闪迪2026财年Q4业绩直播
Key Takeaways (AI-Generated)
Financial Performance
- Record Q4 revenue of $8.965 billion, up 51% sequentially and 372% year-over-year, exceeding guidance
- Non-GAAP gross margin of 84.6%, up from 78.4% prior quarter, above 79-81% guidance range
- Non-GAAP EPS of $39.25, up from $23.41 prior quarter, exceeding $30-33 guidance range
- Generated $5.035 billion adjusted free cash flow with 56% margin, repurchased $4.5 billion stock
Business Highlights
- Data center segment reached 38% of portfolio (up from 12% year ago) with $2.977 billion Q4 revenue
- Signed 5 additional NBM agreements totaling 8 customers with $93.9 billion minimum expected revenue
- Ramped BiCS 8 to majority production, began shipping QLC Stargate platform for AI workloads
- Secured $16.5 billion financial guarantees from NBM customers through deposits and instruments
Financial Guidance
- Q1 FY2027 revenue guidance $10.3-10.8 billion with sequential growth from bits and pricing
- Q1 non-GAAP gross margins 83-85%, operating expenses $520-540 million, EPS $44-46
- Mid-teens bit growth expected for full fiscal year 2027
- NAND market estimated $300 billion calendar 2026, approaching $500 billion calendar 2027
Opportunities
- AI inference driving NAND demand reshaping with data center share expanding to ~50% in CY2026
- BiCS 10 and high bandwidth flash technology development for AI memory architectures
- NBMs providing 4+ years demand visibility representing >50% bits in fiscal 2027
- Operational efficiency through nodal transitions delivering declining capital intensity as revenue percentage
Risks
- Market competition with bits remaining on allocation beyond calendar year 2027 due to supply constraints
- Economic fluctuations affecting PC and smartphone markets with mid-teens unit declines expected calendar 2026
Full Transcript (AI-Generated)
Operator
Good afternoon and welcome to SanDisk Fourth Quarter Fiscal Year 2026 Earnings Conference Call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then one on your telephone keypad. To withdraw your question, please press * then two. Please note this event is being recorded.
I would now like to turn the conference over to Ivan Donaldson, Vice President of Investor Relations. Please go ahead.
Ivan Donaldson
Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, our capital allocation priorities, market trends and opportunities and our future financial results. We assume no obligation to update these statements.
Please refer to our annual report on Form 10K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non GAAP financial measures today. Reconciliations between the non GAAP and comparable GAAP financial measures are included in the written materials posted in the Investor Relations section of our website.
With that, I'll turn the call over to David.
David
Thanks, Ivan. Good afternoon and thank you for joining SanDisk fiscal fourth quarter earnings call. As we close fiscal year 26, we believe SanDisk is in a strong strategic position to deliver for our shareholders and customers. The strategic actions we have taken over the past year have established a stronger foundation through technology leadership, longer term customer partnerships, financial flexibility and operational capabilities, which collectively position us well for the next stage of execution, growth and shareholder returns.
Over the past year, we strengthened our portfolio with BIX leadership across both TLC and QLC and a continued advancement of high bandwidth flash, established data center as a major pillar of growth, deepened customer relationships through multi year partnerships enabled by our new business models or NBM with momentum continuing to build. During the quarter, we reinforced our supply chain and transformed our business model with a net cash balance sheet and a capital allocation framework designed to generate growing and durable free cash flow to reinvest in the business and return excess capital to shareholders.
The fiscal fourth quarter provided our clearest proof point yet. We delivered record revenue, gross margin and earnings per share, each above the high end of our guidance and repurchased $4.5 billion of company stock. We are encouraged by this progress and believe the long term earnings power, cash generation and resilience of this business will become increasingly evident as we execute against this new foundation.
Underlying our performance is the most important force in our market. The era of inference AI is fundamentally a memory centric storage intensive problem and it is reshaping the demand equation for NAND. The shift to inference in agentic AI is generating data at a scale that is redefining storage requirements. Every AI interaction creates content that must be stored, retrieved and served at low latency, and each of these steps relies on data storage products, including our high capacity enterprise SSDs.
NAND is the most scalable semiconductor technology in the world and it has become a critical component of the AI architecture. This demand is anchored in strategic long term infrastructure investments by the world's largest technology companies, which are increasingly working with suppliers who can scale, partner with them and secure supply that ensures performance and reliability years in advance. These enduring and mutually beneficial partnerships give customers greater confidence in long term supply while giving SanDisk clearer visibility to demand and a stronger foundation for planning, investment and more durable cash flow generation.
Our technology leadership is how we are capturing this opportunity. BIX has become recognized as an industry gold standard for NAND and this year we ramp BIX 8 to the majority of our bid production, delivering industry leading performance, density and power efficiency across both TLC and QLC. Quick state was enabled by innovations like CBA hybrid wafer bonding and our road map builds on that same fundamental approach. With future generations extending performance and cost leadership through continued innovation across multiple dimensions of scaling, our leadership is translating directly into customer adoption across our various end markets.
We scaled our compute focused TLC enterprise SSDs across a broad set of hyperscale and AI infrastructure customers. And this quarter we began shipping our QLC Stargate platform for revenue, giving us a complete complementary portfolio spanning performance, intensive compute workloads and high capacity AI data lakes. A year ago, data center represented roughly 12% of our bits. Exiting fiscal year 26, it represents 38% of our portfolio and is our fastest growing end market.
