Sandisk Q2 2026 Sandisk Corp Earnings Call | AllMind AI Earnings | AllMind AI
Q2 2026 Sandisk Corp Earnings Call
Speaker #1: Good day, and welcome to the Sandisk Corp Q2 2026 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
Operator: Good day, and welcome to the SanDisk Q2 fiscal 2026 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then One on a touchtone phone. To withdraw your question, please press Star then Two. Please note, this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Head of Investor Relations. Please go ahead.
Operator: Good day, and welcome to the SanDisk Q2 fiscal 2026 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then One on a touchtone phone. To withdraw your question, please press Star then Two. Please note, this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Head of Investor Relations. Please go ahead.
Speaker #1: After today's presentation, there will be an opportunity to ask questions. Do ask a question. You may press star, then one, on a touchtone phone.
Speaker #1: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Ivan Donaldson, Head of Investor Relations.
Speaker #1: Please go ahead.
Speaker #2: Before we
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 and uncertainties. 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. We assume no obligation to update these statements. Please refer to our annual 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. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website. With that, I'll turn the call over to David. Thanks, Ivan.
Ivan Donaldson: 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. 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. We assume no obligation to update these statements. Please refer to our annual 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. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in written materials posted in the Investor Relations section of our website. With that, I'll turn the call over to David.
Speaker #2: 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 #2: 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 #2: We assume no obligation to update these statements. Please refer to our annual 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 #2: We will also make references to non-GAAP financial measures today. 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 #2: With that, I'll turn the call over to
Speaker #2: David. Thanks, Ivan.
David Goeckeler: Thanks, Ivan. Good afternoon, and thank you for joining SanDisk's fiscal Q2 earnings call. In the quarter, revenue was $3 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20. Artificial intelligence continues to drive a step change in demand, with data center and edge workloads, expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Let me frame the NAND industry's evolution before discussing our end markets. NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured. Supply certainty, longer planning horizons, and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market.
Speaker #3: Good afternoon, and thank you for joining SanDisk's fiscal second quarter earnings call. In the quarter, revenue was $3.0 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20.
David Goeckeler: Good afternoon, and thank you for joining SanDisk's fiscal Q2 earnings call. In the quarter, revenue was $3 billion, up 31% sequentially, with non-GAAP earnings per share of $6.20. Artificial intelligence continues to drive a step change in demand, with data center and edge workloads, expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Let me frame the NAND industry's evolution before discussing our end markets. NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured. Supply certainty, longer planning horizons, and multiyear commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market.
Speaker #3: Artificial intelligence continues to drive a step change in demand, with data center and edge workloads expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation, has strengthened our business results.
Speaker #3: Let me frame the NAND industry's evolution before discussing our end markets. NAND is now recognized as indispensable to the world's storage needs, driving a foundational shift in how commercial relationships between suppliers and customers are structured.
Speaker #3: Supply certainty, longer planning horizons, and multi-year commitments are increasingly essential to support structural demand that extends beyond the traditional cyclical model of our market.
Speaker #3: As a result, we are engaged in discussions with customers to evolve from quarterly negotiations towards multi-year agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns.
David Goeckeler: As a result, we are engaged in discussions with customers to evolve from quarterly negotiations towards multiyear agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These changes would better align our planning cycles with customers' demand profiles to our mutual benefit. Accordingly, our supply plans will continue to be designed around predictable, long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continued innovation and disciplined execution. Our products are enabled by decades of sustained investment in R&D and innovation across NAND and system solutions, supported by substantial capital investments in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end market highlights.
As a result, we are engaged in discussions with customers to evolve from quarterly negotiations towards multiyear agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These changes would better align our planning cycles with customers' demand profiles to our mutual benefit. Accordingly, our supply plans will continue to be designed around predictable, long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continued innovation and disciplined execution. Our products are enabled by decades of sustained investment in R&D and innovation across NAND and system solutions, supported by substantial capital investments in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end market highlights.
Speaker #3: These changes would better align our planning cycles with customers' demand profiles to our mutual benefit. Accordingly, our supply plans will continue to be designed around predictable long-term demand at current and forecasted market prices.
Speaker #3: These dynamics reveal the true value of our NAND technology, and reinforce the need for continued innovation and disciplined execution. Our products are enabled by decades of sustained investment in R&D and innovation—across NAND and system solutions—supported by substantial capital investments, and world-class front-end and back-end manufacturing.
Speaker #3: As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end market highlights, during the quarter we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business, with key customer programs progressing on schedule.
David Goeckeler: During the quarter, we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business, with key customer programs progressing on schedule. In data center, we are at the center of a broad expansion in AI infrastructure. Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale, with inference, in particular, driving a meaningful increase in NAND content per deployment. This momentum reflects deepening engagement with a wider range of customers building and deploying AI at scale, reshaping our data center business, which we expect to grow meaningfully in both the near and long term. We are seeing strong adoption across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure.
During the quarter, we continued to execute against our roadmap, advancing next-generation product innovations and qualifications across the business, with key customer programs progressing on schedule. In data center, we are at the center of a broad expansion in AI infrastructure. Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale, with inference, in particular, driving a meaningful increase in NAND content per deployment. This momentum reflects deepening engagement with a wider range of customers building and deploying AI at scale, reshaping our data center business, which we expect to grow meaningfully in both the near and long term. We are seeing strong adoption across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure.
Speaker #3: In data center, we are at the center of a broad expansion in AI infrastructure. Enterprise SSD demand is accelerating across the ecosystem as AI workloads scale, with inference in particular driving a meaningful increase in NAND content per deployment.
Speaker #3: This momentum reflects deepening engagement with a wider range of customers building and deploying AI at scale, reshaping our data center business, which we expect to grow meaningfully in both the near and long term.
Speaker #3: We are seeing strong adoption across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale.
Speaker #3: Our technology has become a critical enabler of these deployments, delivering the performance characteristics required for optimized AI infrastructure. The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio.
David Goeckeler: The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. Within hyperscalers, we have completed qualification of our PCIe Gen 5 high-performance TLC drives at a second hyperscaler, and are on track to complete qualification at additional hyperscalers over the coming quarters, with BiCS8 TLC solutions soon thereafter. This product is driving significant revenue growth across our data center portfolio, which was up 64% sequentially. Our BiCS8 QLC storage class product, code-named Stargate, continues advancing through qualification with two major hyperscalers and is expected to begin shipping for revenue within the next several quarters, providing an additional tailwind for data center growth.... In Edge, demand meaningfully exceeded supply as replacement cycles and AI adoption across PCs and mobile devices drove richer configurations and higher storage content per device.
The breadth of customer adoption across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. Within hyperscalers, we have completed qualification of our PCIe Gen 5 high-performance TLC drives at a second hyperscaler, and are on track to complete qualification at additional hyperscalers over the coming quarters, with BiCS8 TLC solutions soon thereafter. This product is driving significant revenue growth across our data center portfolio, which was up 64% sequentially. Our BiCS8 QLC storage class product, code-named Stargate, continues advancing through qualification with two major hyperscalers and is expected to begin shipping for revenue within the next several quarters, providing an additional tailwind for data center growth.... In Edge, demand meaningfully exceeded supply as replacement cycles and AI adoption across PCs and mobile devices drove richer configurations and higher storage content per device.
Speaker #3: Within hyperscalers, we have completed qualification of our PCIe Gen 5 high-performance TLC drives at a second hyperscaler, and are on track to complete qualification at additional hyperscalers over the coming quarters.
Speaker #3: With BICS 8 TLC solutions soon thereafter. This product is driving significant revenue growth across our data center portfolio, which was up 64% sequentially. Our BICS 8 QLC storage class product, code name Stargate, continues advancing through qualification with two major hyperscalers and is expected to begin shipping for revenue within the next several quarters.
Speaker #3: Providing an additional tailwind for data center growth. In edge, demand meaningfully exceeded supply, as replacement cycles in AI adoption across PCs and mobile devices drove richer configurations and higher storage content per device.
Speaker #3: In this allocation environment, we are partnering with key edge customers to prioritize their mission-critical needs and optimize product mix within our available supply, ensuring the best long-term returns across our portfolio.
David Goeckeler: In this allocation environment, we are partnering with key Edge customers to prioritize their mission-critical needs and optimize product mix within our available supply, ensuring the best long-term returns across our portfolio. In consumer, mix shifted toward premium products and higher value configurations, supporting storage content, growth, and profitability. We introduced a breakthrough in the USB form factor with the launch of our SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive. This breakthrough stay-put product gives our customers a seamless and affordable way to significantly expand storage on their PCs and smartphones. We expanded key licensing initiatives with global household names, Crayola and FIFA, bringing full circle the commitments underscored last February with the debut of colorful SanDisk Crayola USB-C flash drives and officially licensed FIFA World Cup 2026 products.
In this allocation environment, we are partnering with key Edge customers to prioritize their mission-critical needs and optimize product mix within our available supply, ensuring the best long-term returns across our portfolio. In consumer, mix shifted toward premium products and higher value configurations, supporting storage content, growth, and profitability. We introduced a breakthrough in the USB form factor with the launch of our SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive. This breakthrough stay-put product gives our customers a seamless and affordable way to significantly expand storage on their PCs and smartphones. We expanded key licensing initiatives with global household names, Crayola and FIFA, bringing full circle the commitments underscored last February with the debut of colorful SanDisk Crayola USB-C flash drives and officially licensed FIFA World Cup 2026 products.
Speaker #3: In consumer, mix shifted toward premium products and higher-value configurations, supporting storage content growth and profitability. We introduced a breakthrough in the USB form factor with the launch of our SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive.
Speaker #3: This breakthrough stay-put product gives our customers a seamless and affordable way to significantly expand storage on their PCs and smartphones. We expanded key licensing initiatives with global household names—Crayola and FIFA—bringing full circle the commitments underscored last February with the debut of colorful SanDisk Crayola USB-C flash drives and officially licensed FIFA World Cup 2026 products.
Speaker #3: This strong momentum continued through the holidays, with demand driven by targeted, gaming-led initiatives, including our Don't Delete Your Games campaign. At CES 2026, we introduced the SanDisk Optimus lineup, rebranding WD Black and WD Blue NVMe SSDs to sharpen brand architecture and reinforce performance leadership.
David Goeckeler: This strong momentum continued through the holidays, with demand driven by targeted gaming-led initiatives, including our Don't Delete Your Games campaign. At CES 2026, we introduced the SanDisk Optimus lineup, rebranding WD Black and WD Blue NVMe SSDs to sharpen brand architecture and reinforce performance leadership. Together, these actions reflect our continued focus on driving demand through brand, innovation, and disciplined go-to-market execution, reinforcing SanDisk leadership across gaming, creator, and everyday consumer segments. These wins across our end markets reflect the agility of our operations and the resilience of our broad portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the BiCS8 transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan.
This strong momentum continued through the holidays, with demand driven by targeted gaming-led initiatives, including our Don't Delete Your Games campaign. At CES 2026, we introduced the SanDisk Optimus lineup, rebranding WD Black and WD Blue NVMe SSDs to sharpen brand architecture and reinforce performance leadership. Together, these actions reflect our continued focus on driving demand through brand, innovation, and disciplined go-to-market execution, reinforcing SanDisk leadership across gaming, creator, and everyday consumer segments. These wins across our end markets reflect the agility of our operations and the resilience of our broad portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, which requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the BiCS8 transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan.
Speaker #3: Together, these actions reflect our continued focus on driving demand through brand, innovation, and disciplined go-to-market execution, reinforcing SanDisk's leadership across gaming, creator, and everyday consumer segments.
Speaker #3: These wins across our end markets reflect the agility of our operations and the resilience of our broad portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026.
Speaker #3: This requires careful allocation planning and alignment with our customers. We remain focused on disciplined execution through the BICS 8 transition, supporting average long-term bit growth in the mid to high teens while maintaining our capital expenditure plan.
Speaker #3: We are working diligently to support customer demand while ensuring profitability supports the substantial R&D and capital investment required to deliver some of the world's most advanced semiconductor technologies.
David Goeckeler: We are working diligently to support customer demand while ensuring profitability supports the substantial R&D and capital investment required to deliver some of the world's most advanced semiconductor technologies. With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance.
We are working diligently to support customer demand while ensuring profitability supports the substantial R&D and capital investment required to deliver some of the world's most advanced semiconductor technologies. With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance.
Speaker #3: With that, I'll turn the call over to Luis to dive deeper into our financial performance and guidance.
Speaker #2: Thank you, David. Before diving into the financials, I will provide a brief market overview. We believe that the end market is going through structural evolution catalyzed by AI.
Luis Visoso: Thank you, David. Before diving into the financials, I will provide a brief market overview. We believe that the NAND market is going through structural evolution catalyzed by AI. The evolution is more pronounced in data center, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating, and storage is a critical enabler for inference. As a result, NAND is an increasingly critical component of the AI infrastructure. Higher demand for NAND in data center impacts other markets, which are also growing as NAND flows to the most attractive markets. It is our view that this structural evolution is sustainable and should reduce cyclicality of our NAND business, creating higher average long-term margins and returns. In the December quarter, we experienced a clear and significant improvement in market conditions across end markets, which led to higher pricing.
Luis Visoso: Thank you, David. Before diving into the financials, I will provide a brief market overview. We believe that the NAND market is going through structural evolution catalyzed by AI. The evolution is more pronounced in data center, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating, and storage is a critical enabler for inference. As a result, NAND is an increasingly critical component of the AI infrastructure. Higher demand for NAND in data center impacts other markets, which are also growing as NAND flows to the most attractive markets. It is our view that this structural evolution is sustainable and should reduce cyclicality of our NAND business, creating higher average long-term margins and returns. In the December quarter, we experienced a clear and significant improvement in market conditions across end markets, which led to higher pricing.
Speaker #2: The evolution is more pronounced in data center, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating, and storage is a critical enabler for inference.
Speaker #2: As a result, NAND is an increasingly critical component of the AI infrastructure. Higher demand for NAND in data centers impacts other markets, which are also growing as NAND flows to the most attractive markets.
Speaker #2: It is our view that this structural evolution is sustainable and should reduce cyclicality of our NAND business, creating higher average long-term margins and returns.
Speaker #2: In the December quarter, we experienced a clear and significant improvement in market conditions across end markets, which led to higher pricing. During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply.
Luis Visoso: During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply. The framework we use to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together. These are the customers with whom we intend to build valuable partnerships, thus establishing sustainable multiyear business practices with high predictability of demand, returns, and capital deployment. Given the strength of the market, we were unable to fulfill demand for our customers this quarter. We're evolving how we define strategic engagement, prioritizing customers with multiyear supply frameworks and shared planning commitments over transactional short-term demand signals. We continue to be prudent and are not changing our capital spending plans, which support mid to high teens bit growth through the BiCS8 transition. Our investment posture remains focused on serving attractive, sustained demand and healthy profitability levels.
During the quarter, we made strategic allocation decisions as demand for our products continues to exceed supply. The framework we use to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together. These are the customers with whom we intend to build valuable partnerships, thus establishing sustainable multiyear business practices with high predictability of demand, returns, and capital deployment. Given the strength of the market, we were unable to fulfill demand for our customers this quarter. We're evolving how we define strategic engagement, prioritizing customers with multiyear supply frameworks and shared planning commitments over transactional short-term demand signals. We continue to be prudent and are not changing our capital spending plans, which support mid to high teens bit growth through the BiCS8 transition. Our investment posture remains focused on serving attractive, sustained demand and healthy profitability levels.
Speaker #2: The framework we used to allocate bits is to maximize value creation. We prioritize supply for our strategic customers, those who recognize the value we can create together.
