Western Digital WDC Q2 2026 Earnings Transcript

Core Insights - The company is focusing on enhancing its internal laser capabilities and expanding UltraSMR adoption through new JBOD platforms, which provide higher storage density and improved performance for customers [1][2] - There is a strong demand for higher-density storage solutions driven by the growth of AI and cloud technologies, with the company working closely with hyperscale customers to meet their needs [3][4] - The company has secured long-term agreements with key customers, indicating strong trust and confidence in its ability to meet exabyte storage requirements [5][19] Financial Performance - In Q2 fiscal 2026, the company reported revenue of $3 billion, a 25% increase year-over-year, and earnings per share of $2.13, exceeding guidance [7][8] - Cloud revenue accounted for 89% of total revenue, reaching $2.7 billion, up 28% year-over-year, while client and consumer segments also showed growth [8] - Gross margin improved to 46.1%, reflecting a shift towards higher capacity drives and effective cost control [8][9] Product Development and Innovation - The company shipped over 3.5 million units of its latest ePMR products, with capacities up to 32 terabytes, demonstrating strong customer adoption [2][7] - The qualification of HAMR and next-generation ePMR products is underway, with expectations for these innovations to enhance capacity and reduce costs [6][30] - The company is also investing in quantum hardware design through a partnership with Qolab, aiming to advance nanofabrication processes [6] Customer Engagement and Market Trends - The company has established robust commercial agreements with top customers, indicating a strategic focus on long-term relationships and predictable pricing [5][19] - The demand for storage solutions is expected to grow significantly as AI capabilities expand, with the company positioned to benefit from this trend [3][36] - The mix of UltraSMR drives is increasing, which is beneficial for both customer needs and the company's profitability [25][26] Future Outlook - The company anticipates revenue of approximately $3.2 billion for Q3 fiscal 2026, reflecting a year-over-year growth of around 40% [11] - Gross margin is expected to be between 47% and 48%, with operating expenses projected to remain stable [11][12] - The company is committed to continuing its disciplined approach to free cash flow and capital returns, aiming for long-term value creation for shareholders [12]