Q1 2027 Sandisk Corp Earnings Call

October 29, 2026

Operator: Good afternoon, and welcome to Sandisk's Q1 fiscal year 2027 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star and then zero on your telephone keypads. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Ivan Donaldson, Vice President of Investor Relations. Please go ahead.

Operator: Good afternoon, and welcome to Sandisk's Q1 Fiscal Year 2027 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star and then zero on your telephone keypads. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Ivan Donaldson, Vice President of Investor Relations. Please go ahead.

Speaker #1: Good afternoon, and welcome to Sandisk's first quarter fiscal year 2027 earnings conference call. All participants will be in a listen-only mode, should you need assistance, please say no to a conference specialist by pressing the star and then zero on your telephone keypads.

Speaker #1: After today's presentation, there will be an opportunity to ask questions, to ask a question you may press star and then one on your telephone keypad, to withdraw your questions you may press star and two.

Speaker #1: Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Ivan Donaldson, Vice President of Investor Relations.

Speaker #1: Please go ahead.

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, our capital allocation priorities, market trends and opportunities, and our 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 the written materials posted in the investor relations section of our website. With that, I'll turn the call over to David.

Speaker #2: Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties.

Speaker #2: These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, our capital allocation priorities, market trends and opportunities, and our 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.

Ivan Donaldson: 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 the written materials posted in the Investor Relations section of our website. With that, I'll turn the call over to David.

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 the written materials posted in the Investor Relations section of our website.

Speaker #2: With that, I'll turn the call over to David.

David Goeckeler: Thanks, Ivan. Good afternoon, and thank you for joining Sandisk's fiscal Q1 2027 earnings call. We began fiscal year 2027 with another strong quarter, creating value for customers and shareholders and delivering results above guidance. Our strategy is working, and our execution is delivering strong results. Revenue for the quarter was $11 billion. Non-GAAP gross margin was 85.1%, and non-GAAP earnings per share was $49.51. We generated $5.7 billion of adjusted free cash flow and returned $5 billion to shareholders through share repurchases. Our confidence in the long-term trajectory of the business is grounded in three enduring strengths: technology leadership, deep customer partnerships, and disciplined financial management. These strengths are reinforced by a structural increase in NAND demand, driven particularly by AI and by customer signals now extending beyond fiscal year 2030 through our new business model, our NBM partnerships.

Speaker #3: Thanks, Ivan. Good afternoon, and thank you for joining Sandisk's fiscal first quarter 2027 earnings call. We began fiscal year 2027 with another strong quarter.

Speaker #3: Creating value for customers and shareholders and delivering results above guidance. Our strategy is working, and our execution is delivering strong results. Revenue for the quarter was $11 billion, non-GAAP gross margin was 85.1%, and non-GAAP earnings per share was $49.51.

Speaker #3: We generated $5.7 billion of adjusted free cash flow and returned $5 billion to shareholders through share repurchases. Our confidence in the long-term trajectory of the business is grounded in three enduring strengths: technology leadership, deep customer partnerships, and disciplined financial management.

David Goeckeler: Our confidence in the long-term trajectory of the business is grounded in three enduring strengths: technology leadership, deep customer partnerships, and disciplined financial management. These strengths are reinforced by a structural increase in NAND demand, driven particularly by AI and by customer signals now extending beyond fiscal year 2030 through our new business model, our NBM partnerships.

Speaker #3: These strengths are reinforced by a structural increase in NAND demand driven particularly by AI and by customer signals now extending beyond fiscal year 2030 through our new business model, our NBM partnerships.

David Goeckeler: Together, they position us to invest with confidence in our technology roadmap, strengthen and expand our customer relationships, and deliver growing and durable free cash flow while returning capital to shareholders. It starts with our technology leadership. BiCS8 is the backbone of our current production portfolio in the industry benchmark for performance and density across TLC and QLC. BiCS8 introduced our CMOS directly bonded to array, our CBA architecture, enabling the performance required by AI data center customers in establishing the framework for future generations. BiCS9 pairs the proven BiCS8 cell array with next generation CMOS, significantly increasing interface performance while retaining a mature memory architecture. BiCS10 advances the full node architecture across both TLC and QLC with a 1 terabit TLC die designed for performance intensive workloads, and a 2 terabit QLC die delivering industry leading density and twice the read and write bandwidth of BiCS8.

Speaker #3: Together, they position us to invest with confidence in our technology roadmap, strengthen and expand our customer relationships, and deliver growing and durable free cash flow, while returning capital to shareholders.

Speaker #3: It starts with our technology leadership. Bixate is the backbone of our current production portfolio and the industry benchmark for performance and density across TLC and QLC.

Speaker #3: Bixate introduced our CMOS directly bonded to array, our CBA architecture. Enabling the performance required by AI data center customers, and establishing the framework for future generations.

David Goeckeler: BiCS9 pairs the proven BiCS8 cell array with next generation CMOS, significantly increasing interface performance while retaining a mature memory architecture. BiCS10 advances the full node architecture across both TLC and QLC with a 1 terabit TLC die designed for performance intensive workloads, and a 2 terabit QLC die delivering industry leading density and twice the read and write bandwidth of BiCS8.

Speaker #3: Bix9 pairs the proven Bixate cell array with next-generation CMOS, significantly increasing interface performance while retaining a mature memory architecture. Bix10 advances the full node architecture across both TLC and QLC, with a 1-terabit TLC die designed for performance-intensive workloads and a 2-terabit QLC die delivering industry-leading density and twice the read and write bandwidth of Bix8.

David Goeckeler: Together, these technologies will extend the BiCS8 foundation to meet the evolving performance and capacity requirements of next generation infrastructure. Beyond the core roadmap, High Bandwidth Flash, or HBF, reached an important milestone in the fiscal Q1 with the tapeout of our first HBF memory die, with fabrication now underway. As we outlined at Investor Day, HBF is a new memory architecture for inference that targets HBM class read bandwidth with substantially greater capacity to support larger models, longer context lengths, and growing KV caches. It is designed to complement HBM by bringing NAND class capacity closer to the processor, and we remain on track to deliver samples of our first HBF based products next calendar year. HBF remains a future innovation and is not included in the long term financial model we introduced at Investor Day.

Speaker #3: Together, these technologies will extend the Bix8 foundation to meet the evolving performance and capacity requirements of next-generation infrastructure. Beyond the core roadmap, high-bandwidth Flash, or HBF, reached an important milestone in the fiscal first quarter with a tape-out of our first HBF memory dye.

Speaker #3: With fabrication now underway, as we outlined at Investor Day, HBF is a new memory architecture for inference that targets HBM-class read bandwidth, with substantially greater capacity to support larger models, longer context lengths, and growing KB caches.

Speaker #3: It is designed to complement HBM by bringing NAND-class capacity closer to the processor, and we remain on track to deliver samples of our first HBF-based products next calendar year.

Speaker #3: HBF remains a future innovation and is not included in the long-term financial model we introduced at investor day, as customer adoption, product requirements, and manufacturing readiness become more clearly defined; we expect to provide further perspective on the market opportunity.

David Goeckeler: As customer adoption, product requirements, and manufacturing readiness become more clearly defined, we expect to provide further perspective on the market opportunity. Customers recognize the strength of our innovation and increasingly view Sandisk as an important partner in achieving their growth objectives. Through our NBMs, we continue to evolve customer relationships into long-term partnerships grounded in innovation, collaboration, and shared commitment. Our most recent customers engagements with the world's leading AI companies indicate further upside in demand for our technology. Our market leading technology, product portfolio, and customer partnerships are the backbone of our strong financial position, which allows us to reinvest to maintain our technology leadership and expand supply through R&D focused CapEx. Each of these strengths is reinforced by tailwinds from AI. The need for scalable memory and storage is expanding as inference workloads grow, making NAND increasingly integral to AI infrastructure.

Speaker #3: Customers recognize the strength of our innovation and increasingly view Sandisk as an important partner in achieving their growth objectives. Through our NBMs, we continue to evolve customer relationships into long-term partnerships grounded in innovation, collaboration, and shared commitment.

Speaker #3: Our most recent customer engagements with the world's leading AI companies indicate further upside in demand for our technology. Our market-leading technology product portfolio and customer partnerships are the backbone of our strong financial position, which allows us to reinvest to maintain our technology leadership and expand supply through R&D-focused CapEx.

David Goeckeler: Our market leading technology, product portfolio, and customer partnerships are the backbone of our strong financial position, which allows us to reinvest to maintain our technology leadership and expand supply through R&D focused CapEx. Each of these strengths is reinforced by tailwinds from AI. The need for scalable memory and storage is expanding as inference workloads grow, making NAND increasingly integral to AI infrastructure.

Speaker #3: Each of these strengths is reinforced by tailwinds from AI. The need for scalable memory and storage is expanding as inference workloads grow, making NAND increasingly integral to AI infrastructure.

David Goeckeler: During inference, each generated token must reference the context that precedes it, creating a growing KV cache that serves as the model's working memory. Longer prompts, more complex reasoning, multimodal inputs, and persistent user context materially increase these storage requirements. HBM and DRAM support the highest performance tier, while flash provides the capacity required to retain broader context efficiently and avoid costly recomputation. We believe this is a secular dynamic that is expanding NAND's role across the AI stack. The memory hierarchy defines the role of each NAND architecture. TLC provides the lower latency, higher write performance, and greater endurance required for active datasets, checkpointing, and latency sensitive KV cache workloads. In our AI lab comparison, we presented at Investor Day, systems utilizing SSD delivered approximately three times the token throughput while using approximately 75% less energy than comparable systems relying on volatile memory alone.

Speaker #3: During inference, each generated token must reference the context that precedes it, creating a growing KB cache that serves as the model's working memory. Longer prompts, more complex reasoning, multimodal inputs, and persistent user context materially increase these storage requirements.

Speaker #3: HBM and DRAM support the highest performance tier, while Flash provides the capacity required to retain broader context efficiently and avoid costly recomputation. We believe this is a secular dynamic that is expanding NAND's role across the AI stack.

David Goeckeler: The memory hierarchy defines the role of each NAND architecture. TLC provides the lower latency, higher write performance, and greater endurance required for active datasets, checkpointing, and latency sensitive KV cache workloads. In our AI lab comparison, we presented at Investor Day, systems utilizing SSD delivered approximately three times the token throughput while using approximately 75% less energy than comparable systems relying on volatile memory alone.

Speaker #3: The memory hierarchy defines the role of each NAND architecture. TLC provides the lower latency, higher write performance, and greater endurance required for active datasets, checkpointing, and latency-sensitive KB cache workloads.

Speaker #3: In our AI lab comparison, we presented an investor day. Systems utilizing SSD delivered approximately three times the token throughput, while using approximately 75% less energy than comparable systems relying on volatile memory alone.

David Goeckeler: QLC further increases storage density for capacity intensive applications such as data lakes, vector databases that power AI search, and retrieval repositories. Between these layers, a growing persistent context tier establishes data to be retained and recalled rather than regenerated. As inference costs decline, we expect the adoption and usage to expand, supporting our view that KV cache will represent approximately one third of the AI data center flash market by the end of the decade, and that the AI data center opportunity will approach the size of the NAND industry today. Turning to our end markets. In Data Center, our portfolio addresses the full range of AI infrastructure requirements, from performance-intensive enterprise SSDs to high-capacity platforms. Demand remains strong and continues to grow, and we estimate that Data Center has expanded from approximately 20% of industry bits early in the decade to roughly half of the industry bits today.

Speaker #3: QLC further increases storage density for capacity-intensive applications such as data lakes, vector databases that power AI search, and retrieval repositories. Between these layers, a growing, persistent context tier establishes data to be retained and recalled rather than regenerated.

