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    WDC
    Earnings call· Dec 2025(Q2 FY26)

    WESTERN DIGITAL CORP WDC

    Jan 29, 2026 Source

    Executive summary

    Western Digital Q2 FY26 — Strong Demand for High-Capacity Drives Drives Revenue and Margin Beat

    Western Digital delivered a strong quarter, driven by robust demand for high-capacity storage solutions fueled by AI and cloud growth. The company's focus on increasing areal density and accelerating product roadmaps, including HAMR and ePMR, is resonating with hyperscale customers, leading to longer-term agreements and improved visibility. Management is confident in continued gross margin expansion and disciplined capital returns.

    Highlights

    5

    • Revenue of $3 billion, up 25% year-over-year, exceeding guidance.

    • Diluted EPS of $2.13, up 78% year-over-year, above guidance.

    • Gross margin expanded to 46.1%, up 770 basis points year-over-year and 220 basis points sequentially.

    • Free cash flow generation of $653 million, representing a 21.6% margin.

    • Strong customer adoption of latest generation ePMR products, shipping over 3.5 million units.

    Guidance & targets

    7
    CategoryTargetConfidence
    Revenue
    $3.2 billion, plus/minus $100 million
    high materiality
    High
    Gross Margin
    47% to 48%
    high materiality
    High
    Operating Expenses
    $380 million to $390 million
    medium materiality
    High
    Interest and other expenses
    approximately $50 million
    low materiality
    High
    Tax Rate
    approximately 16%
    low materiality
    High
    Diluted EPS
    $2.30, plus/minus $0.15
    high materiality
    High
    Capital expenditure as percentage of revenue
    4% to 6%
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Cloud
    Represented 89% of total revenue, driven by strong demand for higher capacity nearline product portfolio.
    		$2.7B28%——
    Client
    Represented 6% of total revenue.
    		$176M26%——
    Consumer
    Represented 5% of total revenue.
    		$168M-3%——

    Operational metrics

    28
    Revenue
    $3Bup 25% YoY
    Q2 FY26

    Above the high end of guidance range.

    Non-GAAP EPS
    $2.13up 78% YoY
    Q2 FY26

    Above the high end of guidance range, based on 378 million diluted shares.

    Exabytes delivered
    215up 22% YoY
    Q2 FY26

    Includes over 3.5 million drives or 103 exabytes of latest generation ePMR.

    Non-GAAP gross margin
    46.1%up 770 bps YoY, up 220 bps QoQ
    Q2 FY26
    Operating expenses
    $372Mdeclined 120 bps sequentially as % of revenue
    Q2 FY26

    Primarily due to operating leverage.

    Operating income
    slightly above $1B
    Q2 FY26
    Operating margin
    33.8%
    Q2 FY26
    Interest and other expenses
    $45M
    Q2 FY26
    Effective tax rate
    15.1%
    Q2 FY26
    Diluted share count
    378M
    Q2 FY26

    Used for EPS calculation.

    Cash and cash equivalents balance
    $2B
    Q2 FY26

    As of quarter end.

    Total liquidity
    $3.2B
    Q2 FY26

    Includes undrawn revolver capacity.

    Debt outstanding
    $4.7B
    Q2 FY26
    Net debt
    $2.7B
    Q2 FY26
    Net leverage EBITDA ratio
    well below 1 turn
    Q2 FY26
    Capital expenditures
    $92M
    Q2 FY26
    Free cash flow margin
    21.6%
    Q2 FY26
    Dividend payments
    $48M
    Q2 FY26
    Share repurchases
    $615M
    Q2 FY26
    Total capital returned to shareholders
    $1.4B
    since Q4 FY25

    By way of share repurchases and dividend payments.

    Quarterly cash dividend
    $0.125
    Q3 FY26

    Approved by Board, payable to shareholders of record as of March 5, 2026.

    ASP per terabyte
    up 2-3%
    last quarter

    Reflects value delivered to customers and stable pricing environment.

    Cost per terabyte
    down ~10%
    YoY

    Driven by upshifting customers to higher capacity drives and manufacturing execution.

    UltraSMR mix in nearline portfolio
    >50%
    last quarter

    Expected to continue increasing, with top three customers fully on board.

    ePMR yields
    low 90s
    Q2 FY26

    Continuing to yield very well.

    SanDisk shares remaining
    7.5M
    Q2 FY26

    Intention to monetize before one-year anniversary of separation, likely via debt-for-equity swap.

