Sandisk Corporation (NASDAQ: SNDK) Q4 2025 Earnings Call dated Aug. 14, 2025
Corporate Participants:
Ivan Donaldson — Vice President, Investor Relations
David Goeckeler — Chief Executive Officer
Luis Visoso — Executive Vice President & Chief Financial Officer
Analysts:
C. J. Muse — Analyst
Joseph Moore — Analyst
Aaron Rakers — Analyst
Wamsi Mohan — Analyst
Vijay Rakesh — Analyst
Karl Ackerman — Analyst
Eddy Orabi — Analyst
Steven Fox — Analyst
Asiya Merchant — Analyst
Mark Miller — Analyst
Presentation:
Operator
Good afternoon, and welcome to Sandisk’s Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Ivan Donaldson, Vice President of Investor Relations. Please go ahead.
Ivan Donaldson — Vice President, Investor Relations
Before we begin, please note that today’s discussion will contain forward-looking statements based on management’s current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our technology and product portfolio, our business plans and performance, market trends and opportunities and our future financial results. We assume no obligation to update these statements. Please refer to the registration statement on S-1/A and other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.
We will also make reference to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included and written materials posted in the Investor Relations section of our website.
I’ll now turn the call over to David.
David Goeckeler — Chief Executive Officer
Thanks, Ivan. Good afternoon, and thank you for joining Sandisk’s Fourth Quarter Fiscal Year 2025 Earnings Call.
Sandisk delivered another strong quarter with revenue and non-GAAP earnings per share exceeding guidance. Revenue for the fourth quarter was $1.9 billion, up 12% over the prior quarter with both bit shipments and ASPs up mid-single digits. Non-GAAP earnings for the quarter were $0.29 per share. During the quarter, we reduced our inventory from 150 to 135 days and reduced our net debt to $368 million. We remain on track toward reaching our goal of becoming net cash positive. In our fiscal fourth quarter, we estimate that overall demand exceeded supply, which we anticipate to continue through calendar year 2026. Data center demand remains strong, supported by robust capital investment from leading cloud providers.
In the client end market, growth was primarily driven by rising average capacity across mobile and PC markets. Overall, we closed fiscal 2025 strong. And while we are optimistic about the future for fiscal ’26, we will continue to manage the business prudently. Fiscal year ’26 marks a pivotal transition as BiCS 8 becomes our prominent node. We’ve made strong progress ramping up this industry-leading node into high-volume manufacturing.
BiCS 8 delivers best-in-class performance, density and power efficiency capabilities that are critical across a wide range of end markets, including hyperscale data centers, PCs, mobile and gaming. While the nodal transition brings above-average capital intensity and below average cost reductions in the near term, we expect this to be a year of significant financial improvement with both expanding margins and cash generation as macro headwinds subside and the demand and supply dynamics remain favorable. Our leadership with BiCS 8 reflects years of focused investment and disciplined engineering execution and we are well positioned to continue and extend that lead.
Moving on to key business highlights. In the fourth quarter, data center represented over 12% of our total bit shipped, a meaningful milestone as we scale in this critical part of the market. We continue to make steady progress in both storage enterprise SSDs intended for fast AI data lakes and compute enterprise SSDs intended for compute-heavy applications. We are proud to announce a 256-terabyte NVMe enterprise SSD powered by our industry-leading UltraQLC platform, which we unveiled at the future of Memory and Storage Conference. With this product, we are setting a new benchmark in performance, capacity and efficiency for AI-driven workloads. This breakthrough reflects our deep commitment to helping customers accelerate their most demanding data challenges with scalable next-generation flash solutions.
Our plan is to qualify our high-capacity UltraQLC platform at several major Tier 1 customers by the end of fiscal year 2026. On the compute enterprise SSD front, we are encouraged by the progress we have made in qualifying solutions with key customers, including an ongoing qualification with the second major hyperscaler than other customers using the NVIDIA GB300. Customer feedback has been consistently positive, particularly regarding TLC’s performance and efficiency in high-throughput read-intensive applications. Expansion into the data center space requires sustained effort given its long qualification cycles.
