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    WDC
    Earnings call· Jun 2026(Q4 FY26)

    WESTERN DIGITAL Q4 FY26 earnings call WDC

    Aug 5, 2026 Source

    Executive summary

    Western Digital Q4 FY26 — Strong Performance Driven by AI and Cloud Demand

    Western Digital delivered a strong Q4 FY26, capping an outstanding fiscal year, driven by robust demand from AI and core cloud services. The company is transitioning to a pure-play HDD focus, emphasizing innovation with its HAMR and ePMR product roadmap to meet growing storage needs. Management expressed high confidence in continued demand durability, sustained earnings growth, and strong free cash flow generation, positioning the company to capitalize on the compounding data creation driven by AI workloads.

    Highlights

    5

    • Full fiscal year 2026 revenue grew 36% to $12.9 billion.

    • Full fiscal year 2026 Non-GAAP EPS more than doubled to $10.22.

    • Full fiscal year 2026 free cash flow reached $3.5 billion, with a 27% FCF margin.

    • Q4 FY26 revenue was $3.75 billion, up 44% year-over-year, exceeding guidance.

    • Q4 FY26 Non-GAAP gross margin expanded 1,310 basis points year-over-year to 54.4%.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $4.1 billion, plus/minus $100 million
    high materiality
    High
    Gross Margin
    55% to 56%
    high materiality
    High
    Operating Expenses
    $390 million to $400 million
    medium materiality
    High
    Interest and Other Expenses
    $15 million
    low materiality
    High
    Tax Rate
    17%
    low materiality
    High
    Diluted EPS
    $4, plus/minus $0.15
    high materiality
    High
    Exabyte Growth
    above 25%
    high materiality
    High
    44TB HAMR Product Shipment
    on track to ship
    high materiality
    High
    Ultra SMR Nearline Exabyte Shipments
    around 60%
    medium materiality
    High
    50TB Products
    coming out
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Cloud
    Demand for high-capacity nearline products was strong with a favorable pricing environment.
    % of total revenue: 89%
    		$3.3 billion43%——
    Client
    Benefited from improved pricing.
    % of total revenue: 6%
    		$225 million61%——
    Consumer
    Benefited from improved pricing.
    % of total revenue: 5%
    		$187 million38%——

    Operational metrics

    26
    Non-GAAP Revenue
    $12.9 billionup 36% year-on-year
    FY26

    First full fiscal year as a focused pure-play HDD company.

    Non-GAAP Gross Margin
    49.1%expanded 970 basis points
    FY26

    Expanded significantly year-on-year.

    Non-GAAP Operating Margin
    37.3%increased 1,290 basis points
    FY26

    Increased significantly year-on-year.

    Non-GAAP EPS
    $10.22more than doubled
    FY26

    More than doubled year-on-year.

    Free Cash Flow Margin
    27%
    FY26

    Robust free cash flow margin.

    Non-GAAP Revenue
    $3.75 billionup 44% year-over-year
    Q4 FY26

    Came in at or above the high end of guidance range.

    Non-GAAP EPS
    $3.56grew 109% year-over-year
    Q4 FY26

    Came in at or above the high end of guidance range.

    Non-GAAP Gross Margin
    54.4%expanded 1,310 basis points year-over-year
    Q4 FY26

    Resulting in strong year-over-year incremental gross margin. Driven by mix shift, favorable pricing, and disciplined execution.

    Operating Expenses
    $382 million170 basis point sequential improvement
    Q4 FY26

    Demonstrating further operating leverage.

    Operating Income
    EUR 1.66 billionup 126% year-over-year
    Q4 FY26

    Strong top line growth, expanding gross margins and leverage in the model drove operating income.

    Non-GAAP Operating Margin
    44.2%up 1,610 basis points year-over-year
    Q4 FY26

    Durable operating margin.

    Interest and Other Expenses
    $10 million
    Q4 FY26

    Reported for the quarter.

    Effective Tax Rate
    $0.16
    Q4 FY26

    Reported for the quarter.

    Diluted Share Count
    388 million
    Q4 FY26

    Used for EPS calculation.

    Capital Expenditure
    $108 million
    Q4 FY26

    Reported for the quarter.

    Free Cash Flow Margin
    34%
    Q4 FY26

    Strong free cash flow margin.

    Share Repurchases
    $1 billion
    Q4 FY26

    Completed during the quarter, including settlement of conversion premium for converts.

    Dividend Payments
    $54 million
    Q4 FY26

    Made during the quarter.

    Total Debt
    $1.1 billion
    Q4 FY26

    Ended the quarter with this amount of debt.

    Cash and Investments Balance
    $1.6 billion
    Q4 FY26

    Ended the quarter with this amount of cash.

    Net Positive Cash Position
    $500 million
    Q4 FY26

    Resulting from cash and debt balances.

    Cash Dividend Declared
    $0.15
    Q4 FY26

    Declared by the Board.

    Incremental Gross Margin
    60%
    FY25

    Full year basis.