    Share repurchase authorization
    $2B
    May 2025 program
    Share repurchase executed under program
    $1.3B
    since May 2025

    Industry KPIs

    9
    MetricValueDetails
    Capital return FCF$615M share repurchases, $48M dividend paymentsUSD
    Unit shipments ASP>3.5M unitsunits
    Gross margin drivers46.1%%
    Company specific kpislow 90s%
    Exabyte bit shipments215exabytes
    Long term supply agreementsfirm purchase orders with top seven customers
    Capacity roadmap qualificationstarted
    Revenue mix by end market segmentCloud: $2.7B (89% of total), Client: $176M (6% of total), Consumer: $168M (5% of total)USD
    Revenue per terabyte cost per exabyteup 2-3%%

    Orderbook & backlog

    3
    Firm purchase orderstop seven customersQ2 FY26

    Through calendar year 2026.

    Robust commercial agreementstwo of top five customersQ2 FY26

    Through calendar year 2027. These agreements include both volume and price conditions.

    Robust commercial agreementsone of top five customersQ2 FY26

    Through calendar year 2028. These agreements include both volume and price conditions.

    Product announcements

    1
    ProductTypeDetails
    UltraSMR-enabled JBOD platformslaunch

    Deals & partnerships

    2
    QolabStrategic investment combining expertise in material science and precision manufacturing with Qolab's quantum hardware design.

    Aims to advance next-generation nanofabrication processes to improve qubit performance, reliability, and scalability.

    UndisclosedAcquisition of intellectual property assets and talent to enhance internal laser capabilities for HAMR development.

    Helps accelerate HAMR innovation and development of internal laser capabilities. Terms and conditions are confidential.

    What to watch in Q3 FY26

    4

    HAMR and next-gen ePMR qualification progress

    next quarter
    CurrentQualification started with one hyperscale customer for HAMR and next-gen ePMR; second HAMR qualification imminent.
    TargetFurther qualification milestones and customer adoption.

    Why it matters

    Successful qualification and ramp of these next-generation drives are crucial for meeting strong exabyte demand and maintaining market leadership in high-capacity storage.

    We've pulled in the qualification already by half year. And we've started the qualification process with one customer. As I just mentioned earlier to Karl's question, we will be starting a qualification with a second customer imminently on qualification.

    Q&A highlights

    6

    How durable is the incremental gross margin flow-through of 70-75%, and what is the outlook for cost per terabyte reduction?

    Management is comfortable with incremental gross margins above 50%, with current levels at 75%. Stable pricing (up 2-3% ASP/TB) and continued cost execution (cost/TB down ~10% YoY) from higher capacity drives and manufacturing efficiency support further gross margin expansion.

    “I'm very comfortable with an incremental gross margin higher than 50% and definitely 75% is higher than 50%.”

    asked by Aaron Rakers · answered by Kris Sennesael

    2 min read5 chapters

    Detailed Narrative

    01

    AI and Cloud Driving Storage Demand

    The company highlighted that AI, from training to inference, and continued cloud growth are driving a surge in demand for higher-density storage solutions. The increasing generation and value of data necessitate expanded storage, with HDDs playing a critical role due to their superior economics for mass-scale data. Management emphasized that AI inference, in particular, will drive significant data storage requirements.

    02

    Product Roadmap and Qualification Progress

    Western Digital is focusing on increasing areal density and accelerating its HAMR and ePMR roadmaps. The company shipped over 3.5 million units of its latest generation ePMR products (up to 32TB UltraSMR). Qualification for HAMR and next-generation ePMR products has begun with different hyperscale customers, with HAMR qualification pulled forward📎 to the first half of CY26. The company also acquired IP assets and talent to enhance internal laser capabilities for HAMR.

    03

    Customer Engagement and Long-Term Agreements

    A customer-focused approach has deepened relationships with hyperscale customers, leading to improved visibility and longer-term agreements. The company has firm purchase orders with its top seven customers through calendar year 2026 and robust commercial agreements with three of its top five customers, extending through calendar years 2027 and 2028. These agreements include both volume and price conditions, reflecting the value delivered to customers.

    04

    Financial Performance Highlights

    Western Digital delivered strong Q2 FY26 results, with revenue of $3 billion, up 25% YoY, and diluted EPS of $2.13, up 78% YoY, both exceeding guidance. Gross margin expanded significantly to 46.1%, driven by mix shift to higher capacity drives and tight cost control. Operating margin reached 33.8%, with operating income exceeding $1 billion.

    05

    Capital Allocation and Shareholder Returns

    The company generated strong free cash flow of $653 million, representing a 21.6% margin. Western Digital continued its capital return program, repurchasing $615 million in shares and paying $48 million in dividends during the quarter. Since Q4 FY25, $1.4 billion has been returned to shareholders. The Board approved a quarterly cash dividend of $0.125 per share.

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