Cost Plus a Small MarkupNarrow moat

Sandisk (SNDK) — moat facet

Flash Ventures loses money every year on purpose, because the margin on flash is not earned inside the joint venture — which is also why nobody outside can see what a Sandisk wafer costs.

1. ReportedThe year before that: $2,252 million and a $9 million loss. Three years, three losses, through the best pricing environment NAND has ever seen.
   Sandisk Corporation, Form 10-K FY2026 — Note 10, Related Parties and Related Commitments and Contingencies, and the related Item 1 and Item 7 disclosure on Flash Ventures. Sandisk procures all of its flash-based memory wafers from Flash Partners Ltd., Flash Alliance Ltd. and Flash Forward Ltd.; it holds a 49.9% ownership interest and Kioxia 50.1% in each. Wafers are manufactured by Kioxia at its wafer fabrication facilities in Japan using equipment individually owned or leased by each Flash Ventures entity; each entity purchases wafers from Kioxia at cost and resells them to Sandisk and Kioxia at cost plus a markup, with each partner generally entitled to 50% of output. The facilities are Y3 (Flash Partners, 2004), Y4 (Flash Alliance, 2006), Y5 (Flash Forward, 2010), New Y2 (production from 2016), Y6 (2018), K1 at Kitakami (2019), Y7 (2022) and K2 at Kitakami, whose output began in the year ended 3 July 2026. Sandisk is obligated to pay for variable costs based on a rolling three-month forecast, and purchase orders placed with Flash Ventures for up to three months are binding and cannot be cancelled; it is obligated to pay for half of Flash Ventures' fixed costs regardless of the output it chooses to purchase, and is committed to fund 49.9% to 50.0% of each entity's capital investments where operating cash flow is insufficient. Flash Ventures has historically operated at approximately 100% of manufacturing capacity; during 2026, 2025 and 2024 Sandisk temporarily reduced its utilisation and incurred costs of $11 million, $75 million and $249 million respectively, recorded as charges to cost of revenue. It participates in common R&D activities with Kioxia and is contractually committed to a minimum funding level, with R&D commitments due for 2027 of $138 million. Sandisk accounts for its ownership under the equity method; the entities are VIEs and Sandisk determined it is not the primary beneficiary of any of them, concluding on its 49.9% ownership, the voting structure and the manner in which day-to-day operations are conducted that it lacked the power to direct most of the activities that most significantly impact economic performance. Its 49.9% interest in the earnings of the entities is recognised one quarter in arrears in Other income (expense), net. Summarised financial information for the ventures: net sales of $2,775 million, $2,315 million and $2,252 million and net losses of $85 million, $63 million and $9 million for 2026, 2025 and 2024, with a gross loss of $93 million in 2026; total assets $7,320 million and total net equity of investees $1,025 million. Notes receivable and investments in Flash Ventures totalled $679 million. Sandisk made net payments to Flash Ventures of $3.6 billion, $3.4 billion and $3.4 billion in 2026, 2025 and 2024 and received distributions of $107 million and $176 million in 2026 and 2025. Maximum estimable loss exposure is $2,897 million: notes receivable $577 million, equity investments $102 million, operating lease guarantees $923 million and inventory and prepayments $1,295 million. Flash Ventures sells to and leases back a portion of its tools from a consortium of financial institutions; Sandisk guarantees half of all outstanding obligations under each lease agreement, totalling JPY149.0 billion or $923 million, in annual guarantee instalments of $378 million in 2027, $245 million in 2028, $126 million in 2029, $96 million in 2030 and $78 million in 2031. Prepayments toward Sandisk's share of future building depreciation of $840 million remain to be credited against future wafer purchases, with a further $402 million committed through fiscal 2035. On 29 January 2026 the FAL and FPL Second Commitment and Extension Agreements extended Flash Alliance and Flash Partners from 31 December 2029 to 31 December 2034, so that all three ventures co-terminate on that date; an Agreement to Enhance Collaboration commits Sandisk Technologies to pay Kioxia $1.2 billion over 2026 through 2029 in consideration of Kioxia's manufacturing services and the continued availability of supply, amortised straight-line into cost of revenue. On expiry each entity commences a wind-up and is dissolved, with net proceeds distributed in kind or cash pro rata. Flash Ventures-related commitments total $6,559 million: $2,627 million in 2027, $2,577 million in 2028-2029, $1,318 million in 2030-2031 and $37 million beyond. — FY2026 · publ. 2026-08-17 · source ↗
2. ReportedEach venture resells the wafers to Sandisk and Kioxia at cost plus a markup. The margin on flash is not earned inside the joint venture; it is earned by the two partners when they sell finished product.
