Sandisk's revenue and profits in the first fiscal quarter exceeded market expectations. The demand inferred by AI is pushing NAND towards a more core infrastructure position.

After the U.S. stock market closed on October 29th, Sandisk released its financial report for the first quarter of fiscal year 2027. In the first quarter, which ended on October 2nd, revenue reached $11.031 billion, a 23% increase from the previous quarter and a 378% increase year-over-year.

The gross profit margin of non-GAAP is as high as 85.1%, and the diluted EPS per share is $49.51, both of which are higher than the company's previous guidance. During the same period, the company generated $5.7 billion in adjusted free cash flow.

Management stated that approximately 60% of the quarter-on-quarter revenue growth this quarter came from increased shipments, and about 40% came from price increases.

The company attributed this round of growth explicitly to the structural increase in demand brought about by AI reasoning. Sandisk stated that KV Cache in AI reasoning, along with long context, multi-modal input, and persistent user memory, are significantly expanding the demand for high-capacity, low-power storage.

Financial reports show that at the end of the first fiscal quarter, the company had signed contracts with 8 customers in the data centers and edge computing (Edge) business areas, with the lowest contract revenue, calculated based on the base price, amounting to 93.9 billion US dollars. Customer demand signals extend beyond the 2030 fiscal year, and recent contacts with leading (AI) companies indicate that there is still room for further growth in demand.

Management expects that in the fiscal year 2027, data centers will still be at the core of NAND market growth, accounting for over 55% of the market share; the demand for data center bit is expected to increase by about 40% year-on-year, while this demand had already more than doubled in 2026.

The company expects that by the end of 2030, KV Cache will account for about one-third of the flash memory market in AI data centers, while AI data center storage is expected to approach the current scale of the entire NAND industry.

The company expects revenue of $12.2 billion to $12.6 billion in the second fiscal quarter, which is higher than analysts' forecast of $12.1 billion. The board of directors has also approved a 1-for-8 stock split, with the additional shares expected to be distributed on November 19th, and trading after the split adjustment is expected to begin on November 20th.

Data Center: AI becomes the largest source of growth, with revenue increasing by 61% month-on-month

Looking at the terminal markets, data centers are the biggest highlight of this quarter.

Sandisk's data center business reported revenue of $4.8 billion in the first quarter, a 61% increase from the previous quarter and a 1,682% year-on-year increase, with a growth rate far exceeding the overall revenue growth.

The company stated that its data center products cover the complete infrastructure needs ranging from high-performance enterprise-level SSD to high-capacity platforms. Management estimates that the proportion of data centers in the industry's bit demand has increased from about 20% at the beginning of 2020 to nearly 50% currently.

Data center business revenue accounted for approximately 43.5% of total revenue this quarter. Although the business scale of Edge is still larger, data centers have become the most important growth engine.

Sandisk also emphasized that in the first quarter, the company allocated more supplies to the data center market to meet the rapidly growing needs of customers. The company mentioned that its strong customer relationships include three of the largest cloud providers in the United States, which provides support for future data center expansions.

Management expects that in the fiscal year 2027, data centers will still be at the core of NAND market growth, accounting for over 55% of the market share; the demand for data center bit is expected to increase by about 40% year-on-year, while this demand had already more than doubled in 2026.

Edge business remains the largest source of revenue, while automobiles and IoT have become new growth points.

Edge reported $5.8 billion in revenue for the first quarter, a 7% increase from the previous quarter and a 320% year-on-year growth. This market remains the largest contributor to SanDisk's current revenue, accounting for approximately 52.6% of the total revenue.

This business covers scenarios such as smartphones, PC, automobiles, tablets, and physical AI. The company stated that this quarter, the Edge business demonstrated resilience in both high-end and mainstream markets, however, the low-end market saw a contraction, which partially offsetted the growth.

It is worth noting that the automotive sector is becoming an important growth area within the Edge business. Sandisk stated that its collaboration with leading customers continues to deepen, and the company is confident that the automotive industry will become one of the largest markets in the Edge business in the future.

This means that SanDisk's growth strategy does not rely solely on cloud AI data centers. As the demand for storage continues to increase in automotive electronics, intelligent cockpits, assisted driving, and edge AI devices, the Edge market remains a high-value, long-term demand pool.

Consumer businesses are under pressure, but their proportion has significantly decreased.

Consumer business revenue for this quarter was $397 million, a decrease of 29% quarter-on-quarter and 39% year-on-year, making it the only segment among the three major terminal markets that has seen shrinkage.

The company explained that the consumer market is adapting to higher prices. In other words, against the backdrop of rapid price increases in NAND, traditional consumers are more sensitive to price changes, and demand has been suppressed.

