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SanDisk (SNDK.US) Q2 FY2026 Earnings Call: Anticipates Significant Growth in Data Center Business Both Near and Long Term

SanDisk Corp. (SNDK.US) held its second-quarter earnings call for fiscal year 2026. This quarter, the company continued to execute according to its roadmap, advancing next-generation product...

SanDisk (SNDK.US) Q2 FY2026 Earnings Call: Anticipates Significant Growth in Data Center Business Both Near and Long Term

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(SNDK.US) held its second-quarter earnings call for fiscal year 2026. This quarter, the company continued to execute according to its roadmap, advancing next-generation product...","content":"<p>SanDisk Corp. (SNDK.US) held its second-quarter earnings call for fiscal year 2026. This quarter, the company continued to execute according to its roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center segment, the company finds itself at the heart of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference in particular driving a significant increase in NAND content per deployment. This momentum reflects the company's deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping its data center business. The company anticipates this business will see significant growth both in the near and long term. SanDisk believes the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. Given market strength, the company was unable to meet all customer demand this quarter. It is refining its approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. The company remains cautious and is not altering its capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Its investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels.</p>\n<p>Q&A Session Operator: Hello, and welcome to SanDisk's second-quarter fiscal year 2026 earnings conference call. All participants will be in listen-only mode. (Operator instructions) Following today's presentation, there will be an opportunity for questions. (Operator instructions) Please be advised that this event is being recorded. I will now turn the conference over to the Head of Investor Relations, Ivan Donaldson. Please go ahead. Ivan Donaldson, Vice President of Investor Relations: 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 regarding our technology and product portfolio, business plans and performance, market trends and opportunities, and future financial results. We undertake no obligation to update these statements. Please refer to our Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission (SEC) for more information on risks and uncertainties that could cause actual results to differ materially from expectations. Today we will also reference non-GAAP financial measures. A reconciliation table between non-GAAP and comparable GAAP financial measures has been published in the written materials in the Investor Relations section of our website. Next, I'll turn the call over to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Ivan. Good afternoon, and thank you for joining SanDisk's second fiscal quarter earnings call. This quarter, revenue was $3.0 billion, up 31% sequentially, with non-GAAP EPS of $6.20. Artificial intelligence continues to drive a step-change in demand, with data center and edge workloads increasing system complexity and storage content requirements. This shift, combined with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Before discussing our end markets, I'd like to comment on the evolution of the NAND industry. NAND is now recognized as an indispensable part of the world's storage needs, driving a fundamental shift in the structure of commercial relationships between suppliers and customers. Supply certainty, longer planning cycles, and multi-year commitments are becoming critical to support structural demand that extends beyond the traditional cyclical patterns of our market. Consequently, we are engaging in discussions with customers, evolving from quarterly negotiations towards multi-year agreements with firmer supply and pricing commitments, enabling better planning practices and more attractive returns. These changes will better align our planning cycles with customers' demand profiles, creating mutual benefits. Therefore, our supply plans will continue to be designed around predictable long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continuous innovation and disciplined execution. Our products benefit from decades of sustained R&D and innovation investment in NAND and system solutions, supported by significant capital investment in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end-market highlights. This quarter, we continued to execute according to our roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center, we are at the center of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference particularly driving a significant increase in NAND content per deployment. This momentum reflects our deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping our data center business. We anticipate this business will see significant growth both in the near and long term. We are seeing strong adoption of our products across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a key enabler for these deployments, providing the performance characteristics required to optimize AI infrastructure. The broad adoption by customers across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. In the hyperscaler segment, we have completed certification for the PCIe Gen 5 high-performance TLC drive at a second hyperscaler and expect to complete certification at more hyperscalers in the coming quarters, with the BiCS8 TLC solution following closely. This product is driving significant revenue growth for our data center portfolio, which grew 64% sequentially. The BiCS8 QLC storage-class product, codenamed \"Stargate,\" continues its certification at two major hyperscalers and is expected to begin generating revenue in the coming quarters, providing an additional boost to data center growth. In the edge segment, demand significantly outstripped supply, driven by PC and mobile device replacement cycles and AI adoption, which are pushing for richer configurations and higher storage content per device. In this allocation environment, we are working with key edge customers to prioritize their critical needs and optimize the product mix within our available supply, ensuring the best long-term returns across our entire portfolio. In the consumer segment, the product mix shifted towards higher-end products and higher-value configurations, supporting storage capacity, growth, and profitability. We launched a breakthrough product in the USB form factor – the SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive. This groundbreaking \"stay-put\" product offers our customers a seamless and affordable way to significantly expand storage for their PCs and smartphones. We expanded key licensing programs with globally recognized brands Crayola and FIFA, fully delivering on the commitments highlighted by the colorful SanDisk Crayola USB-C flash drives and officially licensed 2026 FIFA World Cup products first announced last February. This strong momentum continued through the holidays, driven by targeted gaming-led initiatives, including our \"Don't Delete Your Game\" campaign. At CES 2026, we launched the SanDisk OptiNAND series, rebranding the WD Black and WD Blue NVMe SSDs to reinforce the brand architecture and consolidate performance leadership. Together, these actions reflect our continued focus on driving demand through branding, innovation, and disciplined go-to-market execution, solidifying SanDisk's leadership in the gaming, creator, and everyday consumer segments. These victories across our end markets reflect the agility of our operations and the resilience of our broad product portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, necessitating careful allocation plans aligned with customers. We remain focused on disciplined execution through the BiCS8 transition, supporting mid-to-high single-digit average long-term bit growth while maintaining our capital expenditure plans. We are working to support customer demand while ensuring profitability can sustain the substantial R&D and capital investments required to deliver some of the world's most advanced semiconductor technologies. Next, I'll turn the call over to Luis to delve into our financial performance and guidance. Luis Visoso, Executive Vice President and Chief Financial Officer: Thank you, David. Before diving into the financials, I'll provide a brief market overview. We believe the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. The higher demand for NAND in the data center is impacting other markets, which are also growing as NAND flows to the most attractive markets. We believe this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. In the December quarter, we experienced a clear and significant improvement in end-market conditions, leading to higher pricing. This quarter, as demand for our products continued to outstrip supply, we made strategic allocation decisions. Our framework for allocating bits is to maximize value creation. We prioritized supply to our strategic customers – those who recognize the value we can create together. These are customers with whom we intend to build valuable partnerships, establishing sustainable multi-year commercial practices with highly predictable demand, returns, and capital deployment. Given market strength, we were unable to meet all customer demand this quarter. We are refining our approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. We remain cautious and are not altering our capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Our investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels. Any substantial increase in capital deployment would require conviction that demand at attractive price levels is persistent over a multi-year horizon with financial commitments. In the current environment, we are committed to supplying our three end markets, as we believe diversification maximizes value creation. We plan to continue building strategic relationships with a diverse set of customers across these markets, enabling a deeper understanding of their long-term needs. This quarter, we continued to make progress with customers on establishing shared commitments, which enhances business predictability. Customer commitments and agreed commercial terms are the most effective mechanism for providing supply certainty and predictability of returns on invested capital, allowing us to manage our capital-intensive business more prudently across regions. Against this backdrop, I'll provide more detail on the quarterly results. Second-quarter revenue was $3.025 billion, up 31% sequentially and 61% year-over-year. This exceeded our guidance of $2.55 billion to $2.65 billion. The revenue beat came from higher pricing across segments, which strengthened during the quarter. Bit shipments increased 22% year-over-year and were up low-single digits sequentially. In Q2, we saw strong sequential demand across all end markets. Edge revenue was $1.678 billion, up 21% sequentially. Consumer revenue was $907 million, up 39% sequentially. Data Center revenue was $440 million, up 64% sequentially. Our Q2 non-GAAP gross margin was 51.1%, up from 29.9% last quarter. This exceeded our guidance of 41% to 43%. The gross margin beat was driven by higher pricing. Cost per bit reductions came in as expected, reinforcing the margin improvement. In Q2, we incurred $24 million in start-up costs. Excluding this, non-GAAP gross margin would have been 51.9%. Q2 non-GAAP operating expenses were $413 million, or 13.7% of revenue. This was better than our guidance range of $450 million to $475 million, reflecting a one-time benefit from a change in how we manage new product introduction. Consequently, the non-GAAP operating margin was 37.5%, up from 10.6% last quarter. Q2 non-GAAP earnings per share (EPS) was $6.20, up from $1.22 last quarter. This exceeded our guidance range of $3.00 to $3.40. The EPS beat reflected higher-than-expected revenue and lower costs. Major GAAP to non-GAAP adjustments included $52 million after-tax in stock-based compensation (1.7% of revenue) and $93 million related to certain legal matters. Turning to the balance sheet. We ended the quarter with $1.539 billion in cash and cash equivalents, with debt of $603 million. This quarter, we made an additional $750 million debt repayment and had a net cash position of $936 million at quarter-end. Turning to free cash flow, we generated $843 million in adjusted free cash flow this quarter, representing a 27.9% free cash flow margin. This includes $1.019 billion from operations, partially offset by $176 million in net cash capital expenditures. Our total capital expenditures amounted to $255 million, or 8.4% of revenue. Earlier today, we announced an agreement with Kioxia to extend the Yokkaichi joint venture until December 31, 2034. With this extension, the Yokkaichi and Kitakami joint ventures will have the same expiration date. Based on over 25 years of partnership, we believe the JVs reflect our operational scale and the tremendous shared value created over time. The JV enables both companies to design and manufacture the highest-performing, lowest-cost NAND technology, powering the world's infrastructure. As part of this extension, SanDisk agreed to pay Kioxia a total of $1.165 billion for manufacturing services to ensure continued product supply. This amount will be paid between calendar year 2026 and calendar year 2029. The cost will be recognized in our cost of sales over the next nine years. Turning to guidance. For the third quarter, we expect revenue between $4.4 billion and $4.8 billion. We expect the market to be more supply-constrained than in Q2. We anticipate a mid-single-digit decline in bit shipments due to seasonality below historical levels, as we benefit from accelerating strength in the data center. Our forecast for Q3 non-GAAP gross margin is between 65% and 67%. For Q3, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million, and non-GAAP tax expense between $325 million and $375 million. Assuming 157 million fully diluted shares, we forecast Q3 non-GAAP EPS between $12.00 and $14.00. Next, I'll turn the call back to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Luis. In summary, we continue to successfully navigate the early stages of a profound evolution in our business. Beyond playing a central role in the technologies we use every day – in PCs, smartphones, tablets, the cloud, automobiles, gaming devices, robotics – NAND is also a key technology supporting the development and proliferation of artificial intelligence. Driven by some of the world's largest and most well-capitalized tech companies, the data center is projected to become the largest market for NAND for the first time in 2026. Driven by the performance our technology provides, customers across all our end markets are increasingly seeking commercial practices based on shared commitments and agreed, financially attractive terms aligned with our existing supply plans. Our supply plans will continue to align with this attractive, real, and sustainable long-term demand. Against this backdrop, margins are expected to reset at structurally higher levels, providing fair returns for the required substantial innovation and investment. Our technology and product portfolio intersect with these shifting market dynamics at a perfect time, enabling us to manage a balanced portfolio and deliver industry-leading financial performance. Now, let's begin the Q&A. Q&A Session Operator: Thank you. We will now begin the question-and-answer session. (Operator instructions) The first question comes from Mark Newman from Bernstein. Please go ahead. Mark Newman: Hi, thank you very much, and congratulations on the terrific numbers today. Really, really great numbers, especially the Q3 guide. So, obviously what's happening is prices are expanding at an unprecedented rate. I guess my question is for Dave's opening comments. How are you thinking about LTAs? Of course, LTAs have pros and cons, because LTAs lock in pricing, and when prices are rising so fast, I imagine you don't actually want that many LTAs. But I'd love to understand how you're thinking about that, how we should think about that, in terms of the proportion of your business you put on LTAs, and what that implies going forward. That would be great. And if you could briefly touch on the long-term supply-demand balance, if there are any plans to add supply in this very, very large, currently quite severe shortage, or how you're thinking about that, that would be great too. Thank you very much. David V Goeckeler, Chairman and CEO: Thanks, Mark. Appreciate the comments. A couple of things on the series of things happening with the business dynamics that led to the results you're seeing. First, it starts with the product portfolio and innovation. You know, our BiCS8 node, which we've started and continue to ramp into production, is just a fantastic node. The performance, QLC performance, 2Tb die, a lot of things put us in a very strong position. By the way, I'd point out we extended the JV, which we're very happy about, that goes for another ten years. That's supporting a very strong enterprise SSD portfolio. That's something we've been driving for a while. Last quarter I said we'd see growth through the fiscal year. We saw it in Q1, I think 29% sequential growth. Now we saw 64% sequential growth in Q2, and I think you'll see acceleration from here through the second half. So, the third major pillar of business innovation is frankly happening in the consumer business. A lot of new product introductions. This Extreme Fit product we announced this year is really a breakthrough product. It allows our customers to add storage to their devices very seamlessly and economically. It's kind of an innovation in the USB space. You might not think that happens anymore, but this is not a removable product. It's designed to plug in and stay put. You see the agreements we have with partners like FIFA, which is probably the biggest event this year. We have great co-branded products there. We look at our consumer business, we saw 50% year-over-year growth, so really strong performance there. The excellence of that product portfolio innovation has allowed us to have a better portfolio mix, and if we look back over the last few quarters, we've actually been able to swap out the lowest-margin business for what is now the highest-margin business, which also provides a significant tailwind for the business. On top of that, you have the supply-demand dynamics, which are pushing the whole market forward. So it's really the combination of all those things pushing the business forward. It's not just price, although obviously being in a strong pricing environment is great. On LTAs, I'll talk a bit, and I know Luis will have some good comments too. So, as we get to a point where we believe our technology is getting a fairer return, and frankly, customers are seeking more supply assurance. I mean, I'd point out one thing about the current market, which is entirely a demand-driven phenomenon about what's happening in the market. We've been very transparent about our supply plans for over a year. We're putting a lot of money into this market. We're putting billions of dollars of R&D into driving the roadmap. We're putting billions of dollars of capex, and we've been very clear that we're going to drive mid-to-high single-digit bit growth consistently, we