Q2 2025 Earnings Summary
- Western Digital is seeing strong demand in the enterprise SSD segment and is tracking its targets, expecting continued strong demand throughout the year.
- The company is launching new high-capacity HDDs, including 32-terabyte SMR and 24-terabyte CMR drives, which have generated strong customer excitement and are expected to drive growth in the HDD business throughout 2025.
- Despite a mid-cycle pause, Western Digital expects NAND demand to recover as it moves through 2025 and into 2026, with PC and smartphone units increasing and data center demand remaining strong. The company is proactively adjusting supply to support pricing and improve margins.
- Western Digital anticipates a sequential decline in HDD revenue for the fiscal third quarter, attributed to lower volume and supply-demand tightness, potentially signaling slowing demand or supply constraints in their HDD business.
- The company is experiencing pricing headwinds in its NAND business due to market oversupply, leading to expectations of Flash revenue declining sequentially by mid-teens percentage and gross margin decreasing in the fiscal third quarter. This includes underutilization charges of $20 million to $30 million as they manage supply.
- Increased underutilization charges are expected to continue into the June quarter, which could negatively impact profitability. Additionally, there is a risk of inventory write-downs depending on future pricing trends, as the company's inventory valuation is sensitive to market pricing.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +41% | The growth stemmed from strong demand in Cloud solutions and continued recovery in Flash pricing, lifting overall sales compared to the weaker environment in the prior year. This uptick was also supported by higher nearline HDD shipments to data centers. |
HDD Segment | +76% | The rebound was driven by robust nearline HDD demand, particularly from hyperscale customers, and improved pricing. Continued adoption of higher-capacity drives also contributed to the segment’s revenue upswing. |
Flash Segment | +13% | Despite a still-recovering consumer market, data center SSD demand and moderate improvement in Flash pricing lifted revenue. This growth was tempered by softness in certain client applications, where OEMs remained cautious in their inventories. |
Cloud Solutions | +119% | The surge was primarily attributable to heavy nearline HDD purchases by cloud customers and increased enterprise SSD shipments, benefiting from ongoing data center expansions and higher storage needs. |
Consumer Segment | -8% | A combination of softer consumer demand and lower HDD and Flash bit shipments drove this decline, partially offset by improved pricing in some product lines. |
Operating Income | Improved from - $21M to $852M | The shift to profitability was propelled by better gross margins (thanks to cost controls and higher ASPs in both HDD and Flash) and strong revenue in the Cloud segment. Lower underutilization charges also aided the rebound compared to last year. |
Net Income | Improved from - $287M to $594M | Higher margins and disciplined cost management produced a stronger bottom line, aided by favorable mix of nearline HDDs and enterprise SSDs. Last year’s net loss was notably impacted by underutilization-related costs and weaker demand. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | no prior guidance | $3.75B - $3.95B | no prior guidance |
Gross margin | Q3 2025 | no prior guidance | 31.5% - 33.5% | no prior guidance |
Operating expenses | Q3 2025 | no prior guidance | $700M - $720M | no prior guidance |
Interest & other | Q3 2025 | no prior guidance | $100M | no prior guidance |
Tax rate | Q3 2025 | no prior guidance | 14% - 16% | no prior guidance |
EPS | Q3 2025 | no prior guidance | $0.90 - $1.20 | no prior guidance |
Flash revenue | Q3 2025 | no prior guidance | mid-teens% decline | no prior guidance |
Flash gross margin | Q3 2025 | no prior guidance | Decrease due to lower ASPs | no prior guidance |
Flash bit shipments | Q3 2025 | no prior guidance | mid-single-digit% decline | no prior guidance |
HDD revenue | Q3 2025 | no prior guidance | mid- to high single-digit% decline | no prior guidance |
HDD gross margin | Q3 2025 | no prior guidance | 50 bps improvement | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | 4.2B – 4.4B | 4,285M | Met |
Gross Margin | Q2 2025 | 37% – 39% | ~35% (calculated from Revenue 4,285– COGS 2,769) | Missed |
Operating Expenses | Q2 2025 | 695M – 715M | 740M (SG&A 238+ R&D 502) | Missed |
EPS (Diluted) | Q2 2025 | 1.75 – 2.05 | 1.63 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent focus on enterprise SSD demand | Q1 2025, Q4 2024, Q3 2024: Repeatedly cited as a major growth driver in AI/data center spaces | Emphasized AI-driven data creation and critical role of enterprise SSDs | Continues to be a vital theme, with stronger AI tailwinds |
Ongoing high-capacity HDD innovations | Q1 2025, Q4 2024, Q3 2024: Key to HDD growth, margin expansion | 32TB SMR, UltraSMR/ePMR stressed as top margin drivers | Ongoing emphasis on new capacity points |
Supply-demand balance in the HDD market | Q1, Q4, Q3 2024: Improved vs. past oversupply, noted as critical for pricing stability | Tight supply, potential constraints; BTO model to match customer demand | Remains a recurring point, still tight |
NAND pricing challenges | Q4, Q3 2024: No underutilization charges reported; more stable outlook then | Moved from undersupply to oversupply; underutilization charges up to $30M | Newly emerged oversupply leading to margin pressure |