   Sandisk Corporation, Form 10-K FY2026 — Note 10, Related Parties and Related Commitments and Contingencies, and the related Item 1 and Item 7 disclosure on Flash Ventures. Sandisk procures all of its flash-based memory wafers from Flash Partners Ltd., Flash Alliance Ltd. and Flash Forward Ltd.; it holds a 49.9% ownership interest and Kioxia 50.1% in each. Wafers are manufactured by Kioxia at its wafer fabrication facilities in Japan using equipment individually owned or leased by each Flash Ventures entity; each entity purchases wafers from Kioxia at cost and resells them to Sandisk and Kioxia at cost plus a markup, with each partner generally entitled to 50% of output. The facilities are Y3 (Flash Partners, 2004), Y4 (Flash Alliance, 2006), Y5 (Flash Forward, 2010), New Y2 (production from 2016), Y6 (2018), K1 at Kitakami (2019), Y7 (2022) and K2 at Kitakami, whose output began in the year ended 3 July 2026. Sandisk is obligated to pay for variable costs based on a rolling three-month forecast, and purchase orders placed with Flash Ventures for up to three months are binding and cannot be cancelled; it is obligated to pay for half of Flash Ventures' fixed costs regardless of the output it chooses to purchase, and is committed to fund 49.9% to 50.0% of each entity's capital investments where operating cash flow is insufficient. Flash Ventures has historically operated at approximately 100% of manufacturing capacity; during 2026, 2025 and 2024 Sandisk temporarily reduced its utilisation and incurred costs of $11 million, $75 million and $249 million respectively, recorded as charges to cost of revenue. It participates in common R&D activities with Kioxia and is contractually committed to a minimum funding level, with R&D commitments due for 2027 of $138 million. Sandisk accounts for its ownership under the equity method; the entities are VIEs and Sandisk determined it is not the primary beneficiary of any of them, concluding on its 49.9% ownership, the voting structure and the manner in which day-to-day operations are conducted that it lacked the power to direct most of the activities that most significantly impact economic performance. Its 49.9% interest in the earnings of the entities is recognised one quarter in arrears in Other income (expense), net. Summarised financial information for the ventures: net sales of $2,775 million, $2,315 million and $2,252 million and net losses of $85 million, $63 million and $9 million for 2026, 2025 and 2024, with a gross loss of $93 million in 2026; total assets $7,320 million and total net equity of investees $1,025 million. Notes receivable and investments in Flash Ventures totalled $679 million. Sandisk made net payments to Flash Ventures of $3.6 billion, $3.4 billion and $3.4 billion in 2026, 2025 and 2024 and received distributions of $107 million and $176 million in 2026 and 2025. Maximum estimable loss exposure is $2,897 million: notes receivable $577 million, equity investments $102 million, operating lease guarantees $923 million and inventory and prepayments $1,295 million. Flash Ventures sells to and leases back a portion of its tools from a consortium of financial institutions; Sandisk guarantees half of all outstanding obligations under each lease agreement, totalling JPY149.0 billion or $923 million, in annual guarantee instalments of $378 million in 2027, $245 million in 2028, $126 million in 2029, $96 million in 2030 and $78 million in 2031. Prepayments toward Sandisk's share of future building depreciation of $840 million remain to be credited against future wafer purchases, with a further $402 million committed through fiscal 2035. On 29 January 2026 the FAL and FPL Second Commitment and Extension Agreements extended Flash Alliance and Flash Partners from 31 December 2029 to 31 December 2034, so that all three ventures co-terminate on that date; an Agreement to Enhance Collaboration commits Sandisk Technologies to pay Kioxia $1.2 billion over 2026 through 2029 in consideration of Kioxia's manufacturing services and the continued availability of supply, amortised straight-line into cost of revenue. On expiry each entity commences a wind-up and is dissolved, with net proceeds distributed in kind or cash pro rata. Flash Ventures-related commitments total $6,559 million: $2,627 million in 2027, $2,577 million in 2028-2029, $1,318 million in 2030-2031 and $37 million beyond. — FY2026 · publ. 2026-08-17 · source ↗
3. ReportedIts 49.9% share of the ventures' earnings is recognised one quarter in arrears in Other income (expense), net — so in the year Sandisk earned $11.4 billion, its share of the entity that manufactures all of its product was a small drag on the line below operating income. The arrangement is efficient and it is opaque.