think it's a great market. What's happening now is we just don't have enough visibility into what the demand side really is. I mean, if we look at the data center, we've now been through three forecast cycles. Last quarter, we moved from mid-20%s growth in that market to mid-40%s growth. What we're seeing now is high-60%s exabyte growth in that market in 2026. I think our customers are realizing that, particularly in the data center market. Their numbers are big, what they need in '26, '27, '28, we're even talking to some of them about '29 and '30. They're doing their own planning. The number of exabytes they're going to need is massive. So, LTAs are about coming up with a model that gives us the confidence to supply that level of demand on a sustained basis. For us, it's not about what demand is next quarter or the quarter after. There's nothing we can do about that given the dynamics of our business. But we want to align the long-term growth rate with long-term sustained demand, as you said, at attractive financial terms. Let me hand it over to Luis. Luis, any thoughts on that? Luis Visoso, EVP and CFO: Yeah, I mean, David covered most of it. I'd say, Mark, we're seeing customers across end markets and across geographies reaching out to us. So it's not just a handful. We're seeing a pretty broad base, which is very interesting for us. We're making significant progress. We've made significant progress with several customers who really, really want us to prioritize or guarantee supply, and as David pointed out, they see it as a key enabler for their business, which is what they're looking for. Now, on your point, we're being very thoughtful about how we define a couple of metrics. One is the length of the agreement, the price at which we transact, the volume, the amount of business we put into it, and any prepayment component in it. So we're being very thoughtful that this should be value-additive, not the opposite. Mark Newman: Great, thank you very much. Could I just get a quick comment on how you see long-term supply-demand and any flexibility to add supply? David V Goeckeler, Chairman and CEO: No, I mean, Mark, we have our supply plans. Again, we've been very clear about what our capex plans are, what our bit growth plans are, and that's it. The key is meeting our customers at that supply level and understanding how we allocate, and then, as we said, it's about all of us lifting our heads up and looking further out on the horizon at what the demand in this market is really going to be, what sustained demand is going to be, and we really need to get away from the idea that this is just a transactional market where we only get a strong signal one quarter at a time. I mean, to be fair, we do get demand signals from customers annually, but we really only transact that. We negotiate prices every quarter, which makes it very, very difficult to add any kind of spend because we just don't have visibility into the economics, and again, particularly as the market shifts to the data center, I think data center customers are more willing. As Luis said, it's across all customers, but I think data center customers, given their demand profile and frankly how big their growth is, are being more proactive in engaging in that kind of dialogue, really wanting to understand supply assurance a few years out, and what kind of – how can we come up with a – what kind of commercial practices can we put around that? And that's a, as I said in my prepared remarks, I said we're in the early stages of this transition, that's the early part. I think the commercial practices will change, and I think it's all for the better. We have to get these conversations done over the next few quarters. Thank you very much, Himanshu. Mark Newman: Thank you very much. Again, congratulations, guys. David V Goeckeler, Chairman and CEO: Thanks, Mark. We appreciate it. Operator: The next question comes from Joe Moore from Morgan Stanley. Please go ahead. Joseph Moore: Great. Thanks. At CES, Jensen was talking about this Key-Value Cache and gave some numbers on terabytes per GPU, which seems like a pretty substantial market. Are you seeing any signs of that? Do you think that – should we just take that as direct math? Does everyone have different implementations? And what does that mean for the data center and NAND? David V Goeckeler, Chairman and CEO: Yeah, Joe. We're working on that right now. We're working with NVIDIA on that, and how they're thinking about it. And then of course we'll work with our customers on how they're going to configure it in their deployments. So it's a little early. I'll say a couple things about it. First, none of that demand is in the demand numbers we're talking about today. I think it's just a perfect example of where we all need more collaboration on what future demand is going to be. Second, our initial take on that, when we look at, say, '27 demand, we think that's about an incremental 75 to 100 exabytes. And then the year after that, you can double that number. So it's a massive amount of demand. I think that, again, is just another example of NAND being central to the AI architecture. Very, very clear at this point. If it wasn't before, the AI architecture is changing, right? It's not surprising. Any technology that is this profound and is being deployed at this scale, we're going to continue to see innovation and evolution in the architecture. So we'll watch that very closely. NAND is going to be a big part of that architecture. It's the most scalable semiconductor memory technology, or maybe the most scalable semiconductor technology. So we're looking at those configurations. It's very real demand. We're just trying to figure it out. And then we'll probably incorporate that into the numbers later this year, going into '27 and '28. Joseph Moore: Great. Thanks. Great. Thanks. As a follow-up, the enterprise SSD opportunity, how is that split between TLC and QLC today, and how does that change going forward? David V Goeckeler, Chairman and CEO: I think we're roughly tracking the market today. Mostly TLC. I'd say it's skewed to TLC, particularly for us. And then, we haven't launched the Stargate product, which is QLC for storage. It's in certification. So we'll start shipping that product for revenue in the coming quarters, which we're excited about, gives us another growth tailwind for our data center portfolio. That will lift the QLC mix. But for now, I think the overall market and our portfolio, is skewed to TLC. Joseph Moore: Great. Thanks. Great numbers. David V Goeckeler, Chairman and CEO: Thanks, Joe. Appreciate it. Operator: The next question comes from CJ Muse from Cantor Fitzgerald. Please go ahead. C J Muse: Yes. Good afternoon. Thank you for taking the question. I guess first question, is there a way to quantify the incremental NAND demand associated with AI infrastructure build-out? I'm excluding KvCache, but, we were at mid-to-high single digits before, I'm curious what now, based on your conversations with customers and the trends you're seeing, looking at '26, '27, '28, what is the new demand CAGR roughly? David V Goeckeler, Chairman and CEO: I think the best proxy we have for that right now, CJ, is the exabyte demand we're seeing in the data center. As I said earlier, I mean, two cycles ago we were looking at, like, mid-20%s exabyte growth in the data center in '26. Last quarter we were talking about, given the capex cycles happening, we moved that to mid-40%s. Our forecast now is high-60%s exabyte growth in the data center, and that's without any capex increases that happened within this earnings cycle. So, just a significant increase in demand quarter-on-quarter, which we think is almost entirely driven by AI, pretty clear. C J Muse: Perfect. Thank you. And then I guess you paid down a fair amount of debt this quarter. You only have $600 million outstanding, probably could pay that off this quarter. So just curious, as you get to a net cash position, how should we think about capital return, specifically around share repurchases in the coming quarters? Luis Visoso, EVP and CFO: Yeah, we feel, we're very proud of the progress we've made on reducing debt. Remember we started at $2 billion, it's come down very, very quickly, $600 million this quarter, and we'll continue to take it down. CJ, our priorities are to continue to invest in the business as we have been, and to build a prudent cash resource, it's a business where it's helpful to have cash on hand. We're not going to waste your cash, don't worry, but we're going to build a prudent cash resource, we'll continue to reduce our debt, and in due time, we'll continue to expand and give you updates. But so far, those are our priorities. C J Muse: Thank you. David V Goeckeler, Chairman and CEO: Thanks, CJ. Operator: The next question comes from Jim Schneider from Goldman Sachs. Please go ahead. James Schneider: Good evening. Thanks for taking my question. First, on the supply side, I was wondering if you could just give a brief overview of the Yokkaichi and Kitakami fab network, and where things stand, I assume utilization is basically full, but, as you think more tactically about the high-teens growth prospect after this year, how do you expect to ramp your overall JV fab network over the next, say, 18 months or so, and then maybe give any kind of view – your view on some of the industry greenfield capacity expansions recently announced given some of your competitors? David V Goeckeler, Chairman and CEO: So, first, we have – as you said, we have two main bases, Yokkaichi and Kitakami. I think a big step this quarter was we announced the extension of the JV agreement around Yokkaichi, aligning it with the Kitakami agreement, so they both now run to 2034, which gives us very good supply assurance for the next nine years, and we'll continue to talk about what happens after that, but this relationship with Kioxia has been going on for decades, it's incredible, and will continue for a long time. So, we feel we're in a very good position there. Look, we haven't had underutilization in the fabs for a couple of quarters. We got through that a couple of quarters ago. There's probably still a little bit of cost roll from that memory. I think that was last quarter. We're done. So, they're running full. Kitakami is where we're expanding. We just opened the K2 FAB, so we have additional space there. I think we just, the JV, led by Kioxia on that part, has just done a really good job of capacity planning and has good plans for how we scale into the Kitakami base over many years as needed. So, we feel really good about our positioning there. As for the rest of the industry, it's – as you know, it's got long lead times. We've seen some announcements recently. I would consider those to be normal course. We're all constantly building cleanroom space. As I said before, it's a market where we've been very consistent on the supply side. We're going to grow bits at a mid-to-high single-digit rate. We're going to do that through innovation. We're going to do that through – that innovation is going to require additional cleanroom space. That's all in the plan. I'd expect to see continued spending to get to that number, but we're not seeing anything unusual. And I think as we all know, if you want to start building a new fab, it takes years to get it built and operational and producing product out of it. So that's a little bit of how we see the market. Final comment, when we talk about supply-demand, all of that is factored into our numbers. James Schneider: Thanks. And then maybe as a follow-up, could you maybe talk about, obviously you mentioned the certification with another enterprise SSD hyperscale customer by the end of this calendar year, for example, what do you expect your enterprise SSD exposure to be as a percentage of total revenue? Thanks. David V Goeckeler, Chairman and CEO: Yeah, we're not going to give a precise number right now, but I'd just say stay tuned. I think we've said this, our business is going to continue to grow in this market. We've seen 29% sequential growth, followed by 64% sequential growth, without getting into too much detail. I think you'll see a significant step-up next quarter as well. So we feel really good about where the portfolio is positioned. Like I said, the customer response, not just hyperscalers, but across the ecosystem that's building AI infrastructure. Our compute-focused TLC product in the market is really driving that growth. We'll see our BiCS8 QLC product start shipping for revenue in the coming quarters, which will be another tailwind for growth. The performance of BiCS8 QLC, as we've discussed, has been extremely well received. So we continue to see very high interest in those products, and certifications are ongoing. We look forward to continued growth, and that will be part of the balanced portfolio we've always talked about, about how we're going to allocate our supply into that part of the market. But we're excited about where we are and where we're going. James Schneider: Thanks. David V Goeckeler, Chairman and CEO: Thanks, Jim. Operator: The next question comes from Mehdi Hosseini from SIG. Please go ahead. Mehdi Hosseini: Yes, thank you for taking my question. I have two follow-ups, this is for the team. When I look at your guide for March Q3, assuming low-single-digit bit growth, there's a big jump in ASP and mix pricing. I wanted to ask, how should we think about the mix factors impacting ASP? Clearly, as you scale SSDs, there's a higher premium. You're capturing more premium or economic value than bits. Is there any way to help me understand that? Because just thinking about the absolute ASP might give us the wrong impression. So any help you can provide would be great. I don't have a follow-up. Luis Visoso, EVP and CFO: Yeah, so the mix impact we have is less about the change in our end markets and more about the customers, right? And how we serve the market. I talked a little bit about that in my prepared remarks. What you're seeing is we're driving a better mix. We're working with customers who value our relationship, value our products. Therefore, we're getting better gross margins from that. So there is a mix component to that, to your point. Mehdi and Wilco, and there's some pricing as well. Now, we believe the market will. Go ahead, sorry. Mehdi Hosseini: Oh, I was just going to say, just a quick follow-up. Could you provide any breakdown of the mix so we don't get too fixated on the ASP trend? David V Goeckeler, Chairman and CEO: Yeah, we'll provide that to you when we report next quarter. Mehdi, on the guide, I don't have anything to share with you right now. Mehdi Hosseini: Okay, great. And one question for David. Look, we're here, the shortage is increasing. It's intensifying. You and your peers are engaging in multi-year contract discussions. As you highlighted, these projects take years. Building fabs and putting equipment is a very long process. Why is there not more urgency? Why are your customers not willing to commit more? They are committing to investments across the AI supply chain. But when it comes to memory or NAND, I don't sense the urgency. If this is going to wait until the second half of this year, that means the shortage will intensify, unless the SSD 60% exabyte growth might just be a shortlist. But how can I reconcile the two? David V Goeckeler, Chairman and CEO: I have a lot of thoughts on that, Mehdi. I mean, first – I would argue there actually is quite a bit of urgency, and things are changing quite dramatically, quite quickly. Right? I mean, you're talking about a market that has operated the way it has operated for arguably decades. The way that market operated is there was basically a NAND auction every quarter, and that set the price. So, that set the price. And then we all had to go debate what the price was every quarter. And then on the supply side, we tried to get right how much we supply, but often got it wrong. And when you got it wrong, the economics completely broke. So, we're trying to move away from that world. There are a lot of reasons why we're moving away from that world. There are a lot of technology reasons and all sorts of things we've talked about in the past, we could talk a lot about it. But, for something you've been doing for a decade, to just wake up one quarter and decide to fundamentally change the commercial practices of an industry is almost, is really, really hard to do. So, but I do think it's happening. I do think customers are starting to look, as I said, they're starting to look further out, particularly in the data center. I think the point that cannot be underestimated is the idea that the data center is now the largest market for NAND. I mean, this is a market that was once dominated by – or not dominated by, but when the primary customers were smartphones, PCs, I viewed that as the traditional commodity NAND market. I hate that term, but that's how people thought about it. The data center is not that market. Like the data center is not a commodity NAND market. The data center is – NAND is a highly strategic product, it's part of a very complex AI architecture. I need extreme performance, I need innovation, I need specific enterprise SSDs that fit my configuration. That is very different from the idea of \"I just need the same product, I can plug in from any of five different suppliers.