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Related Parties and Related Commitments and Contingencies | 6 Months Ended
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Dec. 27, 2024
Commitments and Contingencies Disclosure [Abstract] |
Related Parties and Related Commitments and Contingencies | Related Parties and Related Commitments and Contingencies Flash Ventures The Company’s business ventures with Kioxia Corporation (“Kioxia”) consist of three separate legal entities: Flash Partners Ltd. (“Flash Partners”), Flash Alliance Ltd. (“Flash Alliance”), and Flash Forward Ltd. (“Flash Forward”), collectively referred to as “Flash Ventures”. The following table presents the notes receivable from, and equity investments in, Flash Ventures:
| December 27, 2024 |  | June 28, 2024
| (in millions)
Notes receivable, Flash Partners | $ | 72 |  |  | $ | 1 |
Notes receivable, Flash Alliance | 35 |  |  | 5 |
Notes receivable, Flash Forward | 476 |  |  | 485 |
Investment in Flash Partners | 44 |  |  | 149 |
Investment in Flash Alliance | 111 |  |  | 216 |
Investment in Flash Forward | 123 |  |  | 135 |
Total notes receivable and investments in Flash Ventures | $ | 861 |  |  | $ | 991 |
The Company made net payments to Flash Ventures for purchased flash-based memory wafers and net loans of $1.1 billion and $2.0 billion during the three and six months ended December 27, 2024, respectively, and $0.8 billion and $1.8 billion during the three and six months ended December 29, 2023, respectively. The Company makes, or will make, loans to Flash Ventures to fund equipment investments for new process technologies and additional wafer capacity. The Company aggregates its Flash Ventures’ notes receivable into one class of financing receivables due to the similar ownership interest and common structure in each Flash Venture entity. For all reporting periods presented, no loans were past due and no loan impairments were recorded. The Company’s notes receivable from each Flash Ventures entity, denominated in Japanese yen, are secured by equipment owned by that Flash Ventures entity. As of December 27, 2024 and June 28, 2024, the Company had accounts payable balances due to Flash Ventures of $252 million and $313 million, respectively. The Company’s maximum reasonably estimable loss exposure (excluding lost profits) as a result of its involvement with Flash Venture s, based upon the Japanese yen to U.S. dollar exchange rate at December 27, 2024, is pres ented below. Investments in Flash Ventures are denominated in Japanese yen, and the maximum estimable loss exposure excludes any cumulative translation adjustment due to revaluation from the Japanese yen to the U.S. dollar.
| December 27, 2024
| (in millions)
Notes receivable | $ | 583 |
Equity investments | 278 |
Operating lease guarantees | 1,343 |
Inventory and prepayments | 1,393 |
Maximum estimable loss exposure | $ | 3,597 |
The Company is obligated to pay for variable costs incurred in producing its share of Flash Ventures’ flash-based memory wafer supply, based on its three-month forecast, which generally equals 50% of Flash Ventures’ output. In addition, the Company is obligated to pay for half of Flash Ventures’ fixed costs regardless of the output the Company chooses to purchase. The Company is not able to estimate its total wafer purchase commitment obligation beyond its rolling three-month purchase commitment because the price is determined by reference to the future cost of producing the semiconductor wafers. In addition, the Company is committed to fund 49.9% to 50.0% of each Flash Ventures entity’s capital investments to the extent that each Flash Ventures entity’s operating cash flow is insufficient to fund these investments. Flash Ventures has historically operated near 100% of its manufacturing capacity. During the three and six months ended December 29, 2023, as a result of flash market conditions, the Company temporarily reduced its utilization of its share of Flash Ventures’ manufacturing capacity to an abnormally low level to more closely align the Company’s flash-based wafer supply with projected demand. During the three and six months ended December 29, 2023, the Company incurred costs of $107 million and $249 million, respectively, associated with the reduction in utilization related to Flash Ventures, which was recorded as a charge to Cost of revenue. No such charges were incurred during the three and six months ended December 27, 2024. The Company has facility agreements with Kioxia related to the construction and operation of Kioxia’s “K1” 300-millimeter wafer fabrication facility in Kitakami, Japan, a wafer fabrication facility