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    WESTERN DIGITAL (WDC)

    Q2 2025 Earnings Summary

    Reported on Feb 7, 2025 (After Market Close)
    Pre-Earnings Price$47.45Last close (Jan 29, 2025)
    Post-Earnings Price$50.21Open (Jan 30, 2025)
    Price Change
    $2.76(+5.82%)
    • 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.
    MetricYoY ChangeReason

    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.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    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

    MetricPeriodGuidanceActualPerformance
    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
    TopicPrevious MentionsCurrent PeriodTrend

    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

    1. 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.

    2. 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.

    3. 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.

    4. 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.

    5. 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.

    6. 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.

    7. 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.