We are progressing in line with our expectations in enterprise SSD and our strategy is anchored in the adoption of QLC-based SSDs and PCIe Gen 5 and Gen 6 solutions with our UltraQLC platform, the technology designed to support the scale and density of fast data lakes needed for AI and other data-intensive workloads. Cloud infrastructure spending remains significant with industry analysts estimating major US hyperscale capex growing 47% year-over-year to $368 billion alongside rising investments in Asia and Europe. Our full stack portfolio from advanced NAND components to high-capacity SSDs is well aligned with the evolving needs of cloud and AI infrastructure customers.
With BiCS 8 scaling, continued traction in PCIe Gen 5 and QLC and accelerating global AI workloads, we are confident in our ability to drive sustained growth in this end market and earn our fair and growing share in this fast evolving space. In client, BiCS 8 SSDs are now qualified across all major PC OEMs with additional qualifications underway. As the market transitions towards QLC, our differentiated CMOS bonded array architecture and system-level capabilities give us a competitive advantage. In addition, in mobile, we secured shipment approvals from key customers for our next-generation storage solutions targeting the premium portion of the market.
Our continued innovation in flash-based storage is driving positive customer response across channels. In consumer, we continue to strengthen the Sandisk brand through differentiated product innovation. Our BiCS 5 technology is showing healthy consumption, supported by solid channel sell-through and seasonal strength so far this calendar year. Meanwhile, our new Sandisk USB4 portable SSD is recognized as one of the fastest solutions on the market, delivering exceptional performance and reliability for content creators, gamers and everyday users.
We are deepening strategic partnerships with industry leaders including Nintendo and Xbox. Our co-branded microSD Express card for the Nintendo Switch 2 is gaining adoption and the new C50 expansion card for Xbox reinforces our leadership in gaming storage. We are also expanding into emerging high-growth markets with targeted solutions including a new high-performance USB drive designed for DJsand creative professionals. These efforts reflect our commitment to product innovation, which continues to drive positive customer response across high-value growing consumer use cases.
Looking beyond our current product portfolio, we are also investing in innovations that will redefine the future of memory and storage technology. During our Investor Day in February, we unveiled our high-bandwidth flash memory technology, which we trademarked as HBF. We are proud to announce that just last week at FMS, HBF received the Best of Show award in the most innovative technology category. We have made significant progress advancing this groundbreaking technology over the last 6 months.
First, we established a technical advisory board, including industry experts and senior technical leaders from within and outside of Sandisk. Second, we formed an ecosystem partnership with SK Hynix to standardize HBF technology specifications. And third, we announced that we expect to have HBF technology available by the second half of calendar year 2026 and product samples, including the controller device in the first half of ’27. We are very optimistic about this technology and the opportunity it is expected to create as AI continues to proliferate.
With that, I’ll turn it over to Luis for our financial results and guidance.
Luis Visoso — Executive Vice President & Chief Financial Officer
Thank you, David.
Let’s start by diving deeper into the quarter financials. Revenue for the fourth quarter was $1.901 billion, up 12% quarter-over-quarter and 8% year-over-year. Sequentially, bit shipments and average selling prices were up mid-single digits. Our performance was above our guidance range of $1.750 billion to $1.850 billion, primarily from better-than-expected bits growth. For fiscal year 2025, revenue was $7.355 billion, up 10% from fiscal year 2024. Cloud revenue for the fourth quarter was $213 million, up 8% sequentially and 25% year-over-year. Client revenue was $1.103 billion, up 19% sequentially and 3% year-over-year. Consumer revenue was $585 million, up 2% quarter-over-quarter and 12% year-over-year.
Non-GAAP gross margin for the fourth quarter was 26.4%, within our guidance range of 25.5% to 27% and up 370 basis points from the prior quarter. Our non-GAAP gross margin for the fourth quarter includes $51 million in underutilization charges and $42 million in fab start-up costs. Excluding these charges, our non-GAAP gross margin would have been 31.3%.
