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WESTERN DIGITAL CORP (WDC) Q2 2025 Earnings Summary

Executive Summary

  • Revenue of $4.29B up 5% QoQ and 41% YoY; non-GAAP EPS $1.77 with non-GAAP gross margin 35.9%, below the prior quarter’s guided range due to NAND pricing pressure .
  • HDD delivered record performance: nearline shipments reached 154 exabytes and average price per HDD rose to $172; HDD gross margin improved to 38.6% on strong UltraSMR adoption .
  • Flash faced pricing headwinds and a “mid‑cycle pause”; management is proactively reducing supply, expecting underutilization charges of $20–$30M and moderating ASP pressure in Q3 .
  • Q3 FY25 guidance: revenue $3.75–$3.95B, non-GAAP GM 31.5–33.5%, OpEx $700–$720M, EPS $0.90–$1.20; directional detail includes mid‑teens decline in Flash revenue and mid‑ to high‑single digit decline in HDD revenue with ~50bps HDD GM improvement .

What Went Well and What Went Wrong

What Went Well

  • HDD outperformance: “data center revenue hitting an all‑time high” with record HDD gross margin, driven by strong nearline adoption and UltraSMR portfolio; nearline shipments at 154 exabytes and ASP at $172 .
  • Product leadership: management highlighted “cutting‑edge UltraSMR technology” and ramp/qualification of 32TB SMR and 24/26TB CMR drives among hyperscalers, reinforcing TCO and capacity leadership .
  • Cost discipline and cash generation: non-GAAP OpEx fell to $674M and operating cash flow reached $403M; free cash flow was $335M, reflecting tight spend and separation execution progress .

What Went Wrong

  • Margin miss vs prior guide: non-GAAP GM of 35.9% fell below the Q1 guidance range (37–39%) on Flash pricing pressure and cost uptick; Flash GM declined 6.4ppt sequentially .
  • NAND “mid‑cycle pause”: management cited oversupply and client inventory digestion; actions include lower utilization (underutilization $20–$30M in Q3 and higher in Q4) and supply reductions to stabilize pricing .
  • Softer forward profile: Q3 revenue and EPS guides down sequentially; Flash revenue mid‑teens down, bits down mid‑single digits; HDD revenue mid‑ to high‑single digits down on lower volume despite expected ~50bps GM improvement .

Financial Results

MetricQ4 2024Q1 2025Q2 2025
Revenue ($USD Billions)$3.764 $4.095 $4.285
GAAP EPS ($USD)$0.88 $1.35 $1.63
Non-GAAP EPS ($USD)$1.44 $1.78 $1.77
Non-GAAP Gross Margin %36.3% 38.5% 35.9%
Non-GAAP Operating Income ($USD Millions)$666 $884 $864
Non-GAAP Operating Expenses ($USD Millions)$700 $691 $674

Year-over-year (Q2 2025 vs Q2 2024):

MetricQ2 2024Q2 2025
Revenue ($USD Billions)$3.032 $4.285
GAAP Gross Margin %16.2% 35.4%
Non-GAAP Gross Margin %15.5% 35.9%
GAAP Operating Income (Loss) ($USD Millions)$(210) $852
Non-GAAP Operating Income (Loss) ($USD Millions)$(91) $864
GAAP EPS ($USD)$(0.93) $1.63
Non-GAAP EPS ($USD)$(0.75) $1.77

End‑Market Revenue Breakdown:

End Market Revenue ($USD Millions)Q2 2024Q1 2025Q2 2025
Cloud$1,071 $2,208 $2,346
Client$1,122 $1,209 $1,168
Consumer$839 $678 $771
Total Revenue$3,032 $4,095 $4,285

Segment Operations:

SegmentQ2 2024 Revenue ($M)Q1 2025 Revenue ($M)Q2 2025 Revenue ($M)Q2 2024 GM %Q1 2025 GM %Q2 2025 GM %
HDD$1,367 $2,211 $2,409 24.8% 38.1% 38.6%
Flash$1,665 $1,884 $1,876 7.9% 38.9% 32.5%
Total$3,032 $4,095 $4,285 16.2% (Consolidated) 37.9% (Consolidated) 35.4% (Consolidated)

