Sandisk Corp at UBS Global Technology and AI Conference Transcript

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

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Perfect. So let's talk about just the business in general. And obviously, things are very tight. Pricing is going up. Some of this is because of demand, but some of this is due to the strategy where you're investing as if supply to meet mid- to high-teens bit growth and unconstrained demand is more in the low to mid-20s, possibly even higher right now. So you're sort of purposely under shipping and maximizing margins through allocation. It's a similar playbook to what's being done at WD as well and has remained the case. So can you kind of talk about this?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : This -- in the past, the skeptic would say that that never really worked because there are enough NAND suppliers that one always wants to gain share. And so one is always going to invest to a demand trend line that's higher than the others. And so there would always be a disruptive force on the supply side. What's changed now? Is it because demand is so much higher than what everyone's managing supply to?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : So maybe on that front, can you talk about the decisions to add supply? What are the variables? I mean, I think maybe some of what's going on today is because the incremental clean room space is going to probably go to HBM. But if the margins keep going higher, then the margins in NAND are going to be higher even at an HBM. So for now, do you -- would you agree that maybe for now, the new clean room space, yes, you have a limiter on supply because people will add HBM capacity and not NAND capacity. But what are the variables when you think about adding capacity?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : So really, you're talking about LTAs. And you have been talking more about that. How are those discussions going? And how many bids do you think can actually move in the near term under an LTA?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : And I guess maybe you wouldn't even answer this question, but the parameters under which you would engage based on what you said because if you're going to go invest money under an LTA, you want to make sure you have guaranteed, a, guaranteed offtake and b, guaranteed price within a range.

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Got it. Maybe we can talk about China. That's another debate, obviously. Is the base case that China will be supplied domestically, but the rest of the world will not be supplied by China. I mean it seems like Hynix and Micron are basically exiting that market by and large. So are there opportunities for you in China? What's your thinking around that market?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : And do you think that other suppliers are deemphasizing China enough that it would create opportunities for you?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Let's talk about demand elasticity. I mean prices seem like they're going higher for the foreseeable future. What does that mean to demand in your eyes, in particular for edge devices and for consumer devices? There's a lot of concern that demand is going to get destroyed by prices going up as much.

Question: Timothy Arcuri - UBS Securities LLC - Analyst : So would you say -- would it be fair to say maybe -- yes, maybe that happens, which is what you're saying, yes, maybe it happens. But maybe it's a little premature to worry about that because prices are really, if you look at year-over-year prices are up, but not -- I mean, not a ton. They're up a lot in the last six months. But in the last year, they're not up that much. So even if that were to happen, would you say it's a premature debate?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Great. Let's talk about data centers. So the WDC, the split knife cuts both ways because obviously, the combination helped the old Sandisk gain share in data center. But there are some dis-synergies from splitting the company up, which seems like maybe it's in data center. So can you just talk about that? And I remember back in the 2022 Analyst Day slides, the combined company showed a 16% share goal in 2026, up from 8% share in cloud. So can you just talk about that?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : And does the qualification of BiCS 8, the timing of the qualification, I mean these are the highest density, best performance products by some metrics in the market. So does that -- does the timing of that call cycle there also make you optimistic to gain share in --

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Great. Let's talk a little bit about your road map. You and your partner historically have a little higher hold density, and you don't stack layers as much as the peers do. And that strategy has worked out pretty well. It's been a pretty capital-light strategy. And customers see, as you said, pretty happy with BiCS 8. Does that approach run out of runway at some point and you have to start to join the layer race?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Great. I wanted to ask about high bandwidth flash. Inference is making it potentially more interesting. You were the first to present it, but now Hynix is more vocal about it as well. You have a partnership that you talked about last call. Can you talk about the use case and the advantages? And most importantly to me is how do you get around the power being high and the right speeds being low?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Luis, I wanted to ask you, you paid down $500 million of your term loan B. So really, I have two questions is, A, what's next? And most importantly, you're obviously generating a lot of free cash flow. So at what point do you expect to start to return cash to investors?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : And maybe just last thing. How do you -- you sort of talked about the eSSD rollout for high-speed TLC and high-capacity QLC. Can you sort of update us on that?

Question: Timothy Arcuri - UBS Securities LLC - Analyst : Great. We've run out of time. But thank you to you both. Thank you.