Western Digital - Earnings Call - Q4 2025

Executive Summary

• Revenue $2.61B (+30% y/y, +14% q/q) and non-GAAP EPS $1.66 both exceeded consensus and landed above the high end of company guidance; GAAP diluted EPS was $0.67. Management highlighted “revenue and gross margin above the high end of our guidance range,” strong FCF, and capital return actions. Versus Wall Street, Q4 revenue beat $2.473B* and EPS beat $1.48* S&P Global consensus.
• Non-GAAP gross margin was 41.3% (+610 bps y/y), driven by mix shift to higher-capacity nearline drives and tight cost control; shipments of 26TB CMR and 32TB Ultra SMR more than doubled q/q to >1.7M units, supporting margin expansion.
• Balance sheet de-risking and capital returns: $2.6B debt reduction in the quarter, $2.0B buyback authorization (with ~$149M repurchased in Q4), and $0.10 quarterly dividend declared (payable Sep 18, 2025).
• Outlook: Q1 FY26 guidance calls for revenue $2.70B ± $100M, non-GAAP gross margin 41–42%, non-GAAP EPS $1.54 ± $0.15, and OpEx $370–380M; visibility improved with firm POs/LTAs across top five hyperscalers covering FY26, and for two of five through mid-FY27.
• Stock reaction catalysts: accelerating AI-driven storage demand, margin durability above 40%, firm hyperscaler commitments, and stepped-up capital returns; management emphasized HDDs’ cost efficiency and reliability as “foundation of the world’s data infrastructure… in an AI-driven future”.

What Went Well and What Went Wrong

What Went Well

• Cloud momentum and mix: Cloud was 90% of revenue ($2.3B), up 36% y/y, with 190 exabytes shipped (+32% y/y), and strong ramp in 26TB/32TB products, supporting >40% non-GAAP GM. “Shipments of our latest generation ePMR… 26TB CMR and 32TB Ultra SMR more than doubled quarter over quarter, exceeding 1.7 million units”.
• Capital structure and returns: $2.6B debt reduction drove a major cut in non-GAAP interest and other expense to $52M; initiated $0.10 dividend and authorized $2.0B buyback, with ~$149M repurchased in Q4.
• Visibility and demand: Firm POs/LTAs from all top five hyperscalers for FY26 (two through mid-FY27); management does not see traditional seasonality applying, given hyperscaler capex programs and 52-week lead-time arrangements.

What Went Wrong

• ASP per terabyte modestly down: While unit ASPs rose with capacity, ASP/terabyte declined low single digits q/q, reflecting mix effects; pricing environment remains stable.
• Consumer softness: Consumer revenue was ~$136M (5% of total), down 12% y/y, highlighting continued demand/pricing headwinds outside cloud.
• OpEx slightly above guidance: Non-GAAP OpEx of $345M came in a bit higher than the prior guide, tied to variable compensation on better results; Q1 FY26 OpEx guided up to $370–380M (14-week quarter).

Transcript

Speaker 0

Good afternoon, and thank you for standing by. Welcome to Western Digital's Fourth Quarter Fiscal twenty twenty five Conference Call. Presently, all participants are in listen only mode. Later, we will conduct a question and answer session. As a reminder, this call is being recorded.

Now I will turn the call over to Mr. Ambrish Srivastava, vice president, investor relations. You may begin.

Speaker 1

Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's chief executive officer and Chris Senesael, Western Digital's chief financial officer. Before we begin, please note that today's discussion will contain forward looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends, and our future financial results. We assume no obligation to update these statements.

Please refer to our most recent annual report on Form 10 k and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non GAAP results on a continuing operations basis unless stated otherwise. Reconciliations between the non GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the investor relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, are, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks.

Irving?

Speaker 2

Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Let me first begin by welcoming and introducing Chris Senesal, our new Chief Financial Officer. Chris brings extensive experience and a strong track record as a public company CFO. His leadership will be instrumental as we sharpen our focus on operational execution, accelerate our capital return program and continue to create value for our shareholders.

We are excited to have Chris on board. Let me now walk you through our business update. AI is ushering in a new era of data growth by fundamentally transforming how data is created, collected, processed, and stored, and more importantly, valued. Looking beyond large language models, which have been a key driver of storage needs, the emergence of agentic AI at scale in multiple industries is creating an increasing need to store unstructured data. Agents customized with domain specific knowledge will create a significant amount of distinct use cases and generate data at an unprecedented pace.

