On October 29, 2026, Sandisk reported results for the first quarter of fiscal 2027, which ended October 2. Revenue rose to $11.031 billion, about 4.8 times the year-earlier figure. GAAP net income reached $8.1 billion, and gross margin jumped from 29.8% a year earlier to 85.0%. Higher selling prices, rather than higher shipment volumes, appear to be the main driver of this profit surge. Revenue rose $8.723 billion from a year earlier, yet cost of revenue rose by only $32 million. The key question now is how long this price-driven, high-margin performance can last.
Revenue up about 4.8x, cost of revenue up just 2%
According to Sandisk, first-quarter fiscal 2027 revenue was $11.031 billion, up 23% from the previous quarter and 378% from a year earlier. Operating income was $8.78 billion. GAAP diluted earnings per share (EPS) were $52.60, and non-GAAP EPS were $49.51. For the second quarter, the company expects revenue of $12.2 billion to $12.6 billion. It also announced an 8-for-1 stock split, with trading on a split-adjusted basis expected to begin on November 20. During the quarter, it also repurchased about 3.2 million shares for a total of $5 billion.
What stands out most in these results is how differently revenue and cost of revenue have moved. Gross margin is gross profit, which is revenue minus cost of revenue, expressed as a share of revenue. If revenue grows while cost of revenue barely changes, most of the added revenue is retained as gross profit. In Sandisk's income statement, revenue soared from $2.308 billion a year earlier to $11.031 billion, while cost of revenue rose only about 2%, from $1.621 billion to $1.653 billion.
Revenue is essentially shipment volume multiplied by selling price per unit, and cost of revenue is shipment volume multiplied by cost per unit. A year earlier, cost of revenue accounted for 70.2% of revenue; this quarter it fell to 15.0%. If shipment volume and unit cost had been unchanged from a year ago, the selling price would have risen about 4.8 times. In reality, however, shipment volume and manufacturing costs have also changed, so this multiple cannot be read directly as the rate of price increase. Even so, the fact that revenue expanded nearly fivefold while cost of revenue stayed almost flat is clearly a major reason profits surged.
Indeed, the year-over-year differences show revenue up $8.723 billion against a cost of revenue increase of just $32 million. In other words, 99.6% of the incremental revenue flowed through to gross profit. Gross profit rose by $8.691 billion, from $687 million a year earlier to $9.378 billion. This strongly supports the view that higher selling prices drove the large profit expansion. That said, lower manufacturing cost per unit, differences in the timing of inventory costs being recognized, and changes in product mix could also have held down the increase in cost of revenue.
Did higher shipment volumes also contribute? A check against the prior quarter
One counterargument to the view that price increases were the main driver is that higher shipment volumes also contributed significantly. The quarter-over-quarter figures do point in that direction. Cost of revenue in the fourth quarter of fiscal 2026, calculated from the gross profit reconciliation, was $1.383 billion, so this quarter's $1.653 billion is a 19.5% increase. Revenue grew 23% over the same period, so cost of revenue rose at a similar pace. In addition, data center revenue grew 61%, from $2.977 billion to $4.802 billion, and now accounts for 43.5% of the total. It is quite possible that higher shipment volumes from expanding demand contributed to this quarter's revenue growth.
However, in its previous earnings announcement, Sandisk explained that about one-third of the revenue increase came from higher shipment volumes and about two-thirds from higher prices. The latest announcement provides no similar breakdown, and neither shipped bits nor average selling prices were disclosed. It is therefore impossible to precisely separate this quarter's revenue growth into price and volume.
Still, on a year-over-year basis, the view that price was the main driver of profit growth holds up. If higher shipment volume alone were to explain more than half of the $8.723 billion revenue increase, then, using the year-earlier selling price as the baseline, shipment volume would have to be about 2.9 times higher. For cost of revenue to rise only about 2% in that case, the cost per unit would have to have fallen to roughly one-third of its level a year earlier. Sandisk has not disclosed data supporting such a large volume increase or unit cost decline. For now, explaining the profit growth mainly through price increases therefore seems more reasonable.
