Q3 2025 Sandisk Corp Earnings Call
Exactly C E O released be social CFO, and Ivan Donaldson Investor Relations VP, all participants will be in listen only mode and should you Mis systems. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions to ask.
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Please note. This event is being recorded I would now like to turn the conference over please go ahead.
Speaker Change: Thank you very much for joining us today.
Speaker Change: Before we begin please note that today's discussion will contain forward looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties.
Speaker Change: These forward looking statements include expectations for our technology and product portfolio.
Our business plans and performance.
Speaker Change: Trends and opportunities.
Speaker Change: And our future financial results.
Speaker Change: We assume no obligation to update these statements.
Speaker Change: Please refer to our most recent financial report on Form 10-K, and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.
Speaker Change: We will also make references to non-GAAP financial measures today reckon.
Speaker Change: Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website.
Speaker Change: Good afternoon, and welcome to <unk> third quarter earnings call.
Speaker Change: To start this call I want to thank the sandoz team for enabling a smooth transition to a standalone company and for delivering a strong quarter.
Speaker Change: As discussed during our analyst day, our goal at Sandisk is to create value for our customers and shareholders and in doing so reaffirm our leadership in the NAND market.
Speaker Change: We are leveraging our strengths in innovation scale agility, and resilience and remain disciplined in managing the business to build sustainable profitable and long term growth.
Speaker Change: The strategy is working as intended even amid ongoing macro economic uncertainty.
Speaker Change: We believe that we are well positioned to capture the significant opportunity in front of us.
Speaker Change: We estimate that the NAND industry is poised for robust long term growth with demand expected to approach $100 billion by the end of the decade.
Speaker Change: We expect growth to be driven by the exponential expansion of data fueled in part by the deployment of artificial intelligence and cloud and edge applications as well as refresh cycles in Pcs and mobile devices.
Speaker Change: In data center, we continue to see strong capital investments and the emergence of new AI, driven workloads, which are fueling use cases for enterprise ssds and expanding <unk> addressable market.
Speaker Change: In parallel we have made structural changes to how we operate increasing our focus on capital discipline, and making a concentrated effort to drive higher returns on invested capital.
Speaker Change: Moving on to the third quarter results.
Speaker Change: We are pleased with our performance as we delivered revenue and EPS at the high end of our guidance ranges for the quarter, we generated $1 $7 billion in revenue down, 10% sequentially and down 1% year over year.
Speaker Change: non-GAAP EPS was a loss of <unk> 30 per share, while cash and cash equivalents increased from $1 3 billion to $1 $5 billion.
Speaker Change: Luis will dive deeper into our third quarter results in a few minutes. The key indicator I want to call out is pricing for the quarter Asps were down high signal digits, reflecting continued oversupply in the market.
Speaker Change: This was higher than our mid single digit decline expectation that we shared at our analyst day.
Speaker Change: To address this we are extending our fab underutilization actions until supply and demand are balanced and we see a sustainable recovery in pricing.
Speaker Change: At the beginning of the fourth quarter, we announced and began implementing price increases for our customers.
These price increases in line with the expectation that we outlined during our analyst day, where we detailed our plan to reduce wafer production to align supply with demand and enable a sustained sustainable level of pricing.
Speaker Change: Let's now move to technology and key business highlights.
Speaker Change: We continue to lead with innovation across all our markets and nowhere is that more evident than with a successful ramp up <unk> eight our latest generation of NAND technology, we expect <unk> to be integrated across a broad range of product lines and represented 10% of our bit shipments in the fourth quarter of.
Speaker Change: Our TLC products are being qualified by customers for high performance mobile and compute applications.
Speaker Change: While our two terabyte TLC di is in qualification with top cloud service providers for use in 128, terabyte and 256 terabyte capacity Ssds.
Speaker Change: These advancements are enabling better performance and improved energy efficiency and.
Speaker Change: And client we see three structural drivers of PC replacement. This includes the Windows 10 end of life of post pandemic PC refresh and the emergence of AI enabled Pcs.
Speaker Change: As we begin mass production of our <unk> client Ssds, we completed qualifications with several key global PC Oems with more expected this quarter.
Speaker Change: We are also extending our leadership in automotive innovation highlighted by our nomination as afford supplier of the year, we shipped the industry's first uff's for dot one samples for autonomous driving where performance reliability and power efficiency are critical.
Speaker Change: <unk> is underway with key partners and early samples are being used in the next generation EV platforms and autonomous robotics.
Speaker Change: We expect to complete qualification in the coming months paving the way for broader adoption and the next generation automotive compute platforms.
Speaker Change: Including advanced driver assistance systems, and robotics, beginning in the second half of calendar year 2026.
Speaker Change: In gaming our <unk>.
<unk> SSD product has been exceptionally well received winning multiple editors choice awards from top PC and gaming publications globally.
Speaker Change: This quarter, we will also begin shipping our first pcie Gen five and Gen. Six <unk> eight enabled client ssds delivering power efficiency and performance for AI and gaming systems.
Speaker Change: In consumer we continue to lead the market with innovative products that define performance and reliability we.
Speaker Change: We recently introduced several products, including our latest portable SSD and a new USB dual drive each reinforcing our leadership in high performance storage and cards. The launch of our professional grade memory card fills a critical gap in our portfolio and strengthens our position in.
Speaker Change: The ever growing content creation segment.
Speaker Change: Another key achievement for our consumer business. There is the launch of our next generation Microsd Express card featuring a co branded 256 gigabyte card developed in partnership with Nintendo for the highly anticipated switch to this.
Speaker Change: This officially licensed product has been in development through close collaboration with Nintendo to ensure it delivers the next level of speed and performance the new console requires.
Speaker Change: I am proud of the recognition our consumer products continue to receive including the Red Dot design award across all consumer storage categories and the best of show an honor for our high performance storage solution for our latest portable SSP at the Nab television tact 2025.
Speaker Change: These distinctions reflect the strength of our innovation engine and the exceptional work of our engineering and industrial design teams.
Speaker Change: In data center, we continue to see capital investments and the rapid growth of AI, driven workloads, which are expanding the use cases for enterprise ssds and broadening.
Speaker Change: <unk> addressable market analysts.
Speaker Change: Estimate cloud Capex from the major Hyperscale providers grew over 50% to approximately $240 billion in calendar year 2024, and that momentum is expected to continue into 2025, reaching approximately $330 billion of 40%.
Speaker Change: Increase given this opportunity we continue to increase our bit allocation to enterprise SSD applications, representing 12% of our bids this quarter up from 8% in the same quarter of the prior year.
Speaker Change: We expect to continue to make progress as we qualify our <unk> eight products with cloud customers, leveraging <unk> and Gen five and Gen six Pcie solutions.
Speaker Change: In summary, we continue to innovate to meet and exceed customer needs reinforcing our performance and power efficiency advantage in the NAND market that's.
Speaker Change: But the China Flash memory summit customers highlighted our leadership position setting our best in class performance to power profile. We were honored with the product Innovation Award a strong validation of our system level execution and continued investment in innovation.
Speaker Change: Years of focused R&D have positioned us at the forefront of the market and we are proud to be driving the next wave of advancement and flash memory.
Speaker Change: With that I'll turn the call over to Louise to dive deeper into our financial performance and guidance Louis.
Speaker Change: Lease.
Louise: Thank you David let me start by providing additional details on the third quarter.
Louise: Revenue was 1690 $5 million down, 10% sequentially, and 1% year over year and above our guidance range of 1550 to 1600 $50 million.
Louise: Sequentially bit shipments were down low single digits, while ASB was down high single digits.
Louise: Client revenue was $927 million down.
Down 10% sequentially consumer was $571 million down 5% quarter over quarter, and cloud was up $197 million down 21% sequentially.
Louise: Lower asp's impacted revenue across all our segments, particularly the cloud.
Louise: non-GAAP gross margin for the third quarter was 22, 7% within our guidance range of $21, 5% to 23% as we continue to drive efficiency in our supply chain during the quarter. Our non-GAAP gross margin include a headwind of $24 million in on their utility.
Louise: <unk> charges and $29 million in fab startup cost.
Louise: Excluding these charges our non-GAAP gross margin would have been 25, 8%.
Louise: Operating expenses were $383 million better than our guidance range of $395 million to $405 million.
Louise: Our performance reflects meaningful progress in identifying cost saving opportunities, even as we continue to invest in innovation.
Louise: non-GAAP EPS was a loss of <unk> 30 per share.
Louise: At the high end of our guidance range of a loss between 45 and <unk> 30 per share.
Louise: We closed the quarter with 145 million shares outstanding our cash and cash equivalents increased from $1 3 billion to $1 5 billion.