Non-GAAP operating expenses for the fourth quarter were $402 million, in line with our guidance range of $395 million to $405 million. Fourth quarter non-GAAP earnings per share were $0.29, above our guidance range from a loss of $0.10 to a profit of $0.15. The beat was primarily from the additional revenue flowing through to the bottom line. Key GAAP to non-GAAP reconciliation items include stock-based compensation, which represents 2.6% of revenue, $17 million in separation charges and $16 million in restructuring charges as we reduced our workforce by approximately 200 employees.
Moving on to the balance sheet. We closed the quarter with $1.5 billion in cash and cash equivalents. During the quarter, we reduced our inventory days from 150 to 135 as demand exceeded supply in line with our strategy. During the quarter, we also made our first quarterly $5 million term Loan B payment and prepaid an additional $95 million, reducing our long-term debt to $1.8 billion. For perspective, we prepaid an additional $100 million of the Term Loan B after the fourth quarter closed. These repayments reflect our confidence in our future cash flow expectations, which includes funding our BiCS 8 investment. We closed the fourth quarter with 147 million fully diluted shares.
Moving on to free cash flow. During the quarter, we generated $77 million in adjusted free cash flow. This included $94 million from operations and $28 million cash received from our activities related to flash ventures, partially offset by $45 million invested in our back-end operations and offices. The $28 million received from our operations related to flash ventures includes $343 million in gross capital spending with $109 million funded through depreciation as part of our cost of goods sold and $262 million funded from external sources, mainly subsidies and equipment leasing from the joint venture.
Before moving on to guidance, I want to reinforce that our goal is to create value for our customers and shareholders. We will continue to innovate to drive performance, density and power efficiency while managing supply in line with demand. This includes adjusting wafer starts, underutilizing fabs when needed to align with demand and planning capacity based on expected demand growth and not productivity. In the fiscal fourth quarter, we also began implementing price increases. Several of our products are on our location, and we expect mid-single-digit undersupply for the fiscal 2026, supporting further price increases. We anticipate our bits growth in fiscal 2026 to be consistent with broader demand growth. We will continue to adjust supply based on market conditions with an emphasis on driving healthy and sustainable profitability levels.
With that, let’s move on to the first quarter guide. We expect revenue for the first quarter to be $2.100 billion to $2.200 billion. The midpoint of the revenue guidance of 13% growth quarter-over-quarter. We expect revenue growth to come from bits growth and higher average selling prices with similar contributions from both drivers. We expect non-GAAP gross margin for the first quarter to be between 28.5% and 29.5%, which includes $10 million to $15 million in underutilization charges and approximately $60 million in fab start-up costs. At midpoint, non-GAAP gross margins are expected to increase by another 260 basis points quarter-over-quarter, mostly from higher pricing. We expect fast start-up costs to reduce significantly as of the third quarter. We expect non-GAAP operating expenses for the first quarter to be between $415 million and $430 million.
Non-GAAP interest and other income and expenses to be between $40 million and $45 million and non-GAAP taxes to be between $35 million and $40 million. Higher operating expenses compared to the prior quarter are due to an additional week in the quarter and onetime costs associated with qualification samples for our expanding product portfolio. Combined, the impact of these two costs is between $20 million and $25 million. As a result, we expect non-GAAP EPS to be between $0.70 and $0.90 based on 148 million fully diluted shares. Free cash flow for the quarter is expected to be positive. This includes an increase of gross capital spending to support our BiCS 8 program and a reduction in our days of inventory. As a result, we expect our net debt to continue to decline.
With that, let me turn the call back to David.
David Goeckeler — Chief Executive Officer
Thanks, Luis.
In conclusion, as we enter fiscal year ’26, we see momentum in our product portfolio and improving supply and demand environment, and early benefits from our pricing actions. We are evolving from a model driving elasticity based TAM growth to one focused on creating value from our innovation in combination with disciplined capacity management. Ultimately, the steps we are taking today are not just supporting quarterly financial improvements. They are laying the groundwork for a stronger, more resilient Sandisk built for long-term success and value creation for our shareholders as well as enabling us to drive value for customers long term.
With that, let’s open the call for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from C.J. Muse of Cantor Fitzgerald. Please go ahead.
