Core Insights - Western Digital Corporation (WDC) reported strong financial results for the second quarter of fiscal 2026, with non-GAAP earnings of $2.13 per share, exceeding estimates and showing significant year-over-year growth of 78% [1][9] - The company generated $3.02 billion in revenue, a 25% increase year-over-year, driven by robust demand in data centers and high-capacity hard disk drives (HDDs) [2][9] Financial Performance - Revenue from the Cloud end market, which constitutes 89% of total revenues, rose 28% year-over-year to $2.7 billion, reflecting strong demand for higher-capacity nearline products [6] - Non-GAAP gross margin improved to 46.1%, up 770 basis points year-over-year, supported by a transition to higher-capacity drives and effective cost management [10] - Non-GAAP operating income reached $1.02 billion, marking a 72% increase year-over-year, with margins expanding to 33.8% [11] Operational Highlights - WDC shipped over 3.5 million latest-generation ePMR drives, supporting capacities of up to 26TB CMR and 32TB UltraSMR, indicating strong customer adoption [4] - The company shipped a total of 215 exabytes to customers, a 22% increase year-over-year [4] Cash Flow and Shareholder Returns - WDC generated $745 million in cash from operations, with free cash flow amounting to $653 million, up 95% year-over-year [13] - The company repurchased approximately 3.8 million shares for $615 million and paid $48 million in dividends, returning over 100% of its free cash flow to shareholders [14] Future Outlook - For the fiscal third quarter, WDC anticipates continued growth, projecting non-GAAP revenues of $3.2 billion, a 40% increase year-over-year, and non-GAAP earnings of $2.30 per share [15] - The company expects non-GAAP gross margin to be in the range of 47-48% and operating expenses between $380 million and $390 million [16]

Financial Data and Key Metrics Changes - Revenue for the second quarter of fiscal 2026 was $3 billion, up 25% year-over-year, driven by strong demand for Nearline drives [12] - Earnings per share (EPS) was $2.13, an increase of 78% year-over-year, exceeding guidance [15] - Gross margin improved to 46.1%, up 770 basis points year-over-year and 220 basis points sequentially [13][14] - Operating income was slightly above $1 billion, translating into an operating margin of 33.8% [14] Business Line Data and Key Metrics Changes - Cloud segment represented 89% of total revenue at $2.7 billion, up 28% year-over-year [13] - Client segment accounted for 6% of total revenue at $176 million, up 26% year-over-year [13] - Consumer segment represented 5% of revenue at $168 million, down 3% year-over-year [13] Market Data and Key Metrics Changes - The company shipped over 3.5 million units of its latest generation ePMR products, offering capacities up to 32 TB [12][8] - The company delivered 215 exabytes (EB) to customers, up 22% year-over-year [12] Company Strategy and Development Direction - The company is focusing on AI and cloud storage solutions, emphasizing high-capacity drives and partnerships with hyperscale customers [7][9] - A strategic investment in Qolab was announced to advance next-generation nanofabrication processes [10] - The company is hosting an innovation day to share updated roadmaps for HAMR and ePMR products [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued demand for storage solutions driven by AI and cloud growth [5][6] - The company anticipates revenue for Q3 fiscal 2026 to be around $3.2 billion, reflecting approximately 40% year-over-year growth [17] - Management highlighted a stable pricing environment and ongoing cost reductions, projecting further gross margin expansion [22][23] Other Important Information - The company returned $1.4 billion to shareholders through share repurchases and dividends since the launch of its capital return program [16] - The board approved a quarterly cash dividend of $12.50 per share, payable on March 18, 2026 [16] Q&A Session Summary Question: Gross margin guidance and durability of incremental margin - Management confirmed a gross margin of 46.1% and guidance of 47%-48%, with incremental margins around 75% [20][22] Question: Purchase orders and pricing strategy - Management indicated strong demand and stable pricing, with long-term agreements in place with top customers [27][28] Question: Customer engagement and contracts - The company has developed a customer-centric approach, resulting in longer-term contracts and improved relationships with hyperscale customers [34] Question: UltraSMR mix and gross margins - Management noted an increasing mix of UltraSMR drives, which are beneficial for both customers and profitability [42][43] Question: Yields and reliability of products - Yields on ePMR products are in the low 90s%, with positive feedback on reliability from customers [46] Question: HAMR roadmap and investments - The company has pulled in the HAMR qualification timeline and expects it to be neutral to accretive to gross margins once ramped [55][77] Question: Revenue per exabyte and mix changes - Revenue per exabyte is driven by strong demand from the cloud segment, with stable pricing trends [81] Question: Cost reductions and future expectations - Current cost reductions are around 10% year-over-year, with potential for further reductions as higher capacity drives are adopted [87]