To cite a few examples, applications leveraging AgenTik AI range from business tools like enterprise chatbots and code development assistance, all the way to agents assisting in engineering design and development. Within our own engineering organization, we are already realizing tangible benefits of AgenTik AI to help accelerate our product development cycles. These trends are still in their early stages but are expanding rapidly across industries globally. As data becomes more valuable and central to AI driven innovation, the need to store and retain it at scale grows in parallel. And no storage technology matches the cost efficiency and reliability of HDDs, which remain the foundation of the world's data infrastructure, delivering unmatched value for mass storage in an AI driven future.

Against this backdrop, demand for our products continues to strengthen. We remain disciplined in managing capacity and are addressing long term market demand through high quality, reliable, larger capacity products. Shipments of our latest generation ePMR drives with capacity up to 26 terabyte CMR and 32 terabyte Ultra SMR more than doubled quarter over quarter, exceeding 1,700,000 units in the June. This marks one of the shortest qualification and VAM cycles in our history. The reliability, scalability, and TCO value of our ePMR and ultra SMR technologies that delivers the fastest time to value for our customers is core to our continued success in the data center market.

We aim to extend ePMR's strong track record of high yield, reliability, and a scalable performance into our next generation of hammer drives. The feedback from tests at two of our hyperscale customers continues to be encouraging. I'm pleased to note that we are ahead of our internal milestones with steady progress in aerial density improvement and continue to focus on increasing long term reliability and manufacturing yield of our HAMR products. Next, we will transition from testing to qualification stage with these customers, staying well on track for a ramp in the 2027. Meanwhile, our next generation of ePMR drives will complete qualification in the 2026.

These drives will continue to deliver strong TCO along with the hallmark reliability and predictability, paving the way for a smooth and economically sound transition to HAMR. In addition, the rapid rise of AI is also accelerating our platforms business. Our platforms technology enables us to deliver dense systems that extract the full performance and capacity of our drive. This business is building traction with infrastructure providers and is well positioned to support the growing number of native AI companies that don't have their own storage infrastructure teams. Let me now turn to our quarterly results and capital allocation updates.

For the fiscal fourth quarter, Western Digital delivered revenue of $2,600,000,000 non GAAP gross margin of 41.3% and non GAAP earnings per share of 1.66 Free cash flow for the quarter was $675,000,000 During the June, we lowered our debt by $2,600,000,000 via a combination of using cash on hand and a debt for equity exchange of a portion of our stake in Sandus. As a result, we have strengthened our balance sheet and achieved a net leverage target range of one to 1.5 times we communicated at our Investor Day in February in less than two quarters. Keeping with our commitment to returning cash to shareholders, we initiated a quarterly cash dividend program, and the Board authorized a $2,000,000,000 share repurchase program. In our fiscal fourth quarter, we repurchased nearly $150,000,000 worth of shares. Looking ahead, while the broader environment continues to be marked with uncertainty related to tariffs, we are seeing strong demand for our products driven by AI and related tailwinds in our business.

Our visibility into our customers' plans continue to improve, and we currently have firm POs or LTAs with all of our top five hyperscale customers covering our entire fiscal year 2026. This close collaboration with our customers enables us to plan more effectively and address their growing needs for storage. For the 2026, we expect continued revenue growth driven by data center demand and improved profitability led by adoption of our high capacity drives. Let me now turn the call over to Chris, who will discuss our fiscal fourth quarter results and Q1 fiscal year 'twenty six guidance in more detail.

Speaker 3

Thank you, Erwin, and good afternoon, everyone. I'm honored to be joining you today for my first earnings call as the chief financial officer of Western Digital. Over the past several weeks, I had the opportunity to perform a deep dive into our business and met with many of our valued employees across the company. I also had several meaningful engagements with customers, suppliers and partners, and the investor community. It's been a tremendously energizing experience, providing great insight into our strategic, financial, and operational priorities.

It's clear to me that Western Digital is now operating as a strategically focused hard disk drive company. The company is leveraging its technology leadership position, operational excellence, and deep customer engagements to provide innovative solutions to meet the evolving needs of its customers. This provides a strong foundation for growth, profitability, and cash flow generation that creates long term shareholder value. During the 2025, Western Digital delivered very strong financial results. Revenue was 2,600,000,000.0, up 30% year over year and earnings per share was $1.66 Revenue and EPS were above the high end of the guidance range.