Speaker #3: As inference costs decline, we expect adoption and usage to expand, supporting our view that KB cache will represent approximately one-third of the AI data center Flash market by the end of the decade. We also expect that the AI data center opportunity will approach the size of the NAND industry today.

David Goeckeler: Turning to our end markets. In Data Center, our portfolio addresses the full range of AI infrastructure requirements, from performance-intensive enterprise SSDs to high-capacity platforms. Demand remains strong and continues to grow, and we estimate that Data Center has expanded from approximately 20% of industry bits early in the decade to roughly half of the industry bits today.

Speaker #3: Turning to our end markets. In data center, our portfolio addresses the full range of AI infrastructure requirements, from performance-intensive enterprise SSDs to high-capacity platforms.

Speaker #3: Demand remains strong and continues to grow, and we estimate that data center has expanded from approximately 20% of industry bids early in the decade to roughly half of the industry bids today.

David Goeckeler: This structural shift in customer mix is reshaping industry economics and is central to the transformation underway at Sandisk. This quarter, Data Center again delivered strong growth and continued to outpace the broader market as we allocated more supply to address the growing demand from this end market. Edge is a large and strategically important market for Sandisk, spanning smartphones, PCs, automotive, tablets, and an expanding range of physical AI applications. Automotive is becoming an increasingly important growth vector in our Edge business and a meaningful long-term growth opportunity. We have deepening engagements with leading customers, reinforcing our confidence that automotive can become one of the largest markets within Edge over time. Our consumer business remains a differentiated strategic asset, combining direct brand engagement with hundreds of millions of end users and broad shelf presence across the world's leading channel partners.

Speaker #3: This structural shift in customer mix is reshaping industry economics and is central to the transformation underway at Sandisk. This quarter, data center again delivered strong growth and continued to outpace the broader market as we allocated more supply to address the growing demand from this end market.

Speaker #3: Edge is a large and strategically important market for SanDisk, spanning smartphones, PCs, automotive, tablets, and an expanding range of physical AI applications. Automotive is becoming an increasingly important growth vector in our edge business and a meaningful long-term growth opportunity.

David Goeckeler: Automotive is becoming an increasingly important growth vector in our Edge business and a meaningful long-term growth opportunity. We have deepening engagements with leading customers, reinforcing our confidence that automotive can become one of the largest markets within Edge over time. Our consumer business remains a differentiated strategic asset, combining direct brand engagement with hundreds of millions of end users and broad shelf presence across the world's leading channel partners.

Speaker #3: We have deepening engagements with leading customers, reinforcing our confidence that automotive can become one of the largest markets within edge over time. Our consumer business remains a differentiated strategic asset, combining direct brand engagement with hundreds of millions of end users and broad shelf presence across the world’s leading channel partners.

David Goeckeler: The consumer end market provides a durable foundation for our business, while its direct connection to the market informs product development and provides early insight into shifts in end user demand. Taken together, these results reinforce the durability of the model we outlined at our Investor Day. We have established a strong level of profitability and cash generation, and our focus from here is consistent execution across the portfolio. With that, I'll turn the call over to Luis for a detailed update on our business and outlook.

Speaker #3: The consumer end market provides a durable foundation for our business, while its direct connection to the market informs product development and provides early insight into shifts in end-user demand.

Speaker #3: Taken together, these results reinforce the durability of the model we outlined at our Investor Day. We have established a strong level of profitability and cash generation, and our focus from here is consistent execution across the portfolio.

Speaker #3: With that, I'll turn the call over to Luis for a detailed update on our business and outlook.

Luis Visoso: Thank you, David. We're executing the strategies and plans that we outlined at Investor Day, and we're delivering attractive financial results. In Q1, we closed two NBMs. Because both deals closed before our Q4 earnings call, we announced these partnerships on that call. We're in active conversations with existing NBM customers that are evaluating extending existing agreement and with new customers that are evaluating new NBMs. These long-term partnerships provide greater visibility into demand and financial performance, supporting a more durable financial model. We will remain patient and disciplined in selecting the right long-term partners as we define the optimal percentage of our bits that we allocate to NBMs, which is likely higher than our current levels. Revenue for Q1 was $11 billion, up 23% sequentially and 378% year over year. This compares favorably with our guidance range of $10.3 to $10.8 billion.

Speaker #1: Thank you, David. We're executing the strategy and plans that we outlined at investor day, and we're delivering attractive financial results. In the first quarter, we closed two NBMs.

Speaker #1: Because both deals closed before our fourth quarter earnings call, we announced these partnerships on that call. We're in active conversations with existing NBM customers that are evaluating extending existing customers, that are evaluating new NBMs.

Speaker #1: These long-term partnerships provide greater visibility into demand and financial performance, supporting a more durable financial model. We will remain patient and disciplined in selecting the right long-term partners as we define the optimal percentage of our bids that we allocate to NBMs, which is likely higher than our current levels.

Luis Visoso: We will remain patient and disciplined in selecting the right long-term partners as we define the optimal percentage of our bits that we allocate to NBMs, which is likely higher than our current levels. Revenue for Q1 was $11 billion, up 23% sequentially and 378% year-over-year. This compares favorably with our guidance range of $10.3 to $10.8 billion.

Speaker #1: Revenue for the first quarter was $11 billion, up 23% sequentially and 378% year-over-year. This compares favorably with our guidance range of $10.3 to $10.8 billion.

Luis Visoso: Both volume growth and higher pricing contributed to revenue growth, with approximately 60% of the increase attributable to volume growth and 40% to higher pricing. Data Center revenue was $4.8 billion, up 61% sequentially, outpacing estimated market growth for the quarter. Our leading products and strong customer partnerships, including three US hyperscalers, underpin our continued expansion in this fast-growing end market. Edge revenue was $5.8 billion, up 7% sequentially, reflecting resilience in premium and mainstream markets, partially offset by contraction at the lower end. Within Edge, we saw strong growth with automotive and IoT customers. Consumer revenue was $397 million, down 29% sequentially as the market adjusts to higher pricing. We remain committed to serving all three end markets with a diversified portfolio that optimizes our performance over time.

Speaker #1: Both volume growth and higher pricing contributed to revenue growth, with approximately 60% of the increase attributable to volume growth and 40% to higher pricing.

Speaker #1: Data center revenue was $4.8 billion, up 61% sequentially, outpacing estimated market growth for the quarter. Our leading products and strong customer partnerships, including three US hyperscalers, underpinned our continued expansion in this fast-growing end market.

Speaker #1: Edge revenue was $5.8 billion, up 7% sequentially. This reflects resilience in premium and mainstream markets, partially offset by contraction at the lower end. Within Edge, we saw strong growth with automotive and IoT customers.

Speaker #1: Consumer revenue was $397 million, down 29% sequentially as the market adjusted to higher pricing. We remain committed to serving all three end markets with a diversified portfolio that optimizes our performance over time.

Luis Visoso: Non-GAAP gross margin for Q1 was 85.1%, up from 84.6% in the prior quarter, driven by higher volumes and pricing. This compares favorably with our guidance range of 83% to 85%. Non-GAAP operating expenses were $513 million, representing 4.7% of revenue. Non-GAAP operating margin was 80.4%, compared to 79.2% in the prior quarter. Non-GAAP EPS was $49.51, up from $39.25 in the prior quarter, and $1.22 in the same quarter of the prior fiscal year. This compares favorably with our guidance range of $44 to $46. We closed the quarter with 154 million diluted shares outstanding. Key GAAP to non-GAAP reconciliation includes $91 million in stock-based compensation, representing 0.8% of revenue, and $513 million gain on equity securities, primarily attributable to our investment in Nanya. During the quarter, we repurchased approximately 3.2 million shares of our common stock for $5 billion.

Speaker #1: Non-GAAP gross margin for the first quarter was 85.1%, up from 84.6% in the prior quarter, driven by higher volumes and pricing. This compares favorably with our guidance range of 83% to 85%.

Speaker #1: Non-GAAP operating expenses were $513 million, representing 4.7% of revenue. Non-GAAP operating margin was 80.4%, compared to 79.2% in the prior quarter. Non-GAAP EPS was $49.51, up from $39.25 in the prior quarter, and $1.22 in the same quarter of the prior fiscal year.

Speaker #1: This compares favorably with our guidance range of $44 to $46. We closed the quarter with 154 million diluted shares outstanding. Key GAAP to non-GAAP reconciliation includes $91 million in stock-based compensation, representing 0.8% of revenue, and a $513 million gain on equity securities, primarily attributable to our investment in Nanya.

Speaker #1: During the quarter, we repurchased approximately $3.2 million shares of our common stock for $5 billion. Over the past two quarters, we have repurchased $6 million shares, representing approximately 4% of our total shares outstanding.

Luis Visoso: Over the past two quarters, we have repurchased 6 million shares, representing approximately 4% of our total shares outstanding. Our repurchases reflect our conviction in the long-term value of the business and our disciplined approach to capital allocation. We continue to invest appropriately in the business while returning 100% of excess cash to shareholders. Moving on to free cash flow. Cash flow from operations was $6.4 billion. Gross CapEx totaled $378 million, representing 3.4% of revenue. We expect gross capital spending to increase during the balance of the year and represent mid-single digit percentage of revenue for fiscal year 2027. During the quarter, we generated $5.7 billion in adjusted free cash flow, representing approximately 52% margin. We closed the quarter with $5.1 billion in cash and cash equivalents and no debt. Moving on to guidance.

Speaker #1: Our repurchases reflect our conviction in the long-term value of the business and our disciplined approach to capital allocation. We continue to invest appropriately in the business while returning 100% of excess cash to shareholders.

Speaker #1: Moving on to free cash flow, cash flow from operations was $6.4 billion. Gross capital expenditures totaled $378 million, representing 3.4% of revenue. We expect gross capital spending to increase during the balance of the year and represent mid-single-digit percentage of revenue for fiscal year 2027.

Speaker #1: During the quarter, we generated $5.7 billion in adjusted free cash flow, representing approximately a 52% margin. We closed the quarter with $5.1 billion in cash and cash equivalents, and no debt.

Speaker #1: Moving on to guidance, our confidence in the long-term health of the market is reinforced by the structural growth of the AI infrastructure and the expanding role of NAND across inference workloads.

Luis Visoso: Our confidence in the long-term health of the market is reinforced by the structural growth of the AI infrastructure and the expanding role of NAND across inference workloads. Before turning to our Q2 outlook, I will announce that the Sandisk board of directors has approved an eight for one stock split of the company's common stock. The additional shares are expected to be distributed on 19 November, and trading on a split adjusted basis is expected to begin on 20 November. For Q2 of fiscal year 2027, we expect revenue between $12.2 billion and $12.6 billion. We expect non-GAAP gross margin between 84.5% and 85.5%, which includes modest like for like price increases. On a pre-split basis, we expect non-GAAP EPS between $55 and $57, assuming 151 million fully diluted shares.

Speaker #1: Before turning to our second quarter outlook, I will announce that the Sandisk Board of Directors has approved an $841 stock split of the company's common stock.

Speaker #1: The additional shares are expected to be distributed on November 19 and trading on a split-adjusted basis is expected to begin on November 20. For the second quarter of fiscal year 2027, we expect revenue between $12.2 billion and $12.6 billion.

Speaker #1: We expect non-GAAP gross margin between 84.5 and 85.5%, which includes modest like-for-like price increases. On a pre-split basis, we expect non-GAAP EPS between $55 and $57, assuming $151 million fully diluted shares.