C. J. Muse
Yes, good afternoon. Thank you for taking the question. I guess I was hoping to spend a little bit of time giving more depth on gross margins. Obviously, great guide, 260 bps higher, but I think less than expectations. So if you could kind of walk through underutilization cost downs mix, anything that could be helpful. Thanks so much.
David Goeckeler
Yes. Thank you, C.J. As you saw on underutilization is moving lower and lower, now we are forecasting it to be between $10 million and $15 million in the quarter, which is significantly down from what we had in Q4. Really, the biggest impact on gross margin this quarter is start-up costs, right? Start-up costs are somewhere around $60 million, which continued to impact us in the quarter. If you look at both together, underutilization and start-up costs for the quarter, it’s about 300 basis points. And the good news is they will go away, right? These costs are coming down, they will be reduced next quarter and will be significantly reduced in Q3. So we’ll continue to see those 30 basis points kind of flowing to our gross margin as we go forward.
C. J. Muse
Very helpful. And then just — okay, thanks.
Operator
Moving on, our next question comes from Joe Moore of Morgan Stanley. Please go ahead.
Joseph Moore
Great, thank you. I wonder if you could give us a little bit more color on the high bandwidth flash partnership, I guess, what’s the thought process behind partnering? And how do you extract the most value working with Hynix on that?
David Goeckeler
Hey Joe, good to hear from you. Yes, we’re very excited about this. We introduced — we’ve been working on this technology for a while. I think we are all looking at the AI architecture and understanding what’s — what are good ways to optimize it. We view it as a memory-bound problem and then looking for how we can bring flash in this equation with our scalability road map. And as we talked about at our Investor Day, we think we’ve found a way to design flash where we can overcome the bandwidth or achieve the bandwidth requirements that we need. And so we’ve been driving this forward.
And I think what we really want to do is drive this as an industry standard. And when Hynix contacted us and had the same goal of saying, hey, let’s see how we can take this technology and make it a standard. I think anything in this industry that has this broad of applicability, this is a technology that can play from the edge. So PCs, smartphones, all the way into the cloud. For inference, we think it’s a new paradigm for how inference is driven.
And the ability — all customers are going to look for that as an industry standard. And we think that’s how we move this the fastest and how we drive it forward. We’ve got a controller to design and all the interfaces to standardize around that and doing it with an industry partner, we think, is the right way to go to move this along and drive adoption as quickly as possible. And quite frankly, we think the industry is going to need this kind of capacity in the memory architecture to drive inference at scale. So that’s a little more background for you.
Joseph Moore
Great. And your confidence in this kind of being commercially viable next year from a sampling perspective, is this — how speculative should we view these investments as being at this point?
David Goeckeler
Well, I mean, Joe, what we said is next year, we’ll be sampling the die for the NAND and then early ’27, we’ll have the controller that goes along with that. So we’ve been building NAND die for 25 years now. So we have a lot of history in that. It is a development project. So there’s always uncertainty and unknowns, but we know how to manage through those. And I think one of the things folks have been asking us since our Investor Day was to put some timelines around this and give us a better idea of how this technology is going to evolve, and we’ve seen a lot of progress since then over the last 5 months. So we feel very comfortable putting those dates out, and we’ve got teams working aggressively towards those milestones.
Joseph Moore
Great, thank you.
David Goeckeler
Thanks, Joe. Appreciate it.
Operator
Our next question comes from Aaron Rakers of Wells Fargo. Please go ahead.
Aaron Rakers
Yes, thanks for taking a question, guys. I guess I want to go back to C.J.’s question a little bit, appreciating the inputs in the gross margin. I know, Luis, you had mentioned that the start-up cost of $60 million, it looks like it’s up from the $42 million this last quarter. But you did suggest that, that should decline significantly going forward. Any kind of glide path of how we should think about that $60 million as we look out over the next couple of quarters? And then I guess, also tied to the gross margin. I guess if I back those items out, I adjust, it looks like your rate of cost down relative to the BiCS 8 ramp. I’m just curious like that seems to be a bit of a headwind. When do we start to see maybe that cost curve start to normalize and you start to see the benefits of that cost down from BiCS 8. Thank you.
