WESTERN DIGITAL CORP (WDC) Q3 2025 Earnings Summary

Executive Summary

Q3 FY2025 revenue was $2.294B, down 5% QoQ but up 31% YoY, with non-GAAP gross margin reaching 40.1% and non-GAAP EPS of $1.36; GAAP EPS was $2.11 .
Versus Street, WDC delivered a mixed print: EPS beat (consensus $1.11*) while revenue missed (consensus $2.48B*); EBITDA modestly beat (consensus $639M*) .
Guidance for Q4 FY2025 implies sequential growth: revenue $2.45B ± $150M, non-GAAP gross margin 40–41%, non-GAAP EPS $1.45 ± $0.20, and non-GAAP tax rate 8–10% .
Strategic capital return: initiated a quarterly dividend of $0.10/share and subsequently authorized a $2.0B share repurchase program; also redeemed $1.8B of 2026 notes (reducing gross debt) .
Key catalysts include rapid ramp of 11-disk 26TB CMR / 32TB UltraSMR drives (>800K units shipped in March quarter; >1M expected in June) and long-term agreements with two hyperscalers extending into 1H CY2026 .

What Went Well and What Went Wrong

What Went Well

Cloud strength and pricing: Cloud revenue reached $2.007B (87% mix); pricing per unit up 5% QoQ while nearline bit shipments were 145 exabytes; Cloud revenue +38% YoY .
Margin expansion: Non-GAAP gross margin of 40.1% (+170bps QoQ; +1,000bps YoY) driven by product mix, pricing discipline and operational execution; GAAP gross margin 39.8% .
Product ramp and visibility: 11-disk platforms ramping rapidly (800K units shipped, >1M targeted next quarter); LTAs with two hyperscalers now extend into H1 CY2026, improving planning and demand visibility .
- “Western Digital executed well…revenue at the high end of our guidance range and gross margin over 40%” — Irving Tan, CEO .

What Went Wrong

Sequential revenue decline: Total revenue fell 5% QoQ as Cloud (-4%), Client (-2%), and Consumer (-13%) each declined sequentially; Consumer weakness due to lower units and pricing .
Tariff-related uncertainty: Management highlighted potential demand uncertainty in enterprise/distribution/retail segments given evolving tariff dynamics, widening the Q4 revenue range .
Flash separation and discontinued operations noise: Post-Separation accounting created GAAP volatility (e.g., unrealized loss on retained interest in Sandisk and litigation reversals affecting GAAP P&L and tax), though non-GAAP results strip these effects .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Billions)	$1.752	$4.285	$2.294
GAAP Gross Margin (%)	29.6%	35.4%	39.8%
Non-GAAP Gross Margin (%)	30.1%	35.9%	40.1%
GAAP Operating Expenses ($USD Millions)	$425	$664	$152
Non-GAAP Operating Expenses ($USD Millions)	$375	$674	$324
GAAP Operating Income ($USD Millions)	$94	$852	$760
Non-GAAP Operating Income ($USD Millions)	$153	$864	$596
GAAP Diluted EPS ($)	N/M	$1.63	$2.11
Non-GAAP Diluted EPS ($)	N/M	$1.77	$1.36
Operating Cash Flow ($USD Millions)	$135	$403	$508
Free Cash Flow ($USD Millions)	$91	$335	$436

Notes: Q2 and Q1 FY2025 include Flash prior to the February 21 separation; Q3 FY2025 reflects continuing HDD operations with Sandisk presented as discontinued operations .

Segment / End-Market Breakdown

Revenue ($USD Millions)	Q3 2024	Q2 2025	Q3 2025
Cloud	$1,455	$2,096	$2,007
Client	$140	$140	$137
Consumer	$157	$173	$150
Total	$1,752	$2,409	$2,294

KPIs

KPI	Q3 2024	Q2 2025	Q3 2025
Nearline Bit Shipments (Exabytes)	N/A	154	145
Cloud Pricing per Unit (QoQ)	N/A	N/A	+5%
ASP (Weighted Avg per HDD, $)	N/A	$172	$179 (+23% YoY)
11-Disk Drive Shipments (Units)	N/A	N/A	>800K shipped; >1M targeted next quarter
Cash and Equivalents ($USD Billions)	$1.894	$2.291	$3.477
Gross Debt ($USD Billions)	N/A	$7.4	$7.4 (pre $1.8B redemption announcement)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	Q4 FY2025	N/A	$2.45B ± $150M	New
GAAP Gross Margin	Q4 FY2025	N/A	39.5%–40.5%	New
Non-GAAP Gross Margin	Q4 FY2025	N/A	40.0%–41.0%	New
GAAP OpEx ($M)	Q4 FY2025	N/A	$385–$395	New
Non-GAAP OpEx ($M)	Q4 FY2025	N/A	$330–$340	New
Interest & Other Expense ($M)	Q4 FY2025	N/A	~ $70	New
Non-GAAP Tax Rate	Q4 FY2025	N/A	8%–10%	New
Non-GAAP Diluted EPS	Q4 FY2025	N/A	$1.45 ± $0.20	New
Diluted Shares (M)	Q4 FY2025	N/A	~360	New
Dividend	Starting Q4 FY2025	N/A	$0.10 per share (declared)	Initiated
Share Repurchase	FY2025	N/A	$2.0B authorization (May 13)	Initiated
Debt	April 14, 2025	N/A	Redeem $1.8B 4.750% 2026 Notes	Deleveraging