\" That's not – so that market now becoming the primary market, and particularly the primary growth engine, really, I think, is starting to challenge the commercial practices of how the market has traditionally operated. Again, I'm actually quite optimistic that this is happening fairly quickly. Now we'll see how fast. I mean, are we actually to the point of announcing contracts? We're not quite there yet. We have some in process. But it's actually, in my view, progressing fairly quickly relative to the size of the market, the number of players, the amount of business transacted every quarter, to see it change as quickly as it is right now is actually quite remarkable. Mehdi Hosseini: Thank you for the detailed color. David V Goeckeler, Chairman and CEO: No problem. Thanks, Mehdi. Operator: (Operator instructions) The next question comes from Wamsi Mohan from Bank of America. Please go ahead. Analyst: Hi. This is Ruplu for Wamsi. Can I ask a question for Luis? This quarter, operating expenses came down. You said you got a benefit from managing NPI. Could you elaborate on that, what that benefit was? And could you talk about capital allocation plans? How much do you expect to spend on HBF and data center expansion, and any capital return plans or M&A plans? Thank you. Luis Visoso, EVP and CFO: Yeah. So, let me try to unpack the OpEx question, because I thought someone would ask. We made a recurring change to how we account for selling our products. Basically, we now start charging for our certification units. In the past, we used to expense the costs as they were incurred, right? They were period costs. This is a non-recurring factor, it's a benefit, a one-time benefit, because we're moving from period costs into inventory because we're now selling those certification units. Does that make sense? Analyst: Yes. That's clear. Okay. So, we will get ongoing savings because we charge customers for these certification units, and there's a one-time benefit as we go through the transition and through inventory. And on the capital allocation question, as I said earlier, our capital allocation strategy hasn't changed. We will continue to invest in the business. We will build a prudent cash reserve, which is very helpful in this business, especially given where we are. We think we need to continue to build cash reserves, and we will continue to reduce debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. We're fully funding the business. We're funding the business through the BiCS8 transition. We're funding our OpEx, we feel we're funding the business itself appropriately. Mehdi Hosseini: Any underutilization charges in the guide? Luis Visoso, EVP and CFO: No, not in the guide, and not in the actuals. Mehdi Hosseini: Okay, thank you very much. Operator: The next question comes from Vijay Rakesh from Mizuho. Please go ahead. Joseph Moore: Hi, Dave and Luis. Great quarter, very amazing numbers. Just wanted to know for 2026-27, what kind of bit growth are you looking at? Obviously ASP pricing has been skyrocketing, but just wanted to know how pricing trends are across different segments, from data center to retail to consumer SSDs, if you could give some color, thanks. David V Goeckeler, Chairman and CEO: Yeah, so the bit growth we see in '27, '28, consistent with what we talked about at the beginning of February. We're still talking about mid-to-high single-digit bit growth annually. We're not going to change our assumptions on that unless we see that demand is there, sustainable, and profitable. So our plan is still – our plan of record is that kind of high-single-digit annual bit growth. On pricing across what we call end markets, it's very interesting, right? What you see is the prices don't move exactly the same, but they basically move at the same rate. What's happening now is NAND can ultimately flow to any market. So NAND will naturally flow to the most attractive market. So when data center prices go up, they do have an impact on the other markets, for example, right? So that's what we're seeing across the markets. Prices are basically up across the board. Operator: The next question comes from Karl Ackerman from BNP Paribas. Please go ahead. Karl Ackerman: Hi, thanks for taking my question. I wanted to congratulate you on a very nice quarter. What is the product roadmap? I think there's – now that your data center is 15% of the mix, NAND flash is increasingly being attached to AI compute. So I think that's creating new requirements on performance, so could you update us on your product roadmap to meet these new requirements? For example, I think there are high IOPS SSDs, you have exposure on HBF, so what do those new products look like? David V Goeckeler, Chairman and CEO: Yeah, so I think that's a great example of a lot of innovation that's ongoing, driven by the data center, as I mentioned earlier. So, you're right, what we call the compute-focused, TLC high-performance drives are what's driving the portfolio right now. As I said, we just saw 64% sequential growth, so we continue to see very strong pull on those high-performance products. As I said, as we start to migrate those to BiCS8, we feel we're in a very strong position, but as you said, there's a whole host of new innovation going on, and I think, I think the innovation engine is alive and well across the industry, which is, how are we going to meet the AI storage demand? Models are getting bigger, generating more tokens, caches are getting bigger, which is a natural thing where you start to think about NAND and its massive scaling characteristics, and you're right, there's a lot of innovation there. There are high IOPS enterprise SSDs, which of course you can imagine we're working on. You know, we had our own thoughts on this two years ago, we talked about it at Investor Day, we believe there's an opportunity to re-architect NAND to bring it into AI. We trademarked it as High Bandwidth Flash (HBF). I think over the last year, that has become a more recognized path forward, and there are a lot of people working on that now, by the way, we continue to work on that. We're very, very happy with the progress. We're having deep conversations with customers on the use cases. We're designing NAND die. We're building controllers, so that continues to move forward. Obviously, we'll have more to say on that as we move forward and plans firm up, but, I think all of that is just an example that as the AI architecture continues to scale, there's a huge opportunity for innovation, and it's incredibly exciting, and we're just in the very early stages of rolling this technology out and scaling it globally, and we have, perhaps the entire technology industry, in a very strong position to do that. They're some of the largest, most capable tech companies in history. Obviously, they're putting massive – massive resources behind rolling this technology out and scaling it globally very quickly, and I think it's incredibly exciting. I think it's going to continue. I think we're super early in this, and I think it's going to last for a long time. Operator: The next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Michael Stadnoff: Hi, guys. Thanks. This is Michael Stadnoff on for Aaron. I wanted to go back to the LTA discussion. Have you finalized any of these agreements? And if so, is part or all of the prepayment part of, I guess, any finalized agreements? And is that something we should expect going forward? I know you kind of hinted at it. Luis Visoso, EVP and CFO: Yeah. So far, we have one agreement signed and completed. We don't disclose the terms. There was a prepayment component in it, which we think is important in these types of agreements, but that's all I'll say, Michael. So we have one completed, and a few in the queue. Operator: The next question comes from Asiya Merchant from Citi. Please go ahead. Asiya Merchant: Great. Thanks for taking my question, great results here. David, last quarter, I think you shared some thoughts on how you see the edge markets, PCs, smartphones, maybe the consumer markets. Just given the fact that memory is on allocation, people are talking about PC and smartphone unit declines, just how are you thinking about that, and what are your OEM customers signaling to you about those markets, and how does that change your demand outlook for maybe 2H '26 and into '27. And if I could sneak one in for Luis. Structurally, NAND is going through this dynamic, it's clearly a highly strategic product. How are you thinking about your true through-cycle gross margin? It looks like it's been a while since you've been at that level, but how are you thinking about gross margin structurally from here? Thanks. David V Goeckeler, Chairman and CEO: Okay. Thanks, Asiya. So look, a couple thoughts on that. So first, on the consumer market side, I think we're very happy with where our consumer portfolio is positioned. As I said, we just delivered over 50% year-over-year growth. I think the work we've done there on how we think about branding, innovation, product portfolio, that's a long-term market for us. It will continue to be a long-term market for us. We think we're able to drive value there through the value of the SanDisk brand. So we think that's a great business and will continue to be, and we'll continue to invest in it. In some of the other markets, like, look, I think that's one of the reasons. Obviously, we look at the numbers as we prepare, if you just look at '26, our PC units are 285 million. I don't think we would have – anyone would have picked that number at the beginning of the year. So it's just – continued very strong results in terms of unit growth, content growth in those markets. So look, as we go into '26, or we're in '26 now, we'll see some base effects on that, some decline in units. I think we're still getting very strong signals from customers in those markets, wanting supply. I mean, very strong signals on a sustained basis. We're working with them as closely as we can. I think it's extremely important in this time of the market to be very closely connected with our customers, and we're doing that. But you will get some base effects on units. I mean, there's a lot of discussion about mix in the market. I just think that's typically how this market works. Certainly, as components change, configurations change. Frankly, we saw that in '23. All of a sudden, the mix shot way up because prices came way down. All of a sudden, a 1TB drive became very inexpensive. All of a sudden, it started showing up everywhere. As the market moves the other way a bit, you'll see that kind of change. I think that's just the natural way this market works. I don't think it's something to be overly concerned about. So those are still strong markets. Customer relationships are very good. I expect we'll continue to be deeply engaged in those markets. We've had a strong presence at the edge for a long time, and we'll continue to have that. From a big picture, that's one of the reasons why I think this business is so valuable, is because we're in every single device, every single technology, that touches – we touch it or sell NAND into it. And now with the AI deployment in the cloud and that market becoming the largest market for NAND, it's changing the dynamics of how the whole industry operates. As we said in our prepared remarks, we've put – we've put a lot of R&D over the last 25 years to get to where we are. We've put a lot of capital to get to where we are, that we can manufacture all of this, front-end and back-end. I think we're finally getting to the point where the value of that IP, the value of that intensity is being recognized in our own results. Luis Visoso, EVP and CFO: Yeah, I think the way to answer your question on through-cycle margin is similar to what David left off with, which is in a high capex, high R&D industry or company, frankly 35% is not where we want to be, right? So we're not going to give you a new number today, but clearly that's not where we want to be. What I will tell you is this is the first quarter, right? We're above 35%, we got to 51%, we're getting to, call it a midpoint of 66%, so we're making progress, we're getting to a place where we believe we can justify the capex, we can justify the R&D investments the business requires. Operator: The next question comes from Tom O'Malley from Barclays. Please go ahead. Analyst: Hi, this is Matthew Panon for Tom O'Malley. Just one quick question, pardon if you mentioned it, just jumping around during the call. I was wondering if you said what percentage of quarterly bit shipments were enterprise SSD? Luis Visoso, EVP and CFO: I don't think we said that, but it's roughly in the high-teens range. Operator: The next question comes from Blayne Curtis from Jefferies. Please go ahead. Blayne Curtis: Hey, guys. Congrats, thanks for squeezing me in. I just wanted to talk about the model, obviously, I mean doubling sales in two quarters. I just want to make sure I understand how you're going to handle OpEx. I guess as a percent of revenue it's halved now, right? So, are you going to accelerate how you look at investing in R&D, and also the tax rate, with this dramatically improved profitability, anything to think about with the tax rate? I think you were talking about it maybe getting to 20% at some point, is that sooner rather than later? Luis Visoso, EVP and CFO: Yeah. So on the OpEx side, first you should know that about 75% of our OpEx is R&D. That's where we put our money, that's why we do it? Because it's a technology company, innovation is our lifeblood. That's what we believe in, that's where we put our money. So, you should not take this quarter's OpEx as an indication of where we should be, because that, as I mentioned earlier, had a non-recurring benefit. If you want to quantify that, that number is about $35 million, so you can use that number for your modeling. We don't believe OpEx should increase significantly from where we are today. We believe the run rate is healthy. We will always look at where we need to invest and make sure we're funding innovation, but on the other hand we're also always looking at efficiency, and how we make sure there's no waste in the system. So a long way of saying, which is the spending level last quarter, what we got this quarter, those are more sustainable levels now. Tax rate is interesting because we have a lot of prior-year losses, particularly accumulated in Malaysia, and we're burning through them very quickly. That's what happens when you start generating profits, so I think you should see our tax rate settle in a little bit higher than it is today, maybe 14%-15% on a sustained basis. That's what I would model for now. Operator: That concludes our Q&A session. I would like to turn the conference back over to David for any closing remarks. David V Goeckeler, Chairman and CEO: Okay. Thank you everyone for joining us. We'll be communicating throughout the quarter. Have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. The event has ended.</p>","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SanDisk (SNDK.US) Q2 FY2026 Earnings Call: Anticipates Significant Growth in Data Center Business Both Near and Long Term</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSanDisk (SNDK.US) Q2 FY2026 Earnings Call: Anticipates Significant Growth in Data Center Business Both Near and Long Term\n</h2>\n\n<h4 class=\"meta\">\n\n\n<a class=\"head\" href=\"https://laohu8.com/wemedia/1036600163\">\n\n\n<div class=\"h-thumb\" style=\"background-image:url(https://community-static.tradeup.com/news/b3bf6d02ad1a6e9e7377eebbb162346a);background-size:cover;\"></div>\n\n<div class=\"h-content\">\n<p class=\"h-name\">Stock News </p>\n<p class=\"h-time\">2026-01-30 10:57</p>\n</div>\n\n</a>\n\n\n</h4>\n\n</header>\n<article>\n<p>SanDisk Corp. (SNDK.US) held its second-quarter earnings call for fiscal year 2026. This quarter, the company continued to execute according to its roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center segment, the company finds itself at the heart of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference in particular driving a significant increase in NAND content per deployment. This momentum reflects the company's deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping its data center business. The company anticipates this business will see significant growth both in the near and long term. SanDisk believes the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. Given market strength, the company was unable to meet all customer demand this quarter. It is refining its approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. The company remains cautious and is not altering its capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Its investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels.</p>\n<p>Q&A Session Operator: Hello, and welcome to SanDisk's second-quarter fiscal year 2026 earnings conference call. All participants will be in listen-only mode. (Operator instructions) Following today's presentation, there will be an opportunity for questions. (Operator instructions) Please be advised that this event is being recorded. I will now turn the conference over to the Head of Investor Relations, Ivan Donaldson. Please go ahead. Ivan Donaldson, Vice President of Investor Relations: 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 regarding our technology and product portfolio, business plans and performance, market trends and opportunities, and future financial results. We undertake no obligation to update these statements. Please refer to our Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission (SEC) for more information on risks and uncertainties that could cause actual results to differ materially from expectations. Today we will also reference non-GAAP financial measures. A reconciliation table between non-GAAP and comparable GAAP financial measures has been published in the written materials in the Investor Relations section of our website. Next, I'll turn the call over to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Ivan. Good afternoon, and thank you for joining SanDisk's second fiscal quarter earnings call. This quarter, revenue was $3.0 billion, up 31% sequentially, with non-GAAP EPS of $6.20. Artificial intelligence continues to drive a step-change in demand, with data center and edge workloads increasing system complexity and storage content requirements. This shift, combined with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Before discussing our end markets, I'd like to comment on the evolution of the NAND industry. NAND is now recognized as an indispensable part of the world's storage needs, driving a fundamental shift in the structure of commercial relationships between suppliers and customers. Supply certainty, longer planning cycles, and multi-year commitments are becoming critical to support structural demand that extends beyond the traditional cyclical patterns of our market. Consequently, we are engaging in discussions with customers, evolving from quarterly negotiations towards multi-year agreements with firmer supply and pricing commitments, enabling better planning practices and more attractive returns. These changes will better align our planning cycles with customers' demand profiles, creating mutual benefits. Therefore, our supply plans will continue to be designed around predictable long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continuous innovation and disciplined execution. Our products benefit from decades of sustained R&D and innovation investment in NAND and system solutions, supported by significant capital investment in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end-market highlights. This quarter, we continued to execute according to our roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center, we are at the center of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference particularly driving a significant increase in NAND content per deployment. This momentum reflects our deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping our data center business. We anticipate this business will see significant growth both in the near and long term. We are seeing strong adoption of our products across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a key enabler for these deployments, providing the performance characteristics required to optimize AI infrastructure. The broad adoption by customers across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. In the hyperscaler segment, we have completed certification for the PCIe Gen 5 high-performance TLC drive at a second hyperscaler and expect to complete certification at more hyperscalers in the coming quarters, with the BiCS8 TLC solution following closely. This product is driving significant revenue growth for our data center portfolio, which grew 64% sequentially. The BiCS8 QLC storage-class product, codenamed \"Stargate,\" continues its certification at two major hyperscalers and is expected to begin generating revenue in the coming quarters, providing an additional boost to data center growth. In the edge segment, demand significantly outstripped supply, driven by PC and mobile device replacement cycles and AI adoption, which are pushing for richer configurations and higher storage content per device. In this allocation environment, we are working with key edge customers to prioritize their critical needs and optimize the product mix within our available supply, ensuring the best long-term returns across our entire portfolio. In the consumer segment, the product mix shifted towards higher-end products and higher-value configurations, supporting storage capacity, growth, and profitability. We launched a breakthrough product in the USB form factor – the SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive. This groundbreaking \"stay-put\" product offers our customers a seamless