   Sandisk Corporation, Form 10-K FY2026 — Note 10, Related Parties and Related Commitments and Contingencies, and the related Item 1 and Item 7 disclosure on Flash Ventures. Sandisk procures all of its flash-based memory wafers from Flash Partners Ltd., Flash Alliance Ltd. and Flash Forward Ltd.; it holds a 49.9% ownership interest and Kioxia 50.1% in each. Wafers are manufactured by Kioxia at its wafer fabrication facilities in Japan using equipment individually owned or leased by each Flash Ventures entity; each entity purchases wafers from Kioxia at cost and resells them to Sandisk and Kioxia at cost plus a markup, with each partner generally entitled to 50% of output. The facilities are Y3 (Flash Partners, 2004), Y4 (Flash Alliance, 2006), Y5 (Flash Forward, 2010), New Y2 (production from 2016), Y6 (2018), K1 at Kitakami (2019), Y7 (2022) and K2 at Kitakami, whose output began in the year ended 3 July 2026. Sandisk is obligated to pay for variable costs based on a rolling three-month forecast, and purchase orders placed with Flash Ventures for up to three months are binding and cannot be cancelled; it is obligated to pay for half of Flash Ventures' fixed costs regardless of the output it chooses to purchase, and is committed to fund 49.9% to 50.0% of each entity's capital investments where operating cash flow is insufficient. Flash Ventures has historically operated at approximately 100% of manufacturing capacity; during 2026, 2025 and 2024 Sandisk temporarily reduced its utilisation and incurred costs of $11 million, $75 million and $249 million respectively, recorded as charges to cost of revenue. It participates in common R&D activities with Kioxia and is contractually committed to a minimum funding level, with R&D commitments due for 2027 of $138 million. Sandisk accounts for its ownership under the equity method; the entities are VIEs and Sandisk determined it is not the primary beneficiary of any of them, concluding on its 49.9% ownership, the voting structure and the manner in which day-to-day operations are conducted that it lacked the power to direct most of the activities that most significantly impact economic performance. Its 49.9% interest in the earnings of the entities is recognised one quarter in arrears in Other income (expense), net. Summarised financial information for the ventures: net sales of $2,775 million, $2,315 million and $2,252 million and net losses of $85 million, $63 million and $9 million for 2026, 2025 and 2024, with a gross loss of $93 million in 2026; total assets $7,320 million and total net equity of investees $1,025 million. Notes receivable and investments in Flash Ventures totalled $679 million. Sandisk made net payments to Flash Ventures of $3.6 billion, $3.4 billion and $3.4 billion in 2026, 2025 and 2024 and received distributions of $107 million and $176 million in 2026 and 2025. Maximum estimable loss exposure is $2,897 million: notes receivable $577 million, equity investments $102 million, operating lease guarantees $923 million and inventory and prepayments $1,295 million. Flash Ventures sells to and leases back a portion of its tools from a consortium of financial institutions; Sandisk guarantees half of all outstanding obligations under each lease agreement, totalling JPY149.0 billion or $923 million, in annual guarantee instalments of $378 million in 2027, $245 million in 2028, $126 million in 2029, $96 million in 2030 and $78 million in 2031. Prepayments toward Sandisk's share of future building depreciation of $840 million remain to be credited against future wafer purchases, with a further $402 million committed through fiscal 2035. On 29 January 2026 the FAL and FPL Second Commitment and Extension Agreements extended Flash Alliance and Flash Partners from 31 December 2029 to 31 December 2034, so that all three ventures co-terminate on that date; an Agreement to Enhance Collaboration commits Sandisk Technologies to pay Kioxia $1.2 billion over 2026 through 2029 in consideration of Kioxia's manufacturing services and the continued availability of supply, amortised straight-line into cost of revenue. On expiry each entity commences a wind-up and is dissolved, with net proceeds distributed in kind or cash pro rata. Flash Ventures-related commitments total $6,559 million: $2,627 million in 2027, $2,577 million in 2028-2029, $1,318 million in 2030-2031 and $37 million beyond. — FY2026 · publ. 2026-08-17 · source ↗

• Sandisk Corporation Form 10-K, FY2026 (SEC EDGAR)