Our technology leadership also extends well beyond data center. Edge remains a large and strategically important end market for SanDisk, spanning smartphones, PCs, tablets and an expanding set of emerging use cases in the realm of physical AI, including automotive robotics and on device agentic AI. Near term, both PCs and smartphones are working through a period of adjustment as demand is shifting towards AI enabled devices and premium configurations driving higher storage content, particularly in smartphones.
In the PC market, OEMs are growing revenue and expanding margin on a more profitable mix reflecting demand for higher end devices. We expect these markets to return to growth in calendar year 27 and over the longer term. On device AI, richer content and entirely new form factors will continue to expand the role of high performance flash at the edge. Our ability to deliver high performance density and power efficiency positioned us well as these platforms evolve and we expect increases in content per device through future refresh cycles.
And this global consumer presence remains a meaningful differentiator within the industry, giving us a unique connection with end users and channel partners. We continue to invest behind the brand, sharpen our go to market capabilities and innovate around the products, capabilities and experiences that consumers value. Our ability to innovate at this level is enabled by our operational excellence.
SanDisk manages the entire value chain from the design of the Nandai through front end wafer manufacturing and some of the largest fab complexes in the world with our JV partner to system level design including our world class controllers and final back end assembly and test all the way to the hands of our customers. This end to end integration combined with our R&D depth, proprietary Bix Systems expertise and the market diversity that gives us the optionality to direct our technology where it delivers the most value is what enables us to serve customers at attractive returns.
Just as important, we grow supply primarily through nodal transitions rather than wafer additions, delivering mid to high teens bit growth from the productivity of our technology road map with capital intensity that continues to decline as a percentage of revenue. This is a structural advantage and what makes this franchise such a powerful cash generator.
With that, I'll turn the call over to Louise for an update on our new business models and a deeper dive into our financial performance and guidance.
Louise
Thank you, David. Fiscal year 2026 was a transformational year for SanDisk. We exited the year significantly stronger than when we entered it. We believe that we're well positioned to create sustainable value for customers and shareholders. Our new business models or NBMS reflect the stronger and longer term partnerships that we're building with our most strategic customers, the value they place on our technology and products and the confidence that they have in their demand, our revenue growth, margin expansion and asset efficiency. Enables us to deliver leading free cash flow per share and therefore generate an attractive return to shareholders.
Since announcing 5 NBMS during our April earnings call, we have signed five additional agreements, 3 NBMS with new customers and two deals expanding on previously signed NBMS. These extensions reflect our customers strengthening demand exceeding their prior estimates. One of the five signed deals, 3 closed before the end of the fourth quarter and two closed after quarter end. In total, we now have NBMS with a diverse data center and edge customers and reflect the conviction our customers having their long term demand and the value they place on SanDisk.
The length of our NBMS varies extending up to five years with a weighted average duration of over 4 years. We expect our NB Ms. to represent more than 50% of our bids in fiscal year 2027 and approximately 2/3 of our bids in fiscal year 2028. NB Ms. are quickly becoming our predominant way of doing business. We will continue supporting our non NBM business with uncommitted supply.
Pricing for our NB Ms. include both fixed and variable elements with a variable portion subject to floors and ceilings. We expect attractive margins even at floor pricing. Pricing of our non NBM business will fluctuate with the market. The total expected revenue from all our NBMS we have signed is a minimum of $93.9 billion. Assuming floor pricing, we believe actual revenue will be above that minimum.
The remaining performance obligation or RPO at the end of the quarter was $59.8 billion and would be $91.1 billion including the two NBM signed after the quarter closed. The difference between the total NBM revenue and the RPO is the revenue that has already been recognized. Each one of our NB Ms. include financial guarantees through a combination of cash deposits and financial instruments totalling $16.5 billion, which are intended to protect SanDisk if a customer fails to satisfy its purchase obligations under disagreements.
These funds and financial instruments are mostly held by or provided through third party financial institutions with the remaining in our cash balance for each of the existing deals. The financial guarantees are released towards the end of the agreement, so the ratio between the financial guarantees and the remaining performance obligation increases over time. Our MDMS are built on clear and detailed supply and demand agreements defined by year and by quarter. These features provide clear visibility for our operations and additional financial protection.
Overall, we're pleased with the 8 customers we have signed as they strengthen our strategic partnerships. We expect these relationships to last for many years and to enable our customers to continue building exceptional products for their end customers. Going forward, we will remain highly selective in evaluating additional MDMS. The key characteristics we look for are strategic customers that value our products, duration of around 5 years, growing volume requirements and attractive financials that enable us to invest in the business while generating A sustainable return to our shareholders. We will be patient in these evaluations.
With that update, I will turn to the results for the quarter. Revenue for the fourth quarter was 8900 and $65 million, up 51% sequentially and 372% year over year. Revenue came in above the guidance range of 7750 to 8200 and $50 million that we provided on our prior earnings call. Sequential revenue growth came approximately 1/3 from higher volumes and 2/3 from higher pricing.
Turning to our own market, during the quarter, data center revenue reached 2900 and $77 million, up 103% sequentially. Edge revenue reached 5400 and $32 million or 48% sequentially. Consumer revenue was $556 million, down 32% quarter over quarter. We're pleased with this evolution of our portfolio and remain committed to serving all three end markets to maximize long term value creation for the.