Luis Visoso: On an eight for one split adjusted basis, this equates to non-GAAP EPS between $6.88 and $7.13, assuming approximately 1,208 million fully diluted shares. For context, we expect a strong market in calendar year 2027. Data center is expected to be, again, the engine of growth and represent over 55% of the market, with bit demand growing about 40% year on year, enabled by higher AI driven capital spending. This is after more than doubling in 2026. Our NBM pipeline exceeds our supply throughout the end of the decade. With that, let me turn the call back to David.

Speaker #1: On an $8.41 split-adjusted basis, this equates to non-GAAP EPS between $6.88 and $7.13, assuming approximately 1,208 million fully diluted shares. For context, we expect a strong market in calendar year 2027.

Speaker #1: Data center is expected to be again the engine of growth and represent over 55% of the market, with bid demand growing about 40% year on year enabled by higher AI-driven capital spending.

Speaker #1: This is after more than doubling in 2026. Our NBM pipeline exceeds our supply throughout the end of the decade. With that, let me turn the call back to David.

David Goeckeler: Thank you, Luis. We continue to execute on the strategy we outlined at Investor Day, reinforcing our confidence in Sandisk's long-term trajectory. Our technology leadership, deep customer partnership, and disciplined financial management, supported by a structural increase in NAND demand driven by AI, position us to serve our customers, deliver growing and durable free cash flow, and return capital to shareholders. Over the past year, we have transformed the earnings and cash generation power of the business and established a strong foundation for durable performance. We remain focused on disciplined execution, sustained value creation, and delivering against our long-term financial objectives. With that, Ivan, let's open it up for questions.

Speaker #2: Thank you, Luis. We continue to execute on the strategy we outlined at Investor Day, reinforcing our confidence in SanDisk's long-term trajectory. Our technology leadership, deep customer partnerships, and disciplined financial management—supported by a structural increase in NAND demand driven by AI—position us to serve our customers, deliver growing and durable free cash flow, and return capital to shareholders.

Speaker #2: Over the past year, we have transformed the earnings and cash generation power of the business and established a strong foundation for durable performance. We remain focused on disciplined execution, sustained value creation, and delivering against our long-term financial objectives.

Speaker #2: With that, Ivan, let's open it up for questions.

Operator: At this time, we will begin the question and answer session. To ask a question, you may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. If at any time your question has been addressed, you would like to withdraw your question, you may press star and two. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Ben Reitzes from Melius. Please go ahead with your question.

Operator: At this time, we will begin the question-and-answer session. To ask a question, you may press star and then one on your telephone keypads. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. If at any time your question has been addressed, you would like to withdraw your question, you may press star and two. At this time, we will pause momentarily to assemble the roster. Our first question today comes from Ben Reitzes from Melius. Please go ahead with your question.

Speaker #3: At this time, we'll begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad.

Speaker #3: If you are using a speakerphone, we do ask that you please pick up the handset before pressing the keys. If at any time your question has been addressed, you would like to withdraw your question, you may press star and two.

Speaker #3: At this time, we will pause momentarily to assemble the roster. Our first question today comes from Ben Rietzes from Melius. Please go ahead with your question.

Ben Reitzes: Hey, guys. Thank you very much. I appreciate it. Hey, Dave. Wanted to ask two, if I could, one on the NBMs. You signed two before the last call, so I am just wondering if we are going to have a lot more of them, because it seems like you are already capacity constrained to agree to them. Do you mind reminding us what the bits under contract will be the next few years, if that is changed at all? I have a quick follow-up. Thanks.

Speaker #4: Hey, guys. Thank you very much. I appreciate it. Hey, Dave. One of the ask too, if I could, one on the NBMs. You signed two before the last call.

Speaker #4: So, I'm just wondering if we're going to have a lot more of them, because it seems like you're already capacity-constrained to agree to them.

Speaker #4: And then, do you mind reminding us what the bits under contract will be for the next few years, if that's changed at all? And then I have a quick follow-up.

Speaker #4: Thanks.

David Goeckeler: Yeah, I will make a few contract. Thanks, Ben. We appreciate it. Always good to hear from you. I will make a few comments on NBMs and then Luis will fill in. We have got a very strong pipeline of NBMs, and you hit on all the issues there. As the portfolio gets more subscribed and more committed, and we are at half the bits for this fiscal year and two thirds for next year, it is a fitting exercise to get the next tranche of them in there. The pipeline is very strong. I think we said last quarter, I know we said last quarter that we are going to be patient and consider the next set of customers, and that is exactly what we are doing. We expect more of them over the next several months, several quarters, as we continue to allocate the rest of the portfolio.

Speaker #2: Yeah, I'll make a few contract thanks, Ben. We appreciate it. Always good to hear from you. So I'll make a few comments on NBMs, and then Luis will fill in.

Speaker #2: Yeah, we've got a very strong pipeline of NBMs, and you kind of hit on all the issues there. As the portfolio gets more subscribed and more committed and we're at half the bits, for this fiscal year and two-thirds for next year, it's a fitting exercise to get the next tranche of them in there.

Speaker #2: But the pipeline is very strong. I think we said last quarter—I know we said last quarter—that we're going to be patient and consider the next set of customers.

David Goeckeler: I think we said last quarter, I know we said last quarter that we are going to be patient and consider the next set of customers, and that is exactly what we are doing. We expect more of them over the next several months, several quarters, as we continue to allocate the rest of the portfolio. The pipeline is very strong and growing, quite frankly, and it has become the predominant way we deal with our customers. I expect that the percent of the portfolio committed to continue to go up over the next couple of quarters. Luis?

Speaker #2: And that's exactly what we're doing. And we expect more of them over the next several months, several quarters, as we continue to allocate the rest of the portfolio.

David Goeckeler: The pipeline is very strong and growing, quite frankly, and it has become the predominant way we deal with our customers. I expect that the percent of the portfolio committed to continue to go up over the next couple of quarters. Luis?

Speaker #2: So the pipeline is very strong and growing, quite frankly, and it's become the predominant way we deal with our customers. And I expect that the percent of the portfolio committed to continue to go up over the next couple of quarters.

Speaker #2: So Luis, I'm going to.

Luis Visoso: Yeah, just a few things, because I think David covered most of it. We feel very good about where we are with the NBMs. As you know, we have been very selective, very strategic in who we chose to sign these deals with. We are looking at the companies we have, and 95% of our NBMs are with companies that are investment grade. They generated about $130 billion in operating cash flow. So we feel that we made the right choices and, as David just mentioned, we will continue to be patient, we will continue to be selective, and the pipeline is terrific. So you should expect us to continue to make progress. I think in my prepared remarks, I said that we expect the bits to continue to grow. We had shared with you that about 50% of our bits are under NBM for 2027 and about two-thirds for 2028.

Speaker #4: Yeah, I mean, just a few things, because I think David covered most of it. We feel very good about where we are with the NBMs.

Speaker #4: As you know, we've been very selective, very strategic in who we chose to sign these deals with. We're looking at the companies we have and 95% of our NBMs are with companies that are investment-grade.

Speaker #4: And they generated about $130 billion in operating cash flow. So we feel that we've made the right choices. And as David just mentioned, we'll continue to be patient.

Luis Visoso: So we feel that we made the right choices and, as David just mentioned, we will continue to be patient, we will continue to be selective, and the pipeline is terrific. So you should expect us to continue to make progress. I think in my prepared remarks, I said that we expect the bits to continue to grow. We had shared with you that about 50% of our bits are under NBM for 2027 and about two-thirds for 2028. We expect that number to continue to go a little bit higher from the two-thirds.

Speaker #4: We'll continue to be selective. And the pipeline is terrific. So you should expect us to make continue to make progress. I think in my prepared remarks, I said that we expect the bids to continue to grow, we had shared with you that about 50% of our bids are under NBM for '27, and about two-thirds for '28.

Luis Visoso: We expect that number to continue to go a little bit higher from the two-thirds.

Speaker #4: And we expect that number to continue to go a little bit higher. From the two-thirds.

David Goeckeler: Hey, Ben, I will just make one more comment. You got to ask two questions, so I will make two comments. We are also balancing customers that are coming back for more. That is a real thing. In general, we are hearing from our customers that they have underestimated the amount of NAND they need to run their infrastructure. So we have multiple customers coming back for a second round, and then balancing that against bringing new customers into the portfolio. So there is a lot to sort out, and these are big, complicated agreements, but we feel very good about where the pipeline is, where the portfolio is at. The products are resonating, and we will continue to update you as we build out the portfolio of NBMs over the next couple of quarters.

Speaker #2: Hey, Ben, I'll just make one more comment. You got to ask two questions, or I'll make two comments. We're also balancing customers that are coming back for more, like that is a real thing.

Speaker #2: And in general, we're hearing from our customers that they have underestimated the amount of NAND they need to run their infrastructure. And so we have multiple customers coming back for a second round.

Speaker #2: And then balancing that against bringing new customers into the portfolio. So there's a lot to sort out, and these are big, complicated agreements. But we feel very, very good about where the pipeline is, where the portfolio is at, the products are resonating, and we'll continue to update you as we build out the portfolio of NBMs over the next couple of quarters.

Ben Reitzes: Okay, great. Just a quick follow-up. You may have seen that Intel guided down for the next quarter due to PCs, and the impact of the memory is more than anybody thought, at least with their guidance. Don't know about anybody else. Just wondering if you are seeing NBM interest from those in the PC market more, and if that market, with regard to some of the device makers, is something that will become an NBM, or is actually now getting more attractive because they're willing to pay more? How should we think about that as it looks like they're starved for product and missing numbers in that segment?

Speaker #4: Okay, great. And just a quick follow-up. You may have saw seen that Intel guided down for the next quarter due to PCs, and it really the impact of the memory is more than anybody thought, at least with their guidance.

Speaker #4: Don't know about anybody else. Just wondering if you are seeing NBM interest from those in the PC market more, and how you if there's if that market with regard to some of the device makers, is something that will be become an NBM or is actually now getting more attractive because they're willing to pay more?

Speaker #4: How should we think about that as it looks like their star for product and missing numbers in that segment? Yeah, I mean, Ben, we have we cannot talk about specific customers.

Luis Visoso: Yeah, Ben, we cannot talk about specific customers. What we've said in the past is we do have NBMs in the data center business. It's data center centric. We also have customers on the Edge. We've offered this construct to any customer that wants it and start a process where it makes sense. We're not trying to restrict it from any customer. We're open for business.

Speaker #4: What we've said in the past is we do have NBMs in the data center business. It's data center-centric. But we also have customers on the edge.

Speaker #4: And we've offered this construct to any customer that wants it and started process where it makes sense. So we're not trying to restrict it from any customer.

Speaker #4: We're open for business.

David Goeckeler: Ben, the other thing I'll say to this, we were looking at this in our own reviews. We know that units were down this year. They're going to be slightly down next year, low single digits. These two calendar quarters right now are really the trough of the year-over-year compares, where they're the most negative. All that said, we expect the PC exabytes to grow next year. In fact, we think our internal models are every segment in the NAND market. PCs, smartphones, data center will all show positive growth next year because if content per device continues to go up, part of that is mixing to premium. There's no doubt there's been a market adjustment.

Speaker #2: So, Ben, the other thing I'll say to this—I mean, we were looking at this in our own reviews. We know that units were down this year.

Speaker #2: They're going to be slightly down next year, low single digits. I mean, these two calendar quarters right now are really the trough of the year-over-year compares, where they're the most negative.

Speaker #2: And so this is where we're seeing the greatest amount of change in that market on a unit basis. On a year-over-year basis, all that said, we expect PC exabytes to grow next year.

