# How Sandisk makes money

CXProWealth Business Lens · Sandisk (SNDK) · Q1 FY2027

Read from the 10-Q for the period 2026-07-04 to 2026-10-02, filed 2026-10-30 with the SEC (accession 0001628280-26-068601): https://www.sec.gov/Archives/edgar/data/2023554/000162828026068601/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $11.0B (+377.9% on the year)
- Operating income: $8.8B (operating margin 79.6%)
- Net income: $8.1B (net margin 73.4%)
- Gross margin: 85.0%
- Free cash flow: $6.3B (57.2% of revenue)
- Cash conversion (operating cash flow / net income): 0.79x
- Capital expenditure: 0.5% of revenue

## Where the money goes (Q1 FY2027)

- Datacenter → Revenue, net: $4.8B
- Edge → Revenue, net: $5.8B
- Consumer → Revenue, net: $397.0M
- Revenue, net → Cost of revenue: $1.7B
- Revenue, net → Gross profit: $9.4B
- Gross profit → Total operating expenses: $598.0M
- Total operating expenses → Research and development: $384.0M
- Total operating expenses → Selling, general and administrative: $214.0M
- Gross profit → Operating income: $8.8B
- Operating income → Income before taxes: $8.8B
- Total interest and other income (expense), net → Income before taxes: $539.0M
- Income before taxes → Income tax expense: $1.2B
- Income before taxes → Net income: $8.1B

## Where the revenue comes from

### Products and services (Geographic Information and Concentrations of Risk - Schedule of Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Edge | $5.8B | 52.9% |
| Datacenter | $4.8B | 43.5% |
| Consumer | $397.0M | 3.6% |

The members sum to total revenue.

### Regions (Geographic Information and Concentrations of Risk - Schedule of Disaggregation of Revenue (Details))

| Member | Value | Share |
|---|---:|---:|
| Asia | $7.2B | 65.4% |
| Americas | $3.3B | 29.5% |
| Europe, Middle East and Africa | $558.0M | 5.1% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q1 FY2027 | Of revenue |
|---|---:|---:|
| Revenue, net | $11.0B | 100% |
| Cost of revenue | $1.7B | 15.0% |
| **Gross profit** | $9.4B | 85.0% |
| Research and development | $384.0M | 3.5% |
| Selling, general and administrative | $214.0M | 1.9% |
| Business separation costs | $0 | 0.0% |
| Employee termination and other | $0 | 0.0% |
| Loss on business divestiture | ($0) | 0.0% |
| **Total operating expenses** | $598.0M | 5.4% |
| **Operating income** | $8.8B | 79.6% |
| Gain on equity securities, net | $513.0M | 4.7% |
| Interest income | $51.0M | 0.5% |
| Interest expense | ($2.0M) | 0.0% |
| Other income (expense), net | -$23.0M | 0.2% |
| **Total interest and other income (expense), net** | $539.0M | 4.9% |
| **Income before taxes** | $9.3B | 84.5% |
| Income tax expense | $1.2B | 11.0% |
| **Net income** | $8.1B | 73.4% |
| Basic (in dollars per share) | $55 | 0.0% |
| Diluted (in dollars per share) | $53 | 0.0% |
| Basic (in shares) | 146,000,000 |  |
| Diluted (in shares) | 154,000,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2023 | $6.1B | -$2.0B | -$2.1B | -$713.0M | $219.0M | -$932.0M |
| FY2024 | $6.7B | -$468.0M | -$672.0M | -$309.0M | $166.0M | -$475.0M |
| FY2025 | $7.4B | -$1.4B | -$1.6B | $84.0M | $204.0M | -$120.0M |
| FY2026 | $20.2B | $12.4B | $11.4B | $11.7B | $177.0M | $11.5B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +175.3% (year before +10.4%): accelerating
- Operating income: -799.7% (year before —): too short a history to read
- Net income: -596.7% (year before —): too short a history to read
- Free cash flow: -9,478.3% (year before —): too short a history to read