We delivered 190 exabytes to our customers, up 32% year over year, driven by strong nearline shipments and the ramp of our 26 terabyte CMR and 32 terabyte ultra SMR drives. Cloud represented 90% of total revenue at 2,300,000,000.0, up 36% year over year, driven by strong demand for our higher capacity nearline product portfolio. Client represented 5% of total revenue at $140,000,000 up 2% year over year And consumer also represented 5% of revenue at 136,000,000, down 12% year over year. Gross margin for the fiscal fourth quarter was 41.3%. Gross margin improved six ten basis points year over year on a continuing operating basis and was above our guidance range.

The improved gross margin performance reflects continued mix shift towards higher capacity drives and tight cost control in our manufacturing sites and throughout the supply chain. Operating expenses were $345,000,000 slightly above guidance due to higher variable compensation on stronger than expected results. Operating income was $732,000,000 translating into an operating margin of 28.1%. Interest and other expenses were $52,000,000 a substantial reduction from the prior quarter due to the repayment of $2,600,000,000 of debt during the quarter. Taking into account an effective tax rate of 9.3% and a diluted share count of $362,000,000 shares, EPS was $1.66 up 22% sequentially.

Turning to the balance sheet, At the end of our fiscal fourth quarter, cash and cash equivalents were $2,100,000,000 and the total liquidity was $3,400,000,000 including the undrawn revolver capacity. During the quarter, we exchanged approximately 21,000,000 shares of SanDisk for debt. As a result, our term loan A reduced by 800,000,000 and we still own 7,500,000.0 shares of SanDisk. In addition, we redeemed 1,800,000,000.0 of the senior unsecured notes, resulting in gross debt outstanding of 4,700,000,000.0 at the end of fiscal twenty twenty five. We strengthened our balance sheet and achieved our target net leverage ratio of one to 1.5 times as outlined at our Investor Day.

Operating cash flow for the fiscal fourth quarter was $746,000,000 and capital expenditures were 71,000,000, resulting in strong free cash flow generation of $675,000,000 for the quarter. Backed by strong cash flow generation, a robust balance sheet, and confidence in the fundamentals of our business, the board authorized up to 2,000,000,000 of share repurchases. During the quarter, we repurchased approximately 2,800,000.0 shares for a total of $149,000,000. In addition, as announced during the last earnings call, the board initiated a cash dividend of 10¢ per share resulting in $36,000,000 of dividend payments during the quarter. The board also declared a quarterly cash dividend of $0.10 per share of the company's common stock payable on 09/18/2025 to shareholders of record as of 09/04/2025.

I will now turn to the outlook for the 2026. This guidance includes our current estimate of all anticipated or known tariff related impacts on our business in this period. We anticipate revenue to be 2,700,000,000.0 plus minus 100,000,000. At the midpoint, this reflects a growth of approximately 22% year over year. Gross margin is expected to be between forty one percent and forty two percent.

We expect operating expenses to increase on a sequential basis to a range of $370,000,000 to $380,000,000, including an additional week of expenses as Q1 will be a fourteen week quarter. Interest and other expenses are anticipated to be approximately 50,000,000. The tax rate is expected to be between 1619%. As a result, we expect EPS to be $1.54 plus minus $0.15 based on a non GAAP diluted share count of approximately $363,000,000 shares. In closing, Western Digital is well positioned to succeed in the AI driven data economy.

We remain committed to meeting our customers' growing storage needs while using our cash flow generation and strong balance sheet to deliver long term value for our shareholders. With that, I will now turn the call back to Irving.

Speaker 2

Thank you, Chris. Western Digital's strong results and positive outlook this quarter reflects the ongoing successful execution of our strategy and the continued trust our customers place in the performance, reliability and TCO advantages of our products. This combination of customer trust, strategic focus and disciplined execution is driving our strong financial results. With that, let's now begin with the Q and A. Over to you, Ambrish.

Speaker 1

Thank you, Irving. Operator, you can now open the line to questions, as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow-up question. Operator?

Speaker 0

We will now begin the question and answer session. The first question comes from Eric Woodring with Morgan Stanley. Your line is now open.