The full fiscal year 2026 revenue reached 20,200 and $48 million, up 175% year over year with bits growth in the mid teens in line with our plan by end market. For the full year, data center revenue reached 5153 million dollars, up 437% year over year, Edge revenue reached 12,100 and $65 million of 195% year over year, and consumer revenue was 2900 and $35 million, up 29% year over year.
Non GAAP gross margin for the fourth quarter was 84.6%, up from 78.4% in the prior quarter and 26.4% in the prior year. This compares favorably to our guidance of 79 to 81%. Non GAAP operating expenses for the fourth quarter were $484,000,000, representing five 5.4% of revenue, down from 7.5% of revenue in the prior quarter as we generated additional operating leverage. This compares favorably to our guidance range of 480 to $500 million. R&D represents close to 65% of our operating expenses.
Non GAAP operating margin was 79.2%, all from 70.9% in the prior quarter. Non GAAP EPS was $39.25, all from $23.41 in the prior quarter and $0.29 in the prior year. This compares favorably to our guidance range of 30 to $33. We closed the quarter with 157 million diluted shares outstanding.
Key GAAP to non GAAP reconciliation items include a gain of $807 million from our investment in NANIA and $67,000,000 in stock based compensation expense. We also recognize that tax benefit of $175 million from higher stock prices related to the vested employee equity, which was offset by $170 million of taxes recognized on the gain from NANIA. During the quarter, we repurchased 2,836,000 shares of our common stock for $4.5 billion.
Moving on to free cash flow, during the quarter, cash flow from operations came in at 7100 and $26 million, partially offset by $153 million from net cash capital spending. Gross capital expenditures totaled $562 million, representing 6.3% of revenue. We generated 5035 million in adjusted free cash flow, which represents 56% margin. This excludes 1900 and $38 million in NBM prepayments and deposits, which are included in cash flow from operations. We closed the quarter with 4700 and $62 million in cash and cash equivalents on our balance sheet.
With that, let's move on to guidance. We expect the non market to continue growing at an accelerated pace supported by AI in France. As a tailwind, we estimate the non market will exceed $300 billion in revenue in calendar year 2026 of 3X year over year. Looking further ahead, we estimate that the non market will approach $500 billion in revenue in calendar year 2027.
Within this time frame, we expect data center share of total time to expand from approximately 30% in calendar year 2025 to approximately 50% in calendar year 2026 and to continue outpacing the market in 2027. Demand from our customers is growing faster than our supply. We therefore expect bids to remain on allocation beyond calendar year 2027.
For the first quarter of fiscal year 2027, we expect revenue between 10.3 and $10.8 billion with sequential growth driven by both bid growth and higher pricing. We expect non GAAP gross margins between 83 and 85%. We expect non GAAP operating expenses between 520 and $540 million as we continue to invest in innovation and R&D and have higher expenses related to taxes on employee stock compensation. We expect first quarter non GAAP EPS between 44 and 46. Dollars assuming 155,000,000 fully diluted shares.
Here is some additional perspective for modeling purposes. Consistent with our long term objective of growing supply mid to high teens, our capital spending will increase year over year primarily as we run Bigs 8 and Bigs 10, yet our investment relative to revenue will come down to approximately 6% for the full year. We plan to operate at higher inventory days consistent with current levels to support our NB Ms. and account for higher component costs. The higher inventory levels reduce sellable bids to mid teens for the full year fiscal year 2027.
Moving on to capital allocation, our priority remains to invest in the business to support long term growth and durability. We will continue returning cash to shareholders. Sandy's Board of Directors has authorized an additional $14 billion share repurchase program, bringing our total remaining authorization to $15.5 billion. We look forward to seeing many of you at our Investor Day in New York next week, where we plan to review the business in greater detail. We're encouraged by the progress made and remain committed to creating value for customers and shareholders.
With that, let me turn the call back to David.
David
Thank you, Louise. In summary, fiscal year 2026 was the year SanDisk redefined what this franchise can be. We delivered record financial results, established data center as a major pillar of growth, secured our manufacturing and supply base through the next decade and fundamentally restructured how we transact with our largest customers. The value of our technology built on decades of R&D and 10s of billions of dollars of cumulative investment is increasingly being reflected in our financial results as we enter fiscal year 2027.
We do so with a balanced, well structured portfolio spanning data center edge and consumer one that has served customers across every part of the storage market for decades and gives us flexibility to move wherever demand grows. Next, we have industry leading NAND technology across TLC and QLC with a road map of continued innovation extending our leadership. And we are investing beyond traditional NAND in emerging technologies like high bandwidth flash that carry the potential to change the AI memory storage hierarchy entirely.
Combined with our NBM, a net cash balance sheet and an active capital return program, the result is a durable growth model, a valuable franchise in a business built to generate substantial increasing cash flow. We're proud of what the team accomplished this year and believe we are still in the early innings of this opportunity.
With that, Ivan, let's open it up for questions.
Operator
We will now begin the question and answer session. To ask a question you may press * then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press * then two. At this time, we will pause momentarily to assemble our roster.
The first question today comes from Ben Reitz with Melius Research. Please go ahead.