## Operating figures stated in the filing

- Exabytes sold, increase from a year earlier: 10.0% (as of 2026-10-02). "Total products sold increased by almost 10% on an exabyte basis." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Datacenter exabytes sold, increase from a year earlier: 330.0% (as of 2026-10-02). "Total products sold increased by almost 330% on an exabyte basis." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Datacenter revenue per gigabyte, increase from a year earlier: 320.0% (as of 2026-10-02). "Revenue per gigabyte increased by almost 320%." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Edge revenue per gigabyte, increase from a year earlier: 450.0% (as of 2026-10-02). "Revenue per gigabyte increased by more than 450%" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Edge exabytes sold, decrease from a year earlier: 20.0% (as of 2026-10-02). "Revenue per gigabyte increased by more than 450%, which was partially offset by a 20% decrease in products sold on an exabyte basis." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Consumer exabytes sold, decrease from a year earlier: 70.0% (as of 2026-10-02). "Total products sold decreased by more than 70% on an exabyte basis" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Consumer revenue per gigabyte, increase from a year earlier: 110.0% (as of 2026-10-02). "partially offset by an increase of more than 110% in r evenue per gigabyte." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Sales incentive and marketing programs, share of gross revenue: 9.0% (as of 2026-10-02). "For the three months ended October 2, 2026 and October 3, 2025, these programs represented 9% and 16%, respectively, of gross revenues." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Sales incentive and marketing programs, share of gross revenue: 16.0% (as of 2025-10-03). "For the three months ended October 2, 2026 and October 3, 2025, these programs represented 9% and 16%, respectively, of gross revenues." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Cash conversion cycle: 149 days (as of 2026-10-02). "Cash conversion cycle 149 113" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Cash conversion cycle: 113 days (as of 2025-10-03). "Cash conversion cycle 149 113" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Days in inventory: 166 days (as of 2026-10-02). "Days in inventory 166 115" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Days in inventory: 115 days (as of 2025-10-03). "Days in inventory 166 115" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Revenue share of each of the two largest customers: 12.0% (as of 2026-10-02). "For the three months ended October 2, 2026, two separate customers accounted for more than 10% of the Company's net revenue, amounting to 12 % each." (Item 1. Financial Statements)

## Key insights

### Revenue rose 378% on almost 10% more bits

Exabytes sold rose almost 10% while revenue rose 378% to $11.0B, so a higher price per gigabyte, not volume, produced nearly all the growth.

Revenue rose to $11.0B from $2.3B a year earlier while cost of revenue rose 2.0%, to $1.65B from $1.62B. Cost of revenue fell to 15.0% of revenue from 70.2%, and gross margin rose to 85.0% from 29.8%. The filing attributes the gain to "a higher revenue per gigabyte and an increase in exabytes sold." _(from the filing)_
Operating expenses rose 17.0% to $598M, far slower than gross profit, and fell to 5.4% of revenue from 22.1%. Operating income was $8.78B, a 79.6% margin, against $176M a year earlier. _(from the filing)_
The same structure ran the other way not long ago. Three fiscal years before the latest one, gross profit was $430M on revenue of $6.1B, a 7.1% gross margin, with an operating loss of $2,035M. _(from the filing)_
Analysis: the year-earlier quarter ran fourteen weeks against thirteen now, so the year-on-year growth rates, if anything, understate the change in the weekly run rate. _(analysis)_

### Bits moved from retail shelves to datacenters

Datacenter exabytes rose almost 330% while Consumer exabytes fell more than 70%, as the company chose where its limited supply went.

Datacenter revenue rose 1,685% to $4.8B on almost 330% more exabytes and almost 320% higher revenue per gigabyte. Its share of revenue rose 31.9 points to 43.5%. _(from the filing)_
Edge, still the largest end market at $5.8B or 52.9% of revenue, grew 320% on price alone: revenue per gigabyte rose more than 450% while exabytes sold fell 20%. _(from the filing)_
Consumer revenue fell 39% to $397M, now 3.6% of revenue, even though its revenue per gigabyte rose more than 110%. The filing describes "strategic decisions about how we allocate products to customers across the end markets we serve." _(from the filing)_
Analysis: when output is limited, each gigabyte goes where it earns most and where contracts commit it. The filing ties Consumer's fall to lower sales, and its allocation language suggests supply was steered elsewhere; it does not report retail demand directly. _(analysis)_

### Cash trailed profit as inventory piled up

Operating cash flow was $6.4B, 78.5% of net income of $8.1B, as days in inventory rose to 166 from 115 a year earlier.

