Good evening, everyone, and thank you for joining us for the first day of JPMorgan's 53rd Annual Global Technology Media and Communications Conference. My name is Sagar Kapadia, and I'm an executive director in JPMorgan's Technology Investment Banking team. It is my pleasure to host this fireside chat with David Goeckeler, CEO of SanDisk, and Luis Visoso, CFO of SanDisk. Let me hand it over to Luis to read the Safe Harbor Statement before we get started with the fireside chat.
Thank you, Sagar. We will be making forward-looking statements in today's discussion based on management's current assumptions and expectations, including our product portfolio, business plans and performance, market trends and dynamics, and future financial results. These forward-looking statements are subject to risk and uncertainties. Please refer to our most recent financial report on Form 10, our 10-Q, and other financial filings on the SEC for more information on the risk and uncertainties that could cause actual results to differ materially from expectations. We will also be making reference to non-GAAP financials, and a reconciliation of our GAAP to non-GAAP financials can be found on our website.
Thank you, Luis. David, maybe the first question.
Sure, every time.
David, maybe the first question to you, right? With SanDisk having closed a strong first quarter last week, where does the business stand today as a pure-play NAND leader?
I think the business is in a great spot. I mean, we've come through the separation, we've established ourselves as a standalone company, the team is doing fantastic, everybody is up to speed, the portfolio is in great shape of what we're bringing to market, the market's kind of, you know, in a good spot, I think. We thought that was going to be the case going into 2025, and as we move through it, things are getting better. We think we're set up for a good 2026 as well. Also, you know, it was good to get the first quarter behind us. I think the results were pretty good, based on where we guided. And, you know, it's fun to be able to talk about just the NAND business full-time. So I think we got a lot to talk about.
It's a great market, a lot of opportunities, and we're really happy with where we're at.
Yeah, and maybe talking a little bit about the market and industry, right? Like, as NAND industry moves to $100 billion by the end of this decade, what is your strategy to capitalize on this growth?
Look, let me start with, it's, this is one of the reasons I really like the business and the market, is the market has this built-in growth driver. I think in a lot of technology businesses, you're constantly looking for growth, and we have growth, right? There's not many places where you're going to get close to a 50% increase in TAM over the next several years, especially, and also it's a big market. $100 billion is a big market in the next several years. There's lots of opportunities here, there's big levers to create value. The thing for our market is having that growth now be driven as very profitable growth. I mean, focusing really on the profitability of the business, the return of the business, how we think about supply-demand balance. There's a lot of things we got going for us.
We have incredible technology roadmaps. You know, NAND is part of the semiconductor ecosystem where Moore's Law is alive and well. We can produce more product per wafer, every node we innovate on. We've got line of sight to multiple nodes in the future. It's really about continuing to think about how we run the business, how we drive the business, bring the right innovation to market, and then make sure the market stays balanced from a supply and demand perspective so we can drive consistent profitability. We're super optimistic that that is, that's kind of the whole setup is changing before our eyes, and we have an incredible opportunity.
Knock on wood for that. That's a great segue to my next question. How do you see the long-term demand drivers for NAND evolving with the rise of AI, edge computing, and IoT?
NAND is an interesting market. It's kind of an evergreen market. It's, you know, any new device, any new interesting device in the world, technology device is going to have NAND in it. There's always people out there innovating, there's always people inventing new things, there's always another wave of innovation. You know, you've hit on several of them. AI, first of all, is driving the business. It's not quite as a direct correlation of some other parts of the ecosystem where you say this exact component is being for this exact use case, but there's no doubt when you look at the market, enterprise SSD, part of the NAND business had a, you know, essentially over 100% growth last year. A lot of that driven by AI, new use cases. I think AI is a very good example of that.
When new use cases come out that are around data storage, they tend to be on NAND, right? This is where the innovation is going to happen. Model training is something that was not a lot of many years ago in the market. Now there is. There is a lot of people driving for compute-focused enterprise SSDs, storage-focused enterprise SSDs. We are going to see AI move to the edge. That is going to drive a whole wave of innovation on every device we use. That is going to drive growth in those markets, going to drive elasticity, more content per device for our market. A lot of very, very interesting growth drivers in this business.
