SanDisk Corp at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Moore - Morgan Stanley - Analyst : Just maybe talk about the path to getting to this point and it seems like, your enthusiasm from here, what value the separation unlocks?

Question: Joe Moore - Morgan Stanley - Analyst : Well, it's, I enjoy it too. I we all that hard drive conversation getting in the way of the real stuff. All good, so maybe we could talk about the cycle a little bit and your big picture of you. You've talked about maybe a smarter supply side management going forward. There are two pure play companies now that are public that can kind of lead the way to that behavior. I think investors are kind of like, yeah, well, we trust you guys. We trust Kioxia and you guys, but like somebody else may disrupt the apple cart. Just how do you respond to that when you sort of think about the industry supply side dynamic?

Question: Joe Moore - Morgan Stanley - Analyst : And I guess I mean people can be skeptical about it, but it does seem like everybody has lowered utilization in an environment where gross margins are still. Like, not where you want to be, but healthy, still positive, still, 20% plus, that seems different, I guess. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 03, 2025 / 8:20PM, SNDK.OQ - SanDisk Corp at Morgan Stanley Technology, Media & Telecom Conference How do you, the game theory aspect of that is always like, well, if everybody else is doing that, I'll just keep my fat full because it does have a big negative impact on your cost structure? But we lived through periods where, stocks went up because their own factories were lit on fire and like we shouldn't need that. We should have the discipline's not the right approach. So just how do you maintain that discipline, when It must be tempting to keep your fab full when you're a relatively smaller player and everybody else is cutting utilization?

Question: Joe Moore - Morgan Stanley - Analyst : And I guess I mean I've done this long enough that I'm sort of in the mode of I hope that you're right about all of this, but I do worry that, it doesn't play out. But at the same time I have two years of almost minimal CapEx in the NAND space and so I have very low organic supply plus you're taking supply side actions. We're seeing CapEx pick up just a little and so maybe, should I be alarmed about that? But it's interesting to see utilization coming down and CapEx going up a little at the same time. But can you just talk about the dynamics underlying, that low CapEx and whether or not people do lower utilization? I mean, there's just not that much supply growth out there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 03, 2025 / 8:20PM, SNDK.OQ - SanDisk Corp at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : And then I guess just bringing all that into the near term. I mean March quarter stuff you've said that you know you guys have a view of kind of stabilization in Q2 and then improvement in the second half. Can you talk about what gives you conviction in those two things in the stabilization and then improvement?

Question: Joe Moore - Morgan Stanley - Analyst : Great, and then I guess We'll get into the longer term gross margin model, but how do you think about the prospect of kind of a super cycle? I mean, a lot of the earnings

Question: Joe Moore - Morgan Stanley - Analyst : Okay, great. So, I wonder if we could talk a little bit about SanDisk from a technology and competitive standpoint. Your gross margins and your competitors, or your partner, your JV partner have been generally higher than the competitors over a fairly long period of time and maybe digging some of the reasons, maybe starting with foundational technology, BICS5 today, migrating to BICS8. Can you talk about the leadership potential of those technologies?

Question: Joe Moore - Morgan Stanley - Analyst : Yeah, you said 10% I think by the end of this of the calendar year and then 30% to 40% fiscal year, yeah, this fiscal year, sorry, and that when I talked to Alpers when we were doing the road show about. Does this give you leadership technology, durability for eSSDs like 100% absolutely it?

Question: Joe Moore - Morgan Stanley - Analyst : I mean, you've been underrepresented in Enterprise SSD for a while, and I know it's had a nice rise in what's been a mixed environment right now, but are you going to be able to get to at least your fair share, maybe higher than your fair share a couple of years from now when all these technologies come together?

Question: Joe Moore - Morgan Stanley - Analyst : And it seems like that enterprise SSD market may have overshot on the upside a little bit. You were saying there's been more of a price correction there. What's your sense of the why of that? There's, it seems like they're still pretty small, it's pretty strong demand from cloud.

Question: Joe Moore - Morgan Stanley - Analyst : But that enterprise market was the enterprise.

Question: Joe Moore - Morgan Stanley - Analyst : Okay, and then maybe a couple of other elements of the story that are underappreciated royalties. When I covered Sandi pre-acquisition, there was a pretty large amount of royalty foundational patents that SanDisk by, being there in the early days of this was collecting. And I know you're not quantifying it, but you did talk about it at the roadshow. It seems like it's material or at the at the analyst day I should say, it seems like it's material to the long-term earnings. Just, how important is that royalty stream?

Question: Joe Moore - Morgan Stanley - Analyst : And then the consumer brand, the SanDisk brand, you've talked about it being close to a third of you of your business. Really surprisingly high and durable margin structure around that. Can you talk about the strength of the brand and why it's so lucrative?

Question: Joe Moore - Morgan Stanley - Analyst : Okay, great. So, I want to ask a couple of questions in the financial model and then I'll open it up to the room. I guess starting with the 35% gross margin, how did you arrive at that number? I've always sort of talked about, a cycle that until the last few years it was sort of different bottomed at 15, peaked at 55, so you're right in the middle of that number. You've achieved that number two quarters ago, so it doesn't seem like that's a stretch number. Just how did you kind of land on 35% as the right number?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And can you talk about your gross margin versus your competitor, your competitors slash JV partner with Kioxia because it's the only evaluation comp that comes up a lot, can you talk about the gross margins and operating margins versus? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 03, 2025 / 8:20PM, SNDK.OQ - SanDisk Corp at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : Yeah, I wanted to ask about that because the OpEx number implied in your $10 billion long term target was about 15% of revenues, right, that you get to 20% operating margins on. 35% gross, that's actually kind of the same dollar amount that you're spending on OpEx today. So, the message is that you can scale revenue and OpEx doesn't have to necessarily scale with it. Obviously, that's true if it's just price, but you know how do I think about OpEx versus revenue?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And then the last element of the financial modeling was low free cash flow, sorry, long term free cash flow margins in the low 10s. So it strikes me the only part of this that you fully control is the delta between operating margin and free cash flow margin. So can you talk a little bit about that and obviously those numbers are actually pretty good relative to some of your memory peers because your CapEx depreciation are a lot closer?

Question: Joe Moore - Morgan Stanley - Analyst : And does that, if you get to the higher margin levels in a super cycle kind of environment, does that OpEx or sorry, free cash flow depreciation delta change, or should we think about free cash margin lagging profits by a similar amount?

Question: Joe Moore - Morgan Stanley - Analyst : Yeah, all right, that makes a lot of sense. Let me see if we have questions from the audience. I keep calling but we did, but then we don't. All right. Can you talk about consolidation? I think this there was obviously a lot of discussion before these two events, the KOC IPO and your spinoff about different elements of industry consolidation. How do you think about that? Do you think that we need consolidation for the industry profits to improve, and what's your openness to thinking about consolidation down the road?

Question: Joe Moore - Morgan Stanley - Analyst : Okay, great. And then a couple of more green shoot technologies that came up around the analyst day. A Matrix NAND 3D cross point kind of nan, which is a storage class memory as well as high bandwidth flash. Can you maybe talk about those and just, I know they're pretty far out. I'm not looking for a time frame.why those are worthy of your investment.

Question: Joe Moore - Morgan Stanley - Analyst : Well, I know anything that reduces cost of HBM would be welcome. I'm afraid we actually have to. We're three seconds left, so some questions maybe we can take them after. Thank you, all.