Speaker #2: These are the customers with whom we intend to build valuable partnerships. Thus, establishing sustainable, multi-year business practices with high predictability of demand returns and capital deployment.
Speaker #2: Given the strength of the market, we were unable to fulfill demand for our customers this quarter. We're evolving how we define strategic engagement, prioritizing customers with multi-year supply frameworks and shared planning commitments over transactional short-term demand signals.
Speaker #2: We continue to be prudent and are not changing our capital spending plans, which support mid- to high-teens bit growth through the BiCS 8 transition.
Speaker #2: Our investment posture remains focused on serving attractive, sustained demand at healthy profitability levels. Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several-year horizon with financial commitments.
Luis Visoso: Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several-year horizon with financial commitments. In the current environment, we're committed to supplying all three end markets, as we believe that diversification maximizes value creation. We plan to continue to build strategic relationships with a diversified customer mix within these markets, allowing us to have a deeper understanding of their long-term needs. In the quarter, we continued to make progress with customers in establishing shared commitments that improve the predictability of the business. Customer commitments and agreed commercial terms are the most effective mechanism to deliver supply certainty and return on invested capital predictability, allowing us to more prudently manage our capital-intensive business across geographies. With that context, I will dive deeper into the quarter results.
Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several-year horizon with financial commitments. In the current environment, we're committed to supplying all three end markets, as we believe that diversification maximizes value creation. We plan to continue to build strategic relationships with a diversified customer mix within these markets, allowing us to have a deeper understanding of their long-term needs. In the quarter, we continued to make progress with customers in establishing shared commitments that improve the predictability of the business. Customer commitments and agreed commercial terms are the most effective mechanism to deliver supply certainty and return on invested capital predictability, allowing us to more prudently manage our capital-intensive business across geographies. With that context, I will dive deeper into the quarter results.
Speaker #2: In the current environment, we're committed to supplying our three end markets, as we believe that diversification maximizes value creation. We plan to continue to build strategic relationships with a diversified customer mix within these markets.
Speaker #2: Allowing us to have a deeper understanding of their long-term needs. In the quarter, we continued to make progress with customers in establishing shared commitments that improve the predictability of the business.
Speaker #2: Customer commitments and agreed commercial terms are the most effective mechanism to deliver supply certainty and return on invested capital predictability, allowing us to more prudently manage our capital-intensive business across geographies.
Speaker #2: With that context, I will dive deeper into the quarter results. Revenue for the second quarter was $3.025 billion, up 31% quarter over quarter and 61% year over year.
Luis Visoso: Revenue for Q2 was $3,025 million, up 31% quarter-over-quarter and 61% year-over-year. This compares favorably to our guidance of $2,550 to $2,650 million. The revenue over delivery came from higher prices across segments, which strengthened during the quarter. Bits were up 22% year-over-year, up low single digits quarter-over-quarter. In Q2, we saw strong sequential demand across all end markets. Edge revenue came in at $1,678 million, up 21% sequentially. Consumer came in at $907 million, up 39% quarter-over-quarter, and data center came in at $440 million, up 64% sequentially.
Revenue for Q2 was $3,025 million, up 31% quarter-over-quarter and 61% year-over-year. This compares favorably to our guidance of $2,550 to $2,650 million. The revenue over delivery came from higher prices across segments, which strengthened during the quarter. Bits were up 22% year-over-year, up low single digits quarter-over-quarter. In Q2, we saw strong sequential demand across all end markets. Edge revenue came in at $1,678 million, up 21% sequentially. Consumer came in at $907 million, up 39% quarter-over-quarter, and data center came in at $440 million, up 64% sequentially.
Speaker #2: This compares favorably to our guidance of $2.55 to $2.65 billion. The revenue over-delivery came from higher prices across segments, which strengthened during the quarter.
Speaker #2: Bids were up 22% year over year and up low single digits quarter over quarter. In the second quarter, we saw strong sequential demand across all end markets.
Speaker #2: Edge revenue came in at $1.678 billion, up 21% sequentially. Consumer came in at $907 million, up 39% quarter over quarter. And data center came in at $440 million, up 64% sequentially.
Speaker #2: Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41% to 43%.
Luis Visoso: Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41% to 43%. The gross margin over delivery came from higher pricing. Unit cost, cost reductions came in as expected, reinforcing margin improvements. In the second quarter, we incurred $24 million in startup costs. Excluding this cost, non-GAAP gross margin would have been 51.9%. Non-GAAP operating expenses for the second quarter were $413 million and represent 13.7% of revenue. This compares favorably to our guidance range of $450 to $475 million, reflecting a non-recurring benefit from changing how we manage new product introductions.
Our non-GAAP gross margin for the second quarter was 51.1%, up from 29.9% in the prior quarter. This compares favorably to our guidance of 41% to 43%. The gross margin over delivery came from higher pricing. Unit cost, cost reductions came in as expected, reinforcing margin improvements. In the second quarter, we incurred $24 million in startup costs. Excluding this cost, non-GAAP gross margin would have been 51.9%. Non-GAAP operating expenses for the second quarter were $413 million and represent 13.7% of revenue. This compares favorably to our guidance range of $450 to $475 million, reflecting a non-recurring benefit from changing how we manage new product introductions.
Speaker #2: The gross margin over delivery came from higher pricing. Unit cost reductions came in as expected, reinforcing margin improvements. In the second quarter, we incurred $24 million in startup costs.
Speaker #2: Excluding these costs, non-GAAP gross margin would have been 51.9%. Non-GAAP operating expenses for the second quarter were $413 million and represent 13.7% of revenue.
Speaker #2: This compares favorably to our guidance range of $450 to $475 million, reflecting a non-recurring benefit from changing how we manage new product introductions.
Speaker #2: As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. Non-GAAP EPS for the second quarter was $6.20, up from $1.22 in the prior quarter.
Luis Visoso: As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. Non-GAAP EPS for Q2 was $6.20, up from $1.22 in the prior quarter. This compares favorably to our guidance range of $3 to $3.40. The non-GAAP EPS beat reflects higher than expected revenue and lower costs. Key GAAP to non-GAAP reconciliation items include $52 million in stock-based compensation, net of taxes, which represents 1.7% of revenue, and $93 million related to certain legal matters. Moving on to the balance sheet. We closed the quarter with $1,539 million in cash and cash equivalents, and $603 million in debt.
As a result, non-GAAP operating margins at 37.5% are up from 10.6% in the prior quarter. Non-GAAP EPS for Q2 was $6.20, up from $1.22 in the prior quarter. This compares favorably to our guidance range of $3 to $3.40. The non-GAAP EPS beat reflects higher than expected revenue and lower costs. Key GAAP to non-GAAP reconciliation items include $52 million in stock-based compensation, net of taxes, which represents 1.7% of revenue, and $93 million related to certain legal matters. Moving on to the balance sheet. We closed the quarter with $1,539 million in cash and cash equivalents, and $603 million in debt.
Speaker #2: This compares favorably to our guidance range of $3.00 to $3.40. The non-GAAP EPS beat reflects higher-than-expected revenue and lower costs. Key GAAP to non-GAAP reconciliation items include $52 million in stock-based compensation, net of taxes, which represents 1.7% of revenue, and $93 million related to certain legal matters.
Speaker #2: Moving on to the balance sheet. We closed the quarter with $1.539 billion in cash and cash equivalents and $603 million in debt. During the quarter, we paid an additional $750 million of debt and closed the quarter with a net cash position of $936 million.
Luis Visoso: During the quarter, we paid an additional $750 million of debt and closed the quarter with a net cash position of $936 million. Moving on to free cash flow. During the quarter, we generated $843 million in adjusted free cash flow, which represents a 27.9% free cash flow margin. This includes $1,019 million from operations, partially offset by $176 million from net cash capital spending. Our gross capital spending totaled two hundred and fifty-five million dollars and represent 8.4% of revenue. Earlier today, we announced that we have reached an agreement with Kioxia to extend the Yokkaichi joint venture through 31 December 2034. With this extension, the Yokkaichi and Kitakami JVs will have the same expiration date.
During the quarter, we paid an additional $750 million of debt and closed the quarter with a net cash position of $936 million. Moving on to free cash flow. During the quarter, we generated $843 million in adjusted free cash flow, which represents a 27.9% free cash flow margin. This includes $1,019 million from operations, partially offset by $176 million from net cash capital spending. Our gross capital spending totaled two hundred and fifty-five million dollars and represent 8.4% of revenue. Earlier today, we announced that we have reached an agreement with Kioxia to extend the Yokkaichi joint venture through 31 December 2034. With this extension, the Yokkaichi and Kitakami JVs will have the same expiration date.
Speaker #2: Moving on to free cash flow. During the quarter, we generated $843 million in adjusted free cash flow, which represents a 27.9% free cash flow margin.
Speaker #2: This includes $1.019 billion from operations, partially offset by $176 million from net cash capital spending. Our gross capital spending totaled $255 million and represents 8.4% of revenue.
Speaker #2: Earlier today, we announced that we have reached an agreement with Kyokusha to extend the Yokaichi joint venture through December 31, 2034. With this extension, the Yokaichi and Kitakami JVs will have the same expiration date.
Speaker #2: Building on more than 25 years of partnership, we believe that the JV reflects the scale of our operations and the significant mutual value created over time.
Luis Visoso: Building on more than 25 years of partnership, we believe that the JV reflects the scale of our operations and the significant mutual value created over time. The JV enables both companies to design and manufacture the highest performing, lowest cost NAND technology that powers the world's infrastructure. As part of this extension, SanDisk has agreed to pay for the manufacturing services that Kioxia will provide, enabling continued availability of product supply, a total of $1,165 million. This amount will be paid between calendar years 2026 and calendar year 2029. The cost will flow through cost, our cost of goods sold over the next 9 years. Moving on to guidance. For Q3, we expect revenue between $4.4 and 4.8 billion. We anticipate the market to be more undersupplied than it was in Q2.
Building on more than 25 years of partnership, we believe that the JV reflects the scale of our operations and the significant mutual value created over time. The JV enables both companies to design and manufacture the highest performing, lowest cost NAND technology that powers the world's infrastructure. As part of this extension, SanDisk has agreed to pay for the manufacturing services that Kioxia will provide, enabling continued availability of product supply, a total of $1,165 million. This amount will be paid between calendar years 2026 and calendar year 2029. The cost will flow through cost, our cost of goods sold over the next 9 years. Moving on to guidance. For Q3, we expect revenue between $4.4 and 4.8 billion. We anticipate the market to be more undersupplied than it was in Q2.
Speaker #2: The JV enables both companies to design and manufacture the highest-performing, lowest-cost NAND technology that powers the world's infrastructure. As part of this extension, SanDisk agreed to pay for the manufacturing services that Kyokusha will provide, enabling continued availability of product supply—a total of $1,165 million.
Speaker #2: This amount will be paid between calendar year 2026 and calendar year 2029. The cost will flow through our cost of goods sold over the next nine years.
Speaker #2: Moving on to guidance. For the third quarter, we expect revenue between $4.4 and $4.8 billion. We anticipate the market to be more undersupplied than it was in the second quarter.
Speaker #2: We expect bids to be down mid-single digits due to lower-than-historical seasonality, as we benefit from accelerating strength in data centers. Our forecast for non-GAAP gross margin for the third quarter is between 65% and 67%.
Luis Visoso: We expect bits to be down mid-single digits due to a lower than historical seasonality as we benefit from accelerating strength in data center. Our forecast for non-GAAP gross margin for Q3 is between 65% and 67%. For Q3, we expect non-GAAP operating expenses between $450 and $470 million. We expect non-GAAP interest and other expenses between $25 and $30 million, and non-GAAP tax expenses between $325 and $375 million. We forecast non-GAAP EPS for Q3 between $12 and $14, assuming 157 million fully diluted shares. With that, let me turn the call back to David.
We expect bits to be down mid-single digits due to a lower than historical seasonality as we benefit from accelerating strength in data center. Our forecast for non-GAAP gross margin for Q3 is between 65% and 67%. For Q3, we expect non-GAAP operating expenses between $450 and $470 million. We expect non-GAAP interest and other expenses between $25 and $30 million, and non-GAAP tax expenses between $325 and $375 million. We forecast non-GAAP EPS for Q3 between $12 and $14, assuming 157 million fully diluted shares. With that, let me turn the call back to David.
Speaker #2: For the third quarter, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million, and non-GAAP tax expenses between $325 million and $375 million.
Speaker #2: We forecast non-GAAP EPS for the third quarter between $12 and $14, assuming 157 million fully diluted shares. With that, let me turn the call back to David.
Speaker #1: Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. In addition to its central role in technology we use every day—PCs, smartphones, tablets, the cloud, cars, gaming devices, robotics, and on and on—NAND is a critical technology enabling the development and proliferation of artificial intelligence.
David Goeckeler: Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. In addition to its central role in technology we use every day, PCs, smartphone, tablets, the cloud, cars, gaming devices, robotics, and on and on, NAND is a critical technology enabling the development and proliferation of artificial intelligence. For the first time, data center is expected to become the largest market for NAND in 2026, driven by some of the world's largest and well-capitalized technology companies. Fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our pre-existing supply plans. Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand.
David Goeckeler: Thank you, Luis. In summary, we continue to successfully navigate these early stages of a far-reaching evolution in our business. In addition to its central role in technology we use every day, PCs, smartphone, tablets, the cloud, cars, gaming devices, robotics, and on and on, NAND is a critical technology enabling the development and proliferation of artificial intelligence. For the first time, data center is expected to become the largest market for NAND in 2026, driven by some of the world's largest and well-capitalized technology companies. Fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our pre-existing supply plans. Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand.
Speaker #1: For the first time, data center is expected to become the largest market for NAND in 2026, driven by some of the world's largest and well-capitalized technology companies.
Speaker #1: Fueled by the performance our technology delivers, customers across all our end markets are increasingly seeking business practices built around shared commitments and agreed financially attractive terms aligned with our pre-existing supply plans.
Speaker #1: Our supply plans will remain aligned to such attractive, real, and sustainable long-term demand. With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required.
David Goeckeler: With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required. Our technology and product portfolios intersect these changing market dynamics at the perfect moment, positioning us to manage a balanced portfolio and deliver industry-leading financial performance. With that, let's open up for questions.
With this backdrop, margins are expected to reset at a structurally higher level, delivering fair returns on the substantial innovation and investment required. Our technology and product portfolios intersect these changing market dynamics at the perfect moment, positioning us to manage a balanced portfolio and deliver industry-leading financial performance. With that, let's open up for questions.
Speaker #1: Our technology and product portfolios intersect these changing market dynamics at the perfect moment, positioning us to manage a balanced portfolio and deliver industry-leading financial performance.
Speaker #1: With that, let's open up for questions.
Speaker #1: questions. Thank
Speaker #2: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.
Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question will come from Mark Newman with Bernstein. Please go ahead.
Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question will come from Mark Newman with Bernstein. Please go ahead.
Speaker #2: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. The first question will come from Mark Newman with Bernstein.
Speaker #2: Please go ahead.
Speaker #3: Hi, thanks very much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third-quarter guidance. So clearly what’s happening is that prices are rebounding.
[Analyst] (Bernstein): Hi, thanks so much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third quarter guidance. So clearly, what's happening is the prices are rebounding extremely at unprecedented rates. I guess my question is going to Dave's comments at the beginning. How, you know, how are you thinking about long-term agreements? What, you know, obviously, there's pros and cons to long-term agreements because long-term agreements lock in the prices, and when prices are going up so fast, you actually don't want so many long-term agreements, I guess. But I guess I'd just like to understand how you're thinking about that, how we should think about that, in terms of your portion of agreements that are going longer term, and how that may impact going forward. That'd be great.