Louise: Our third quarter GAAP financials include $44 million in stock based compensation, which is included in our cost of goods sold and operating expenses.
Louise: And $9 million in business separation cost.
Louise: This quarter, we evaluated our goodwill for potential impairment following a quantitative test in accordance with accounting standards and the engagement of evaluation specialist.
Louise: We concluded that the goodwill balance was impaired and recorded a noncash impairment charge of 1800 $30 million as.
Louise: As a result, our quarter end goodwill balance was reduced to $5 billion.
Louise: As we look ahead for the fourth quarter, we remain committed to disciplined approach as we carefully manage both operating and capital expenditures, ensuring that our supply airlines with demand and implementing price increases to support a sustainable business model.
Louise: Our key assumption in our guidance is that the current tariffs remained unchanged throughout the quarter at present, there are no tariffs on our products, except for shipments from China to the U S, which have darice of 27, 5%.
Louise: For perspective, approximately 20% of our product shipped to the United States and over 95% of that revenue is sourced from countries other than China.
Louise: We're working with our customers and closely monitoring the global supply chain environment, while leveraging our agility to insurers continued stable sourcing plans.
Louise: We expect revenue for the fourth quarter of one <unk>.
Louise: 150 to 1800 $50 million.
Louise: Sequentially this assumes bit shipments to be flat and ASP to be up mid to high single digits.
Louise: What we are preparing for customers to be cautious given the uncertain macro environment, there are positive signs, including strengthening of transactional and markets and encouraging customer engagements.
Louise: We expect demand to strengthen throughout the year as David mentioned, we expect client growth driven by the Windows 10 end of life post pandemic PC refresh cycle and emergence of AI enabled Pcs and recovering the mobile market.
Louise: We continue to see content growth as new features and from factor spur demand in.
Louise: In cloud customers digested inventories yet fundamentals are strong as they continue to invest in infrastructure for AI.
Louise: We expect non-GAAP gross margin to be between 25, five and 27%.
Louise: Which includes $55 million to $65 million in under utilization charges and approximately $50 million in fab startup costs.
Louise: These costs are only partially offset by cost savings.
Louise: We expect non-GAAP operating expenses to be between 395.
Louise: And $405 million.
Louise: non-GAAP interest and other income and expense to be between 45, and $50 million and non-GAAP taxes to be between 22% and $25 million.
Louise: As a result, we expect non-GAAP EPS to be between a loss of <unk> 10 per share and a profit of <unk> 15 per share based on 146 million shares outstanding.
Louise: Looking forward to fiscal 2026, we're planning on bit growth in line with the market.
Louise: We expect balanced supply and demand with increases in average selling prices are forecasted gross capital expenditures will be above our through cycle target model of mid teens percentage of revenue from our base eight investment. This will follow two years of capital investments well Bill.
Louise: Though our through cycle target.
As discussed at our Investor Day, we're beginning to move away from providing explicit guidance on cost per bit industry.
Louise: Industry cost reductions from technology migrations are reducing and we believe continually providing this metric is counterproductive to the value proposition of our technology.
Louise: Which is delivering increasing performance power efficiency and density with that let me turn the call back to David.
David: Thanks, Louise let me wrap up and then we'll open up for questions. We are pleased with the performance this quarter and our success in establishing sandisk as a Standalone company. These results reflect the strength of our execution and the alignment of our teams around clear strategic priorities.
David: Looking ahead, we are confident that the combination of our industry, leading technology return focused investments and improving industry fundamentals position us to deliver long term results consistent with our target through cycle financial model.
David: I'm proud of the team's accomplishments and excited about the future for our customers employees and shareholders.
David: With that let's now open the call for questions.
David: Thank you.
David: Now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
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David: Any time your question has been addressed and you would like to withdraw.
David: The question queue. Please press Star then queue at this time, we will pause momentarily to assemble our roster.
Joe Moore: Our first question comes from Joe Moore of Morgan Stanley. Please go ahead.
Joe Moore: Great. Thank you and congrats on first quarter.
Joe Moore: <unk> alone company can you talk.
Joe Moore: Talk about the supply demand a little bit you said that you sort of took additional supply side actions in the quarter.
Joe Moore: How much can you give us some sense of magnitude there and then just do you think that as we move into the second half that we could be fully utilized in the market would rebalance or just.
Joe Moore: How are you thinking about the longer term view there.
Joe Moore: So I'll cover a little bit of an Louisa and cover some of it. So first of all Joe great to hear from you and thanks for the question.
Joe Moore: We still see an under supplied market through the end of next year I think we're just going through the kind of ups and downs of a very dynamic very dynamic market here.
Joe Moore: From my perspective, we talked about this back in December we kind of went through a mid cycle pause I think we're coming out of that now.
Joe Moore: Talked about this at our analyst day that we expected pricing to start increasing in this quarter and thats that is happening.
Joe Moore: Yes, I think Joe the underutilized so we do see the market getting stronger as we go throughout the year, we see supply for this calendar year.
Joe Moore: Mid single digits, we see demand kind of low double digits for next year, we see those pretty balanced in the mid to high teens.
But coming off of a low supply base. So we still see kind of a long term under supplied market, but of course, it's going to vary quarter to quarter.
Joe Moore: As far as our Underutilization I'll say, a little bit about that Luis can talk about it as well he is very close to it.
Joe Moore: We just think it's the prudent move given the mid cycle pause we came through given where we're at on margins just given what we're looking at I think.
Joe Moore: Trying to balance out the market.
Joe Moore: More directly now instead of going into.
Joe Moore: Big ups and downs.
Joe Moore: And especially with the macro uncertainty risk we thought it was the right move last quarter I think that turned out to be a good call.
Joe Moore: But it is something we look at every week trade and we can make we can make a very dynamic decision and we'll stay very close to it and look at all the data points, we have and we will make the best decision for our shareholders of <unk>.
Speaker Change: How to use the fab Luis you want to add maybe a few things to add Joe is.
Joe Moore: David said, we're very optimistic on demand overall.
Joe Moore: We're seeing some unit growth, particularly on our client business.
Joe Moore: And particularly the growth is coming from more content per unit known as we look at this year in particular as we forecast 2026. So we're very optimistic there and as we've all seen spending in by the cloud providers is as high as they continue to increase capacity and we benefit some of that as well.
Joe Moore: On the supply side and on the utilization I.
Speaker Change: I think the most important point is what David said, we're tracking this weekly monthly and what we wanted to do is make sure that we set up our structural capacity to the right level. So as we transition from big five to big fade, we're making sure we set up the right capacity. So that we can be as close as possible to 100%, but it's important that we do.
Speaker Change: We balanced supply and demand we have enough inventories to continue to serve the market and we will keep on tracking this very carefully.
Speaker Change: Great. Thank you and.
Speaker Change: For my follow up I think.
Speaker Change: Enterprise SSD sort of had a little bit of a digestion window in Q in March.
Speaker Change: It seems like its getting better to me and I just wanted to see how you guys are seeing those trends and are you guys still confident in your ramp kind of getting to the levels of market share that you've described in that space over time.
Speaker Change: Yeah, Joe I think the demand has been pretty consistent.
Speaker Change: Theres been a lot of volatility in pricing quite frankly in that part of the market and probably that's the most volatile part of the market on pricing but.
Speaker Change: We see continued good demand, we're very very optimistic about the road map.
I think we've established ourselves well in that market. If I look FY 'twenty four to where we expect to end FY 'twenty five I see a tripling of that business from a revenue perspective, which.
Speaker Change: Ladies a good foundation for us with qualifications and relationships with the right players and then as we talked about our analyst day, where we're moving into a period, where we're going to have a new controller or we're going to have a new product in the storage.
Speaker Change: Side of that business, we have <unk> coming which is a great node for performance and power efficiency. So we think we have established the business well over the last couple of years, we've got qualifications in the right places.
It's performing as expected.
Speaker Change: And then we feel like we're moving into a part of the portfolio, where we are going to get stronger over the next couple of years quarter by quarter as we move forward. So I'm very happy and optimistic about that part of the business.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from C. J Muse of Evercore. Please go ahead.
Speaker Change: Joe Thank you for taking the question.
Speaker Change: May I say, congrats again, your first quarter out I guess.
Speaker Change: Drill down.
Speaker Change: If we could drill down into gross margins.
Speaker Change: <unk> talked about kind of taken.
Speaker Change: Realization lower yet youre still guiding up 355 bps sequentially. So could you help us kind of understand what the headwind is specifically into Q2 and how we should think about.
Speaker Change: That debt.
Speaker Change: And kind of unwinding through the calendar year.