Yeah. Hyperscalers are investing heavily in AI infrastructure. How are you positioning your NAND portfolio to capture this high-value segment?
This has been something we've talked about a lot. We continue to, you know, in the data center side of the business, it's an area of growth for us. Our enterprise SSD portfolio continues to get better. We said on our last earnings call, year over year, we had a 50% increase in the business. If you look at fiscal year over fiscal year, 2024- 2025, we expect a 3x growth in revenue. Clearly we're outgrowing the market. We've set the foundation for the market. We have products qualified with big hyperscaler players throughout the channel, a lot of different places. We have a whole innovation wave coming in front of us. We have our BiCS 8 node, which is a really, really powerful node on density, power efficiency, performance.
We have a new ASIC coming in an entire new lineup of storage-based enterprise SSD that we talked about at our Analyst Day. We feel like we're extremely well positioned. We have the foundation set, the business is growing faster than the market, and we've got a whole wave of product innovation coming on top of that over the next several years.
Talking a bit about industry bit growth, what are your most recent mid to long-term industry bit growth expectations? Keep on a two- three-year view, what applications are you most excited about?
Look, I think, so we see growth in, you know, demand growth in that, you know, low to mid-teens rate on a sustained basis. That's very good growth, compounded. Look, what are we excited about? NAND is a market, it's like a, again, when you have a TAM this big, there's many, many different segments of the market. So there's lots of things to be excited about. But what we're seeing and what we're optimistic over the next couple of years is we're starting to see all of the markets move forward. We're starting to see unit growth in PCs. We're seeing content growth in PCs. We're seeing unit growth in smartphones. We're seeing content growth in smartphones. Then on top of that, we have the whole data center market we just talked about where we continue to see a lot of CapEx spending in that market.
We really have got all parts of the market moving into growth. And on top of that, we see a supply environment where there's been a really depressed level of CapEx spending over the last two or three years. We think the setup is really good. We've talked about, we think the market is undersupplied through the end of 2026. How that plays out on a quarter-to-quarter basis, you know, is variable. It's a very dynamic market, but we think the big picture structure is very good for, you know, quite a while to come here over the next couple of years.
Yeah. Maybe if you can elaborate a bit on the supply side, right? Like you and your peers have taken some supply-side actions recently. How do you view in the near term the supply-demand balance?
Yeah, over the next few quarters, we believe that the market is going to be over, there will be higher demand than supply. And most, you know, depending on what reports you read, you know, externally, what we estimate is that the market is probably underutilized by around 15%, somewhere around there. And I think you're seeing an industry that's been a lot more responsive to, you know, to balance supply and demand because nobody's interested to serve the market at low and unattractive prices, right? So that's what you're seeing and what's playing out in the market.
Are you still expecting the three PC tailwinds that you earlier mentioned during the call to materialize in the second half of this year? What are the key indicators you are watching for this recovery?
Which factors, sorry?
The PC.
We continue to believe those three factors are real, right? It is the COVID refresh, right? Where, you know, these PCs are getting too old, they need to be refreshed, they need to be more capable. We continue to believe that the Windows, they will need to be able to, they need to refresh to be able to use the new Windows because otherwise their PCs are just not going to work. AI is a real thing, right? At the end of the day, it all comes back to two variables that are important. One is the number of PCs growth, and we believe that is going to be somewhere in the low single digit. More importantly, the content of NAND in each of the PCs is increasing probably in the low single low double digits. That is very powerful, right?
As we continue to see a better mix of PCs across the markets.
I think this question, I'm sure you've heard it like a hundred times, but what are your expectations of NAND pricing in the coming quarters? How are you planning to navigate the potential volatility? Maybe if you can even comment on like sustainability of this NAND pricing.
Look, it's hard to pick, we don't forecast pricing, you know, quarters out. I would go back to my commentary about, we see over the arc of, as we move through the rest of this year, through next year, that we see an undersupplied market. It's going to be dynamic quarter- to- quarter, but obviously in a market that's sensitive, very sensitive to supply-demand balance, where we see an undersupplied market, we're going to see, you know, a positive pricing environment. I think it's very healthy that we're seeing, you know, the way we manage our business now is we're not waiting to see pricing deteriorate to extremely low levels. You know, this whole idea, well, we're going to get all the way down to cash costs before we start to think about how much we produce.