Luis Visoso
Yes. So thank you for the question. What you should expect is, call it, 2 steps as we go down from the start-up costs, a significant step down next quarter and then even a further step down in Q3 — in our fiscal Q3. So expect 2 steps to get very close to minimal impacts on start-up costs. So that’s kind of what you should expect there. Underutilization, expect unless the dynamics change in the market, it should be pretty close to 0 going forward. As you saw, our inventory levels are coming down. I also mentioned that we’re seeing some of our products are actually on allocation because we’re seeing a good market.
As David mentioned, we see an undersupply situation there. So we’re feeling good there. In terms of ongoing savings, at the end of the day, the way you bring cost per gigabyte down is through node transitions, right? And the node transition that we are — we’re going through is as we implement BiCS 8, we mentioned that Q4, we closed about 7% of our bits were BiCS 8 and we will be somewhere between 40% and 50% by the end of fiscal year ’26. So that’s when you will start to see the impact and the benefit of that transition throughout the year as we continue to change our mix into — from BiCS 6 towards BiCS 8. Hopefully, that helps, sir.
Aaron Rakers
That does. And then real quickly, you mentioned growing bits growth consistent with the broader demand of the market. Can you just remind us of what that growth is the broader market demand?
David Goeckeler
So Aaron, ’25, we see demand low double digits, very low double digits with supply under that. And then we see that moving up to mid- to high double digits in calendar year ’26, but we still see demand below that. And we mentioned that in the prepared remarks that we continue to see this undersupplied market through the end of ’26. I think the last quarter played out as we thought back at our Investor Day, we’re optimistic on the second half. And then as we go into ’26, we still see — when you look at the whole year, production demand, we see more demand than supply. So we feel very good about the market.
And just to comment on your first part of your question, Luis did a great job with it. But we’re clearly in a state where we have some headwinds on the cost side. We’re doing — we’re going through a fab start-up, which is a pretty big episodic event, which we have — we drive through — we’ve been on BiCS 5 for quite some time. It was still the predominant node last quarter. It’s been a fantastic node for us, the highest yielding node in the history of BiCS.
But now we’re going to go through a year here where we start with BiCS 8 at mid-single digits percent of the portfolio and roughly end with it as half. So we’re going to have that be a tailwind to the business as we mix into a more efficient node. And then we’re going to have the start-up cost, as Luis talked about, step down over the last — over the next couple of quarters. So we’re going to turn what have been headwinds in the business into tailwinds and all of that against the backdrop of what we see as a favorable supply and demand environment.
Aaron Rakers
Thanks, David.
David Goeckeler
Thanks, Aaron. Appreciate it.
Operator
Our next question comes from Wamsi Mohan of Bank of America. Please go ahead.
Wamsi Mohan
Yes, thank you so much. How are you thinking about the growth in client in the second half of the calendar year, given some of the dynamics of PC demand pull forward and maybe some in smartphones as well that seem to have happened here in the first half?
David Goeckeler
Hey Wamsi, we’ve seen very consistent behavior out of these customers, right? I mean we’ve been seeing consistent demand. Maybe there was some pull ahead early in the tariff days, but the market has absorbed that. And as we look into the second half, we see pretty consistent demand from the signals our customers are sending us. So again, the overall backdrop is we see an undersupplied market and we see consistent demand from those customers. So — and we also believe that their inventory levels have been normalized. So we don’t see a lot of big distortions on the market here as we move through the second half.
Wamsi Mohan
Dave, you also just mentioned tariffs, can you talk about how you’re thinking strategically about tariffs on semis, particularly given that your fab footprint is kind of all Japan. So how are you thinking about navigating that given some of the comments that were made lately.
David Goeckeler
Yes. We’re staying — Wamsi, obviously, we’re staying very, very close to that. I mean, I think the NAND business in general is a very dynamic business. It’s something you got to stay very close to on a day-to-day basis and tariffs are another thing that are part of that equation. We stay very close to that. We have conversations with all the right folks. We need to, to understand — get the best view possible of where this is all going to land. It is pretty dynamic right now. I think the big issue for us, of course, is the 232 tariffs that we still have yet to see. So when we see those, then we’ll have more to say about how do we respond to it. But we’re very confident in our ability to navigate this whole situation with our global footprint.