Speaker Change: Yes, we feel good about the progress we're making on gross margin overall C. J I think the headwinds out there too that we called out in our prepared remarks, and one is based on their utilization rate of $55 million to $65 million, which really is the continuation of the decision. We took earlier as we continue to play that out.
Speaker Change: So that that's a big one and I also called out the $50 million fab startup cost, we think that startup costs will be with us for a few more quarters and then they should go away. So that's that's kind of one time costs that we have there which will continue to impact those pad, where we live.
Speaker Change: We benefited from the from the higher ASP, which is helping our our gross margin overall.
Speaker Change: Perfect and then maybe.
Speaker Change: Our focus on enterprise SSD and Capex and so you talked about investing in VIX.
Speaker Change: At the same time, we're seeing a concerted effort by some players in the industry pushing to 200 layer plus you will see in moving to a Molly.
Speaker Change: Really support kind of the.
Speaker Change: AI enterprise.
Speaker Change: So I guess, where are you in kind of that transition.
Speaker Change: How do you go about bringing on kind of optimized capacity for the enterprise yet at the same time limiting <unk> growth it seems to be.
Fernand: Form right now where we are in the cycle Fernand.
Fernand: Yes, I mean, I think we manage that very closely so it depends on the enterprise SSD. I think you are mainly talking about the storage high capacity 60 terabyte go into 128 going to $2 56 over the next year those are <unk> LLC VIX eight I mean, thats all part of the ramp of what we'll do this coming year.
Fernand: This quarter will be like 10% <unk>.
Fernand: FY 'twenty six will be 40% to 50% fixate, so that's that ramp happening.
Fernand: Sorry, I guess to say how do we go about that we go about that very carefully to make sure that we don't just do just what you said, which is oversupply the market with bits as we go to higher layer count and more density per wafer.
Fernand: As we go through that transition we also structurally remove some capacity from the system as we go on the number of wafer starts.
Fernand: To make sure we keep that keep that imbalance.
Fernand: Thanks, so much thanks.
C J: Thanks C J.
Fernand: Our next question comes from Aaron Rakers.
Speaker Change: Please go ahead.
Aaron Rakers: Yes, thanks for taking the question also.
Speaker Change: Congrats on the first quarter out of the gate.
Speaker Change: Kind of sticking with the gross margin maybe taken a little bit of a different way is that it looks like if I adjust for some of these underutilization and startup cost charges that youre cost on a per bit basis was maybe more or less flattish.
Speaker Change: Sequentially this last quarter and it looked like based on the guidance again with those charges consider it looks like youre, assuming maybe the cost.
Speaker Change: Improves right your cost structure declines maybe in the low to mid single digit on a bit basis next quarter. So I guess my question is how do we think about it matures.
Speaker Change: The cost down that you expect to see as we move out into the second half of the year.
Speaker Change: And into 2006.
Speaker Change: Yes, I think we talked about this erin so first of all thanks for the thanks for the.
Speaker Change: The congratulations we feel good about it our first quarter out it's been a great two or three months here post separation, it's gone quick.
Speaker Change: So we talked about this in the script, we're going to start and we talked about at our analyst day, we're going to start talking less about cost downs.
Speaker Change: I'll give you some context on that because I think it's important.
Speaker Change: First of all I think the whole structure of the industry are driving cost downs. It is an important concept.
Speaker Change: Mainly around expanding the Tam I think in storage in general having managed to different storage franchises to drive the cost down you expand the Tam.
Speaker Change: However, we talked about Tam is go into a $100 billion I think expanding the Tam is not really our issue as a company, it's like making sure we have the right profitability to drive all the capital investment required to support this demand.
Speaker Change: So we're more focused on the technology differentiation, we have we feel very good about the R&D we do.
Speaker Change: Performance power density all these things we need in an AI world customers are really pushing us for more dense higher op.
Speaker Change: Spaced enterprise SSD that requires an enormous amount of R&D investment.
Speaker Change: And so that's really where we want to put the focus and then.
Speaker Change: I'll also say the cost downs are my observation over the last five years. They are just more.
Speaker Change: More.
Speaker Change: I don't want to say unpredictable less consistent is the right way to say it some quarters it used to be you'd get pretty consistent cost downs as you move move nodes and <unk> drove yields higher it just seems like over the last couple of years they have been more.
Speaker Change: A lot of quarters up and down so it's hard to like just put a number out there for them. They are also getting harder to get quite frankly, as we get to these larger layer.
Speaker Change: Node larger layer count nodes, you get more bits than you do cost downs right just the way it works so thats really the third part.
Speaker Change: As I think for a long time.
Speaker Change: Kind of the approach to.
Speaker Change: The industry was drive a new node get more cost downs and I think the last downturn showed that that was like bringing in gasoline can to a fire. Because you you get way more beds than you get cost down. So when you when you add that all up we just want to focus on different parts of the business and kind of not.
Speaker Change: Talk so much about that all of that said, we will get some obviously, we will get some cost downs out of <unk> right and we're just not going to forecast them on a quarter by quarter basis, but the way youre thinking about it is is a reasonable way to think about it.
Speaker Change: From a longer answer than you were you were looking for but I. Appreciate you bearing with me. Thanks Sharon.
Speaker Change: Thanks.
Our next question comes from Karl Ackerman.
Speaker Change: Please go ahead.
Speaker Change: Thank you.
Speaker Change: I was hoping you could address the outlook for NAND bit shipments in the June quarter.
Speaker Change: And if you still anticipate NAND bit volume to grow low double digits. This calendar year as you address that question, perhaps you can discuss the level of order visibility.
Speaker Change: That you have across your various end markets.
Speaker Change: Yes, so for the June quarter of what we guided was.
Speaker Change: Flattish.
Speaker Change: Bids right now if we look.
Speaker Change: Further out.
Speaker Change: When we were together at analyst day, we said, we expected growth to be high single digits in the July through December semester back end of 2025, and frankly, there is nothing that we see that that leads us to change that view, we continue to feel optimistic about the growth in the business, particularly in the industry and we.
Speaker Change: Talking about some of those drivers here during the call we talked about client we talked about <unk>, we talked about mobile we talked about cloud. So we continue to feel good about the long term growth in the industry.
Speaker Change: But for the June quarter was specifically to what we guided we guided bids to be flattish in ASP to be to be going up.
Speaker Change: Visibility across the market.
Speaker Change: <unk> ability so far is I mean, we talk to customers all the time right. We what do we see across the market is good.
Speaker Change: There are pieces and all of the transactional market and you guys have access to is a lot of that data, we're seeing prices moving up we see the business moving where we're making good progress on gross client and cloud. So we feel good about where things are so far out as we start in the quarter and that leads us to have confidence in.
Speaker Change: The guide, we're giving you.
Speaker Change: Very helpful I'll cede the floor. Thank you. Thanks.
Carl: Thanks Carl.
Speaker Change: Our next question comes from Jamie Katz.
Carl: Please go ahead.
Jamie Katz: Yes, hi, thanks.
Jamie Katz: Just a quick question on the.
Jamie Katz: Cloud site.
Jamie Katz: It's growing almost 100% year on year, I guess, but can you talk to how many enterprise hyperscale customers you have.
Speaker Change: How you're approaching that market.
Speaker Change: What's the what are the milestones that you expected.
We have multiple hyperscale customers and we're really starting to expand out the channel business.
Speaker Change: Especially the <unk>.
Speaker Change: Kind of qualification, we talked about within video couple of quarters ago. That's now starting to really blossom with a lot of a lot of customers.
Speaker Change: A more broader set so.
Speaker Change: We feel good that we're playing at the biggest players.
Speaker Change: And then the deeper into the ecosystem.
Speaker Change: AI pulls a lot of business in that part of the.
Speaker Change: That part of the portfolio.
Speaker Change: Got it.
Operator: On the call today, we have David Goeckeler, CEO, Luis Visoso, CFO, and Ivan Donaldson, Investor Relations VP.
Speaker Change: When you look at the FSD segment, a lot of it is still shipping on TLC, but youre starting to see <unk> pick up can you talk to how that ramp is going.
Yeah, Hi, Thanks, David and then just a quick question on the E.
Cloud site I saw it growing almost almost 100% year on year, I guess, but can you talk to how many enterprise hyperscale customers you have.
Operator: All participants will be in listen-only mode, and should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: Whether its standards on that road map in terms of qualification of ramping up.
Speaker Change: Shipments on currency.
Speaker Change: We talked about that a little bit at our analyst day, and it's still very consistent with that we have.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad.
How you're approaching that market.
What's the what are the milestones that you expect it.
Speaker Change: The compute focus TLC based very high performance piece.