Speaker #2: And in fact, we think our internal models are every segment in the NAND market, PCs, smartphones, data center, will all show positive growth next year because of content per device continues to go up as part of that is mixing to premium.

Speaker #2: So there's no doubt there's been a market adjustment in many ways we're in the as I said, from a unit basis, we're in the teeth of that on a year-over-year basis.

David Goeckeler: In many ways, as I said, from a unit basis, we're in the teeth of that on a year-over-year basis, but we see improvement from here.

Speaker #2: But we see improvement from here.

Ben Reitzes: Thanks, guys.

Speaker #4: Thanks, guys.

David Goeckeler: Thank you.

Speaker #2: Thank you.

Luis Visoso: Thanks, Ben.

Speaker #4: Thanks, Ben.

Operator: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Speaker #1: Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Joe Moore: Great. Thank you. It seems like the underlying story here, in addition to just how good the market is your presence in data center. You are up almost 20x year-on-year, up 61% sequentially. Can you talk about, obviously, the market is good, but it seems like your participation is also a lot better. Is that because of BiCS8? Is that just because the market is different? Just what is it that is allowing you to get to those levels of penetration? If data center is half of bits at some point, will you get to that in your own mix as well?

Speaker #3: Great. Thank you. It seems like the underlying story here in addition to just how good the market is, is your presence in data center, you're up almost 20X year on year, up 61% sequentially.

Speaker #3: Can you talk about obviously the market's good, but it seems like your participation is also a lot better. Is that because of BIX8? Is that just because the market's different?

Speaker #3: Just what is it that's allowing you to get to those levels of penetration? And if data centers half of bits at some point, will you get to that in your own mix as well?

David Goeckeler: Yeah, Joe. Thanks for the comment. We feel very good about where we are at in data center. Anything where you see the kind of numbers we have posted year-over-year is a combination of things. It starts with the fundamental NAND node. BiCS8 is a very good node. CBA gives you very clean CMOS, which is very good interface speeds, all those kinds of things. We built the right products. We have had a TLC product in the market for several years now. It was just a couple of quarters ago that we started selling our QLC product for revenue, and we expected that to ramp, and that is happening. So we got the right product at the right time based on the right technology. Over the last quarter or so, there has been a lot more refinement of the AI inference architecture, is what I would say.

Speaker #2: Yeah, Joe, so thanks for the comment. We feel very good about where we're at in data center. I mean, anything where you see the kind of numbers we've posted year over year is a combination of things.

Speaker #2: I mean, it starts with the fundamental NAND node. BIX8 is a very good node. CBA gives you very, very clean CMOS, which is very good interface speeds, all those kinds of things.

Speaker #2: We built the right products. We've had a TLC product in the market for several years now. It was just a couple of quarters ago that we started selling our QLC product for revenue, and we expected that to ramp, and that's happening.

Speaker #2: So we got the right product at the right time. Based on the right technology. And then over the last quarter or so, there's been a lot more refinement of the AI inference architecture is what I would say.

David Goeckeler: When I look at the market, and we kind of decompose it internally, customers are just getting more refined about how they are using NAND. Where they are using TLC, where they are using QLC. All different phases, from KV cache, to staging, to fast data lakes, and all the sub-parts of those markets, inference and agent orchestration, model pre-training, model post-training. We are seeing NAND be applied in a more, I would say, nuanced way. In the past, QLC is being used in the right places, and you are even seeing QLC sub-customers even move into like KV cache where it can be supported. On the other side of the spectrum, we are seeing SLC being pulled into the architecture. It is not really in sales yet. It is more in architectural conversations, and it is not a performance type of conversation. It is more endurance. Like during agentic workloads, the amount of endurance required.

Speaker #2: When I look at the market and we kind of decompose it internally, customers are just getting more refined about how they're using NAND. Where they're using TLC, where they're using QLC, all different phases from KV cache to staging to fast data lakes and all the subparts of those markets, inference and agent orchestration, model pre-training, model post-training.

Speaker #2: There's just a general we're seeing NAND be applied in a more I would say nuanced way. In the past, QLC is being used in the right places, and you're even seeing QLC from subcustomers even move into like KV cache, where they can be supported.

David Goeckeler: In the past, QLC is being used in the right places, and you are even seeing QLC sub-customers even move into like KV cache where it can be supported. On the other side of the spectrum, we are seeing SLC being pulled into the architecture. It is not really in sales yet. It is more in architectural conversations, and it is not a performance type of conversation. It is more endurance. Like during agentic workloads, the amount of endurance required.

Speaker #2: On the other side of the spectrum, we're seeing SLC being pulled into the architecture. It's not really in sales yet; it's more in architectural conversations.

Speaker #2: And it's not a performance-type of conversation. It's more endurance, like during agentic workloads, the amount of endurance required. And in that place, it's kind of, where can we substitute NAND for DRAM?

David Goeckeler: In that place, it is kind of where can we substitute NAND for DRAM? We think those kind of architectures will be very sticky over time. Once you make that transition, you are going to stick with it, given the price differential. So we see all of these things working together, and I think these NBMs set us up for these very deep and strategic level conversations with our customers about how they are using our product. Deep discussions with our engineers about how they could use our product to solve different use cases. All of that is leading to a tremendous pull on our portfolio. Like I said, our biggest customers, we have already signed one second tranche of an NBM, and we are in discussions in others.

Speaker #2: And we think those kinds of architectures will be very sticky over time. Once you make that transition, you're going to stick with it, given the price differential.

Speaker #2: So we see all of these things working together. And I think these NBMs set us up for these very deep and strategic level conversations with our customers about how they're using our product, deep discussions with our engineers about how they could use our product to solve different use cases.

David Goeckeler: All of that is leading to a tremendous pull on our portfolio. Like I said, our biggest customers, we have already signed one second tranche of an NBM, and we are in discussions in others. The whole setup is very strong, and we feel good about it, and we appreciate your recognition of the performance on a year-over-year basis. It really is quite outstanding.

Speaker #2: And all of that is leading to a tremendous pull on our portfolio. And like I said, our biggest customers we've already signed one second tranche of an So the whole setup is very strong, and we feel good about it.

David Goeckeler: The whole setup is very strong, and we feel good about it, and we appreciate your recognition of the performance on a year-over-year basis. It really is quite outstanding.

Speaker #2: And we appreciate your recognition of the performance on a year-over-year basis. It really is quite outstanding.

Joe Moore: Yeah, it is surprising. Where do you think the mix goes long term in terms of good over half?

Speaker #3: Yeah, it is surprising. And where do you think the mix goes long-term in terms of could it over half?

David Goeckeler: Oh, yeah. We are working hard to catch up to have our portfolio mix equal what the market bits are. We are going to continue to make progress throughout calendar year 2027. We will see if we actually catch up by the end of the quarter, but I think we will get to a substantially higher number on mix than we are if we look back at fiscal year 2026. We will continue to make progress here.

Speaker #2: Oh, oh, yeah. So, yeah, we're working hard to catch up, to have our portfolio mix equal what the market bits are and we're going to continue to make progress throughout calendar year 27.

Speaker #2: We'll see if we actually catch up by the end of the quarter, but I think we'll get to a substantially higher number on mix than we are if we look back at calendar year or fiscal year 26.

Speaker #2: We'll continue to make progress here.

Joe Moore: Thank you.

Speaker #3: Thank you.

Operator: Our next question comes from Mark Newman from Bernstein. Please go ahead with your question.

Speaker #1: Our next question comes from Mark Newman from Bernstein. Please go ahead with your question.

Mark Newman: All right, thanks so much for taking the question. If I could just first of all talk about price and volume in the guidance. You talked about in the FQ1 that you just recorded, I think you said 60% of the revenue growth from volume and 40% from pricing. Baked into your guide, how do you expect that mix to progress? Any comments on pricing? Appreciate that you have a very high portion of volumes on these NBMs, but still wanted to get some clarity on pricing. I think there was a comment that modest improvements in pricing in FQ2. Any further clarity on that? Then I have a follow-on question on HBF and some of the new NAND technologies as well.

Speaker #3: All right, thanks so much for taking the question. If I could just, first of all, talk about price and volume—in the guidance, you talked about, in the fiscal Q1 that you just recorded, I think you said 60% of the revenue growth came from volume and 40% from pricing.

Speaker #3: Baked into your guide, I mean, how do you expect that mix to progress? Any comments on pricing? Appreciate that you've got a very high portion of volumes on these NBMs, but still wanted to get some clarity on pricing.

Speaker #3: I think there's a comment that modest improvements in pricing and FQ2. Any further clarity on that? And then I have a follow-on question on HBF and some of the new NAND technologies as well.

Luis Visoso: Yes, so let me take the first one. Yes, you are right. We reported about 60% of the revenue growth came from volume and 40% from pricing in Q1, roughly. We do expect both to contribute in the next quarter. We normally do not break this, Mark, into its pieces, but we do expect some modest pricing as we put in our prepared remarks. So we do expect both to contribute during the quarter, and we expect pricing to continue to increase modestly throughout the year.

Speaker #4: Yeah. So let me take the first one. Yes, you're right. We reported about 60% of the revenue growth came from volume and 40% from pricing in Q1, roughly.

Speaker #4: And we do expect both to contribute in the next quarter. We normally don't break this, Mark, into its pieces. But we do expect some modest pricing as we put in our prepared remarks.

Speaker #4: So we do expect both to contribute during the quarter. And we expect pricing to continue to increase modestly throughout the year.

Mark Newman: That is helpful. Fair enough. A follow-up question is on HBF and other new NAND technologies in the data center. So there was a comment about some progress on HBF, which was great to hear, but wondered if there is any more comments on progress and discussions with partners and customers, anything there. The other thing, Dave, you mentioned about some of the other new NAND technologies in the data center, StorageNEXT, and then there is also this CMX, context memory. Just what is your view on all these types of new NAND tiers in the data center? Do you think that they all win? Just any kind of comments on the interplay of all these and the roles for each and how Sandisk plays in them and the timing would be really appreciated. Thanks.

Speaker #3: That sounds concurrent enough. And a follow-up question is on HBF and other new NAND technologies in the data center. There was a comment about some progress on HBF, which was great to hear.

Speaker #3: But wondered if there's any more comments on progress and discussions with partners and customers, anything there. And the other thing Dave, you mentioned about some of the other new NAND technologies in the data center, storage next, and then there's also this CMX context memory.

Speaker #3: Just what's your view on all these types of new NAND tiers in the data center? Do you think that they all win? Just any kind of comments on the interplay of all these and the roles for each and how sound this plays in them and the timing would be really appreciated.

Speaker #3: Thanks.

David Goeckeler: Sure. Mark, the conversations with potential customers on HBF are robust and continue to be. We will continue to have those conversations as we go into putting product samples in their hands that they can start to use and understand how it is going to fit in their system. So we will continue to update on that, but it is an always-on conversation. Your second question, I think this is very healthy for where AI inference is, which is as it scales out, it needs to be, the architecture is just being relentlessly refined for economics. That is a very good thing because if it is going to scale, the more economic it is, the better. That is pulling NAND into more parts of the architecture because NAND is the most scalable semiconductor technology, right?

Speaker #2: Sure. So Mark, the conversations with potential customers on HBF are robust and continue to be we'll continue to have those conversations as we go into putting product samples in their hands that they can start to use and understand how it's going to fit in their system.

Speaker #2: So we'll continue to update on that, but it's kind of an always-on conversation. Your second question, I think this is very, very healthy for where AI inference is, which is as it scales out, it needs to be the architecture is just being relentlessly refined for economics.