Speaker 4

Hey, guys. Thank you. Thank you very much for taking my questions and congrats on the results tonight. Chris, I wanted to kind of better understand the gross margin guidance for the September. You're calling for, I believe, 20 basis points of sequential gross margin expansion at the midpoint.

Can you maybe just help us unpack maybe why we're seeing that sequential gross margin expansion slow into the September? If there are any one timers or headwinds that are unusual in the quarter to call out? And I'll just ask the follow-up because it's related, which is beyond September, I realize you have a 38% gross margin in your three year financial model. As we progress to this up cycle though, how should we be thinking about the incremental margins in this business and maybe help us dream the dream of what's possible during this Thanks so much.

Speaker 3

Yes. Thanks, Eric, for the question. And so, first of all, I'm very pleased with the progress that we are making with our gross margin. As you probably recall, at the February Investor Day, we had, we announced a business model with a 38% gross margin. And so last quarter, even before I joined the company, I was very pleased to see that the company for the first time had gross margins with a Ford handle in the 40% range.

And last quarter in 2025, I'm very pleased with the fact that we delivered 41.3% gross margin. So really good progress for many quarters in a row. As you know, in gross margins, there's multiple elements that go into it. There is pricing, is mix, there is cost. And in each of those fronts, I think the company is executing really well.

Pricing is very stable environment. The mix is shifting in the right direction to higher capacity drives that is accretive to gross margins. And the operational team is executing really well, driving down cost reductions in the factories as well throughout the supply chain. And so I do believe there is further gross margin progression. We guided now 2026 to 41% to 42%.

I'm confident that the team will execute well and continue to focus on further gross margin improvements over time.

Speaker 4

Thank you very much, Christopher.

Speaker 1

Next caller please, operator.

Speaker 0

The next question comes from Aaron Rakers with Wells Fargo. Please go ahead.

Speaker 5

Your line Yes. Is for taking the question. I do have two, and I'll wait to ask a follow-up. I guess the first question, Chris, congrats on the results as well. But you've taken the debt down.

You're well within your targeted range of one to 1.5 on a leverage ratio basis. Strong free cash flow generation, you've got $2,100,000,000 in cash on the balance sheet. I'm curious as you start to think about share repurchase activity going forward, how should we as investors think about that? Or how do you think about excess cash generation or the right level of cash in the balance sheet that you'll operate the business at or rather the capacity for even stepping further on share repurchase going forward?

Speaker 3

Aaron, that's a great question. And here again, I'm really pleased with what I've seen in the company as well in terms of capital structure and capital allocation. And just to summarize it as well, there is very strong free cash flow. Just last quarter, the first quarter as the standalone hard disk drive company, we generated $675,000,000 of free cash flow, which was a 26 free cash flow margin. Now, not each and every quarter will be as strong as last quarter, but the business model is really a strong free cash flow business model.

In addition to that, the company has done a great job at strengthening the balance sheet at the time of the separation as well as last quarter where we retired $2,600,000,000 of debt. Now getting to a net debt of 2,600,000,000.0, which is on and about one time LTM EBITDA. So really good job there. And so there's no hesitation from the Board to the management team to continue to return cash back to the shareholders through a combination of our dividend program and the share repurchase program. The dividend program, we started with $0.10 per quarter.

I think there is room to grow that dividend over time. We're to be very thoughtful about that. But there was also no hesitation to switch on the buyback the day it got approved. You saw we did $150,000,000 I think over time as the cash flow generation continues to grow, we can do more and there will be no hesitation to execute the share repurchase program.

Speaker 1

Do you have a follow-up, Eric? Aaron, sorry.

Speaker 5

Yes, I do, Harish. Thank you. One of the metrics that you guys have historically given and it helps kind of bridge the hard disk drive versus the non hard disk drive business was the ASP. I didn't see that in tonight's release. So I'm curious if that's something that you could talk to or I guess maybe put another way, how do we think about the non HDD revenue in this most recent quarter than one?

Speaker 2

Yeah. Erin, thanks for the question. This is Irving. Obviously, ASP, per terabyte is obviously a function of mix, by and large. But I would say for last quarter, ASP per terabyte was down, low single digits.

Speaker 5

Thank you. The

Speaker 0

next question comes from Wamsi Mohan with Bank of America. Your line is open.

