Well, excellent. Good afternoon. My name is C.J. Muse. I cover semiconductors, semiconductor equipment, with Cantor Fitzgerald. Very pleased to have the team from SanDisk, David Goeckeler, CEO, and Luis Visoso, CFO Welcome.
Hey.
Good to have you both here.
C.J., great to be here. Thanks for having us.
I think, Luis, you have something you'd like to read?
Yeah. Hi, everyone. We'll be making forward-looking statements in today's discussions based on management's current assumptions and expectations, including with respect to our technology and product portfolio, our business plans and performance, market trends and opportunities, and our future financial results. These forward-looking statements are subject to risk and uncertainties. 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 be making reference to non-GAAP financials, and a reconciliation of GAAP to non-GAAP financials can be found on our website.
Perfect.
Thank you.
Dave, congrats on a one-year-plus anniversary.
Thank you.
The world has seismically shifted for NAND in the last eight months, essentially.
Well, things are changing, yeah.
Inflecting since August of 2025.
Yep.
What has changed?
Look, I mean, I think there's a lot that's changed, and I think, you know, what you see, you know, there's a lot of discussion of pricing and all that. What you see is, I think, kind of a second order of a major change that's going on in the industry, and that is a couple big things. One is this year, data centers will be the biggest buyers of NAND. Brings, you know, kind of a new set of buyers with a new use case, a new way they use the technology, a new kind of financial model of the way they're deploying the technology or what it's supporting. You know, their use cases, I think, are the furthest thing from a commodity, if you will.
People wanna kinda put that tag on us and, you know, customers want three options, four options that they can swap in and out. When you're playing in the data center, you're talking like a year-long qualification cycle. This is a very, very different product. Very, very different use case. I think that's driving just a fundamental change in the industry over a short period of time. You know, I think we thought a year ago, you know, when we were launching the company, we said we thought the market was gonna be undersupplied through the end of 2026. You know, we heard a lot of feedback on that.
I think as late as last summer, end of the summer, there was a lot of talk that December pricing would be down and all this kinda stuff, and it didn't quite play out that way. You know, to me, that's really a follow-on of what happened in 2023. 2023 wasn't just a downturn, if you will. In my book, 2023 showed that the way you manage these franchises just have to change. This idea that when the economics get stressed, you can release a new node that lowers your costs. The market is infinitely elastic. It can absorb that supply. I think that way of managing these franchises just ended spectacularly in that really kinda meltdown of the industry.
I'll just talk about our company. The way we've come back from that is just very different. The way we think about managing the business, we're much more proactive on managing supply. We're much more willing to pull back supply if we don't see the demand for our products or the economics don't hold up. You put that on top of the buyer is fundamentally changed. The economics of that buyer is very different. The way the product is used is very different. You add all this up and, you know, that amount of change is being compressed in a couple of quarters.
It looks like this huge transformation or this, all this, you know, turmoil, but it's really the product of all of these structural changes in the industry from the supply side and the demand side kinda all coming together at once.
Yeah. I think, you know, certain investors surprised that NAND is the slowest-growing semi equipment industry this year. I think they neglect to think about the fact that we just went through a seven-year downturn. So, I think the hope was that NAND would consolidate, but given that backdrop of the multi-year downturn, plus, as you highlighted, a changing kind of buyer landscape, how, I guess, do you see and maybe this is a broader comment beyond SanDisk, the overall industry acting?
You know, I like to spend most of my time talking about our company as opposed to the industry. I'm not, you know, I only run one company, or the two of us. Look, I don't think I've ever believed this theory that you have to drive consolidation to get the economics right. I think that it helps certainly, but also in any kind of fixed cost industry like we are, it also, you know, scale always matters. We get that through the JV, which we think gives us a lot of advantages. I think there's never been a doubt in my mind that the quality of the product we deliver and the value of the product we deliver is extremely high. You know, consumers pay $0.40-$0.80 a GB for NAND continuously when they buy devices.
That's kind of the going price. The value has always been there. The question is, can you get the business model right? You know, I think we're seeing that all happen right now. It's not consolidation. You know, consolidation is not the answer to that. I mean, it maybe helps in some regard, but what really matters is just running the business in a way where you get a fair return for the amount of intellectual capital we put into this, enormous amount of intellectual capital, intellectual IP. On top of that, an enormous amount of CapEx to manufacture. We do both. I mean, there's very few industries where you have the level of intellectual intensity that we have.