Wamsi Mohan
Okay. Thanks, Dave.
David Goeckeler
Thanks, Wamsi, appreciate it.
Operator
Our next question comes from Vijay Rakesh of Mizuho. Please go ahead.
Vijay Rakesh
Yes. Hi David and Louis. Just a quick question on the data center side. Obviously, it looks like you’re ramping your 256 gig QLC SSD, target family, can you talk to how the road map looks? You obviously have a second hyperscale earlier qualifying, but what’s the target that you’re trying to get to like by the, let’s say, end of fiscal ’26 in terms of a number of hyperscalers, mix of data center revenue side. I think you mentioned 12% of bits. Or where do you see that going?
David Goeckeler
Yes. I mean our goal — we’ve been pretty consistent. This is an area where we want to increase our optionality and be able to mix up at least to our fair share of the market, if not more. It’s a market where there’s long development cycles. We’ve got — we have a previous generation of products in the market that we’ve been driving over the last several years that have been performing. And now we have the next generation of products coming out. On the compute side, we’ve been talking about that for 2 or 3 quarters. We’ve got good traction with one hyperscaler. We’re qualifying a second right now.
And then to your point, we were very happy to announce at FMS, the actual — we — in our booth, we had the 256 terabyte Stargate platform drive. People can come and see it and touch it and see the performance and that product is just now going into the first customer’s hands. And so from there, you go into a qualification process, which will be 6 to 12 months. So it’s an evolving story, but we feel very good about the — where we’re at, we think with our new development, we’re moving on to the front foot as far as the availability of our products at the right capacity points as the market transitions. And as we go through ’26, I think we’ll see ramping set of qualifications first, and then we’ll start to see the revenue ramp behind that.
Vijay Rakesh
Got it. And then just a quick follow-up for Luis. I think you mentioned — asked the previous question 300 bps under utilization. Should we expect that to completely come off by your fiscal Q3? So over the next 2 quarters, I guess, you should see a pricing tailwind to margins and that underutilization coming down. Is that how we should look at it. Thanks.
Luis Visoso
Yes. Just to make sure you have the right numbers, right? So underutilization was about $50 million in Q4. What I’m saying is going to be between $10 million and $15 million in Q1 and I would expect it to be very close to 0 thereafter. Obviously, we’re going to adjust, as I said, based on supply and demand because we believe that where we need to be supply and demand balance or slightly under supply. So we’ll continue to manage towards that. The number that comes down over time is a start-up cost, right? Q4 was about $42 million. Q1, we’re guiding somewhere around $60 million. And then as I mentioned, we expect this to come down in 2 steps in Q2 and Q3 being minimal.
Vijay Rakesh
Got it.
David Goeckeler
Thank you. Does that help?
Vijay Rakesh
Yes, yes, very much. Thanks.
David Goeckeler
Thank you.
Operator
Our next question comes from Karl Ackerman of BNP Paribas. Please go ahead.
Karl Ackerman
Thank you. I have two, if I may. Could you talk about the average capacity trends you’re seeing across flagship mobile in the second half of this calendar year as well as content growth of conventional Windows 11 PCs and AI-enabled PCs that support your view for demand to outstrip supply into fiscal ’26.
David Goeckeler
Yes. We’re — as we look at ’25, we see average capacity in smartphones up high single digits in ’26, a little tick above that. And PCs, we see average capacity in ’25, up mid-single digits. And then as we go into ’26 up mid- to high single digits. So we — going into — in ’26, we see higher average capacity per unit across both smartphones and PCs.
Karl Ackerman
Very helpful, David. For my quick follow-up, given the comments that you made about within enterprise SSD, should we expect your data center SSD business to grow more than twice the demand you expect overall in fiscal ’26 given the cloud investment and visibility they may be giving you today? Thank you.