    Incremental Gross Margin
    75%
    FY26

    Full year basis.

    Incremental Gross Margin
    84%-85%
    Q4 FY26

    Year-over-year.

    Incremental Gross Margin
    80%-81%
    Q1 FY27

    Implied in the guidance, year-over-year.

    Industry KPIs

    8
    MetricValueDetails
    Capital return FCF$3.1 billionUSD
    Unit shipments ASPhigh teens%
    Gross margin drivers54.4%%
    Exabyte bit shipments22%%
    Long term supply agreementsLTAs up to CY29
    Capacity roadmap qualification44TB HAMR, 40TB ePMR, Ultra SMR, High Bandwidth Drives
    Revenue mix by end market segmentCloud: 89%, Client: 6%, Consumer: 5%%
    Revenue per terabyte cost per exabytehigh teens%

    Product announcements

    4
    ProductTypeDetails
    44 terabyte HAMR productmilestone
    40 terabyte ePMR drivesmilestone
    Ultra SMR technologymilestone
    High bandwidth drivesmilestone

    What to watch in Q1 FY27

    5

    40TB ePMR Drive Ramp

    Q3 FY27
    CurrentEntering volume production with two customers
    Target50% of nearline bits on ePMR form by Q3 FY27

    Why it matters

    Successful ramp of high-capacity ePMR drives is crucial for exabyte growth acceleration and margin expansion.

    we are very much on track to hit 50% of nearline bids on that form by third quarter of year '27.

    Q&A highlights

    7

    Why are WD's sequential top-line growth and September quarter gross margin guide lower than a main competitor? What drives gross margin acceleration from here, especially before HAMR in CY27?

    Management attributed quarter-to-quarter gross margin variations to timing differences in LTA contracts and the introduction of new platforms. They expect the ramp of 40TB ePMR drives and ongoing operational efficiencies to drive stronger Exabyte growth, continuous top-line growth, and margin expansion, even before HAMR.

    “there are always quarter-to-quarter variations in terms of gross margin because there's a whole range of factors that go into driving it. Obviously, timing of pricing in relation to the long-term agreement contracts is one.”

    asked by Christopher Muse · answered by Tiang Yew Tan

    2 min read6 chapters

    Detailed Narrative

    01

    AI-Driven Storage Demand

    Western Digital highlighted AI as a significant and durable driver for storage demand, moving beyond initial training to continuous data generation from inference and Agentic AI. The company noted that AI workloads create massive, compounding data sets that require economical storage. The emergence of 'physical AI' (autonomous vehicles, robotics) further accelerates this cycle by generating real-world and synthetic data, reinforcing the long-term tailwind for capacity-oriented storage.

    02

    Product Roadmap and Technology Leadership

    The company is on track to ship its 44 terabyte HAMR product in H1 CY27, with positive customer feedback. Shipments of next-generation 40 terabyte ePMR drives commenced in Q4 FY26, with volume production ramping with two customers. Ultra SMR technology is ramping with a third major customer, expected to comprise 60% of nearline Exabyte shipments by the end of FY27. Additionally, high bandwidth drives, offering up to 8x throughput, are sampling with five customers, addressing performance-intensive AI workloads.

    03

    Strong Financial Performance and Capital Returns

    Fiscal year 2026 was described as outstanding, with 36% revenue growth, significant gross and operating margin expansion (970 bps and 1,290 bps respectively), and more than doubled EPS to $10.22. The company generated $3.5 billion in free cash flow, achieving a 27% FCF margin, and returned $3.1 billion to shareholders through repurchases and dividends. The balance sheet strengthened to a net positive cash position of $500 million.

    04

    Pricing Strategy and Long-Term Agreements (LTAs)

    Western Digital's predictable and sustainable pricing strategy, especially for nearline products, aims to provide customers with visibility for long-term architectural decisions. The blended average year-over-year price increase per terabyte improved from high single digits to high teens in Q4 FY26. The company is in discussions for LTAs extending to calendar years 2029, 2030, and 2031, indicating strong customer-driven demand and long-term visibility for exabyte volumes, with commercial constructs and pricing regimes being worked through.

    05

    Exabyte Growth Dynamics

    Exabyte shipments grew 22% year-over-year in Q4 FY26 and 25% for the full fiscal year. While Q4 saw some sequential variation due to product mix (more CMR products), management expects exabyte growth to accelerate in the second half of FY27 with the ramp of 40TB ePMR and the introduction of 44TB HAMR. The long-term exabyte demand growth is projected to be above 25%.

    06

    Expanding Market Opportunities

    Beyond hyperscalers, Western Digital is seeing increasing demand from neoclouds, frontier AI labs, and physical AI companies (e.g., autonomous vehicle players). These new customers recognize the economic benefits of hard drives for their growing storage needs. Enterprise OEM players are also showing increased demand as they pivot towards hybrid storage solutions, driving further adoption of high-capacity drives.

    AI-generated summary of the company’s earnings call. Not investment advice.