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Sandisk resoundingly beat its high-end $2.65 billion guidance with revenues of $3.03 billion in its second fiscal 2026 quarter, and GAAP profits up an impressive 672 percent Y/Y to $804 million.
Revenues rose 61.2 percent annually, 31 percent sequentially, as NAND under-supply met accelerating demand, and prices rose strongly, hence the astounding profit increase. Profits represented 26.6 percent of Sandisk revenues in the latest quarter, not outlandish, and up from 4.9 percent in the previous quarter. Bit shipments increased in the low single digits, indicating price rises contributed most to profits. And they were due to hyperscaler, neocloud and enterprise demand for NAND drives to store AI workload data.
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CFO Luis Visoso said in the earnings call: “In the December quarter, we experienced a clear and significant improvement in market conditions across end markets, which led to higher pricing. … The revenue over-delivery came from higher prices across segments, which strengthened during the quarter.”
Bernstein analyst Mark Newman thinks: “prices are rebounding extremely at unprecedented rate.”
CEO David Goeckeler said: “Artificial intelligence continues to drive a step change in demand with data center and edge workloads expanding system complexity and storage content requirements. This shift, along with disciplined commercial actions and strategic capacity allocation has strengthened our business results.”
He added: ”inference in particular, [is] driving a meaningful increase in NAND content per deployment.”
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CFO Luis Visoso emphasized the point: “We believe that the NAND market is going through structural evolution catalyzed by AI. The evolution is more pronounced in data center, where data growth is accelerating as the temperature of data is rising, token intensity is accelerating and storage is a critical enabler for inference.”
Financial summary
- Gross margin: 51.1% vs last quarter’s 29.8%
- Operating cash flow: $1.02 billion vs $488 million in prior quarter
- Free cash flow: $843 million vs $448 million in prior quarter
- Cash & cash equivalents: $1.54 billion vs prior quarter’s $1.4 billion
- Diluted EPS: $5.15 vs $0.75 in previous quarter
The three Sandisk market segment revenues were:
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- Data center: $440 million, up 76% Y/Y
- Edge: $1.68 billion, up 63.2% “as demand meaningfully exceeded supply”
- Consumer: $907 million, up 51.7%
The consumer market is a long-term market for Sandisk, with Goeckeler saying: “We think that’s a great business and will continue to be, and we’ll continue to invest in it.” So too is the edge market: ”We’ve had a strong edge presence for a long time, and we’ll continue that.”
In general, Sandisk is looking to lock large customers into supply contracts, with Goeckeler saying: ”we are engaged in discussions with customers to evolve from quarterly negotiations towards multi-year agreements with firmer commitments on supply and pricing, enabling better planning practices and more attractive returns. These changes would better align our planning cycles with customers’ demand profiles to our mutual benefit.”
Sandisk said data center revenues rose 64 percent Q/Q, driven by strong adoption among AI infrastructure builders, semi-custom customers, and technology companies deploying AI at scale. It completed qualification of its high-performance TLC PCIe Gen5 SSD at a second hyperscaler, with more hyperscaler qualifications on track over coming quarters.
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Overall, Goeckeler is expecting Sandisk’s data center business “To grow meaningfully in both the near and long term.” He said: “Our BiCS8 QLC storage class product, codenamed Stargate, continues advancing through qualification with 2 major hyperscalers and is expected to begin shipping for revenue within the next several quarters, providing an additional tailwind for data center growth.” We think it could be announced by the mid-year point.
Looking at the segment revenue chart above, data center is Sandisk’s smallest market segment. Geckeler said: ‘For the first time, data center is expected to become the largest market for NAND in 2026,” exposing an imbalance between the overall datacenter NAND/SSD market size and Sandisk’s earnings from it. We reckon Goeckeler wants to fix that imbalance.
Sandisk is working on developing high-bandwidth flash (HBF), with Goeckeler saying: “that’s become a more recognized path forward, and there’s now lots of folks working on that, and we continue to work on it. … We’re very, very happy with the progress. We’re deep in conversations with customers on use cases. We’re designing the NAND die. We’re building the controller. So that continues to go forward.”
Sandisk and Kioxia have announced the extension of their joint venture agreements at Kioxia’s Yokkaichi Plant for an additional five years to December 31, 2034. The joint venture agreement for Kioxia’s Kitakami Plant is aligned with the Yokkaichi agreement through December 31, 2034. As part of this renewed agreement, Sandisk will pay Kioxia $1.165 billion for manufacturing services and continued availability of supply. These cash payments will be made in installments over the years 2026 to 2029.
Outlook and supply
Visoso said: “We’re evolving how we define strategic engagement, prioritizing customers with multiyear supply frameworks and share planning commitments over transactional short-term demand signals. We continue to be prudent and are not changing our capital spending plans, which support mid- to high-teens bit growth through the BiCS8 transition.”
We shouldn’t expect any new fab plans from the Sandisk/Kioxia joint venture in the next quarter or two. Visos pointed out: “Any material increase in capital deployment would require high confidence that demand at attractive pricing levels is durable over a several year horizon with financial commitments.”
Goeckeler said Sandisk, and Kioxia, have fab capacity headroom: “We just opened the [Kitakami] K2 fab, and so we have additional space there.” There are “good plans about how we’re able to now expand into the Kitakami site as needed over the next many years.” And this: “As all of us know, if you want to start building a new fab, you’re talking years before you have that up and running and have production coming out of it.”
Susqueanna analyst Mehdi Hosseini asked: “Why isn’t there a more urgency? …I don’t get a sense of urgency, and it’s going to wait until second half of this year, that means the shortage is going to intensify?”
Goeckeler disagreed. There was urgency. He said the NAND industry had been driven by quarterly NAND auction pricing; “This is a market that’s been dominated by – or not dominated, but where the primary customers were the Smartphone, PCs. … I kind of view that as what’s traditionally been the commodity NAND market.”
“ … And then on the supply side, we try to get it right on how much we supply and often get it wrong. And when you get it wrong, the economics just completely crater.”
The data center market is different. It’s “not a commodity NAND market. [and] that market [is] now becoming the primary market, and especially the primary growth engine. [It’s] really, I think, starting to challenge the business practices of the way the market has traditionally worked.” He’s “actually quite optimistic that this is happening pretty quickly.”
Visoso said: “We anticipate the market to be more undersupplied than it was in the second quarter,” indicating profitability could rise again, and later added this point: ”We’re partnering with those customers that value our relationship, that value our products, and therefore, we’re getting much better gross margin as a result of that.”
Sandisk’s third quarter revenue outlook is $4.6 billion +/- $200 million, representing a 171 percent uplift on a year ago at the mid-point- yes, we rechecked our maths. Expect profitability to soar – again.