R&D intensity, you know, 75% of our OpEx is R&D, and on top of that, we're investing billions of dollars to produce. We're doing all of that in one place, and I think the market is now recognizing. I think it's fairly clear that what that the output of that is very valuable to the world.
Makes sense. I guess maybe moving to customer engagement and how that is evolving. Given today's shortage environment, how are you seeing your customer engagement change, and is it evolving particularly just data center or are you seeing in other end markets?
Yeah. We're talking to customers across all our end segments, and they're very interested in, you know, NAND, and we happen to have NAND, so that's a great place to be. You know, we're trying to shift from the old business model to a new business model, and this new business model is one where our customers are secure supply and where we're secure, you know, structurally sound financials. It's particularly coming from our data center customers 'cause their willingness and ability to pay is much higher than what we've seen from other customers. We're open to business with anyone.
You know, I don't know if you've called it a three-month circus or three-month auction.
No, I didn't call it a circus. I called it a bazaar.
I'll call it a bazaar.
All the world's NAND is auctioned every quarter. I mean, that's the business model. Look, I come to this from running a lot of different technology franchises. I come to this one, and it's like, "Wow, this is an interesting way to do this," but that's what we do, and so we, you know, we know how to run that business model. It just. It leads to this kind of like somebody is unhappy, like either the suppliers don't have very good economics, which people remind. A year ago, when I took this job, everybody reminded me about, like, what a bad decision that was.
On the other side, you have the situation you have now, where everybody's saying, "Well, we can't get what we need." It's like, this is not a hard problem to solve, right? I mean, we know, like, businesses solve this problem all the time. The question is, are people willing to do that? To Luis' point, you know, and why I said earlier, we have a new buyer that's now more than half the market. I think that buyer is less interested in that business model, right? They're more interested in what Luis said, "I want supply. I look down the road, here's what I need not next quarter or this year.
Here's what I need in 2027, 2028, 2029, 2030, and coming to us and saying, "Can you step up to deliver this to me?" We basically say, "Of course we can because we have this huge fab in Japan, and we have all this wonderful technology." If you want us to assure that you're going to get that supply, we need to come up with a different business model about how we do business together, and I think they say, "Fine. Let's have a conversation." We're having those conversations.
I know it's early, but, you know, what does that framework look like to you?
Yeah. As you said, it's early. We signed one of these new business models and there are several in process. The way we think about it is there are four dimensions, right? Time. Are you looking for a one, two, three, five-year deal? That's very important to us because then we have certainty of financials, and they have the certainty of supply. What is the amount of exabytes that you are willing to consume? We're betting on customers that are winning, customers that need more demand every single year cause that's better for us cause our fab is very, very efficient, and we produce more wafers every single day. The third element is the price, right? We want a price that is attractive for us in any scenario, in good times, in bad times.
That could be a combination of fixed pricing and variable pricing, where we can capture more upside if prices go up, and our customers can be protected if prices go down. In any scenario, we're protected for strong financials. The last thing, which is an element we are not talking too much about but we're working on, which is how do we ensure that our customers will be there until the end of the contract, right? We're making a commitment, right, on both sides, and we have to live until the very end of that contract.
I wish you luck with those negotiations.
Thank you.
It's fun.
If you need someone in the room, I'd love.
We'll let you know.
I appreciate it. Maybe moving to your data center business. I know you're very excited about the traction you're making here. Would love to hear what's the timeline to hit that kind of 20% goal?
Look, we focus on, like, just improving quarter-over-quarter, and we're very much on the right track at this point. You know, this is a tough market to crack. What I said earlier, you know, you don't just show up with a product. You gotta go through a very long process to get into very big customers. We're making very significant progress. You know, first quarter, I think we had 29% sequential growth in data center. Last quarter, it was mid-60s% sequential growth in data center, and we said we think we'll see that accelerate throughout the year. I think this year is gonna be the year where we really establish our position in this market in a very serious way. I'm not gonna pick a particular number out there because I don't want to like hairpin us around that.
We'll see where we go. I will say it really is the progress in the data center market that's catalyzing this conversation that we talked about earlier, where it's when we get through that qualification with a big customer and they come and say, "Okay, we love your product. It's a great product. Here's what we need for the next three or five years." We look at those numbers and go, as I said, that's a big number. Like, if you just want to show up every quarter and get that supply, my personal view is that's pretty low likelihood that's going to happen. You know, as we've talked about in the past, I think we're finding that customers prefer supply assurance over price.