Speaker 6

Yes. Thank you so much, and congrats on your solid results as well. Could you maybe help us think a little bit longer term here? When you look at sort of the revenue contribution, 90% coming from cloud, does it really mean that the seasonality in the business is going to be materially different? And what I'm particularly wondering is, should we be thinking that you're just going to see sequential growth as demand is kind of strong, still all indications of cloud CapEx remain very strong, that you could grow through even typically a seasonal weaker like, quarter like the March?

And I have a follow-up.

Speaker 2

Yeah. Thanks, Wamsi, for the question. Look, I think you sort of got it well in the sense that we're structurally quite a different business today than we were in the past. As you highlighted, 90% of our business, is in the data center. A large portion of that business is driven by a few set of key hyperscale customers that we have.

They have multiyear CapEx programs to really invest in their data storage assets both to support the ongoing growth in the cloud and to also support the additional tailwind that they see coming from the AI revolution as well. So that plus the fact that we also now have moved to a fifty two week lead time program with them. And as we've highlighted, we have POs or LTAs for all five of our top customers spending the entire fiscal year 2026. And for two out of five of them all the way to the middle of fiscal 2027, we don't think that the seasonality of the past applies anymore. It's really driven by the cloud, CapEx spend of the big hyperscalers, in terms of their new data center deployments, their refresh cycles as well.

Having said that, we do recognize that we are in a cyclical business. At some point, those cycles, there will be periods of digestion as we highlighted in our Q3 results as well. But we pretty much have a really good handle on how the business is slowing over a twelve, eighteen month timeframe. But if I summarize it, you got it pretty right. The traditional seasonality of the past doesn't really apply to this business a lot more.

It's really driven, by the, programs that our hyperscale customers have in terms of new data centers coming online in their refresh cycles.

Speaker 6

Okay. That's super helpful, Erbang. And as my follow-up, Chris, I just want to go back to the incremental margin question that Eric asked around and you answered with the moving pieces being price mix and cost. So, we think about the sequential improvement in this June of 120 bps, what would you say was the biggest driver between those three elements? And as we look forward, where do you see the most opportunity?

I would think that, you know, the pricing is what it's going to be. It's pretty stable. It's kind of, you know, not maybe a huge incremental driver. So should we think that mix is really the biggest kind of contributor on a go forward basis as you mix up to these ultra SMR drives, or should I be thinking about it differently? Thank you so much.

Speaker 3

No, you have it right. Mix is the most important item that we as a company focus on. That's why we continue to invest in our technology and product roadmaps and really focusing on higher capacity drives. That is something that our customers are asking us for. That's something we are working and collaborating with our customers on.

And it's a win win situation For us, higher capacity drives typically translates into higher gross margin and, the company is executing really well on that.

Speaker 2

Yeah, maybe Wamsi, this is Irving. I'll just add on to what Chris said. So I echo exactly what is really driven very much by mix, and you would have seen that our latest generation of ePMR drives at 26 terabyte CMR and 32 terabyte ultra SMR, the number of units that we shipped doubled in the second quarter, out from just over 800,000 units in, last quarter to over 1,700,000 units this quarter. That's a clear recognition of our customers, seeing the TCO value that it delivers, the strong reliability that it delivers to and quality that they are comfortable and used to from our ePMR drives. And as I've highlighted in the past as well, these drives are not only at the leading edge of capacity points where the ability of our operations teams to deliver very high yields, is also adding to the profitability of that business.

And we look forward to introducing, our next generation ePMR drives, in the not too distant future. So I think there will be continued room to continue to deliver value, innovation, TCO benefit that we can benefit from and drive further margin expansion.

Speaker 1

Thank you, Wamsi.

Speaker 2

That's great. Thank you.

Speaker 0

Our next question comes from Karl Ackerman with BNP Paribas. Your line is now open.

Speaker 7

Yes, thank you. Thank you, gentlemen. So one of the main ways you have driven higher margins is from the adoption of Ultra SMR. And I was hoping if you could discuss the adoption curve and willingness of hyperscalers to grow their hard drive fleets based exclusively on Ultra SMR. I guess, is there a certain workload are there certain workloads where Ultra SMR is disadvantaged that would prevent you from attaining perhaps 100% of your fleet on ultra SMR?

Thank you.

Speaker 2

Hey, Kyle. Thanks for thanks for the question. Well, we have, in the past had two key customers on ultra SMR. We've just completed the qualification of a third, hyperscale customer out of our top five on ultra SMR, and they're starting to ramp ultra SMR in the second half of the calendar year. We now have a fourth customer in the process of qualifying Ultra SMR as well.

