Western Digital Q3 2025 Earnings Call Transcript

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Provided by Quartr
April 30, 2025
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Operator

Good afternoon, and thank you for standing by. Welcome to Western Digital's third quarter fiscal twenty twenty five conference call. Presently, all participants are in listen only mode. Later, we will conduct a question and answer session. At that time, if you would like to ask a question, you may press 1 on your phone.

Operator

As a reminder, this call

Operator

is being

Operator

recorded. Now I will turn the call over to mister Ambrish Srivastava, vice president and investor relations. You may begin.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, and good morning, everyone. Joining me today are Irving Tan, chief executive officer, and Don Bennett, interim 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 obligations to update these statements.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Please refer to our most recent financial report on Form 10 ks and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non GAAP financial measures today. Reconciliations between the non GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website at investor.wdc.com. With that, I will now turn the call over to Irving for introductory remarks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks, Abhish. Good morning, everyone, and thank you for joining us today. I'm honored to be speaking with you for the first time as the CEO of Western Digital. It is a privilege to lead this exceptional organization, and I want to start by recognizing the outstanding work of our employees across the company who managed a complex separation process over the last several months, while also continuing to drive the strong performance we are reporting today. Throughout that time, they remained deeply connected to our customers, Throughout continued pushing the boundaries of leading edge innovation, and sustained a strong

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

focus on operational excellence. This combination of customer focus, innovation, and execution positions us well for the opportunities ahead. In the past month, we've also welcomed our new Chief Product Officer, Ahmed Shehab. Having held leadership positions at two large hyperscalers, Ahmed is a seasoned expert in cloud storage needs and requirements, making him the right person to lead our product strategy and engineering teams as we continue to drive innovation and deliver solutions that meet the evolving demands of our data driven world. We're excited to have Akamet join Western Digital as its customer centric perspective and deep industry knowledge, particularly with data centers, will be invaluable to us going forward.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Let me now provide you with a few updates on our business. Since stepping into this role, I've been spending a great deal of time with our customers, employees, and the investment community. What's clear to me is that Western Digital has an incredibly strong foundation, a resilient business model, and incredible potential to benefit from the demand in the age of AI. Even in a world marked by geopolitical uncertainty and shifting trade dynamics, one thing remains constant, the exponential growth of data. From enterprise workloads to the explosion of AI generated content, such as the millions of images and viral videos generated through AI, data generation is accelerating at an unprecedented pace.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

When it comes to storing data at scale, no technology rivals the cost efficiency and the reliability of HDDs. We continue to serve as the backbone of the world's data infrastructure, delivering unmatched value for mass storage needs. As we deliver our critical HDD technology to our customers, we are focused on continued innovation to provide the highest capacity drives with improved performance, energy efficiency and lowest total cost of ownership. Our industry leading 11 disk drives with capacities of up to 26 terabyte CMR and 32 terabyte UltraSMR are now ramping rapidly, with over 800,000 units shipped in the March. We are also on track to ship well over 1,000,000 units in the June.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

The swift qualification and adoption cycle is a hallmark of our technology roadmap, demonstrating reliability, ease of implementation, and scalability with fastest time to value for our customers. On HAMR, we remain on track with respect to our milestones and road map that we communicated at our Investor Day in February. We are working closely on HAMR with two hyperscale customers and continue to receive encouraging ongoing feedback on our drives. Let me now turn to our quarterly results. For the third fiscal quarter, Western Digital delivered revenue of 2,300,000,000 non GAAP gross margin of 40.1% and non GAAP earnings per share of $1.36 Free cash flow for the quarter was $436,000,000 At our Investor Day, we outlined the three pillars of our shareholder friendly capital allocation approach.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

They are to reinvest in the business, reduce debt and return cash to our shareholders. On April 14, we redeemed $1,800,000,000 of our twenty twenty six senior notes, thus further strengthening our balance sheet. I'm also pleased to announce that we are initiating a quarterly dividend of $0.10 per share in our fiscal Q4. These actions are underpinned by our strong belief in the strength and durability of our business. Don will cover this in greater detail in his remarks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Now turning to our outlook. First, I want to acknowledge the current environment, which remains highly uncertain and volatile, driven in a large part by tariffs and global trade tensions. At Western Digital, we are addressing these challenges on two fronts. In the near term, we've established cross functional teams to minimize disruption and mitigate the impact of tariffs on our customers and operations. At the same time, we're taking a strategic view, evaluating the longer term implications of supply chain shifts to ensure we stay agile, resilient, and are well positioned for the future.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Though the broader environment has some uncertainty, demand from our hyperscale customers remains robust in a tight supply environment. We're thankful to our customers who increasingly recognize the complexity of the HDD supply chain and are partnering with us to provide visibility into their future needs. This collaboration enables us to plan more effectively, and we now have long term agreements that extend through the first half of calendar year twenty twenty six with two of our largest customers. However, there are areas such as in the enterprise and in certain parts of our distribution and retail business, where there could be more uncertainty with respect to demand, driven largely by the current tariff environment. Taking these factors into account and looking ahead into the fiscal fourth quarter, we expect sequential revenue growth driven by sustained strength in data center demand.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