We're using that underutilization lever to do fine-tuning on the market. When margin drops below where we think it needs to be, we're going to take some supply off. When there's more risk of what we think there is to the output, we're going to kind of take some supply out of the system. I think you've seen that happen across all the players in the industry. I think that's very, very healthy for keeping this market balanced on a supply-demand basis.
Yeah, that makes sense. Of course, this is developing real time, but what's your view on the impact of tariffs on the business?
Yeah.
You want to talk about tariffs?
Yeah, sure.
We've done a lot of work on tariffs.
The impact on tariffs on the business today is pretty small, right? Tariffs are only impacting our products shipped to the U.S., which is about 20% of our bids, and only that is product coming out of China, which is about 5%, right? So 5% of the 20% comes out of China, and that has a 27.5% tariff on it. Very, very small numbers. We are fortunate to have several options as we produce our backend, particularly Malaysia, which is, you know, a key facility that we have, really state of the art. We have another facility in China, and we can manage things so that we allocate products to wherever they need to go. We will keep on evaluating options, right? So that we can create the most value to our customers. Now, something might change in the future. Yeah, we do not know.
We have some agility, and we can adjust. We have other contract manufacturers that provide additional flexibility to what we already have. We are in a good place, I think.
Sometimes I think our industry may be the best position to deal with all of this "uncertain." It's always interesting for me to read about all this uncertainty because our market is pretty dynamic. I mean, anytime you're dealing with sequential price changes, volume changes that we deal with on a quarter-by-quarter basis, it seems like, oh, you know, okay, we'll deal with this. The tariff issue, fine, it changes every so often. We're okay. We know how to deal with it. I think this whole idea that Luis mentioned, building agility into the organization, how fast can you react to the environment you're in? You have to be able to move faster than the environment you're in. If you can't move faster than the environment you're in, then you can't control where you're going. We really focused on this.
We focused on this pre-separation, and we really had an eye on this as we built the company that we run now. How do we build that in a way where we can really respond to the market we're in, whether it's portfolio mix, whether it's how we supply the market, any number of dimensions? How do we make sure we can move very quickly? You know, it's served us well over the last several months.
Yeah. If we talk a bit about your enterprise SSD segment, it has been small but growing. What should we expect for this segment through, let's say, FY 2026? What are the key drivers for growth and market share from your perspective?
Look, the key thing for growth and share in a technology company is having a great product, right? That's like the basics of a technology business. We've got a set of products now. They're great products. They address a certain segment of the market. The enterprise SSD market is a very big, diverse market, first of all. It's not like you build one enterprise SSD and then compete for share. Every big customer is going to have a unique set of requirements, different features that they want. It's a very broad range of a set of products to address more and more of the market. We have a set of products that address a certain part of the market. We've had a lot of success with those.
What you're going to see over the next several years is we're going to open the aperture as we continue to drive development of being able to address more and more of the market that'll give us opportunity for increased share. By the way, the way we want to manage the business is increased, we want to have the optionality to drive share higher. We don't, you know, because I think the kind of a bit of the magic of our portfolio is the diversity of it. We have a fantastic consumer portfolio that's very unique. There's only one company in the world that can sell a SanDisk product. It's SanDisk. We sell that product all around the world in every country where it's legal to, you know, in every e-tail platform.
You can walk into most, you know, consumers, anybody that sells anything related to consumer technology and our products are on the shelf. That is a really, really good business that has fantastic through cycle properties. We want, you know, we're going to serve that business to its fullest extent. We have a tremendous client SSD portfolio and an enormous amount of innovation in that space. The DRAM-less client SSD is an innovation that we drove. We just put our QLC, our client SSD in the market. It's performing as well as TLCs, client SSDs in the market. We have a tremendous gaming portfolio with WD Black. We obviously have a great mobile position as well. Now on top of that, we put enterprise SSD.