Consumer flash weakness | Noted in Q1, Q4 2024 for slower recovery, softer demand | Sequential unit growth but margin hit by broader NAND oversupply | Ongoing softness, though some signs of incremental unit recovery |
Record/improving HDD gross margins vs. rev. | Q1, Q4, Q3 2024: Strong exabyte growth, margins; less warning about sequential dips | Record HDD margins, caution on near-term revenue dip | Shift from purely bullish to guarded optimism |
Separation costs/dis-synergies | Q1, Q4 2024: $8M, then $15–25M range mentioned | About $17M synergy expenses and $25–40M dis-synergy in next quarter | Mentioned but less frequently discussed lately |
Returning to free cash flow positive | Discussed in Q3 2024, then no follow-up | Not addressed in Q2 2025 | No longer mentioned |
Newly introduced underutilization in NAND | Q1, Q4 2024: No mention of new underutilization measures; Q3 2024 also had none | $20M–$30M charges, adjusting outputs to handle oversupply | New response to market pressures |
Seasonality and mid-cycle pauses | Q1 2025: Mainly noted consumer seasonality; mid-cycle term not highlighted in Q4/Q3 | Now cited as factors for both HDD and Flash soft spots | Emerged as a new lens for near-term volatility |
HDD sentiment shift | Q3/Q4 2024: Mostly bullish sentiment, record exabytes | Despite strong margins, management warns sequential revenue could dip | Evolving from purely high-growth to mild caution |
NAND sentiment shift | Q4 2024: Focus on enterprise SSD strength, stable pricing | Undersupply view replaced by oversupply and pricing erosion | Clear change in outlook due to oversupply |
AI data cycles | Q1/Q4/Q3 2024: Central theme for enterprise SSD expansion | Continues as a long-term driver for both Flash and HDD | Remains consistently pivotal |
High-capacity HDD transitions | Q1/Q4 2024: 32TB UltraSMR ramp and margin benefits stressed | 32TB SMR/26TB CMR nearing qualification, expected to boost profitability | Key driver for future competitiveness |
Potential consumer market turnaround & re-integration | Q1 2025: Ongoing Flash/HDD separation progress, mild consumer improvement hopes | Consumer segment sees partial pickup but still margin pressure; separation nearing completion | Limited new detail; separation is the main action |
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HDD Supply-Demand Balance
Q: Is the sequential decline in HDD revenue due to seasonality, and how is supply-demand affecting pricing and margins?
A: Demand for HDDs continues to exceed supply, and although revenue may be slightly down next quarter due to timing and supply chain management, the business remains robust with increasing profitability. We expect pricing to remain stable to slightly up for Q3, and our new 32-terabyte drives will enhance capacity offerings, supporting future growth. -
NAND Business Spin-Off
Q: Are there regulatory issues affecting the NAND spin-off, and is it on track?
A: We are confident the spin-off of our NAND business is on track, with key dates approaching. The record date for distribution is imminent, and the distribution is expected on or about February 21, after which SanDisk shares will trade actively. No major regulatory hurdles are anticipated. -
NAND Gross Margins and Underutilization
Q: How are underutilization charges impacting NAND gross margins, and what are the cost trends?
A: NAND gross margins are impacted by underutilization charges of around $20 million to $30 million this quarter. We're seeing cost increases in Q3, with costs up low single digits after prior cost declines. We're also facing ASP headwinds, though we expect these to moderate next quarter. Bits are down mid-single digits, affecting gross margins. -
NAND Demand Recovery Expectations
Q: What are your assumptions about NAND demand recovery in PCs and smartphones?
A: We expect PC and smartphone units to be up by the end of '25, with mid-teens demand growth for the calendar year. The market is slightly undersupplied to that demand. Some anticipated demand has been pushed out, but we're optimistic and adjusting supply to support pricing as we move through '25. -
Capital Expenditure Plans in NAND
Q: How are you approaching capital expenditures in the NAND business given current market conditions?
A: We remain disciplined in deploying capital and see no change in our CapEx approach. While we plan to ramp the next node eventually, we're focusing on managing supply-demand balance and supporting pricing. More details will be shared at our upcoming Investor Day. -
Exabyte Shipment Capacity and Constraints
Q: What is your maximum exabyte shipment capacity in HDDs given current supply constraints?
A: We're focused on ensuring the right supply-demand balance and maintaining discipline in capital expenditure. While we won't specify a capacity limit, we acknowledge operating in a tight supply chain and continue to manage operations to meet customer demand without overextending capacity. -
Flash in Hyperscale Storage
Q: How do you view the role of flash storage in hyperscale environments traditionally dominated by HDDs?
A: Both flash and HDDs have essential roles in hyperscale markets, driven by use cases. While flash is growing faster and is used for applications like AI model training, HDDs remain crucial for bulk data storage due to cost advantages. We see stable demand for both technologies, with AI and data growth driving storage needs, benefiting both flash and HDDs.
Research analysts covering WESTERN DIGITAL.