Operator: To withdraw your question, please press star, then.
Yeah, we have multiple hyperscale customers and we're really starting to expand out the channel business.
Speaker Change: Pcie Gen five interface SSD that has been doing quite well at hyperscale and throughout a broader set of customers I think the number of qualifications there keeps increasing.
Operator: Please note, this event is being recorded.
Operator: I would now like to turn the conference over, please go ahead.
Especially the <unk>.
Qualification, we talked about within video couple of quarters ago. That's now starting to really blossom with a lot of a lot of customers.
Operator: Thank you very much for joining us.
Speaker Change: That's a larger <unk> based storage.
David Goeckeler: Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks These forward-looking statements include expectations for our technology and product portfolio. Our Business Plans and Performance Market Trends and Opportunities, and our future financial results.
Speaker Change: <unk> Enterprise Ssds, 60, terabyte going to $1 28, and then eventually $2 56, as we move through fiscal year 'twenty six.
A more broader set so.
We feel good that we're playing at the biggest players.
And then the deeper into the ecosystem.
Speaker Change: That.
Speaker Change: Qualifications are going well there, but what we're really excited about is we have a new architecture coming out in the next couple of quarters that we call Stargate New ASIC clean sheet design, and then with <unk> and we just think that's going to be a dynamite project. We will have it in customers' hands here soon and we expect that.
AI pulls a lot of business in that part of the.
That part of the portfolio.
Got it.
I think if you look at the SFC segment, a lot of it is still shipping on TLC, but you're trying to seek ults's picked up can you talk to how that ramp is going well.
David Goeckeler: we assume no obligation to update.
David Goeckeler: Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.
When its standards on that roadmap in terms of quantity is ramping up.
Speaker Change: To go very well so we're very optimistic about the the portfolio about the progress we've made and what's coming from a roadmap perspective.
Shipments on Thursday.
David Goeckeler: We will also make references to non-GAAP financial measures.
We talked about that a little bit at our analyst day, and it's still very consistent with that we have.
Speaker Change: Alright. Thank you thank.
David Goeckeler: Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Steven Fox.
The compute focus TLC based very high performance piece.
Speaker Change: Fox Research. Please go ahead.
David Goeckeler: Good afternoon and welcome to Sandisk's third quarter earnings call.
Pcie Gen five interface SSD that has been doing quite well at hyperscale and throughout our broader set of customers I think the number of qualifications there keeps increasing.
Steven Fox: Hi, good afternoon, two questions if I could.
David Goeckeler: To start this call, I want to thank the Sandisk team for enabling a smooth transition to a standalone company and for delivering a strong quarter. As discussed during our analyst day, our goal at Sandisk is to create value for our customers and shareholders, and in doing so, reaffirm our leadership in the NAN market. We are leveraging our strengths in innovation, scale, agility, and resilience, and remain disciplined in managing the business to build sustainable, profitable, and long-term growth. The strategy is working as intended, even amid ongoing macroeconomic uncertainty. We believe that we are well positioned to capture the significant opportunity in front of us.
Steven Fox: First of all I was curious about how we think about underutilized underutilization charges beyond this quarter, how quickly they sort of dissipate and then.
That's a larger <unk> based storage.
<unk> enterprise excess fees 60, terabyte going to $1 28, and then eventually $2 56, as we move through fiscal year 'twenty six.
Steven Fox: Just thinking about the full supply chain.
You've mentioned that Theres not a lot of direct exposure to tariffs at this point and even like it seems it sounds like demand is holding up pretty well too but is there any other bottlenecks that you're worried about with your customers, where they are moving around supply chain or anything else that could either help you versus competition or maybe become sort of a push out going forward. Thank you.
That.
Qualifications are going well there, but what we're really excited about is we have a new architecture coming out in the next couple of quarters that we call Stargate New AC clean sheet design, and then with <unk> and we just think that's going to be a dynamite project. We will have it in customers' hands here soon and we expect that.
Steven Fox: Yeah. So I would say first of all on Underutilization in our overall strategy is we don't we would rather operate out of 100% capacity right. So we believe that this is a tactical thing we need to do and I think it's the right thing to do at the right time, but over time, we need to get out of that right. We wanted to have.
To go very well so we're very optimistic about the portfolio about the progress we've made and what's coming from a roadmap perspective.
David Goeckeler: We estimate that the NAND industry is poised for robust, long-term growth with demand expected to approach $100 billion by the end of the decade. We expect growth to be driven by the exponential expansion of data, fueled in part by the deployment of artificial intelligence in cloud and edge applications, as well as refresh cycles in PCs and mobile devices. In Datacenter, we continue to see strong capital investments and the emergence of new AI-driven workloads, which are fueling use cases for enterprise SSDs and expanding NANDs addressable market.
Alright, thank you.
Thank you.
Steven Fox: Our structural capacity should setup should be set up for the market with that where we're supporting and thats kind of how we want to operate so we will be tracking this as David said earlier, and we will be adjusting over time, but our overall goal is to get 100% out of on the utilization when we can when supply.
Our next question comes from Steven Fox.
Fox Research. Please go ahead.
Speaker Change: Hi, Good afternoon, I had two questions if I could.
Speaker Change: First of all I was curious about how we think about under your under utilization charges beyond this quarter, how how quickly they.
Demand is balanced.
Speaker Change: We anticipate and then.
On your second question. We are we're good on <unk> as we said right only 20% of our products are shipped to the U S.
Speaker Change: Just thinking about the full supply chain.
Speaker Change: You mentioned that Theres not a lot of direct exposure to tariffs at this point and even like it seems it sounds like demand is holding up pretty well too but is there any other bottlenecks that you're worried about with your customers, where they're moving around supply chain or anything else that could either help you versus competition or maybe become a sort of a push out going forward. Thank you.
David Goeckeler: In parallel, we have made structural changes to how we operate, increasing our focus on capital discipline and making a concentrated effort to drive higher returns on invested capital.
Steven Fox: And 95% of those products do not have any tariffs because they are source of countries outside of China. We don't see a lot of other bottlenecks in our supply chain. So the supply chain is run efficiently. We have as you know front end comps are 100% out of Japan from our JV and we have a <unk>.
David Goeckeler: Moving on to the third quarter results. We are pleased with our performance as we delivered revenue in EPS at the high end of our guidance ranges. For the quarter, we generated $1.7 billion in revenue, down 10% sequentially and down 1% year over year.
Speaker Change: Yeah. So I would say first of all on under utilization. Our overall strategy is we don't we would rather operate out of 100% capacity right. So we believe that this is a tactical thing we need to do and I think it's the right thing to do at the right time, but over time, we need to get out of that slide we wanted to have.
Steven Fox: All options on the backend, particularly Malaysia.
Steven Fox: And we do have a.
Steven Fox: A JV in China.
Steven Fox: Which sources some of the countries as well, but we feel that the supply chain is operating efficiently and sourcing and supporting our products around the world.
David Goeckeler: Nongap EPS was a loss of $0.30 per share, while cash and cash equivalents increased from $1.3 billion to $1.5 billion.
Speaker Change: Half our structural capacity should setup should be set up for or the market with that where we're supporting and that's kind of how we want outbreak. So we will be tracking this as David said earlier and and we'll be adjusting over time, but our overall goal is to get 100% out of under utilization when we can when soup.
Steven Fox: Great. That's very helpful. Thank you.
Steven Fox: Thanks Steven.
David Goeckeler: Luis will dive deeper into our third quarter results in a few minutes. The key indicator I want to call out is price. For the quarter, ASPs were down high signal digits, reflecting continued oversupply in the market. This was higher than our mid-single-digit decline expectation that we shared at our analyst day. To address this, we are extending our FAB underutilization actions until supply and demand are balanced and we see a sustainable recovery in pricing. At the beginning of the fourth quarter, we announced and began implementing price increases for our customers. These price increases align with the expectation that we outlined during our analyst day where we detailed our plan to reduce wafer production to align supply with demand and enable a sustainable level of pricing.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: Our next question comes from Nam Kim Arete.
Speaker Change: Research. Please go ahead.
Alright, Thank you and thank you for taking my question.
David: Client demand is banner.
Speaker Change: One more question on NAND pricing.
David: On your second question. We are we're good on tower is right as we as we said right only 20% of our products are shipped to the U S and a 95% of those products do not have any targets because they are source of countries outside of China. We don't see a lot of other bottlenecks in our supply chain. So the supply chain is.
Speaker Change: Compared to a few months ago before Terry would impact the overall sentiment on price outlook stems, becoming more conservative, but you mentioned that.
Speaker Change: You assume mid to high single ESP ability into your guidance. This quarter is this mainly driven by transaction, our marquette or across the board. If you give me any color on the OEM market.
