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WESTERN DIGITAL CORP (WDC) Q4 2025 Earnings Summary

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) .

Financial Results

Headline P&L vs Prior Periods

MetricQ4 FY24Q3 FY25Q4 FY25
Revenue ($USD Millions)$2,004 $2,294 $2,605
Gross Margin (GAAP)34.8% 39.8% 41.0%
Gross Margin (Non-GAAP)35.2% 40.1% 41.3%
Operating Expenses (GAAP, $M)$788 $152 $387
Operating Expenses (Non-GAAP, $M)$410 $324 $345
Operating Income (GAAP, $M)($91) $760 $680
Operating Income (Non-GAAP, $M)$296 $596 $732
Diluted EPS (GAAP, $)$(0.77) $2.11 $0.67
Diluted EPS (Non-GAAP, $)N/A$1.36 $1.66

Actual vs Wall Street Consensus (S&P Global)

MetricQ3 FY25Q4 FY25
Revenue Actual ($USD)$2,294M $2,605M
Revenue Consensus ($USD)$2,483.9M*$2,473.3M*
EPS Actual (Non-GAAP, $)$1.36 $1.66
EPS Consensus ($)$1.108*$1.480*

Values retrieved from S&P Global.*

Segment Breakdown

Segment Revenue ($USD Millions)Q3 FY25Q4 FY25
Cloud$2,007 $2,300
Client$137 $140
Consumer$150 $136
Total$2,294 $2,605

KPIs and Cash Flow

KPIQ3 FY25Q4 FY25
Exabytes Shipped190 EB (y/y +32%) 190 EB
Non-GAAP Gross Margin40.1% 41.3%
Cash from Operations ($M)$508 $746
Free Cash Flow ($M)$436 $675
Non-GAAP Interest & Other ($M)$84 $52
Diluted Shares (Non-GAAP, M)358 362
Inventory DaysN/A76
DSO (Days)N/A52
26TB/32TB Shipments (Units)~0.8M prior quarter reference >1.7M

Guidance Changes

Prior Quarter Guidance for Q4 FY25 vs Actual

MetricPrior Guidance (Q3 FY25)Actual Q4 FY25Change
Revenue$2.45B ± $150M $2.605B Above high end
Gross Margin (Non-GAAP)40.0%–41.0% 41.3% Above high end
Operating Expenses (Non-GAAP)$330–$340M $345M Slightly higher
Interest & Other (Non-GAAP)~ $70M $52M Lower than guided
Tax Rate (Non-GAAP)8%–10% 9.3% (effective) In range
Diluted EPS (Non-GAAP)$1.45 ± $0.20 $1.66 Above range
Diluted Shares~360M 362M Slightly higher

New Guidance: Q1 FY26 (Introduced)

MetricPrevious GuidanceCurrent GuidanceChange
RevenueN/A$2.70B ± $100M Introduced
Gross Margin (Non-GAAP)N/A41%–42% Introduced
Operating Expenses (Non-GAAP)N/A$370–$380M (14-week quarter) Introduced
Interest & Other (Non-GAAP)N/A~ $50M Introduced
Tax Rate (Non-GAAP)N/A16%–19% Introduced
Diluted EPS (Non-GAAP)N/A$1.54 ± $0.15 Introduced
Diluted SharesN/A~363M Introduced
Dividend$0.10 declared Apr 30, 2025 $0.10 declared payable Sep 18, 2025 Maintained
Share RepurchaseN/A$2.0B authorization; ~$149M repurchased in Q4 New/Active

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY25, Q3 FY25)Current Period (Q4 FY25)Trend
AI/Technology initiativesQ2: AI data cycle tailwind across HDD/Flash ; Q3: >40% GM, cloud strength AI driving storage demand; agentic AI, unstructured data; platforms business traction Accelerating
Mix shift & marginsQ2: consolidated GM mid-30s; segment margin improvement ; Q3: non-GAAP GM 40.1% 41.3% non-GAAP GM; mix to 26TB/32TB; pricing stable Improving
Supply chain/lead timesQ2/Q3: execution; separation underway 52-week lead times; 12–18 month visibility with hyperscalers Improving visibility
Tariffs/macroQ3: Risks highlighted No evidence of tariff-driven pull-forward; enterprise slowdown risk not materialized Stable/Contained
Product performanceQ2: Nearline HDD unit growth ; Q3: nearline bit shipments -6% seq, ASP/unit +5% 26TB/32TB shipments >1.7M; unit ASP up; ASP/TB down low-single digits Positive
HAMR roadmap/R&DQ3: N/AHAMR tests at two hyperscalers; qualification next, ramp in 2027; next-gen ePMR in 2026 (28TB/36TB) On track
Regional/End marketsQ2: Consumer -8% y/y ; Q3: Consumer -13% seq Cloud 90% mix; Consumer -12% y/y; Client flat Cloud-skewed, Consumer soft

