Sandisk Corporation

Sandisk does not own a chip factory. Kioxia owns the buildings in Yokkaichi and Kitakami, and three joint ventures, 49.9% owned by Sandisk, own or lease the equipment inside. Each partner is entitled to about half the wafers, priced at cost plus a small markup. The two companies design each BiCS generation together and own the technology jointly.

The contract cuts both ways. Sandisk pays half the ventures' fixed costs whatever it orders, and its orders are binding. While the ventures run, neither partner may make flash with anyone else or beyond the capacity the agreements set. The ventures now run to the end of 2034.

So Sandisk's supply is a joint decision. To grow bits it must agree with Kioxia on new tools and node changes, such as moving output to BiCS10 in the new Kitakami K2 fab, which began producing in fiscal 2026. Kioxia plans about 470 billion yen a year of capex (spending on equipment and plants) for fiscal 2026 to 2028.

It also keeps Sandisk lean. Its own equipment spending was $177M last fiscal year on $20.2B of revenue, because most fab investment sits inside the ventures, funded partly by leases that Sandisk guarantees.^2,9,12

Sandisk sells the same flash three ways. Edge means chips and drives for phone, PC, gaming and car makers. Datacenter means SSDs for cloud and AI servers. Consumer means SanDisk-branded cards and drives sold in stores.

Last fiscal year was a price story in every unit. Edge sold high-single-digit percent more bits but took almost 180% more per gigabyte. Data center grew bits almost 120% and price almost 150%. Consumer sold mid-teens fewer bits and still grew revenue 29% on price.

Data center is catching up fast. Its revenue reached $4.80B last quarter, 44% of the total, as Sandisk's high-capacity QLC drives, which store four bits in each memory cell, ramped. In April to June, TrendForce still ranked Sandisk fifth in enterprise SSDs, behind Samsung's $14.35B and SK Group's $8.63B.

Edge faces shrinking unit demand. Management expects smartphone and PC units to fall mid-teens in 2026 as memory costs push device prices up. That leaves edge leaning on price, which TrendForce says is now rising more slowly in phones and PCs than in servers.^2,1,7,3,8,23

Sandisk's costs barely move with price. It buys wafers at cost from the Kioxia venture, so when selling prices rise, almost all of the increase becomes gross profit, the share of sales left after making the product. That is how gross margin went from 30% to 85% in a year.

Run it backward. At the 85% guide midpoint, costs are about 15 cents of each sales dollar. Holding costs fixed, a 25% price cut leaves margin at 80%, management's own target for fiscal 2028 to 2030. Halving prices leaves about 70%. Getting back to fiscal 2024's 16% would take prices falling more than 80%.

Each point of price is worth a lot. On the $12.4B guide midpoint, 1% of price is about $124M of gross profit a quarter, or about 70 cents a share before the split, after the 14.3% guided tax rate on 151M shares.

Costs do not stay fixed. Each BiCS generation lowers cost per bit, but in August management also cited inventory builds and higher component costs, and guided margin has held near 85% for two quarters while prices rose.^{23,3,2,17,5,1}

Sandisk Corporation trades at 4.7 times the earnings analysts expect over the next 12 months. That ratio is the multiple: what investors pay today for each dollar of a year's earnings. That is cheaper than it has been 80% of the time over the past five years, when the middle was 14.

Analysts expect earnings to grow about 10% the year after, against about 16% for the S&P 500. The S&P 500 trades at 19 times. At the market's multiple, today's price would only make sense if Sandisk Corporation earned about 75% less than forecast over the next year.

Since April Sandisk has moved more customers onto what it calls the New Business Model: contracts of up to five years, averaging more than four, with stated volumes. Prices have a fixed part and a variable part that moves between a floor and a ceiling. As of August, eight customers had signed, including three U.S. cloud giants.

The floors are real money. At floor prices the contracts are worth at least $93.9B, backed by $16.5B of customer cash deposits and guarantees, mostly held by third parties. Spread evenly over four-plus years, that is under $24B a year, more than Sandisk's fiscal 2026 revenue of $20.2B.

It is well short of the boom. Before the October report, analysts expected about $49B of revenue in fiscal 2027, and the first quarter alone brought $11B. Most of that depends on contract prices staying well above their floors, and on the roughly half of output still sold at market prices.

Management expects contract gross margins around 80%, with upside if prices rise. It has not disclosed the floor prices or how contracted volumes are spread across the years.^{3,4,10,19,1,23}