Speaker #2: And that's a very good thing because if it's going to scale, the more economical it is, the better. And that's pulling NAND into more parts of the architecture because NAND is the most scalable semiconductor technology, right?

David Goeckeler: So like I said, we are seeing, if you would go back a couple of years ago, it was all about going for more density again, going from TLC to QLC. We are still doing that, right? That is still a big part of the strategy. But now there is some of it even going in the other direction. How do I get more endurance in specific parts of the architecture? Is the endurance and the performance I get out of NAND good enough to solve the use case at a part of the architecture where I can use it over competing technologies that may be significantly more expensive and difficult to acquire? So I would say this is a very, very dynamic discussion. There are a lot of ideas on the table. I think there should be a lot of ideas on the table.

Speaker #2: So we're seeing, like I said, we're seeing if you would go back a couple of years ago, it was all about going from more density again, going from TLC to QLC, we're still doing that, right?

Speaker #2: That's still a big part of the strategy. But now there's some of it even going in the other direction. How do I use how do I get more endurance in specific parts of the architecture?

Speaker #2: Is the endurance in the performance I get out of NAND good enough to solve the use case at a part of the architecture where I can use it over competing technologies that may be significantly more expensive and difficult to acquire?

Speaker #2: So I would say this is a very, very dynamic discussion. There's a lot of ideas on the table. I think there should be a lot of ideas on the table.

David Goeckeler: I think they will all be pursued, and I think that the most important thing is to stay close to the people that are spending the money to scale the infrastructure. Because in the end, they will make the decisions of what is right for them based on the use cases they are trying to solve at scale, and where they are putting all this money behind it. We are deeply engaged in those conversations, and I expect them to continue to be very robust and have a lot of different ideas about how we could stretch our technology in different directions to fit more and more use cases. In building a product, it is always the same thing. I want the right technology at the right time and the right intensity at the right cost, and really not anything less or anything more.

Speaker #2: I think they'll all be pursued. And I think that the most important thing is to stay close to the people that are spending the money to scale the infrastructure.

Speaker #2: Because in the end, they'll make the decisions of what's right for them, based on the use cases they're trying to solve at scale. And where they're putting all this money behind it.

Speaker #2: And we're deeply engaged in those conversations. And I expect them to continue to be very robust and have a lot of different ideas about how we could stretch our technology in different directions, to fit more and more use cases and building a product that's always the same thing.

David Goeckeler: In building a product, it is always the same thing. I want the right technology at the right time and the right intensity at the right cost, and really not anything less or anything more. That is what building a product is all about, because you can deliver it at the right price, and then you can get the right return on it. So that process is full on in AI inference architecture working with our customers.

Speaker #2: I want the right technology at the right time and the right intensity at the right cost. And really, not anything less or anything more.

David Goeckeler: That is what building a product is all about, because you can deliver it at the right price, and then you can get the right return on it. So that process is full on in AI inference architecture working with our customers.

Speaker #2: And that's what building a product that's all about, because you can deliver it at the right price and then you can get the right return on it.

Speaker #2: So that process is full on in AI inference architecture working with our customers.

Mark Newman: Fantastic. Thanks for the color.

Speaker #4: Fantastic. Thanks for the color.

David Goeckeler: Sure.

Speaker #2: Sure.

Operator: Our next question comes from David Gibson from MST Financial. Please go ahead with your question.

Speaker #1: Our next question comes from David Gibson from MST Financial. Please go ahead with your question.

David Gibson: Thanks, guys. A really great quarter.

Speaker #5: Thanks, guys. Really great quarter. Well done. I'm just curious, can you hear me? Sorry. Yeah. Just wondering if thanks very much for your time today.

David Goeckeler: Hi.

David Gibson: Well done. I am just curious. Can you hear me? Sorry.

David Goeckeler: Yes, yes. Hi, David.

David Gibson: Yeah, thanks very much for your time today. Just a quick one. Just wondering whether you are looking to accelerate the bits transition from 8 to 9, 10, so forth, as a way to accelerate the bit growth in the short term, then satisfy some of that very strong customer demand?

Speaker #5: Just a quick one. Just wondering whether you're looking to accelerate the BIX transition from 8 to 9, 10, and so forth, as a way to accelerate the bid growth in the short term?

Speaker #5: And then satisfy some of that very strong customer demand?

David Goeckeler: No, we are committed to the bit growth we talked about, mid to high teens. Those nodal transitions require a lot of planning and tool purchases and where lines are set up. So, we have that fab plan set up for the kind of bit growth we have been talking about for a long time. So, no plans to change that at this point.

Speaker #2: No. I mean, we're committed to the bid growth we talked about. Mid to high teens, those nodal transitions require a lot of planning and tool purchases and where lines are set up.

Speaker #2: So we're still we have that fab plan set up for the kind of bid growth we've been talking about for a long time. So no plans to change that at this point.

David Gibson: Okay, thank you. Just one follow-up. You talked about earlier about allocating more supply to the data center in Q1. Are there any limits to increasingly allocating your bits to data center?

Speaker #5: Okay. Thank you. Just one follow-up. You talked about earlier about allocating more supply to the data center in Q1. Are there any limits to increasingly allocating your bids to data center?

David Goeckeler: Well, in some ways, yes. Out of the fab, you come out with a certain mix of TLC, QLC, certain die mix, all these kinds of issues. So it is a constant fitting exercise of getting the right product to the right customer. And there is a lot of magic that goes on in the organization, and Luis' organization is a big part of that, working with our sales teams of what is the available inventory, what is coming out of the fab, what is the mix, and where is it all going to go. So you want to say a little bit more about that, Luis?

Speaker #2: Well, I mean, it's very in some ways, yes. I mean, out of the fab, you come out with a certain mix of TLC, QLC, certain dye mix, all these kinds of issues.

Speaker #2: So it's a constant fitting exercise of getting the right product to the right customer. And then there's a lot of magic that goes on in the organization in Luis's organization is a big part of that, working with our sales teams of what is the available inventory?

Speaker #2: What's coming out of the fab? What's the mix? And where is it all going to go? So you want to say a little bit more about that.

Luis Visoso: Yeah, I think the only thing I would add, obviously changes depending on the timeframe you are looking at. Over the short term, it is almost impossible to do anything. It takes 120 days or so to produce a wafer. But obviously as you look further out, there are more degrees of freedom.

Speaker #3: Yeah. I think the only thing I would add, obviously, changes depending on the time frame you're looking at, over the short term, it's almost impossible to do anything.

Speaker #3: It takes 120 days or so to produce a wafer. But obviously, as you look further out, there are more degrees of freedom.

David Gibson: Okay. That is great. Thanks very much.

Speaker #5: Okay. That's great. Thanks very much.

David Goeckeler: Thank you, David.

Speaker #2: Thank you, David.

Operator: Our next question comes from CJ Muse from Cantor Fitzgerald. Please go ahead with your question.

Speaker #1: Our next question comes from CJ Muse from Canterfetch Gerald. Please go ahead with your question.

CJ Muse: Yeah, good afternoon. Thank you for taking the question.

C.J. Muse: Yeah, good afternoon. Thank you for taking the question.

Speaker #6: Yeah, good afternoon. Thank you for taking the question. I have a question regarding your comment about the NVM pipeline exceeding supply through the end of the decade, as mentioned in the slide deck. Can you elaborate on that?

David Goeckeler: Sure.

CJ Muse: I guess a question on the comment around your NBM pipeline, exceeding supply through the end of the decade in the slide deck. I guess, can you elaborate on that? How is that changing your thought process around what bit supply will look like for the industry over the next handful of years? How are you adjusting, if at all, your CapEx plans? I know you talked about mid-single digits, which implies roughly $2.5 billion to $3 billion gross CapEx. Fairly low kind of numbers. So would love to hear your thoughts on how the visibility is impacting your thoughts around bit growth and supply.

C.J. Muse: I guess a question on the comment around your NBM pipeline, exceeding supply through the end of the decade in the slide deck. I guess, can you elaborate on that? How is that changing your thought process around what bit supply will look like for the industry over the next handful of years? How are you adjusting, if at all, your CapEx plans? I know you talked about mid-single digits, which implies roughly $2.5 billion to $3 billion gross CapEx. Fairly low kind of numbers. So would love to hear your thoughts on how the visibility is impacting your thoughts around bit growth and supply.

Speaker #6: And how is that changing kind of your thought process around what bits supply will look like for the industry over the next handful of years?

Speaker #6: And how are you adjusting, if at all, your capex plans? I know you talked about mid-single digits, which implies roughly two and a half to three billion gross capex.

Speaker #6: Fairly low kind of numbers. So would love to hear kind of your thoughts on how the visibility is impacting your thoughts around bid growth and supply.

David Goeckeler: Well, I think, my first thing I say about it, CJ, is the process is working. It was only two or three quarters ago, we talked about even instituting this kind of business model. We had some customers that were like-minded, and we made some very good progress. Here we are a couple quarters later, and we talked about this after our Investor Day, we had customers coming to us offering NBMs. That now becomes, it is not the only way we do business. There are lots of customers with lots of different volume levels and different products, and we want to meet our customers where they are. There is no doubt about that.

Speaker #2: Well, I mean, I think my first thing I say about it, CJ, is the process is working. I mean, it was only two or three quarters ago we talked about even instituting this kind of business model.

Speaker #2: And we had some customers that were like-minded. And we made some very good progress. And here we are a couple of quarters later and it's we talked about this after our investor day.

Speaker #2: We had customers coming to us offering NVMs and that now becomes it's not the only way we do business. There's lots of customers with lots of different volume levels and different products and we want to meet our customers where they are.

Speaker #2: There's no doubt about that. But it's very good to see that we have a robust pipeline now through the through 2030 and we're even getting beyond that as we talked about, of customers that are really willing to give us their demand signals and financial commitments.

David Goeckeler: But it is very good to see that we have a robust pipeline now through 2030, and we are even getting beyond that, as we talked about, of customers that are really willing to give us their demand signals and financial commitments. And to the question earlier, those kinds of things will allow us, if we choose to eventually start changing supply and demand and all those kinds of things. But we are just not there yet, right? We have got to go through negotiations on all of those. We have got to get commitments. We have got to get everything all aligned. But I would say that the process is working well, and we are very happy with where it is at, and it gives us a lot more visibility into how we plan. But the process is still underway, right?

Speaker #2: And to the question earlier, those kinds of things will allow us if we choose to eventually start changing supply and demand and all those kinds of things.

Speaker #2: But we're just not there yet, right? We got to go through negotiations on all of those. We've got to get commitments. We've got to we've got to get everything all aligned.

David Goeckeler: We have got to go through negotiations on all of those. We have got to get commitments. We have got to get everything all aligned. But I would say that the process is working well, and we are very happy with where it is at, and it gives us a lot more visibility into how we plan. But the process is still underway, right? It is still underway and as I said, we will continue to update you over the next couple quarters as we make progress.

Speaker #2: But I would say that the process is working well, and we're very happy with where it's at. It gives us a lot more visibility into how we plan.

Speaker #2: But the process is still underway, right? It's still underway. And as I said, we'll continue to update you over the next couple of quarters as we make progress.

David Goeckeler: It is still underway and as I said, we will continue to update you over the next couple quarters as we make progress.

CJ Muse: Just a quick follow-up to Luis. On these contracts and considering some have deposits, are you able to use those deposits for buybacks or is that cash restricted? Thanks so much.

C.J. Muse: Just a quick follow-up to Luis. On these contracts and considering some have deposits, are you able to use those deposits for buybacks or is that cash restricted? Thanks so much.

Speaker #6: Just a quick follow-up for Luis. On these contracts and considering some have deposits, are you able to use those deposits for buybacks or is that cash-restricted?

