during the quarter, with a profit margin of approximately 52%. At the end of the quarter, we had $5.1 billion in cash and cash equivalents, and had no debt.
Next are performance guidelines. Our confidence in the long-term healthy development of the market has been strengthened by the structural growth of AI infrastructure and the expansion of NAND's role in inference workloads. Before turning to the second-quarter outlook, I announced that SanDisk's board of directors has approved a stock split of 1 to 8 of the company's common stock. The additional shares are expected to be distributed on November 19, and the split-adjusted benchmark trading is expected to commence on November 20.
For the second quarter of fiscal year 2027, we expect revenue of between $12.2 billion and $12.6 billion. We expect non-GAAP gross margins of between 84.5% and 85.5%, including a modest year-over-year price increase. On a pre-split basis, we expect non-GAAP earnings per share of between $55 and $57, assuming 151 million fully diluted shares. Adjusted by 1 divided by 8, this is equivalent to non-GAAP earnings per share of between $6.88 and $7.13, assuming approximately 1,208 billion fully diluted shares. As a backdrop, we expect a strong market for the 2027 calendar year. Data centers are expected to once again become growth engines, accounting for more than 55% of the market, and bit demand is increasing by about 40% year over year, thanks to AI-driven capital expenditure increases. This was achieved after doubling growth in 2026. Our demand for NBM pipelines will exceed our supply capacity throughout the decade.
(4) Summary by CEO David V. Goeckeler
Thanks Luis. We continue to implement the strategy we outlined on Investor Day, which strengthens our confidence in SanDisk's long-term development trajectory. Our technological leadership, deep customer partnerships, and strict financial management, supported by AI-driven structural growth in NAND demand, enable us to serve our customers, achieve continuous growth and lasting free cash flow, and return capital to shareholders. Over the past year, we've transformed our business' ability to generate profitability and cash flow, and built a solid foundation for lasting results. We remain focused on rigorous execution, ongoing value creation, and achieving our long-term financial goals.
II. Q & A session
1. About NBM Pipeline and PC Market
Melius Research analyst Benjamin Reitzes asked: Will the pace of NBM signing speed up? Will the contract-locked bit ratio change over the next few years? Will there be more NBM demand in the PC market?
CEO David V. Goeckeler answered: The NBM pipeline is very strong. About 50% of the company's bits have already been locked in through NBM in the current fiscal year, and about two-thirds next fiscal year, and the ratio is expected to continue to rise. The company will be patient and selective with the next batch of customers. At the same time, the company is balancing returning customers seeking more supply with bringing in new customers. Customers generally reported underestimating the amount of NAND required to run their infrastructure, and several customers are seeking a second round of cooperation.
Chief Financial Officer Luis Visoso added: Currently, 95% of NBM's customers are investment-grade companies, which together generate approximately $130 billion in operating cash flow, and the company is satisfied with the partner's choice.
CEO David V. Goeckeler added (PC market): The company's internal model shows that NAND bit demand for PCs, smartphones, and data centers will all achieve positive growth next year, mainly driven by increased content volume and high-end trends in single devices. Although the current two calendar quarters are the “hardest periods” for the year-on-year decline in the number of units, an improvement from current levels is expected.
2. About data center growth drivers
Morgan Stanley analyst Joseph Moore asked: The data center business grew nearly 20 times year over year and 61% month over month. Did the growth mainly come from BiCS8 or the market itself? What is the long-term data center bit-ratio target?
CEO David V. Goeckeler answered: Growth is the result of a combination of factors. The BiCS 8-node and CBA architecture provide excellent interface speed; the company has an appropriate product portfolio. TLC products have been on the market for several years, and QLC products began contributing to revenue a few quarters ago and are being expanded. The AI inference architecture is constantly being refined, and customers use NAND in more detail. TLC and QLC are used separately in different aspects such as KV caching, temporary storage, and fast data lakes. Some customers have even begun using QLC in KV caches, and SLC has also been introduced into architecture discussions, focusing mainly on the durability required for proxy workloads and exploring the possibility of using NAND to replace DRAM. Once converted, these architectures will be very sticky. The company is working hard to match its product portfolio with the market bit structure. It is expected that progress will continue to be made in the 2027 calendar year, and the portfolio ratio will increase significantly by the end of fiscal year 2026.