Core Viewpoint - Western Digital Corporation (WDC) is expected to report second-quarter fiscal 2026 results on January 29, with earnings projected to rise by 9.6% year-over-year, while revenues are anticipated to decline by 31% compared to the prior year [2][3]. Financial Performance - The Zacks Consensus Estimate for earnings is $1.94, with management projecting non-GAAP earnings of $1.88 (+/- 15 cents) [2][3]. - Revenue estimates are pegged at $2.95 billion, with a mid-point guidance of $2.9 billion (+/- $100 million), indicating a 20% year-over-year growth [3][8]. - WDC has consistently surpassed earnings estimates in the past four quarters, with an average surprise of 9.18% [3][4]. Earnings Expectations - WDC has an Earnings ESP of +1.93% and a Zacks Rank of 1 (Strong Buy), indicating a high probability of an earnings beat [5][6]. - The company expects non-GAAP gross margin to be between 44% and 45%, with operating expenses projected to decline to $365 million–$375 million [7][8]. Growth Drivers - WDC's focus on innovation and operational discipline positions it well to benefit from the AI-driven increase in data creation and storage demand [6][9]. - The company is making progress on Heat-Assisted Magnetic Recording (HAMR) technology, with qualifications expected to begin with hyperscale customers in 2026 [9][10]. - Partnerships, such as with Qolab for advanced nanofabrication technologies, are aimed at enhancing product performance and scalability [10]. Market Position - WDC's shares have increased by 249.1% over the past six months, outperforming the Zacks Computer-Storage Devices industry, which rose by 97.5% [12]. - The company has outperformed competitors like Seagate Technology Holdings plc (STX) and NetApp, Inc. (NTAP) during the same period [13]. Valuation Metrics - WDC's shares currently trade at a price/earnings ratio of 25.59, compared to the industry average of 19.01 [14][17]. Investment Outlook - The demand for storage driven by AI and cloud customers is expected to sustain growth, with strong nearline high-capacity drive demand acting as a tailwind for earnings [18][19].

Core Insights - The demand for scalable and cost-efficient storage is increasing due to the acceleration of cloud computing, AI, and data-intensive workloads, with HDDs remaining essential for hyperscale data centers despite the rise of flash technology [1][8] Group 1: HDD Technology and Innovation - Areal density, which measures data storage per unit of surface area, is crucial for enhancing storage capacity in HDDs, providing a competitive edge for hyperscale data centers [2] - Seagate Technology Holdings plc (STX) is advancing areal density as a key strength, ensuring a total cost of ownership (TCO) advantage for HDDs over alternative technologies [2][4] - Seagate's high-capacity HAMR drives, including the Mozaic 3+ platform, are being adopted to meet the growing AI-driven storage demand, with drives offering up to 36TB and further advancements planned for 44TB and 5TB-per-disk technology by 2028 [3][8] Group 2: Competitive Landscape - Western Digital Corporation (WDC) remains a strong competitor in the HDD market, benefiting from its ePMR and UltraSMR drives while advancing its HAMR roadmap, with strong customer commitments extending into 2027 [5] - NetApp, Inc. (NTAP) is experiencing growth in its flash business and cloud services, supported by partnerships with major hyperscalers like Amazon and Microsoft, positioning it well in the cloud infrastructure space [6] Group 3: Financial Performance - STX's stock has increased by 217.5% over the past year, outperforming the Computer Integrated Systems industry's growth of 103.5% [7] - The current forward price/earnings ratio for STX is 27.23X, which is higher than the industry's average of 18.74X, indicating a stretched valuation [9]