and affordable way to significantly expand storage for their PCs and smartphones. We expanded key licensing programs with globally recognized brands Crayola and FIFA, fully delivering on the commitments highlighted by the colorful SanDisk Crayola USB-C flash drives and officially licensed 2026 FIFA World Cup products first announced last February. This strong momentum continued through the holidays, driven by targeted gaming-led initiatives, including our \"Don't Delete Your Game\" campaign. At CES 2026, we launched the SanDisk OptiNAND series, rebranding the WD Black and WD Blue NVMe SSDs to reinforce the brand architecture and consolidate performance leadership. Together, these actions reflect our continued focus on driving demand through branding, innovation, and disciplined go-to-market execution, solidifying SanDisk's leadership in the gaming, creator, and everyday consumer segments. These victories across our end markets reflect the agility of our operations and the resilience of our broad product portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, necessitating careful allocation plans aligned with customers. We remain focused on disciplined execution through the BiCS8 transition, supporting mid-to-high single-digit average long-term bit growth while maintaining our capital expenditure plans. We are working to support customer demand while ensuring profitability can sustain the substantial R&D and capital investments required to deliver some of the world's most advanced semiconductor technologies. Next, I'll turn the call over to Luis to delve into our financial performance and guidance. Luis Visoso, Executive Vice President and Chief Financial Officer: Thank you, David. Before diving into the financials, I'll provide a brief market overview. We believe the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. The higher demand for NAND in the data center is impacting other markets, which are also growing as NAND flows to the most attractive markets. We believe this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. In the December quarter, we experienced a clear and significant improvement in end-market conditions, leading to higher pricing. This quarter, as demand for our products continued to outstrip supply, we made strategic allocation decisions. Our framework for allocating bits is to maximize value creation. We prioritized supply to our strategic customers – those who recognize the value we can create together. These are customers with whom we intend to build valuable partnerships, establishing sustainable multi-year commercial practices with highly predictable demand, returns, and capital deployment. Given market strength, we were unable to meet all customer demand this quarter. We are refining our approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. We remain cautious and are not altering our capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Our investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels. Any substantial increase in capital deployment would require conviction that demand at attractive price levels is persistent over a multi-year horizon with financial commitments. In the current environment, we are committed to supplying our three end markets, as we believe diversification maximizes value creation. We plan to continue building strategic relationships with a diverse set of customers across these markets, enabling a deeper understanding of their long-term needs. This quarter, we continued to make progress with customers on establishing shared commitments, which enhances business predictability. Customer commitments and agreed commercial terms are the most effective mechanism for providing supply certainty and predictability of returns on invested capital, allowing us to manage our capital-intensive business more prudently across regions. Against this backdrop, I'll provide more detail on the quarterly results. Second-quarter revenue was $3.025 billion, up 31% sequentially and 61% year-over-year. This exceeded our guidance of $2.55 billion to $2.65 billion. The revenue beat came from higher pricing across segments, which strengthened during the quarter. Bit shipments increased 22% year-over-year and were up low-single digits sequentially. In Q2, we saw strong sequential demand across all end markets. Edge revenue was $1.678 billion, up 21% sequentially. Consumer revenue was $907 million, up 39% sequentially. Data Center revenue was $440 million, up 64% sequentially. Our Q2 non-GAAP gross margin was 51.1%, up from 29.9% last quarter. This exceeded our guidance of 41% to 43%. The gross margin beat was driven by higher pricing. Cost per bit reductions came in as expected, reinforcing the margin improvement. In Q2, we incurred $24 million in start-up costs. Excluding this, non-GAAP gross margin would have been 51.9%. Q2 non-GAAP operating expenses were $413 million, or 13.7% of revenue. This was better than our guidance range of $450 million to $475 million, reflecting a one-time benefit from a change in how we manage new product introduction. Consequently, the non-GAAP operating margin was 37.5%, up from 10.6% last quarter. Q2 non-GAAP earnings per share (EPS) was $6.20, up from $1.22 last quarter. This exceeded our guidance range of $3.00 to $3.40. The EPS beat reflected higher-than-expected revenue and lower costs. Major GAAP to non-GAAP adjustments included $52 million after-tax in stock-based compensation (1.7% of revenue) and $93 million related to certain legal matters. Turning to the balance sheet. We ended the quarter with $1.539 billion in cash and cash equivalents, with debt of $603 million. This quarter, we made an additional $750 million debt repayment and had a net cash position of $936 million at quarter-end. Turning to free cash flow, we generated $843 million in adjusted free cash flow this quarter, representing a 27.9% free cash flow margin. This includes $1.019 billion from operations, partially offset by $176 million in net cash capital expenditures. Our total capital expenditures amounted to $255 million, or 8.4% of revenue. Earlier today, we announced an agreement with Kioxia to extend the Yokkaichi joint venture until December 31, 2034. With this extension, the Yokkaichi and Kitakami joint ventures will have the same expiration date. Based on over 25 years of partnership, we believe the JVs reflect our operational scale and the tremendous shared value created over time. The JV enables both companies to design and manufacture the highest-performing, lowest-cost NAND technology, powering the world's infrastructure. As part of this extension, SanDisk agreed to pay Kioxia a total of $1.165 billion for manufacturing services to ensure continued product supply. This amount will be paid between calendar year 2026 and calendar year 2029. The cost will be recognized in our cost of sales over the next nine years. Turning to guidance. For the third quarter, we expect revenue between $4.4 billion and $4.8 billion. We expect the market to be more supply-constrained than in Q2. We anticipate a mid-single-digit decline in bit shipments due to seasonality below historical levels, as we benefit from accelerating strength in the data center. Our forecast for Q3 non-GAAP gross margin is between 65% and 67%. For Q3, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million, and non-GAAP tax expense between $325 million and $375 million. Assuming 157 million fully diluted shares, we forecast Q3 non-GAAP EPS between $12.00 and $14.00. Next, I'll turn the call back to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Luis. In summary, we continue to successfully navigate the early stages of a profound evolution in our business. Beyond playing a central role in the technologies we use every day – in PCs, smartphones, tablets, the cloud, automobiles, gaming devices, robotics – NAND is also a key technology supporting the development and proliferation of artificial intelligence. Driven by some of the world's largest and most well-capitalized tech companies, the data center is projected to become the largest market for NAND for the first time in 2026. Driven by the performance our technology provides, customers across all our end markets are increasingly seeking commercial practices based on shared commitments and agreed, financially attractive terms aligned with our existing supply plans. Our supply plans will continue to align with this attractive, real, and sustainable long-term demand. Against this backdrop, margins are expected to reset at structurally higher levels, providing fair returns for the required substantial innovation and investment. Our technology and product portfolio intersect with these shifting market dynamics at a perfect time, enabling us to manage a balanced portfolio and deliver industry-leading financial performance. Now, let's begin the Q&A. Q&A Session Operator: Thank you. We will now begin the question-and-answer session. (Operator instructions) The first question comes from Mark Newman from Bernstein. Please go ahead. Mark Newman: Hi, thank you very much, and congratulations on the terrific numbers today. Really, really great numbers, especially the Q3 guide. So, obviously what's happening is prices are expanding at an unprecedented rate. I guess my question is for Dave's opening comments. How are you thinking about LTAs? Of course, LTAs have pros and cons, because LTAs lock in pricing, and when prices are rising so fast, I imagine you don't actually want that many LTAs. But I'd love to understand how you're thinking about that, how we should think about that, in terms of the proportion of your business you put on LTAs, and what that implies going forward. That would be great. And if you could briefly touch on the long-term supply-demand balance, if there are any plans to add supply in this very, very large, currently quite severe shortage, or how you're thinking about that, that would be great too. Thank you very much. David V Goeckeler, Chairman and CEO: Thanks, Mark. Appreciate the comments. A couple of things on the series of things happening with the business dynamics that led to the results you're seeing. First, it starts with the product portfolio and innovation. You know, our BiCS8 node, which we've started and continue to ramp into production, is just a fantastic node. The performance, QLC performance, 2Tb die, a lot of things put us in a very strong position. By the way, I'd point out we extended the JV, which we're very happy about, that goes for another ten years. That's supporting a very strong enterprise SSD portfolio. That's something we've been driving for a while. Last quarter I said we'd see growth through the fiscal year. We saw it in Q1, I think 29% sequential growth. Now we saw 64% sequential growth in Q2, and I think you'll see acceleration from here through the second half. So, the third major pillar of business innovation is frankly happening in the consumer business. A lot of new product introductions. This Extreme Fit product we announced this year is really a breakthrough product. It allows our customers to add storage to their devices very seamlessly and economically. It's kind of an innovation in the USB space. You might not think that happens anymore, but this is not a removable product. It's designed to plug in and stay put. You see the agreements we have with partners like FIFA, which is probably the biggest event this year. We have great co-branded products there. We look at our consumer business, we saw 50% year-over-year growth, so really strong performance there. The excellence of that product portfolio innovation has allowed us to have a better portfolio mix, and if we look back over the last few quarters, we've actually been able to swap out the lowest-margin business for what is now the highest-margin business, which also provides a significant tailwind for the business. On top of that, you have the supply-demand dynamics, which are pushing the whole market forward. So it's really the combination of all those things pushing the business forward. It's not just price, although obviously being in a strong pricing environment is great. On LTAs, I'll talk a bit, and I know Luis will have some good comments too. So, as we get to a point where we believe our technology is getting a fairer return, and frankly, customers are seeking more supply assurance. I mean, I'd point out one thing about the current market, which is entirely a demand-driven phenomenon about what's happening in the market. We've been very transparent about our supply plans for over a year. We're putting a lot of money into this market. We're putting billions of dollars of R&D into driving the roadmap. We're putting billions of dollars of capex, and we've been very clear that we're going to drive mid-to-high single-digit bit growth consistently, we think it's a great market. What's happening now is we just don't have enough visibility into what the demand side really is. I mean, if we look at the data center, we've now been through three forecast cycles. Last quarter, we moved from mid-20%s growth in that market to mid-40%s growth. What we're seeing now is high-60%s exabyte growth in that market in 2026. I think our customers are realizing that, particularly in the data center market. Their numbers are big, what they need in '26, '27, '28, we're even talking to some of them about '29 and '30. They're doing their own planning. The number of exabytes they're going to need is massive. So, LTAs are about coming up with a model that gives us the confidence to supply that level of demand on a sustained basis. For us, it's not about what demand is next quarter or the quarter after. There's nothing we can do about that given the dynamics of our business. But we want to align the long-term growth rate with long-term sustained demand, as you said, at attractive financial terms. Let me hand it over to Luis. Luis, any thoughts on that? Luis Visoso, EVP and CFO: Yeah, I mean, David covered most of it. I'd say, Mark, we're seeing customers across end markets and across geographies reaching out to us. So it's not just a handful. We're seeing a pretty broad base, which is very interesting for us. We're making significant progress. We've made significant progress with several customers who really, really want us to prioritize or guarantee supply, and as David pointed out, they see it as a key enabler for their business, which is what they're looking for. Now, on your point, we're being very thoughtful about how we define a couple of metrics. One is the length of the agreement, the price at which we transact, the volume, the amount of business we put into it, and any prepayment component in it. So we're being very thoughtful that this should be value-additive, not the opposite. Mark Newman: Great, thank you very much. Could I just get a quick comment on how you see long-term supply-demand and any flexibility to add supply? David V Goeckeler, Chairman and CEO: No, I mean, Mark, we have our supply plans. Again, we've been very clear about what our capex plans are, what our bit growth plans are, and that's it. The key is meeting our customers at that supply level and understanding how we allocate, and then, as we said, it's about all of us lifting our heads up and looking further out on the horizon at what the demand in this market is really going to be, what sustained demand is going to be, and we really need to get away from the idea that this is just a transactional market where we only get a strong signal one quarter at a time. I mean, to be fair, we do get demand signals from customers annually, but we really only transact that. We negotiate prices every quarter, which makes it very, very difficult to add any kind of spend because we just don't have visibility into the economics, and again, particularly as the market shifts to the data center, I think data center customers are more willing. As Luis said, it's across all customers, but I think data center customers, given their demand profile and frankly how big their growth is, are being more proactive in engaging in that kind of dialogue, really wanting to understand supply assurance a few years out, and what kind of – how can we come up with a – what kind of commercial practices can we put around that? And that's a, as I said in my prepared remarks, I said we're in the early stages of this transition, that's the early part. I think the commercial practices will change, and I think it's all for the better. We have to get these conversations done over the next few quarters. Thank you very much, Himanshu. Mark Newman: Thank you very much. Again, congratulations, guys. David V Goeckeler, Chairman and CEO: Thanks, Mark. We appreciate it. Operator: The next question comes from Joe Moore from Morgan Stanley. Please go ahead. Joseph Moore: Great. Thanks. At CES, Jensen was talking about this Key-Value Cache and gave some numbers on terabytes per GPU, which seems like a pretty substantial market. Are you seeing any signs of that? Do you think that – should we just take that as direct math? Does everyone have different implementations? And what does that mean for the data center and NAND? David V Goeckeler, Chairman and CEO: Yeah, Joe. We're working on that right now. We're working with NVIDIA on that, and how they're thinking about it. And then of course we'll work with our customers on how they're going to configure it in their deployments. So it's a little early. I'll say a couple things about it. First, none of that demand is in the demand numbers we're talking about today. I think it's just a perfect example of where we all need more collaboration on what future demand is going to be. Second, our initial take on that, when we look at, say, '27 demand, we think that's about an incremental 75 to 100 exabytes. And then the year after that, you can double that number. So it's a massive amount of demand. I think that, again, is just another example of NAND being central to the AI architecture. Very, very clear at this point. If it wasn't before, the AI architecture is changing, right? It's not surprising. Any technology that is this profound and is being deployed at this scale, we're going to continue to see innovation and evolution in the architecture. So we'll watch that very closely. NAND is going to be a big part of that architecture. It's the most scalable semiconductor memory technology, or maybe the most scalable semiconductor technology. So we're looking at those configurations. It's very real demand. We're just trying to figure it out. And then we'll probably incorporate that into the numbers later this year, going into '27 and '28. Joseph Moore: Great. Thanks. Great. Thanks. As a follow-up, the enterprise SSD opportunity, how is that split between TLC and QLC today, and how does that change going forward? David V Goeckeler, Chairman and CEO: I think we're roughly tracking the market today. Mostly TLC. I'd say it's skewed to TLC, particularly for us. And then, we haven't launched the Stargate product, which is QLC for storage. It's in certification. So we'll start shipping that product for revenue in the coming quarters, which we're excited about, gives us another growth tailwind for our data center portfolio. That will lift the QLC mix. But for now, I think the overall market and our portfolio, is skewed to TLC. Joseph Moore: Great. Thanks. Great numbers. David V Goeckeler, Chairman and CEO: Thanks, Joe. Appreciate it. Operator: The next question comes from CJ Muse from Cantor Fitzgerald. Please go ahead. C J Muse: Yes. Good afternoon. Thank you for taking the question. I guess first question, is there a way to quantify the incremental NAND demand associated with AI infrastructure