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Despite SanDisk (SNDK) delivering a solid Q4 performance, surpassing EPS and revenue consensus expectations, the stock is trading sharply lower. The sell-off is primarily driven by the company’s soft 1Q26 guidance, which projects non-GAAP EPS of $0.70-$0.90, with the midpoint falling below the consensus estimate. Additionally, Q1 gross margin guidance of 28.5%-29.5% disappointed investors expecting closer to 30%, reflecting pressures that are overshadowing an otherwise strong quarterly beat.

• SNDK’s gross margin miss is mainly due to underutilization charges and start-up costs associated with its manufacturing ramp. Underutilization stems from deliberate supply discipline in NAND production, as SNDK and its joint venture partner Kioxia reduce output to stabilize pricing in an undersupplied market. Start-up costs are tied to the transition to BiCS8 (218-layer) NAND technology, which involves higher initial expenses for fab retooling and process optimization. These factors, while temporary, are expected to compress margins in the near term, particularly as the company prioritizes long-term cost efficiencies over short-term profitability.
• In Q4, SNDK’s non-GAAP gross margin improved significantly to 26.4%, up 370 bps from 22.7% in the year-earlier quarter. This expansion was driven by favorable NAND pricing trends due to industry-wide supply cuts, higher mix of premium enterprise SSDs in the Cloud segment, and operational efficiencies from prior cost reductions. The stronger-than-expected gross margin underpinned the EPS beat, as SNDK capitalized on a tightening NAND market and growing demand for high-capacity storage solutions, particularly in AI-driven applications.
• The Cloud end market, though SNDK’s smallest segment at about 10% of total revenue, was the standout performer in Q4, with revenue surging 25% yr/yr to $170 mln. This growth was propelled by robust demand from hyperscalers and enterprise data centers, fueled by AI infrastructure build-outs and increasing storage needs for generative AI and inference workloads. The ramp of SNDK’s BiCS8 NAND technology, offering higher density and lower cost-per-gigabyte, has strengthened its competitive positioning in enterprise SSDs.
• Additionally, the introduction of High Bandwidth Flash (HBF) technology has enhanced performance for AI-driven applications, securing qualifications with Tier 1 hyperscalers, including NVIDIA’s (NVDA) GB300 platform, and driving SNDK’s outperformance in this high-margin segment.
• SNDK’s largest end market, Client, saw modest revenue growth of 3% yr/yr to $1.1 bln. Tailwinds included the ongoing PC refresh cycle, spurred by Windows 10’s end-of-life in 2025 and rising demand for AI-enabled devices requiring higher-capacity SSDs. However, headwinds such as macroeconomic uncertainty and weaker-than-expected smartphone demand partially offset gains, leading to a 10% sequential decline in client SSD revenue.
• The Consumer end market posted solid growth of 12% yr/yr to $585 mln. Key drivers included strong retail demand for external SSDs and flash drives, particularly in emerging markets, and increased storage capacities in consumer electronics like tablets and low-end smartphones. SNDK’s strategic focus on higher-margin branded products, coupled with disciplined inventory management, helped mitigate pricing pressures from low-cost competitors like YMTC. However, the Consumer segment remains the most commoditized, with margins constrained by cyclical demand and competitive dynamics.

SNDK’s Q4 results showcased strong execution, with gross margin expansion and exceptional Cloud segment growth highlighting its leadership in NAND-based storage solutions. However, the soft Q1 gross margin and EPS guidance, driven by underutilization and BiCS8 start-up costs, has overshadowed these achievements.