David Goeckeler
Yes. We’re not going to forecast for the whole year. But we — look, Karl, we feel really good about where the portfolio is and the customers are pulling it in. I think you may have caught in Luis’ comments. One of the things that’s happening this quarter is we’ve got a little extra opex that we’re going to spend because we’re — the number of units we need for qualifications is higher than we expected, which is an investment we’ll make at any time. So the qualification process in this market and these size drives is very — this is a new platform. So it’s a significant process, but the good news of that is once you get through it, then there’s significant consumption on the other side.
So we’ll give you updates as we go throughout the fiscal year and then beyond of kind of how we’re doing on those qualifications and what we expect in revenue growth. But we certainly are confident in the product, we’re seeing very good response from customers, and we look forward to getting to the point where we have the optionality to mix higher into this part of the market, depending on what the market gives us. I think as you know, we already have a great portfolio in consumer. We have a great portfolio in gaming. We have a really strong position in clients. We’re going to fill out this part of the portfolio, and we’ll be in a really good spot that no matter what the market presents us, we’ll be able to mix into the best return for our shareholders.
Karl Ackerman
Thanks.
David Goeckeler
Thank you, Karl.
Operator
Our next question comes from Krish Sankar of TD Cowen. Please go ahead.
Eddy Orabi
Hey guys, this is Eddy for Krish. One of your main peers is reported to be exiting the China NAND market, specifically in mobile. I wonder what’s your exposure to China today and what end markets you have biggest exposure to. And if you have any views to share about the competitive dynamics in China, that would be helpful.
David Goeckeler
Yes. I mean we play across a wide range of markets, the global markets. I mean, I don’t tend to think about them about one country at a time. But I think every everybody has to decide what the mix of their portfolio is going to be, and it doesn’t surprise me that people make decisions of markets to enter and exit. We see China as an attractive market for us. We have a lot of partners there. Obviously, it’s a good consumer market for us as well. So I think that’s something one of our peers decided to do. But for us, it’s — this is an important part of the market.
Eddy Orabi
That’s helpful, Dave. And a quick follow-up. On the June quarter, you guys guided like bits to be flat, but reported like upside of mid-single digits. I wonder what — where the upside came from, what end market?
Luis Visoso
Yes. Really, it was across the board. We saw good growth. Client was good. We saw good growth across the portfolio, actually. So we’re very happy with how things trended and you can also see that reflected in our inventory days, right? As I mentioned, we’re getting much tighter and to a point where sometimes our customers want products we don’t have. Yes, we saw good performance across the board versus our expectations.
Eddy Orabi
Thank you, Luis. Thanks, Dave.
David Goeckeler
Thank you.
Operator
Our next question comes from Steven Fox of Fox Advisors. Please go ahead.
Steven Fox
Hi, good afternoon. I was just wondering if you could talk a little bit more about the start-up costs in the quarter, what they’re related to, how quickly you get the return? And if it’s any different than the expectation was 90 days ago in terms of the $60 million for the fiscal Q1? Thanks.
Luis Visoso
Yes. No, the plan hasn’t changed. The plan is very consistent with what we had. So let me explain a little bit, right? As you go from one node to another, new nodes require more tools, more steps, more space. So you build a little bit more clean room for that. And then once you build the space, you need to actually clean the clean room, you need to get everything kind of ongoing. Sometimes you need to relocate tools because we reutilize most of our old tools in new nodes. So that all adds up in extra costs, some energy costs while you’re not producing bits. And that’s kind of what we classify as start-up costs. So most of this or a big portion of this cost go away, right? Again, as I said, you relocate tools and that doesn’t stay with you. Some of these costs stay with you like energy consumption, but they would go to inventory with your bits. So it’s a very different handling off of those costs. Hopefully, that clarifies.
Steven Fox
Yes, that’s helpful. Thank you.
David Goeckeler
Thanks, Steven.
Operator
[Operator Instructions] Our next question comes from Asiya Merchant of Citigroup. Please go ahead.