in Yokkaichi, Japan, referred to as “Y7”, and a wafer fabrication facility in Kitakami, Japan, referred to as “K2”. In connection with the start-up of these facilities, the Company has made prepayments toward future building depreciation. In connection with the start-up of the K1, K2 and Y7 facilities, the Company has made prepayments over time, and as of December 27, 2024, $944 million remains to be credited against future building depreciation charges. As of December 27, 2024, the Company is also committed to make additional building depreciation prepayments of $303 million, based on the Japanese yen to U.S. dollar exchange rate of 157.86 as of such date, payable as follows: $60 million for the remainder of fiscal year 2025, $30 million in fiscal year 2026, $111 million in fiscal year 2027, $89 million in fiscal year 2028 and $13 million in fiscal year 2029. As of December 27, 2024, in addition to the requirements to make building depreciation prepayments, the Company will also make payments for building depreciation of approximately $107 million at varying dates through fiscal year 2035. Inventory Purchase Commitments with Flash Ventures. Purchase orders placed under Flash Ventures for up to three months are binding and cannot be canceled. Research and Development Activities. The Company participates in common research and development (“R&D”) activities with Kioxia and is contractually committed to a minimum funding level. R&D commitments are immaterial to the Condensed Consolidated Financial Statements. Off-Balance Sheet Liabilities Flash Ventures sells to and leases back from a consortium of financial institutions a portion of its tools and has entered into equipment lease agreements of which the Company guarantees half or all of the outstanding obligations under each lease agreement. The lease agreements are subject to customary covenants and cancellation events related to Flash Ventures and each of the guarantors. The occurrence of a cancellation event could result in an acceleration of Flash Ventures’ obligations and a call on the Company’s guarantees. The following table presents the Company’s portion of the remaining guarantee obligations under the Flash Ventures’ lease facilities in both Japanese yen and U.S. dollar-equivalent, based upon the Japanese yen to U.S. dollar exchange rate as of December 27, 2024.
| Lease Amounts
| (Japanese yen, in billions) |  | (U.S. dollar, in millions)
Total guarantee obligations | ¥ | 212 |  |  | $ | 1,343 |
The following table details the breakdown of the Company’s remaining guarantee obligations between the principal amortization and the purchase option exercise price at the end of the term of the Flash Ventures lease agreements, in annual installments as of December 27, 2024 in U.S. dollars, based upon the Japanese yen to U.S. dollar exchange rate as of December 27, 2024:
Annual Installments |  | Payment of Principal Amortization |  | Purchase Option Exercise Price at Final Lease Terms |  | Guarantee Amount
|  | (in millions)
Remaining six months of 2025 |  | $ | 201 |  |  | $ | 49 |  |  | $ | 250 |
2026 |  | 406 |  |  | 113 |  |  | 519 |
2027 |  | 198 |  |  | 97 |  |  | 295 |
2028 |  | 83 |  |  | 93 |  |  | 176 |
2029 |  | 25 |  |  | 50 |  |  | 75 |
2030 |  | 4 |  |  | 24 |  |  | 28 |
Total guarantee obligations |  | $ | 917 |  |  | $ | 426 |  |  | $ | 1,343 |
The Company and Kioxia have agreed to mutually contribute to, and indemnify each other and Flash Ventures for, environmental remediation costs or liability resulting from Flash Ventures’ manufacturing operations in certain circumstances. The Company has not made any indemnification payments, nor recorded any indemnification receivables, under any such agreements. As of December 27, 2024, no amounts have been accrued in the Condensed Consolidated Financial Statements with respect to these indemnification agreements. Unis Venture The Company has a venture with Unisplendour Corporation Limited and Unissoft (Wuxi) Group Co. Ltd. (“Unis”), referred to as the “Unis Venture”, to market and sell the Company’s products in China and to develop data storage systems for the Chinese market in the future. The Unis Venture is 49% owned by the Company and 51% owned by Unis. The Company accounts for its investment in the Unis Venture under the equity method of accounting. Revenue on products distributed by the Unis Venture is recognized upon sell through to third-party customers. For both the three and six months ended December 27, 2024, the Company recognized approximately 3% of its consolidated revenue on products distributed by the Unis Venture. For the three and six months ended December 29, 