Mark Newman: Hi, thanks so much, and congratulations on fantastic numbers today. Really, really great numbers, especially the third quarter guidance. So clearly, what's happening is the prices are rebounding extremely at unprecedented rates. I guess my question is going to Dave's comments at the beginning. How, you know, how are you thinking about long-term agreements? What, you know, obviously, there's pros and cons to long-term agreements because long-term agreements lock in the prices, and when prices are going up so fast, you actually don't want so many long-term agreements, I guess. But I guess I'd just like to understand how you're thinking about that, how we should think about that, in terms of your portion of agreements that are going longer term, and how that may impact going forward. That'd be great.
Speaker #3: Extremely at an unprecedented rate. I guess my question is going to David’s comments at the beginning. How are you thinking about long-term agreements? Obviously, there are pros and cons to long-term agreements because long-term agreements lock in the prices.
Speaker #3: And when prices are going up so fast, you actually don't want so many long-term agreements, I guess. But I guess I'd just like to understand how you're thinking about that, how we should think about that, in terms of your portion of agreements that are going longer term.
Speaker #3: And how that may impact going forward, that'd be great. And if you could also just touch on the supply-demand balance longer term, if in this very, very huge—what seems to be quite a sharp undersupply situation at the moment—if there are any plans to be adding supply or how you're thinking about that would be also great.
[Analyst] (Bernstein): If you could also just touch on the supply-demand balance longer term, if you know, in this very, very huge, what seems to be quite a sharp undersupply situation at the moment, if there's any plans to be adding supply or how you're thinking about that, that would be also great. Thanks very much.
If you could also just touch on the supply-demand balance longer term, if you know, in this very, very huge, what seems to be quite a sharp undersupply situation at the moment, if there's any plans to be adding supply or how you're thinking about that, that would be also great. Thanks very much.
Speaker #3: Thanks very much.
Speaker #1: Thanks, Mark. Appreciate the comments. So, let me say a few words about what's happening in the business, and then we'll move on to the LTA.
David Goeckeler: Thanks, Mark. Appreciate the comments. So let me say a few words about what's happening in the business, and then we'll move on to the LTAs. So there's a number of things happening in the dynamics of our business that are contributing to the results you're seeing. So first of all, it starts with the portfolio and innovation. You know, our BiCS8 node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the 2-terabit die, there's a lot of things that just position us very, very well. Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that, you know, we extended the JV, which we're very happy about, which that's going to continue for now another decade.
David Goeckeler: Thanks, Mark. Appreciate the comments. So let me say a few words about what's happening in the business, and then we'll move on to the LTAs. So there's a number of things happening in the dynamics of our business that are contributing to the results you're seeing. So first of all, it starts with the portfolio and innovation. You know, our BiCS8 node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the 2-terabit die, there's a lot of things that just position us very, very well. Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that, you know, we extended the JV, which we're very happy about, which that's going to continue for now another decade.
Speaker #1: So, there are a number of things happening in the dynamics of our business that are contributing to the results you're seeing. So, first of all, it starts with the portfolio and innovation.
Speaker #1: Our BiCS 8 node, which we've started ramping now and continue to ramp, is just a fantastic node. The performance, the QLC performance, the 2 terabit die—there's a lot of things that just position us very, very well.
Speaker #1: Customers are responding very strongly to that fundamental NAND technology we're producing. By the way, I'll just note that we extended the JV, which we're very happy about, and that's going to continue for now, another decade.
David Goeckeler: That's enabling very strong enterprise SSD portfolio. You know, this is something we've been driving for a while. I talked last quarter; we're going to see growth of that throughout the fiscal year. We saw, I think, 29% sequential growth in the first fiscal quarter. Now, we just saw 64% sequential growth in the second fiscal quarter, and I think you'll see that accelerate from here in the second half of the fiscal year. So you know, that, the third leg of kind of major business innovation is happening in the consumer business, quite frankly. A lot of new product introduction. This Extreme Fit product that we announced this year is really a breakthrough product. It allows our customers to very seamlessly, and affordably increase capacity, storage capacity of their devices.
Speaker #1: That's enabling a very strong enterprise SSD portfolio. This is something we've been driving for a while. I talked last quarter about how we were going to see growth of that throughout the fiscal year.
That's enabling very strong enterprise SSD portfolio. You know, this is something we've been driving for a while. I talked last quarter; we're going to see growth of that throughout the fiscal year. We saw, I think, 29% sequential growth in the first fiscal quarter. Now, we just saw 64% sequential growth in the second fiscal quarter, and I think you'll see that accelerate from here in the second half of the fiscal year. So you know, that, the third leg of kind of major business innovation is happening in the consumer business, quite frankly. A lot of new product introduction. This Extreme Fit product that we announced this year is really a breakthrough product. It allows our customers to very seamlessly, and affordably increase capacity, storage capacity of their devices.
Speaker #1: We saw, I think, 29% sequential growth in the first fiscal quarter. Now we just saw 64% sequential growth in the second fiscal quarter. And I think you'll see that accelerate from here in the second half of the fiscal year.
Speaker #1: So, the third leg of kind of major business innovation is happening in the consumer business, quite frankly. A lot of new product introduction.
Speaker #1: This Extreme Fit product that we announced this year is really a breakthrough product. It allows our customers to very seamlessly and affordably increase the storage capacity of their devices.
David Goeckeler: You know, it's kind of a, you know, it's a bit of innovation in the USB space. You wouldn't think that would happen anymore, but it's not a removable product. It's designed just to plug in and stay. You see our the agreements we're doing with, you know, people like FIFA, which could be the biggest event of this entire year. We have great co-branded, branded products there. You know, we look at our consumer business, we saw 50% year-over-year growth in the consumer business, so a really strong performance there. This, you know, improving portfolio, innovation-driven, excellence in the product is allowing us to just have a better portfolio mix.
You know, it's kind of a, you know, it's a bit of innovation in the USB space. You wouldn't think that would happen anymore, but it's not a removable product. It's designed just to plug in and stay. You see our the agreements we're doing with, you know, people like FIFA, which could be the biggest event of this entire year. We have great co-branded, branded products there. You know, we look at our consumer business, we saw 50% year-over-year growth in the consumer business, so a really strong performance there. This, you know, improving portfolio, innovation-driven, excellence in the product is allowing us to just have a better portfolio mix.
Speaker #1: It's kind of an innovation in the USB space. You wouldn't think that would happen anymore, but it's not a removable product. It's designed just to plug in and stay.
Speaker #1: You see our the agreements we're doing with people like FIFA, which could be the biggest event of this entire year. We have great COBIC-granted products there.
Speaker #1: We look at our consumer business. We saw a 50% year-over-year growth in the consumer business, so a really strong performance there. This improving portfolio, innovation-driven excellence in the product, is allowing us to just have a better portfolio mix than if we look back over the last several quarters.
David Goeckeler: If we look back over the last several quarters, we're literally able to trade out the lowest margin business for the highest margin business, and that provides a significant tailwind to the business as well. And then on top of all of that, you've got the supply-demand dynamics, which are pushing the entire market forward. So it's really a combination of all of these that's driving the business forward. It's not simply just pricing, although, you know, obviously, it's great to be in a strong pricing environment. Moving on to LTAs. I'll talk a little bit about this, and I know Luis will have some great comments about this as well.
If we look back over the last several quarters, we're literally able to trade out the lowest margin business for the highest margin business, and that provides a significant tailwind to the business as well. And then on top of all of that, you've got the supply-demand dynamics, which are pushing the entire market forward. So it's really a combination of all of these that's driving the business forward. It's not simply just pricing, although, you know, obviously, it's great to be in a strong pricing environment. Moving on to LTAs. I'll talk a little bit about this, and I know Luis will have some great comments about this as well.
Speaker #1: We're literally able to trade out the lowest-margin business for now the highest-margin business. And that provides a significant tailwind to the business as well.
Speaker #1: And then, on top of all of that, you've got the supply-demand dynamics, which are pushing the entire market forward. So it's really a combination of all of these that's driving the business forward.
Speaker #1: It's not simply just pricing, although obviously it's great to be in a strong pricing environment. Moving on to LTAs, I'll talk a little bit about this, and I know Luis will have some great comments about this as well.
Speaker #1: So, as we reach points where we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance.
David Goeckeler: So, you know, as we reach points where, you know, we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance. I mean, I think one thing to note on the market right now, this is a completely demand-driven, you know, phenomena, what's going on in the market. We've been very transparent for well over a year what our supply plans are. You know, we're investing heavily in this market. We're investing $hundreds of millions of R&D to push the roadmap forward. We're investing $billions of CapEx, and we've been very clear we're going to drive, you know, mid-teens to high teens bit growth on a sustained basis, which we think is a great, great market.
So, you know, as we reach points where, you know, we believe we're getting a more fair return for our technology, and customers, quite frankly, are looking for more supply assurance. I mean, I think one thing to note on the market right now, this is a completely demand-driven, you know, phenomena, what's going on in the market. We've been very transparent for well over a year what our supply plans are. You know, we're investing heavily in this market. We're investing $hundreds of millions of R&D to push the roadmap forward. We're investing $billions of CapEx, and we've been very clear we're going to drive, you know, mid-teens to high teens bit growth on a sustained basis, which we think is a great, great market.
Speaker #1: I mean, I think one thing to note on the market right now is this is a completely demand-driven phenomenon, what's going on in the market.
Speaker #1: We've been very transparent for well over a year about what our supply plans are. We're investing heavily in this market. We're investing hundreds of millions of dollars in R&D to push the roadmap forward.
Speaker #1: We're investing billions of dollars of CapEx, and we've been very clear we're going to drive mid-teens to high-teens bit growth on a sustained basis, which we think is a great market.
Speaker #1: And what's happening is we're just not getting enough visibility into what the demand side, what the demand really is. I mean, if we look at data center, we've had three forecast cycles now.
David Goeckeler: What's happening is we're just not getting enough visibility into what the demand side, what the demand really is. I mean, if we look at data center, and we've had 3 forecast cycles now, you know, last quarter, we went from mid-20s to mid-40s percent growth in that market. Now we're looking at high 60% exabyte growth in that market for 2026. I think our customers realize this, especially in the data center market. You know, their numbers are big, what they're gonna need in 2026, 2027, 2028. We're even talking some of them about 2029 and 2030. You know, they're doing their own planning. The amount of exabytes they're going to need are substantial.
What's happening is we're just not getting enough visibility into what the demand side, what the demand really is. I mean, if we look at data center, and we've had 3 forecast cycles now, you know, last quarter, we went from mid-20s to mid-40s percent growth in that market. Now we're looking at high 60% exabyte growth in that market for 2026. I think our customers realize this, especially in the data center market. You know, their numbers are big, what they're gonna need in 2026, 2027, 2028. We're even talking some of them about 2029 and 2030. You know, they're doing their own planning. The amount of exabytes they're going to need are substantial.
Speaker #1: Last quarter, we went from mid-20s to mid-40s percent growth in that market. Now we're looking at high 60% exabyte growth in that market for '26.
Speaker #1: I think our customers realize this, especially in the data center market. Their numbers are big. What they're going to need in '26, '27, '28—we're even talking, some of them, about '29 and '30.
Speaker #1: They're doing their own planning. The amount of exabytes they're going to need is substantial. And so, the long-term agreements are about coming up with a model where we can get confidence in supplying that level of demand on a sustained basis.
David Goeckeler: And so the long-term agreements are about coming up with a model where we can get confidence in supplying that level of demand, you know, on a sustained basis. You know, for us, it's not about what demand is next quarter or the quarter after that. There's not much we can do about that given the dynamics of our business. But we want to get the long-term growth rate aligned behind where the long-term sustained demand is, to your point, at attractive financials. So let me let me turn it over to Luis with that.
And so the long-term agreements are about coming up with a model where we can get confidence in supplying that level of demand, you know, on a sustained basis. You know, for us, it's not about what demand is next quarter or the quarter after that. There's not much we can do about that given the dynamics of our business. But we want to get the long-term growth rate aligned behind where the long-term sustained demand is, to your point, at attractive financials. So let me let me turn it over to Luis with that.
Speaker #1: For us, it's not about what demand is next quarter or the quarter after that. There's not much we can do about that, given the dynamics of our business.
Speaker #1: But we want to get the long-term growth rate aligned behind where the long-term sustained demand is, to your point, at attractive financials. So let me turn it over to Luis.
Speaker #1: with that. Yeah.
Luis Visoso: Yeah, I mean, David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us and across geographies. So this is not just a few. We're really seeing a broad base, which is, you know, it's very interesting for us. And we're making significant progress. So we're making significant progress with several of our customers who really want us to prioritize or assure supply, to David's point. That they see that as a critical enabler for their business, and that's what they're looking for. Now, to your point, we're being very thoughtful on how do we define a few metrics. One is the length of the agreement, the price at which we will transact, the quantities, how much of our business we want to put in there, and any prepayment component of that.
Luis Visoso: Yeah, I mean, David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us and across geographies. So this is not just a few. We're really seeing a broad base, which is, you know, it's very interesting for us. And we're making significant progress. So we're making significant progress with several of our customers who really want us to prioritize or assure supply, to David's point. That they see that as a critical enabler for their business, and that's what they're looking for. Now, to your point, we're being very thoughtful on how do we define a few metrics. One is the length of the agreement, the price at which we will transact, the quantities, how much of our business we want to put in there, and any prepayment component of that.
Speaker #2: I mean, David covered most of it. What I would say, Mark, is we're seeing customers across end markets reach out to us and across geographies.
Speaker #2: So this is not just a few. We're really seeing a broad base, which is very interesting for us. And we're making significant progress.
Speaker #2: We're making significant progress with several of our customers, who really want us to prioritize or assure supply. To David's point, they see that as a critical enabler for their business, and that's what they're looking for.
Speaker #2: Now, to your point, we're being very thoughtful on how we define a few metrics. One is the length of the agreement, the price at which we will transact, the quantities, how much of our business we want to put in there, and any prepayment component of that.
Speaker #2: So we're being super thoughtful, and this should be a value, a should be a value accretive and not the
Luis Visoso: So we're being super thoughtful, and this should be value accretive and not, not the opposite.
So we're being super thoughtful, and this should be value accretive and not, not the opposite.
Speaker #2: opposite. Great.
[Analyst] (Bernstein): Great. Thanks very much. And any quick comments on how you're thinking about supply, demand, longer term, and any flexibility to add supply?
Mark Newman: Great. Thanks very much. And any quick comments on how you're thinking about supply, demand, longer term, and any flexibility to add supply?
Speaker #3: Thanks very much. And any quick comments on how you're thinking about supply-demand longer term, and any flexibility to add supply?
Speaker #1: Yeah. I mean, Mark, we've got our supply plans. We've been—again, we've been very clear on what our CapEx plans are, what our bit growth plans are.
David Goeckeler: Yeah, I mean, Mark, we've got our supply plans. You know, we've been... Again, we've been very clear on what our CapEx plans are, what our bit growth plans are. That's what they are. It's about meeting our customers at that supply level and understanding how we allocate that. And then as we, as we said, it's about, you know, all of us picking up our head and looking a little further out on the horizon as to what demand is really going to be in this market and what sustained demand is going to be. And, you know, we, we, we just really need to get out of this idea that this is a transactional market where we only get a strong signal a quarter at a time.
David Goeckeler: Yeah, I mean, Mark, we've got our supply plans. You know, we've been... Again, we've been very clear on what our CapEx plans are, what our bit growth plans are. That's what they are. It's about meeting our customers at that supply level and understanding how we allocate that. And then as we, as we said, it's about, you know, all of us picking up our head and looking a little further out on the horizon as to what demand is really going to be in this market and what sustained demand is going to be. And, you know, we, we, we just really need to get out of this idea that this is a transactional market where we only get a strong signal a quarter at a time.