David: Ron efficiently, we have as you know front end comps are 100% out of Japan from our JV and we have.
Speaker Change: Great and then if I can add one more question since the Europe apps all located in Japan.
David: Several options on the backend, particularly Malaysia.
David: And we do have a JV in China with <unk>.
Speaker Change: Just wonder how Japanese yen exchange rate against the dollar impact your cost structure is there any framework to share with us while we're modeling put forward. Thank you.
David Goeckeler: Let's now move to technology and key business highlights. We continue to lead with innovation across all our markets, and nowhere is that more evident than with the successful ramp of BICS VIII, our latest generation of NAND technology. We expect BICS VIII to be integrated across a broad range of product lines and represent 10% of our BIT shipments in the fourth quarter. Our TLC products are being qualified by customers for high performance mobile and compute applications. while our two terabit QLC die is in qualification with top cloud service providers for use in 128 terabyte and 256 terabyte capacity SSDs.
David: Sources, some of the countries as well, but we feel that the supply chain is operating efficiently and sourcing and supporting our products around the world.
Speaker Change: Yes.
David: Great. That's very helpful. Thank you. Thanks.
Speaker Change: So just a little bit on pricing.
Steven: Thanks Steven.
Speaker Change: We have a lot of visibility as a company we have a big consumer franchise.
Steven: Once again, if you have a question please.
Speaker Change: Star then one.
Speaker Change: Good sized channel business, we sell to all the PC Oems we have held all the hyperscale and all the the phone vendors. They think the turn in the market is across the board.
Steven: Our next question comes from them.
Steven: Please go ahead.
Steven: Alright. Thank you. Thank you for taking my question.
Steven: One more question on NAND pricing.
Speaker Change: We just see we've had conviction on this for a while I think we were early in saying that we thought in the in the in the June quarter, we are going to see price increases that's what we put out in our analyst day and.
Steven: Compared to a few months ago before how are you.
Steven: And then on price, though looks things, becoming more consolidated but you mentioned that.
David Goeckeler: These advancements are enabling better performance and improved energy efficiency.
Steven: <unk> also been mid to high single ESP baked into your guidance. This quarter. Because this is mainly driven by transaction or market or across the board. If you give me any color on the OEM market that needs to be.
Speaker Change: Took actions to help drive that but really it was looking across this entire.
David Goeckeler: In Client, we see three structural drivers of PC replacement. This includes the Windows 10 end-of-life, a post-pandemic PC refresh, and the emergence of AI-enabled PCs. As we begin mass production of our Bixate client SSDs, we completed qualifications with several key global PC OEMs, with more expected this quarter.
Speaker Change: Kaleidoscope of information, we have in talking to customers and understanding all the technology Roadmaps that gave us the.
Steven: Great and then if I can add one more question since the Europe basketball all located in Japan, I, just wonder how Japanese yen exchange rate against all of our impact your cost structure.
Speaker Change: The conviction in that.
Speaker Change: Of course, there's been a lot of macro issues tariffs or whatever it happens to be that's been.
Speaker Change: Things for the market to digest, along the way but.
Steven: Any framework to share with you a smaller modeling portfolio. Thank you.
Speaker Change: When you still look at it as I said I think in the first question, we still see an under supplied market through the end of <unk>.
David Goeckeler: We are also extending our leadership in automotive innovation, highlighted by our nomination as a Ford Supplier of the Year. We ship the industry's first UFS 4.1 samples for autonomous driving, where performance, reliability and power efficiency are critical.
Steven: Yeah.
Steven: I don't think so just a little bit on pricing I mean.
Speaker Change: Calendar year, 2006 and Thats.
Speaker Change: Because thats how far out we forecast at this point we.
Speaker Change: You know we have a lot of visibility as a company we have a big consumer franchise, we have a good sized channel business, we sell to all the PC Oems we held all the hyper scaler and all the.
Speaker Change: We feel like we have enough data on and so we've had we've had a lot of conviction that we're moving into a better market and then what we went through in the last couple of quarters was just a mid cycle correction.
David Goeckeler: Development is underway with key partners, and early samples are being used in the next generation EV platforms in autonomous robotics. We expect to complete qualification in the coming months, paving the way for broader adoption in the next generation automotive compute platforms, including advanced driver assistance systems and robotics, beginning in the second half of calendar year 2026.
Steven: Phone vendors.
Steven: The turn in the market is across the board.
Speaker Change: And I think that that's playing out so.
Speaker Change: Sure.
Steven: We just see we've had conviction on this for a while I think we were early in saying that we thought in the in the in the June quarter, we were gonna see price increases that's what we put out in our analyst day and then they.
Speaker Change: Anyway <unk>.
Speaker Change: Hope that helps on the pricing side and on the yen I'll, let I'll, let Luis take that yes, I mean overall, our front end is clearly exposed to the yen and we're somewhere on whatever $1 44 per dollar today now something to be very careful here as you do your models is there are two types of costs right there.
Steven: Took actions to help drive that but really it was looking across this entire.
David Goeckeler: In gaming, our latest SSD product has been exceptionally well received, winning multiple Editor's Choice Awards from top PC and gaming publications globally.
Steven: Kaleidoscope of information, we have in talking to customers and understanding all the technology Roadmaps that gave us.
Speaker Change: Cost which are you.
Speaker Change: And the nominated which I would say, it's labor and a few other things and there are other costs, which are non yen denominated even if they are coming from Japan think about equipment and capex and some of our materials, which we're importing from other countries or they are.
Steven: The conviction in that.
Steven: Of course, there's been a lot of macro issues tariffs or whatever it happens to be that's been.
David Goeckeler: This quarter, we will also begin shipping our first PCIe Gen 5 and Gen 6 BIX8-enabled client SSDs, delivering power, efficiency, and performance for AI and gaming systems. In consumer, we continue to lead the market with innovative products that define performance and reliability. We recently introduced several products, including our latest portable SSD and a new USB dual drive, each reinforcing our leadership in high-performance storage. In cards, the launch of our professional-grade memory card fills a critical gap in our portfolio and strengthens our position in the ever-growing content creation segment.
Things for the market to digest, along the way but.
Steven: When you still look at it as I said I think in the first question, we still see an under supplied market through the end of <unk>.
Speaker Change: Part of the global economy, and therefore, they are dollar based or they could be euro base. So not necessarily all our cost that comes out of Japan.
Steven: Calendar year 'twenty six.
Steven: Because that's how far out we forecast at this point we.
Speaker Change: Is exposed to the yen in the same way. So we obviously track this very carefully and we make sure that we are prepared to that so we understand that piece.
Steven: We feel like we have enough data on and so we've had you know we've had a lot of conviction that we're moving into a better market than what we went through in the last couple of quarters was a just a mid cycle correction.
Speaker Change: Does that makes sense.
Speaker Change: Yes. Thank you very much yeah. Thank you.
Steven: And I think that that's playing out so.
Steven: <unk>.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to David Blackman for any closing remarks.
Steven: Anyway, I hope that.
Steven: Hope that helps on the pricing side and on the yen I'll, let I'll, let Luis take that yeah. I mean overall, our front end is clearly exposed to the yen and we're somewhere on whatever $1 44, a yen per dollar to ban now something to be very careful here as you do your models is there are two types of costs right there.
David Blackman: Alright, thanks for joining us on our.
David Goeckeler: Another key achievement for our consumer business is the launch of our next generation Micro SD Express card featuring a co-branded 256 gigabyte card developed in partnership with Nintendo for the highly anticipated Switch 2. This officially licensed product has been in development through close collaboration with Nintendo to ensure it delivers the next level speed and performance the new console requires. I am proud of the recognition our consumer products continue to receive, including the Red Dot Design Award across all consumer storage categories. and the best of show honor for a high performance storage solution for our latest portable SSB at the NAB TV Tech 2025.
David Blackman: Our first conference call as <unk>.
David Blackman: And so the first earnings call. We appreciate your participation and all the great questions and we look forward to talking to you throughout the quarter take care. Thank you.
Steven: Cost which are.
Speaker Change: This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Luis: And denominated, which I would say, it's labor and a few other things and they are all their cost which are non yen denominated even if they are coming from Japan think about equipment and capex and some of our materials, which we are importing from all the countries where they are.
Luis: Part of the global economy, and therefore, they are dollar based or they could be your euro base. So not necessarily all our cost that comes out of Japan.
Luis: It's exposed to the yen and the same way. So we obviously track this very carefully and we make sure that we are prepared to do that so we understand that piece.
David Goeckeler: These distinctions reflect the strength of our innovation engine and the exceptional work of our engineering and industrial design team.