Core Insights - Western Digital Corporation (WDC) is strengthening its competitive position through deepening collaborations with hyperscaler customers, driven by the accelerating growth of AI-generated data [1][9] - The company is a leading provider of mass capacity storage solutions, with increasing demand for high-capacity, cost-efficient storage as industries adopt multimodal large language models and agentic AI [1] Group 1: Customer Demand and Product Development - WDC has gained significant visibility into customer demand, with a transition to higher-capacity drives, shipping over 2.2 million units of its latest ePMR products in the September quarter, including drives offering up to 26TB CMR and 32TB UltraSMR [2][9] - All top seven customers have placed orders for WDC's next-generation HAMR drives through the first half of 2026, with one major customer securing supply for all of 2027 [3][9] - The company is on track to begin qualification of HAMR drives with one hyperscale customer in the first half of 2026, potentially expanding to three customers by year-end, positioning for volume production ramp-up in early 2027 [4] Group 2: Financial Performance and Projections - WDC anticipates ongoing revenue growth supported by strong data center demand, with non-GAAP revenues expected to reach $2.9 billion (+/- $100 million) for the second quarter of fiscal 2026, representing a 20% year-over-year increase [5] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised upwards, indicating positive sentiment among analysts [18] Group 3: Competitive Landscape - WDC faces intense competition from Seagate Technology Holdings Plc and other flash-based alternatives, with Seagate also experiencing strong demand for its Mozaic drives, which are the only products in the industry offering 3 terabytes per disk [6][10] - Pure Storage is another significant player in the data storage space, with increasing adoption of flash storage and strong growth prospects in emerging data-driven markets [12][13] Group 4: Stock Performance and Valuation - WDC's shares have increased by 24.3% over the past month, slightly underperforming the Zacks Computer-Storage Devices industry's growth of 25.2% [14] - The company's shares are currently trading at a forward price/earnings ratio of 23.25X, higher than the industry's 21.7X [15]

Core Insights - The global data storage market is projected to reach $1,304.7 billion by 2033, growing at a CAGR of 16.44% from 2025 to 2033, driven by business automation, cloud computing, and remote work trends [2] - Western Digital Corporation (WDC) and Pure Storage, Inc. (PSTG) are positioned to benefit from these trends, but their differing business models and financial metrics present varying investment opportunities [2] Group 1: Western Digital Corporation (WDC) - WDC is strategically focused on supporting the data-intensive AI ecosystem, meeting the increasing demand for storage with solid financial performance [3][4] - The company shipped 204 exabytes in the last quarter, a 23% year-over-year increase, and is set to introduce next-generation ePMR drives in early 2026 to meet rising data demands [4][7] - WDC anticipates continued revenue growth due to strong data center demand and higher-capacity drive adoption, with AI applications driving ongoing demand for scalable data infrastructure [5][8] - The company raised its quarterly dividend by 25% to 12.5 cents, returning $785 million to shareholders since FY25, indicating strong financial health and commitment to shareholder returns [7][8] - WDC's shares trade at a forward P/E ratio of 19.45, significantly lower than PSTG's 82.84, highlighting its valuation appeal [7][18] Group 2: Pure Storage, Inc. (PSTG) - PSTG benefits from increasing adoption of its Enterprise Data Cloud architecture and strong traction with hyperscalers, maintaining a positive outlook despite macroeconomic uncertainties [10][11] - The company’s platform, powered by the Purity operating system, supports non-disruptive services and the Storage-as-a-Service model, enhancing its market position [11] - PSTG's FlashBlade solutions are in high demand, supporting its growth in handling AI-driven applications and modern workloads [12][13] - The company added over 300 new customers in the fiscal second quarter, bringing its total to more than 13,500, including 62% of the Fortune 500 [13] - PSTG faces competition in the flash storage market, which may impact pricing and margins, and it has an accumulated operating loss of $1.35 billion [15] Group 3: Comparative Performance and Outlook - Over the past year, WDC's stock has increased by 120.6%, outperforming PSTG and the broader industry [17] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 13% to $7.38, while PSTG's estimate remains stagnant at $1.97 [19][23] - WDC holds a Zacks Rank 1 (Strong Buy), while PSTG has a Zacks Rank 3 (Hold), suggesting WDC is currently a more attractive investment option [24]