Speaker #6: Thanks so much.

Luis Visoso: Yeah, in theory, we could, CJ, but as we explained at Analyst Day, the vast majority are financial guarantees, which are held by third-party financial institutions, so they are not in my balance sheet. The only thing that is in the balance sheet is prepayments, and that is by far the smallest amount. But there is no legal restriction on that.

Speaker #4: Yeah. In theory, we could, CJ, but as we explained at analyst day, the vast majority are financial guarantees, which are held by third-party financial institutions.

Speaker #4: So they're not in my balance sheet. The only thing that's in the balance sheet is prepayments and we that's by far the smallest amount.

Speaker #4: But there is no legal restriction on that.

CJ Muse: Great. Thanks so much.

C.J. Muse: Great. Thanks so much.

Speaker #6: Great. Thanks so much.

Luis Visoso: Thank you.

David Goeckeler: Thanks, CJ.

Speaker #4: Thank you.

Speaker #5: Thanks, CJ.

Operator: Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question.

Speaker #1: Our next question comes from Carl Ackerman from BNP Paribas. Please go ahead with your question.

Karl Ackerman: Yes, thank you. It is encouraging to see increasing NAND content per XPU in AI servers to support KV cache demand, which I think compares to reductions in memory content in some server SKUs. But Dave, could you discuss how you see enterprise SSD content per server progressing in 2027 in the context of this agentic AI proliferation, because it is certainly becoming a larger portion of your portfolio?

Speaker #5: Yeah, thank you. It's encouraging to see increasing NAND content per XPU and AI servers to support KV cache demand, which I think compares to reductions in memory content in some server SKUs.

Speaker #5: But Dave, could you discuss how you see enterprise SSD content per server progressing in 2027 in the context of this agentic AI proliferation? Because it's certainly becoming a larger portion of your portfolio.

David Goeckeler: Yeah, that is a big question, Karl. Look, what we are doing is, there is no doubt in inference, in agent orchestration that our product is tied to CPU demand for those type of applications. We know at a pretty granular level the amount of demand that we expect per CPU. Something 60 to 90 gigabytes per CPU is what we see in those kind of applications. I have not run the math against what the server TAM is and what the elasticity is between those two, but we can follow up on that. But as I said earlier, we continue to see more NAND being pulled into the inference architecture in all parts of the architecture and in very different ways.

Speaker #2: Yeah. That's a big question, Carl. I mean, look, what we're doing is there's no doubt in inference and agent orchestration that our product is tied to kind of CPU demand in for those type of applications.

Speaker #2: I mean, we know at a pretty granular level the amount of demand that we expect. Per CPU, something like 60 to 90 gigabytes per CPU is what we see in those kinds of applications.

Speaker #2: I haven't run the math against what the server TAM is and kind of what the elasticity is between those two, but we can follow we can follow up on that.

Speaker #2: But as I said earlier, we continue to see more NAND being pulled into the inference architecture in all parts of the architecture. And in very different ways, right?

David Goeckeler: TLC, QLC, and as I said earlier now, people looking for high-endurance solutions that will fit parts of the workload where they do not need to use DRAM, and they can use that type of NAND. So it is all very encouraging, and we will continue to stay close, but we will do some work on the two TAM analysis and what the trade-offs are between them.

Speaker #2: TLC, QLC, and as I said earlier, now people looking for high-endurance solutions that'll fit parts of the workload where they don't need to use DRAM and they can use that type of NAND.

Speaker #2: So it's all very encouraging and we'll continue to stay close. But we'll do some work on the two TAM analysis and what the trade-offs are between them.

Karl Ackerman: Sure. If I may, a quick follow-up. Do you have an updated view or progress on your goal for enterprise SSD share? Can you achieve perhaps that low- to mid-teens share in 2027 because you are seeing quite success right now? Thank you.

Speaker #5: Sure. If I may, a quick follow-up. Do you have an updated view or progress on your goal for enterprise SSD share? I mean, can you achieve perhaps that low-to-mid-teens share in 2027?

Speaker #5: Because you're seeing quite success right now. Thank you.

David Goeckeler: Yeah. In the past, many years ago, we put some share goals out there, and I have tried very hard not to put share goals out there because sometimes it leads to perverse choices in the portfolio. We want to maximize the value of the portfolio across all time horizons, near term, mid-term, long-term, so we want to keep some balance into it. Clearly, we are going to mix higher into data center. You see that. We talked about that earlier. I think 17x growth year over year. You do not see a 17x very often in a business at this scale. As I said, I expect that to go higher as we go through 2027. The balance point, in some ways, will depend quarter by quarter what we see and then what NBMs we sign.

Speaker #2: Yeah. We've tried not I mean, in the past, like many, many years ago, we put some share goals out there and I've tried very hard not to put share goals out there because sometimes it leads to kind of perverse choices in the portfolio.

Speaker #2: We want to maximize the value of the portfolio across all time horizons, near-term, mid-term, long-term. So we want to keep some balance into it.

Speaker #2: Clearly, we're going to mix higher into data center. I mean, you see that. We talked about that earlier. I think 17x growth year over year.

David Goeckeler: I think 17x growth year-over-year. You do not see a 17x very often in a business at this scale. As I said, I expect that to go higher as we go through 2027. The balance point, in some ways, will depend quarter by quarter what we see and then what NBMs we sign. Those will give us a lot of visibility over the next several years where we see that mix going. It is going higher, but I am not going to put a specific target out there.

Speaker #2: You don't see a 17x very often in a business at this scale. And as I said, I expect that to go higher. As we go through '27, in the balance point in some ways, we'll be dependent we'll depend quarter by quarter of what we see.

Speaker #2: And then what NVMs we sign, right? Those will give us a lot of visibility over the next several years where we see that mix going.

David Goeckeler: Those will give us a lot of visibility over the next several years where we see that mix going. It is going higher, but I am not going to put a specific target out there.

Speaker #2: So it's going higher, but I'm not going to I'm not going to put a specific target out there.

Karl Ackerman: Thank you.

Speaker #5: Thank you.

Operator: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Speaker #1: Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Vijay Rakesh: Yeah. Hi, David and Luis. Just a great quarter and guide. Just a quick question. As you look at Data Center in your 2027, looks like you mentioned 40% demand bit growth, which is massive. As you look at this BiCS8, BiCS9, BiCS10 transition, do they help you drive some bits to meet that demand? How is the supply on that side, I guess? I have a quick follow-up.

Speaker #2: Yeah. Hi, Dave. And it's just a great quadrant guide. Just a quick question. As you look at data center, 2027 looks like you mentioned 40% demand bid growth, which is massive.

Speaker #2: As you look at this Big Say, Big 9, Big 10 transition, do they help you drive some bids to meet that demand? How is the supply on that side, I guess?

Speaker #2: A quick follow-up. Look, I mean, Big 8, Big 9, Big 9 is a big part of a data center strategy of being able to get faster interface speeds with the same cell and kind of what CBA gives us that flexibility we talked about that investor day.

David Goeckeler: Look, BiCS8, BiCS9. BiCS9 is a big part of a Data Center strategy of being able to get faster interface speeds with the same cell, and what CBA gives us that flexibility. We talked about that at Investor Day. So, in that sense, yeah, those are big parts of the strategy. There is no doubt about it. So, as I said earlier, it is about getting the right product to the right customer, and the TLC product has been performing very well for quite some time now, and now we are seeing the ramping of QLC. And we will see some ramp of BiCS9, but BiCS10 is still a little ways out. We announced BiCS10, but we are still ramping BiCS8. So we have got a ways to go before we get out to some of those future BiCS nodes.

Speaker #2: So, in that sense, yes, those are a big part of the strategy—there's no doubt about it. As I said earlier, it's about getting the right product to the right customer.

Speaker #2: And the TLC product has been performing very, very well for quite some time now. And now we're seeing the ramping of QLC, and we'll see some ramp of Big 9.

Speaker #2: But Big 10 is still a little ways out, right? I mean, we announced Big 10, but we're still ramping Big 8. So we've got a ways to go before we get out to some of those future Bigs nodes.

Vijay Rakesh: Got it. And then on the endurance side, as you mentioned, some of your peers are talking about SLC NAND out there. Any thoughts how that plays out next year? Obviously, that could tighten up the NAND market as well, in addition to what you are seeing in just overall demand growth, I guess. Thanks.

Speaker #2: Got it.

Speaker #3: I've been on the endurance side, as you mentioned, some of your peers and are talking about SLC NAND out there. Any thoughts how that plays out next year?

Speaker #3: Obviously, that could tighten up the NAND market as well in addition to what you're seeing in just overall demand growth, I guess. Thanks.

Speaker #2: I think, yeah, I think it's a little early to have a very strong view on that, right? We are talking to some customers that are giving us some signals of demand for SLC I mean, clearly, you start mixing SLC and you're going to take away there's a clear trade ratio of 3 to 1, 4 to 1, whether it's TLC or QLC.

David Goeckeler: Yeah. I think it is a little early to have a very strong view on that. We are talking to some customers that are giving us some signals of demand for SLC. Clearly, you start mixing SLC in, there is a clear trade ratio of 3:1, 4:1, whether it is TLC or QLC. So it will impact the overall supply in the market, depending on how much SLC is used and how much really gets deployed. But it is a little early to put a specific forecast on it. Right now, what I would say, it is an architectural discussion and a request from customers of better understanding the technology and how it could fit parts of the use case as they build out their inference architecture. So we will update you as we go over the next couple of quarters, and we will see how this develops. But definitely something to keep an eye on.

Speaker #2: So it will impact the overall supply in the market depending on how much SLC is used and how much really gets deployed. But it's a little early to put a specific forecast on it right now.

David Goeckeler: Right now, what I would say, it is an architectural discussion and a request from customers of better understanding the technology and how it could fit parts of the use case as they build out their inference architecture. So we will update you as we go over the next couple of quarters, and we will see how this develops. But definitely something to keep an eye on.

Speaker #2: What I would say, it's an architectural discussion and a request from customers of better understanding the technology and how it could fit parts of the use case as they build out their inference architecture.

Speaker #2: So we'll update you as we go over the next couple of quarters, and we'll see how this develops. But definitely something to keep an eye on.

Operator: All right. Thank you. Our next question comes from Jim Schneider from Goldman Sachs. Please go ahead with your question.

Speaker #3: All right. Thank you.

Speaker #1: Our next question comes from Jim Schneider from Goldman Sachs. Please go ahead with your question.

Jim Schneider: Good afternoon. Thanks for taking my question. I was wondering, maybe on a more tactical basis, your consumer business obviously has seasonality in Q1 historically, and obviously the PC business does too, but data center is in a sort of secular growth mode. Luis, based on your visibility at this point, I am just wondering if you could maybe give us any kind of color on whether you would expect Q1 to be sequentially up, down, or sideways, roughly.

Speaker #4: Good afternoon. Thanks for taking my question. I was wondering, maybe on a more tactical basis, your consumer business obviously has seasonality in Q1 historically. And, obviously, the PC business does too.

Speaker #4: But data center is in sort of secular growth mode. So Luis, based on your visibility at this point, I'm just wondering if you could maybe give us any kind of color on whether you'd expect Q1 to be sequentially up, down, or sideways roughly?

Luis Visoso: Fiscal Q3, you mean?

Speaker #5: So fiscal Q3, you mean?

Jim Schneider: Yes. Fiscal. The March quarter.

Speaker #4: Yes. Fiscal, the March quarter.

Luis Visoso: Yeah. So if you look at historically, our Q3 is normally our weakest sequential quarter. Last quarter, for example, our bits were down 19% sequentially. So we are not guiding Q3, but for modeling purposes, I would be conservative in your sequential growth from Q2 to Q3.