It's not that. You know, nobody's gonna pay an infinite price, but that supply assurance is very valuable to our customers, and it's these products that are world-class products. Again, it's a combination of what we have with BiCS8, right? Gold standard in the industry right now, wafer bonding, performance, power efficiency, QLC performance, really, really strong. Two-terabit die on top of that, right? You know, you need half as many die as a 1 Tb die to build a high-capacity enterprise SSD. And then the controller on top of that, you wrap that all up, it's a fantastic product. You know, the market is responding to that, and it really is unlocking these conversations about, hey, we're gonna base our data center on this product.
We need to make sure we can get it for a long period of time. We feel very, very good about where we're at. Again, we'll see over the next several quarters as the numbers come out.
Makes sense. I know we're early in kind of the life cycle for KV Cache, but obviously Jensen put out a very bullish presentation at GTC Washington, D.C. This morning, we had an equipment company that gave their best guess on KV Cache, which was for every 2 million accelerator units, it would drive 1% growth in NAND bit demand. I know you haven't put out a number there. I'm not kind of asking you, but I guess as you've done your initial work, you know, what are your thoughts on how that might change the demand curve and how that might change the industry perhaps having to add, you know, incrementally more supply?
Look, I think everybody. This AI is an incredible thing. I mean, I don't need to tell anybody here that, right? I think that we're now moving into this massive scaling stage of this technology. When you're gonna scale something, you know, you gotta really think about the economics and kind of how this is all gonna work. Models are getting bigger, caches are getting bigger, context lengths are getting bigger. We believe this for a long time, that at some point, this architecture is going to have to include the most scalable semiconductor technology, and that's NAND. If you need to store big things, and you need to store a lot of it, you have to eventually get to NAND. That's nothing against what's going on with HBM. I think it's brilliant technology.
I think it's incredible innovation, and we're not a replacement for that in any stretch of the imagination. There's only so much capacity there. You know, I think customers are trying to figure this out. You know, I think that culminated in what you talked about at what NVIDIA had to say. There's no doubt that depending on how this plays out, this will be a major driver in the next several years of NAND. It's not in our numbers yet. You know, our initial assessment of this was, you know, potentially 75-100 EB next year. I've seen several people trying to triangulate on it. I haven't heard this one yet from this morning. All these numbers are kind of coming out the same, but it depends on how the customers are gonna go deploy this.
We see this obviously as very positive. You know, we kind of said a little different way last year. We talked about HBF, which is not the same issue, but it was the same kind of strategic statement. NAND is going to come into this architecture because of the density we can deliver. You know, it's good to see that being recognized. If I had to pick, you know, there's a lot that has happened in the first year of our company, right? A lot of things have happened.
Where we've gone on HBF from where we were a year ago when we first even introduced the term to where we are today is a huge progression in, I think, the acceptance that this type of technology is required in this architecture, and we're very excited about that.
Maybe sticking with HBF, high-bandwidth flash, for the inference market, could you maybe talk a little bit more about where you are in terms of technological development and, you know, your thoughts around commercialization?
Yeah. This, a little bit of history. This came out of some. You know, we have a lot of very clever people in the company. As I said earlier, we're a high R&D intensity company. 75% of our OpEx goes into R&D. Those people, you know, those individuals in the company have been building NAND for 20-25 years. It's their life's work. If you're, you know, if you're a NAND designer, for your whole life, you've basically been focused on how do you increase density? Give me more bits. That's what I'm trying to do. You know, you went 2D, 3D, keep going, change memory hole density, all these kinds of things that people just go on and on, and it's been spectacularly successful.
I think, you know, it was very clever a number of many years ago now, our R&D team said, "Well, what if we focused on bandwidth instead of density?" Like, what if you know, 'cause we've been told our whole life was "give me more density." Now it's like, okay, we got density good, got that. Continue to do that, but now think about, could you get more bandwidth out of this technology? Could you get more endurance out of this technology? Turns out you get a bunch of very smart people that have done a lot of seminal work in NAND design. They come up with good ideas to this, and that's kind of where HBF was born. We're on the timeline that we talked about last year.