Luis: Does that makes sense.
Luis: Yes, thank you very much.
David Goeckeler: In Datacenter, we continue to see capital investments in the rapid growth of AI-driven workloads, which are expanding the use cases for enterprise SSDs and broadening NAND's addressable market. Analysts estimate cloud CapEx from the major hyperscale providers grew over 50% to approximately $240 billion in calendar year 2024, and that momentum is expected to continue into 2025, reaching approximately $330 billion, a 40% increase. Given this opportunity, we continue to increase our bit allocation to enterprise SSD applications, representing 12% of our bits this quarter, up from 8% in the same quarter of the prior year. And we expect to continue to make progress as we qualify our BICS 8 products with cloud customers leveraging QLC and Gen 5 and Gen 6 PCIe solutions.
Luis: This concludes our question and answers back.
Speaker Change: Like to turn the conference back over to David Kessler for any closing remarks.
Speaker Change: Alright, thanks for joining us on our.
Speaker Change: Our first conference call as <unk>.
Speaker Change: <unk> first earnings call. We appreciate your.
Speaker Change: Dissipation and all the great questions and we look forward to talking to you throughout the quarter take care. Thank you.
Speaker Change: This conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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David Goeckeler: In summary, we continue to innovate to meet and exceed customer needs, reinforcing our performance and power efficiency advantage in the NAND market. At the China Flash Memory Summit, customers highlighted our leadership position, setting our best-in-class performance-to-power profile.
David Goeckeler: We were honored with the Product Innovation Award, a strong validation of our system-level execution and continued investment in innovation. Years of focused R&D have positioned us at the forefront of the market, and we are proud to be driving the next wave of advancement in flash memory.
Luis Visoso: With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance. Thank you, David. Let me start by providing additional details on the third quarter. Revenue was $1,695 million, down 10% sequentially and 1% year-over-year and above our guidance range of $1,550 to $1,650 million. Sequentially, bid shipments were down low single digits while ASP was down high single digits. Client revenue was $927 million, down 10% sequentially. Consumer was $571 million, down 5% quarter over quarter. And cloud was $197 million, down 21% sequentially. Lower ASBs impacted revenue across all our segments, particularly the Non-GAAP gross margin for the third quarter was 22.7%, within our guidance range of 21.5% to 23%, as we continue to drive efficiency in our supply chain.
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Luis Visoso: During the quarter, our non-GAAP gross margin included headwinds of $24 million in underutilization charges and $29 million in fab startup costs. Excluding these charges, our non-GAAP gross margin would have been 25.8%. Operating expenses were $383 million, better than our guidance range of $395 to $405 million. Our performance reflects meaningful progress in identifying cost-saving opportunities even as we continue to invest in innovation. Non-GAAP EPS was a loss of $0.30 per share, at the high end of our guidance range of a loss between $0.45 and $0.30 per share. We close the quarter with 145 million shares outstanding.
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Luis Visoso: Our cash and cash equivalents increased from $1.3 billion to $1.5 billion. Our third quarter GAAP financials include $44 million in stock-based compensation, which is included in our cost of goods sold and operating expenses. and $9 million in business separation costs.
Luis Visoso: This quarter, we evaluated our goodwill for potential impairment following a quantitative test in accordance with accounting standards and the engagement of evaluation specialists.
Luis Visoso: We concluded that the goodwill balance was impaired and recorded a non-cash impairment charge of $1,830 million. As a result, our quarter-end goodwill balance was reduced to $5 billion.
Speaker Change: Okay.
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Luis Visoso: As we look ahead for the fourth quarter, we remain committed to a disciplined approach as we carefully manage both operating and capital expenditures, ensuring that our supply aligns with demand and implementing price increases to support a sustainable business model. Our key assumption in our guidance is that the current tariffs remain unchanged throughout the quarter. At present, there are no tariffs on our products except for shipments from China to the U.S., which have tariffs of 27.5 percent. For perspective, approximately 20% of our products ship to the United States, and over 95% of that revenue is sourced from countries other than China.
Luis Visoso: We're working with our customers and closely monitoring the global supply chain environment while leveraging our agility to ensure continued stable sourcing plans.
Luis Visoso: We expect revenue for the fourth quarter of $1,750 to $1,850 million. Sequentially, this assumes bid shipments to be flat and ASP to be up mid to high single digit. What we're preparing for customers to be cautious, given the uncertain macro environment, there are positive signs, including strengthening of transactional markets and encouraging customer engagement. We expect demand to strengthen throughout the year. As David mentioned, we expect client growth driven by the Windows 10 end-of-life, post-pandemic PC refresh cycle, and emergence of AI-enabled PCs, and recovering the mobile market. We continue to see content growth as new features and front factors per demand.
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Luis Visoso: In cloud, customers digest their inventories, yet fundamentals are strong as they continue to invest in infrastructure for AI. We expect non-GAAP gross margin to be between 25.5% and 27%, which includes $55 to $65 million in underutilization charges and approximately $50 million in FAB startup costs. These costs are only partially offset by cost savings.
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Luis Visoso: We expect non-GAAP operating expenses to be between $395 and $405 million. non-GAAP interest and other income and expense to be between $45 and $50 million, and non-GAAP taxes to be between $22 and $25 million.
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Luis Visoso: As a result, we expect non-GAAP EPS to be between a loss of $0.10 per share and a profit of $0.15 per share based on 146 million shares outstanding.
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Speaker Change: Thank you.
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Luis Visoso: Looking forward to fiscal 2026. We're planning on big growth in land with a market. We expect balanced supply and demand with increases in average selling prices.
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Luis Visoso: Our forecasted gross capital expenditures will be above our through-cycle target model of mid-teens percentage of revenue from our BEX VIII investment. This will follow two years of capital investments well below our through-cycle target.
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Luis Visoso: As discussed at our Investor Day, we're beginning to move away from providing explicit guidance on cost per bit. Industry cost reductions from technology migrations are reducing, and we believe continually providing this metric is counterproductive to the value proposition of our technology. which is delivering increasing performance, power efficiency, and density.
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David Goeckeler: With that, let me turn the call back to David. Thanks, Luis.
Speaker Change: Okay.
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David Goeckeler: Let me wrap up and then we'll open up for questions. We are pleased with the performance this quarter and our success in establishing Sandisk as a standalone company. These results reflect the strength of our execution and the alignment of our teams around clear strategic priorities. Looking ahead, we are confident that the combination of our industry-leading technology, return-focused investments, and improving industry fundamentals position us to deliver long-term results consistent with our target through-cycle financial model.
Speaker Change: Okay.
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David Goeckeler: I'm proud of the team's accomplishments and excited about the future for our customers, employees, and shareholders.
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Operator: With that, let's now open the call for questions. Thank you.
Speaker Change: Okay.
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Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
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Operator: At any time, your question has been addressed and you would like to withdraw. Hugh, please press star then two.
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Operator: At this time, we will pause momentarily to assemble our roster.
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Joe Moore: Our first question comes from Joe Moore of Morgan Stanley. Please go ahead. Great, thank you. And congrats on the first quarter as a standalone company. Can you talk about the supply demand a little bit? You said that you sort of took additional supply side actions in the quarter, you know, how much give us some sense of magnitude there? And then just, you know, do you think that as we move into the second half, that we could be fully utilized and the market would be balanced? Or just, you know, how are you thinking about the longer term view there?
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David Goeckeler: So, I'll cover a little bit of that, and Luis can cover some of it. So, first of all, Joe, great to hear from you. Thanks for the question. We still see an undersupplied market through the end of next year. I think we're just going through the kind of ups and downs of a very dynamic market here. From my perspective, we talked about this back in December. We kind of went through a mid-cycle pause. I think we're coming out of that now. We talked about this at our analyst day that we expected pricing to start increasing in this quarter, and that's happening.
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Speaker Change: Thank you.
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Speaker Change: Hi, there.
Speaker Change: Good day and welcome to the standard technology third quarter fiscal 2025 earnings conference call on the call today, we have David Zaslav CEO, Gary Michel So, yeah, and Ivan Donaldson Investor Relations team.
Luis Visoso: Yeah, I think Joe, the underutilized so we do see the market getting stronger as we go throughout the year. You know, we see supply for this calendar year, mid single digits, we see demand kind of low double digits. For next year, we see those pretty balanced in the mid to high teens, but coming off of a low supply base. So we still see kind of a long-term under-supplied market, but of course it's going to vary quarter to quarter.
Speaker Change: All participants will be in listen only mode genius systems, each signal a conference specialist by pressing the star can you followed by zero.
Speaker Change: After today's presentation there'll be an opportunity to ask questions.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: Your question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over please go ahead.