build-out? I'm excluding KvCache, but, we were at mid-to-high single digits before, I'm curious what now, based on your conversations with customers and the trends you're seeing, looking at '26, '27, '28, what is the new demand CAGR roughly? David V Goeckeler, Chairman and CEO: I think the best proxy we have for that right now, CJ, is the exabyte demand we're seeing in the data center. As I said earlier, I mean, two cycles ago we were looking at, like, mid-20%s exabyte growth in the data center in '26. Last quarter we were talking about, given the capex cycles happening, we moved that to mid-40%s. Our forecast now is high-60%s exabyte growth in the data center, and that's without any capex increases that happened within this earnings cycle. So, just a significant increase in demand quarter-on-quarter, which we think is almost entirely driven by AI, pretty clear. C J Muse: Perfect. Thank you. And then I guess you paid down a fair amount of debt this quarter. You only have $600 million outstanding, probably could pay that off this quarter. So just curious, as you get to a net cash position, how should we think about capital return, specifically around share repurchases in the coming quarters? Luis Visoso, EVP and CFO: Yeah, we feel, we're very proud of the progress we've made on reducing debt. Remember we started at $2 billion, it's come down very, very quickly, $600 million this quarter, and we'll continue to take it down. CJ, our priorities are to continue to invest in the business as we have been, and to build a prudent cash resource, it's a business where it's helpful to have cash on hand. We're not going to waste your cash, don't worry, but we're going to build a prudent cash resource, we'll continue to reduce our debt, and in due time, we'll continue to expand and give you updates. But so far, those are our priorities. C J Muse: Thank you. David V Goeckeler, Chairman and CEO: Thanks, CJ. Operator: The next question comes from Jim Schneider from Goldman Sachs. Please go ahead. James Schneider: Good evening. Thanks for taking my question. First, on the supply side, I was wondering if you could just give a brief overview of the Yokkaichi and Kitakami fab network, and where things stand, I assume utilization is basically full, but, as you think more tactically about the high-teens growth prospect after this year, how do you expect to ramp your overall JV fab network over the next, say, 18 months or so, and then maybe give any kind of view – your view on some of the industry greenfield capacity expansions recently announced given some of your competitors? David V Goeckeler, Chairman and CEO: So, first, we have – as you said, we have two main bases, Yokkaichi and Kitakami. I think a big step this quarter was we announced the extension of the JV agreement around Yokkaichi, aligning it with the Kitakami agreement, so they both now run to 2034, which gives us very good supply assurance for the next nine years, and we'll continue to talk about what happens after that, but this relationship with Kioxia has been going on for decades, it's incredible, and will continue for a long time. So, we feel we're in a very good position there. Look, we haven't had underutilization in the fabs for a couple of quarters. We got through that a couple of quarters ago. There's probably still a little bit of cost roll from that memory. I think that was last quarter. We're done. So, they're running full. Kitakami is where we're expanding. We just opened the K2 FAB, so we have additional space there. I think we just, the JV, led by Kioxia on that part, has just done a really good job of capacity planning and has good plans for how we scale into the Kitakami base over many years as needed. So, we feel really good about our positioning there. As for the rest of the industry, it's – as you know, it's got long lead times. We've seen some announcements recently. I would consider those to be normal course. We're all constantly building cleanroom space. As I said before, it's a market where we've been very consistent on the supply side. We're going to grow bits at a mid-to-high single-digit rate. We're going to do that through innovation. We're going to do that through – that innovation is going to require additional cleanroom space. That's all in the plan. I'd expect to see continued spending to get to that number, but we're not seeing anything unusual. And I think as we all know, if you want to start building a new fab, it takes years to get it built and operational and producing product out of it. So that's a little bit of how we see the market. Final comment, when we talk about supply-demand, all of that is factored into our numbers. James Schneider: Thanks. And then maybe as a follow-up, could you maybe talk about, obviously you mentioned the certification with another enterprise SSD hyperscale customer by the end of this calendar year, for example, what do you expect your enterprise SSD exposure to be as a percentage of total revenue? Thanks. David V Goeckeler, Chairman and CEO: Yeah, we're not going to give a precise number right now, but I'd just say stay tuned. I think we've said this, our business is going to continue to grow in this market. We've seen 29% sequential growth, followed by 64% sequential growth, without getting into too much detail. I think you'll see a significant step-up next quarter as well. So we feel really good about where the portfolio is positioned. Like I said, the customer response, not just hyperscalers, but across the ecosystem that's building AI infrastructure. Our compute-focused TLC product in the market is really driving that growth. We'll see our BiCS8 QLC product start shipping for revenue in the coming quarters, which will be another tailwind for growth. The performance of BiCS8 QLC, as we've discussed, has been extremely well received. So we continue to see very high interest in those products, and certifications are ongoing. We look forward to continued growth, and that will be part of the balanced portfolio we've always talked about, about how we're going to allocate our supply into that part of the market. But we're excited about where we are and where we're going. James Schneider: Thanks. David V Goeckeler, Chairman and CEO: Thanks, Jim. Operator: The next question comes from Mehdi Hosseini from SIG. Please go ahead. Mehdi Hosseini: Yes, thank you for taking my question. I have two follow-ups, this is for the team. When I look at your guide for March Q3, assuming low-single-digit bit growth, there's a big jump in ASP and mix pricing. I wanted to ask, how should we think about the mix factors impacting ASP? Clearly, as you scale SSDs, there's a higher premium. You're capturing more premium or economic value than bits. Is there any way to help me understand that? Because just thinking about the absolute ASP might give us the wrong impression. So any help you can provide would be great. I don't have a follow-up. Luis Visoso, EVP and CFO: Yeah, so the mix impact we have is less about the change in our end markets and more about the customers, right? And how we serve the market. I talked a little bit about that in my prepared remarks. What you're seeing is we're driving a better mix. We're working with customers who value our relationship, value our products. Therefore, we're getting better gross margins from that. So there is a mix component to that, to your point. Mehdi and Wilco, and there's some pricing as well. Now, we believe the market will. Go ahead, sorry. Mehdi Hosseini: Oh, I was just going to say, just a quick follow-up. Could you provide any breakdown of the mix so we don't get too fixated on the ASP trend? David V Goeckeler, Chairman and CEO: Yeah, we'll provide that to you when we report next quarter. Mehdi, on the guide, I don't have anything to share with you right now. Mehdi Hosseini: Okay, great. And one question for David. Look, we're here, the shortage is increasing. It's intensifying. You and your peers are engaging in multi-year contract discussions. As you highlighted, these projects take years. Building fabs and putting equipment is a very long process. Why is there not more urgency? Why are your customers not willing to commit more? They are committing to investments across the AI supply chain. But when it comes to memory or NAND, I don't sense the urgency. If this is going to wait until the second half of this year, that means the shortage will intensify, unless the SSD 60% exabyte growth might just be a shortlist. But how can I reconcile the two? David V Goeckeler, Chairman and CEO: I have a lot of thoughts on that, Mehdi. I mean, first – I would argue there actually is quite a bit of urgency, and things are changing quite dramatically, quite quickly. Right? I mean, you're talking about a market that has operated the way it has operated for arguably decades. The way that market operated is there was basically a NAND auction every quarter, and that set the price. So, that set the price. And then we all had to go debate what the price was every quarter. And then on the supply side, we tried to get right how much we supply, but often got it wrong. And when you got it wrong, the economics completely broke. So, we're trying to move away from that world. There are a lot of reasons why we're moving away from that world. There are a lot of technology reasons and all sorts of things we've talked about in the past, we could talk a lot about it. But, for something you've been doing for a decade, to just wake up one quarter and decide to fundamentally change the commercial practices of an industry is almost, is really, really hard to do. So, but I do think it's happening. I do think customers are starting to look, as I said, they're starting to look further out, particularly in the data center. I think the point that cannot be underestimated is the idea that the data center is now the largest market for NAND. I mean, this is a market that was once dominated by – or not dominated by, but when the primary customers were smartphones, PCs, I viewed that as the traditional commodity NAND market. I hate that term, but that's how people thought about it. The data center is not that market. Like the data center is not a commodity NAND market. The data center is – NAND is a highly strategic product, it's part of a very complex AI architecture. I need extreme performance, I need innovation, I need specific enterprise SSDs that fit my configuration. That is very different from the idea of \"I just need the same product, I can plug in from any of five different suppliers.\" That's not – so that market now becoming the primary market, and particularly the primary growth engine, really, I think, is starting to challenge the commercial practices of how the market has traditionally operated. Again, I'm actually quite optimistic that this is happening fairly quickly. Now we'll see how fast. I mean, are we actually to the point of announcing contracts? We're not quite there yet. We have some in process. But it's actually, in my view, progressing fairly quickly relative to the size of the market, the number of players, the amount of business transacted every quarter, to see it change as quickly as it is right now is actually quite remarkable. Mehdi Hosseini: Thank you for the detailed color. David V Goeckeler, Chairman and CEO: No problem. Thanks, Mehdi. Operator: (Operator instructions) The next question comes from Wamsi Mohan from Bank of America. Please go ahead. Analyst: Hi. This is Ruplu for Wamsi. Can I ask a question for Luis? This quarter, operating expenses came down. You said you got a benefit from managing NPI. Could you elaborate on that, what that benefit was? And could you talk about capital allocation plans? How much do you expect to spend on HBF and data center expansion, and any capital return plans or M&A plans? Thank you. Luis Visoso, EVP and CFO: Yeah. So, let me try to unpack the OpEx question, because I thought someone would ask. We made a recurring change to how we account for selling our products. Basically, we now start charging for our certification units. In the past, we used to expense the costs as they were incurred, right? They were period costs. This is a non-recurring factor, it's a benefit, a one-time benefit, because we're moving from period costs into inventory because we're now selling those certification units. Does that make sense? Analyst: Yes. That's clear. Okay. So, we will get ongoing savings because we charge customers for these certification units, and there's a one-time benefit as we go through the transition and through inventory. And on the capital allocation question, as I said earlier, our capital allocation strategy hasn't changed. We will continue to invest in the business. We will build a prudent cash reserve, which is very helpful in this business, especially given where we are. We think we need to continue to build cash reserves, and we will continue to reduce debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. We're fully funding the business. We're funding the business through the BiCS8 transition. We're funding our OpEx, we feel we're funding the business itself appropriately. Mehdi Hosseini: Any underutilization charges in the guide? Luis Visoso, EVP and CFO: No, not in the guide, and not in the actuals. Mehdi Hosseini: Okay, thank you very much. Operator: The next question comes from Vijay Rakesh from Mizuho. Please go ahead. Joseph Moore: Hi, Dave and Luis. Great quarter, very amazing numbers. Just wanted to know for 2026-27, what kind of bit growth are you looking at? Obviously ASP pricing has been skyrocketing, but just wanted to know how pricing trends are across different segments, from data center to retail to consumer SSDs, if you could give some color, thanks. David V Goeckeler, Chairman and CEO: Yeah, so the bit growth we see in '27, '28, consistent with what we talked about at the beginning of February. We're still talking about mid-to-high single-digit bit growth annually. We're not going to change our assumptions on that unless we see that demand is there, sustainable, and profitable. So our plan is still – our plan of record is that kind of high-single-digit annual bit growth. On pricing across what we call end markets, it's very interesting, right? What you see is the prices don't move exactly the same, but they basically move at the same rate. What's happening now is NAND can ultimately flow to any market. So NAND will naturally flow to the most attractive market. So when data center prices go up, they do have an impact on the other markets, for example, right? So that's what we're seeing across the markets. Prices are basically up across the board. Operator: The next question comes from Karl Ackerman from BNP Paribas. Please go ahead. Karl Ackerman: Hi, thanks for taking my question. I wanted to congratulate you on a very nice quarter. What is the product roadmap? I think there's – now that your data center is 15% of the mix, NAND flash is increasingly being attached to AI compute. So I think that's creating new requirements on performance, so could you update us on your product roadmap to meet these new requirements? For example, I think there are high IOPS SSDs, you have exposure on HBF, so what do those new products look like? David V Goeckeler, Chairman and CEO: Yeah, so I think that's a great example of a lot of innovation that's ongoing, driven by the data center, as I mentioned earlier. So, you're right, what we call the compute-focused, TLC high-performance drives are what's driving the portfolio right now. As I said, we just saw 64% sequential growth, so we continue to see very strong pull on those high-performance products. As I said, as we start to migrate those to BiCS8, we feel we're in a very strong position, but as you said, there's a whole host of new innovation going on, and I think, I think the innovation engine is alive and well across the industry, which is, how are we going to meet the AI storage demand? Models are getting bigger, generating more tokens, caches are getting bigger, which is a natural thing where you start to think about NAND and its massive scaling characteristics, and you're right, there's a lot of innovation there. There are high IOPS enterprise SSDs, which of course you can imagine we're working on. You know, we had our own thoughts on this two years ago, we talked about it at Investor Day, we believe there's an opportunity to re-architect NAND to bring it into AI. We trademarked it as High Bandwidth Flash (HBF). I think over the last year, that has become a more recognized path forward, and there are a lot of people working on that now, by the way, we continue to work on that. We're very, very happy with the progress. We're having deep conversations with customers on the use cases. We're designing NAND die. We're building controllers, so that continues to move forward. Obviously, we'll have more to say on that as we move forward and plans firm up, but, I think all of that is just an example that as the AI architecture continues to scale, there's a huge opportunity for innovation, and it's incredibly exciting, and we're just in the very early stages of rolling this technology out and scaling it globally, and we have, perhaps the entire technology industry, in a very strong position to do that. They're some of the largest, most capable tech companies in history. Obviously, they're putting massive – massive resources behind rolling this technology out and scaling it globally very quickly, and I think it's incredibly exciting. I think it's going to continue. I think we're super early in this, and I think it's going to last for a long time. Operator: The next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Michael Stadnoff: Hi, guys. Thanks. This is Michael Stadnoff on for Aaron. I wanted to go back to the LTA discussion. Have you finalized any of these agreements? And if so, is part or all of the prepayment part of, I guess, any finalized agreements? And is that something we should expect going forward? I know you kind of hinted at it. Luis Visoso, EVP and CFO: Yeah. So far, we have one agreement signed and completed. We don't disclose the terms. There was a prepayment component in it, which we think is important in these types of agreements, but that's all I'll say, Michael. So we have one completed, and a few in the queue. Operator: The next question comes from Asiya Merchant from Citi. Please go ahead. Asiya Merchant: Great. Thanks for taking my question, great results here. David, last quarter, I think you shared some thoughts on how you see the edge markets, PCs, smartphones, maybe the consumer markets. Just given the fact that memory is on allocation, people are talking about PC and smartphone unit declines, just how are you thinking about that, and what are your OEM customers signaling to you about those markets, and how does that change your demand outlook for maybe 2H '26 and into '27. And if I could sneak one in for Luis. Structurally, NAND is going through this dynamic, it's clearly a highly strategic product. How are you thinking about your true through-cycle gross margin? It looks like it's been a while since you've been at that level, but how are you thinking about gross margin structurally from here? Thanks. David V Goeckeler, Chairman and CEO: Okay. Thanks, Asiya. So look, a couple thoughts on that. So first, on the consumer market side, I think we're very happy with where our consumer portfolio is positioned. As I said, we just delivered over 50% year-over-year growth. I think the work we've done there on how we think about branding, innovation, product portfolio, that's a long-term market for us. It will continue to be a long-term market for us. We think we're