Financial Data and Key Metrics Changes - For Q1 fiscal 2026, the company reported revenue of $2.8 billion, a 27% increase year-over-year, driven by strong demand for nearline drives [13][14] - Non-GAAP gross margin was 43.9%, improving by 660 basis points year-over-year and 260 basis points sequentially [15][11] - Non-GAAP earnings per share (EPS) was $1.78, exceeding guidance [13][11] - Free cash flow for the quarter was $599 million, reflecting strong cash generation capabilities [11][16] Business Line Data and Key Metrics Changes - Cloud business represented 89% of total revenue at $2.5 billion, up 31% year-over-year, driven by demand for higher capacity nearline products [14] - Client business accounted for 5% of total revenue at $146 million, up 5% year-over-year [15] - Consumer business represented 6% of revenue at $162 million, down 1% year-over-year [15] Market Data and Key Metrics Changes - The company delivered 204 exabytes to customers, a 23% increase year-over-year, including 2.2 million drives of the latest generation ePMR [13][11] - Shipments of ePMR products with capacities up to 26 terabytes CMR and 32 terabytes Ultra SMR surpassed 2.2 million units in the September quarter [5][11] Company Strategy and Development Direction - The company is focusing on AI-driven growth, leveraging AI to enhance productivity and innovation internally [4][5] - Investments are being made in head wafer and media technology to drive higher aerial density and manufacturing throughput [6][7] - The company is on track to start HAMR qualification for one hyperscale customer in the first half of calendar year 2026, with plans to expand to three customers [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term business strength despite macroeconomic uncertainties, expecting continued revenue growth driven by data center demand [12][11] - The company anticipates revenue for Q2 fiscal 2026 to be around $2.9 billion, reflecting approximately 20% year-over-year growth [18][12] Other Important Information - The company announced a 25% increase in its dividend per share to $0.125, reflecting confidence in long-term business prospects [11][17] - The company has returned a total of $785 million to shareholders through share repurchases and dividends since the launch of its capital return program [17][16] Q&A Session Summary Question: How does the company plan to meet rising customer demand while keeping supply-demand in balance? - The company focuses on delivering higher capacity drives and has shipped over 2.2 million units last quarter, equating to about 70 exabytes of data [23][24] Question: How should the market think about incremental gross margins moving forward? - The company reported a gross margin of 43.9% and expects further improvement in Q2 fiscal 2026, with a focus on maintaining incremental gross margins of approximately 50% [26][27] Question: Can you provide an update on the HAMR roadmap and its qualification timeline? - The company has pulled forward the qualification process for HAMR to the first half of calendar 2026, with expectations for ramp-up in the first half of calendar 2027 [31][32] Question: What is the outlook for exabyte growth and pricing trends? - The company sees exabyte growth trending towards 23% due to strong demand and expects mid to high single-digit cost reductions per terabyte [41][42] Question: How does the company view the balance between HDDs and SSDs in the market? - The company anticipates HDDs will continue to represent about 80% of the bits stored in data centers, despite the rise of SSDs for certain workloads [92][93] Question: What are the implications of long-term agreements with hyperscale customers? - The company has secured firm purchase orders extending throughout 2026 and into 2027, indicating strong customer confidence and demand [8][62]

Core Insights - Western Digital Corporation (WDC) is experiencing significant growth due to increasing demand for high-capacity storage driven by cloud computing and AI [1] - The company is focused on innovation, delivering high-capacity drives with enhanced performance and energy efficiency [1] Group 1: Financial Performance - In the fiscal fourth quarter, WDC shipped 190 exabytes of storage, a 32% increase year over year, with strong demand for nearline drives and significant growth in 26TB CMR and 32TB UltraSMR products [2] - For the first quarter of fiscal 2026, WDC anticipates non-GAAP revenues of $2.7 billion, representing a 22% year-over-year increase, and non-GAAP earnings of $1.54 [5] Group 2: Product Development and Innovation - WDC's ePMR and UltraSMR technologies are crucial for success in the data center market, with plans to advance to next-generation HAMR drives, expected to ramp up in the first half of 2027 [3] - The company is also focusing on infrastructure solutions for AI/ML and software-defined storage, targeting hyperscale cloud service providers [4] Group 3: Market Position and Competition - WDC faces competition from companies like Seagate, Pure Storage, Hitachi, Samsung, and Intel in the storage market [6] - Despite strong growth, customer concentration and a leveraged balance sheet are concerns for the company [6] Group 4: Stock Performance and Valuation - Over the past year, WDC shares have increased by 97.7%, outperforming the Zacks Computer-Storage Devices industry, which grew by 35.1% [10] - WDC's shares are trading at a forward price/earnings ratio of 19.87X, lower than the industry's 22.68X [11] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up by 1.85% to $6.62 per share [12]