Days in inventory rose to 166 from 115 and the cash conversion cycle lengthened to 149 days from 113. The filing puts the inventory increase down to "inventory builds to meet demand." _(from the filing)_
The quarter before showed the opposite pattern: operating cash flow of $7.1B against net income of $6.9B. This quarter, net income rose to $8.1B while operating cash flow fell to $6.4B. _(from the filing)_
Net income includes a $513M gain on the company's stake in Nanya Technology, 6.3% of net income, a change in market value rather than cash received. Free cash flow was $6.3B, 57.2% of revenue. _(from the filing)_
Analysis: inventory built while prices are rising is worth more if they hold and carries write-down risk if they turn. Whether operating cash flow catches up with net income over the next quarters is a direct check on the quality of these earnings. _(analysis)_

### One quarter earned 71% of last year's operating profit

Operating income of $8.78B equals 70.9% of the $12.4B earned in the whole fiscal year that ended in July, a year that itself followed losses.

Revenue of $11.0B in the quarter is more than the $7.4B reported for the whole fiscal year before last, a year with an operating loss of $1.4B. _(from the filing)_
Against the prior quarter, revenue rose to $11.0B from $9.0B and operating income to $8.78B from $7.04B, so the climb had not levelled off by the end of this period. _(from the filing)_
Analysis: the speed of the turn is the point. A business that lost money on a full year's revenue of $7.4B now keeps most of each quarter's revenue as operating income, which shows how much of the result rides on the price cycle rather than on a larger operation. _(analysis)_

### Competitive edge

- **Shared fabs keep reported capital spending small** Capital spending was $54M, 0.49% of revenue, against free cash flow of $6.3B, largely because the wafer fabs sit in joint ventures with Kioxia.
- **Multi-year contracts commit customers to volume** Long-term agreements with committed volumes and financial guarantees are becoming Sandisk's main way of selling, and sales incentives fell to 9% of gross revenue from 16%.

### What to watch

- **The margin rests on price per gigabyte** Cost of revenue rose 2.0% while revenue rose 378%, so a fall in price per gigabyte would reach operating income with little cost relief to cushion it.
- **Two customers now take 12% of revenue each** Two customers each accounted for 12% of revenue this quarter, where a year earlier no customer crossed the filing's reporting threshold.
- **Wafer supply depends on one partner's fabs** Substantially all wafers come from the Kioxia joint ventures, where Sandisk pays half the fixed costs whatever it buys and guarantees part of their equipment leases.

## Investor view

**Price, not volume: Sandisk sold slightly more bits at far higher prices, and gross margin reached 85.0%**

### How it makes money

Sandisk sells NAND flash memory: solid-state drives, embedded storage, memory cards, USB drives, and wafers and components. It reports one segment and three end markets. Edge, flash for PC, mobile, gaming, automotive and industrial makers, brought in $5.8B of the quarter's $11.0B revenue (52.9%). Datacenter, drives for cloud and enterprise customers, brought in $4.8B (43.5%). Consumer, the retail brand, brought in $397M (3.6%). _(from the filing)_
Revenue is bits shipped times the price per bit, and the filing reports both sides. Total products sold rose by "almost 10% on an exabyte basis" from a year earlier, while revenue rose 378%. Nearly all of the growth came from what each gigabyte sold for, not from how many were shipped. _(from the filing)_
The company calls itself vertically integrated, owning chip design, front and back-end manufacturing and systems engineering. It procures "substantially all of its flash-based memory wafers" from Flash Ventures, three joint ventures with Kioxia in Japan, sharing their output and fixed costs. That structure is why the quarter's capital spending was $54M, 0.49% of revenue, against free cash flow of $6.3B. _(from the filing)_
Most revenue is booked in Asia, $7.2B or 65.4% of the total; the Americas brought in $3,257M (29.5%) and Europe, Middle East and Africa $558M (5.1%). Revenue is stated net of price protection and other incentives, which took 9% of gross revenue this quarter against 16% a year earlier. _(from the filing)_

