Sandisk says an 80 percent margin on flash memory is the new normal

Sandisk held an investor day on Thursday and the shares closed 13.65 percent higher at about $1,528, having traded up around 15 percent during the session. The company that produced that reaction had, fifteen months earlier, been a loss making division spun out of Western Digital. What it told investors on Thursday was not really about last quarter. It was a claim about the next four years, and the claim is a strange one.

Sandisk said it has signed eight long term agreements, which it calls New Business Model deals, carrying minimum commitments of $93.9 billion. Its chief financial officer, Luis Visoso, framed that as a floor rather than a forecast, on the basis that the contracts assume floor pricing and actual revenue should come in above it. Those agreements cover roughly half of the company's bit shipments in fiscal 2027 and around two thirds in fiscal 2028.

What $93.9 billion actually is

Set against fiscal 2026 revenue of $20.2 billion, $93.9 billion sounds like four and a half years of sales arriving at once, and that is roughly how it was received. The agreements run about four years, though, so the useful figure is what it comes to annually, which is about $23.5 billion.

Sandisk has guided to between $10.30 billion and $10.80 billion of revenue for the current quarter. Annualise the midpoint and the company is selling at a rate of roughly $42 billion a year. So the contracted floor covers a little over half of what Sandisk is selling today, and it is a floor rather than a price. This is not a criticism of the number. It is a caution against reading a four year total as though it were an increment to a single year.

The number that should get the attention

The more striking disclosure was the long term financial model. For fiscal 2028 through fiscal 2030, Sandisk told investors to expect mid to high teens revenue growth, operating expenses of about five percent of revenue, adjusted free cash flow margins of about 50 percent, and non-GAAP gross margins of approximately 80 percent.

Eighty percent gross margin is not being offered as a cycle peak. It is being offered as the steady state, three to five years out, for a company that makes flash memory. In the quarter that ended in June 2025 the same company's gross margin was 26.2 percent. Nothing in the history of the memory industry looks like a durable 80 percent, and the entire investment case now rests on whether this time the structure of the market has changed.

The tension inside the two announcements

Put the two together and they pull against each other. Sandisk earned 84.6 percent last quarter on pricing that it says drove two thirds of its sequential growth, which is to say on a shortage. It has simultaneously locked about half of next year's output, and two thirds of the following year's, into contracts whose stated minimum assumes floor pricing.

If those floors sit close to today's prices, the customers have agreed to pay shortage rates for four years, which is a great deal for Sandisk and a strange one for them. If the floors sit well below today's prices, then half of fiscal 2027 volume earns less than the current margin, and the 80 percent target has to be carried by the half that is not committed. Both cannot be comfortably true, and the contracts are the place where the answer lives.

The quarter that made it plausible

The results behind all of this, reported on 5 August, are genuinely extraordinary. Revenue for the fourth quarter was $8.97 billion against $1.90 billion a year earlier. Gross margin went from 26.2 percent to 84.6 percent. The company reported net income of $6.90 billion for the quarter, against a small loss in the same quarter of 2025, and $11.43 billion for the year against a loss of $1.64 billion.

Underneath the pricing there is a real change in the business. Data centre revenue for the year rose 437 percent to $5.15 billion, and in the fourth quarter alone went from $213 million to $2.98 billion. Consumer revenue in the quarter fell 5 percent. A business that used to sell memory cards now earns a third of its revenue from data centres, and that shift is the strongest argument that some of this margin is structural rather than cyclical.

What the board is doing with the money

Alongside the results, Sandisk said its board had approved an additional $14 billion share repurchase authorisation, taking the remaining total to $15.5 billion. At Thursday's close the company is worth roughly $237 billion on about 155 million diluted shares, so the authorisation is something over six percent of the company.

On the annualised guidance for the current quarter the shares trade at under nine times earnings, which looks inexpensive and is exactly how a cyclical business looks at the top of its cycle. Buying back stock into a commodity peak is the oldest mistake in the semiconductor industry. It is also true that an authorisation is permission rather than a commitment, and the number that will settle the argument is the average price actually paid, which appears in the cash flow statement rather than in any announcement.

Three things the headline numbers do not tell you

First, $804 million of the fourth quarter's profit came from a gain on equity securities rather than from selling anything, and the company now holds $1.78 billion of marketable equity securities that were not on the balance sheet a year ago. Second, a refund liability of roughly $1.37 billion appeared during the year having been negligible before, which is money the company expects to hand back to customers. Third, contract liabilities rose $1.22 billion, which is customer cash received ahead of delivery and is presumably tied to those same long term agreements.

None of Thursday is in a filing

The results are documented. They were furnished to the SEC on 5 August as an exhibit to a current report, and they carry the liability that attaches to a filed document. Thursday's investor day does not. No Form 8-K covering the presentation had appeared at the time of writing, and companies are not required to file one when a meeting is webcast publicly, so this is a gap in the record rather than a breach of anything.

It still matters. The $93.9 billion, the 80 percent gross margin target and the coverage of fiscal 2027 and 2028 bit shipments are the figures that moved the shares almost 14 percent, and they currently exist as statements at a presentation. The annual report on Form 10-K for fiscal 2026 has not been filed either, and that is where the terms of the New Business Model agreements, the customer concentration, the inventory position and the accounting for the refund liability will first be set out in a document somebody has signed.

What to watch

The first thing is the split between price and volume. Sandisk has said two thirds of last quarter's sequential growth was price, so the coming releases will show whether volume takes over as new capacity arrives. A cycle that turns while growth is still mostly price is a harder landing than one that turns after the volume has come through.

The second is the 10-K, due within weeks, and specifically what it says about the minimum commitments and how the floors are set. The third is the buyback, and the price at which it happens. Between them those three will say more about whether 80 percent is a business model or a moment than anything said from a stage.

Cover photograph: a silicon wafer, by Rob Bulmahn (opens in a new tab), via Wikimedia Commons, licensed CC BY 2.0 (opens in a new tab). It shows a generic wafer rather than a Sandisk product. Cropped and resized from the original.