3. About price and HBF progress
Bernstein analyst Mark Newman asked: What is the contribution ratio of price to sales in the second quarter guidance? How is HBF's communication with customers progressing? Views on new NAND technology levels such as Storage-Next and CMX?
CFO Luis Visoso answered (price): About 60% of the revenue growth in the first quarter came from sales and 40% from price. Both are expected to contribute to growth in the second quarter, prices will rise moderately, and prices are expected to continue to rise moderately throughout the year.
CEO David V. Goeckeler answered (HBF and new technology): Communication with potential customers is ongoing and active, and the company will continue to update progress after product samples are handed over to customers. The AI inference architecture is being continuously optimized around economy, which pushes NAND into more parts of the architecture. The company is not only promoting the increase in density from TLC to QLC, but is also exploring ways to provide higher durability through the SLC model in specific areas to replace expensive DRAM. The company believes that these explorations are all healthy; the key is to keep up with customers investing in infrastructure expansion and provide the right technology, timing, intensity, and cost according to their use case needs.
4. About BiCS transition and supply allocation
MST Financial Analyst David Gibson asked: Will the transition from BiCS 8 to 9 and 10 be accelerated to meet customer needs? Is there a limit to allocating more bits to the data center?
CEO David V. Goeckeler answered: The company maintains the previously announced bit growth plan (medium to high double digit percentage) and does not plan to accelerate the node transition because node conversion requires extensive planning and equipment procurement. There are limits to allocating more bits to the data center. When wafers are produced, the TLC, QLC, and chip combinations are fixed and need to be continuously matched.
Chief Financial Officer Luis Visoso added: There is very little room for adjustment in the short term (about 120 day wafer production cycle), but there is more freedom in the long run.
5. About the NBM pipeline and capital expenditure
Cantor Fitzgerald analyst Christopher Muse asks: What is the specific meaning of NBM pipelines exceeding supply? Will it affect capital expenditure plans? Can deposits in NBM contracts be used for repurchases?
CEO David V. Goeckeler answered: The NBM model works well, and the pipeline has been extended to 2030 and beyond. Customers are willing to provide demand signals and financial commitments, which will enable the company to adjust supply and demand in the future, but negotiations and commitments still need to be completed. The company is pleased with the progress and will continue to update.
Chief Financial Officer Luis Visoso answered (deposit): Most of the financial guarantees in NBM contracts are held by third-party financial institutions and are not on the company's balance sheet; there are only advance payments on the balance sheet, and the amount is very small. In theory, prepayments can be used for repurchases, but there are no legal restrictions.
6. About enterprise-grade SSD content volume and market share
BNP Paribas analyst Karl Ackerman asked: What is the trend of enterprise SSD single server content in 2027? Has the enterprise-grade SSD market share target been updated?
CEO David V. Goeckeler answered (volume of content): In inference and proxy orchestration applications, the company observed a NAND requirement of approximately 60 to 90 GB per CPU. NAND is being introduced into various aspects of inference architectures in various ways such as TLC, QLC, and high-durability SLC. The company will continue to follow up and analyze the elastic relationship between server TAM and NAND TAM.
CEO David V. Goeckeler answered (share): The company does not set specific market share targets to avoid distorting the product portfolio. The data center business grew 17 times year over year, and the share is expected to continue to increase in 2027. The balance point will depend on market conditions and the signed NBM from quarter to quarter.
7. On the influence of BICS nodes and SLC
Mizuho analyst Vijay Rakesh asks: Can the BiCS 8/9/10 transition help meet the 40% increase in data center bit demand in 2027? How will the use of SLC affect NAND market supply next year?
CEO David V. Goeckeler answered (BiCS): BiCS 9 is an important part of the data center strategy, enabling faster interface speeds on the same storage unit. TLC products are performing well. QLC is being released, BiCS 9 will gradually climb the slope, and BiCS 10 will take time.
CEO David V. Goeckeler answered (SLC): Some customers have already released SLC demand signals. There is an obvious conversion ratio of 3:1 to 4:1 between SLC and TLC/QLC, which will affect overall market supply. However, it is too early to give a specific forecast, and the company will continue to update it in the next few quarters.
8. About seasonal trends and repurchase authorizations
Goldman Sachs analyst James Schneider asked: What are the seasonal trends for the third fiscal quarter (March quarter)? Will the repurchase authorization be renewed quarterly?