David Goeckeler: As far as our underutilization, I'll say a little bit about that. Luis can talk about it as well. He's very close to it. We just think it's the prudent move, given the mid-cycle pause we came through, given where we're at on margins, just given what we're looking at. I think we're trying to balance out the market more directly now, instead of going into big ups and downs. And especially with the macro uncertainty risk, we thought it was the right move last quarter. I think that turned out to be a good call. But it is something we look at every week, and we can make a very dynamic decision.
Speaker Change: Thank you very much for joining us today.
Speaker Change: Before we begin please note that today's discussion will contain forward looking statements based on management's current assumptions and expectations.
Speaker Change: You are subject to various risks and uncertainties.
Speaker Change: These forward looking statements include expectations for our technology and product portfolio.
Speaker Change: Our business plans and performance.
Speaker Change: Market trends and opportunities.
Speaker Change: And our future financial results.
Speaker Change: We assume no obligation to update these statements.
Luis Visoso: And we'll stay very close to it, look at all the data points we have, and we'll make the best decision for our shareholders of how to use the FAB.
Speaker Change: Please refer to our most recent financial report on Form 10-K, and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.
Luis Visoso: Luis, do you want to add to that? Maybe a few things to add, Joe, is, as David said, we're very optimistic on demand overall. We're seeing some unit growth, particularly on our client business, but particularly the growth is coming from more content per unit, as we look at this year, and particularly as we forecast 2026. So we're very optimistic there. And as we've all seen, spending in by the cloud providers is high as they continue to increase capacity, and I believe we benefit some of that as well. On the supply side and on the utilization, I think the most important point is what David said.
Speaker Change: We will also make references to non-GAAP financial measures today reckon.
Speaker Change: Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website.
Speaker Change: Good afternoon, and welcome to <unk> third quarter earnings call.
Speaker Change: To start this call I want to thank the sandoz team for enabling a smooth transition to a standalone company and for delivering a strong quarter.
Speaker Change: As discussed during our analyst day, our goal at Sandisk is to create value for our customers and shareholders and in doing so reaffirm our leadership in the NAND market.
Luis Visoso: We're tracking this weekly, monthly, and what we want to do is make sure that we set up our structural capacity to the right level. So as we transition from Big Five to Big Eight, we're making sure we set up the right capacity so that we can be as close as possible to 100%. But it's important that we balance supply and demand. We have enough inventories to continue to serve the market, and we'll keep on tracking this very carefully.
Speaker Change: We are leveraging our strengths in innovation scale agility, and resilience and remain disciplined in managing the business to build sustainable profitable and long term growth.
Speaker Change: The strategy is working as intended even amid ongoing macro economic.
Joe Moore: Great, thank you. And for my follow up, I think, you know, enterprise SSD sort of had a little bit of a digestion window in March. It seems like it's getting better to me. And I just wanted to see how you guys are seeing those trends. And, you know, are you guys still confident in your ramp kind of getting to the levels of market share that you've described in that space over time? Yeah, Joe, I think the demand has been pretty consistent. There's been a lot of volatility in pricing, quite frankly, in that part of the market, probably that's the most volatile part of the market on pricing.
David Goeckeler: But we see continued good demand. You know, we're very, very optimistic about the roadmap. I think we've established ourselves well in that market.
David Goeckeler: If I look FY 24 to where we expect to end FY 25, I see a tripling of that business from a revenue perspective, which is a lot of good. lays a good foundation for us with qualifications and relationships with the right players.
David Goeckeler: And then, as we talked about our Analyst Day, we're moving into a period where we're going to have a new controller, we're going to have a new product in the storage side of that business. We have Bix8 coming, which is a great node for performance and power efficiency. So, we think we've established the business well over the last couple of years. We've got qualifications in the right places. It's performing as expected. And then we feel like we're moving into a part of the portfolio where we're going to get stronger over the next couple of years, quarter by quarter, as we move forward.
David Goeckeler: So, I'm very happy and optimistic about that part of the business.
Joe Moore: Great, thank you, great, thank you.
PJ Muse: Our next question comes from PJ Muse of Evercore.
PJ Muse: Please go ahead. Kenneth Fitzgerald, thank you for taking the question and may I say congrats again your first quarter out. I guess maybe if we could drill down, yeah you're welcome, if we could drill down into gross margins.
Luis Visoso: You talked about kind of taking utilization lower yet you're still guiding up 355 bps sequentially, so could you help us kind of understand what the headwind is into Q2 and how we should think about that headwind kind of unwinding through the calendar year. Yeah, we feel good about the progress we're making on gross margin overall, CJ. I think the headwinds are the two that we called out in our prepared remarks. One is this underutilization, right, of $55 to $65 million, which really is the continuation of the decision we took earlier as we continue to play that out.
Luis Visoso: So that's a big one. And I also called out the $50 million FAB startup cost. We think that startup cost will be with us for a few more quarters, and then they should go away. So that's kind of one-time cost that we have there, which will continue to impact us. But really, we benefit from the higher ASP, which is helping our gross margin overall.
Luis Visoso: Perfect.
David Goeckeler: And then maybe a focus on enterprise SSD and CapEx. And so you talked about the investment in Bixate. At the same time, we're seeing a concerted effort by some players in the industry pushing to 200-layer plus QLC and moving to MOLLE to really support kind of the AI enterprise SSD. So I guess, you know, where are you in kind of that transition? And how do you go about bringing on kind of optimized capacity for the enterprise, yet at the same time, you know, limiting bit growth? It seems to be in our form right now where we are in the cycle for now.
David Goeckeler: Yeah, I mean, I think we've managed that very closely. So it depends on the enterprise SSD. I think you're mainly talking about the storage, you know, high capacity 60 terabyte going to 128 going to 256 over the next year. Those are QLC, Bix 8. I mean, that's all part of the ramp of what we'll do this coming year. You know, we'll, this quarter will be like 10% Bix 8 and FY 26 will be 40 to 50% Bix 8. So that's that ramp happening. You know, so I guess to say, how do we go about that?
David Goeckeler: We go about that very carefully to make sure that we don't just do just what you said, which is oversupply the market with bits as we go to higher layer count and more density per wafer as we go through that transition. We also structurally remove some capacity from the system as we go on the number of wafer starts to make sure we keep that in balance.
Aaron Rakers: Our next question comes from Aaron Rakers of Wells Fargo. Go ahead. Yeah, thanks for taking the question. Also, my congrats on the first quarter out of date. You know, kind of sticking with the gross margin, maybe taking a little bit of a different way is that, you know, it looks like if I adjust for some of these underutilization and startup cost charges, that your cost on a per bit basis was maybe more or less flattish sequentially this last quarter. And it looks like based on the guidance, again, with those charges considered, it looks like you're assuming, you know, maybe the cost, you know, improves, right, your cost structure declines, maybe in the low to mid single digit on a bit basis this next quarter.
David Goeckeler: So I guess my question is, is how do we think about as Bix 8 matures, the cost down that you expect to see as we move out, you know, into the second half of the year and into 26? Yeah, I think we talked about this, Aaron. So, first of all, thanks for the congratulations. We feel good about it. Our first quarter out, it's been a great two or three months here, post-separation. It's gone quick. So we talked about this in the script. We're going to start, and we talked about our analyst day.
David Goeckeler: We're going to start talking less about cost downs. And I'll give you some context on that because I think it's important. First of all, I think, you know, the whole structure of the industry of driving cost downs, it's an important concept, mainly around expanding the TAM. I think in storage in general, having managed two different storage franchises, you drive the cost down, you expand the TAM. However, you know, we talked about it, you know, TAM's going to $100 billion. I think expanding the TAM is not really our issue as a company. It's like making sure we have the right profitability to drive all the capital investment required to support this demand.
David Goeckeler: So, you know, we're more focused on the technology differentiation we have. You know, we feel very good about the R&D we do, you know, performance, power, density, all these things we need in an AI world. Customers are really pushing us for more dense, higher IOPs-based enterprise SSD that requires an enormous amount of R&D investment. And so that's really where we want to put the focus. You know, I'll also say the cost downs are, my observation over the last five years, they're just more, they're more, I don't want to say unpredictable, they're less consistent is the right way to say it.
David Goeckeler: You know, some quarters used to be you'd get pretty consistent cost downs as you move nodes and you drove yields higher, it just seems like over the last couple of years they've been more, a lot of quarters up and down, so it's hard to like just put a number out there for them. And they're also getting harder to get, quite frankly, as we get to these larger layer nodes, larger layer count nodes, you get more bits than you do cost downs, right? Just the way it works. So that's really the third part, is I think for a long time, the, you know, kind of the approach to, you know, the industry was drive a new node, get more cost downs.