Speaker #1: That's what they are. It's about meeting our customers' at that supply level. And understanding how we allocate that. And then as we said, it's about all of us picking up our head and looking a little further out on the horizon as to what demand is really going to be in this market and what sustained demand is going to be.
Speaker #1: And we just really need to get out of this idea that this is a transactional market, where we only get a strong signal a quarter at a time.
Speaker #1: I mean, we get demand signals for our customers, in all fairness, on a yearly basis, but we really only transact that. We negotiate price every quarter.
David Goeckeler: I mean, we get demand signals for our customers, in all fairness, on a yearly basis, but we really only transact that, you know. We negotiate price every quarter, and that just makes it very, very difficult to increase any kind of spending because we just don't have visibility to the economics of it. And again, especially as the market transitions to data center, I think the data center customers are more willing. As Luis said, it's across all of them, but I think the data center customers, given their demand profiles and how big they're growing, quite frankly, are a little more proactive in engaging in that conversation and really wanting to understand supply assurance several years out, and how do we come up with a... What are the business practices we can put around that?
I mean, we get demand signals for our customers, in all fairness, on a yearly basis, but we really only transact that, you know. We negotiate price every quarter, and that just makes it very, very difficult to increase any kind of spending because we just don't have visibility to the economics of it. And again, especially as the market transitions to data center, I think the data center customers are more willing. As Luis said, it's across all of them, but I think the data center customers, given their demand profiles and how big they're growing, quite frankly, are a little more proactive in engaging in that conversation and really wanting to understand supply assurance several years out, and how do we come up with a... What are the business practices we can put around that?
Speaker #1: And that just makes it very, very difficult to increase any kind of spending, because we just don't have visibility to the economics of it.
Speaker #1: And again, especially as the market transitions to data center, I think the data center customers are more willing—Luis said, it's across all of them, but I think the data center customers, given their demand profiles and how big they're growing, quite frankly, are kind of a little more proactive in engaging in that conversation.
Speaker #1: And really wanting to understand supply assurance several years out, and how do we come up with a—what are the business practices we can put around that.
David Goeckeler: You know, that's, as I said in the prepared remarks, that when I say we're early in this transition, that's where the early part is. I think the business practices are going to change, and I think that's all for the good. We got to get through those conversations over the next couple of quarters.
Speaker #1: And that's a—as I said in the prepared remarks—when I say we're early in this transition, that's where the early part is.
You know, that's, as I said in the prepared remarks, that when I say we're early in this transition, that's where the early part is. I think the business practices are going to change, and I think that's all for the good. We got to get through those conversations over the next couple of quarters.
Speaker #1: I think the business practices are going to change, and I think that's all for the good. We've got to get through those conversations over the next couple of quarters.
Speaker #2: Thanks very much. Congrats again, guys.
[Analyst] (Bernstein): Thanks very much, and thanks again, guys.
Mark Newman: Thanks very much, and thanks again, guys.
Speaker #1: Thanks, Mark. We appreciate it.
David Goeckeler: Thanks, Mark. We appreciate it.
David Goeckeler: Thanks, Mark. We appreciate it.
Speaker #4: The next question will come from Joe Moore with Morgan Stanley. Please go ahead.
Luis Visoso: Thanks, Mark.
Operator: The next question will come from Joe Moore with Morgan Stanley. Please go ahead.
Operator: The next question will come from Joe Moore with Morgan Stanley. Please go ahead.
Speaker #4: ahead. Great.
[Analyst] (Morgan Stanley): Great, thank you. At the Consumer Electronics Show, Jensen talked about this key value cache, and, you know, gave some numbers in terms of, I think, terabytes per GPU. Seems like a pretty big market. Are, are you getting indications around that? Do you think we should take that as kind of straight math? Does everybody have different implementations and just the ramifications for what happens to data center NAND?
Joe Moore: Great, thank you. At the Consumer Electronics Show, Jensen talked about this key value cache, and, you know, gave some numbers in terms of, I think, terabytes per GPU. Seems like a pretty big market. Are, are you getting indications around that? Do you think we should take that as kind of straight math? Does everybody have different implementations and just the ramifications for what happens to data center NAND?
Speaker #5: Thank you. At the Consumer Electronics Show, Jensen talked about this key-value cache and gave some numbers in terms of, I think, terabytes per GPU.
Speaker #5: It seems like a pretty big market. Are you getting indications around that? Do you think we should take that as kind of straight math?
Speaker #5: Does everybody have different implementations? And just the ramifications for what happens to data center NAND?
Speaker #1: Yeah, Joe, we're working through that right now. We're working through it with NVIDIA and kind of how they're thinking about it. And of course, then we'll work through it with our customers about how they're going to configure it and deployments.
David Goeckeler: Yeah, Joe, we're working through that right now. You know, we're working through it with NVIDIA and kind of how they're thinking about it. And of course, then we'll work through it with our customers about how they're going to configure it in deployments. So it's still a bit early. I'll say a couple things about it. First of all, none of that demand is in the numbers we're talking about, demand numbers at this point. I think it's a perfect example about how we all need to collaborate a little bit more on what future demand is going to be. Secondly, our initial looks at it, when we look at, let's say, 2027 demand, we think, you know, that's, you know, roughly maybe 75 to 100 additional exabytes, and then a year after that, you can double that.
David Goeckeler: Yeah, Joe, we're working through that right now. You know, we're working through it with NVIDIA and kind of how they're thinking about it. And of course, then we'll work through it with our customers about how they're going to configure it in deployments. So it's still a bit early. I'll say a couple things about it. First of all, none of that demand is in the numbers we're talking about, demand numbers at this point. I think it's a perfect example about how we all need to collaborate a little bit more on what future demand is going to be. Secondly, our initial looks at it, when we look at, let's say, 2027 demand, we think, you know, that's, you know, roughly maybe 75 to 100 additional exabytes, and then a year after that, you can double that.
Speaker #1: So, it's still a bit early. I'll say a couple of things about it. First of all, none of that demand is in the numbers.
Speaker #1: We're talking about demand numbers at this point. I think it's a perfect example of how we all need to collaborate a little bit more on what future demand is going to be.
Speaker #1: Secondly, our initial looks at it—when we look at, let's say, '27 demand—we think that's roughly maybe 75 to 100 additional exabytes. And then, the year after that, you can double that.
Speaker #1: So it is significant amount of demand. And I think it is, again, just another example of NAND is just front and center in the AI architecture.
David Goeckeler: So it is significant amount of demand, and I think it is, again, just another example of, you know, NAND is just front and center in the AI architecture. That's very, very clear at this point, if it wasn't before. The AI architecture is changing, right? And that's not a surprise. Any kind of technology that's this profound and is being deployed at this much scale, we're going to continue to see innovation and evolution of the architecture. So we're going to stay very close to that. You know, NAND's gonna be a big part of that architecture. It's the most scalable storage tech semiconductor storage technology, or most, maybe the most scalable semiconductor technology at all. And, you know, so we're looking at those configurations. It's very real demand.
So it is significant amount of demand, and I think it is, again, just another example of, you know, NAND is just front and center in the AI architecture. That's very, very clear at this point, if it wasn't before. The AI architecture is changing, right? And that's not a surprise. Any kind of technology that's this profound and is being deployed at this much scale, we're going to continue to see innovation and evolution of the architecture. So we're going to stay very close to that. You know, NAND's gonna be a big part of that architecture. It's the most scalable storage tech semiconductor storage technology, or most, maybe the most scalable semiconductor technology at all. And, you know, so we're looking at those configurations. It's very real demand.
Speaker #1: That's very, very clear at this point—if it wasn't before. The AI architecture is changing, right? And that's not a surprise. Any kind of technology that's this profound and is being deployed at this much scale—we're going to continue to see innovation and evolution of the architecture.
Speaker #1: So we're going to stay very close to that. NAND is just going to be a big part of that architecture. It's the most scalable storage semiconductor technology, or maybe the most scalable semiconductor technology at all.
Speaker #1: And so we're looking at those configurations. It's very real demand. We're just trying to get our arms around it, and then we'll put it in the numbers probably for the back half of this year, going into '27 and '28.
David Goeckeler: We're just trying to get our arms around it, and, and then we'll put it in the numbers, probably for the back half of this year, going into 2027 and 2028.
We're just trying to get our arms around it, and, and then we'll put it in the numbers, probably for the back half of this year, going into 2027 and 2028.
Speaker #5: Great, thank you. And then as a follow-up, the enterprise SSD opportunity—how does that break down between TLC and QLC at this point, and how is that changing going forward?
[Analyst] (Morgan Stanley): Great. Thank you. And then, as a follow-up, the enterprise SSD opportunity, how does that break down between TLC and QLC at this point, and how is that changing going forward?
Joe Moore: Great. Thank you. And then, as a follow-up, the enterprise SSD opportunity, how does that break down between TLC and QLC at this point, and how is that changing going forward?
David Goeckeler: You know, I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted towards TLC, especially for us. And then, you know, we haven't launched our Stargate product yet for the storage-based QLC. It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind of growth to our data center portfolio, and that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted towards TLC.
David Goeckeler: You know, I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted towards TLC, especially for us. And then, you know, we haven't launched our Stargate product yet for the storage-based QLC. It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind of growth to our data center portfolio, and that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted towards TLC.
Speaker #1: I think we're roughly tracking the market right now. It's predominantly TLC. I would say it's tilted towards TLC, especially for us. And then we haven't launched our Stargate product yet for the storage-based QLC.
Speaker #1: It's in qualification. We'll start shipping that for revenue in the next couple of quarters, which we're excited about, providing another tailwind to growth for our data center portfolio.
Speaker #1: And that will up the mix of QLC. But at this point, I think the overall market in our portfolio is tilted towards TLC.
Speaker #5: Great. Thank you.
[Analyst] (Morgan Stanley): Great. Thank you. Great numbers.
Joe Moore: Great. Thank you. Great numbers.
Speaker #5: Great numbers. Thanks,
David Goeckeler: Thanks, Joe. Appreciate it.
David Goeckeler: Thanks, Joe. Appreciate it.
Speaker #1: Joe. Appreciate it.
Speaker #4: The next question will come from CJ Muse with Canter Fitzgerald. Please go
Operator: The next question will come from C.J. Muse with Cantor Fitzgerald. Please go ahead.
Operator: The next question will come from CJ Muse with Cantor Fitzgerald. Please go ahead.
Speaker #4: ahead. Yeah.
[Analyst] (Cantor Fitzgerald): Yeah, good afternoon. Thanks for taking the question. I guess first question, is there a way to quantify incremental demand for NAND related to AI infrastructure build-out? I'm not including KV cache, but, you know, we were mid to high teens before, and I'm curious now, based on your conversations with customers and the demand trends that you're seeing, where do you think the new demand growth taker is, you know, looking out 2026, 2027, 2028?
CJ Muse: Yeah, good afternoon. Thanks for taking the question. I guess first question, is there a way to quantify incremental demand for NAND related to AI infrastructure build-out? I'm not including KV cache, but, you know, we were mid to high teens before, and I'm curious now, based on your conversations with customers and the demand trends that you're seeing, where do you think the new demand growth taker is, you know, looking out 2026, 2027, 2028?
Speaker #6: Good afternoon. Thanks for taking the question. I guess the first question is, is there a way to quantify incremental demand for NAND related to AI infrastructure buildout?
Speaker #6: I'm not including KV cache, but we were mid to high teens before, and I'm curious now based on your conversations with customers and the demand trends that you're seeing, where do you think the new demand growth CAGR is looking out 26, 27, 28?
Speaker #6: I'm not including KV cache, but we were mid to high teens before, and I'm curious now based on your conversations with customers and the demand trends that you're seeing, where do you think the new demand growth CAGR is looking out 26, 27, 28?
Speaker #1: I think the best proxy we have for that right now is CJ is just what we're seeing in exabyte demand in the data center.
David Goeckeler: I think the best proxy we have for that right now, CJ, is just what we're seeing in exabyte demand in the data center. As I said earlier, I mean, two cycles ago, we were looking at, you know, call it mid-20s exabyte growth in 2026 for data center. Last quarter, we were talking about; we upped that to mid-40s, given the CapEx cycle that went on. We're now looking at high 60s exabyte growth in data center, which is our forecast. And that doesn't include any CapEx raises on this earnings cycle. You know, significant increase just quarter-over-quarter in demand. And you know, we think most of all that is driven by AI, obviously.
David Goeckeler: I think the best proxy we have for that right now, CJ, is just what we're seeing in exabyte demand in the data center. As I said earlier, I mean, two cycles ago, we were looking at, you know, call it mid-20s exabyte growth in 2026 for data center. Last quarter, we were talking about; we upped that to mid-40s, given the CapEx cycle that went on. We're now looking at high 60s exabyte growth in data center, which is our forecast. And that doesn't include any CapEx raises on this earnings cycle. You know, significant increase just quarter-over-quarter in demand. And you know, we think most of all that is driven by AI, obviously.
Speaker #1: And as I said earlier, I mean, two cycles ago, we were looking at, call it mid-20s exabyte growth. In 26 for data center, last quarter, we were talking about we upped that to mid-40s given the CapEx cycle that went on.
Speaker #1: We're now looking at high-60s exabyte growth in data center as our forecast. And that doesn't include any CapEx raises on this earnings cycle.
Speaker #1: So significant increase just quarter over quarter in demand and we think most of all that is driven by AI,
Speaker #1: obviously. Perfect.
[Analyst] (Cantor Fitzgerald): Perfect. Thanks. And then I guess, you paid down a considerable amount of debt in the quarter. You only have $600 million outstanding, probably can pay that down this quarter. So curious, you know, when you're in a completely, you know, cash position, you know, how should we think about, you know, capital return, particularly around share repurchases over the coming quarters?
CJ Muse: Perfect. Thanks. And then I guess, you paid down a considerable amount of debt in the quarter. You only have $600 million outstanding, probably can pay that down this quarter. So curious, you know, when you're in a completely, you know, cash position, you know, how should we think about, you know, capital return, particularly around share repurchases over the coming quarters?
Speaker #4: Thanks. And then I guess you paid down a considerable amount of debt in the quarter. You only have 600 million outstanding. Probably can pay that down this quarter.
Speaker #4: So curious, when you're in a completely cache position, how should we think about capital return, particularly around share repurchases over the coming quarters?
Speaker #3: Yeah. We feel very proud of the progress we've made reducing our debt. Remember, we started with $2 billion and it's coming down very, very quickly, 600 this quarter, and we'll continue to take that down.
Luis Visoso: Yeah, we feel, we feel very proud of the progress we've made reducing our debt. Remember, we started with $2 billion, and it's coming down very, very quickly, $600 this quarter, and we'll continue to take that down. C.J., our priority is to continue to invest in the business as we have been doing and to build prudent cash resource. You know, this is a business where having cash on hand is helpful. We're not going to waste your cash, don't worry, but we're going to build prudent cash reserves, and we'll continue to reduce our debt, and at the right time, we'll continue to expand and give you an update. But so far, those are our priorities.
Luis Visoso: Yeah, we feel, we feel very proud of the progress we've made reducing our debt. Remember, we started with $2 billion, and it's coming down very, very quickly, $600 this quarter, and we'll continue to take that down. C.J., our priority is to continue to invest in the business as we have been doing and to build prudent cash resource. You know, this is a business where having cash on hand is helpful. We're not going to waste your cash, don't worry, but we're going to build prudent cash reserves, and we'll continue to reduce our debt, and at the right time, we'll continue to expand and give you an update. But so far, those are our priorities.
