📌 Can SanDisk's Long-Term Contracts Withstand the NAND Cycle
SanDisk’s latest figures have prompted the market to reassess whether its NAND business can still only be viewed as a highly cyclical company. The company’s revenue this quarter rose 51% quarter-on-quarter to USD 8.965 billion, with a gross margin of 84.6%. However, about two-thirds of revenue growth came from pricing, while shipments contributed only about one-third. This indicates that current high profitability still clearly benefits from the pricing environment, and it cannot be concluded from a single quarter’s results alone that cyclicality has weakened.
The more critical change is the NBM long-term contracts. SanDisk has covered 8 customers and signed 10 agreements with an average term of more than 4 years, with contracted value calculated at minimum prices totaling USD 94 billion. For the company, the value of such arrangements is not only the order scale, but also that they lock in part of revenue and cash flow earlier, reducing the proportion that fully follows spot-price fluctuations. If customers continue to fulfill their contracts and contract prices can support gross margins, earnings predictability will improve.
This is also what most needs to be validated over the next two to three quarters. Some believe that only if long-term contracts continue to prove capable of smoothing price volatility and stabilizing gross margins will the market reduce its assessment of its traditional cyclical characteristics; if prices decline earlier than expected, or contract performance runs into problems, a single quarter’s high gross margin will be difficult to sustain as the norm.
Supply-side factors have not disappeared. Kioxia has begun mass production of 10th-generation 3D NAND BiCS10 at its Kitakami K2 plant in Japan. Additional capacity may not immediately change prices, but it will affect the future supply-demand balance. Whether SanDisk’s long-term contracts are locking in a more stable business or merely temporarily covering an upcycle still depends on pricing and contract performance after supply increases.
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