2023, the Company recognized approximately 4% and 3% of its consolidated revenue, respectively, on products distributed by the Unis Venture. The outstanding accounts receivable due from the Unis Venture were 6% and 7% of Accounts receivable, net as of both December 27, 2024 and June 28, 2024, respectively. Sale of a Majority Interest in a Subsidiary In connection with the Company’s strategic decision to outsource the manufacturing of certain components and assemblies in its flash-based products, on September 28, 2024, the Company’s wholly-owned subsidiary, SanDisk China Limited (“SanDisk China”) completed the sale of 80% of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (“SDSS”), the Company’s indirect wholly-owned subsidiary in its Flash business that owned its Flash manufacturing facility, to JCET Management Co., Ltd. (“JCET”), a wholly-owned subsidiary of JCET Group Co., Ltd., a Chinese publicly listed company, thereby forming a venture between SanDisk China and JCET (the “Transaction”). The venture aims to provide independent semiconductor assembly, testing, and other related services in the People’s Republic of China for customers including, but not limited to, the Company and its affiliates. Proceeds from the sale, including working capital adjustments, are $659 million pre-tax. On October 1, 2024, the Company received an initial pre-tax installment of $262 million. On January 6, 2025, the Company received a second pre-tax installment of $210 million and expects to receive remaining pre-tax proceeds of $187 million in five installments of approximately $37 million on September 28 of each year through September 28, 2029. As of December 27, 2024, the outstanding consideration receivable was recognized at its present value of $370 million, with $243 million within Other current assets and $127 million within Other non-current assets in the Condensed Consolidated Balance Sheets. The present value discount of $27 million as of December 27, 2024 will be accreted using the effective interest method to Interest income in the Condensed Consolidated Statements of Operations over the next five years. The Company’s 20% retained interest in SDSS was determined to be valued at $158 million based on the fair value of the total pre-tax consideration received and receivable from JCET for its purchase of its 80% interest in SDSS. The Company accounts for its 20% interest in SDSS as an equity method investment within Other non-current assets in the Condensed Consolidated Balance Sheets. The Company’s 20% interest in the earnings of SDSS will be recognized one quarter in arrears and will be reported in Other net income (expense), net in the Condensed Consolidated Statements of Operations. The Transaction resulted in a pre-tax gain of $113 million, calculated as the difference between the total consideration for the sale, including the outstanding consideration receivable and the fair value of the Company’s 20% retained interest, less the carrying value of the net assets divested, which included, among other items, $71 million of cash and cash equivalents and $303 million of goodwill allocated to SDSS. Subsequent to and in connection with the SDSS sale, the Company entered into a five-year Supply Agreement with SDSS to purchase certain flash-based products with a minimum annual commitment of $550 million (“the minimum annual commitment”). The Supply Agreement contains specific penalties the Company must pay if SDSS’s revenue fails to meet the minimum annual commitment. The Supply Agreement also provides that if SDSS’s revenue is higher than the minimum annual commitment in any of the two years immediately succeeding any annual period where a shortfall penalty has been paid, SDSS shall reimburse the Company a true-up amount not exceeding the previously paid penalty amount. The Supply Agreement expires on September 28, 2029, and automatically renews for additional one-year terms unless earlier terminated by any of the parties. The Company also entered into an agreement to grant SDSS certain intellectual property rights on a royalty-free basis for use in manufacturing products on the Company’s behalf for the term of and under the Supply Agreement. For the six months ended December 27, 2024, the Company made purchases of $111 million under the Supply Agreement and had an account payable balance due to SDSS of $117 million as of December 27, 2024. The Company also entered into a Transaction Services Agreement (“TSA”) to provide certain transitional services for one year following the closing of the Transaction. Charges under the TSA were not material.

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