Core Insights - Western Digital Corporation (WDC) is experiencing significant gross margin expansion due to a favorable product mix, healthy pricing dynamics, disciplined cost controls, and improved operational efficiencies, with a non-GAAP gross margin of 43.9% in the first quarter of fiscal 2026, marking a 660 basis points year-over-year improvement and a 260 basis points sequential increase [1][8] Group 1: Margin and Revenue Growth - The transition towards higher-capacity nearline hard disk drives (HDDs), particularly advanced ePMR and UltraSMR products, is a key driver of margin strength, with shipments reaching 204 exabytes, a 23% increase year-over-year [2] - The company expects non-GAAP gross margin for the second quarter of fiscal 2026 to be in the range of 44-45%, indicating further sequential improvement, alongside projected non-GAAP revenues of $2.9 billion, a 20% increase year-over-year [5][8] Group 2: Customer Demand and Product Development - All top seven customers have placed purchase orders extending through the first half of 2026, with one major hyperscale customer securing supply through 2027, indicating strong demand for next-generation HAMR drives [3] - The accelerating adoption of AI and data-intensive workloads among hyperscale customers is driving robust demand for WDC's solutions, with significant shipments of the latest ePMR products exceeding 2.2 million units in the September quarter [2] Group 3: Cost Management and Pricing - Pricing conditions have been supportive, with modest low-single-digit increases in average selling price (ASP) per terabyte on both a sequential and year-over-year basis, while the company continues to achieve mid- to high-single-digit cost reductions per terabyte [4] - Management highlighted disciplined cost controls and operational execution as key factors underpinning margin expansion [4] Group 4: Competitive Landscape - Competitors like Seagate Technology and Micron Technology are also experiencing margin expansion, driven by strong demand in the cloud and AI-driven markets, with Seagate reporting a non-GAAP gross margin of 40.1% and Micron achieving a gross margin of 45.7% [6][7]