Financial Data and Key Metrics Changes - SanDisk reported revenue of $2.3 billion for Q1 2026, representing a sequential increase of 21% and a year-over-year increase of 23% [3][11] - Non-GAAP earnings per share (EPS) for the quarter were $1.22, up from $0.29 in the prior quarter, exceeding guidance of $0.70-$0.90 [3][13] - Non-GAAP gross margin was 29.9%, up 350 basis points quarter-over-quarter, compared to guidance of 28.5-29.5% [11][13] - Adjusted free cash flow generated was $448 million, representing a free cash flow margin of 19.4% [15] Business Line Data and Key Metrics Changes - Data center revenue increased by 26% sequentially to $269 million, driven by strong demand from hyperscale and OEM customers [5][12] - Edge revenue reached $1,387 million, up 26% sequentially, supported by a PC refresh cycle and Windows 11 adoption [6][12] - Consumer revenue was $652 million, up 11% quarter-over-quarter, with strong sales from co-branded products like the Nintendo Switch 2 microSD Express card [9][12] Market Data and Key Metrics Changes - The data center market is expected to become the largest segment in NAND by 2026, with significant growth driven by AI and cloud demand [41][42] - Average smartphone capacity per device is projected to grow in the high single digits in 2025 and 2026, while PC unit shipments are expected to grow in low single digits [6][80] - Supply growth in the NAND market is anticipated to be around 17% in 2026, while constrained demand is expected to be mid-teens [49] Company Strategy and Development Direction - SanDisk is focused on growing revenue, expanding margins, and generating sustainable free cash flow, with a strong emphasis on technology advancement and customer partnerships [3][4] - The company is investing in data centers and AI infrastructure, with expectations of over $1 trillion in investments by 2030, creating a strong demand for high-capacity NAND products [4] - The BICS8 technology is expected to account for a majority of bit production by the end of fiscal year 2026, enhancing the company's position in data centers and edge markets [5][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand exceeding supply through the end of calendar year 2026 and beyond, with products currently on allocation across all end markets [16][17] - The company anticipates revenue for Q2 2026 to be between $2.55 billion and $2.65 billion, driven by double-digit price increases and mid-single digit bid growth [16][17] - Management highlighted the importance of long-term customer engagements and proactive demand visibility as a positive development in the current market [25][26] Other Important Information - SanDisk achieved a net cash position of $91 million, six months ahead of the target shared during the investor day in February [3][14] - The company plans to continue investing in the business while returning cash to shareholders, maintaining a disciplined capital allocation strategy [18][19] Q&A Session Summary Question: Are you seeing similar trends in NAND as in the HD world regarding customer engagement and allocation? - Management noted a shift towards multi-quarter deals with customers seeking certainty of supply, indicating a welcome development in the market [24][25] Question: What is the outlook for supply and capacity additions in the coming years? - Management indicated that the market is expected to remain undersupplied through 2026, with no immediate plans for additional capital investments [33][34] Question: How is the enterprise SSD market evolving relative to hard disk drives? - Management believes both technologies will grow, with enterprise SSDs expected to grow faster due to increasing data demands driven by AI [40][41] Question: Can you provide clarity on the portion of contracts that are shorter-term versus longer-term? - Currently, there are very few volume and price commitments beyond a quarter, but discussions for longer-term agreements are ongoing with strategic customers [52][53] Question: What is the expected growth in data center revenues and how much is driven by AI? - Management stated that the majority of data center revenue growth is AI-driven, with expectations for significant growth in the coming years [88]
Sandisk Corporation(SNDK) - 2026 Q1 - Earnings Call Transcript