Sandisk Corporation earnings

Management highlights

- Signed five multi-year supply partnerships (NBMs) so far, with customers' commitments backed by firm financial guarantees, supporting durable earnings and more predictable business. - Data Center revenue grew 233% sequentially, driven by strong demand for TLC-based enterprise SSD portfolio, and expect to begin shipping QLC Stargate solutions in fiscal fourth quarter. - Edge sees shift towards premium devices, with strong year-over-year revenue growth in consumer storage categories. - Unveiled next-generation portable SSD portfolio and strengthened global consumer engagement through brand-led activities. - Extended joint venture with Kyoksha and invested in Nanya for supply chain resiliency.

Guidance

- Fiscal fourth quarter revenue forecast: $7,750 million to $8,250 million. - Non-GAAP gross margin forecast: 79% to 81%. - Non-GAAP operating expenses forecast: $480 million to $500 million. - Non-GAAP interest and other income forecast: $10 million to $30 million. - Non-GAAP tax expenses forecast: $775 million to $875 million. - Non-GAAP EPS forecast: $30 to $33, assuming 158 million fully diluted shares. - Board of Directors authorized a $6 billion share buyback program.

Segment performance

Revenue for the third quarter was $5,950 million, up 97% sequentially and 251% year-over-year. Data center revenue grew 233% sequentially to $1,467 million. Edge grew 118% to $3,663 million. Consumer came in at $820 million, down 10% in line with historical seasonality. Non-GAAP gross margin for the third quarter was 78.4%, up from 51.1% in the prior quarter. Non-GAAP operating expenses were $448 million, 7.5% of revenue. Non-GAAP operating margin was 70.9%, up from 37.5% in the prior quarter. Non-GAAP EPS was $23.41, up from $6.20 in the prior quarter. Adjusted free cash flow was $2,955 million, with cash flow from operations at $3,038 million and gross capital expenditures at $240 million (4% of revenue).

Analyst Q&A

• Q: EPS guidance implies possible slowing price increase, and degree of price fix in coming quarters;

  A: Don't guide pricing, but FQ3 had extraordinary pricing acceleration, agreements tailored to customers with fixed and variable elements.

• Q: Growth in enterprise SSD, how much market vs product portfolio;

  A: Portfolio in great shape, strong market pull, TLC product driving growth, expect enterprise share to rise.

• Q: One-third of bid growth next year contracted, where it's going;

  A: Still in active conversations, expect number to go up, can get above 50%.

• Q: Margins and target margin;

  A: Not ready to talk target margin yet, focused on getting value of technology recognized.

• Q: Supply-demand for NAND, when industry might get into balance;

  A: Markets balance supply and demand, data center accelerating, supply increased through nodal transitions.

• Q: Capital structure, buybacks;

  A: Announced $6 billion share buyback, will track cash flow.

• Q: New business models, include largest U.S. hyperscalers;

  A: Can't disclose customer names, provide RPO metric.

• Q: Discussions with Keoxia on bit supply;

  A: Conversations ongoing, aligned on BICS-8 transition plan.

• Q: Stargate shipping and meaning;

  A: QLC product under qualification, expected to do well.

• Q: KB Cash opportunity and customer discussions;

  A: Need to stay close to customers, agreements driven by customer understanding of infrastructure.

• Q: Client demand snapping back, confidence in meeting demand;

  A: Markets adapt, engaged in conversations with edge customers on multi-year agreements.

• Q: RPO and financial guarantees, mostly in data center;

  A: Not disclosing customer details, $42 billion RPO from signed deals.

• Q: NAND SST roadmap, high bandwidth flash;

  A: Steady progress, building technology, timeline for NAND die and system with controller.

• Q: DRAM investment and supply agreement;

  A: Partnership with NANIA for preferential DRAM access.

• Q: Average duration of signed deals;

  A: Can't provide average, deals customized to customers.

• Q: Restriction on raising prices in long-term agreements;

  A: Can't go into detail, pricing varies by agreement.

• Q: QLC flash trending and TLC vs QLC mix;

  A: Roughly two-thirds TLC, one-third QLC in portfolio, strong demand for TLC in enterprise SSD space