And again, to reiterate, it's very important to note that Ultra SMR is a technology that is that will be extensible into HAMR as well. As we transition into HAMR our HAMR products in the not too distant future, we will be able to deliver that on the ultra SMR platforms as well to enable our customers to take advantage of the incremental capacity points within that. Specifically, your question around workloads, it really depends on the application. So even in the existing customer environments that do use Ultra SMR today, there are some specific legacy workloads that they buy lower capacity drives, eighteens, 20 terabyte drives. But what we are seeing is for any new workloads that they are, bringing to the market, it's all on the highest capacity points that they can adopt, which is typically on ultra SMR.

Speaker 1

Do you have a follow-up, Carl?

Speaker 7

I do, if I may. So you and your peer have seen the strongest visibility in terms of order rates in really the longest time ever. That clearly speaks to the demand requests from hyperscale customers. Clearly, they would love to have you add capacity. Given the longer lead times and the sophistication of these customers, how do you balance the visibility with those customers as well as the demand requests for those customers as you plan your capacity planning and they can plan their hyperscale build outs for the next two years?

Thank you.

Speaker 2

Yeah. Thanks. It's a great question. So on the demand signal, I think the first step was really to educate our customers on the long lead times as the products become much more sophisticated as we move to higher capacity drives. We have highlighted and they're aware that really the long lead times are driven by the hit wafers that we have to produce that take roughly nine months to produce a hit wafer and another three months to convert them into a head stack.

It's a one year lead time on that component alone, and that's been instrumental in driving us to that twelve month LTA visibility. We are now also having conversations with them, as I've highlighted. With two of them, we now have eighteen months visibility. So that really is a key in terms of that partnership to get greater visibility to support their growth requirements. That's giving us a lot of insight into how we need to accelerate our aerial density improvements in our products.

That also is a function of why you saw the very rapid take up of our latest generation of ePMR drives. I think we will see something very similar, in our next generation of ePMR drives, out very soon as well. But again, the focus is on really delivering increased areal density, to our customers, through technologies like Ultra, SMR, OptiNan, and if there's any investment that we do need to make into capacity, it's really on the head and media side of our business to support aerial density improvement.

Speaker 1

Thank you, Karl.

Speaker 0

Our next question comes from Assia Merchant with Citigroup. Your line is now open.

Speaker 8

Great. Thank you. Thanks for taking my question. I think in the last call, were some discussion on tariffs and some potential for enterprise slowdown. Just curious if you have anything to suggest there, any updates there?

And you know, how do we make sure how do we how are you making sure that some of this demand is not just related to tariff pull forward? Thank you.

Speaker 2

Yeah. Thanks, Ashley, for the question. I guess there are two parts to the question. First, on the the enterprise demand, we we called it out as a risk with the potential concern that the impact of tariffs might have. We haven't seen that materialize.

So, obviously, the tariffs some of the reciprocal tariffs got pushed out as well. So we haven't seen that yet. But again, as I highlighted, some of the potential softness in enterprise, which didn't materialize, we would pick up in the cloud anyway because enterprises would move from CapEx to consumption based models. So we sort of netted off regardless, but we haven't seen any of that risk materialize. To your second question about tariffs, it's a very fluid and dynamic situation, but we don't see any double ordering, based on the analysis that we've done.

We look at in quarter linearity trends and they're very similar, to what we've seen historically. We compare that against the twelve month lead times that our customers have given us either through firm POs or through LTAs and they're pretty much matching those same projections to the T. And last but not least, we're in a very, very tight supply environment. So our ability to deliver upside within a quarter is also very limited. For those reasons and the fact that we do monitor, our customer inventory levels the best we can, we don't see any pull forward as a result of tariffs as of now.

Speaker 1

Thank you for your two questions, Assia. We'll go to the next caller, please.

Speaker 0

Yes. The next question comes from Tom O'Malley with Barclays. Your line is now open.

Speaker 9

Hi, guys. Thanks for taking my question. I just wanted to make sure I heard this correctly. You guys said ASPs in the June were down low single digits. Is that correct?

Speaker 3

So, Tom, ASPs per drive continue to go up as we move to higher capacity drives, but ASP per terabyte was slightly down, but mostly driven by mix because the price environment is very stable.