Ben Reitz
Yeah, hey guys, how are you? Thanks for the question. I wanted to ask maybe two things. You know, last quarter you you talked about the MBMS were being signed in this 80% margin range. I know there's a lot of puts and takes with regard to pricing. I was wondering if you can talk about, you know, whether it's in the, in that ballpark or if it's, it's kind of trending actually more towards the guidance for the next quarter. I, I, I would think it's more in the 80 ballpark.
And and then I have a my follow up is with regard to buy backs. You know, if, if you, if we just round up to 5 billion per quarter, I know the authorization isn't this big, but if you, if you, if you commit to buying 5 billion a quarter, you know, that's, and you do that over the next four quarters, that's about 10% of your market cap. I mean, is that the kind of buyback magnitude we should be thinking of or is it too early to, to kind of call the pace? Thanks.
David
Hey, let me let me take the second one and then Louise can take the first one. So we plan to be, you know, we're, we're. Thinking into the buyback program where our second authorization now you saw we were we had a $6 billion authorization, we executed 4 1/2 billion in the first quarter of that. Now we've reauthorized another 14 billion. We expect to be very consistent in our execution of this program. We have a lot of confidence in the cash generation of the portfolio.
You know, Ben, to your first question and Louise will talk about the margins, but you know, we spent a lot of time over the last two or three quarters really working very, very deeply with our largest customers on committing demand, you know, over 4. We have, you know, over 4 years of visibility now. So we feel very good about where the where the franchise is. And you know, I'll just speak personally as somebody that's been managing this franchise since March of 2020. I am thrilled to be at this point where we're, we're recognizing the true value of this franchise and and really ramping up the the shareholder returns. But Louise can talk about the margin.
Louise
Yeah, Ben, we you know, not to pick a specific number, but we do expect to be around 80% for the new business models. As you know, there is some upside as prices continue to go up. We'll capture some of that offset as well. So, but we feel very good about the work we've done. We'll talk about more the about the MBM. So I'm sure, but you've seen there are not a lot they are really meaningful deals that we did with eight very strategic customers of ours. So we feel very good about that.
Ben Reitz
Thanks a lot guys. Appreciate it.
David
Sure thing. Thanks Ben.
Operator
The next question comes from Mark Newman with Bernstein. Please go ahead.
Mark Newman
Hi, thanks for taking the question. For your Q4, I don't think you've given you know Q4 strong results. I don't think you've given the breakdown yet on the the the volume growth, you've given some numbers for the for the year. So we've got some pretty good estimate. But I, I wonder if you could give some clarity on what's, what's in there for Q4 for volume and also in the Q1 guide, particularly for the Q1 guide, it seems a bit lighter compared to expectations if you share price been down a bit last time I checked in the post market. I just wondered if that is volume related or if that is because the locking in the pricing and so less price upside or perhaps a bit of both or is it a bit of conservatism? Really appreciate it. Thanks.
Louise
Yeah, so in Q4, Mark, what we mentioned is that about 1/3 of the growth came from incremental bits and 2/3 came from pricing. So you have that split there And and and obviously as you compare US versus others, there is a different timing on when price increases were taken. You know, so you have to look at you know things over over several quarters to really understand where we are because as you know we took significant pricing the prior quarter. If you look at Q1, you know we expect both the other growth to come from both you know bits growth and and modest price increases. So we expect both of them to be contributing to our to our revenue growth.
Mark Newman
Thanks very much.
Louise
Sure, Mark.
Operator
The next question comes from David Gibson with MST. Please go ahead.
David Gibson
Thank you very much. Great quarter. 2 questions. I'm just wondering if Nvidia's context memory CMX standard and their plan for storage next opportunities for you with products to come. And then the second, you announced the other day the global standard with SK Hynix, the HBF. Just wondering how far out are we talking about samples of such a product that we 123 years away? That's my question. Thank you.
David
So, David, sure. So look, there's a, there's a ton of innovation going on right now in inference memory architectures, which we think is fantastic, very healthy. There's a lot of different ideas. We're going to, we're going to dive into this a little deeper next week at our Analyst Day, where we'll actually go into how we think about the problem and kind of how you dimensionalize it. But yes, all these are opportunities for us. We think especially inference is a memory bound problem. Storage is extraordinarily important to the equation.
We showed some stuff in our FMS keynote just a couple of hours ago about how when you use HBF, how we simulate performance and maybe breakthrough some bottlenecks. So we think there's an enormous amount of innovation happening. As we scale inference, we think it provides an enormous opportunity. The biggest thing you know, the way we're thinking about this is staying very close to our customers because they're they're going to be the ones that define what the architecture is in the future.
I mean all of us as suppliers will provide a lot of good ideas to that. We'll work with them closely on, you know which ones are going to be the predominant ones for, for what they're optimizing for. And these these are really where our NBMS, we think they're extremely important in that we have, we have NBMS with you know, several of the largest hyperscalers in the world. They've given us forecasts years into the future that include, you know, quarter by quarter, month by month mix. So we know very clearly what products they're going to deploy and the intensity that they're going to deploy them in.
And it keeps us very close to the conversation as their deployment architecture changes. It lets us reflect that in our road map appropriately. So you know, there's a lot of good ideas out there, a lot of, you know, flashing green light for innovation. We think we know we're a super innovative company and we think that provides nothing but opportunity.
Now on your second question, HBF is something that you know we announced almost a year and a half ago now. It was very much targeted at this whole idea that inference was going to be require a different storage and memory architecture. We feel very good about where that product is at. We'll tell you a little more about, you know, where we're at specifically next week, but we feel very good about deep conversations with customers.