Asiya Merchant
Great. Good evening, everyone, and thank you for taking my question. If I may, at the Analyst Day, I think you guys talked about perhaps mid-teens kind of a CAGR as you think about maybe it was through cycle. So I’m just wondering, just given the high SSD, the UltraQLC that you’re talking about, how does that kind of affect the way you’re thinking about the NAND market and the bit growth that we should be expecting? And is this something — as you’re coming out of a market that saw some perhaps some pull forward in the first half of this year, how we should think about the demand upside if UltraQLC or high SSDs materialize into significant AI workloads? Thank you.
David Goeckeler
Yes. So first of all, the numbers — when we talk about the growth numbers, kind of all in. We kind of go by each segment. We look at, obviously, the big 3 smartphone, PC and data center and then kind of aggregate that all up into an overall number where I talk about were either undersupplied or oversupplied. So in the data center market, we continue to see strong growth. I think we just saw a couple of weeks ago with the hyperscalers reported that capex took another step up. There’s an enormous amount of investment in AI.
And I think that our customers are pulling us forward on the road map on these very high-density enterprise SSDs as they build out data lake. So we think we’re going to — we’ve been investing in the Stargate platform for — it takes years to build a platform like that. And we feel like we’re now at the point where we can put that product in customers’ hands. And as we go through ’26, we’ll get through qualifications and then the actual selling and volume. So — but all those — the demand for all of those products and the demand for those workloads and all those capex numbers are factored into the numbers we put out for how we see the supply and demand for the market.
Asiya Merchant
And if I may, you have a pretty aggressive Chinese competitor in this market. I know you talked a little bit about undersupply, and it takes a few months maybe a couple of quarters for production adjustments to affect supply. Just anything you can share on — when you look at the competitive moves that are happening, how you’re thinking about that particular competitor in terms of affecting the — a nice tight supply-demand environment that you’re talking about?
David Goeckeler
Yes. We factor all the players in the market. All of the competitors are in our forecast for market demands. They all have — they all play in different markets, different portfolios to the questions earlier, different places they can play or want to play. And so we have that all factored into our numbers, and we — that’s where we come up with this. I think we believe going back to our Investor Day that we were going into an undersupplied market, we’ve seen it play out that way, and we continue to see that going forward, factoring in all the investments, all the nodal transitions that are going on, on the supply side.
And to your point, all of the different use cases, we’ve talked about it here, whether it’s data center and AI workloads or it’s PCs, number of units, average content per unit, same thing for smartphones. So that’s where we add it all up and we come up with is undersupplied market. And in the second half, we see about a 5% undersupplied market, and I think we’ll get all of ’26 more dialed in as we get closer to it.
Asiya Merchant
Thank you.
David Goeckeler
Thank you.
Operator
Our final question comes from Mark Miller of The Benchmark Co. Please go ahead.
Mark Miller
Thank you for the question. I was just wondering if you could give us some more color on where you’re seeing allocations.
Luis Visoso
Yes. So it’s — thank you for the question, Mark. We’re seeing allocations across many of our products, particularly on as we transition from BiCS 5 to BiCS 8. There are certain products where we’re just sort on both of them on BiCS 5 and on BiCS 8. And we’re just managing that with our customers, right, in terms of timings and how do we maximize value for them and for us, so that — it’s a little bit of some of our products on BiCS 5 and some on BiCS 8.
Mark Miller
Are you seeing any major share changes in the data center market?
Luis Visoso
No, I wouldn’t say that.
David Goeckeler
I mean, look, we’ve seen some — you’ve seen some episodic bit shipment numbers from different players in the market. So share is going to move around in this — the market where you got to look — as you guys well know, you got to look over longer periods of time than one quarter to the next quarter look year-over-year. But I think the good news of all of that, as we’ve seen those bit shipments, the market has absorbed those numbers, and we still have this favorable supply-demand balance, which is the big picture that we look at and we’re encouraged by that going forward.
Mark Miller
Thank you.
David Goeckeler
Thank you, Mark. That’s a great place to wrap up. We appreciate all the questions, everybody’s participation. We’ll see you during the quarter. Thank you very much.
Luis Visoso
Thank you.
Operator
[Operator Closing Remarks]