Speaker #3: CJ, our priority is to continue to invest in the business as we have been doing, and to build prudent cash reserves—not as a business where having cash on hand is helpful.
Speaker #3: We're not going to waste your cash. Don't worry, but we're going to build prudent cash reserves and we'll continue to reduce our debt. And at the right time, we'll continue to expand and give you an update.
Speaker #3: But so far, those are our priorities.
[Analyst] (Cantor Fitzgerald): Thank you.
CJ Muse: Thank you.
Speaker #6: you.
Speaker #1: Thanks, Thank
David Goeckeler: Thanks, CJ.
David Goeckeler: Thanks, CJ.
Speaker #1: CJ. The next question will come
Operator: The next question will come from Jim Schneider with Goldman Sachs. Please go ahead.
Operator: The next question will come from Jim Schneider with Goldman Sachs. Please go ahead.
Speaker #4: from Jim Schneider with Goldman Sachs. Please go
Speaker #4: ahead. Good evening.
[Analyst] (Goldman Sachs): Good evening. Thanks for taking my question. First of all, on the supply side, I was wondering if you could give us a snapshot of the factory network across Yokkaichi and Kitakami, and kind of where things stand now. I'm assuming utilizations are basically flat out. But, you know, as you think more tactically, sort of beyond this year, about the high teens, big growth outlook, how do you expect to sort of ramp your – the overall kind of JV factory network over, say, the next, say, you know, 18 months or so? And then maybe give us any kind of view on – your view on the sort of industry greenfield capacity expansions that you see possible, given some of the announcements of some of your competitors recently.
Jim Schneider: Good evening. Thanks for taking my question. First of all, on the supply side, I was wondering if you could give us a snapshot of the factory network across Yokkaichi and Kitakami, and kind of where things stand now. I'm assuming utilizations are basically flat out. But, you know, as you think more tactically, sort of beyond this year, about the high teens, big growth outlook, how do you expect to sort of ramp your – the overall kind of JV factory network over, say, the next, say, you know, 18 months or so? And then maybe give us any kind of view on – your view on the sort of industry greenfield capacity expansions that you see possible, given some of the announcements of some of your competitors recently.
Speaker #7: Thanks for taking my question. First of all, on the supply side, I just wanted you to give us a snapshot of the factory network across Yokohita and Kitakami, and kind of where things stand now.
Speaker #7: I'm assuming utilizations are basically flat out, but as you think more tactically sort of beyond this year about the high teens, big growth outlook, how do you expect to sort of ramp your overall kind of JV factory network over, say, the next, say, 18 months or so?
Speaker #7: And then maybe give us any kind of view on your view on the sort of industry greenfield capacity expansions that you see possible, given some of the announcements of some of your competitors recently.
Speaker #1: So first of all, we have, as you said, we have two major sites, Yokohita and Kitakami. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokohita to coincide with the agreements in Kitakami.
David Goeckeler: So, you know, first of all, you know, we have -- as you said, we have two major sites, Yokkaichi and Kitakami. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokkaichi to coincide with the agreements in Kitakami. So they now are all run through 2034. So that gives us really good supply assurance for the next nine years, and we'll keep talking about what happens after that. But this has just been an unbelievable relationship with Kioxia for decades now, and it's going to go on, you know, quite some time into the future. So we feel like we're in a really good position there. Look, we haven't had any underutilization in the fab for a couple quarters now.
David Goeckeler: So, you know, first of all, you know, we have -- as you said, we have two major sites, Yokkaichi and Kitakami. I think a big step forward this quarter is what we announced in extending the JV agreements around Yokkaichi to coincide with the agreements in Kitakami. So they now are all run through 2034. So that gives us really good supply assurance for the next nine years, and we'll keep talking about what happens after that. But this has just been an unbelievable relationship with Kioxia for decades now, and it's going to go on, you know, quite some time into the future. So we feel like we're in a really good position there. Look, we haven't had any underutilization in the fab for a couple quarters now.
Speaker #1: So they now are all run through 2034. So that gives us really good supply assurance for the next nine years. And we'll keep talking about what happens after that, but this has just been an unbelievable relationship with Kyokusha.
Speaker #1: For decades now, and it's going to go on quite some time into the future. So we feel like we're in a really good position there.
Speaker #1: Look, we haven't had any underutilization in the fab for a couple of quarters now. We got past that a couple of quarters ago. There may be a little bit of the memory of some of the cost flowing through.
[Analyst] (Goldman Sachs): Yeah.
Jim Schneider: Yeah.
David Goeckeler: You know, we got past that a couple quarters ago. There may be a little bit of the memory of some of the costs flowing through. I guess those were all last quarter.
David Goeckeler: You know, we got past that a couple quarters ago. There may be a little bit of the memory of some of the costs flowing through. I guess those were all last quarter.
Speaker #1: I guess those were all last quarter. We're done. So they're running at full capacity. Kitakami is where we're expanding. We just opened the K2 fab.
[Analyst] (Goldman Sachs): We're done.
David Goeckeler: We're done. So they're running at, you know, full capacity. Kitakami is where we're expanding. You know, we just opened the K2 fab, and so we have additional space there. I think the JV, you know, led by Kioxia, on this part of it, has just done really good capacity planning and has good plans about how we're able to now expand into the Kitakami site as needed, over the next many years. So we feel really good about how we're positioned there. You know, as far as the rest of the industry, you know, as you know, it's a long lead time. You know, we've seen some announcements recently. I would consider those kind of normal course. We're all constantly building clean room space.
We're done. So they're running at, you know, full capacity. Kitakami is where we're expanding. You know, we just opened the K2 fab, and so we have additional space there. I think the JV, you know, led by Kioxia, on this part of it, has just done really good capacity planning and has good plans about how we're able to now expand into the Kitakami site as needed, over the next many years. So we feel really good about how we're positioned there. You know, as far as the rest of the industry, you know, as you know, it's a long lead time. You know, we've seen some announcements recently. I would consider those kind of normal course. We're all constantly building clean room space.
Speaker #1: And so we have additional space there. I think we've just JV led by Kyokusha on this part of it is just done really good capacity planning and has good plans about how we're able to now expand into the Kitakami site as needed.
Speaker #1: Over the next many years, so we feel really good about how we're positioned there. As far as the rest of the industry, as you know, it's a long lead time.
Speaker #1: We see some announcements recently. I would consider those kind of normal course. We're all constantly building clean room space. As I talked earlier, this is a market on the supply side where we've been very consistent.
David Goeckeler: You know, as we, as I talked earlier, this is a market on the supply side, where we've been very consistent. We're gonna grow bits, you know, in the mid to high teens rate. We're gonna do that through innovation. We're gonna do that through, you know, that innovation is gonna take additional clean room space. That's all in the plan. I would expect to see continued spending to meet that number, but we don't see anything that- that's out of the ordinary. And, you know, I think as all of us know, if you wanna start building a new fab, you're talking years before you have that up and running and have production come- coming out of it. So, just a little bit of how, how we see the market.
You know, as we, as I talked earlier, this is a market on the supply side, where we've been very consistent. We're gonna grow bits, you know, in the mid to high teens rate. We're gonna do that through innovation. We're gonna do that through, you know, that innovation is gonna take additional clean room space. That's all in the plan. I would expect to see continued spending to meet that number, but we don't see anything that- that's out of the ordinary. And, you know, I think as all of us know, if you wanna start building a new fab, you're talking years before you have that up and running and have production come- coming out of it. So, just a little bit of how, how we see the market.
Speaker #1: We're going to grow bits in the mid to high teens rate. We're going to do that through innovation. We're going to do that through that innovation is going to take additional clean room space.
Speaker #1: That's all in the plan. I would expect to see continued spending to meet that number, but we don't see anything that's out of the ordinary.
Speaker #1: And I think, as all of us know, if you want to start building a new fab, you're talking years before you have that up and running and have production coming out of it.
Speaker #1: So just a little bit of how we see the market. And final comment, all this is factored into our numbers when we talk about supply and
David Goeckeler: You know, final comment, all this is factored into our numbers when we talk about supply and demand.
You know, final comment, all this is factored into our numbers when we talk about supply and demand.
Speaker #1: demand.
Speaker #7: Thank you. And then maybe as
[Analyst] (Goldman Sachs): Thank you. And then maybe as a follow-up, could you maybe address, clearly, you mentioned, the qualification with another enterprise SSD hyperscaler customer. Exiting this calendar year, for example, how large do you expect your enterprise SSD exposure, to be as a percentage of the total revenue? Thank you.
Jim Schneider: Thank you. And then maybe as a follow-up, could you maybe address, clearly, you mentioned, the qualification with another enterprise SSD hyperscaler customer. Exiting this calendar year, for example, how large do you expect your enterprise SSD exposure, to be as a percentage of the total revenue? Thank you.
Speaker #7: A follow-up, could you maybe address clearly—you mentioned the qualification with another enterprise SSD hyperscale customer. Exiting this calendar year, for example, how large do you expect your enterprise SSD exposure to be as a percentage of total revenue?
Speaker #7: Thank
Speaker #7: you. Yeah, we're not going to put an
David Goeckeler: Yeah, we're not gonna put an exact number around that just yet, but I would say just stay tuned. I think we said this, our business is gonna continue to grow in this market. You know, we've seen 29% sequential growth, followed by 64% sequential growth. Without getting into too much detail, I think you're gonna see a substantial step up, next quarter as well. So we feel really good about where the portfolio is. Like I said, the reception from customers, and not just hyperscalers, across the entire ecosystem of people that are building out AI infrastructure, you know, the compute-focused TLC product we have in the market is really driving that growth right now.
David Goeckeler: Yeah, we're not gonna put an exact number around that just yet, but I would say just stay tuned. I think we said this, our business is gonna continue to grow in this market. You know, we've seen 29% sequential growth, followed by 64% sequential growth. Without getting into too much detail, I think you're gonna see a substantial step up, next quarter as well. So we feel really good about where the portfolio is. Like I said, the reception from customers, and not just hyperscalers, across the entire ecosystem of people that are building out AI infrastructure, you know, the compute-focused TLC product we have in the market is really driving that growth right now.
Speaker #1: exact number around that just yet, but I would say just stay tuned. I think we said this our business is going to continue to grow in this market.
Speaker #1: We've seen 29% sequential growth, followed by 64% sequential growth, without getting into too much detail. I think you're going to see a substantial step up next quarter as well.
Speaker #1: So we feel really good about where the portfolio is. Like I said, the reception from customers, and not just hyperscalers, across the entire ecosystem of people that are building out AI infrastructure, the compute-focused TLC product we have in the market is really driving that growth right now.
Speaker #1: We're going to see our BICS A QLC product start shipping for revenue here in the next couple of quarters, which is going to be another tailwind for growth.
David Goeckeler: We're going to see our BiCS8 QLC product start shipping for revenue here in the next couple of quarters, which is gonna be another tailwind for growth. And as we've talked about, the BiCS8 QLC performance has been extremely well received. So we continue to see very high interest in that, those products and, and work through the qualifications. And, you know, we'll, we'll look forward to continued growth, and it'll be part of the, the balanced portfolio we always talk about, of how we're gonna allocate our supply into, into that part of the market. But, you know, we're excited about where we're at and where we're headed.
We're going to see our BiCS8 QLC product start shipping for revenue here in the next couple of quarters, which is gonna be another tailwind for growth. And as we've talked about, the BiCS8 QLC performance has been extremely well received. So we continue to see very high interest in that, those products and, and work through the qualifications. And, you know, we'll, we'll look forward to continued growth, and it'll be part of the, the balanced portfolio we always talk about, of how we're gonna allocate our supply into, into that part of the market. But, you know, we're excited about where we're at and where we're headed.
Speaker #1: And as we've talked about, the BICS A QLC performance has been extremely well received. So we continue to see very high interest in that, those products, and work through the qualifications.
Speaker #1: And we'll look forward to continued growth and it'll be part of the balance portfolio we always talk about of how we're going to allocate our supply into that part of the market.
Speaker #1: But we're excited about where we're at and where we're headed.
Speaker #7: Thank you.
[Analyst] (Goldman Sachs): Thank you.
Jim Schneider: Thank you.
Speaker #1: Thanks,
David Goeckeler: Thanks, Jim.
David Goeckeler: Thanks, Jim.
Speaker #1: Jim. The next
Operator: The next question will come from Mehdi Hosseini with SIG. Please go ahead.
Operator: The next question will come from Mehdi Hosseini with SIG. Please go ahead.
Speaker #4: The next question will come from Mehdi Hosseini with SIG. Please go ahead.
Speaker #4: ahead. Yes, thanks for taking
[Analyst] (SIG): Yes, thanks for taking my question. I have two follow-ups for me, and this is for the team. When I look at your guide for the March Q3 fiscal year, assuming low single-digit bit growth, there's a big jump in ASP and blended. What I wanted to ask you is, how should we think about the mix that impacts the ASP? Obviously, as you scale your SSD, there is a higher premium. There is more than bits and a premium that you capture or economic value that you capture. Is there any way you can help me understand? Because just thinking about the ASP absolute may give us a wrong impression. So any help you can provide would be great, and I have a follow-up.
Mehdi Hosseini: Yes, thanks for taking my question. I have two follow-ups for me, and this is for the team. When I look at your guide for the March Q3 fiscal year, assuming low single-digit bit growth, there's a big jump in ASP and blended. What I wanted to ask you is, how should we think about the mix that impacts the ASP? Obviously, as you scale your SSD, there is a higher premium. There is more than bits and a premium that you capture or economic value that you capture. Is there any way you can help me understand? Because just thinking about the ASP absolute may give us a wrong impression. So any help you can provide would be great, and I have a follow-up.
Speaker #8: My question. Two follow-ups for me, and this is for the team. When I look at your guide for the March Q3 fiscal year, assuming a little single-digit bit growth, there is a big jump in ASB and blended.
Speaker #8: What I wanted to ask you is, how should we think about the mix that impacts the ASB? Obviously, as you scale your SSD, there is a higher premium.
Speaker #8: There is more than bits and a premium that you capture, or economic value that you capture. Is there any way you can help me understand?
Speaker #8: Because just thinking about the ASB absolute may give us a wrong impression. So any help you can provide would be great. I don't have a follow-up.
Luis Visoso: Yeah. So the mix impacts that we have are less related to changes in our end market and more related to the customers, right, and how we serve the market. So I talked a little bit about this in my prepared remarks, and what you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products, and therefore we're getting, you know, much better gross margin as a result of that. So there is a mixed component in that, to your point, Mehdi, and there is some pricing as well. You know, we believe that the market will-
Luis Visoso: Yeah. So the mix impacts that we have are less related to changes in our end market and more related to the customers, right, and how we serve the market. So I talked a little bit about this in my prepared remarks, and what you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products, and therefore we're getting, you know, much better gross margin as a result of that. So there is a mixed component in that, to your point, Mehdi, and there is some pricing as well. You know, we believe that the market will-
Speaker #2: Yeah. So, the mix impacts that we have are less related to changes in our end market, and more related to the customers and how we serve the market.
Speaker #2: So I talked a little bit about this in my prepared remarks and what you've seen is we're driving a better mix. We're partnering with those customers that value our relationship, that value our products, and therefore we're getting much better gross margin as a result of that.
Speaker #2: So there is a mixed component in that to your point. Mehdi and there is some pricing as well. We believe in the market. Go ahead, sorry.
[Analyst] (SIG): Is there any way you can break-
Mehdi Hosseini: Is there any way you can break-
Luis Visoso: Go ahead, sorry.
Luis Visoso: Go ahead, sorry.