That said, it must be acknowledged that volume may have contributed relatively more in the most recent quarter. Of the $8.691 billion increase in gross profit from a year earlier to this quarter, $6.895 billion, or about 79%, had already accumulated by the previous quarter. This quarter's sequential increase was $1.796 billion, or about 21% of the total. Most of the profit expansion had thus already occurred during the period when Sandisk was describing price increases as the main driver of revenue growth. In other words, the price-driven view rests mainly on the year-over-year comparison, and it is not possible to state definitively the share of price and volume in this quarter alone.
The differences in revenue trends across business areas are also striking. Consumer revenue fell 39% year over year to $397 million, and its share of total revenue shrank sharply from 28.2% to 3.6%. Edge revenue, meanwhile, reached $5.832 billion, or 52.9% of the total. The company has not provided a sufficient breakdown of the specific factors behind these differences between business areas.
An 84.5% gross margin as a yardstick for how long high profitability lasts
Sandisk's second-quarter revenue guidance of $12.2 billion to $12.6 billion implies growth of 10.6% to 14.2% from this quarter. That points to slower revenue growth than this quarter's 23% sequential increase. Meanwhile, the non-GAAP gross margin forecast is 84.5% to 85.5%, which assumes the company maintains a high level almost identical to this quarter's 85.1%. Combining the low ends and the high ends of the revenue and gross margin guidance gives non-GAAP gross profit of roughly $10.3 billion to $10.8 billion, an increase of about 10% to 15% from this quarter's $9.384 billion.
Two conditions are worth watching in testing the view that price-driven high profitability will continue. One is the non-GAAP gross margin falling below 84.5%, the low end of the company's guidance, in the next report. The other is revenue failing to reach $12.2 billion, the low end of guidance. If either happens, the view on the durability of high profitability will need to be reconsidered. In particular, if selling prices fall while cost of revenue stays roughly constant, gross margin would be directly pushed down, so such a change would be an important clue to the durability of pricing. However, gross margin is also affected by product mix and manufacturing costs, so a decline would not necessarily mean prices had fallen.
Long-term contracts are also important when considering how well selling prices might hold up. Sandisk discloses risks related to "NBM" (its new business model), which centers on long-term contracts, and its non-current contract liabilities, which include customer prepayments, rose from $393 million as of July 3 to $752 million. If long-term contracts predetermine selling prices and supply volumes, gross margin may not deteriorate immediately even if market prices fall. However, the latest announcement does not give details on contract terms or pricing conditions, so it is not possible to judge how much long-term contracts will support profits.
In terms of the link to Japan's semiconductor industry, the presence of manufacturing partner Kioxia also cannot be overlooked. In the risk factors in its earnings materials, Sandisk cites its dependence on its strategic relationship with Kioxia. The combined total of loans to and investments in Flash Ventures, the manufacturing joint venture the two companies jointly operate, rose from $678 million as of July 3 to $827 million. Through this joint production arrangement, Sandisk's earnings trends are closely tied to Japan's NAND flash memory industry as well.
Are profits being collected as cash?
Beyond whether high margins will continue, it is also necessary to check how much of the reported profit is being collected as cash. Operating cash flow this quarter was $6.363 billion, only 78.5% of GAAP net income of $8.1 billion. Even excluding the $513 million non-cash gain on equity valuation included in net income, operating cash flow comes to about 84% of adjusted profit. In addition, accounts receivable rose $1.877 billion from the previous quarter, so it will be necessary to determine whether cash collection is keeping pace with the sharp expansion in revenue.
Accounts receivable reached $6.585 billion. Estimating days to collect from the ratio to revenue, assuming a 13-week (91-day) quarter, gives about 54 days, up from about 48 days as of July 3. While revenue and profits have surged, converting them into cash is taking longer than before. Whether this change is temporary or reflects changes in trading terms or customer mix will need to be confirmed in future earnings reports.
What stands out in Sandisk's latest results, more than the sharp rise in revenue, is that gross margin reached 85% with almost no increase in cost of revenue. On a year-over-year basis, there is reasonable support for the view that higher selling prices were the main driver of profit growth. However, the contribution of shipment volumes cannot be ignored in the most recent period, and the same earnings structure will not necessarily continue. Whether revenue reaches $12.2 billion and non-GAAP gross margin holds at 84.5% or above in the next report will be the first important test of how long price-driven high profitability can last.