We want to fully build out that capability so that depending what quarter we're in, depending what the market gives us, we can mix up and down for the best profitability for our shareholders. That is what we're, the play we're running. That enterprise SSD pillar is being built out now. As you know, I said year- over- year, we've tripled the revenue in that place. We're outgrowing the market. Good news is, we still got headroom to grow. It's great when you run a business. It's great to have compelling markets to grow into. We've got that opportunity in front of us. We're spending, you know, we've done a lot of R&D bringing our systems capabilities now to that space. We've got new products coming out.
We have got a BiCS node, I think, that is very, very well tuned to perform extremely well in that market. We are very optimistic about being able to get our fair share of that market.
You just mentioned BiCS. You started ramping BiCS 8, which accounts for almost 10% of your bits this quarter, and it's expected to grow through FY2026. Can you share a bit about this technology and are your customers ready to transition to BiCS 8 at scale?
I think our customers are ready to go there when we bring the product to market. Again, this is a question of making sure we do not oversupply the market. We cannot just rush in with a whole bunch of new products because that is going to oversupply the market. We have to move there in a deliberate way. We are moving the portfolio to that. We have client SSD there. We have some consumer products there. We have some gaming products there. We will be moving enterprise SSD there. Look, I think the market is pulling us in with that node. It is a very high-performing node. The power requirements of the node are very, very attractive. It is a question of supplying that in the market in a way that does not oversupply the number of bits in the market.
We're going to do that, you know, expeditiously, but also very deliberately.
Yeah. Let me see if there's any question from the audience before I move on. If you can, please wait for the microphone. Any questions? Okay. You can go ahead.
Well, yeah.
Hi. I was just looking at the cash flow characteristics, and I just saw it was a little bit negative in the most recent quarter. Can you just talk through the ebbs and flows of the business quarter to quarter, kind of how that comes in and out?
On cash flow.
Cash flow.
Yeah. So our cash is impacted by, well, cash was actually positive in the quarter, right? Since, you know, when we separated from Western Digital, we had $1.3 billion in cash. We closed the quarter with $1.5 billion. From the time we've been separated, we generated about $200 million. To your question, what drives the cash in the quarter is going to be a lot of that is CapEx, right? We've mentioned that we have been investing less CapEx. We've been fairly efficient over the last two years. There was no node transition over the next year. In our fiscal 2026, which ends in June 30, that would be a little bit higher because we'll be transitioning to BiCS 8, which is the node that we were just describing. There is a little bit of timing also on when you collect.
Depending on whether you had a good quarter, the previous quarter, the collections fall in the next quarter. Those would be the two main drivers of your cash flow changes quarter- over quarter. Working capital is fairly efficient other than inventories, which we've been driving a little bit down. That's the way to think about it.
One more question.
Hi. A lot of semi equipment companies talk about this year seeing upgrades in terms of like 3D NAND. How do you see that? Like how do you manage the timing of transitions to like more layers in NAND so that the timing is not too early, but not too late as well?
I guess the simple answer to that is very carefully. No, this is a whole equation that goes into this, which is there's a lot of nodes running in the fab at any given time. It is that mix that makes a difference as to what the bit output's going to be. That mix has to match the portfolio that we're selling. Getting all that aligned is a complicated equation that we drive and literally years into the future in planning. We put the, you know, we put the capabilities in place to make sure we can supply the market and deliver the right portfolio without oversupplying the market. I think, you know, most recently we'll use a little bit of underutilization when necessary as tune-ups as we go, right?
Because it is an equation that's complicated and it takes a lot of planning. Again, supply-demand balance, it's a very dynamic market. If we see that the market's getting a little oversupplied like we did last quarter, we'll pull back a little bit on utilization. Clearly the goal is to run at full utilization all the time. That's where we want to get to. That's where we want to stay as best we can.
Maybe take one more.
Yeah, keep going.
Yeah. Continuing the cash flow question, I was wondering, I think in your investor you had a target, was it low double digit free cash flow margin at $10 billion in rev, something like that? Is there a way to think about a progression of free cash flow margin at different levels of revenue? I don't know. I mean, you know, at like $8 billion. When is it kind of in a maybe low mid double digit, mid single digit range, like yeah, some of that progression?