We continue to work closely with our customers to align with their long term requirements, while delivering the best possible total cost of ownership. Let me now turn the call over to Don, who will discuss our fiscal third quarter results and fiscal fourth quarter guidance in more detail.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Thank you, Irving, and good morning, everyone. In the fiscal third quarter, Western Digital delivered strong financial results and successfully completed the planned separation of the company's flash business on February 21. As such, the historical results for the flash business segment are reported as discontinued operations and excluded from these results, unless otherwise noted in my comments. Total revenue for the quarter was $2,300,000,000 down 5% sequentially and up 31% year over year. Non GAAP earnings per share was $1.36 driven by gross margin of 40.1%, disciplined cost management, and tax benefits.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Total X Y shipments were down 6% sequentially, driven by lower nearline shipments related to deployment plans of our customers. Average price per unit increased 4% sequentially to $179 Looking at end markets, cloud represented 87% of total revenue at $2,000,000,000 down 4% sequentially and up 38% year over year. On a sequential basis, the decline was due to a 6% reduction in nearline bit shipments to 145 exabytes, while pricing per unit in cloud was up 5%. On a year over year basis, both revenue and bit shipments grew at 3832%, respectively, driven by the strength of our product portfolio. Client represented 6% of total revenue at $137,000,000 down 2% on both a sequential and year over year basis.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Compared to last quarter and last year, revenue was down due to lower unit shipments. Consumer represented 7% of revenue at $150,000,000 down 13% sequentially and 4% year over year. The sequential decline in consumer was primarily due to lower unit shipments, while year over year the decrease was largely due to pricing. Moving to the rest of the income statement, please note my comments will be related to non GAAP results on a continuing operations basis unless stated otherwise. Gross margin for the fiscal third quarter was 40.1%.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Sequentially, gross margin improved 1.7 percentage points, ahead of our guidance of 50 basis points improvement. Operating expenses were down sequentially to $324,000,000 Our results demonstrate continued focus on cost discipline as we concluded our business separation process. Operating income was $596,000,000 up 85 basis points sequentially, driven by higher gross margin and lower operating expenses, partially offset by lower revenue. Operating margin was 26%, up 1.5 percentage points sequentially, and up 17.3 percentage points on a year over year basis. Income tax expense was $12,000,000 and the effective tax rate for the fiscal third quarter was 2%.

Don Bennett
Don Bennett
Interim CFO at Western Digital

The decline in the company's effective tax rate from guidance is a result of the recognition of one time deferred tax benefits in conjunction with the separation of the flash business. Turning to the balance sheet. At the end of our fiscal third quarter, cash and cash equivalents were $3,500,000,000 and total liquidity was $4,700,000,000 including undrawn revolver capacity. Gross debt outstanding was $7,400,000,000 at the end of the fiscal third quarter. Inventory was $1,300,000,000 representing eighty six days of inventory, up $63,000,000 sequentially, and down $174,000,000 on a year over year basis.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Our net leverage ratio at the end of the fiscal third quarter was 1.7x. Please note, after the close of the March, we successfully redeemed $1,800,000,000 of our twenty twenty six senior notes using cash on hand. The redemption reflects our commitment to strengthening the balance sheet and achieving our target net leverage ratio of one point zero to 1.5 x, as outlined at our Investor Day. Operating cash flow for the fiscal third quarter was $5.00 $8,000,000 and cash capital expenditures represented a cash outflow of $72,000,000 resulting in free cash flow generation of $436,000,000 for the quarter. Please note that this is on a consolidated basis for the quarter.

Don Bennett
Don Bennett
Interim CFO at Western Digital

As Irving highlighted in his opening remarks, we are pleased to announce that we're initiating a quarterly dividend of $0.10 per share, reflecting the strength of our balance sheet and confidence in the long term cash generating ability of our business. This decision underscores our commitment to delivering value to our shareholders. I'll now turn to the fiscal fourth quarter non GAAP guidance. This guidance includes our current estimate of all anticipated or known tariff related impacts on our business in this period. We anticipate revenue to be 2,450,000,000 plus or minus $150,000,000 Gross margin is expected to be between 4041%.