We expect to have a die itself later this year. You know, maybe a year from now, we'll have what we would call the device, which is the die plus the controller that we can put in customers' hands, and they can play around with it and see how it fits in their architecture. The real trick here is this is not a plug-compatible replacement for anything else in the architecture. This is a new architectural element, so it's gotta fit into the architecture. It can't, you know. We gotta work with partners on how they're gonna build their either their device, can go in a device, can go in the cloud. We gotta work with them on how are they gonna architect it, how are they gonna scale inference in their cloud, how could this technology integrate with what they're building.
You know, essentially, it's two gears you gotta get to mesh. Those conversations have been happening for quite some time, and, you know, we're making progress on it. We feel good about it. You know, we think it's gonna be a very important technology in the future.
Maybe sticking with your technology roadmap, I know you're very excited about BiCS8. What are some of the advances inside there, such as CBA, that's driving leadership and how, you know, confidence you have, you know, vis-à-vis the competition?
You know, the JV is really a spectacular partnership, and what it allows us to do is essentially a lot of people in the JV, they focus on the manufacturing side of it, which is very important. Don't get me wrong. I mean, if you go to Yokkaichi or Kitakami, they're like incredible places, and it's a huge amount of work to run that. We also work together on R&D. So our two teams are like one team, and you put our two teams together, and we're the largest or tied for the largest producer in the market. So that means we can invest more engineers than anybody else, and that's a very important.
When you build products for a living, which is kinda what I've made my whole life doing, it's like when you can invest more people in this, especially over a long period of time, you end up with this accumulation of R&D that is really, really strong, and that's kinda where we've ended up after 25 years. That spans a whole bunch of different things. You know, the actual cell we have that actually stores the bit, how that is scaled in the X-Y dimension, how it's scaled, you know, how it's layered, the memory hole density, materials, all different kinds of things, right? BiCS8, what does BiCS8 add to all of this?
Well, now it was this whole concept of wafer bonding, which is, it used to be, you know, you'd build the CMOS, and then you'd start building the NAND stack on top of it. By the time you were done, you had degraded the CMOS somewhat, right? Because you have different kind of processes, maybe different temperatures, things that are probably beyond my technical acumen. At this point now, the team decided. You know, when they first came to me and, you know, told me what they were doing, like, four years ago or five years ago, I'm like, "Are you sure this is gonna work?" I mean, it's like we're gonna build the NAND stack on one wafer, we're gonna build the CMOS, and then we're gonna flip one over, and we're gonna bond them together.
It turns out when you do that, you know, the CMOS is, like, pristine. It's like, so you get, like, really fast interfaces. You couple that with all this accumulated R&D on QLC performance, and then you put on top of it our system-level ability to kind of reach into the NAND and do what we need to do to optimize things, hardware accelerators, you end up with an awesome product. You know, we're now ramping into that. You know, I'll tie this back to what you asked earlier. Our data center position, why we feel so good about this is, like, we have all these things arriving at the same time.
We've got this world-class NAND node that gives you really, really strong performance, gives you really strong QLC performance, really great power efficiency right when the market for data center is exploding for people that find in a use case those things very, very attractive, right? On top of that, we've got kinda this clean sheet architecture for controller, and I think it positions us extremely well.
Maybe, Luis, a couple.
Sure.
answer questions.
Sure.
I know you're not gonna answer this one, but I'll ask anyway. I've got you hitting 70%-75% gross margins, you know, in the next, you know, handful of quarters. If I go back to the earlier part of our conversation, you know, you're spending on R&D, and you're spending on CapEx, so you're double-stacking costs where fabless foundry, you know, obviously they only do one part each. What is kind of a normalized kind of gross margin for SanDisk?
Yeah. We're targeting to get to an attractive gross margin. There is no ceiling. We believe that our products are very valuable to our customers, and they're paying a fair price for what they are getting, and we continue to price for them. We think we need to get an attractive gross margin for them.
How attractive is attractive?
Very.
Maybe capital returns.
Yeah.
You know, remarkably, you know, you exited December with nearly $1 billion in net cash.
Yeah.
You're gonna generate significant free cash flow in the quarters ahead. What kind of framework is in your mind in terms of sort of the net cash you'd like to have on the balance sheet? How do you think about capital returns thereafter?
Yeah, at a high level, what you, what you've seen us do and will continue to do is to invest in the business. You know, last quarter, we announced the expansion of our JV contract, which requires some cash or will require some cash over time, which we're very happy with, and we'll continue to strengthen our supply chain. That is important to us. Other than that, we'll build good, healthy reserves that are prudent given the industry, the history of the industry. We don't think we're gonna go back to the history, but we wanna be very prudent and build some reserves. You saw our TLB come down. You know, we closed last quarter with $650 million from $2 billion that we started. As you can assume that we'll continue to reduce that over time.