David Goeckeler: And I think the last downturn showed that that was like bringing a gasoline can to a fire because you get way more bits than you get cost downs. So when you, you know, when you add that all up, we just want to focus on different parts of the business and kind of not talk so much about that.
Aaron Rakers: All that said, we will get some, obviously we'll get some cost downs out of Bixate, right? And we're just not going to forecast them on a quarter by quarter basis. But the way you're thinking about it is a reasonable way to think about it. That's a little longer answer than you were looking for, but I appreciate you bearing with me. Thanks, Aaron. All good. Thanks.
Carl Ackerman: and Arden Now, I will turn the camera over to Carl Ackerman, BNP TerraBus, please go ahead.
Carl Ackerman: Yes, thank you. I was hoping you could address the outlook for NAND bit shipments in the June quarter, and if you still anticipate NAND bit volume to grow, low double digits discount here.
David Goeckeler: As you address that question, perhaps you can discuss the level of order visibility that you have across your various end markets. Yeah, so for the June quarter, what we guided was a flat-ish bids, right? Now, if we look further out, you know, when we were together at Analyst Day, we said we expected growth to be high single digits in the July through December semester, you know, back end of 2025. And frankly, there is nothing that we see that leads us to change that view. We continue to feel optimistic about the growth in the business, particularly in the industry.
David Goeckeler: And we talked about some of those drivers earlier in the call. You know, we talked about client, we talked about PC, we talked about mobile, we talked about cloud. So we continue to feel good about the long-term growth in the industry. But for the June quarter, specifically, it's what we guided. No, we guided BITS to be flattish and ASB to be going up.
David Goeckeler: Visibility so far is, I mean, we talk to customers all the time, right? We, what we see across the market is good, you know, there are pieces, you know, the transactional markets and you guys have access to a lot of that data. We're seeing prices moving up, we see the business moving, we're making good progress across client and cloud. So, we feel good about where things are so far as we start in the quarter and that leads us to have confidence in the guide we're giving you.
Carl Ackerman: Very helpful, I'll see you this morning.
Vijay Rakesh: Our next question comes from Vijay Rakesh of New Doho. Please go ahead. Yeah, hi, thanks, David and Liz. Just a quick question on the cloud side. I saw it's going almost 100% year on year, I guess, but can you talk to how many enterprise hyperscale customers you have? How you are approaching that market? What's the, you know, what are the milestones that you expect to hit?
David Goeckeler: Yeah, we have, you know, multiple hyperscale customers and we're really starting to expand out the channel business. Especially the kind of qualification we talked about with NVIDIA a couple quarters ago, that's now starting to really blossom with a lot of customers, a more broader set. You know, we feel good that we're playing at the biggest players and then the, you know, deeper into the ecosystem as AI pulls a lot of business in that part of the portfolio. Got it. And I think when you look at the SSD segment, a lot of it is still shipping on TLC, but you're starting to see QLC SSD pick up.
David Goeckeler: Can you talk to how that ramp is going? Where is Sandisk on that roadmap in terms of qualification or ramping up shipments on QLC? Thanks.
David Goeckeler: We talked about that a little bit on Analyst Day, and it's still very consistent with that. We have the compute-focused, TLC-based, very high-performance PCIe Gen 5 interface SSD that has been doing quite well at hyperscalers and throughout a broader set of customers. I think the number of qualifications there keeps increasing. And then we've got the larger QLC-based storage-based Enterprise XSD, 60 terabyte, going to 128 and then eventually 256 as we move through fiscal year 26. Um, you know, that Qualifications are going well there, but what we're really excited about is we have a new architecture coming out in the next couple of quarters that we call Stargate, new ASIC, clean sheet design, and then with Bixate QLC, and we just think that's going to be a dynamite project.
David Goeckeler: We'll have it in customers' hands here soon, and we expect that to go very well. So we're very optimistic about the portfolio, about the progress we've made, and what's coming from a roadmap perspective.
Vijay Rakesh: All right. Thank you.
Steven Fox: Our next question comes from Steven Fox of Fox. Please go ahead. Hi, good afternoon. I have two questions, if I could.
Steven Fox: First of all, I was curious about how we think about underutilization charges beyond this quarter, how quickly they sort of dissipate. And then Just thinking about the full supply chain, you've mentioned that there's not a lot of direct exposure to tariffs at this point. And even like, it seems, it sounds like demand is holding up pretty well too, but is there any other bottlenecks that you're worried about with your customers where they're moving around supply chains or anything? that could either help you versus competition or maybe become a sort of a push out going forward.
David Goeckeler: Yeah. So, I would say, first of all, on the utilization, our overall strategy is we don't, we would rather operate at 100% capacity, right? So, we believe that this is a tactical thing we need to do, and I think it's the right thing to do at the right time. But over time, we need to get out of that, right? We want to have our structural capacity should be set up for the market that we're supporting, and that's how we want to operate. So, we'll be tracking this, as David said earlier, and we'll be adjusting over time.
Luis Visoso: But our overall goal is to get 100% on the utilization when we can, when supply and demand is balanced.
Luis Visoso: On your second question, we're good on tariffs, right, as we said, right? Only 20% of our products are shipped to the U.S., and 95% of those products do not have any tariffs because they are sourced from countries outside of China. We don't see a lot of other bottlenecks in our supply chain, so the supply chain is run efficiently. We have, as you know, front end comes 100% out of Japan from our JV, and we have several options on the back end, particularly Malaysia, and we do have a JV in China, which sources some of the countries as well, but we feel that the supply chain is operating efficiently and supporting our products around the world.
Steven Fox: Great, that's very helpful. Thank you.
Operator: Thanks, Steven. Once again, if you have a question, please press star, then 1.
Nam Kim: Our next question comes from Nam Kim of Arit Research.
Nam Kim: Please go ahead. Thank you. Thank you for taking my question.
David Goeckeler: One more question on land pricing. Compared to a few months ago before tariff impact, the overall sentiment on price outlook seems becoming more conservative. But you mentioned that, you know, you are submitting a single ASP built into your guidance this quarter. Is this mainly driven by transactional market or across the board? If you give me any color on OEM market, that would be great.
Luis Visoso: And then, if I can add one more question. Since your fabs are all located in Japan, I just wonder how Japanese yen exchange rate against dollar impact your cost structure. Is there any framework to share with us for our modeling purpose? Thank you. Yeah, so just a little bit on pricing, I mean, You know, we have a lot of visibility as a company, right? We have a big consumer franchise, we have a good-sized channel business, we sell to all the PCOMs, we sell to all the hyperscalers and all the phone vendors. I think the turn in the market is across the board.
David Goeckeler: We've had conviction on this for a while. I think we were early in saying that we thought in the June quarter, we were going to see price increases. That's what we put out in our analyst day and we took actions to help drive that. But really, it was looking across this entire kaleidoscope of information we have and talking to customers and understanding all the technology roadmaps that gave us The conviction in that, and you know, of course, there's been a lot of macro issues, tariffs, or whatever it happens to be that's been things for the market to digest along the way, but When you still look at it, as I said, I think in the first question, we still see an undersupplied market through the end of...
David Goeckeler: calendar year 26, and that's kind of because that's how far out we forecast at this point. We feel like we have enough data on, and so we've had, you know, we've had a lot of conviction that we're moving into a better market, and then what we went through in the last couple of quarters was just a mid-cycle correction, and I think that that's playing out.
Luis Visoso: Anyway, I hope that helps on the pricing side, and on the yen, I'll let Luis take that. Yeah, I mean, overall, our front end is clearly exposed to the yen, and we're somewhere on, whatever, 144 yen per dollar today. Now, something to be very careful here as you do your models is there are two types of costs, right? There are costs which are yen-denominated, which I would say it's labor and a few other things, and there are other costs which are non-yen-denominated, even if they are coming from Japan. Think about equipment and capex and some of our materials which we're importing from other countries, or they are part of the global economy, and therefore, they are dollar-based, or they could be euro-based.
Luis Visoso: So, not necessarily all our cost that comes out of Japan is exposed to the yen in the same way. So, we obviously track this very carefully, and we make sure that we are prepared to that. So, we understand that piece. Does that make sense?
Nam Kim: Yeah, thank you very much. Thank you.
Operator: This concludes our question and answer session.
David Goeckeler: I would like to turn the conference back over to David Goeckeler for any closing remarks. All right.
David Goeckeler: Thanks for joining us on our first conference call as Sandisk, our first earnings call.
David Goeckeler: We appreciate your participation, all the great questions, and we look forward to talking to you throughout the quarter.
Operator: Take care.
Operator: Thank you.
Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.