Yeah, it's very difficult, right? Because it really depends on a lot of variables. Where are you in a node transition period? Where are you? There are many assumptions. What we thought would be helpful, and I know you always want a little bit more data, is to give you kind of a through model, right? That's what we're trying to deliver. Every single year will be slightly above or below that, depending on where you are on those transitions, right? Yeah, we should, but in theory, if you take what you were saying, right, as we get closer to the $10 billion, we should be making progress towards that double digit cash flow, free cash flow.
In theory, it's going to be aligned to that, but it will depend on that cash flow, you know, on the CapEx, depending on where you are on the node transition.
David, your JV with Kioxia has been one of the most successful long-standing partnerships in the tech industry. What do you see are the core drivers behind the success?
I mean, like anything in life, it lasts because it's valuable. I mean, it's very valuable. It gives a, in a business where scale is important, it gives a scale. I mean, together, we're right there as the largest provider in the market. When you think about technology markets, you can kind of afford to invest in R&D commensurate with your market share. The more market share you have, the more engineers you're going to have working in that space. The more engineers you have working in that space, you're likely to have a better outcome. That's what we've gotten. Through, and not only does the JV give us scale, but it's, like you said, 25 years plus. There's an enormous amount of accumulated expertise on how do we build the world's best NAND. How do you define that?
You define it multiple ways. We talked about with BiCS 8, with power, performance, how much bit growth you're delivering, what are the cost downs you're delivering, but also how much CapEx are you spending to actually get that output. I think one of the hallmarks of the JV is we think very, very deeply about how do we deliver that incremental bit at the most efficient CapEx spend. We've been doing that for decades now. If you look back over the last, you know, just pick the last 10 years, we showed some of these numbers at our investor day that, you know, we believe we're a third more efficient on capital than the industry average. In a market that has the dynamics that we have, having that kind of cost position is extraordinarily important.
I think that's like the first part of the JV that is just incredibly important. If you see the JV from the inside, those R&D teams work together like it was one company. I mean, it's just teams working together all the time. I think a lot of times people focus on the manufacturing side of it, which is also important. It gives us scale of manufacturing. It's really both of those, that R&D scale, it starts with that. If you don't have a good NAND node, if you're fundamentally, if the fundamental NAND you have out of the fab is not best in class, you're not going to make up for it by building a great controller, right? You've got to get that piece right. We've been able to demonstrate getting that part of it right over and over again.
I think BiCS 8 is a really, really compelling example of that. Now we are commercializing wafer bonding, which, you know, gives us the ability to take, you know, a really, really pristine CMOS wafer and a great NAND stack and bond them together as opposed to building them together where you are making compromises along the way on both sides. When you look at BiCS 8, why are we getting these tremendous interface speeds? Why are we getting this power efficiency? Some of it is because of the way we build the NAND stack, right? We are able to do, we focus more on just scaling, you know, vertical scaling. We have talked a lot about this. Let us get out of the layer count issue. It is more than that. It is memory hold density. It is die size. It is lateral scaling. It is all these things.
This ability to build the NAND stack independent of the CMOS and then bond them together gives you a really, really great product. By the way, it gives us a lot of optionality in the future because now we can iterate our NAND node by changing either one or both. If we want to build new CMOS and bond it to the existing NAND stack, we potentially get a derivative node from that that could be applied to certain markets or certain characteristics we are trying to achieve. Want to build a new NAND stack, bond it to the same CMOS. You can, it significantly increases our optionality for future innovation. Really, really key part of the joint venture. As I said, the manufacturing side of it is we really do have a lot of scale there to give us a very good cost position.
That's great. Maybe if you spend a couple of minutes on just your financials and capital allocation, you, in your last earnings call last week, you guided towards improving gross margin, especially if you remove the underutilization charges. How long do you expect that it will take to reach your long-term through the cycle targets? Do you think 50% is still a reasonable long-term goal?
