Fitch Ratings has upgraded Sandisk Corporation's Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'.

Fitch has also affirmed Sandisk's 1st-lien senior secured debt at 'BBB-' with a Recovery Rating of 'RR1'. The Rating Outlook is Stable.

The ratings and Outlook reflect Sandisk's debt reduction with available cash, achieving its net cash target ahead of schedule, providing the company with ample flexibility to invest in growth through the cycle. Flash memory markets will remain cyclical, but operating performance for Sandisk and the industry more broadly will be strong over at least the next two years due to robust spending on artificial intelligence (AI) infrastructure.

Key Rating Drivers

Strengthened Balance Sheet: Sandisk's ongoing debt reduction has resulted in the company achieving its net cash position target well in advance of previous expectations. Fitch does not expect incremental debt issuance over the next few years given that the company is likely to grow balance sheet cash substantially with strong FCF.

Sandisk will have ample flexibility to invest through the cycle, including inorganic deals like its recent $1 billion investment in Nanya to secure dynamic random access memory (DRAM) supply amid shortages and potential capital calls at its joint venture (JV). The company does not currently have a capital returns policy given its focus on organic growth and the cyclical nature of the NAND-flash memory industry.

Robust AI-Fueled Growth: Robust demand for flash memory from AI infrastructure spending is driving tight supply conditions across the industry and a significant increase in average selling prices (ASP), accelerating positive revenue growth and profit margin expansion from record low prices reached in FY23-FY24. We view AI infrastructure spending as a robust tailwind for Sandisk over near- to medium-horizon, but ultimately expect aggressive industry supply additions or customer capacity digestion to result in a downturn before the industry recovers and normalizes over the longer-term. In the meantime, Sandisk is likely to generate unprecedented levels of FCF.

Limited Diversification: Sandisk's focus on NAND flash-based products limits revenue diversification and amplifies operating cyclicality. Client and consumer segments still represent nearly 90% of revenue. However, sales to cloud customers, which are driven by robust AI infrastructure demand, should rapidly increase from 12% of the mix exiting 2025. At the same time, Sandisk's dependence on hyperscalers will increase. Hyperscalers are driving the majority of AI infrastructure spending and have represented a more rationale and less price sensitive customer set for memory suppliers over the past decade-and-a-half.

Significant Technology Risk: Technology risk remains significant, driven by ongoing flash memory manufacturing technology transitions required to offset average bit selling price pressures. New product introduction delays, driven by lagging technology, would result in profit margin compression from near- to medium-term market share losses and lower average selling prices for mature products. Sandisk's JV provides a risk-sharing framework to limit the impact of technology delays and reduce capital contributions for supply additions.

China Risk: China is a medium- to long-term risk for Sandisk and the NAND industry more broadly. Chinese suppliers are now competitive at lower NAND flash bit-densities despite U.S. efforts to slow China's development of leading-edge memory products with export controls on advanced chip production tools. China achieving approximate parity with leading global suppliers would likely add significant bit-supply and greatly pressure average selling prices. Meanwhile, robust AI-related demand is masking the weight of volatile tariff policies between the U.S. and China on consumer markets and global trade more broadly.

Reliance on Strategic JV: The joint venture (JV) with Kioxia Holdings Inc. (BB+/Stable), Flash Ventures, is essential to Sandisk's ability to source NAND at favorable economics. Meaningful limitations on availability at the JV or deterioration of technology competitiveness could materially affect Sandisk's operating performance, although Flash Ventures is longest-tenured and never experienced financial distress. Sandisk's obligation to fund roughly half of the JV's fixed expenses and capex and to guarantee some of the JV's capital equipment leases represents potentially significant cash calls. However, it also reduces capital intensity relative to memory peers.

Cyclical Operating Results: Sandisk's operating results will remain cyclical relative to more diversified memory and disk drive peers absent consolidation in the NAND-flash industry. A handful of NAND-flash suppliers represent 90% of the NAND market, but the rate of aggregate industry supply additions drive NAND prices, and ultimately, revenue and profitability. The current AI investment super cycle preceded by the worst inventory hangover in sector history may be industry aberrations. Over the longer-term, Fitch expects more typical inventory corrections with structural inefficiencies related to supply-chain regionalization and trade policies amplifying cyclicality.