Core Insights - The surge in artificial intelligence (AI) infrastructure spending is benefiting not only pure-play AI companies but also those supporting its ecosystem, such as Western Digital (WDC) [1] - Western Digital's shares have increased approximately 127% this year due to strong demand for data storage solutions driven by AI adoption [2] - The company's revenue surged by 51% in fiscal 2025, with significant gross margin expansion and strong free cash flow generation [3] Company Performance - Western Digital's stock appears undervalued relative to its growth prospects, suggesting that the momentum in WDC stock may continue [4] - The demand for scalable and cost-efficient data storage is expected to remain high, particularly with the rise of large language models (LLMs) and agentic AI [5] - Shipments of Western Digital's latest high-capacity drives, including ePMR drives (up to 26 terabytes) and UltraSMR drives (up to 32 terabytes), more than doubled to 1.7 million units last quarter [6]

Financial Data and Key Metrics Changes - For the fiscal fourth quarter, the company reported revenue of $2.6 billion, a 30% year-over-year increase, and non-GAAP earnings per share of $1.66, which was above the high end of the guidance range [11][15] - Non-GAAP gross margin was 41.3%, improving by 60 basis points year-over-year, reflecting a shift towards higher capacity drives and effective cost control [16][17] - Free cash flow for the quarter was $675 million, with operating cash flow at $746 million and capital expenditures of $71 million [19] Business Line Data and Key Metrics Changes - The cloud segment represented 90% of total revenue at $2.3 billion, up 36% year-over-year, driven by strong demand for higher capacity nearline products [16] - Client revenue accounted for 5% of total revenue at $140 million, up 2% year-over-year, while consumer revenue also represented 5% at $136 million, down 12% year-over-year [16] Market Data and Key Metrics Changes - Shipments of the latest generation ePMR drives with capacities up to 26 terabytes CMR and 32 terabytes Ultra SMR more than doubled quarter-over-quarter, exceeding 1.7 million units [8][11] - The company has firm purchase orders or long-term agreements with all top five hyperscale customers for the entire fiscal year 2026, indicating strong demand [11][12] Company Strategy and Development Direction - The company is focusing on operational execution, capital return programs, and leveraging AI-driven data growth to enhance storage solutions [6][10] - The transition to higher capacity drives and the development of HAMR technology are central to the company's strategy, with expectations for continued revenue growth driven by data center demand [9][20] Management's Comments on Operating Environment and Future Outlook - Management noted that while the broader environment remains uncertain due to tariffs, strong demand driven by AI is expected to continue [11][12] - For fiscal year 2026, the company anticipates revenue growth of approximately 22% year-over-year, with gross margin expected between 41% and 42% [20][21] Other Important Information - The company initiated a quarterly cash dividend program and authorized a $2 billion share repurchase program, repurchasing nearly $150 million worth of shares in the fourth quarter [11][19] - The balance sheet was strengthened with a reduction of $2.6 billion in debt, achieving a net leverage target of 1 to 1.5 times [11][18] Q&A Session Summary Question: Can you help us understand the gross margin guidance for September? - Management indicated that gross margin expansion is expected to slow due to various factors, including pricing stability and a favorable mix shift towards higher capacity drives [26][30] Question: How should investors think about share repurchase activity going forward? - Management expressed confidence in continuing to return cash to shareholders through dividends and share repurchases, with room for growth in the dividend program [34][37] Question: What is the ASP per terabyte for the last quarter? - Management noted that ASP per terabyte was down in low single digits, primarily due to mix, while ASPs per drive continue to rise with higher capacity drives [39][70] Question: How does the extra week in the quarter affect revenue and OpEx? - Management clarified that the extra week would add approximately $15 million in OpEx, but revenue impact would be minimal as customers operate on quarterly forecasts [75][76] Question: What is the outlook for AI's impact on growth? - Management highlighted that AI is expected to provide a significant uplift in exabyte growth, potentially increasing revenue growth from mid to high single digits to mid-teens [78][80]