able to drive value there through the value of the SanDisk brand. So we think that's a great business and will continue to be, and we'll continue to invest in it. In some of the other markets, like, look, I think that's one of the reasons. Obviously, we look at the numbers as we prepare, if you just look at '26, our PC units are 285 million. I don't think we would have – anyone would have picked that number at the beginning of the year. So it's just – continued very strong results in terms of unit growth, content growth in those markets. So look, as we go into '26, or we're in '26 now, we'll see some base effects on that, some decline in units. I think we're still getting very strong signals from customers in those markets, wanting supply. I mean, very strong signals on a sustained basis. We're working with them as closely as we can. I think it's extremely important in this time of the market to be very closely connected with our customers, and we're doing that. But you will get some base effects on units. I mean, there's a lot of discussion about mix in the market. I just think that's typically how this market works. Certainly, as components change, configurations change. Frankly, we saw that in '23. All of a sudden, the mix shot way up because prices came way down. All of a sudden, a 1TB drive became very inexpensive. All of a sudden, it started showing up everywhere. As the market moves the other way a bit, you'll see that kind of change. I think that's just the natural way this market works. I don't think it's something to be overly concerned about. So those are still strong markets. Customer relationships are very good. I expect we'll continue to be deeply engaged in those markets. We've had a strong presence at the edge for a long time, and we'll continue to have that. From a big picture, that's one of the reasons why I think this business is so valuable, is because we're in every single device, every single technology, that touches – we touch it or sell NAND into it. And now with the AI deployment in the cloud and that market becoming the largest market for NAND, it's changing the dynamics of how the whole industry operates. As we said in our prepared remarks, we've put – we've put a lot of R&D over the last 25 years to get to where we are. We've put a lot of capital to get to where we are, that we can manufacture all of this, front-end and back-end. I think we're finally getting to the point where the value of that IP, the value of that intensity is being recognized in our own results. Luis Visoso, EVP and CFO: Yeah, I think the way to answer your question on through-cycle margin is similar to what David left off with, which is in a high capex, high R&D industry or company, frankly 35% is not where we want to be, right? So we're not going to give you a new number today, but clearly that's not where we want to be. What I will tell you is this is the first quarter, right? We're above 35%, we got to 51%, we're getting to, call it a midpoint of 66%, so we're making progress, we're getting to a place where we believe we can justify the capex, we can justify the R&D investments the business requires. Operator: The next question comes from Tom O'Malley from Barclays. Please go ahead. Analyst: Hi, this is Matthew Panon for Tom O'Malley. Just one quick question, pardon if you mentioned it, just jumping around during the call. I was wondering if you said what percentage of quarterly bit shipments were enterprise SSD? Luis Visoso, EVP and CFO: I don't think we said that, but it's roughly in the high-teens range. Operator: The next question comes from Blayne Curtis from Jefferies. Please go ahead. Blayne Curtis: Hey, guys. Congrats, thanks for squeezing me in. I just wanted to talk about the model, obviously, I mean doubling sales in two quarters. I just want to make sure I understand how you're going to handle OpEx. I guess as a percent of revenue it's halved now, right? So, are you going to accelerate how you look at investing in R&D, and also the tax rate, with this dramatically improved profitability, anything to think about with the tax rate? I think you were talking about it maybe getting to 20% at some point, is that sooner rather than later? Luis Visoso, EVP and CFO: Yeah. So on the OpEx side, first you should know that about 75% of our OpEx is R&D. That's where we put our money, that's why we do it? Because it's a technology company, innovation is our lifeblood. That's what we believe in, that's where we put our money. So, you should not take this quarter's OpEx as an indication of where we should be, because that, as I mentioned earlier, had a non-recurring benefit. If you want to quantify that, that number is about $35 million, so you can use that number for your modeling. We don't believe OpEx should increase significantly from where we are today. We believe the run rate is healthy. We will always look at where we need to invest and make sure we're funding innovation, but on the other hand we're also always looking at efficiency, and how we make sure there's no waste in the system. So a long way of saying, which is the spending level last quarter, what we got this quarter, those are more sustainable levels now. Tax rate is interesting because we have a lot of prior-year losses, particularly accumulated in Malaysia, and we're burning through them very quickly. That's what happens when you start generating profits, so I think you should see our tax rate settle in a little bit higher than it is today, maybe 14%-15% on a sustained basis. That's what I would model for now. Operator: That concludes our Q&A session. I would like to turn the conference back over to David for any closing remarks. David V Goeckeler, Chairman and CEO: Okay. Thank you everyone for joining us. We'll be communicating throughout the quarter. Have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. The event has ended.</p>\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BK4170":"电脑硬件、储存设备及电脑周边","SNDK":"闪迪"},"source_url":"","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1107042211","content_text":"SanDisk Corp. (SNDK.US) held its second-quarter earnings call for fiscal year 2026. This quarter, the company continued to execute according to its roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center segment, the company finds itself at the heart of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference in particular driving a significant increase in NAND content per deployment. This momentum reflects the company's deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping its data center business. The company anticipates this business will see significant growth both in the near and long term. SanDisk believes the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. Given market strength, the company was unable to meet all customer demand this quarter. It is refining its approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. The company remains cautious and is not altering its capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Its investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels.\nQ&A Session Operator: Hello, and welcome to SanDisk's second-quarter fiscal year 2026 earnings conference call. All participants will be in listen-only mode. (Operator instructions) Following today's presentation, there will be an opportunity for questions. (Operator instructions) Please be advised that this event is being recorded. I will now turn the conference over to the Head of Investor Relations, Ivan Donaldson. Please go ahead. Ivan Donaldson, Vice President of Investor Relations: 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 regarding our technology and product portfolio, business plans and performance, market trends and opportunities, and future financial results. We undertake no obligation to update these statements. Please refer to our Annual Report on Form 10-K and other filings with the U.S. Securities and Exchange Commission (SEC) for more information on risks and uncertainties that could cause actual results to differ materially from expectations. Today we will also reference non-GAAP financial measures. A reconciliation table between non-GAAP and comparable GAAP financial measures has been published in the written materials in the Investor Relations section of our website. Next, I'll turn the call over to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Ivan. Good afternoon, and thank you for joining SanDisk's second fiscal quarter earnings call. This quarter, revenue was $3.0 billion, up 31% sequentially, with non-GAAP EPS of $6.20. Artificial intelligence continues to drive a step-change in demand, with data center and edge workloads increasing system complexity and storage content requirements. This shift, combined with disciplined commercial actions and strategic capacity allocation, has strengthened our business results. Before discussing our end markets, I'd like to comment on the evolution of the NAND industry. NAND is now recognized as an indispensable part of the world's storage needs, driving a fundamental shift in the structure of commercial relationships between suppliers and customers. Supply certainty, longer planning cycles, and multi-year commitments are becoming critical to support structural demand that extends beyond the traditional cyclical patterns of our market. Consequently, we are engaging in discussions with customers, evolving from quarterly negotiations towards multi-year agreements with firmer supply and pricing commitments, enabling better planning practices and more attractive returns. These changes will better align our planning cycles with customers' demand profiles, creating mutual benefits. Therefore, our supply plans will continue to be designed around predictable long-term demand at current and forecasted market prices. These dynamics reveal the true value of our NAND technology and reinforce the need for continuous innovation and disciplined execution. Our products benefit from decades of sustained R&D and innovation investment in NAND and system solutions, supported by significant capital investment in world-class front-end and back-end manufacturing. As a result, we believe NAND is becoming a more durable, structurally attractive industry with higher average returns. Turning to our end-market highlights. This quarter, we continued to execute according to our roadmap, advancing next-generation product innovation and certification across the business, with key customer projects progressing on schedule. In the data center, we are at the center of a broad expansion in AI infrastructure. As AI workloads scale, enterprise SSD demand is accelerating across the ecosystem, with inference particularly driving a significant increase in NAND content per deployment. This momentum reflects our deeper engagement with a broader range of customers building and deploying AI at scale, which is reshaping our data center business. We anticipate this business will see significant growth both in the near and long term. We are seeing strong adoption of our products across all types of AI infrastructure builders, including cloud hyperscalers, edge and enterprise data centers, OEMs, and system integrators deploying AI at scale. Our technology has become a key enabler for these deployments, providing the performance characteristics required to optimize AI infrastructure. The broad adoption by customers across the AI ecosystem underscores the strength of our technology and the depth of our product portfolio. In the hyperscaler segment, we have completed certification for the PCIe Gen 5 high-performance TLC drive at a second hyperscaler and expect to complete certification at more hyperscalers in the coming quarters, with the BiCS8 TLC solution following closely. This product is driving significant revenue growth for our data center portfolio, which grew 64% sequentially. The BiCS8 QLC storage-class product, codenamed \"Stargate,\" continues its certification at two major hyperscalers and is expected to begin generating revenue in the coming quarters, providing an additional boost to data center growth. In the edge segment, demand significantly outstripped supply, driven by PC and mobile device replacement cycles and AI adoption, which are pushing for richer configurations and higher storage content per device. In this allocation environment, we are working with key edge customers to prioritize their critical needs and optimize the product mix within our available supply, ensuring the best long-term returns across our entire portfolio. In the consumer segment, the product mix shifted towards higher-end products and higher-value configurations, supporting storage capacity, growth, and profitability. We launched a breakthrough product in the USB form factor – the SanDisk Extreme Fit, our smallest high-capacity USB-C flash drive. This groundbreaking \"stay-put\" product offers our customers a seamless and affordable way to significantly expand storage for their PCs and smartphones. We expanded key licensing programs with globally recognized brands Crayola and FIFA, fully delivering on the commitments highlighted by the colorful SanDisk Crayola USB-C flash drives and officially licensed 2026 FIFA World Cup products first announced last February. This strong momentum continued through the holidays, driven by targeted gaming-led initiatives, including our \"Don't Delete Your Game\" campaign. At CES 2026, we launched the SanDisk OptiNAND series, rebranding the WD Black and WD Blue NVMe SSDs to reinforce the brand architecture and consolidate performance leadership. Together, these actions reflect our continued focus on driving demand through branding, innovation, and disciplined go-to-market execution, solidifying SanDisk's leadership in the gaming, creator, and everyday consumer segments. These victories across our end markets reflect the agility of our operations and the resilience of our broad product portfolio. Looking ahead, we continue to see customer demand well above supply beyond calendar year 2026, necessitating careful allocation plans aligned with customers. We remain focused on disciplined execution through the BiCS8 transition, supporting mid-to-high single-digit average long-term bit growth while maintaining our capital expenditure plans. We are working to support customer demand while ensuring profitability can sustain the substantial R&D and capital investments required to deliver some of the world's most advanced semiconductor technologies. Next, I'll turn the call over to Luis to delve into our financial performance and guidance. Luis Visoso, Executive Vice President and Chief Financial Officer: Thank you, David. Before diving into the financials, I'll provide a brief market overview. We believe the NAND market is undergoing a structural evolution catalyzed by AI. This evolution is more pronounced in the data center, where data growth is accelerating as data temperature rises, token intensity increases, and storage becomes a key enabler for inference. Consequently, NAND is increasingly becoming a critical component of AI infrastructure. The higher demand for NAND in the data center is impacting other markets, which are also growing as NAND flows to the most attractive markets. We believe this structural evolution is sustainable and should reduce the cyclicality of our NAND business, creating higher average long-term margins and returns. In the December quarter, we experienced a clear and significant improvement in end-market conditions, leading to higher pricing. This quarter, as demand for our products continued to outstrip supply, we made strategic allocation decisions. Our framework for allocating bits is to maximize value creation. We prioritized supply to our strategic customers – those who recognize the value we can create together. These are customers with whom we intend to build valuable partnerships, establishing sustainable multi-year commercial practices with highly predictable demand, returns, and capital deployment. Given market strength, we were unable to meet all customer demand this quarter. We are refining our approach to defining strategic engagements, prioritizing customers with multi-year supply frameworks and joint planning commitments over transactional, short-term demand signals. We remain cautious and are not altering our capital expenditure plan, which supports mid-to-high single-digit bit growth through the BiCS8 transition. Our investment posture remains focused on serving attractive, sustainable demand at healthy profitability levels. Any substantial increase in capital deployment would require conviction that demand at attractive price levels is persistent over a multi-year horizon with financial commitments. In the current environment, we are committed to supplying our three end markets, as we believe diversification maximizes value creation. We plan to continue building strategic relationships with a diverse set of customers across these markets, enabling a deeper understanding of their long-term needs. This quarter, we continued to make progress with customers on establishing shared commitments, which enhances business predictability. Customer commitments and agreed commercial terms are the most effective mechanism for providing supply certainty and predictability of returns on invested capital, allowing us to manage our capital-intensive business more prudently across regions. Against this backdrop, I'll provide more detail on the quarterly results. Second-quarter revenue was $3.025 billion, up 31% sequentially and 61% year-over-year. This exceeded our guidance of $2.55 billion to $2.65 billion. The revenue beat came from higher pricing across segments, which strengthened during the quarter. Bit shipments increased 22% year-over-year and were up low-single digits sequentially. In Q2, we saw strong sequential demand across all end markets. Edge revenue was $1.678 billion, up 21% sequentially. Consumer revenue was $907 million, up 39% sequentially. Data Center revenue was $440 million, up 64% sequentially. Our Q2 non-GAAP gross margin was 51.1%, up from 29.9% last quarter. This exceeded our guidance of 41% to 43%. The gross margin beat was driven by higher pricing. Cost per bit reductions came in as expected, reinforcing the margin improvement. In Q2, we incurred $24 million in start-up costs. Excluding this, non-GAAP gross margin would have been 51.9%. Q2 non-GAAP operating expenses were $413 million, or 13.7% of revenue. This was better than our guidance range of $450 million to $475 million, reflecting a one-time benefit from a change in how we manage new product introduction. Consequently, the non-GAAP operating margin was 37.5%, up from 10.6% last quarter. Q2 non-GAAP earnings per share (EPS) was $6.20, up from $1.22 last quarter. This exceeded our guidance range of $3.00 to $3.40. The EPS beat reflected higher-than-expected revenue and lower costs. Major GAAP to non-GAAP adjustments included $52 million after-tax in stock-based compensation (1.7% of revenue) and $93 million related to certain legal matters. Turning to the balance sheet. We ended the quarter with $1.539 billion in cash and cash equivalents, with debt of $603 million. This quarter, we made an additional $750 million debt repayment and had a net cash position of $936 million at quarter-end. Turning to free cash flow, we generated $843 million in adjusted free cash flow this quarter, representing a 27.9% free cash flow margin. This includes $1.019 billion from operations, partially offset by $176 million in net cash capital expenditures. Our total capital expenditures amounted to $255 million, or 8.4% of revenue. Earlier today, we announced an agreement