Speaker #5: Yeah. So if you look at historically, right, our Q3 is normally our weakest sequential quarter. So last quarter, for example, our bids were down 19% sequentially.

Speaker #5: So if we're not guiding Q3, but for modeling purposes, I would be conservative in your sequential growth from Q2 to Q3.

Jim Schneider: Thank you. Then just as a matter of principle on the buybacks, good to see the continued execution there. I am curious, as you start to run down the authorization, would you expect the board to re-up their authorization on a quarterly basis? Or maybe you will provide us any more color on how you are thinking about executing on the actual buybacks, given the much lower stock price today. Thank you.

Speaker #4: Thank you. And then, just as a matter of principle on the buyback, it's good to see the continued execution there. I'm sort of curious, as you start to run down the authorization, would you expect the board to re-up their authorization on a quarterly basis, or could you provide us any more color on how you're thinking about executing on the actual buybacks, given the much lower stock price today?

Speaker #4: Thank you.

David Goeckeler: Yeah. So we have a very clear strategy. 100% of excess cash is going to go back to shareholders. We are going to execute that aggressively or appropriately. We know how to get a hold of the board. We have meetings every quarter. I do not expect any impedance on that side from us about how we execute. I expect us to continue to be, we will continue to be faithful to our strategy, which is we are going to return 100% of excess cash to shareholders. We are off to a good start, I think, over the last couple of quarters.

Speaker #2: Yeah. So we have a very clear strategy, 100% of excess cash is going to go back to shareholders. We're going to execute that aggressively.

Speaker #2: Our appropriately and we know how to get a hold of the board. We have meetings every quarter. And so I don't expect any impedance on that side of the on from us about how we execute.

Speaker #2: I expect us to continue to be I don't expect us to be. We will be continue to be faithful to our strategy, which is we're going to return 100% of excess cash to shareholders.

Speaker #2: We're off to a good start, I think, over the last couple of quarters. I think we bought back 4% of the market cap, or of the shares outstanding from where we started, and we're going to continue to execute that program appropriately.

Jim Schneider: Totally.

David Goeckeler: I think we bought back 4% of the shares outstanding of where we started, and we are going to continue to execute that program appropriately.

Jim Schneider: Thank you.

Speaker #4: Thank you.

Operator: Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question.

Speaker #1: And our next question comes from Krish Sanker from TD Cowan. Please go ahead with your question.

[Analyst] (TD Cowen): Hi. Thanks so much for taking my questions. This is Steven calling on behalf of Krish.

Speaker #5: Hi, yeah. Thanks so much for taking my questions. This is Steven calling on behalf of Krish. First question I have for Dave, I guess looking at your CSP customer base, kind of wanted to get some color on what the prevailing demand currently is between TLC versus QLC bits.

David Goeckeler: Thank you.

[Analyst] (TD Cowen): First question I have for David, I guess looking at your CSP customer base, kind of wanted to get some color on what the prevailing demand currently is between TLC versus QLC bits. Going forward with the NBMs in place, does that TLC versus QLC mix shift meaningfully later this decade?

Speaker #5: And kind of going forward with the NVMs in place, does that TLC versus QLC mix shift meaningfully later this decade?

David Goeckeler: We are still at that 70/30 number on TLC to QLC. TLC has been a big driver of the portfolio. We are hearing more from our customers about a re-acceleration of QLC in different use cases, and so we will see how that plays out, as you said, through the end of the decade. But that is where it is. That 70/30 number is a pretty good number, and of course, there is some fluctuation quarter to quarter, a little bit up and down here and there. But that is where it has been, and that is where we expect it to be, at least for the rest of this fiscal year. Let me put that time horizon on it, and then we will see what customers are thinking about QLC as we continue to have those discussions.

Speaker #2: Yeah. We're still at that 70/30 number on TLC to QLC. TLC has been a big driver of the portfolio. We are hearing more from our customers about a re-acceleration of QLC.

Speaker #2: And different use cases. And so we'll see how that plays out, as you said, through the end of the decade. But yeah, that's where it is.

Speaker #2: I mean, that 70/30 number is a pretty good number. And of course, there’s some fluctuation quarter to quarter—a little bit up and down here and there—but that’s where it’s been, and that’s where we expect it to be at least for the rest of this fiscal year.

Speaker #2: Let me put that time horizon on, and then we'll see where customers are thinking about QLC. As we continue to have those discussions. But I will say the ramp the Stargate product has been which is our QLC product, don't use too many internal names here, but it's been very well received.

[Analyst] (TD Cowen): Okay.

David Goeckeler: But I will say, the Stargate product, which is our QLC product, I do not want to use too many internal names here, but it has been very well-received. It was not that many quarters ago that we were talking about going through a qualification. That is all 100% behind us. Customers are ramping. It has been a very well-received product and a very key part of the portfolio.

Speaker #2: It was not that many quarters ago that we were talking about going through a qualifications. That's all 100% behind us. Customers are ramping. It's been a very, very well received product in a very key part of the portfolio.

[Analyst] (TD Cowen): Gotcha. As a quick follow-up, a question on the mobile Edge market. Just given the double-digit unit declines in that market this year as well, albeit concentrated in the entry and mid-tier of the market. I am kind of curious, from the demand signals that some of your customers in that market are giving you, can your mobile bits still grow next year overall?

Speaker #5: Gotcha. And as a quick follow-up question on the mobile edge market, just given the double-digit unit declines in that market this year as well, but albeit concentrated in the kind of entry and mid-tier of the market, I'm kind of curious, from the demand signals that some of your customers in that market are giving you, can you can your mobile bits still grow next year overall?

David Goeckeler: Yeah, let's talk about the market first. You got it. The low end is under pressure, but that leads to a unit decline, but a content per unit increasing. When you add it all up, we expect growth of exabytes in that market next year on a slightly declining unit count. As far as our portfolio, it's like data center. I do not want to make projections on individual markets. We will manage the portfolio with agility and flexibility. We have been very clear that we want balance in the portfolio, but we are going to optimize the financial outcome over the short, mid, and long term, integrate those to get the best outcome, and we will update you on what the mix of mobile is as we go forward.

Speaker #2: Yeah, I think let's talk about the market first. I mean, you got it. The low end is under pressure, but that leads to a unit decline, while content per unit is increasing.

Speaker #2: So when you add it all up, we expect growth of exabytes in that market next year. On a slightly declining unit count, as far as our portfolio, I mean, we don't it's kind of like data center.

Speaker #2: We don't want to I don't want to make projections on individual markets. We will manage the portfolio with agility and flexibility. We've been very clear that we want balance in the portfolio, but we're going to optimize the financial outcome over the short, mid, and long term, kind of integrate those to get the best outcome.

Speaker #2: And we'll update you on what the mix of mobile is as we go forward.

[Analyst] (TD Cowen): Perfect. Thank you so much.

Speaker #5: Perfect. Thank you so much.

David Goeckeler: Thank you.

Speaker #2: Thank you.

Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question.

Speaker #1: Our next question comes from Wamsy Mohan from Bank of America. Please go ahead with your question.

Wamsi Mohan: Yes, thank you so much. In your slide deck, you say leading AI companies could indicate further demand upside. I was wondering if these are AI labs or neoclouds, and are any of the credit concerns around the neoclouds filtering back to you in any way that you can see at the moment? I will follow up.

Speaker #5: Yes. Thank you so much. In your slide, like you say, leading AI companies could indicate further demand upside. I was wondering if these are AI labs or NeoClouds, and are any of the credit concerns around the NeoClouds filtering back to you in any way that you can see at the moment?

Speaker #5: And I will follow up.

Luis Visoso: Yeah, we haven't seen any of that. To the contrary, we're seeing very strong demand from our customers. As I said, if I look at our largest customers, they're basically all investment-grade companies, right, generating very strong cash. So we're not seeing any impacts from any credit issues whatsoever if they are out in the market. Demand from our customers is, if anything, strengthening versus what it was a quarter ago.

Speaker #3: Yeah, we haven't seen anything to the contrary. We're seeing very strong demand from our customers. And as I said, if I look at our largest customers, they are basically all investment-grade companies.

Speaker #3: Right? Generating very strong cash. So we're not seeing any impacts from any credit issues whatsoever if they are out in the market. And demand from our customers is, if anything, strengthening versus what it was a quarter ago.

Wamsi Mohan: To clarify there, Luis, when you say leading AI companies, are you referring to AI labs over there?

Speaker #5: So to clarify there, Luis, when you say leading AI companies, are you referring to AI labs over there?

Luis Visoso: We sell to everybody in our business. We sell to hyperscalers, we sell to model makers, we sell to everybody.

Speaker #3: We sell to everybody in our business. We sell to hyperscalers. We sell to model makers. We sell to everybody.

Wamsi Mohan: Okay, thanks, Luis. Just on linearity in the quarter, it seems like receivables picked up a little bit. Is that something that we should expect because of payment terms as more bits go under NBM, or was there something else in the quarter?

Speaker #5: Okay. Thanks, Luis. And then just on linearity in the quarter, it seems like receivables picked up a little bit. Is that something that we should expect because of payment terms as more bits go under NVM, or was there something else in the quarter?

Luis Visoso: No, we basically saw a little bit of a change in customer mix, and that has a little bit of an impact on our receivables, a little bit on linearity, but it is mostly customer mix.

Speaker #3: No, we basically saw a little bit of a change in customer mix, and that had a little bit of an impact on our receivables and a little bit on linearity.

Speaker #3: But it's mostly customer mix.

Wamsi Mohan: Okay, thank you so much.

Speaker #5: Okay. Thank you so much.

David Goeckeler: Thanks, Wamsi.

Speaker #2: Thanks, Wamsy.

Operator: Our next question comes from Amit Daryanani from Evercore. Please go ahead with your question.

Speaker #1: Our next question comes from Amit Daryani from Evercore. Please go ahead with your question.

Amit Daryanani: Yep. Thanks a lot, too, as well. I guess, David, just to start with, on the capital allocation side, as you transition towards becoming a more predictable NBM-driven business model, does that change how you think about your capital structure? Historically, I think memory is perceived to be more cyclical, so balance sheet flexibility has been important. But, as you become structurally, I think, less cyclical, would that support a willingness to take on leverage and potentially accelerate the capital returns? Or is the comfort still with the $5 billion a quarter buyback, which is fairly impressive? I am just wondering, at what point do you say we can take on more leverage and take advantage of the fact that we are less cyclical?

Speaker #4: Yep. Thanks a lot to you as well. I guess, David, just to start with on the capital allocation side—as you transition towards becoming a more predictable, NVM-driven business model—does that change how you think about your capital structure? Historically, adding memory has been perceived to be more cyclical, so balance sheet flexibility has been important, but as you become structurally, I think, less cyclical, would that support a willingness to take on leverage and potentially accelerate capital returns? Or is there still comfort with the $5 billion a quarter buyback, which is fairly impressive?

Speaker #4: I'm just wondering, at what point do you say we can take on more leverage and take advantage of the fact that we're less cyclical?

David Goeckeler: Yeah, we put a financial model out. We just spent three and a half hours talking about this in our Investor Day, and we committed to a financial model through 2030, which I think was pretty impressive. We plan to execute that, and we are very comfortable with the strategy we have of staying debt-free, very strong balance sheet, and then investing in our business. We have a growing business and lots of opportunities for internal innovation, which we are going to continue to invest in, like HBF and 3D Matrix Memory, in addition to the BiCS roadmap and all the great products we build. After we do that, we are going to return 100% of the cash flow to

Speaker #2: Yeah. I mean, we put a financial model out. I mean, we just talked about we just spent three and a half hours talking about this in our analyst day, and we committed to a financial model through the end of the through 2030, which I think was pretty impressive.