However, from the perspective of the overall business structure, the impact of consumer business on SanDisk's financial performance has significantly diminished.

This quarter, consumer business accounted for only about 3.6% of total revenue. This is also an important signal from this set of financial reports: Sandisk's current profitability is mainly driven by data centers and Edge, rather than traditional retail consumer storage products.

The company still regards its consumer business as a strategic asset, as this business has the capability to directly reach end-users and global channel partners, and can provide early feedback on product development and changes in end-user needs.

NBM Contract Lock-up Long-Term Demand

Sandisk's New Business Models, which is also NBM, is a key variable for investors to assess revenue visibility.

At the end of the first fiscal quarter, the company had signed contracts with 8 customers in the data center and the Edge sector, with the lowest contract revenue calculated based on the base price amounting to 93.9 billion US dollars.

The company disclosed that at the end of the quarter, the remaining performance obligations amounted to $88.9 billion, and the financial guarantees, including cash deposits and instruments, totaled $16.5 billion. Based on bit, approximately half of the supply for the fiscal year 2027 has been committed through NBM, and about two-thirds of the supply for the fiscal year 2028 has been committed through NBM. The weighted average term of the relevant agreements exceeds 4 years, with the longest being 5 years.

Sandisk stated that in the first fiscal quarter, it completed two new NBM agreements, which were previously disclosed during the fourth fiscal quarter's teleconference. The company also mentioned that it is in discussions with existing NBM customers regarding the extension of these agreements, as well as discussing new arrangements with new customers for NBM.

Customer demand signals have extended beyond the fiscal year 2030, and recent contacts with leading AI companies indicate that there is still room for further growth in demand.

AI inference change: NAND positioning: moving from "capacity storage" to the core layer of AI infrastructure

Sandisk specifically emphasized in its financial report that AI is expanding the role of NAND within the infrastructure of AI.

The core logic lies in KV Cache. For the AI model, every time it generates a token, it needs to refer to the previous context, thus forming a continuously growing working memory. With the widespread use of long prompts, complex reasoning, multi-modal inputs, and persistent user contexts, the storage requirements will significantly increase.

In SanDisk's framework, HBM and DRAM are responsible for the highest-performance tier, while NAND flash memory provides a more cost-efficient capacity tier, which is used to retain a wider context and avoid expensive redundant calculations.

The company further distinguished the roles of TLC and QLC.

• TLC is suitable for KV Cache that is sensitive to latency and active datasets;
• QLC is suitable for higher-density scenarios, such as data lakes, vector databases that support AI search, retrieval libraries, etc.

Sandisk also stated that systems using SSD can achieve approximately 3 times the token throughput compared to systems with pure volatile memory, while reducing energy consumption by about 75%.

Analysis suggests that if this judgment is verified on a large scale, the strategic role of NAND in the reasoning of AI will significantly increase. It will no longer be merely considered as low-cost storage in the traditional sense, but rather become an integral part of the optimization of cost, energy consumption, and throughput efficiency for AI data centers.

Capital expenditure: Capital expenditure accounts for only 1.8% of revenue, but attention should be paid to the impact of the joint venture structure.

Sandisk's cash capital expenditure in the first fiscal quarter was $202 million, accounting for only 1.8% of total revenue; total capital expenditure was $378 million, accounting for 3.4% of revenue.

Among them, the company's share of total capital expenditure in the joint venture (JV) was 324 million US dollars; after deducting external financing and equipment depreciation related to wafer procurement and other offset mechanisms, the actual cash capital expenditure injected by the company into the joint venture was 148 million US dollars; in addition, the expenditure on post-packaging and testing facilities and related fixed assets of the company headquarters (PP &E) was 54 million US dollars.

However, this proportion of capital expenditure cannot be simply interpreted as meaning that the storage industry has become a ‘light-asset’ industry.

SanDisk and Kioxia jointly develop and produce flash memory through a Flash Ventures joint venture framework, with SanDisk holding 49.9% and Kioxia holding 50.1%. There are complex capital flows involved in related equipment investments, depreciation, leasing, subsidies, supplier terms, and wafer procurement costs.

Therefore, the relatively low level of cash CapEx reflects the cash flow advantages brought about by the joint venture structure and financing mechanism, but it does not mean that production expansion does not require any economic capital investment at all.

The company stated that in the fiscal year 2027, the majority of CapEx will be used to support BiCS's technological investments. Considering that the demand for NBM exceeds supply, the company's future capital allocation will continue to focus on advanced process conversion and optimization of supply capacity.

Responsible Editor: Ding Wenwu