with Kioxia to extend the Yokkaichi joint venture until December 31, 2034. With this extension, the Yokkaichi and Kitakami joint ventures will have the same expiration date. Based on over 25 years of partnership, we believe the JVs reflect our operational scale and the tremendous shared value created over time. The JV enables both companies to design and manufacture the highest-performing, lowest-cost NAND technology, powering the world's infrastructure. As part of this extension, SanDisk agreed to pay Kioxia a total of $1.165 billion for manufacturing services to ensure continued product supply. This amount will be paid between calendar year 2026 and calendar year 2029. The cost will be recognized in our cost of sales over the next nine years. Turning to guidance. For the third quarter, we expect revenue between $4.4 billion and $4.8 billion. We expect the market to be more supply-constrained than in Q2. We anticipate a mid-single-digit decline in bit shipments due to seasonality below historical levels, as we benefit from accelerating strength in the data center. Our forecast for Q3 non-GAAP gross margin is between 65% and 67%. For Q3, we expect non-GAAP operating expenses between $450 million and $470 million. We expect non-GAAP interest and other expenses between $25 million and $30 million, and non-GAAP tax expense between $325 million and $375 million. Assuming 157 million fully diluted shares, we forecast Q3 non-GAAP EPS between $12.00 and $14.00. Next, I'll turn the call back to David. David V Goeckeler, Chairman and Chief Executive Officer: Thank you, Luis. In summary, we continue to successfully navigate the early stages of a profound evolution in our business. Beyond playing a central role in the technologies we use every day – in PCs, smartphones, tablets, the cloud, automobiles, gaming devices, robotics – NAND is also a key technology supporting the development and proliferation of artificial intelligence. Driven by some of the world's largest and most well-capitalized tech companies, the data center is projected to become the largest market for NAND for the first time in 2026. Driven by the performance our technology provides, customers across all our end markets are increasingly seeking commercial practices based on shared commitments and agreed, financially attractive terms aligned with our existing supply plans. Our supply plans will continue to align with this attractive, real, and sustainable long-term demand. Against this backdrop, margins are expected to reset at structurally higher levels, providing fair returns for the required substantial innovation and investment. Our technology and product portfolio intersect with these shifting market dynamics at a perfect time, enabling us to manage a balanced portfolio and deliver industry-leading financial performance. Now, let's begin the Q&A. Q&A Session Operator: Thank you. We will now begin the question-and-answer session. (Operator instructions) The first question comes from Mark Newman from Bernstein. Please go ahead. Mark Newman: Hi, thank you very much, and congratulations on the terrific numbers today. Really, really great numbers, especially the Q3 guide. So, obviously what's happening is prices are expanding at an unprecedented rate. I guess my question is for Dave's opening comments. How are you thinking about LTAs? Of course, LTAs have pros and cons, because LTAs lock in pricing, and when prices are rising so fast, I imagine you don't actually want that many LTAs. But I'd love to understand how you're thinking about that, how we should think about that, in terms of the proportion of your business you put on LTAs, and what that implies going forward. That would be great. And if you could briefly touch on the long-term supply-demand balance, if there are any plans to add supply in this very, very large, currently quite severe shortage, or how you're thinking about that, that would be great too. Thank you very much. David V Goeckeler, Chairman and CEO: Thanks, Mark. Appreciate the comments. A couple of things on the series of things happening with the business dynamics that led to the results you're seeing. First, it starts with the product portfolio and innovation. You know, our BiCS8 node, which we've started and continue to ramp into production, is just a fantastic node. The performance, QLC performance, 2Tb die, a lot of things put us in a very strong position. By the way, I'd point out we extended the JV, which we're very happy about, that goes for another ten years. That's supporting a very strong enterprise SSD portfolio. That's something we've been driving for a while. Last quarter I said we'd see growth through the fiscal year. We saw it in Q1, I think 29% sequential growth. Now we saw 64% sequential growth in Q2, and I think you'll see acceleration from here through the second half. So, the third major pillar of business innovation is frankly happening in the consumer business. A lot of new product introductions. This Extreme Fit product we announced this year is really a breakthrough product. It allows our customers to add storage to their devices very seamlessly and economically. It's kind of an innovation in the USB space. You might not think that happens anymore, but this is not a removable product. It's designed to plug in and stay put. You see the agreements we have with partners like FIFA, which is probably the biggest event this year. We have great co-branded products there. We look at our consumer business, we saw 50% year-over-year growth, so really strong performance there. The excellence of that product portfolio innovation has allowed us to have a better portfolio mix, and if we look back over the last few quarters, we've actually been able to swap out the lowest-margin business for what is now the highest-margin business, which also provides a significant tailwind for the business. On top of that, you have the supply-demand dynamics, which are pushing the whole market forward. So it's really the combination of all those things pushing the business forward. It's not just price, although obviously being in a strong pricing environment is great. On LTAs, I'll talk a bit, and I know Luis will have some good comments too. So, as we get to a point where we believe our technology is getting a fairer return, and frankly, customers are seeking more supply assurance. I mean, I'd point out one thing about the current market, which is entirely a demand-driven phenomenon about what's happening in the market. We've been very transparent about our supply plans for over a year. We're putting a lot of money into this market. We're putting billions of dollars of R&D into driving the roadmap. We're putting billions of dollars of capex, and we've been very clear that we're going to drive mid-to-high single-digit bit growth consistently, we think it's a great market. What's happening now is we just don't have enough visibility into what the demand side really is. I mean, if we look at the data center, we've now been through three forecast cycles. Last quarter, we moved from mid-20%s growth in that market to mid-40%s growth. What we're seeing now is high-60%s exabyte growth in that market in 2026. I think our customers are realizing that, particularly in the data center market. Their numbers are big, what they need in '26, '27, '28, we're even talking to some of them about '29 and '30. They're doing their own planning. The number of exabytes they're going to need is massive. So, LTAs are about coming up with a model that gives us the confidence to supply that level of demand on a sustained basis. For us, it's not about what demand is next quarter or the quarter after. There's nothing we can do about that given the dynamics of our business. But we want to align the long-term growth rate with long-term sustained demand, as you said, at attractive financial terms. Let me hand it over to Luis. Luis, any thoughts on that? Luis Visoso, EVP and CFO: Yeah, I mean, David covered most of it. I'd say, Mark, we're seeing customers across end markets and across geographies reaching out to us. So it's not just a handful. We're seeing a pretty broad base, which is very interesting for us. We're making significant progress. We've made significant progress with several customers who really, really want us to prioritize or guarantee supply, and as David pointed out, they see it as a key enabler for their business, which is what they're looking for. Now, on your point, we're being very thoughtful about how we define a couple of metrics. One is the length of the agreement, the price at which we transact, the volume, the amount of business we put into it, and any prepayment component in it. So we're being very thoughtful that this should be value-additive, not the opposite. Mark Newman: Great, thank you very much. Could I just get a quick comment on how you see long-term supply-demand and any flexibility to add supply? David V Goeckeler, Chairman and CEO: No, I mean, Mark, we have our supply plans. Again, we've been very clear about what our capex plans are, what our bit growth plans are, and that's it. The key is meeting our customers at that supply level and understanding how we allocate, and then, as we said, it's about all of us lifting our heads up and looking further out on the horizon at what the demand in this market is really going to be, what sustained demand is going to be, and we really need to get away from the idea that this is just a transactional market where we only get a strong signal one quarter at a time. I mean, to be fair, we do get demand signals from customers annually, but we really only transact that. We negotiate prices every quarter, which makes it very, very difficult to add any kind of spend because we just don't have visibility into the economics, and again, particularly as the market shifts to the data center, I think data center customers are more willing. As Luis said, it's across all customers, but I think data center customers, given their demand profile and frankly how big their growth is, are being more proactive in engaging in that kind of dialogue, really wanting to understand supply assurance a few years out, and what kind of – how can we come up with a – what kind of commercial practices can we put around that? And that's a, as I said in my prepared remarks, I said we're in the early stages of this transition, that's the early part. I think the commercial practices will change, and I think it's all for the better. We have to get these conversations done over the next few quarters. Thank you very much, Himanshu. Mark Newman: Thank you very much. Again, congratulations, guys. David V Goeckeler, Chairman and CEO: Thanks, Mark. We appreciate it. Operator: The next question comes from Joe Moore from Morgan Stanley. Please go ahead. Joseph Moore: Great. Thanks. At CES, Jensen was talking about this Key-Value Cache and gave some numbers on terabytes per GPU, which seems like a pretty substantial market. Are you seeing any signs of that? Do you think that – should we just take that as direct math? Does everyone have different implementations? And what does that mean for the data center and NAND? David V Goeckeler, Chairman and CEO: Yeah, Joe. We're working on that right now. We're working with NVIDIA on that, and how they're thinking about it. And then of course we'll work with our customers on how they're going to configure it in their deployments. So it's a little early. I'll say a couple things about it. First, none of that demand is in the demand numbers we're talking about today. I think it's just a perfect example of where we all need more collaboration on what future demand is going to be. Second, our initial take on that, when we look at, say, '27 demand, we think that's about an incremental 75 to 100 exabytes. And then the year after that, you can double that number. So it's a massive amount of demand. I think that, again, is just another example of NAND being central to the AI architecture. Very, very clear at this point. If it wasn't before, the AI architecture is changing, right? It's not surprising. Any technology that is this profound and is being deployed at this scale, we're going to continue to see innovation and evolution in the architecture. So we'll watch that very closely. NAND is going to be a big part of that architecture. It's the most scalable semiconductor memory technology, or maybe the most scalable semiconductor technology. So we're looking at those configurations. It's very real demand. We're just trying to figure it out. And then we'll probably incorporate that into the numbers later this year, going into '27 and '28. Joseph Moore: Great. Thanks. Great. Thanks. As a follow-up, the enterprise SSD opportunity, how is that split between TLC and QLC today, and how does that change going forward? David V Goeckeler, Chairman and CEO: I think we're roughly tracking the market today. Mostly TLC. I'd say it's skewed to TLC, particularly for us. And then, we haven't launched the Stargate product, which is QLC for storage. It's in certification. So we'll start shipping that product for revenue in the coming quarters, which we're excited about, gives us another growth tailwind for our data center portfolio. That will lift the QLC mix. But for now, I think the overall market and our portfolio, is skewed to TLC. Joseph Moore: Great. Thanks. Great numbers. David V Goeckeler, Chairman and CEO: Thanks, Joe. Appreciate it. Operator: The next question comes from CJ Muse from Cantor Fitzgerald. Please go ahead. C J Muse: Yes. Good afternoon. Thank you for taking the question. I guess first question, is there a way to quantify the incremental NAND demand associated with AI infrastructure build-out? I'm excluding KvCache, but, we were at mid-to-high single digits before, I'm curious what now, based on your conversations with customers and the trends you're seeing, looking at '26, '27, '28, what is the new demand CAGR roughly? David V Goeckeler, Chairman and CEO: I think the best proxy we have for that right now, CJ, is the exabyte demand we're seeing in the data center. As I said earlier, I mean, two cycles ago we were looking at, like, mid-20%s exabyte growth in the data center in '26. Last quarter we were talking about, given the capex cycles happening, we moved that to mid-40%s. Our forecast now is high-60%s exabyte growth in the data center, and that's without any capex increases that happened within this earnings cycle. So, just a significant increase in demand quarter-on-quarter, which we think is almost entirely driven by AI, pretty clear. C J Muse: Perfect. Thank you. And then I guess you paid down a fair amount of debt this quarter. You only have $600 million outstanding, probably could pay that off this quarter. So just curious, as you get to a net cash position, how should we think about capital return, specifically around share repurchases in the coming quarters? Luis Visoso, EVP and CFO: Yeah, we feel, we're very proud of the progress we've made on reducing debt. Remember we started at $2 billion, it's come down very, very quickly, $600 million this quarter, and we'll continue to take it down. CJ, our priorities are to continue to invest in the business as we have been, and to build a prudent cash resource, it's a business where it's helpful to have cash on hand. We're not going to waste your cash, don't worry, but we're going to build a prudent cash resource, we'll continue to reduce our debt, and in due time, we'll continue to expand and give you updates. But so far, those are our priorities. C J Muse: Thank you. David V Goeckeler, Chairman and CEO: Thanks, CJ. Operator: The next question comes from Jim Schneider from Goldman Sachs. Please go ahead. James Schneider: Good evening. Thanks for taking my question. First, on the supply side, I was wondering if you could just give a brief overview of the Yokkaichi and Kitakami fab network, and where things stand, I assume utilization is basically full, but, as you think more tactically about the high-teens growth prospect after this year, how do you expect to ramp your overall JV fab network over the next, say, 18 months or so, and then maybe give any kind of view – your view on some of the industry greenfield capacity expansions recently announced given some of your competitors? David V Goeckeler, Chairman and CEO: So, first, we have – as you said, we have two main bases, Yokkaichi and Kitakami. I think a big step this quarter was we announced the extension of the JV agreement around Yokkaichi, aligning it with the Kitakami agreement, so they both now run to 2034, which gives us very good supply assurance for the next nine years, and we'll continue to talk about what happens after that, but this relationship with Kioxia has been going on for decades, it's incredible, and will continue for a long time. So, we feel we're in a very good position there. Look, we haven't had underutilization in the fabs for a couple of quarters. We got through that a couple of quarters ago. There's probably still a little bit of cost roll from that memory. I think that was last quarter. We're done. So, they're running full. Kitakami is where we're expanding. We just opened the K2 FAB, so we have additional space there. I think we just, the JV, led by Kioxia on that part, has just done a really good job of capacity planning and has good plans for how we scale into the Kitakami base over many years as needed. So, we feel really good about our positioning there. As for the rest of the industry, it's – as you know, it's got long lead times. We've seen some announcements recently. I would consider those to be normal course. We're all constantly building cleanroom space. As I said before, it's a market where we've been very consistent on the supply side. We're going to grow bits at a mid-to-high single-digit rate. We're going to do that through innovation. We're going to do that through – that innovation is going to require additional cleanroom space. That's all in the plan. I'd expect to see continued spending to get to that number, but we're not seeing anything unusual. And I think as we all know, if you want to start building a new fab, it takes years to get it built and operational and producing product out of it. So that's a little bit of how we see the market. Final comment, when we talk about supply-demand, all of that is factored into our numbers. James Schneider: Thanks. And then maybe as a follow-up, could you maybe talk about, obviously you mentioned the certification with another enterprise SSD hyperscale customer by the end of this calendar year, for example, what do you expect your enterprise SSD exposure to be as a percentage of total revenue? Thanks. David V Goeckeler, Chairman and CEO: Yeah, we're not going to give a precise number right now, but I'd just say stay tuned. I think we've said this, our business is going to continue to grow in this market. We've seen 29% sequential growth, followed by 64% sequential growth, without getting into too much detail. I think you'll see a significant step-up next quarter as well. So we feel really good about where the portfolio is positioned. Like I said, the customer response, not just hyperscalers, but across the ecosystem that's building AI infrastructure. Our compute-focused TLC product in the market is really driving that growth. We'll see our BiCS8 QLC product start shipping for revenue in the coming quarters, which will be another tailwind for growth. The performance of BiCS8 QLC, as we've discussed, has been extremely well received. So we continue to see very high interest in those products, and certifications are ongoing. We look forward to continued growth, and that will be part of the balanced portfolio