Speaker #3: Oh, I was just going to say it's just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the raw non-ASB trends?
[Analyst] (SIG): Oh, I was just gonna say, just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the run and ASP trends?
Mehdi Hosseini: Oh, I was just gonna say, just a quick follow-up. Is there any mix breakout you can offer us so that we're not so fixated with the run and ASP trends?
Speaker #2: Yeah. We'll provide that to you when we report next quarter. I don't have anything to share with you at this point in the guide, Mehdi.
Luis Visoso: Yeah, we'll provide that to you when we report next quarter. I don't have anything to share with you at this point on the guide, Mehdi.
Luis Visoso: Yeah, we'll provide that to you when we report next quarter. I don't have anything to share with you at this point on the guide, Mehdi.
Speaker #3: Okay, great. And one question for David. Look, we're sitting here, and there is increased shortage intensifying. You and your peers are involved in discussion for a multi-year contract.
[Analyst] (SIG): Okay, great. And one question for David. Look, we're sitting here, and there is increased shortage intensifying. You and your peers are involved in discussion for a multiyear contract. And as you highlighted, these projects take several years. Building a fab and putting equipment is a very long process. Why isn't there a more urgency? Why aren't your customers, your customer's customer, willing to commit more? They're committing the investment throughout the AI supply chain, but when it comes to memory or NAND, I don't get a sense of urgency, and if it's gonna wait till second half of this year, that means the shortage is gonna intensify. Unless the SSD exabyte growth of 60% may be just a short list. But how can I reconcile the two?
Mehdi Hosseini: Okay, great. And one question for David. Look, we're sitting here, and there is increased shortage intensifying. You and your peers are involved in discussion for a multiyear contract. And as you highlighted, these projects take several years. Building a fab and putting equipment is a very long process. Why isn't there a more urgency? Why aren't your customers, your customer's customer, willing to commit more? They're committing the investment throughout the AI supply chain, but when it comes to memory or NAND, I don't get a sense of urgency, and if it's gonna wait till second half of this year, that means the shortage is gonna intensify. Unless the SSD exabyte growth of 60% may be just a short list. But how can I reconcile the two?
Speaker #3: And as you highlighted, these projects take several years—building a fab and putting in equipment. It's a very long process. Why isn't there more urgency?
Speaker #3: Why aren't your customers, your customers' customers aren't willing to commit more? They're committing investment throughout the AI supply chain, but when it comes to memory or NAND, I don't get a sense of urgency and if it's going to wait till second half of this year, that means the shortage is going to intensify unless the.
Speaker #3: SSD exabyte growth of 60% may be just a shortlist. How can I reconcile the
Speaker #3: two? I have lots of thoughts on that, Mehdi.
David Goeckeler: I have lots of thoughts on that, Mehdi. I mean, first of all, I mean, I would, I would argue that there actually is a fair amount of urgency, and things are changing rather dramatically, rather quickly, right? I mean, you're talking about a market that's operated the way it's operated for, you know, arguably decades. And you know, the way that market is operated is there's essentially been a quarterly auction for NAND that goes on, that sets the price, and then we all talk about what the price was every quarter. And that, and then, you know, on the supply side, we've tried to get it right on how much we supply, and often get it wrong. And when you get it wrong, the economics just completely crater. And so we're trying to navigate out of that world.
David Goeckeler: I have lots of thoughts on that, Mehdi. I mean, first of all, I mean, I would, I would argue that there actually is a fair amount of urgency, and things are changing rather dramatically, rather quickly, right? I mean, you're talking about a market that's operated the way it's operated for, you know, arguably decades. And you know, the way that market is operated is there's essentially been a quarterly auction for NAND that goes on, that sets the price, and then we all talk about what the price was every quarter. And that, and then, you know, on the supply side, we've tried to get it right on how much we supply, and often get it wrong. And when you get it wrong, the economics just completely crater. And so we're trying to navigate out of that world.
Speaker #1: I mean, first of all, I mean, I would argue that there actually is a fair amount of urgency and things are changing rather dramatically, rather quickly.
Speaker #1: I mean, you're talking about a market that's operated the way it's operated for arguably decades. And the way that market is operated is there's essentially been a quarterly auction for NAND that goes on that sets the price.
Speaker #1: And then we all talk about what the price was every quarter. And then on the supply side, we've tried to get it right on how much we supply.
Speaker #1: And often get it wrong. And when you get it wrong, the economics just completely crater. And so we're trying to navigate out of that world.
Speaker #1: There's a lot of reasons why we're navigating out of that world. There's a lot of technology reasons and all kinds of stuff we talked about in the past we could talk a lot about.
David Goeckeler: There's a lot of reasons why we're navigating out of that world. There's a lot of technology reasons and all kinds of stuff we've talked about in the past, we could talk a lot about. But, like, to change behavior on something you've been doing for, you know, a decade, and just wake up and within a quarter decide to completely change the business practices of an industry is almost, like, really, really hard to do. So but I do think it's happening. I do think that customers are starting to look, like I said, they're starting to look further down the horizon, especially on the data center. I don't think this can be underestimated, this idea that now data center is the largest market in NAND. I mean, this is a market that's been dominated by...
There's a lot of reasons why we're navigating out of that world. There's a lot of technology reasons and all kinds of stuff we've talked about in the past, we could talk a lot about. But, like, to change behavior on something you've been doing for, you know, a decade, and just wake up and within a quarter decide to completely change the business practices of an industry is almost, like, really, really hard to do. So but I do think it's happening. I do think that customers are starting to look, like I said, they're starting to look further down the horizon, especially on the data center. I don't think this can be underestimated, this idea that now data center is the largest market in NAND. I mean, this is a market that's been dominated by...
Speaker #1: But to change behavior on something you've been doing for a decade, and just wake up within a quarter and decide to completely change the business practices of an industry, is almost, like, really, really hard to do.
Speaker #1: But I do think it's happening. I do think that customers are starting to look. Like I said, they're starting to look further down the horizon especially on the data center.
Speaker #1: I don't think this can be underestimated, this idea that now data center is the largest market in NAND. I mean, this is a market that's been dominated by—not dominated, but where the primary customers have been smartphones, PCs. What I talk about is, I kind of view that as what traditionally has been the commodity NAND market.
David Goeckeler: Or not dominated, but where the primary customers, the smartphones, PCs, you know, what I talk about is, you know, I kind of view that as what traditionally been the commodity NAND market. I hate that term, but that's what people think about it. The data center is not that market. Like, the data center is not the commodity NAND market. The data center is NAND, is a highly strategic product that's part of a very sophisticated AI architecture. And I need extraordinarily high performance, and I need innovation, and I need, you know, a specific enterprise SSD that fits my configuration. It's kind of way on the other side of, you know, I just need the same product, and I can plug in any one from, you know, 5 different suppliers. That's not, you know...
Or not dominated, but where the primary customers, the smartphones, PCs, you know, what I talk about is, you know, I kind of view that as what traditionally been the commodity NAND market. I hate that term, but that's what people think about it. The data center is not that market. Like, the data center is not the commodity NAND market. The data center is NAND, is a highly strategic product that's part of a very sophisticated AI architecture. And I need extraordinarily high performance, and I need innovation, and I need, you know, a specific enterprise SSD that fits my configuration. It's kind of way on the other side of, you know, I just need the same product, and I can plug in any one from, you know, 5 different suppliers. That's not, you know...
Speaker #1: I hate that term, but that's what people think about it. Data center is not that market. The data center is not a commodity NAND market.
Speaker #1: The data center is, NAND is a highly strategic product that's part of a very sophisticated AI architecture. And I need extraordinarily high performance, and I need innovation, and I need a specific enterprise SSD that fits my configuration.
Speaker #1: It's kind of way on the other side of I just need the same product and I can plug in anyone from five different suppliers.
Speaker #1: That's not so. That market now, becoming the primary market and especially the primary growth engine, is really, I think, starting to challenge the business practices of the way the market has traditionally worked.
David Goeckeler: So, that market, now becoming the primary market, and especially the primary growth engine, is really, I think, starting to challenge the business practices of the way the market has traditionally worked.
So, that market, now becoming the primary market, and especially the primary growth engine, is really, I think, starting to challenge the business practices of the way the market has traditionally worked.
Luis Visoso: Mm-hmm.
Mehdi Hosseini: Mm-hmm.
David Goeckeler: And, you know, again, I'm actually quite optimistic that this is happening pretty quickly. Now, we'll see how quickly. I mean, do we actually get to the point where we're announcing contracts? We're not quite there yet. We've got, you know, some that are coming along. But, you know, from my perspective, on a relative basis, it's going pretty quick. For a market this big, you know, we're talking $150 billion maybe this year. For a market this big, this many players, this much business transacted every quarter, to see it change as fast as it's changing is pretty remarkable, actually.
David Goeckeler: And, you know, again, I'm actually quite optimistic that this is happening pretty quickly. Now, we'll see how quickly. I mean, do we actually get to the point where we're announcing contracts? We're not quite there yet. We've got, you know, some that are coming along. But, you know, from my perspective, on a relative basis, it's going pretty quick. For a market this big, you know, we're talking $150 billion maybe this year. For a market this big, this many players, this much business transacted every quarter, to see it change as fast as it's changing is pretty remarkable, actually.
Speaker #1: And again, I'm actually quite optimistic that this is happening pretty quickly. Now, we'll see how quickly. I mean, do we actually get to the point where we're announcing contracts?
Speaker #1: We're not quite there yet. We've got some that are coming along. But from my perspective, on a relative basis, it's going pretty quick. For a market this big, we're talking 150 billion maybe this year.
Speaker #1: For a market this big, with this many players, and this much business transacted every quarter, to see it change as fast as it's changing—it's pretty remarkable, actually.
Speaker #3: Got it. Thank you for the details.
Luis Visoso: Got it. Thank you for the details.
Mehdi Hosseini: Got it. Thank you for the details.
Speaker #1: Sure thing. Thanks, Mehdi.
David Goeckeler: Sure thing. Thanks, Maddie.
David Goeckeler: Sure thing. Thanks, Mehdi.
Speaker #4: Again, if you have a question, please press star and then one. Please limit yourself to one question. The next question will come from Wamsie Mohan with Bank of America.
Operator: Again, if you have a question, please press star then one. Please limit yourself to one question. The next question will come from Wamsi Mohan with Bank of America. Please go ahead.
Operator: Again, if you have a question, please press star then one. Please limit yourself to one question. The next question will come from Wamsi Mohan with Bank of America. Please go ahead.
Speaker #4: Please go
Speaker #4: Please go ahead. Hi, it's
[Analyst] (Bank of America): Hi, it's Ruplu filling in for Wamsi. Can I ask Luis a question? This quarter, OpEx came in lower. You said you had a benefit from how you're managing NPI. Can you just elaborate on that, what that benefit was? And can you talk about capital allocation plans? How much are you expecting to spend on HBF and data center expansion, and as well as any capital return plans or M&A plans? Thank you.
Ruplu Bhattacharya: Hi, it's Ruplu filling in for Wamsi. Can I ask Luis a question? This quarter, OpEx came in lower. You said you had a benefit from how you're managing NPI. Can you just elaborate on that, what that benefit was? And can you talk about capital allocation plans? How much are you expecting to spend on HBF and data center expansion, and as well as any capital return plans or M&A plans? Thank you.
Speaker #5: Rupal, filling in for Wamsie. Can I ask Luis a question? This quarter, OPEX came in lower. You said you had a benefit from how you're managing NPI.
Speaker #5: Can you just elaborate on that? What that benefit was? And can you talk about capital allocation plans—how much are you expecting to spend on HPF and data center expansion?
Speaker #5: And as well as any capital return plans or M&A plans? Thank you.
Speaker #2: Yeah, so let me try to unpack the OPEX question, because I thought somebody was going to ask. So, we made our recurring change to how we sell our products, right?
Luis Visoso: Yeah. So let me try to unpack the OpEx question, because I thought somebody was gonna ask. So we made a recurring change to how we sell our products, right? And basically, we're now moving into charging for our qualification units. So in the past, we used to record costs as they were incurred, right? They were period costs. And this is the non-recurring element, which is a one-time gain as we move from period cost into inventories, as we're now selling this qualification unit. Does that make sense?
Luis Visoso: Yeah. So let me try to unpack the OpEx question, because I thought somebody was gonna ask. So we made a recurring change to how we sell our products, right? And basically, we're now moving into charging for our qualification units. So in the past, we used to record costs as they were incurred, right? They were period costs. And this is the non-recurring element, which is a one-time gain as we move from period cost into inventories, as we're now selling this qualification unit. Does that make sense?
Speaker #2: And basically, we're now moving into charging for our qualification units. So in the past, we used to record cost as they were incurred, right?
Speaker #2: They were period costs. And this is the non-recurring element, which is, again, a one-time gain as we move from period cost into inventories as we are now selling these qualification units.
Speaker #2: So that makes sense?
Speaker #5: Yes. And that's clear.
[Analyst] (Bank of America): Yes, that's clear.
Ruplu Bhattacharya: Yes, that's clear.
Speaker #2: Good. So we're going to get an ongoing saving as we charge our customers for these qualification units. And there is a one-time benefit as we do the transition and we go through inventory.
Luis Visoso: Good. So we're gonna get an ongoing saving as we charge our customers for this qualification unit, and there is a one-time benefit as we do the transition and we go through inventory. On the capital allocation question, you know, as I said earlier, you know, our capital allocation strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business, particularly given still where we are. We, we believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. And we're fully funding the business. Now, we're funding the business from a big, safe transition.
Luis Visoso: Good. So we're gonna get an ongoing saving as we charge our customers for this qualification unit, and there is a one-time benefit as we do the transition and we go through inventory. On the capital allocation question, you know, as I said earlier, you know, our capital allocation strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business, particularly given still where we are. We, we believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. And we're fully funding the business. Now, we're funding the business from a big, safe transition.
Speaker #2: On the capital allocation question, as I said earlier, our capital allocation strategy is unchanged. We will continue to invest in the business. We will build prudent cash reserves, which are very helpful for this business, particularly given still where we are.
Speaker #2: We believe we need to continue to build our cash reserves, and we'll continue to reduce our debt. So we've gone from $2 billion to $650 million.
Speaker #2: So we're making great progress, and we'll continue to make progress there. And we're fully funding the business. We're funding the business from a big, say, transition.
Speaker #2: We're funding our OPEX. We feel that we're properly funding the business.
Luis Visoso: We're funding our OpEx, where we feel that we're properly funding the business itself.
We're funding our OpEx, where we feel that we're properly funding the business itself.
Speaker #2: itself. Are there any underutilization
[Analyst] (Bank of America): Are there any underutilization charges in the guide?
Ruplu Bhattacharya: Are there any underutilization charges in the guide?
Speaker #4: charges in the guide?
Speaker #2: No. Not on the guide and not on
Luis Visoso: No, not on the guide and not on actuals either.
Luis Visoso: No, not on the guide and not on actuals either.
Speaker #2: actuals, either. All right.
[Analyst] (Bank of America): All right. Thank you so much.
Ruplu Bhattacharya: All right. Thank you so much.
Speaker #4: Thank you so much. The next question will come from Vijay Rakesh with Mizuho. Please go ahead.
Operator: The next question will come from Vijay Rakesh with Mizuho. Please go ahead.
Operator: The next question will come from Vijay Rakesh with Mizuho. Please go ahead.
[Analyst] (Mizuho): Hi there, and Luis, awesome quarter here. Just phenomenal numbers. Just wondering on the 2026, 2027, what is looking at in terms of bit growth? And, obviously, ASP pricing has been on a tear, but just wondering how the price trends have been across different segments, you know, from the data center to retail, to consumer SSDs, if you can give us some color. Thanks.