Speaker 9

Got it. That makes sense. And then I guess as a follow-up, if you look at the market today, I think that your competitor had talked about an exabyte target where after that certain target, think they said around 160 exabytes, they would need to see growth really exclusively from technology transitions. I asked you last quarter, but in terms of where you guys stand, is there any mark that you would call out as that kind of waterfall? Is there a spot that you would say, from this point forward, we only need technology transitions to move forward just in your ability to capacity kind of constrain the market?

Anything you have there.

Speaker 2

Yeah. Tom, I would say that if you look at the last quarter, we delivered 190 exabytes, and that's really a result of the, latest generation of ePMR drives that we've delivered. So our ability to not only produce higher capacity drives, but our ability to produce them at scale with high yields, I think has really differentiated us. And so, we look we are laser focused on continuing to ensure we have high yields, of our components, our drives and continuing to deliver, products to our customers at scale. So as a result of that, we don't have to make any incremental investments into capacity.

Speaker 1

You. Next caller please, operator.

Speaker 0

Our next question comes from Amit Daryanani with Evercore. Your line is open.

Speaker 10

Thanks. I guess maybe to start with, I was hoping you folks could spend a better time on talking about how does the extra week flow through your P and L and on the revenue and OpEx side, and what's the right OpEx run rate to think about beyond that extra week?

Speaker 3

Yeah. On the revenue side, our customers, they think in in quarterly buckets in line with their long term forecasts and LTAs and POs that they have placed. So we don't really see much on the revenue side. There might be a little bit of a benefit in consumer retail side of the business. But as you know, that's relatively small for Western Digital.

On the OpEx side, however, it is an extra week. And so I would say it's all about 15 one-five million of incremental spend that happens in 2026. Obviously looking ahead to Q2, Q3, Q4 that comes out of it as those quarters are normal thirteen week quarters. Follow-up Amit?

Speaker 10

I do. Thanks a lot. Erwin, you initially I think spoke a good bit about AgenTik AI deployment and how that could drive demand for HDDs. I think about your Analyst Day, you talked about like 20% exabyte growth, mid to high single digit revenue growth for the company. As you start to see AI getting deployed, I'm wondering how do you think those numbers can move higher?

And if there's way to quantify what kind of tailwind this would provide for your business longer term? Thank you.

Speaker 2

Yeah. Thanks, Amit, for the question. Yeah. If you recall, what we presented at Investor Day was a base model that 15 exabyte growth. That was primarily driven by the sort of secular growth in the cloud, and we highlighted the potential upside of that 15 exabyte CAGR growth to 23%, as a result of an AI uplift.

We're to see some of that uplift materialize. So, it's still early days, but we think that the exabyte growth is more between a 15% to 23% range rather than the base number that we've highlighted. In that model that we presented at, Investor Day, we also had a 7% ASP decline. As Chris highlighted, we're seeing a much lower ASP decline in the low single digits as well. So, as we see exabyte growth trend more to that 23% level and ASPs in the low single digits, there's definitely opportunity for revenue growth from a CAGR perspective to go from the sort of mid to high single digit range that we have highlighted at Investor Day to trend more towards the mid teens.

And if you take that mid teens revenue growth with the OpEx levels that we've highlighted, we will probably be at an OpEx level of 10% of OpEx to revenue. So hopefully that gives you a sense of bridging what we shared at Investor Day and the changing outlook that we see in the business as a result of the AI tailwinds that we're beginning to highlight.

Speaker 1

Thank you, Amit.

Speaker 10

Thank you.

Speaker 0

Our next question comes from Ananda Baruahi with Loop Capital. Your line is now open.

Speaker 11

Yes. Good afternoon, guys. Thanks for taking the question. I really appreciate it. Two, if I could, I'll go one into one.

Could you Irvin, could you remind us of the Aerial Density Roadmap from here until HAMR? And where do you think HAMR where do you think you come out aerial density wise, let's say, you sort of execute through the first half twenty twenty calendar year twenty twenty seven roadmap? Where do you think you are aerial density wise there? So the roadmap up to that point, and then where do you think you'd come out at, Nithamura? Thanks.