You know, this week you saw additions to our Advisory Board at FMS. You saw some very significant customers talking about the technology and how they could use it. So, so we'll have more to say as we progress with with with technology on actually shipping and release dates and all of that. But from where we were a year and a half ago that this was an idea and a lot of research and some some work that we thought it was a great idea to where we are now. We've come an enormous distance and we'll we'll talk more about that next week.
David Gibson
OK, that's great. Thanks very much.
David
Thank you, David.
Operator
The next question comes from Jim Schneider with Goldman Sachs. Please go ahead.
Jim Schneider
Good evening. Thanks for taking my question. When you think about the composition of MBMS you've already signed and the ones you may intend to sign, how are you thinking about the the mix of desired customers you'd like to see a cross edge hyper scalers, AI data centers and so forth? And maybe maybe can you talk about whether you're pursuing additional agreements with large hyper scalers beyond the ones you've already signed?
Louise
Yeah, Jim, we're, we're open to signing deals with companies that that really meet the criteria that we we talked, right. One is they need to be customers that are highly strategic, that they really value our products and they're creating amazing products with those. We want customers that are looking at several years, ideally five years of agreement with attract with growth year over year growth. That's very important because every time, every year we're producing more bits as we introduce new notes. So we we want customers that grow with us and and we want attractive financials.
So those are that's the criteria, but we're not close to any segment. As I mentioned, we sign deals with customers across data center and edge and we we feel great about that in terms of, you know, the UI, the hyperscalers you're talking about specific agreements. I think it's, it's, it's not in our interest to be disclosing specifics about contracts, but we feel great about each of them. They are, as David said, long term relationships that are getting to a level of details that we've never had before from a technology, from a commercial point of view. And we believe that these relationships will last many, many years.
David
So Jim, just a few more comments on that from my perspective. So first of all, you know, we really started this journey just to you know, 2/2 plus quarters ago. Here we are with you know, a little bit more than 50% of our supply for fiscal year 27, which we're you know, we're a month in now is already committed. We understand the financials, we understand exactly where it's going quite we already have POS for for the year from those customers.
You know, in FY20 8, that steps up to 2/3. You know, roughly 2/3 of our supply is already committed. We understand what the mix is. We understand what the economics are. So we feel like we've just made incredible progress here. On, you know, taking, you know, a year ago we were talking about visibility in this business of three months and now we're talking over 4 years of committed financials and understanding the mix and working with as Louise said, some of the most enviable companies in the world.
So we feel really good about where this is AT and you know we'll continue to talk to customers. I think one of the one of the most interesting dynamics is our, you know, some of our biggest customers are already coming back and wanting more right from just what they thought they needed three months ago. It's a very, very robust demand environment, especially in the data center. So we feel good about where we're at, but you know, we're getting a lot of the portfolio spoken for at this point and we'll be selective from here about about how we add to it. But we're definitely, definitely still in deep conversations with additional customers.
Jim Schneider
Thank you. And then could you maybe address capital allocation at a somewhat more holistic level? I mean, it's great to see the buybacks you've already executed in terms of the authorization. But how should we be thinking about your, your ability to do sort of more programmatic buybacks on, on sort of an ongoing basis and maybe talk about the the idea of a dividend if it's, if you've considered that?
Louise
Yeah. So our, our priorities continue to be the same as what we've talked since day one, which is to 1st continue to invest in the business. And, and although that's a generic statement, you've seen us do that right through our OpEx, through our CapEx, through investments in NAIA, through our JV expansion. So we continue to merit to make our company more robust and more durable over time in any scenario. So we'll continue to do that. And, and I've talked about some of the numbers, some of their requirements to continue to invest in the business.
Priority #2 that we've talked, which is frankly completed was to to get a good cash balance, which we've done, and to get rid of our TLB, which is also done. So that priority #2 we feel very good of where we are. And then really our role as a company is to return cash to our shareholders. We believe that at this point in time and things may change, you know, as time goes on, we believe that the best way to do it is to return cash to investors via via share buybacks.
So we started that journey very quickly in last quarter and we continue that journey and we'll keep you updated, but that's the form we believe it's better for our shareholders, more tax efficient and, and, and probably the right thing for us to do at this point in time.
Jim Schneider
Thank you.
David
Thanks, Jim.
Operator
The next question comes from CJ Muse with Cantor. Please go ahead.
CJ Muse
Yeah, good afternoon. Thank you for taking the question. I guess 2 questions. First, with pricing up modestly sequentially, can you help me understand why gross margins are guided lower? And then bigger picture, you know, the challenge for semi investors is moving less of a focus on margin and EPS revisions, but rather buying into the durability of this cycle. So can you focus on on why you're so confident and the securities of NDMS and that today's supply is limited and that will drive a durable and elongated cycle? Thanks so much.
David
Yeah, so I'll start and Luis can add on. You know CJI think you answered your quite your first question with your second question which is we're focused on multiple things here, not just one. Durability is a big piece of it. We want to get you know, a fair return for our product. I think you know, mid 80s gross margin I would characterize as a fair return. And then we want to increase visibility and durability of the franchise, right. We want to get this kind of, you know boom and bust out of it. It doesn't work for anybody.