Management Commentary

  • “Western Digital executed well in its fiscal fourth quarter, achieving revenue and gross margin above the high end of our guidance range while delivering strong free cash flow… we reduced debt by $2.6 billion, initiated a cash dividend, and announced the authorization of a $2.0 billion share repurchase program” — Irving Tan, CEO .
  • “AI is ushering in a new era of data growth… 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” — Irving Tan .
  • “Cloud represented 90% of total revenue… Gross margin improved… reflecting continued mix shift towards higher capacity drives and tight cost control” — CFO commentary .
  • “We currently have firm POs or LTAs with all of our top five hyperscale customers covering our entire fiscal year 2026” — Irving Tan .
  • “We guided [Q1 FY26] to 41–42% GM… EPS $1.54 ± $0.15… OpEx $370–$380M including an additional week” — CFO .

Q&A Highlights

  • Gross margin trajectory: Management confident in further progression; pricing stable, mix to higher-capacity drives and cost reductions drive expansion. Guided Q1 GM 41–42% .
  • Capital returns & leverage: Strong FCF (26% margin in Q4), net leverage ~1–1.5x achieved; board supports growing dividend over time and active buybacks ($149M in Q4) .
  • ASP dynamics: ASP per drive up with capacity; ASP per terabyte down low single digits, mostly mix-driven; pricing stable .
  • Seasonality and visibility: Traditional seasonality less applicable; revenue driven by hyperscaler capex cycles; firm POs/LTAs across top five for FY26 (two through mid-FY27) .
  • Ultra SMR adoption & HAMR: Third hyperscaler qualified Ultra SMR and ramping; fourth in qualification; HAMR qualification next, ramp in 2027 with 38TB CMR/44TB Ultra SMR roadmap .

Estimates Context

  • Q4 FY25: Revenue $2.605B vs $2.473B* consensus; EPS $1.66 vs $1.480* consensus — both beats. Q3 FY25: Revenue $2.294B vs $2.484B* (miss), EPS $1.36 vs $1.108* (beat). Q1 FY26 consensus EPS 1.576* vs company guide midpoint $1.54 — modestly below consensus midpoint; revenue consensus $2.730B* vs guide midpoint $2.70B — in line to slightly below.* ]

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Mix-led margin durability: Sustained >40% non-GAAP GM anchored by high-capacity nearline drives and platforms exposure; pricing stable, mix/cost drive margin trajectory .
  • Demand visibility: Firm POs/LTAs across top hyperscalers through FY26 (and for two into mid-FY27) reduce near-term forecast risk; traditional seasonality less relevant .
  • Capital allocation: With $675M FCF in Q4 and $2.6B debt reduced, WDC is positioned to support buybacks ($2.0B authorization) and maintain dividends ($0.10) while funding roadmap (HAMR) .
  • Near-term watch items: ASP/terabyte modest compression due to mix; Consumer remains soft; Q1 OpEx elevated by 14-week quarter; monitor tariff developments though no pull-forward seen .
  • Technology roadmap: Ultra SMR broadening across hyperscalers, next-gen ePMR (28TB/36TB) in 2026, HAMR ramp targeted for 2027 (38TB/44TB), supporting capacity-led revenue and margin expansion .
  • Estimate revisions: Expect upward revisions to FY25 exit/FY26 revenue and EPS given Q4 beats and FY26 hyperscaler visibility; consensus Q1 EPS slightly above guide midpoint may moderate.*
  • Trading setup: Positive skew from AI-driven storage demand, >40% GM, robust FCF, and active returns; any confirmation of HAMR qualification milestones and additional Ultra SMR adoptions are potential upside catalysts .

Values retrieved from S&P Global.*

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