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY2025)	Previous Mentions (Q2 FY2025)	Current Period (Q3 FY2025)	Trend
AI/technology initiatives	Enterprise SSD ramp; NVIDIA GB200 certification; UltraSMR adoption; 32TB SMR/26TB CMR launch	Continued nearline demand tailwinds; HDD margins strong; eSSD qualifications; tight supply	11-disk platforms ramping (>800K shipped); strong Cloud demand; HAMR milestones on track (qual 2H CY26; HV ramp 1H CY27)	Strengthening
Supply chain & capacity	Move to build-to-order; desire for 2–6 quarter visibility; cautious CapEx	Tight supply; sequential HDD volume dip; focus on profitability	LTAs with 2 hyperscalers into H1 CY2026; limited near-term capacity adds; tight allocation	Improved visibility
Tariffs/macro	N/A	N/A	Potential demand uncertainty in enterprise/retail due to evolving tariffs; mitigation teams in place	Watchlist
Product performance	HDD GM expansion; ASP improving; eSSD accretive	ASP +5% QoQ; record nearline bits; Cloud CapEx strong	ASP $179 (+23% YoY); Cloud pricing +5% QoQ; non-GAAP GM 40.1%	Accretive mix
Regulatory/legal	Patent litigation accruals and accounting assessment in Q1	Separation steps finalized; Form 10, financing	Litigation reversals/GAAP tax effects from separation; Sandisk stake mark-to-market	One-time items
R&D execution	Roadmap to 40TB ePMR before HAMR; controller and firmware improvements in eSSD	Qualifications for 32TB SMR/26TB CMR; more hyperscalers	HAMR dual hyperscaler engagements; ongoing platform enhancements	On plan

Management Commentary

“Even in a world marked by geopolitical uncertainty and shifting tariff dynamics…no technology rivals the cost-efficiency and reliability of HDDs” — Irving Tan, CEO .
“We now have long-term agreements to extend through the first half of calendar year 2026 with 2 of our largest customers” — Irving Tan .
“We shipped over 800,000 units of our new 11 disk platform…and will be shipping well over 1 million units in the June quarter” — Irving Tan .
“Gross margin for the fiscal third quarter was 40.1%…ahead of guidance…Operating expenses…$324M” — Don Bennett, Interim CFO .
“On HAMR, we remain on track…qualification in 2H CY2026; ramp at scale in 1H CY2027” — Irving Tan .
“We redeemed $1.8B of our 2026 senior notes…initiating a quarterly dividend of $0.10/share” — Irving Tan .

Q&A Highlights

Capital returns cadence: Management targets net leverage in the 1–1.5x range before returning 100% of excess cash via dividends and buybacks; dividend initiated with room to grow as deleveraging progresses .
Visibility via LTAs: Two hyperscalers with LTAs through H1 CY2026 support confidence in sustained demand and planning, reducing supply/demand volatility .
Tariff effects: No direct Q4 pricing impact expected, but demand uncertainty in enterprise/retail; cross-functional mitigation and alternative sourcing under evaluation .
Margin trajectory: With technology-led TCO advantages and tight supply allocation, margins can sustain in low-40s; incremental margins in Q4 implied strong drop-through .
Technology roadmap: HAMR timeline reaffirmed; ePMR/UltraSMR roadmap bridges capacity (28TB/36TB forthcoming), with platform qualifications progressing well .

Estimates Context

Metric	Consensus (Q3 2025)	Actual (Q3 2025)
Revenue ($USD Billions)	$2.484*	$2.294
Non-GAAP EPS ($)	$1.11*	$1.36
EBITDA ($USD Millions)	$639*	$669

Values retrieved from S&P Global*.
Implications: Revenue miss likely reflects sequential cloud bit shipment decline and consumer weakness, while EPS beat benefited from pricing, mix, lower OpEx, and one-time tax benefits (non-GAAP tax expense $12M; effective 2%) .

Key Takeaways for Investors

Mix and technology-led pricing support sustained margin strength: With ASPs at $179 and cloud pricing up 5% QoQ, non-GAAP GM at ~40% appears durable given tight supply and TCO advantages of 11-disk UltraSMR/CMR platforms .
Visibility is improving: LTAs into H1 CY2026 and build-to-order processes reduce volatility and support disciplined capacity and capital allocation .
Capital return story turning on: Dividend initiated, $1.8B note redemption executed, and $2.0B buyback authorized—expect continued deleveraging aided by Sandisk stake monetization plan .
Watch tariff/macro: Guidance range widened amid demand uncertainty in enterprise/retail; monitor policy trajectory and customer spending behavior .
Near-term trading: EPS beat vs miss on revenue may favor valuation resilience given margin/FCF strength ($436M FCF) and capital return announcements .
Medium-term thesis: Capacity roadmap (28/36TB ePMR, HAMR in CY2026/27) and AI-driven data growth underpin a structurally improved HDD profit profile; maintain focus on execution and supply-demand balance .
Risks: One-time GAAP items tied to separation and litigation, evolving tariffs, and potential end-market demand variability (consumer/enterprise) .