You know, in 23 we are, we are having very different earnings calls we're having now. And you know, we we want to, we want to get more consistent and deeper relationships with our customers so we can plan better and they can plan better. And so you know, we're executing what we said we were going to do last quarter. We're we're committing supply to customers that are willing to commit for years in advance. At the economics we guided to last quarter, which Ben said earlier, you know, we guided to about 80% gross margin and then you know, the rest of the portfolio floats.
And then there's, you know, all kinds of things that happen in their mix and all different kinds of things influence it. It's a, you know, fairly complicated business. So when you put that on top of half the supply is committed for FY20 7, you get the kind of the numbers we're talking about, which we're thrilled with quite frankly, because the amount of you know, the operating leverage, operating profit and free cash flow that drives is very substantial. And again, we'll go. Into why that's the case a little more next week.
So why do we have conviction that these, you know, customers are going to hang in there with us? You know, there's lots of reasons for that. Number one is we put a contractual structure in place where we align our incentives. They're making financial commitments to us that if they don't follow through on their commitments that you know, I think 16 1/2 billion dollars in aggregate would flow to us on our, our balance sheet. We, we don't ever expect to see that money quite frankly, it's just to align interest. But if some Black Swan event happens, you know, companies have to do within their interest and then maybe, maybe something happens.
But more importantly, you know, we're dealing at a very different level with our customers than we were a year ago. I mean, we are literally talking to the CFO's, the CEO's of the largest companies in the world. This used to be quite frankly just a supply chain conversation every quarter in a, you know, price negotiation 7 by 24. The, the, the business has turned into a highly strategic, you know, SanDisk has incredible products that allow them, our customers to build incredible infrastructure to serve the world with, you know, things like inference, which which is, you know, we're just getting started on scaling.
So it's, you know, as somebody that's been in the technology industry for 35 or 40 years now at quite frankly a very high level, the level of customer engagement we have is as high as any technology franchise I've ever been a part of. It's incredible. And so we believe that, you know, we have pivoted to a highly strategic supplier to our customers. You know, their demand continues to grow. I think one of the more interesting things, again, I think I said it before, we've already have customers coming back for the second round of NBMS, you know, 1/4 in.
And so that gives us an enormous amount of conviction that this franchise is set up for the long term. We have over 4 years of visibility now at economics, which are extremely attractive. And you know, we're really looking forward to executing this business over the next several years.
Operator
The next question comes from Joe Moore with Morgan Stanley. Please go ahead.
Joe Moore
Great, thank you. You talked a little bit about gross CapEx coming up a little for the Bix 8 and Bix 10 transitions. Can you just talk about how you think about that and, and the fact that, you know, the the guys who also make DRAM seem to be focused more there, you know, any thought of spending more to accelerate those technology transitions or just how should we think about your decision making process and CapEx?
Louise
Yeah, so Joe, basically we're we continue to be committed to to grow bids mid to high teens, right And we're spending to that level. The reason why our dollar increases from one year to another is because obviously as you transition from one node to another, you would first take the easiest right or the, the the cheapest transitions and then you would go on and do the more expensive ones. Particularly when we had, you know, under utilize the fabs in the prior year, we had some tools that could be reused and we were in a in a good place for on, on that spending.
So we're very good. We continue to execute the plan that we had. We believe that's the right plan to do it. You know that that allows us to provide the big growth that we believe is sustainable in the market. And, and we haven't changed that position. Now this year as I mentioned in my prepared remarks, it will be a little bit lower. I mentioned mid teens as we continue to build capabilities for the new business model, we need to build a little bit of inventory just to make sure that we're always delivering on time. So that need to high teens which is our ongoing number will be a little bit lower for 2027.
Joe Moore
OK. So if we think about a $500 billion kind of industry number for next year, you know, do you think you would between the put different puts and takes kind of hold segment share relative to that this year?
Louise
That is correct. It's always our goal, Joe.
Joe Moore
OK, OK, great. Thank you.
Louise
Thank you.
Operator
The next question comes from Karl Ackerman with BNP Paribas. Please go ahead.
Karl Ackerman
Yes, thank you. I have two related, so I'll ask at the same time. Consumer revenue is down a bit this quarter. Is that allocation choice? Or demand driven and how should we think about the dollar commitments of these contracts relative to the perceived consumer, customer demand through 2028 in the absence of Ltas, how do we gain greater visibility on end market consumer demand? Thank you.
David
I'm not sure if I got the last portion of that, would you mind? Consumer one first, Carl, and we'll come back to you. So sure. Consumer is a business that just, it doesn't move at the pace that the transactional markets move. And it's kind of an interesting business because in, in, in, in normal times, you can, you can move pricing and consumer around much more quickly than some of the other markets. But in these kind of markets where the other ones are moving so fast, it's hard to move the consumer up as much as possible.
So there's there's no doubt we're, we're, we're seeking at where is, where is the right equilibrium point for pricing and, and the amount of products shipped and all these kinds of issues in, in consumer. And that's a that's a little longer process than in in some of the enterprise markets. Louise, you want to add anything to that?
Louise
Yeah, I mean, as, as you can imagine, prices on the consumer market have also come up and, and, and there has been some impact on the Tam itself. We're very happy with that business. It's going super well. We're very happy about our market share within that market and we continue to be committed to drive that business. Do you mind going through your second question, Carl?
