Q4 2026 Western Digital Corp Earnings Call Transcript
Key Points
- Strong fiscal 2026 results with 36% year-over-year revenue growth, significant gross and operating margin expansion, and EPS more than doubling to $10.22.
- Generated $3.5 billion in free cash flow and strengthened the balance sheet to a net positive cash position, while returning $3.1 billion to shareholders.
- Robust demand driven by AI, inference, and Agentic AI, with storage demand becoming more durable as data creation compounds.
- On track to ship 44TB HAMR products in the first half of calendar 2027, with positive customer feedback on qualifications.
- Commenced shipments of 40TB ePMR drives and ramping Ultra SMR technology, with plans for Ultra SMR to make up around 60% of nearline exabyte shipments by fiscal 2027 exit.
- Expanding innovation into new layers of the AI storage stack, including high bandwidth drives sampling with five customers, offering up to 8 times throughput without corresponding power increase.
- Strong visibility with customers seeking long-term agreements extending to calendar 2029-2031, indicating sustained demand.
- Favorable pricing dynamics with blended average price per terabyte improving to high teens year-over-year in Q4.
- Gross margin expansion driven by mix shift to higher capacity drives, favorable pricing, and operational execution, with Q1 fiscal 2027 guidance for gross margin of 55-56%.
- Growing demand from new customer segments including neoclouds, sovereign data centers, and physical AI companies, providing additional growth opportunities.
- Exabyte growth in Q4 fiscal 2026 was 22% year-over-year, below the 30% growth seen in prior quarters, indicating potential lumpiness in demand.
- Gross margin guidance for Q1 fiscal 2027 is slightly below competitor levels, with quarter-to-quarter variations due to timing of LTA repricing and product transitions.
- Cost per terabyte declined only 8% year-over-year in Q4, slightly below the long-term target of 10% annual reduction.
- Dependence on a few large hyperscale customers for the majority of nearline shipments, which can lead to volatility in quarterly exabyte shipments.
- Pricing strategy for nearline products is focused on predictability, limiting the potential for rapid price increases compared to non-nearline segments.
- The company only guides one quarter at a time, providing limited forward visibility to investors despite strong demand commentary.
- Operating expenses are expected to increase sequentially in Q1 fiscal 2027, potentially impacting operating leverage.
- The transition to next-generation products like 40TB ePMR and HAMR may create near-term supply constraints or execution risks.
- Interest and other expenses are expected to rise to $15 million in Q1 fiscal 2027, slightly higher than the previous quarter.
- The company's ability to sustain high growth depends on continued AI infrastructure investment, which could be subject to cyclicality or shifts in customer spending.
Good afternoon, and welcome to the Western Digital's fourth quarter fiscal 2026 conference call. (Operator Instructions) Please note, this event is being recorded.
I would now like to turn the conference over to Mr. Ambrish Srivastava, Vice President of Investor Relations. Please go ahead.
Thank you, and good afternoon, everyone. Joining me today are Irving Tan, WD's Chief Executive Officer; and Kris Sennesael, WD's Chief Financial Officer. Before we begin, please note that today's discussion will contain forward-looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties.
These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for
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