Yeah, we continue to believe 35% gross margins are long-term goal. But remember, that's through cycle. So that means that, you know, we should spend the same amount of time above and below so that it can average 35. So we're making good progress, right? If you look at quarter- over- quarter, we got good progress, particularly as you said, excluding underutilization and startup costs. So we're making progress towards the 30 and above. And we'll continue to drive that. And the way to do it is, as we've been talking, making sure that supply and demand are balanced and we can increase our prices to a level where it's attractive for the industry and we can continue to innovate for our customers. So we're very happy with the progress. We continue to be committed to it.
We hopefully can be above that so that we can average that 35%.
Just a few comments on this. I think this, the way we're thinking about the business is different than the way we thought about it in the past. I think this is traditionally, like this has been an incredible technology story. I mean, it's a story that there's been a lot of elasticity in the market. You're constantly, you know, the industry has built this whatever, $65 billion or $70 billion TAM going to $100 billion. This idea that, you know, you can continue to innovate, you can drive the cost down, you can expand the TAM, all those kinds of things have just been phenomenal of what we created. We're now turning a little bit and thinking about the business differently. Now it's about, it's not so much about how do we keep expanding the TAM. The growth drivers are there.
The demand side is kind of taken care of. We've got the supply side taken care of, right? We understand how to build NAND for many, many years to come to satisfy that. The issue is how do we get these two things to connect to each other in a way that drives sustained profitability. We have less volatility in the models we're talking about, you know, that we feel good about and can go beyond that, right? I don't think there is any limit on where we can go. You're going to hear us talk about the business differently. You know, we're going to, on our first earnings call, we're going to stop talking so much about cost downs, this like relentless focus on cost downs. I mean, the industry has been driven that way because it's like this relentless focus to expand TAM.
Like that's, our TAM is big, right? It's going to get bigger. Now it's more about driving sustained profitability, drive like more focus on supply-demand balance. I talked to people that have been in the business for decades. You know, they tell me about, well, when your margins got under pressure in the past, the way you got out of that was you released a new node because that new node drove your cost down and then your margins came back. That strategy kind of ended in the last downturn because with these high layer count, the nodes now are so efficient. There are so many bits per wafer. When you come in with that new node, you come in with such a supply of bits. The market is so big already. There's not just this infinite elasticity. That just drives the price down even more.
I think that was the lesson of the last major downturn. Like what used to be, you know, the aspirin for my headache, you know, turned into me like whacking my head with a hammer. We've got to think about the industry differently. We've got to think about the market differently. We've got to use other techniques to make sure we keep supply-demand balance. We're bringing an incredible technology to market to our customers. Our customers are using that to build incredible businesses off of it, enviable business. They're just doing awesome work, right? The issue now is to keep these two things aligned.
Like stop being so focused on cost, be more focused on what is the value proposition we're building, be more focused on sustained profitability, being more focused that we can get the right return on invested capital so we can invest to meet this $100 billion market in front of us. I think the way we're thinking about the market to keep supply-demand in balance, again, this more fine-tuning of the market when pricing starts to erode, react faster, don't wait for things to deteriorate all the way into negative territory, pull the market back. I think that worked. You know, at our Analyst Day, we got on stage and we said, we think pricing is going to be up in the June quarter and everybody like round, there was a large round of skepticism, let's just say that. There's not so much skepticism about that anymore, right?
And it's because more fine-tuning, like take some, if you see pricing start to erode, take some supply out of the market. Don't be afraid to do that. Think about the dynamics of what we're bringing to market in a different way. Start talking about the business differently. Make sure we keep that supply-demand in balance. If we do that, and as we do that, this is like an incredible opportunity. I mean, I've been in the technology business a long time and managed a lot of different franchises from enterprise software I was hearing about earlier, which is fantastic, to semiconductors and almost everything in between. I don't know if I've ever seen an opportunity like we have in front of us where the levers are so big and the technology we're delivering is so valuable and there's these built-in growth drivers.
It's just an awesome opportunity and I'm thrilled that we have the ability to go after it as a standalone NAND company.
That's great. I know we are at the time. David and Luis, thank you so much.
Thank you, sir.
We really appreciate you coming here.
Thank you. We appreciate it. Thank you.
Okay. Thank you.
Take care. Thanks everyone for coming.
Thank you.