Karl Ackerman
Yes, Luis, I was asking you know you gave some very substantial numbers with respect to long term agreements across your customer base. And I was wondering how we should think about the dollar commitments of these contracts relative to the perceived consumer customer demand of these Ltas. And in absence of Ltas, how do you gain greater visibility on and market demand for consumer? Thank you.
Louise
Yeah. So the Ltas or the new business models are not related to the consumer business. If you if you are questioning whether the new business models were taking bits away from the consumer market, is that what you're asking Carl?
Karl Ackerman
Oh, no, no,
Louise
Yeah, I think we, we feel very good about the demand that our customers with NDMS have. If we otherwise they wouldn't be increasing their demand to us just a few months after they find their commitment. So if if the question is on their demand, I feel very good about their confidence, their conviction on their demand as these numbers. I think they are actually being conservative as they make commitments to us as as they come in and increase their numbers, you know, just a few months after signing the deals.
Karl Ackerman
Great, thank you.
Louise
Thanks, Carl.
Operator
The next question comes from Aaron Rakers with Wells Fargo. Please go ahead.
Michael Spadinoff
Thank you guys. This is Michael Spadinoff on Aaron's behalf. I wanted to ask you, sounds like you guys have significantly improved your visibility keep mentioning you know greater than four years. So I'm curious with that and, and kind of your thoughts on on supply growth, when do you see industry supply demand converging and kind of how is that view changed relative to three months ago? Thank you.
David
Well, I mean convert to every quarter. I mean, industry supply and demand converges all the time, I guess, right. I mean, it's, that's the way the market works. I think if if you're saying when does is supply going to increase? So everybody gets everything they want at the price they want. I you know, that's a much more complicated question. Look, I think this is really, you know, there's a lot into the question you're asking and I don't need to make light of it at all because we we take this very seriously and this is really a big part of the NB Ms.
I think the thing that we've struggled with is to understand what is demand 510 years from now. And when you're when the when the business is transacted on a quarterly basis, that's very difficult to do and it's very difficult to get wrong. And if you get it wrong, the implications are kind of tragic, right. We saw that in 23. You know, right now we're seeing, you know, maybe people didn't anticipate that things were not going to be as available as they thought and the markets reacting to that.
I am actually extraordinarily optimistic that the market is reacting at an incredible pace. I mean, again, if you just think 3/4 ago, four quarters ago, this whole market was transacted quarterly and now we're sitting here saying we have 4 plus years of visibility and we have customers signing up for five years of demand. That is exactly how supply and demand is going to get matched. It's not going to get matched at quote, the industry level like we keep saying industry, this industry that it's going to get matched with customers and suppliers having deep discussions about supply and demand and how do we get the.
Those aligned and I think we've taken 2 very big steps down that path over the last couple of quarters. As I said earlier, the level of strategic engagement with our customers, it is difficult to comprehend how how advanced it is versus where it was two or three quarters ago. So I think we're making incredible progress on this and we're going to follow our customers. That's that's the simplest way to to kind of run a business, right. We have customers literally you know, we, we now have relationships with eight customers that are some of, you know, they're just incredibly large customers and they're going to give us visibility of what their demand is.
You know, as I say, sometimes they need NAND. We build NAND, right? It's a, it's a match made in heaven. We just need to get the economic model figured out and we are making extraordinarily extraordinary progress on doing that. And I expect that that's going to continue and we're going to continue to have those discussions and that will inform our investment decisions.
Michael Spadinoff
Thank you.
Operator
The next question comes from Blaine Curtis with Jefferies. Please go ahead.
Blaine Curtis
Hey, good afternoon guys. I had two questions. I I want to ask on edge. Obviously you know the PC smartphone markets are, you know, probably going to be down for most people in the back half of the year. How are you thinking about that segment? I guess can you just speak to the strength you're seeing? I know it's broader than just those end markets. So what what is, what is going well and how do you think about, you know, the the markets that'll be down over the next few quarters?
David
Yeah, well, I mean they're great markets. First of all, again, as I've said this before, this is one of the great things about the NAND business. It's got tremendous diversity of markets. Smartphones, PC is very, very important. There's no doubt those those markets are adjusting this calendar year and we set it in the script. We expect them to stabilize next year. But we we see units down mid, mid teens for both smartphones and PCs this year. But we still see in smartphones we see average capacity up significantly, you know, mid teens and and PCs we see it flat.
But then next year we see, you know, units flattening out in both businesses, both markets and then average capacities going up. So we see the the market adjusting this year and then next year return to you know overall exabyte growth across across both. So you know, again, the markets adjusting to kind of the reality of where the way the industry works now and I think it's happening, happening pretty quickly.
Blaine Curtis
Thanks. And I just want to go back to a prior gross margin question. I'm trying to understand, you know, the margins are down modestly, but pricing is up. I just want to understand is it the impacts of these new business agreements that that's kind of, you know, capping the, you know, leading to the modest growth in ASP? And then even with that, is there any other factors that are contributing to gross margin in September?
Louise
Yeah, I would not assume that our new business models are a drive on gross margin. They are good. They are good margins. If you look at where we come from right, the last five quarters we've expanded gross margin every single quarter starting with 22.7 all the way to 86.5. So we feel that we're driving gross margin. We believe it's one of the most important metrics to drive the financial health of the company.