You know, the obvious thing to do is we'll consider returning some cash to our shareholders. When and how exactly we'll announce at a future date, but we know that would be a natural next steps with the cash we're generating.
Maybe CapEx and supply. $12 billion is a lot of money, as you highlighted to me last night for WFE in 2026.
I don't know. $1 billion is a lot of money.
However, it is a much smaller growth than every other kind of end market in equipment. You know, we clearly are an undersupply. I'm curious what kind of gets the industry to push ahead and, you know, I think everyone is adding layer counts, but obviously that reduces kind of wafer output, given the greater complexity. You know, when do you think the industry will start thinking about meaningful greenfield?
Okay. First of all, I'm not gonna speak for the industry. I'm just SanDisk. I think this is, you know, super interesting conversation. Now remember, it was only a year ago, right? It was only a year ago we got on stage and we said, "We're gonna launch this company, and we're gonna invest for mid to high teens bit growth." Everybody told us, "Too much," right? "Pricing is gonna go down," right? That was the prevailing wisdom until the end of last summer. In fact, maybe until October. You know, like, we just invested an extra $1.1 billion for fab space from 2030 to 2035. It gives you the idea that we're thinking about investing and being in this business long term.
Now, you know, here we are, first week of March, and the question is, "When are you gonna invest more?" It's like, look, I think that we are going to invest for mid- to high-teens bit growth, and we are going to stay very close to our customers, you know? As Luis said earlier, customers wanna buy NAND, we wanna produce NAND. We're gonna produce NAND, and we're gonna produce more NAND tomorrow than we did yesterday. What we need to do is get the alignment of that intention to buy that NAND with the actual production of it, and that's not a trivial thing. You know, it's going back to these, how are we gonna get this business model right with our customers? It's not a natural thing for them to think the way we do, right?
If you wanna consume something for, you know, three, four, five years, you can't take two quarters off in the middle. Like, we can't just turn fab off. We gotta figure out a business model, so when we produce, we know it's gonna be consumed. As we get that figured out, I think the smoke will clear on and all the issues about where is the attractive demand in the market, not where is any demand. Like, again, I will debate your term undersupply. There's a market. Supply and demand are always in balance for that market. If you lower the price of any product, you will increase demand. We all learn that in, you know, you don't have to be an economics professor to know that.
The question is, what is the sustained demand for the attractive markets we wanna play in? I think we'll figure that out over the next several quarters, and then we can come back and revisit this conversation. You know, the idea that we're going to put more capital in the business hoping that people show up every quarter to buy it, that's, again, not a model that. We're very interested in investing behind that model. We're putting billions of dollars behind that model. We're putting hundreds of millions of dollars' R&D behind that model. Now we gotta just get aligned with the demand side and get that economic model kind of, you know, a little more solid for a longer period of time.
When I have these meetings today, like, everybody, "When's it gonna end? When's it gonna end?" That's the predominant question. "When's it gonna end?" It's the cycle. "When's the cycle gonna end? When does the next shoe drop? Why are you trading at a 6x multiple or something?" It's because people don't believe in the sustainability of the model, and it's very difficult to say, we're already putting billions of dollars into this market, we should put more money into this market, when the people investing in our company don't believe in the sustainability of it. Now, we believe in the sustainability of it, but we need to prove it, and that's what we intend to do. As we do that, we'll continue this conversation.
My takeaway is maintain mid- to high-teens and make sure you have the appropriate economic model before you would entertain believing in a perhaps a sustainably higher growth market.
Yeah, I mean, that's one way to say it. I mean, I think the other way to say it is if, you know, if somebody wants to buy NAND and they're willing to make a commitment to buy it, hey, we're good at that, right? We know how to do that. We know how to produce. There's no issue there. We've got the R&D lined up. We've got new BiCS nodes we're working on, you know, well beyond BiCS8. We can increase the productivity of NAND. That's not the issue. The issue is not our willingness or ability to produce NAND. The issue is the economics of increasing investment in a market where the business practices don't support it.
Well, I think we've run out of time. Thank you both very much. Thank you. I appreciate it.
Thank you. Appreciate it, C.J. Thanks for having us.
Thank you, C.J. Thank you.