Key KPIs:

KPIQ4 2024Q1 2025Q2 2025
Nearline Exabyte Shipments125 EB 141 EB 154 EB
Avg Price per HDD Unit$163 $164 $172
Operating Cash Flow ($USD Millions)$366 $34 $403
Free Cash Flow ($USD Millions)$282 $(14) $335

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)Q3 FY25N/A$3.75 – $3.95 New; sequentially lower vs Q2 actual
Non-GAAP Gross Margin %Q3 FY25N/A31.5% – 33.5% New; below Q2 non‑GAAP GM
Non-GAAP OpEx ($M)Q3 FY25N/A$700 – $720 New; slight increase vs Q2 non‑GAAP OpEx
Interest & Other Expense ($M)Q3 FY25~ $110 (Q2 guide) ~ $100 Lower
Non-GAAP Tax RateQ3 FY2515% – 17% (Q2 guide) 14% – 16% Lower
Non-GAAP EPS ($)Q3 FY25N/A$0.90 – $1.20 New; sequentially lower vs Q2 actual
Diluted Shares (M)Q3 FY25~357 (Q2) ~358 Slightly higher

Q2 FY25 actual vs Q1 FY25 guidance (issued in Oct):

MetricPeriodPrevious Guidance (Q2 guide issued Oct)Actual (Q2 FY25)Result
Revenue ($B)Q2 FY25$4.20 – $4.40 $4.285 Within
Non-GAAP GM %Q2 FY2537.0% – 39.0% 35.9% Miss
Non-GAAP OpEx ($M)Q2 FY25$695 – $715 $674 Beat (lower spend)
Non-GAAP EPS ($)Q2 FY25$1.75 – $2.05 $1.77 Within (low end)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY24, Q1 FY25)Current Period (Q2 FY25)Trend
AI/Technology initiativesPCIe Gen5 enterprise SSD qualification at hyperscaler; sampling 64TB SSD; BiCS8 2Tb QLC die; UltraSMR roadmap; HDD margins above target Continued AI-driven demand; strong enterprise SSD momentum; nearline record; UltraSMR adoption broadening; focus on premium nodes in NAND Strengthening; portfolio gaining traction
Supply chain/visibilityMove to 52‑week HDD lead times; better supply‑demand balance; build‑to‑order, increased visibility Tight HDD supply, better long‑term planning; volatility in shipments quarter‑to‑quarter but improving predictability Improving visibility; tight supply persists
NAND pricing/macroNegotiated markets (eSSD) strong; transactional consumer softer; expecting balanced undersupply over back half of year Mid‑cycle pause, oversupply; pricing headwinds moderating next quarter; supply reductions and underutilization charges Near-term soft; stabilization actions underway
Product performanceNearline EB and ASP increases; 32TB UltraSMR/26TB CMR sampling, third hyperscaler adoption; HDD GM expansion Nearline EB 154; HDD ASP up to $172; HDD GM up; Q3 guide implies further HDD GM improvement ~50bps Sustained outperformance
Regulatory/legalPatent litigation charges discussed; accounting assessments in Q4/Q1 press releases No new case detail; separation financing milestones and timing reiterated Litigation stable; separation progressing
R&D/CapExDisciplined capex, low cash capex ~2% revenue; cost down programs mid‑ to high‑single digit for HDD, ~15% NAND Maintain discipline; near‑term NAND cost up low single digits in Q3; CapEx approach unchanged; underutilization expected Continued discipline; tactical utilization cuts