Peer Analysis

Fitch views Sandisk's business profile as positioned in-line with a the 'BB'- rating category and the company's efforts to strengthen its balance sheet as supportive of the upgrade to 'BB+'. Sandisk is now better aligned with its JV partner, Kioxia Holdings Corp. (BB+/Stable), which is modestly more diversified from a product perspective but has a weaker financial structure than Sandisk.

Sandisk's exclusive focus on NAND-based products results in weaker diversification than its peers, including Micron Technology, Inc. (BBB/Stable) and SK hynix Inc. (BBB/Positive), which have significant exposure to both NAND and DRAM markets. This is offset by considerably higher capital intensity for Micron and SK hynix.

Fitch views Sandisk as weakly positioned relative to disk drive makers Seagate Technology Holdings plc and Western Digital Corp., both rated 'BBB-' with Stable Outlooks. Both companies benefit from lower operating cyclicality and more favorable industry structure.

Sandisk is positioned in-line with Nanya Technology, Inc. (BB+/Stable), which is also focused on a single technology but has a more consolidated DRAM industry structure offset by Sandisk's stronger market positions. Samsung Electronics Co. Ltd.'s (AA-/Stable) far greater financial flexibility and diversification position it favorably to Sandisk.

Fitch's Key Rating-Case Assumptions

Robust revenue growth in FY26-FY27 driven by strong bit demand and supply discipline supporting average selling prices;

Hyperscaler digestion in FY28-FY29 drives pricing pressure within the context of higher industry supply, resulting in meaningful revenue decline before resuming revenue growth in the second half of FY29;

Slowing but still positive revenue growth in FY27 and a moderate correction in FY27;

Fitch adjusted gross margins are in the mid-60% in fiscal 2026 before moderating to 60% and ranging between 30%-60% through the cycle;

Capital intensity remains uneven but in the mid- to high-single digits;

Sandisk closes its investment in Nanya in FY26;

FCF used for capital returns and building cash to support financial flexibility through the cycle.

Corporate Rating Tool Inputs and Scores

Fitch scored the issuer as follows, using our Corporate Rating Tool (CRT) to produce the Standalone Credit Profile (SCP):

Business and financial profile factors (assessment, relative importance): Management (bbb, Lower), Sector Characteristics (bb+, Higher), Market and Competitive Positioning (bbb-, Moderate), Diversification and Asset Quality (b+, Higher), Company Operational Characteristics (bbb, Moderate), Profitability (bbb+, Moderate), Financial Structure (aa+, Lower), and Financial Flexibility (bbb+, Moderate).

The quantitative financial subfactors are based on custom CRT financial period parameters: 20% weight for the historical year 2025, 20% for the forecast year 2026, 20% for the forecast year 2027, 20% for the forecast year 2028 and 20% for the forecast year 2029.

The Governance assessment of 'Good' results in no adjustment.

The Operating Environment assessment of 'a+' results in no adjustment.

The SCP is 'bb+'.

Recovery Analysis

Sandisk's first-lien senior secured debt is notched up by one from the 'BB+' IDR to 'BBB-'/'RR1'.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Sustained market share losses;

Profit margins decline relative to peers from weakened technology competitiveness;

Sustained EBITDA leverage above 3.0x or CFO-capex/debt below 10%.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Meaningful product line diversification;

Technology leadership resulting in structural share gains and premium profit margins relative to peers;

Sustained EBITDA leverage below 2.5x and CFO-capex/debt above 20%.

Liquidity and Debt Structure

Sandisk's liquidity is adequate. As of Dec. 27, 2026, the company will have $1.5 billion of cash and cash equivalents and an undrawn $1.5 billion 1st-lien senior secured revolving credit facility due Feb. 21, 2030. Fitch forecasts $4.0 billion of average annual FCF through the forecast period, which will further support liquidity.

Issuer Profile

Sandisk Corp. is a leading provider of storage technologies and solutions, including enterprise solid-state drives and retail for cloud, client and retail markets. It is the second largest NAND flash memory producer by virtue of its JV with Kioxia.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

Climate Vulnerability Signals

The results of our Climate.VS screener did not indicate an elevated risk for Sandisk Corporation.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

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