Sandisk (NASDAQ:SNDK) shares experienced a sharp decline of approximately 8.5% in morning trading on the Nasdaq, falling to $1,596.75. The selloff came on the heels of Samsung Electronics (KRX:005930) issuing record-breaking second-quarter guidance, which paradoxically led to a downturn in its own shares in Seoul. This has prompted investors to reassess the durability of cash flows within the memory chip sector.
According to Sandisk's latest 10-Q filing, the company reported $41.6 billion in remaining performance obligations, a figure roughly seven times its third-quarter revenue of $5.95 billion. Adjusted free cash flow for Q3 stood at $2.96 billion, representing nearly 50% of revenue, while cash capital expenditures were a modest $83 million, or 1.4% of revenue. These metrics are now under close scrutiny as the market weighs the sustainability of margins amid potential NAND price deceleration.
The broader memory sector felt the ripple effects. Micron Technology (NASDAQ:MU) fell 6.0%, Western Digital (NASDAQ:WDC) dropped 8.7%, and Seagate Technology (NASDAQ:STX) declined 5.6%. In contrast, Nvidia (NASDAQ:NVDA) managed to stay in positive territory, gaining 0.9%. Samsung's guidance revealed expected Q2 sales of around 171 trillion won with operating profit near 89.4 trillion won, yet its shares tumbled 6.9% in Seoul. SK Hynix (KRX:000660) also fell 6%, contributing to a 4.9% drop in the KOSPI index.
Albert Yong, managing partner at Petra Capital Management, noted that the market had largely anticipated Samsung's earnings, with much of the news already priced in. Morningstar analyst Jing Jie Yu emphasized that the current focus is on memory price resilience, especially after DRAM price increases fell short of forecasts. This context is critical as Sandisk's strong Q3 performance—revenue up 97% quarter-over-quarter to $5.95 billion—suggests the selloff is not solely due to weak AI demand.
Sandisk's Q3 revenue breakdown highlights robust growth in key segments: datacenter revenue surged 233% to $1.47 billion, edge revenue rose 118% to $3.66 billion, while consumer revenue slipped 10% to $820 million. Datacenter now accounts for 24.7% of total revenue, up from 14.5% in Q2, underscoring a strategic shift toward enterprise SSD and AI storage sales. For Q4, the company guided revenue between $7.75 billion and $8.25 billion, with non-GAAP EPS of $30 to $33.
The company's long-term contracts provide some visibility. CEO David Goeckeler highlighted a shift toward multi-year deals with binding financial terms. Reuters reported in May that Sandisk had signed five long-term supply agreements, three of which total $42 billion and span one to five years. However, the 10-Q also reveals customer concentration risks: the top 10 customers accounted for 46% of Q3 revenue, with a single customer representing over 10%. Additionally, only about 15% of the $41.6 billion in remaining performance obligations is expected to convert into revenue within the next 12 months.
Sandisk currently trades at 55.5 times trailing earnings. Annualizing the midpoint of Q4 EPS guidance yields a forward run-rate multiple of approximately 12.7, suggesting investors are pricing in cyclical risks rather than current earnings strength. The company also has a $6 billion buyback authorization, representing about 2.4% of its market cap, which provides some support but is less impactful after the stock's significant run-up.
