Western Digital Q2 Earnings Beat, Revenues Up Y/Y on Solid HDD Growth

Core Insights - Western Digital Corporation (WDC) reported second-quarter fiscal 2025 non-GAAP earnings of $1.77 per share, exceeding the Zacks Consensus Estimate of $1.75, and a significant improvement from a loss of 75 cents per share in the prior-year quarter [1][4] - Revenues reached $4.29 billion, surpassing the Zacks Consensus Estimate by 0.8%, and reflecting a 41% year-over-year increase driven by strong demand in Cloud end markets [2][5] - The company is strategically positioned to benefit from the upcoming split with SanDisk, aiming to capture AI-driven storage demand and optimize its Flash business for long-term success [3] Financial Performance - Revenues from the Cloud end market, which constitutes 55% of total revenues, surged 119% year over year to $2,346 million, with a sequential growth of 6% [5] - Client end market revenues (27% of total) increased 4% year over year to $1,168 million, but saw a 3% sequential decline due to pricing pressure in Flash [6] - Consumer end market revenues (18% of total) decreased 8% year over year to $771 million, although they increased 14% sequentially [7] Product Group Performance - Flash revenues, accounting for 43.8% of total revenues, rose 13% year over year to $1.9 billion, remaining flat sequentially [8] - HDD revenues, making up 56.2% of total revenues, surged 76% year over year to $2.4 billion, with a 9% quarter-over-quarter increase [9] Margins and Expenses - Non-GAAP gross margin improved to 35.9% from 15.5% in the prior-year quarter, with HDD gross margin at 38.6% and Flash gross margin at 32.5% [12] - Non-GAAP operating expenses rose 20% year over year to $674 million, while non-GAAP operating income reached $864 million compared to a loss of $91 million in the prior-year quarter [12] Balance Sheet and Cash Flow - As of December 27, 2024, cash and cash equivalents were $2.291 billion, up from $1.71 billion as of September 27, 2024 [13] - The company generated $403 million in cash from operations, a significant increase from $92 million utilized in the prior-year quarter, with free cash flow amounting to $335 million [13] Fiscal Q3 Outlook - For the upcoming quarter, WDC expects non-GAAP revenues between $3.75 billion and $3.95 billion, with earnings projected between 90 cents and $1.20 per share [14]