Now if you look at you know some of the the reasons on the math that you are your question, right. I mean there's some mix there is the high end of the guide is 85, right? And so it's a little bit off versus what we what we just printed and we're making some prudent assumptions if you wish on component cost and other things. And when we factor all of that in, we believe that that the right guidance to give you a somewhere between 83 and 85%. So slightly down, slightly off from what we printed this quarter driven by all these factors.
Blaine Curtis
Thank you.
Operator
We ask that you please limit yourself to one question. The next question comes from Wamsi Mohan with Bank of America. Please go ahead.
Wamsi Mohan
That was kind of timely to go to one, but you got stuck with the one question man. Well, I will ask a two-part single question. So, so you have an industry forecast here of the NAND industry growing to 500 billion and 27 from 300 billion and 26. And we know that you know your bit growth is really not meaningfully accelerating for the industry. So just as the assumption that there is going to be any price normalization that we expect in 2027 or not, that's like the first part of it and the second part.
Is in that growth of the industry is your expectation that you would grow outgrow the industry in line or or undergrow the industry as you think about that that market growth? Thank you so much.
David
You know, we want to grow with the market. We plan to grow with the market like I mean WAMSI, we're, we're, we're transitioning our business into a more predictable business where we're, we're working on, you know, pricing and predictability and duration. And so, you know, we expect to, to grow with the market as it goes and increase our visibility. You know, we continue to see very robust demand through the end of 27 and into 28. I mean customers again, customers are giving us demand signals for all the way out to the end of the decade at this point.
So I don't know what more to say about it. We're going to grow with the market and as we grow with the market, I think we're turning in market leading profitability. And you know, we we've got our bid growth plans as Louise said, we're going to be, we're going to be carrying a little more inventory as we go into these NBMS, which will have an impact on on growth in the near term. But we we continue to see a very robust market and it gives us this opportunity to both continue to drive significant profitability of the business and increase the duration of our visibility very significantly.
Wamsi Mohan
OK, thank you, Dave.
David
Thanks Ramsey.
Operator
The next question comes from Asha Merchant with Citi. Please go ahead.
Asha Merchant
Great, thanks for squeezing me in here, David. I think in the past SanDisk has talked about, you know, the KV cash opportunity. Can you just remind us like how you're thinking about it? Clearly agentic AI is gaining a lot of traction here. I'm here at FMS and seems to be a lot of discussion around there. Has your views or dialogue changed over the last quarter as it relates to and how you're thinking about this KB cash opportunity into 2027 and beyond? Thank you.
David
Yeah, it continues. It continues to mature, I would say and that's what's staying close to the customers because it's use case dependent on on how how much KV cash is going to be, how it's going to be used, how much NAND is a part of that equation, how do you configure the system. And we continue to do an enormous amount of research in this area and you'll hear more of that next week. But we just continue to get more optimistic on the requirements for NAND as as AI gets more sophisticated, models get bigger, context lengths get longer, and then agentic is just a big multiplier on top of that.
So we continue to get more bullish on the requirements for NAND. And again, This is why I'm going to keep going back to the same theme. This is why it's so important to stay close to our customers because I'm, I am a very, very big believer now that the customers are driving the requirements in this market. It's not what the suppliers are coming up with on different architectures and those kinds of things. Now we're talking about scaling inference globally and that is very, very difficult.
And to do that and understand exactly how that system is going to going to work, you need to really understand the use case and that's different for each provider. So again, why you know, it's the reason why we're staying so close to our customers, why why we're increasing our visibility because we're going to need to stay very close to those architectural discussions. They're evolving very quickly and you know, the demand continues to get stronger again witnessed by we have customers coming back, you know, after only one quarter wanting to increase their demand for, you know, the next three to five years based on what they've learned in the last quarter.
So it continues to be, you know, it's quite a complicated, quite a complicated calculation. We're going to try and demystify it a little bit next week with how we think about it and it continues to be a very strong story and getting stronger.
Operator
The next question comes from Vijay Rakesh with Mizuho. Please go ahead.
Vijay Rakesh
Yeah, hey, David. And it's just a two-part question here too. When you look at the Big 10 and high bandwidth flash, wondering if you're seeing any price premium on that? And how should you look at the price premium versus conventional NAND, I guess, and then you mentioned that 2027 growth, you should be in line with industry. What would drive the upside for you I guess versus the industry growth? That's it. Thanks.
David
I think it's a little early to talk about pricing on some of those nodes just yet, right and some of that technology, but we'll keep you updated on that. We we're certainly very proud of the technology. We, you know, Big 10 is a great node. You know we just announced it I think last week or last couple of weeks and you know it's been in development for a long time and we're very it it's great. Again, Alper's going to show you show you more about that next week as well.
In high bandwidth flash, we continue to have deep engagements both with cloud customers and device customers about using that technology for as, as an inference platform. Look, we, we grow BJ, we grow through nodal transitions, right? I mean our, our technology is so productive. We can, we can, we can grow in excess of the market rates we're talking about just through nodal transition. So that's the way we grow. If we're going to speed up or slow down nodal transitions, even that still takes a significant amount of time. But that's something we always look at and allows us to kind of always stay in line with where the market's at.
Operator
This concludes our question and answer session. I would like to turn the conference back over to Ivan Donaldson for any closing remarks.
Ivan Donaldson
Yeah, I'd just like to say thank you to everyone for joining the call today, and we look forward to speaking with everyone throughout the quarter.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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