The setup
Sandisk reported its fiscal first quarter of 2027 after the close on , and it beat every line it had guided. Revenue was $11.03B against a guide of $10.30B to $10.80B, up 23% from the June quarter and 378% from a year ago. GAAP gross margin was 85.0%. Operating income was $8.78B, a 79.6% margin. Net income was $8.10B, or $52.60 a diluted share, and non-GAAP earnings were $49.51 a share against a guide of $44.00 to $46.00. The company bought back $5.0B of its own stock in the quarter, announced an eight-for-one split effective , and guided the December quarter to revenue of $12.2B to $12.6B. The stock traded at $1,141.40 at 10:20 a.m. Pacific on , down 14.18% from the prior close of $1,330.05 (market data, not a filing figure).
A company that beats its own guide by $231M at the top of the range and still loses a seventh of its value overnight is telling you the market was not grading the quarter. It was grading the slope. Every number that matters on this page is a second derivative. Sequential revenue growth went 31.1%, 96.7%, 50.7% and 23.0% across the last four quarters, and the December guide midpoint of $12.4B implies 12.4%. Gross margin rose 27.5 points in the March quarter and 6.2 points in the June quarter. This quarter it rose 0.4 points, and the guide midpoint is flat. On the call, management said about 60% of the sequential growth came from volume and 40% from price (call commentary, not in the filing). In the June-quarter release the split was "approximately one-third from higher volumes and two-thirds from higher pricing."
Our call: the price leg of this cycle is finished at Sandisk, and what remains is Datacenter volume under contract. The December quarter lands inside its guide because Datacenter revenue reaches at least $6.0B while non-GAAP gross margin stays at or below 85.5%, the top of the guided range. We are wrong if non-GAAP gross margin prints above 86.0%, which would mean price is still doing the work, or if Datacenter revenue comes in below $5.5B, which would mean the volume leg is stalling before the contracts can carry it. The answer arrives with the December-quarter release, due in late .
One structural fact frames everything below. Sandisk does not own its wafer fabs outright. It makes its flash through Flash Ventures, the joint venture with Kioxia at Yokkaichi and Kitakami in Japan, which was extended in January to . That is why this company can run an 85.0% gross margin on $54M of cash capex in a quarter: the fab money moves through notes and equity in the venture, not through the property line. It is also why its margin and Kioxia's are two readings of one wafer stream, and Kioxia reports today.
The numbers
| $ millions | Q1 FY26 | Q4 FY26 | Q1 FY27 | Q/Q | Y/Y |
|---|---|---|---|---|---|
| Revenue | 2,308 | 8,965 | 11,031 | +23% | +378% |
| Datacenter | 269 | 2,977 | 4,802 | +61% | n/m |
| Edge | 1,387 | 5,432 | 5,832 | +7% | +320% |
| Consumer | 652 | 556 | 397 | −29% | −39% |
| Gross margin (GAAP) | 29.8% | 84.6% | 85.0% | +0.4 ppt | +55.2 ppt |
| Operating expenses (GAAP) | 511 | 545 | 598 | +10% | +17% |
| Operating income (GAAP) | 176 | 7,037 | 8,780 | +25% | n/m |
| Gain on equity securities | — | 804 | 513 | mostly the Nanya stake | |
| Net income (GAAP) | 112 | 6,903 | 8,101 | +17% | n/m |
| Diluted EPS, GAAP / non-GAAP | $0.75 / $1.22 | $43.97 / $39.25 | $52.60 / $49.51 | +20% / +26% | |
| Operating cash flow | 488 | 7,126 | 6,363 | −10.7% | |
| Adjusted free cash flow | 448 | 5,035 | 5,696 | +13.1% | 51.6% margin |
| NBM prepayments and deposits | — | 1,938 | 465 | excluded from adjusted FCF | |
| Accounts receivable | 1,193 | 4,708 | 6,585 | +1,877 | 59.7% of revenue |
| Inventories | 1,907 | 2,698 | 3,016 | +318 | 27.3% of revenue |
| Refund liabilities | 1,500 | 1,597 | +97 | 14.5% of revenue | |
| Contract liabilities (current + non-current) | 1,242 | 1,529 | +287 | ||
| Repurchases of common stock | — | 5,000 | about 3.2M shares | ||
| Cash and cash equivalents | 1,442 | 4,762 | 5,136 | +374 | no debt |
Sandisk's fiscal year ends on the Friday nearest , so this quarter ran from to . Every figure on this page is from the release furnished as Exhibit 99.1 to the Form 8-K, and its prior-quarter equivalents, unless it is labeled otherwise. The 10-Q has not been filed, and the release says its numbers may change when it is.
The beat is real and it is shrinking. The March quarter cleared the top of its guide by $1.15B, 24.0% of the top. The June quarter cleared it by $715M, 8.67%. This quarter cleared it by $231M, 2.14%. The guides have narrowed in the same way. The midpoint of each guide stood 52.1%, 34.5%, 17.7% and now 12.4% above the quarter just reported. That is what we call "beat-and-raise meets the law of large numbers": the company is still outrunning its forecasts, by less each time, and the stock had priced the old gap.
The release puts the quarter in one sentence from the chief executive. "We have started fiscal year 2027 with another quarter of strong performance, with robust and growing demand for our products driving outpaced growth in our data center business," said David Goeckeler. Decode: "outpaced" is the operative word, and it is true in the plainest arithmetic. Datacenter added $1.83B of revenue in the quarter. The whole company added $2.07B. Edge added $400M, and Consumer lost $159M. Datacenter supplied 88.3% of the increase. The rest of the business, taken together, grew by $241M, or 4.0% on its June base. "Outpaced" means the other two segments have mostly stopped growing.
Two items sit between operating income and net income and both need flagging. A $513M gain on equity securities, mostly the mark on Sandisk's stake in Nanya, added 5.5% to pre-tax income. The non-GAAP figures strip it out, which is why non-GAAP earnings per share, $49.51, are below the GAAP $52.60. And the GAAP tax rate was 13.1%, against 14.3% guided for the December quarter on a non-GAAP basis.
The rest of this dive is for paid subscribers.
The headline numbers are above. The 13 sections below carry the mechanism, the peer read, the valuation work, and the dated tests that decide it.
- Nine quarters: the level before the delta
- Datacenter is the business now
- Price did the work, and then volume took over
- The cash, the receivables and the buyback
- The line below the line: the Nanya stake and the tax bill
- The cost line the capex writes
- Connecting the dots
- The guide and the December bar
- Valuation
- The strongest case against this read
- What we'd watch
- The trade (analysis, not advice)
- Bottom line
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