SNDKSandisk

The variety and volume of products we manufacture are based in part on accurately forecasting market and customer demand for our products. Accurately forecasting demand has become increasingly difficult for us, our customers and our suppliers due to volatility in global economic conditions, end market dynamics and industry consolidation, resulting in less availability of historical market data for certain product segments. Further, for many of our original equipment manufacturer customers utilizing just-in-time inventory, we do not generally require firm order commitments and instead receive a periodic forecast of requirements, which may prove to be inaccurate. In addition, because our products are designed to be largely interchangeable with competitors’ products, our demand forecasts may be impacted significantly by the strategic actions of our competitors. As forecasting demand becomes more difficult, the risk that our forecasts are not in line with demand increases. This has caused, and may in the future cause, our forecasts to exceed actual market demand, resulting in periods of product oversupply, excess inventory, underutilization of manufacturing capacity and price decreases, which has impacted and could further impact our sales, average selling prices and gross margin prices, significant excess, obsolete inventory or require us to incur additional inventory write-downs or additional charges for unabsorbed manufacturing overhead, thereby negatively affecting underutilization charges, and the potential impairment of our operating results and our financial condition. investments in Flash Ventures. For example, in 2023, WDC incurred $296 million in charges for unabsorbed manufacturing overhead costs as a result of reduced utilization of its manufacturing capacity and $108 million in charges to write down its inventory as a result of decreases in market pricing. In 2025, we incurred $75 million in charges as a result of underutilization of our manufacturing capacity and $24 million in charges to write down our inventory. These charges were attributable to a significant imbalance of supply and demand and actions taken in response thereto. On the other hand, if we under-invest in Flash Ventures, or otherwise grow or transition Flash Ventures’ capacity too slowly, we may not have enough supply of flash-based memory, or the right type of flash-based memory, to meet demand on a timely and cost effective basis, and we may lose opportunities for revenue, gross margin and market share as a result. If market demand increases significantly beyond our forecasts supply is limited, we might make strategic decisions with respect to the allocation of our supply among our products and customers, which could result in less favorable gross margins or beyond damage customer relationships. In addition, while Flash Ventures is operating, our agreements with Kioxia contain certain limitations on our ability to add manufacturing capacity, then we may not be able work with third parties to satisfy customer product needs, possibly resulting in a loss of market share if our competitors are able manufacture flash-based memory or to meet customer demands. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase fabricate flash-based memory beyond the risk of excess inventory, potentially resulting in inventory write-downs or loss of sales capacity specified in the event agreements, or to manufacture flash-based memory ourselves except to the extent that we acquire any manufacturing capacity of a Flash Ventures entity as a result of that entity’s dissolution, termination of its joint venture agreements or acquisition by us. This could also impair our forecasts vary substantially from actual demand. ability to consolidate with other industry participants who manufacture flash-based memory.

In connection with the construction of these facilities, the Company makes prepayments toward the Company’s share of Flash Ventures’ future building depreciation. depreciation, with such amounts subsequently credited against the cost of the Company’s future wafer purchases. In connection with the start-up of the K1, Y7 and K2 facilities, the Company has made prepayments to Flash Ventures over time, and as of July 3, 2026, $840 million, with $133 million recorded in Other current assets and $707 million recorded in Other non-current assets in the Consolidated Balance Sheets, remain to be credited against future wafer purchases. The prepayments as of June 27, 2025, amounted to $946 million, with $131 million recorded in Other current assets and $815 million recorded in Other non-current assets in the Consolidated Balance Sheets, remain to be credited against future building depreciation charges. assets. As of June 27, 2025, July 3, 2026, the Company is also committed to making additional future building depreciation prepayments relating to various facilities of $264 $402 million, based on the Japanese yen to U.S. dollars exchange rate of ¥144.73 161.26 as of such date, payable as follows: $32 million in 2026, $121 million in 2027, $97 million in 2028 and $14 million in 2029. As of June 27, 2025, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $209 million at varying dates through fiscal year 2035. The amounts payable in the next five succeeding fiscal years are $118 million in 2027, $172 million in 2028, $62 million in 2029, and $50 million on varying dates through fiscal year 2031. Similar to other prepayments made to Flash Ventures, these amounts will be credited against future wafer purchases by the Company.

Selling, general and administrative expenses increased $118 $103 million in 2025 2026 compared to 2024, 2025, primarily due to an $84 a $68 million increase in compensation and benefits due to higher variable compensation which includes short-term incentives, associated with company performance and increased headcount, partially offset by a $24 $51 million increase decrease in materials, materials due to a $16 million increase change in legal service fees, business practice for the launch of new products whereby the Company is distributing fewer free samples and has started entering into contracts to sell certain qualification units to customers. The costs of qualification units are recorded in inventory until sold to customers and recognized as cost of revenue. The change contributed to a $14 decrease in materials and production costs classified as selling expenses when compared to the prior year period, partially offset by a $32 million increase in sales and marketing expenses, partially offset by and a $20 $15 million decrease increase in strategic review costs incurred in 2024 for which there are no comparable costs in the current year. outside services.

Sandisk Corporation (“Sandisk, (“Sandisk”, or ” the “Company”) is a leading developer, manufacturer and provider global semiconductor memory company with more than 30 years of data storage devices and solutions based on innovation in NAND flash technology. With Sandisk is a differentiated innovation engine driving advancements in storage vertically integrated solutions provider with ownership of chip-level design and semiconductor technologies, IP, front and back-end manufacturing, as well as systems engineering and design. Sandisk’s broad and ever-expanding portfolio delivers powerful flash storage solutions for AI artificial intelligence (“AI”) workloads in datacenters, edge devices, and consumers. consumer applications. Sandisk’s technologies enable everyone from students, gamers, and home offices to the largest enterprises and public clouds to produce, analyze, and store data. The Company’s solutions include a broad range of solid state solid-state drives, embedded products, removable cards, universal serial bus drives and wafers and components. The Company’s broad portfolio of technology and products addresses multiple end markets of “Cloud,” “Client” “Datacenter” (formerly referred to as “Cloud”), “Edge” (formerly referred to as “Client”), and Consumer.” “Consumer.” The Company operates primarily in the United States (“U.S.”), and also internationally, with a significant concentration in the Asia Pacific region.