we've always talked about, about how we're going to allocate our supply into that part of the market. But we're excited about where we are and where we're going. James Schneider: Thanks. David V Goeckeler, Chairman and CEO: Thanks, Jim. Operator: The next question comes from Mehdi Hosseini from SIG. Please go ahead. Mehdi Hosseini: Yes, thank you for taking my question. I have two follow-ups, this is for the team. When I look at your guide for March Q3, assuming low-single-digit bit growth, there's a big jump in ASP and mix pricing. I wanted to ask, how should we think about the mix factors impacting ASP? Clearly, as you scale SSDs, there's a higher premium. You're capturing more premium or economic value than bits. Is there any way to help me understand that? Because just thinking about the absolute ASP might give us the wrong impression. So any help you can provide would be great. I don't have a follow-up. Luis Visoso, EVP and CFO: Yeah, so the mix impact we have is less about the change in our end markets and more about the customers, right? And how we serve the market. I talked a little bit about that in my prepared remarks. What you're seeing is we're driving a better mix. We're working with customers who value our relationship, value our products. Therefore, we're getting better gross margins from that. So there is a mix component to that, to your point. Mehdi and Wilco, and there's some pricing as well. Now, we believe the market will. Go ahead, sorry. Mehdi Hosseini: Oh, I was just going to say, just a quick follow-up. Could you provide any breakdown of the mix so we don't get too fixated on the ASP trend? David V Goeckeler, Chairman and CEO: Yeah, we'll provide that to you when we report next quarter. Mehdi, on the guide, I don't have anything to share with you right now. Mehdi Hosseini: Okay, great. And one question for David. Look, we're here, the shortage is increasing. It's intensifying. You and your peers are engaging in multi-year contract discussions. As you highlighted, these projects take years. Building fabs and putting equipment is a very long process. Why is there not more urgency? Why are your customers not willing to commit more? They are committing to investments across the AI supply chain. But when it comes to memory or NAND, I don't sense the urgency. If this is going to wait until the second half of this year, that means the shortage will intensify, unless the SSD 60% exabyte growth might just be a shortlist. But how can I reconcile the two? David V Goeckeler, Chairman and CEO: I have a lot of thoughts on that, Mehdi. I mean, first – I would argue there actually is quite a bit of urgency, and things are changing quite dramatically, quite quickly. Right? I mean, you're talking about a market that has operated the way it has operated for arguably decades. The way that market operated is there was basically a NAND auction every quarter, and that set the price. So, that set the price. And then we all had to go debate what the price was every quarter. And then on the supply side, we tried to get right how much we supply, but often got it wrong. And when you got it wrong, the economics completely broke. So, we're trying to move away from that world. There are a lot of reasons why we're moving away from that world. There are a lot of technology reasons and all sorts of things we've talked about in the past, we could talk a lot about it. But, for something you've been doing for a decade, to just wake up one quarter and decide to fundamentally change the commercial practices of an industry is almost, is really, really hard to do. So, but I do think it's happening. I do think customers are starting to look, as I said, they're starting to look further out, particularly in the data center. I think the point that cannot be underestimated is the idea that the data center is now the largest market for NAND. I mean, this is a market that was once dominated by – or not dominated by, but when the primary customers were smartphones, PCs, I viewed that as the traditional commodity NAND market. I hate that term, but that's how people thought about it. The data center is not that market. Like the data center is not a commodity NAND market. The data center is – NAND is a highly strategic product, it's part of a very complex AI architecture. I need extreme performance, I need innovation, I need specific enterprise SSDs that fit my configuration. That is very different from the idea of \"I just need the same product, I can plug in from any of five different suppliers.\" That's not – so that market now becoming the primary market, and particularly the primary growth engine, really, I think, is starting to challenge the commercial practices of how the market has traditionally operated. Again, I'm actually quite optimistic that this is happening fairly quickly. Now we'll see how fast. I mean, are we actually to the point of announcing contracts? We're not quite there yet. We have some in process. But it's actually, in my view, progressing fairly quickly relative to the size of the market, the number of players, the amount of business transacted every quarter, to see it change as quickly as it is right now is actually quite remarkable. Mehdi Hosseini: Thank you for the detailed color. David V Goeckeler, Chairman and CEO: No problem. Thanks, Mehdi. Operator: (Operator instructions) The next question comes from Wamsi Mohan from Bank of America. Please go ahead. Analyst: Hi. This is Ruplu for Wamsi. Can I ask a question for Luis? This quarter, operating expenses came down. You said you got a benefit from managing NPI. Could you elaborate on that, what that benefit was? And could you talk about capital allocation plans? How much do you expect to spend on HBF and data center expansion, and any capital return plans or M&A plans? Thank you. Luis Visoso, EVP and CFO: Yeah. So, let me try to unpack the OpEx question, because I thought someone would ask. We made a recurring change to how we account for selling our products. Basically, we now start charging for our certification units. In the past, we used to expense the costs as they were incurred, right? They were period costs. This is a non-recurring factor, it's a benefit, a one-time benefit, because we're moving from period costs into inventory because we're now selling those certification units. Does that make sense? Analyst: Yes. That's clear. Okay. So, we will get ongoing savings because we charge customers for these certification units, and there's a one-time benefit as we go through the transition and through inventory. And on the capital allocation question, as I said earlier, our capital allocation strategy hasn't changed. We will continue to invest in the business. We will build a prudent cash reserve, which is very helpful in this business, especially given where we are. We think we need to continue to build cash reserves, and we will continue to reduce debt. So we've gone from $2 billion to $650 million, so we're making great progress, and we'll continue to make progress there. We're fully funding the business. We're funding the business through the BiCS8 transition. We're funding our OpEx, we feel we're funding the business itself appropriately. Mehdi Hosseini: Any underutilization charges in the guide? Luis Visoso, EVP and CFO: No, not in the guide, and not in the actuals. Mehdi Hosseini: Okay, thank you very much. Operator: The next question comes from Vijay Rakesh from Mizuho. Please go ahead. Joseph Moore: Hi, Dave and Luis. Great quarter, very amazing numbers. Just wanted to know for 2026-27, what kind of bit growth are you looking at? Obviously ASP pricing has been skyrocketing, but just wanted to know how pricing trends are across different segments, from data center to retail to consumer SSDs, if you could give some color, thanks. David V Goeckeler, Chairman and CEO: Yeah, so the bit growth we see in '27, '28, consistent with what we talked about at the beginning of February. We're still talking about mid-to-high single-digit bit growth annually. We're not going to change our assumptions on that unless we see that demand is there, sustainable, and profitable. So our plan is still – our plan of record is that kind of high-single-digit annual bit growth. On pricing across what we call end markets, it's very interesting, right? What you see is the prices don't move exactly the same, but they basically move at the same rate. What's happening now is NAND can ultimately flow to any market. So NAND will naturally flow to the most attractive market. So when data center prices go up, they do have an impact on the other markets, for example, right? So that's what we're seeing across the markets. Prices are basically up across the board. Operator: The next question comes from Karl Ackerman from BNP Paribas. Please go ahead. Karl Ackerman: Hi, thanks for taking my question. I wanted to congratulate you on a very nice quarter. What is the product roadmap? I think there's – now that your data center is 15% of the mix, NAND flash is increasingly being attached to AI compute. So I think that's creating new requirements on performance, so could you update us on your product roadmap to meet these new requirements? For example, I think there are high IOPS SSDs, you have exposure on HBF, so what do those new products look like? David V Goeckeler, Chairman and CEO: Yeah, so I think that's a great example of a lot of innovation that's ongoing, driven by the data center, as I mentioned earlier. So, you're right, what we call the compute-focused, TLC high-performance drives are what's driving the portfolio right now. As I said, we just saw 64% sequential growth, so we continue to see very strong pull on those high-performance products. As I said, as we start to migrate those to BiCS8, we feel we're in a very strong position, but as you said, there's a whole host of new innovation going on, and I think, I think the innovation engine is alive and well across the industry, which is, how are we going to meet the AI storage demand? Models are getting bigger, generating more tokens, caches are getting bigger, which is a natural thing where you start to think about NAND and its massive scaling characteristics, and you're right, there's a lot of innovation there. There are high IOPS enterprise SSDs, which of course you can imagine we're working on. You know, we had our own thoughts on this two years ago, we talked about it at Investor Day, we believe there's an opportunity to re-architect NAND to bring it into AI. We trademarked it as High Bandwidth Flash (HBF). I think over the last year, that has become a more recognized path forward, and there are a lot of people working on that now, by the way, we continue to work on that. We're very, very happy with the progress. We're having deep conversations with customers on the use cases. We're designing NAND die. We're building controllers, so that continues to move forward. Obviously, we'll have more to say on that as we move forward and plans firm up, but, I think all of that is just an example that as the AI architecture continues to scale, there's a huge opportunity for innovation, and it's incredibly exciting, and we're just in the very early stages of rolling this technology out and scaling it globally, and we have, perhaps the entire technology industry, in a very strong position to do that. They're some of the largest, most capable tech companies in history. Obviously, they're putting massive – massive resources behind rolling this technology out and scaling it globally very quickly, and I think it's incredibly exciting. I think it's going to continue. I think we're super early in this, and I think it's going to last for a long time. Operator: The next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Michael Stadnoff: Hi, guys. Thanks. This is Michael Stadnoff on for Aaron. I wanted to go back to the LTA discussion. Have you finalized any of these agreements? And if so, is part or all of the prepayment part of, I guess, any finalized agreements? And is that something we should expect going forward? I know you kind of hinted at it. Luis Visoso, EVP and CFO: Yeah. So far, we have one agreement signed and completed. We don't disclose the terms. There was a prepayment component in it, which we think is important in these types of agreements, but that's all I'll say, Michael. So we have one completed, and a few in the queue. Operator: The next question comes from Asiya Merchant from Citi. Please go ahead. Asiya Merchant: Great. Thanks for taking my question, great results here. David, last quarter, I think you shared some thoughts on how you see the edge markets, PCs, smartphones, maybe the consumer markets. Just given the fact that memory is on allocation, people are talking about PC and smartphone unit declines, just how are you thinking about that, and what are your OEM customers signaling to you about those markets, and how does that change your demand outlook for maybe 2H '26 and into '27. And if I could sneak one in for Luis. Structurally, NAND is going through this dynamic, it's clearly a highly strategic product. How are you thinking about your true through-cycle gross margin? It looks like it's been a while since you've been at that level, but how are you thinking about gross margin structurally from here? Thanks. David V Goeckeler, Chairman and CEO: Okay. Thanks, Asiya. So look, a couple thoughts on that. So first, on the consumer market side, I think we're very happy with where our consumer portfolio is positioned. As I said, we just delivered over 50% year-over-year growth. I think the work we've done there on how we think about branding, innovation, product portfolio, that's a long-term market for us. It will continue to be a long-term market for us. We think we're able to drive value there through the value of the SanDisk brand. So we think that's a great business and will continue to be, and we'll continue to invest in it. In some of the other markets, like, look, I think that's one of the reasons. Obviously, we look at the numbers as we prepare, if you just look at '26, our PC units are 285 million. I don't think we would have – anyone would have picked that number at the beginning of the year. So it's just – continued very strong results in terms of unit growth, content growth in those markets. So look, as we go into '26, or we're in '26 now, we'll see some base effects on that, some decline in units. I think we're still getting very strong signals from customers in those markets, wanting supply. I mean, very strong signals on a sustained basis. We're working with them as closely as we can. I think it's extremely important in this time of the market to be very closely connected with our customers, and we're doing that. But you will get some base effects on units. I mean, there's a lot of discussion about mix in the market. I just think that's typically how this market works. Certainly, as components change, configurations change. Frankly, we saw that in '23. All of a sudden, the mix shot way up because prices came way down. All of a sudden, a 1TB drive became very inexpensive. All of a sudden, it started showing up everywhere. As the market moves the other way a bit, you'll see that kind of change. I think that's just the natural way this market works. I don't think it's something to be overly concerned about. So those are still strong markets. Customer relationships are very good. I expect we'll continue to be deeply engaged in those markets. We've had a strong presence at the edge for a long time, and we'll continue to have that. From a big picture, that's one of the reasons why I think this business is so valuable, is because we're in every single device, every single technology, that touches – we touch it or sell NAND into it. And now with the AI deployment in the cloud and that market becoming the largest market for NAND, it's changing the dynamics of how the whole industry operates. As we said in our prepared remarks, we've put – we've put a lot of R&D over the last 25 years to get to where we are. We've put a lot of capital to get to where we are, that we can manufacture all of this, front-end and back-end. I think we're finally getting to the point where the value of that IP, the value of that intensity is being recognized in our own results. Luis Visoso, EVP and CFO: Yeah, I think the way to answer your question on through-cycle margin is similar to what David left off with, which is in a high capex, high R&D industry or company, frankly 35% is not where we want to be, right? So we're not going to give you a new number today, but clearly that's not where we want to be. What I will tell you is this is the first quarter, right? We're above 35%, we got to 51%, we're getting to, call it a midpoint of 66%, so we're making progress, we're getting to a place where we believe we can justify the capex, we can justify the R&D investments the business requires. Operator: The next question comes from Tom O'Malley from Barclays. Please go ahead. Analyst: Hi, this is Matthew Panon for Tom O'Malley. Just one quick question, pardon if you mentioned it, just jumping around during the call. I was wondering if you said what percentage of quarterly bit shipments were enterprise SSD? Luis Visoso, EVP and CFO: I don't think we said that, but it's roughly in the high-teens range. Operator: The next question comes from Blayne Curtis from Jefferies. Please go ahead. Blayne Curtis: Hey, guys. Congrats, thanks for squeezing me in. I just wanted to talk about the model, obviously, I mean doubling sales in two quarters. I just want to make sure I understand how you're going to handle OpEx. I guess as a percent of revenue it's halved now, right? So, are you going to accelerate how you look at investing in R&D, and also the tax rate, with this dramatically improved profitability, anything to think about with the tax rate? I think you were talking about it maybe getting to 20% at some point, is that sooner rather than later? Luis Visoso, EVP and CFO: Yeah. So on the OpEx side, first you should know that about 75% of our OpEx is R&D. That's where we put our money, that's why we do it? Because it's a technology company, innovation is our lifeblood. That's what we believe in, that's where we put our money. So, you should not take this quarter's OpEx as an indication of where we should be, because that, as I mentioned earlier, had a non-recurring benefit. If you want to quantify that, that number is about $35 million, so you can use that number for your modeling. We don't believe OpEx should increase significantly from where we are today. We believe the run rate is healthy. We will always look at where we need to invest and make sure we're funding innovation, but on the other hand we're also always looking at efficiency, and how we make sure there's no waste in the system. So a long way of saying, which is the spending level last quarter, what we got this quarter, those are more sustainable levels now. Tax rate is interesting because we have a lot of prior-year losses, particularly accumulated in Malaysia, and we're burning through them very quickly. That's what happens when you start generating profits, so I think you should see our tax rate settle in a little bit higher than it is today, maybe 14%-15% on a sustained basis. That's what I would model for now. Operator: That concludes our Q&A session. I would like to turn the conference back over to David for any closing remarks. David V Goeckeler, Chairman and CEO: Okay. Thank you everyone for joining us. We'll be communicating throughout the quarter. Have a great day. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. 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