Vijay Rakesh: Hi there, and Luis, awesome quarter here. Just phenomenal numbers. Just wondering on the 2026, 2027, what is looking at in terms of bit growth? And, obviously, ASP pricing has been on a tear, but just wondering how the price trends have been across different segments, you know, from the data center to retail, to consumer SSDs, if you can give us some color. Thanks.
Speaker #6: Hi, David. And Luis, awesome quarter here. Just a phenomenal number. Just wondering on the 2026-27, what is looking at in terms of bid growth?
Speaker #6: And obviously, ASP pricing has been on a tear. But just wondering how the price trends have been across different segments from the data center to retail to consumer SSDs if you can give us some color.
Speaker #6: Thanks.
Speaker #2: Yeah, so the bit growth that we're seeing across '27, '28 is consistent with what we talked about at the very beginning of February. We're still talking about mid to high teens bit growth every single year.
Luis Visoso: Yeah. So the bit growth that we're seeing across, you know, 2028, 2027, 2028, is consistent with what we talked, you know, at the very beginning of February. We're still talking about mid to high teens bit growth every single year. And unless we see that demand is there and sustainable and profitable, we're not gonna change our assumptions. So still our planning is, our plan of record is that kind of high teens number for bit growth year-over-year. On pricing across what we call end markets, it's very interesting, right? What you see is prices are moving, not identically, but pretty much at the same pace. You know, we're seeing what happens is that NAND can flow to any market at the end of the day.
Luis Visoso: Yeah. So the bit growth that we're seeing across, you know, 2028, 2027, 2028, is consistent with what we talked, you know, at the very beginning of February. We're still talking about mid to high teens bit growth every single year. And unless we see that demand is there and sustainable and profitable, we're not gonna change our assumptions. So still our planning is, our plan of record is that kind of high teens number for bit growth year-over-year. On pricing across what we call end markets, it's very interesting, right? What you see is prices are moving, not identically, but pretty much at the same pace. You know, we're seeing what happens is that NAND can flow to any market at the end of the day.
Speaker #2: And unless we see that that demand is there and sustainable and profitable, we're not going to change our assumptions. So still, our planning is our plan of record is that kind of high teens number for bid growth year over year.
Speaker #2: On pricing across what we call end markets, it's very interesting, right? What you see is prices are moving not identically, but pretty much at the same pace.
Speaker #2: What we're seeing is that NAND can flow to any market at the end of the day. So, NAND will naturally flow to the markets that are most attractive.
Luis Visoso: So NAND will naturally flow to the markets that are most attractive. So when prices go up in data center, they do have an impact in other markets, to give you an example, right? So that's what we're seeing across markets. Prices go up pretty much across the board.
So NAND will naturally flow to the markets that are most attractive. So when prices go up in data center, they do have an impact in other markets, to give you an example, right? So that's what we're seeing across markets. Prices go up pretty much across the board.
Speaker #2: So, when prices go up in data center, they do have an impact in other markets. To give you an example, right? So that's what we're seeing across markets.
Speaker #2: Prices go up pretty much across the
Speaker #2: board. The
Operator: The next question will come from Karl Ackerman with BNP Paribas. Please go ahead.
Operator: The next question will come from Karl Ackerman with BNP Paribas. Please go ahead.
Speaker #4: Next question will come from Carl Ackerman with BNP Paribas. Please go ahead.
Speaker #7: Hi. Thank you for taking my question and congratulations for the very good quarter. Product roadmap, I think there are now your data center mix has reached 15%.
[Analyst] (BNP Paribas): Hi, thank you for taking my question, and congratulations for the very good quarter. Going back to roadmap, I think there are now your data center mix has reached 15%, and NAND flash is now increasingly being attached to AI compute. So I think it's creating new requirements for performance. So are you can you update with us your production roadmap to meet these new requirements? Like, I think there are high IOPS SSDs, and you have engagements with on the HBF. So, how those new products look like?
Karl Ackerman: Hi, thank you for taking my question, and congratulations for the very good quarter. Going back to roadmap, I think there are now your data center mix has reached 15%, and NAND flash is now increasingly being attached to AI compute. So I think it's creating new requirements for performance. So are you can you update with us your production roadmap to meet these new requirements? Like, I think there are high IOPS SSDs, and you have engagements with on the HBF. So, how those new products look like?
Speaker #7: And the NAND flash is now increasingly being attached to AI compute. So I think it's creating new requirements for performance. So, can you update us with your product roadmap to meet these new requirements?
Speaker #7: Like, I think there are high-OPS SSDs, and you have engagements with those on the HPF. So, how do those new products look like?
Speaker #6: Yeah. So I think this is a very good example of the amount of innovation that's going on and being driven out of data center, kind of what I was referring to before.
David Goeckeler: Yeah, so I think this is a very good example of the amount of innovation that's going on and being driven out of data center, kind of what I was referring to before. So, you're right. The, you know, what we call the compute focus, the TLC high performance drive is what's been driving the portfolio at this point. As I said, we just saw 64% sequential growth, so we continue to see, you know, really strong pull for those high performance products. As I said, we're, you know, we feel like we're extremely well positioned as we start to migrate those to BiCS8. But there's a whole bunch of new innovation going on, as you said. There's, you know...
David Goeckeler: Yeah, so I think this is a very good example of the amount of innovation that's going on and being driven out of data center, kind of what I was referring to before. So, you're right. The, you know, what we call the compute focus, the TLC high performance drive is what's been driving the portfolio at this point. As I said, we just saw 64% sequential growth, so we continue to see, you know, really strong pull for those high performance products. As I said, we're, you know, we feel like we're extremely well positioned as we start to migrate those to BiCS8. But there's a whole bunch of new innovation going on, as you said. There's, you know...
Speaker #6: So you’re right. What we call the compute-focused, the TLC high-performance drive, is what’s been driving the portfolio at this point. As I said, we just saw a 64% sequential growth.
Speaker #6: So we continue to see really strong pull for those high-performance products. As I said, we're we feel like we're extremely well-positioned as we start to migrate those to BICS 8.
Speaker #6: But there's a whole bunch of new innovation going on, as you said. There's I think the innovation engine is alive and well across the whole industry, which is how are we going to satisfy the demands for the storage of AI?
David Goeckeler: I think the innovation engine is alive and well across the whole industry, which is, how are we gonna satisfy the demands for the storage of AI? Models get bigger, more tokens get generated, caches get bigger. You know, this is naturally a thing where you start to think about NAND and its tremendous scaling properties. And you're right, there's a lot of innovation there. There's the high IOPS Enterprise SSD, which is, of course, something you could imagine we're working on. You know, we had our own ideas about this two years ago, and we talked about it at our investor day, that we believe that, you know, there was a chance to rearchitect NAND to bring it into AI. We trademarked that High Bandwidth Flash.
I think the innovation engine is alive and well across the whole industry, which is, how are we gonna satisfy the demands for the storage of AI? Models get bigger, more tokens get generated, caches get bigger. You know, this is naturally a thing where you start to think about NAND and its tremendous scaling properties. And you're right, there's a lot of innovation there. There's the high IOPS Enterprise SSD, which is, of course, something you could imagine we're working on. You know, we had our own ideas about this two years ago, and we talked about it at our investor day, that we believe that, you know, there was a chance to rearchitect NAND to bring it into AI. We trademarked that High Bandwidth Flash.
Speaker #6: Models get bigger, more tokens get generated, caches get bigger. This is naturally a thing where you start to think about NAND and its tremendous scaling properties.
Speaker #6: And you're right. There's a lot of innovation there. There's the high-ops enterprise SSD, which is, of course, something you could imagine we're working on.
Speaker #6: We had our own ideas about this two years ago, and we talked about it at our Investor Day. We believe that there was a chance to re-architect NAND to bring it into AI.
Speaker #6: We trademarked that high-bandwidth flash. I think over the last year, that's become a more recognized path forward, and there's now lots of folks working on that.
David Goeckeler: I think over the last year, that's become a more recognized path forward. And, you know, there's now lots of folks working on that, and we continue to work on it. By the way, we're very, very happy with the progress. We're deep in conversations with customers on use cases. We're designing the NAND die. We're building the controller, so that continues to go forward. Obviously, we'll have more to say about it, you know, as we go forward and plans firm up. But, you know, I think all of this is just an example of there is just tremendous opportunity for innovation as the AI architecture continues to scale. And, you know, it's just incredibly exciting that we are just in the very early innings of driving this technology and scaling it around the globe.
I think over the last year, that's become a more recognized path forward. And, you know, there's now lots of folks working on that, and we continue to work on it. By the way, we're very, very happy with the progress. We're deep in conversations with customers on use cases. We're designing the NAND die. We're building the controller, so that continues to go forward. Obviously, we'll have more to say about it, you know, as we go forward and plans firm up. But, you know, I think all of this is just an example of there is just tremendous opportunity for innovation as the AI architecture continues to scale. And, you know, it's just incredibly exciting that we are just in the very early innings of driving this technology and scaling it around the globe.
Speaker #6: And we continue to work on it, by the way. We're very happy with the progress. We're deep in conversations with customers on use cases.
Speaker #6: We're designing the NAND die. We're building the controllers so that continues to go forward. Obviously, we'll have more to say about it. As we go forward and plans firm up.
Speaker #6: But I think all of this is just an example of how there is just tremendous opportunity for innovation as the AI architecture continues to scale.
Speaker #6: And it's just incredibly exciting that we are just in the very early innings of driving this technology and scaling it around the globe. And we have the industry—the technology industry, maybe writ large—is incredibly well-positioned to do that.
David Goeckeler: And we have, you know, the industry, you know, the technology industry, it may be writ large, is, like, incredibly well positioned to do that. There's some of the most largest, most capable technology companies in history. They're obviously putting an enormous amount of resources about how, about how they drive this technology and scale it around the world, at a, at a very rapid pace, and I think that is incredibly exciting. I think this is gonna go on. I think we're super early in this, and I think this is gonna go on for a very long time.
And we have, you know, the industry, you know, the technology industry, it may be writ large, is, like, incredibly well positioned to do that. There's some of the most largest, most capable technology companies in history. They're obviously putting an enormous amount of resources about how, about how they drive this technology and scale it around the world, at a, at a very rapid pace, and I think that is incredibly exciting. I think this is gonna go on. I think we're super early in this, and I think this is gonna go on for a very long time.
Speaker #6: There are some of the largest, most capable technology companies in history that are obviously putting an enormous amount of resources into how they drive this technology and scale it around the world at a very rapid pace.
Speaker #6: And I think that is incredibly exciting. I think this is going to go on. I think we're super early in this, and I think this is going to go on for a very long time.
Speaker #4: The next question will come from Aaron Rakers with Wells Fargo. Please go ahead.
Operator: The next question will come from Aaron Rakers with Wells Fargo. Please go ahead.
Operator: The next question will come from Aaron Rakers with Wells Fargo. Please go ahead.
Speaker #8: Hi, guys. Thank you. This is Michael Fednoff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet?
Luis Visoso: Hi, guys. Thank you. This is Michael Sednoff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet? And if so, have partial or full prepayments been a part of, I guess, any finalized agreements, or is that something that we should expect moving forward? I know you kind of alluded to it. Yeah, we've signed and closed one agreement so far. We're not disclosing the terms. There was a prepayment component of it, which we think is important in this type of agreement. But that's what I would say, Michael. So we have one and several in the queue.
[Analyst] (Wells Fargo): Hi, guys. Thank you. This is Michael Sednoff on behalf of Aaron. I wanted to go back to the LTA discussion. Have you guys finalized any of these agreements yet? And if so, have partial or full prepayments been a part of, I guess, any finalized agreements, or is that something that we should expect moving forward? I know you kind of alluded to it.
Speaker #8: And if so, have partial or full prepayments been a part of, I guess, any finalized agreements? Or is that something that we should expect moving forward?
Speaker #8: I know you kind of alluded to
Speaker #8: it. Yeah.
Luis Visoso: Yeah, we've signed and closed one agreement so far. We're not disclosing the terms. There was a prepayment component of it, which we think is important in this type of agreement. But that's what I would say, Michael. So we have one and several in the queue.
Speaker #2: We've signed and closed one agreement so far. We're not disclosing the terms. There was a prepayment component of it, which we think is important in this type of agreement.
Speaker #2: But that's what I would say, Michael. So, we have one, and several in the queue.
Speaker #4: The next question will come from Asiya Merchant with Citigroup. Please go ahead.
Operator: The next question will come from Asiya Merchant with Citigroup. Please go ahead.
Operator: The next question will come from Asiya Merchant with Citigroup. Please go ahead.
Speaker #9: Great, thanks for taking my question, and great results here. David, last quarter I think you shared some thoughts on how you thought about the edge market—PC, smartphones, and even the consumer market.
[Analyst] (BNP Paribas): Great. Thanks for taking my question, and great results here.
Asiya Merchant: Great. Thanks for taking my question, and great results here.
Luis Visoso: Thank you, Asiya.
David Goeckeler: Thank you, Asiya.
[Analyst] (BNP Paribas): Maybe last quarter, I think you shared some thoughts on how you thought about the edge market, PCs, smartphones, maybe even the consumer market. Just given the fact that, you know, memory's on allocation, people are talking about PC and smartphone units being down, just how you're thinking about and what signals your customers, your OEM customers, are providing to you regarding those markets, and how that changes kind of your demand outlook through probably the back half of 2026 and into 2027. And if I can squeeze one in for Luis as well, you know, structurally, NAND is going through this dynamic where, you know, obviously highly strategic product. How are you thinking about your
Asiya Merchant: Maybe last quarter, I think you shared some thoughts on how you thought about the edge market, PCs, smartphones, maybe even the consumer market. Just given the fact that, you know, memory's on allocation, people are talking about PC and smartphone units being down, just how you're thinking about and what signals your customers, your OEM customers, are providing to you regarding those markets, and how that changes kind of your demand outlook through probably the back half of 2026 and into 2027. And if I can squeeze one in for Luis as well, you know, structurally, NAND is going through this dynamic where, you know, obviously highly strategic product. How are you thinking about your true cycle margins, gross margins, seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally? Thank you.
Speaker #9: Just given the fact that, on memories and allocation, people are talking about PC and smartphone units being down, just how you're thinking about it, and what signals your customers—your OEM customers—are providing to you regarding those markets and how that changes your demand outlook through probably the back half of '26 and into '27?
Speaker #9: And if I can squeeze one in for Luis as well. Structurally, NAND is going through this dynamic where obviously highly strategic product, how are you thinking about your true cycle margins, gross margins?
[Analyst] (Barclays): ... true cycle margins, gross margins, seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally? Thank you.
Speaker #9: Seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here?
Speaker #9: Seems like that was quite a long time ago when you were hitting those levels. But how are you thinking about gross margins here structurally?
Speaker #9: Thank you.
Speaker #6: Okay.
David Goeckeler: Okay. Thanks, Alicia. So look, a couple of thoughts on this. So first of all, on the consumer market, I'm like, I think we're very happy with where the consumer portfolio is. As I said, we just turned in over 50% year-over-year growth. I think the work we're doing there on how we're thinking about the branding, the innovation, the portfolio, you know, that's been a long-term market for us. It will be a long-term market for us. We think we're able to drive value there with the value of the SanDisk brand. So, you know, we think that's a great business, and will continue to be, and we'll continue to invest in it. You know, in some of the other markets, like, you know, look, I think this is one of the thing...