Speaker 2

Sure. No problem. So our current, EPMR product, that we've brought into the marketplace is a 26 terabyte CMR, 32 terabyte UltraSMR. We have highlighted in our road map that we look to start qualification for our next generation of ePMR, which will be our final generation of ePMR in the first half of calendar year 2026. That will be a 28 terabyte CMR, 36 terabyte Ultra SMR.

And then we will start qualification of HAMMER in the second half of calendar '27 with ramp in the 2027, calendar year 2027. That will be at the 38 terabyte CMR, 44 terabyte UltraSMR. As we've highlighted in the past, we feel the four terabyte per platter, if you assume a 10 disk drive, 40 terabyte drive, four terabytes per platter is sort of where we see things as of now, the economic crossover where it makes economic sense to transition to HAMR.

Speaker 11

That's great. Thanks.

Speaker 8

Do have

Speaker 1

a follow-up on it?

Speaker 11

I do, Ambrish. And really more of a clarification, you guys mentioned the platforms business and opportunity to sell dent systems into native AI companies still have their own infrastructure. Are those the Neo Cloud? Is that what you're talking about? And then how many of those like and if yes, like what's a useful way to think about which of that cadre may not have their own infrastructure teams?

I'd imagine some of the larger ones do. So just in a useful context would be helpful. Thanks.

Speaker 2

Sure. Thanks for the question. I'll give you some insight. We we actually do have really one large, cloud provider that's buying platforms, from us today that's, being deployed at scale. We also have quite a significant number of storage as a service providers that are leveraging, our platforms business as well to deliver, those services, to customers.

And, as you've highlighted, a lot of the neo clouds, their primary focus is really on driving, compute capability, supporting their customers with their, LLM development, and then really looking at how they can either leverage the cloud or, our platform like systems to really support their storage requirements going forward. So, we think there's a lot of links to this business. Obviously, it's early days. And very similar to what we saw, in the cloud, it starts with compute, and then eventually, it will come down to storage as we we saw even in AI in the mainstream cloud where it was GPUs first, HBMs, DRAMs, then eventually, we are seeing that flow through to storage. We think that sort of trend will play itself out in the Neo Cloud as well and be very beneficial for our platforms business.

Speaker 1

Thank you, Anand.

Speaker 11

Thank you, Anand.

Speaker 0

And our last questioner today will come from Mark Miller with The Benchmark Company. Your line is open.

Speaker 12

Thank you for the question. I'm just wondering, could you actually quantify the hard drive ASPs in the quarter?

Speaker 1

Sorry, what's the question?

Speaker 12

What were your hard drive ASPs in the June quarter?

Speaker 3

You mean unit?

Speaker 12

The average selling price, yeah, Pretty hard drives.

Speaker 1

Yeah. So we as as you see in our disclosures, this is Ambrish, we have stopped providing ASP per unit because as Irving highlighted earlier, that what's more important for our business is EB. And so just to give you context of why we changed and what we are providing now. Chris, you want to add to that?

Speaker 3

Yes. And I think we provided the units and so I think it's you can easily do the math and you will see, I think a substantial sequential as well as year over year growth in our revenue per drive that we have. But again, a lot of it depends on the mix of our overall revenue. And so for me that number is somewhat meaningful. Yes, it's trending upwards, again, mostly driven by the move to higher capacity drives, something that we work with our customers on.

Speaker 12

And just finally, DSOs for the quarter?

Speaker 3

DSO? Right. I don't have it on the top of my head, but we did as a company, we did a really good job at managing our working capital. I'm very comfortable with the level of inventory that we have right now, which is on or about $1,300,000,000 that translate into days of inventory of seventy six days. And then the DSOs came down, I believe six days on a sequential basis and is now at fifty two days.

So again, really, as you know, DSOs is mostly driven by the billings linearity within the quarter. And as Irving indicated that before that continues to be very strong as well.

Speaker 1

Thank you.

Speaker 0

This concludes our question and answer session. I would like to turn the conference back over to Irving Tan for any closing remarks.

Speaker 2

Thank you all again for joining us today and your interest in Western Digital. As our results and guidance show, we continue to make good progress executing on our strategy. And we look forward to sharing more on exciting innovations we have in the pipeline and actions we are taking towards creating long term shareholder value in future calls. Let me close by giving a call out to all our WD drivers who show up every day, making a difference for our customers, shareholders, ecosystem partners, and each other. Thank you all very much, and have a great day ahead.

Speaker 0

This concludes today's conference call. Thank you for joining. You may now disconnect.