### What shifted

Revenue rose to $11.0B from $2.3B a year earlier, up 378%, while cost of revenue rose 2.0%, to $1.65B from $1.62B. Gross margin went from 29.8% to 85.0%, up 55.3 points. The filing attributes the gain to "a higher revenue per gigabyte and an increase in exabytes sold." Against the prior quarter, revenue rose to $11.0B from $9.0B. _(from the filing)_
The mix moved to Datacenter. Its revenue rose 1,685% to $4.8B, and its share of revenue rose 31.9 points to 43.5%, on almost 330% more exabytes and almost 320% higher revenue per gigabyte. Edge revenue rose 320% to $5.8B on price alone: revenue per gigabyte rose more than 450% while exabytes sold fell 20%. Consumer revenue fell 39% to $397M as exabytes sold fell more than 70%. _(from the filing)_
Operating expenses grew 17.0% to $598M, slower than gross profit, so they fell to 5.4% of revenue from 22.1%. The filing traces most of the increase to variable pay tied to company performance, taxes on long-term incentives and stock-based compensation. Operating income was $8.78B, a 79.6% margin, against $176M a year earlier. _(from the filing)_
Below operating income, a $513M gain on equity securities came from the company's stake in Nanya Technology, which had no counterpart a year earlier. Income tax was $1.22B on pre-tax income of $9.32B, an effective rate of 13.1% against 9.7% a year earlier. Net income was $8.1B, or $52.60 per diluted share, against $112M and $0.75. _(from the filing)_
Cash lagged profit. Operating cash flow was $6.4B, 78.5% of net income of $8.1B, as receivables and inventory grew. Days in inventory rose to 166 from 115, which the filing puts down to "inventory builds to meet demand," and the cash conversion cycle lengthened to 149 days from 113. _(from the filing)_

### Risks in the filing

Trade policy. The United States has pending investigations that may change tariff rates on the company's products. Most of its products sold in the US are currently exempt, and the filing says losing those exemptions or facing higher tariffs would raise cost of goods sold, could compress margins, and, if passed on as higher prices, could reduce US demand. _(from the filing)_
Supply concentration. Substantially all wafers come from the Kioxia joint ventures. Sandisk must pay its share of the ventures' fixed costs regardless of how much output it buys, must fund its share of their capital investment when their own cash flow falls short, and guarantees part of their equipment leases, which a cancellation event could accelerate. _(from the filing)_
Demand and pricing. The company states that its long-term agreements "do not eliminate the risks associated with customer demand, market conditions, or operational execution." It also says changes in demand and market conditions may require it to raise its sales incentives as a share of gross revenue, which would reduce net revenue. _(from the filing)_
Tax. The effective rate benefits from tax holidays in Malaysia that expire over the coming years, and the filing says recent US tax law changes, the corporate alternative minimum tax and the global minimum tax rules can materially affect its tax rate and operating cash flow. The quarterly report states no material changes to the risk factors in its last annual report. _(from the filing)_
Two of these risks already show in the numbers. Customer concentration is new: two customers each crossed the filing's reporting threshold this quarter where none did a year earlier, a likely consequence of contracting volume with a few large buyers. And the margin's dependence on price is visible in cost of revenue, which barely moved while revenue multiplied, so a price reversal would reach profit with little to cushion it. _(analysis)_

## Founder view: mechanisms

### Price, not volume, sets the margin

In a commodity with a largely fixed cost of production, profit is decided by the selling price per unit, not by how many units ship. When supply is tight and demand jumps, the price per unit rises across the whole output while the cost of making it stays put, and almost all of the difference becomes operating profit. The same structure works in reverse: Sandisk lost money for several years on revenue not far below today's quarterly level before the price per gigabyte turned. _(analysis)_

### Contracted volume in a spot market

Sandisk is moving its largest customers from purchase-order buying onto multi-year agreements that commit both sides to stated volumes, with fixed and variable pricing and financial guarantees such as deposits and third-party collateral. In a scarce market the buyer gives up flexibility in exchange for assured supply, and the seller gives up some upside in exchange for predictability and cash in advance. The filing calls these "New Business Models" and expects them to become the main way it sells. _(analysis)_

### Shared fabs carry the capital

Sandisk does not own most of the fabs that make its wafers. It shares joint ventures with Kioxia, splitting output, fixed costs and capital investment, and the ventures finance part of their equipment through sale-and-leaseback arrangements. The heavy capital sits in the ventures; Sandisk's own books carry loans to them, prepayments and the cost of wafers bought. The trade is lower reported capital spending in exchange for fixed obligations that must be paid whether or not the output is needed. _(analysis)_

### Allocate scarce supply to the best buyer

When output is limited, a supplier serving several markets chooses who gets it. Sandisk describes "strategic decisions about how we allocate products to customers across the end markets we serve." Bits went to datacenter customers paying higher prices under contract, and away from retail shelves. The consumer brand shrinks not because demand vanished but because each gigabyte earns more elsewhere. _(analysis)_

## Member research

Signed-in members read, on the page: what Sandisk's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Sandisk 10-Q for the period to 2026-10-02: https://www.sec.gov/Archives/edgar/data/2023554/000162828026068601/ (2026-10-30)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02