David Goeckeler: Okay. Thanks, Asiya. So look, a couple of thoughts on this. So first of all, on the consumer market, I'm like, I think we're very happy with where the consumer portfolio is. As I said, we just turned in over 50% year-over-year growth. I think the work we're doing there on how we're thinking about the branding, the innovation, the portfolio, you know, that's been a long-term market for us. It will be a long-term market for us. We think we're able to drive value there with the value of the SanDisk brand. So, you know, we think that's a great business, and will continue to be, and we'll continue to invest in it. You know, in some of the other markets, like, you know, look, I think this is one of the thing...
Speaker #6: Thanks, Asiya. So, look, a couple of thoughts on this. So, first of all, on the consumer market, I'm like, I think we're very happy with where the consumer portfolio is, as I said.
Speaker #6: We just turned in over 50% year-over-year growth. I think the work we're doing there on how we're thinking about the branding, the innovation, the portfolio—that's been a long-term market for us.
Speaker #6: It will be a long-term market for us. We think we're able to drive value there with the value of the SanDisk brand. So we think that's a great business, and we'll continue to be, and we'll continue to invest in it.
Speaker #6: In some of the other markets, look, I think this is one of the things—I was looking at the numbers, obviously, as we were preparing.
David Goeckeler: Yeah, I was looking at the numbers, obviously, as we were preparing. Just look at 2026; we've got PCs at 285 million units. I don't think anybody would have picked that number at the beginning of the year. So just a continued very strong results in these markets, in unit growth, content growth across those markets. So look, as we go into 2026 or we're in 2026 now, we're gonna see some base effects of that, of some declines in units. You know, I think we're still getting very strong signals from our customers in those markets of wanting supply. I mean, very strong signals on a continuous basis, and we're working with them as closely as we can.
Yeah, I was looking at the numbers, obviously, as we were preparing. Just look at 2026; we've got PCs at 285 million units. I don't think anybody would have picked that number at the beginning of the year. So just a continued very strong results in these markets, in unit growth, content growth across those markets. So look, as we go into 2026 or we're in 2026 now, we're gonna see some base effects of that, of some declines in units. You know, I think we're still getting very strong signals from our customers in those markets of wanting supply. I mean, very strong signals on a continuous basis, and we're working with them as closely as we can.
Speaker #6: Just look at '26. We've got PCs at $285 million units. I don't think we would have anybody would have picked that number at the beginning of the year.
Speaker #6: So just continued very strong results. In these markets, in UniGrowth, content growth across those markets. So, look, as we go into ’26—or we’re in ’26 now—we’re going to see some base effects of that, of some declines in units.
Speaker #6: I think we're still getting very strong signals from our customers in those markets of wanting supply. I mean, very strong signals on a continuous basis.
Speaker #6: And we're working with them as closely as we can, I think, in this period of the market. It's extremely important to stay close to our customers.
David Goeckeler: I think in this period of the market, it's extremely important to stay close to our customers, and we're doing that. But you're gonna get some base effects there on units. I mean, there's been a lot of discussion on mix in the market. I just think that's normally how this market works. Of course, configurations are gonna change as components change. We quite frankly, we saw it in 2023. You know, all of a sudden, component mix went way up because prices went way down, and all of a sudden, the 1 TB drive became quite inexpensive, and all of a sudden, it started showing up everywhere. And as the market goes a little bit in the other direction, you're gonna see that change. I think that's just a natural way this market works.
I think in this period of the market, it's extremely important to stay close to our customers, and we're doing that. But you're gonna get some base effects there on units. I mean, there's been a lot of discussion on mix in the market. I just think that's normally how this market works. Of course, configurations are gonna change as components change. We quite frankly, we saw it in 2023. You know, all of a sudden, component mix went way up because prices went way down, and all of a sudden, the 1 TB drive became quite inexpensive, and all of a sudden, it started showing up everywhere. And as the market goes a little bit in the other direction, you're gonna see that change. I think that's just a natural way this market works.
Speaker #6: And we're doing that. But you're going to get some base effects there on units. I mean, there's been a lot of discussion on mix in the market.
Speaker #6: I just think that's normally how this market works. Of course, configurations are going to change as components change. Quite frankly, we saw it in '23.
Speaker #6: All of a sudden, component mix went way up because prices went way down. And all of a sudden, the one-terabyte drive became quite inexpensive.
Speaker #6: And all of a sudden, it started showing up everywhere. And as the market goes a little bit in the other direction, you're going to see that change.
Speaker #6: I think that's just a natural way this market works. I don't think it's something to be overly concerned about. So, those are still strong markets.
David Goeckeler: I don't think it's something to be overly concerned about. So those are still strong markets. Customer relationships are very good. You know, I expect us to still be heavily engaged in those markets. We've had a strong edge presence for a long time, and we'll, we'll continue that. You know, just big picture, this is one of the reasons why I think this business is so valuable, is because we just play across every single device, every single piece of technology touches—we touch, we touch it or sell NAND into it. Now with, you know, just the AI deployments in the cloud, and that market becoming the largest market in NAND, is just changing the dynamics the way this whole, whole industry works.
I don't think it's something to be overly concerned about. So those are still strong markets. Customer relationships are very good. You know, I expect us to still be heavily engaged in those markets. We've had a strong edge presence for a long time, and we'll, we'll continue that. You know, just big picture, this is one of the reasons why I think this business is so valuable, is because we just play across every single device, every single piece of technology touches—we touch, we touch it or sell NAND into it. Now with, you know, just the AI deployments in the cloud, and that market becoming the largest market in NAND, is just changing the dynamics the way this whole, whole industry works.
Speaker #6: Customer relationships are very good. I expect us to still be heavily engaged in those markets. We've had a strong edge presence for a long time, and we'll continue that.
Speaker #6: And just big picture, this is one of the reasons why I think this business is so valuable is because we just play across every single device every single piece of technology touches we touch it or sell NAND into it.
Speaker #6: And now, with just the AI deployments in the cloud, and that market becoming the largest market in NAND, it's just changing the dynamics—the way this whole industry works.
Speaker #6: And as we said in the prepared remarks, we've invested an enormous amount in R&D over the last 25 years to get to where we are.
David Goeckeler: And as we said in the prepared remarks, you know, we've been-- we've invested an enormous amount of R&D over the last 25 years to get to where we are, and we've invested an enormous amount of capital to get to where we are, that we can manufacture all this front-end and back end. And I think we're finally starting to get to the point where the value of that intellectual property, the value of that intensity, is being recognized in our own results.
And as we said in the prepared remarks, you know, we've been-- we've invested an enormous amount of R&D over the last 25 years to get to where we are, and we've invested an enormous amount of capital to get to where we are, that we can manufacture all this front-end and back end. And I think we're finally starting to get to the point where the value of that intellectual property, the value of that intensity, is being recognized in our own results.
Speaker #6: And we've invested an enormous amount of capital to get to where we are that we can manufacture all this front-end and back-end. And I think we're finally starting to get to the point where the value of that intellectual property, the value of that intensity is being recognized in our own
Speaker #6: results. Yeah.
Luis Visoso: Yeah. Yeah, and I think the way I would answer your question about, you know, through cycle margins is similar to what, where David left it, which is in a high CapEx, high R&D industry or company. Frankly, 35 is, is not, is not where we would like to be, right? So we're not gonna give you a new number today, but, but clearly, that's, that's not where we wanna be. What I'll tell you is this is the first quarter, right, fifth that we are above 35%. With 51, we're guiding, call it midpoint of 66. So we're making progress, and, and we're getting to a place where we believe we can justify the CapEx, we can justify the investments in R&D that the business requires.
Luis Visoso: Yeah. Yeah, and I think the way I would answer your question about, you know, through cycle margins is similar to what, where David left it, which is in a high CapEx, high R&D industry or company. Frankly, 35 is, is not, is not where we would like to be, right? So we're not gonna give you a new number today, but, but clearly, that's, that's not where we wanna be. What I'll tell you is this is the first quarter, right, fifth that we are above 35%. With 51, we're guiding, call it midpoint of 66. So we're making progress, and, and we're getting to a place where we believe we can justify the CapEx, we can justify the investments in R&D that the business requires.
Speaker #2: And I think the way I would answer your question about through cycle margins is similar to what David left it, which is in a high CapEx, high R&D industry or company, frankly, 35 is not where we would like to be, right?
Speaker #2: So we're not going to give you a new number today. But clearly, that's not where we want to be. What I'll tell you is, this is the first quarter, right?
Speaker #2: That we are above 35% with 51. We're guiding, call it a midpoint of 66. So we're making progress, and we're getting to a place where we believe we can justify the CapEx.
Speaker #2: We can justify the investments in R&D that the business
Speaker #1: The next question will come from Tom O'Malley with Barclays. Please go ahead.
Operator: The next question will come from Tom O'Malley with Barclays. Please go ahead.
Operator: The next question will come from Tom O'Malley with Barclays. Please go ahead.
Speaker #1: Ahead. Hi, this is Matthew Penn on.
[Analyst] (Barclays): Hi, this is Matthew Pan on for Tom O'Malley. Just a quick one from me. Apologies if you mentioned it. Just hopping around the call. Wondering if you set the ESSD percentage of total bits in the quarter?
Matthew Pan: Hi, this is Matthew Pan on for Tom O'Malley. Just a quick one from me. Apologies if you mentioned it. Just hopping around the call. Wondering if you set the ESSD percentage of total bits in the quarter?
Speaker #7: For Tom O'Malley—just a quick one from me. Apologies if you mentioned it; I'm just hopping around on the call. Wondering if you said the ESSD percentage of total bits in the quarter?
David Goeckeler: I don't think we said that, but.
Speaker #6: I don't think we said that, but it's like in the high teens.
David Goeckeler: I don't think we said that, but.
Luis Visoso: Eighteen.
Luis Visoso: Eighteen.
David Goeckeler: You know, it's like in that high teens range.
David Goeckeler: You know, it's like in that high teens range.
Speaker #6: range. The
Luis Visoso: Yeah, high teens.
Luis Visoso: Yeah, high teens.
Operator: The next question will come from Blaine Curtis with Jefferies. Please go ahead.
Operator: The next question will come from Blaine Curtis with Jefferies. Please go ahead.
Speaker #1: next question will come from Blaine Curtis with Jefferies. Please go ahead.
Speaker #8: Hey, guys. Congrats, and thanks for squeezing me in. I just want to talk about the model. Obviously, I mean, doubling sales over two quarters—I want to just make sure I understand how you're going to handle OPEX.
[Analyst] (Barclays): Hey, guys. Congrats and thanks for squeezing me in. I just wanna talk about the model. Obviously, I mean, doubling sales over two quarters. I wanna just make sure I understand how you're gonna handle OpEx. You know, I think the percentage of revenue is now in half, right? So, are you gonna accelerate the way you look at investing in R&D? And then, you know, tax rate as well, with this just dramatically higher profitability. Is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20 at some point. Is that sooner than later?
Blayne Curtis: Hey, guys. Congrats and thanks for squeezing me in. I just wanna talk about the model. Obviously, I mean, doubling sales over two quarters. I wanna just make sure I understand how you're gonna handle OpEx. You know, I think the percentage of revenue is now in half, right? So, are you gonna accelerate the way you look at investing in R&D? And then, you know, tax rate as well, with this just dramatically higher profitability. Is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20 at some point. Is that sooner than later?
Speaker #8: I think the percentage of revenue is now in half, right? So, are you going to accelerate the way you look at investing in R&D?
Speaker #8: And then, tax rate as well—with just dramatically higher profitability, is there anything to think about in terms of the tax rate? I think you were talking about it maybe going to 20 at some point.
Speaker #8: Is that sooner than
Speaker #8: later? Yeah.
Luis Visoso: Yeah. So in terms of OpEx, the first thing you should know is about 75% of our OpEx is R&D, right? So we're. That's where we're putting our money. And why do we do that? Because this is a technology company where innovation is our lifeblood, so that's what we believe, and that's where we're putting our dollars. So you should not look at this quarter's OpEx as an indication of where we should be, because that, as I mentioned earlier, it has a non-recurring benefit. If you wanna quantify that number is around $35 million, so you can use that number for your modeling. We think OpEx should not go significantly higher from where we is today, where we believe that the run rate is healthy.
Luis Visoso: Yeah. So in terms of OpEx, the first thing you should know is about 75% of our OpEx is R&D, right? So we're. That's where we're putting our money. And why do we do that? Because this is a technology company where innovation is our lifeblood, so that's what we believe, and that's where we're putting our dollars. So you should not look at this quarter's OpEx as an indication of where we should be, because that, as I mentioned earlier, it has a non-recurring benefit. If you wanna quantify that number is around $35 million, so you can use that number for your modeling. We think OpEx should not go significantly higher from where we is today, where we believe that the run rate is healthy.
Speaker #2: So in terms of OPEX, the first thing you should know is about 75% of our OPEX is R&D. Right? So that's where we're putting our money.
Speaker #2: And why do we do that? Because this is a technology company. Where innovation is our lifeblood. So that's what we believe. And that's where we're putting our dollars.
Speaker #2: So you should not look at this quarter's OPEX as an indication of where we should be, because, as I mentioned earlier, it has a non-recurring benefit.
Speaker #2: If you want to quantify that number, it's around 35 million dollars. So you can use that number for your modeling. We think OPEX should not go significantly higher from where we are today.
Speaker #2: We believe that the run rate is healthy. We will always be looking at where we need to invest. And make sure that we fund innovation.
Luis Visoso: We will always be looking at where we need to invest and make sure that we fund innovation, but we're also on the other side, looking at efficiencies all the time, and how do we make sure that there is no waste in the system. So a long way of saying, you know, the level of spending we had last quarter, what we're getting this quarter, those are kind of more sustainable levels, for now. The tax rate is kind of interesting, right? Because we had a lot of prior year losses, particularly accumulated in Malaysia, which we, we've consumed very quickly. You know, that's what happens when you start generating profits.
We will always be looking at where we need to invest and make sure that we fund innovation, but we're also on the other side, looking at efficiencies all the time, and how do we make sure that there is no waste in the system. So a long way of saying, you know, the level of spending we had last quarter, what we're getting this quarter, those are kind of more sustainable levels, for now. The tax rate is kind of interesting, right? Because we had a lot of prior year losses, particularly accumulated in Malaysia, which we, we've consumed very quickly. You know, that's what happens when you start generating profits.
Speaker #2: But we're also on the other side looking at efficiencies all the time. And how do we make sure that there is no waste in the system?
Speaker #2: So a long way of saying the level of spending we had last quarter, what we're guiding this quarter, those are kind of more sustainable levels for now.
Speaker #2: The tax rate is kind of interesting, right? Because we had a lot of prior year losses, particularly accumulated in Malaysia, which we've consumed very quickly.
Speaker #2: That's what happens when you start generating profits. So I think you should see our tax rate to whoever around a little bit above where it is today, maybe in the 14, 15 kind of percent on an ongoing basis.
Luis Visoso: So I think you should see our tax rate to hover around a little bit above where it is today, maybe in the 14, 15 kind of % on an ongoing basis. That's what I would model for now.
So I think you should see our tax rate to hover around a little bit above where it is today, maybe in the 14, 15 kind of % on an ongoing basis. That's what I would model for now.
Speaker #2: That's what I would model for.
Speaker #2: now. This
Operator: This concludes our question and answer session. I would like to turn the conference back over to David for any closing remarks.
Operator: This concludes our question and answer session. I would like to turn the conference back over to David for any closing remarks.
Speaker #1: That concludes our question and answer session. I would like to turn the conference back over to David for any closing remarks.
Speaker #1: remarks. All right.
David Goeckeler: All right. Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank you.
David Goeckeler: All right. Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank you.
Speaker #6: Thanks, everybody, for joining us. We'll talk to you throughout the quarter. Have a great day. Thank
Speaker #6: You. The conference has now concluded.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