Management Commentary

  • “Our HDD business continues to perform well, propelled by our cutting‑edge UltraSMR technology… driving our HDD revenues to a 12‑quarter high with a record non‑GAAP gross margin.” — CEO David Goeckeler .
  • “Gross margin for the fiscal second quarter was 35.9%, which was below our guidance range… Flash gross margin was 32.5%, down 6.4 percentage points sequentially due to pricing pressure late in the quarter.” — CFO Wissam Jabre .
  • “We believe that we are currently in a mid‑cycle pause… Given stronger‑than‑anticipated pricing headwinds… we are proactively managing production levels.” — CEO David Goeckeler .
  • “For Flash, we expect revenue to decline sequentially in the mid‑teens… and underutilization charges of $20 million to $30 million as we manage our supply.” — CFO Wissam Jabre .
  • “In the fiscal third quarter, we anticipate continued momentum in data center… supply is now very tight… enabling better planning for product deliveries.” — CEO David Goeckeler .

Q&A Highlights

  • HDD outlook and sequential decline: Management cited timing of deployments and tight supply; expect slight revenue decline in Q3 but continued margin improvement (~50bps) as ASP trends higher .
  • NAND underutilization and pricing: Underutilization charges of $20–$30M in Q3 and higher in Q4; ASP headwinds expected to moderate next quarter; near‑term NAND cost up low single digits impacting GM .
  • Enterprise SSD traction: Still tracking to targets; mix expected 15–20% of Flash shipments in FY25; demand robust across AI training infrastructure .
  • Capacity/visibility: Build‑to‑order and 52‑week visibility reduce inventory risks; no immediate need to expand HDD footprint absent stronger long‑term signals .
  • Product roadmap: 32TB SMR and 24/26TB CMR qualifications progressing; customers enthusiastic; UltraSMR extensible across future HAMR transition .

Estimates Context

  • S&P Global Wall Street consensus for Q2 FY25 EPS and revenue was unavailable at time of analysis due to data access constraints. As a proxy, we compare actual results versus company guidance: revenue delivered within prior guided range; non‑GAAP EPS at the low end; non‑GAAP GM below guided range .
  • Given Q3 guidance indicating lower revenue/EPS and specific underutilization charges, consensus estimates may need to reflect softer near‑term Flash pricing and utilization, with HDD margins trending higher on ASP/mix .

Key Takeaways for Investors

  • HDD is the earnings engine near term: record nearline EB (154) and ASP ($172), with continued margin tailwinds from UltraSMR and higher density drive mix; Q3 HDD GM guided ~50bps higher despite lower volume .
  • Flash faces a tactical reset: pricing headwinds and client inventory digestion drive a mid‑cycle pause; supply reductions and underutilization charges ($20–$30M in Q3) aim to stabilize pricing; ASP headwinds expected to moderate next quarter .
  • Q2 result vs prior guidance: revenue and EPS within guidance, but non‑GAAP GM miss underscores NAND pricing/cost pressure; OpEx discipline a positive offset .
  • Q3 guide reset: revenue $3.75–$3.95B, EPS $0.90–$1.20, GM 31.5–33.5%; Flash down mid‑teens; HDD down mid‑ to high‑single digits but margin up—set expectations accordingly for mix and profitability drivers .
  • Cash and balance sheet: $403M operating cash flow and $335M FCF; cash and equivalents $2.291B; liquidity ~$4.5B including undrawn revolver—supportive for separation and tactical NAND supply actions .
  • Separation milestone: financing arranged; separation completed subsequently (Feb 24, 2025) with new leadership structure—monitor disclosure cadence and segment‑specific guidance going forward .
  • Trading implications: Near‑term narrative centers on HDD strength vs Flash softness; watch for pricing stabilization signals in NAND, underutilization progression, and qualification/ramp updates for 32TB UltraSMR and enterprise SSDs—key catalysts for margin/earnings trajectory .

Additional Notes

  • Balance sheet snapshots: cash and equivalents $2.291B; gross debt $7.4B; total assets $25.456B as of Dec 27, 2024 .
  • Non-GAAP adjustments included stock-based compensation, business separation costs, litigation, and other items; reconciliations provided in the 8‑K .
  • Investor day references and timing were discussed on the call; follow-ups may refine segment‑level outlook post separation .

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