CFO Luis Visoso answered (seasonal): The third fiscal quarter in history was usually the weakest quarter from month to month. Bitcoin dropped 19% month-on-month last quarter. The company did not provide guidance for the third fiscal quarter, but it is recommended to be conservative about the month-on-month growth for the second to third fiscal quarter when modeling.
CEO David V. Goeckeler answered (buyback): The company's strategy is clear, and 100% of the excess cash will be returned to shareholders. The company and the board of directors meet every quarter, and it is expected that the execution of the repurchase will not be blocked. Approximately 4% of tradable shares have been repurchased in the past two quarters, and the plan will continue to be implemented appropriately.
9. About the TLC/QLC ratio and the mobile market
TD Cowen analyst Krish Sankar (asked by Steven) asked: What is the current demand ratio and long-term changes between TLC and QLC among cloud service provider customers? Against the backdrop of a decline in the number of units in the mobile market, can mobile bits grow next year?
CEO David V. Goeckeler answered (TLC/QLC): Currently, the TLC to QLC ratio is around 70:30 and is expected to remain at that level for the rest of this fiscal year. Customers have more discussions about the accelerated adoption of QLC in different use cases. The QLC product (Stargate) has been fully certified, customers are rolling it out, and the market response is good.
CEO David V. Goeckeler answered (mobile market): Pressure on the low-end market has led to a decline in the number of units, but the amount of content in a single device is increasing. The market is expected to grow in bits (EB) next year, albeit with a slight decrease in the number of units. The company will manage the product portfolio in an agile and flexible manner to optimize short, medium and long-term financial results.
10. About AI customers and accounts receivable
Bank of America analyst Wamsi Mohan asked: Do leading AI companies refer to AI laboratories or new cloud vendors? Did the credit problems of the new cloud vendors spread to the company? Why are accounts receivable rising?
CFO Luis Visoso answered (AI customer): The company sells to all customers, including hyperscale cloud vendors and model makers. The impact of credit issues with new cloud vendors has not been seen; on the contrary, customer demand is very strong, and the largest customers are mostly investment-grade companies. Customer demand has increased compared to a quarter ago.
Chief Financial Officer Luis Visoso's answer (accounts receivable): The increase in accounts receivable is mainly due to changes in customer structure, which has a slight impact on linearity, but is mainly due to customer portfolios.
11. About capital structure and HBF milestones
Evercore analyst Amit Daryanani asked: Is the shift to an NBM-driven business model changing capital structure considerations? Are you willing to increase leverage to accelerate return on capital? What are HBF's key milestones from sample delivery to revenue contribution?
CEO David V. Goeckeler answered (capital structure): The company is committed to implementing a financial model until 2030 and is satisfied with the strategy to maintain a debt-free and strong balance sheet. The company will continue to invest in internal innovations (such as HBF and 3D matrix storage) and return 100% of excess cash flow to shareholders. It is anticipated that this strategy will not change anytime soon.
CEO David V. Goeckeler answered (HBF): The next step is to combine the base chip (controller) with the memory chip and deliver it to the customer. Customers will actually test how the product performs in their infrastructure, which will help answer questions such as market opportunities, TAM, and architecture positioning. The company will expand use case discussions with customers once it has an actual product.
12. About the relationship between SLC and TLC/QLC
Susquehanna analyst Mehdi Hosseini asks: Will SLC demand adversely affect TLC or QLC adoption? Can the joint venture plant increase SLC capacity to meet short-term demand?
CEO David V. Goeckeler answered (SLC positioning): SLC is not cannibalizing TLC or QLC, but rather TAM expanding into fields that require different technical attributes. The company can operate wafer production in SLC mode, and the product is highly flexible. The main appeal of SLC is that its cost is 20 to 40 times lower than DRAM. If it can provide sufficient durability and performance, it is expected to replace DRAM in some scenarios.
CEO David V. Goeckeler answered (supply flexibility): The company does not think it is necessary to specifically increase SLC production capacity. Existing storage units can be flexibly switched between SLC, MLC, TLC, etc., and can be used to supply the existing wafer market. Currently, it is still in the customer exploration phase, but the use of SLC will have an impact on the market because “a small amount of SLC is equivalent to a large amount of QLC.”