Speaker #2: And we plan to execute that, and we're very comfortable with the strategy we have, of staying debt-free, very strong balance sheet, and then returning investing in our business.

Speaker #2: We have a growing business and lots of opportunities for internal innovation, which we're going to continue to invest in, like HBF and 3D Matrix Memory.

Speaker #2: In addition to the Bix roadmap and all the great products we build. And after we do that, we're going to return 100% of the cash flow to shareholders, and that's the plan.

Luis Visoso: Shareholders

David Goeckeler: shareholders. That is the plan, and we are going to go execute that for the foreseeable future until we get up at another point and tell you we are going to change it. But I do not anticipate that happening in any kind of near-term timeframe.

Speaker #2: And we're going to go execute that for the foreseeable future. And so we get up at another point and tell you we're going to change it.

Speaker #2: But I don't anticipate that. I don't anticipate that happening in any kind of near-term timeframe.

Amit Daryanani: Fair enough. Then maybe just on HBF, rather than trying to ask you to frame how big a TAM could be, could you just talk about what the scaling variable really is over here as inference models and context windows expand? Should we think HBF capacity will grow in line to GPU compute or potentially faster? I think you said you will start initial sampling in 2027. What are the key milestones from there to becoming a meaningful revenue ramp as well? Thank you.

Speaker #4: Fair enough. And then maybe just on HBF, rather than trying to ask you to frame how big this time could be, could you just talk about what the scaling variable really is over here as inference models and context windows expand?

Speaker #4: Should we think HBF capacity will grow in line to GPU compute, or potentially faster? And I think you said you'll start initial sampling in 2027.

Speaker #4: What's the key milestones from there to becoming a meaningful revenue ramp as well? Thank you.

David Goeckeler: Well, it is a little early for your first question. But on the second question, we get the die back. We have the base die, which we will tape out, which is a controller. We will put them together, put it in customers' hands, then they start to see how the product is going to work in their infrastructure. We have obviously done a lot of modeling on that, but actually having the actual product and then doing the integration work, that kind of feedback from the customer will then lead to be able to start to answer some of the questions that people have. Like, "What is the market opportunity? How fast is it going to happen? What is the TAM? Where exactly is the architecture going to fit?" We are going to follow our customers on that.

Speaker #2: Well, I mean, so it's a little early for your first question. But on the second question, we get the die back. We have the base die, which we'll tape out, which is a controller.

Speaker #2: We'll put it we'll put them together, put it in customers' hands. And then they start to see how the product's going to work in their infrastructure.

Speaker #2: We've obviously done a lot of modeling on that, but actually having the actual product and then doing the integration work, that will then lead that kind of feedback from the customer will then lead to be able to start to answer some of the questions that people have, like what's the market opportunity, how fast is it going to happen, what's the TAM, where exactly is the architecture going to fit.

Speaker #2: We're going to follow our customers on that. But the big step is to actually put a product in their hands and then that leads to a whole nother set of conversations with them where we actually have we actually have the device that we're instead of running simulations, we're seeing exactly how it performs in their infrastructure and does it deliver the results of what they're expecting.

David Goeckeler: But the big step is to actually put a product in their hands, then that leads to a whole another set of conversations with them, where we actually have the device that, instead of running simulations, we are seeing exactly how it performs in their infrastructure, and does it deliver the results of what they are expecting. That also helps you continue to expand the set of use cases, right? At this point in the development process, you want to be a little bit careful you do not engage too much because you are overwhelming your engineering team with a thousand ideas of how the product can be used. As we get an actual device that we can put in people's hands, we can open the aperture on those kind of conversations, which I think will lead to more use cases for the product. But that is still TBD.

Speaker #2: And we'll also that also helps you continue to expand the set of use cases, right? At this point in the development process, you want to be a little bit careful.

Speaker #2: You don't engage too much because you're overwhelming your engineering team with 1,000 ideas of how the product can be used. So as we get actually, as we get actual device that we can put in people's hands, we can open the aperture on those kind of conversations, which will, I think, will lead to more use cases for the product.

Speaker #2: But that's still TBD. So I think a lot of things start to happen when you get to that next milestone of actually having a real product you can that people can start to they can start to use and understand how it impacts what they're trying to do, which is deliver a world-class inference architecture at the best cost point possible.

David Goeckeler: A lot of things start to happen when you get to that next milestone of actually having a real product that people can start to use and understand how it impacts what they are trying to do, which is deliver a world-class inference architecture, at the best cost point possible. We think this is a fantastic technology for doing that. But we will see when we get there and we produce it.

Speaker #2: And we think this is a fantastic technology for doing that. But we'll see when we'll see when we get there and we produce it.

Amit Daryanani: Perfect. Thank you very much.

Speaker #4: Perfect. Thank you very much.

David Goeckeler: Thank you.

Speaker #2: Thank you.

Operator: Our next question comes from Mehdi Hosseini from SIG. Please go ahead with your question.

Speaker #1: Our next question comes from Mehdi Hosseini from SIG. Please go ahead with your question.

Mehdi Hosseini: Yes. Thanks for taking my question. David, I want to go back to Sorry for the audio. David, I want to go back to what you said earlier. You said that AI inferencing is being refined, having an impact, and more SLC needed. My question to you is this having an adverse impact on adoption of TLC, or the growth of TLC, or SLC is additive to the said demand by TLC and QLC?

Speaker #5: Yes. So thanks for taking my question. David, I want to go back to sorry for the audio. David, I want to go back to what you said earlier.

Speaker #5: You said that AI inferencing is being refined. ed. Having an impact and more SLC needed. And my question to you is, is this having an is this having an adverse impact on adoption of TLC or the growth of TLC, or SLC is additive to the bid demand by TLC and TLC?

David Goeckeler: No, I don't think it's a cannibalization of other NAND products. I think it's an expansion of the TAM into areas that you need different attributes of the technology. You need different endurance, you need different performance. We can take our product, and we can run anything out of the fab in an SLC mode. So there's a lot of flexibility in the product, and I think people are discovering that and starting to understand, how can I apply this in ways where I get the attributes I want for the problem I'm trying to solve? So it is just a more refined view of the architecture, but I don't see it as cannibalizing other parts of the NAND stack.

Speaker #2: No, I don't think it's a cannibalization of other NAND products. I think the expansion of the TAM into areas that need different attributes in the technology.

Speaker #2: You need different endurance. You need different performance. And we can take our product and we can run anything out of the fab in an SLC mode.

Speaker #2: So there's a lot of flexibility in the product. And I think our people are discovering that and starting to understand, how can I apply this in ways where I get I get the attributes I want for the problem I'm trying to solve.

David Goeckeler: So it is just a more refined view of the architecture, but I don't see it as cannibalizing other parts of the NAND stack. If anything, I see it as, and I want to be careful on this because it's still early, but is it good enough to replace places where I'm using DRAM, right? Can I get enough endurance? Can I get enough performance if I run NAND in an SLC mode? Because the cost differential is huge, 20 to 40x. So I take it as a very healthy sign on many ways, Mehdi.

Speaker #2: So it's just a more refined view of the architecture. But I don't see it as cannibalizing other parts of the NAND stack. If anything, I see it as—and I want to be careful on this because it's still early—but is it good enough to replace places where I'm using DRAM, right?

David Goeckeler: If anything, I see it as, and I want to be careful on this because it's still early, but is it good enough to replace places where I'm using DRAM, right? Can I get enough endurance? Can I get enough performance if I run NAND in an SLC mode? Because the cost differential is huge, 20 to 40x.

Speaker #2: Can I get enough endurance? Can I get enough performance if I run NAND in SLC mode? Because the cost differential is huge—20 to 40x.

David Goeckeler: So I take it as a very healthy sign on many ways, Mehdi. One is very, very real about how you scale an architecture. When you scale an architecture, you got to do it the most cost-effective way possible.

Speaker #2: So I take it as a very healthy sign on many ways, Mehdi. One is that very, very real about how you scale an architecture.

David Goeckeler: One is very, very real about how you scale an architecture. When you scale an architecture, you got to do it the most cost-effective way possible. Sure. NAND is the most scalable semiconductor technology. So it doesn't surprise me that people are finding more ways to use it. In many ways, I think scalable technologies kind of attract TAM, and I think that that's what's happening here, as these architectures are getting more detailed and more refined.

Speaker #2: When you scale an architecture, you got to do it in the most cost-effective way possible. And again, NAND is the most scalable semiconductor technology.

Mehdi Hosseini: Sure.

David Goeckeler: NAND is the most scalable semiconductor technology. So it doesn't surprise me that people are finding more ways to use it. In many ways, I think scalable technologies kind of attract TAM, and I think that that's what's happening here, as these architectures are getting more detailed and more refined.

Speaker #2: And so it doesn't surprise me that people are finding more ways to use it. In many ways, I think scalable technology is kind of attract TAM.

Speaker #2: And I think that's what's happening here, as these architectures are getting more detailed and refined.

Mehdi Hosseini: Okay. Let me come at it from a different angle. If there is this demand for more enduring SLC, as customers wait for commercialization of HBM, what is the JV's flexibility in adding some SLC capacity to meet that short-term demand?

Speaker #5: Okay. Let me come at it from a different angle. And if there is this demand for more enduring SLC and as customers wait for a commercialization of HBF, what is the JV's flexibility in adding some SLC capacity to meet that short-term demand?

Speaker #2: We don't I mean, we don't there is no I mean, I wouldn't think of it as SLC capacity. You can take any you can take any our cells are flexible enough that we can run them in whatever mode we want.

David Goeckeler: I wouldn't think of it as SLC capacity. Our cells are flexible enough that we can run them in whatever mode we want, SLC, MLC, TLC. So we can supply the market with the wafers we have, right? That's how we think about it. I understand the question of wanting to go to the supply question right away, but it's just super early for that. These are just conversations at this point and customers exploring how they can use the technology, starting to get some idea of what their demand would be if it uses this way. It's something to keep your eye on. It will impact the market. There's no doubt about that, because a little bit of SLC is a lot of QLC. But, I guess more to come, Mehdi.

Speaker #2: SLC, MLC, TLC. So we can supply the market with the wafers we have, right? That's how we think about it. And I understand the question of wanting to go to the supply question right away, but it's just like super early for that.

Speaker #2: These are just conversations at this point, and customers are exploring how they can use the technology, starting to get some idea of what their demand would be if they use it this way.

Speaker #2: It's something to keep your eye on. It will impact the market. There's no doubt about that because SLC is a little bit of SLC is a lot of QLC.

Speaker #2: But I guess more to come, Mehdi.

Mehdi Hosseini: Okay. Got it. Thank you. Thanks for all the details.

Speaker #5: Okay. Got it. Thank you. Thanks for all the details.

Operator: At this point, ladies and gentlemen, we'll be ending today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

Operator: At this point, ladies and gentlemen, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to management for any closing remarks.

Speaker #1: And at this point, ladies and gentlemen, we'll be ending today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

David Goeckeler: All right, everyone. Thanks for joining us on the call. We appreciate it. Great conversation, and we look forward to seeing you throughout the quarter. Thank you.

Speaker #2: All right, everyone. Thanks for joining us on the call. We appreciate it. Great conversation, and we look forward to seeing you throughout the quarter.

Speaker #2: Thank you.

Amit Daryanani: Thank you.

Luis Visoso: Thank you.

Speaker #4: Thank you.

Operator: With that, we will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.