Don Bennett
Don Bennett
Interim CFO at Western Digital

We expect operating expenses to increase slightly on a sequential basis to a range of $330,000,000 to $340,000,000 The increase is due to variable compensation reflecting improvement in the underlying business, hiring to fill critical open positions resulting from the business separation, and increased investments in research and development. Interest and other expenses are anticipated to be approximately $70,000,000 The decrease on a subsequent basis reflects our lower debt levels following the notes redemption previously discussed. The tax rate is expected to be between 810%. We expect EPS to be $1.45 plus or minus $0.20 based on approximately $360,000,000 shares outstanding. Additionally, for modeling purposes, we would like to highlight that fiscal year '20 '20 '6 will be a fifty three week year for us.

Don Bennett
Don Bennett
Interim CFO at Western Digital

As a result, our first fiscal quarter in FY twenty six will have fourteen weeks. In addition, we expect the tax rate for FY twenty six to be between sixteen percent and eighteen percent. In closing, Western Digital is well positioned to navigate the current dynamic environment. We remain focused on creating value for our stakeholders and investing in our future to capture the significant growth and data ahead, while maintaining a healthy supply and demand environment. With that, I'll now turn the call back to Irving.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks, Don. Western Digital's results this quarter and guidance reflect the ongoing structural transformation of our business with continued progress towards a business that delivers sustained profitability. We continue to maintain strong conviction in the business and are confident that we will weather the sensitivity and come out even stronger. With that, let's now begin the Q and A.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Irving. Operator, you can now open the line to questions, please. To ensure that we hear from as many analysts as possible, please ask one question at a time. After we respond, we will give you an opportunity to ask one follow-up question. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star one on your phone. Our first question comes from Eric Woodring with Morgan Stanley. Please go ahead.

Erik Woodring
Erik Woodring
Managing Director - Equity Research at Morgan Stanley

Hey, good morning guys.

Erik Woodring
Erik Woodring
Managing Director - Equity Research at Morgan Stanley

Thanks for taking my questions and congrats on the nice quarter out the gate. Instead of asking a demand question, I wanted to actually ask about capital allocation. And so Irving, you have a dividend yield of about 1%, soon to be lower than that given how your stock is trading in the pre market. That's about $100,000,000 of annual cash outflow. Can you maybe just help us understand how we should be thinking about both dividend growth going forward, given it seems like you have some capacity there, but then also maybe how you're thinking about potential share buybacks?

Erik Woodring
Erik Woodring
Managing Director - Equity Research at Morgan Stanley

I know your intent is to delever with the Sandisk stake, but just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of both dividend growth and buybacks? Thanks so much.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes, Eric. Thanks for the question and I appreciate it. Well, as we laid out in our Investor Day, our goal is to get our net leverage down to the 1.1.5x range. And once we are there, we intend to return 100% of our excess cash to our shareholders and that will be in the form of both dividend and share buybacks. As we also indicated at Investor Day, which we have honored and committed to today, we're starting off with a relatively small dividend to begin with.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And then as we progress, we'll look to increase that and complement that with buybacks as well. So stay tuned for that.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Eric, do you

Erik Woodring
Erik Woodring
Managing Director - Equity Research at Morgan Stanley

have a Yes. Just the quick follow-up was, Irving, what I hear from you is kind of more visibility because of some of these LTAs. And I'm just and I'm curious, with customers now giving you some indications into the first half of calendar twenty twenty six, does that mean you have enough visibility to expect revenue margins and EPS sequential growth through calendar twenty twenty five? Or is it too early to make that call? Thanks so much guys.

Erik Woodring
Erik Woodring
Managing Director - Equity Research at Morgan Stanley

Good luck.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes, Eric. Thanks. Well, I think the shift to LTAs has given us a greater visibility. And as I highlighted in my opening comments, we now have two hyperscale customers that have given us LTAs up to the first half of calendar year twenty twenty six. And that's really helped us plan our supply chain appropriately along with the CapEx investments that we need to make and give us a lot more confidence in the business.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And so, as I've highlighted in the past, think especially when it comes to the hyperscale business, we see demand continuing to be strong and robust throughout the calendar year 2025 and now as I've mentioned into the middle of calendar year 2026 as well.

Operator

Thank you. The next question comes from Aaron Rakers with Wells Fargo. Please go ahead.

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

Yes. Thanks for taking the question. Also congrats on first quarter out of the gate. The comments around the guidance, you guys alluded to into the fiscal fourth quarter, you did point out that it reflected all known or anticipated tariff impacts. I'm curious if you could unpack that a little bit.

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

I believe the majority, if not all, of your manufacturing footprints in Thailand. Just curious of how you're thinking about how your best assessment of what these tariff impacts might be or any indications that you've seen

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

with customers at this point?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Hey, Aaron. Thanks for the question and good to hear from you again. Well, in Q4, we don't anticipate any direct tariff impacts in relation to its translation into pricing or cost to customers. But where as we've highlighted in our prepared statements, we do see some potential demand uncertainty in the enterprise distribution and retail segments of the business just due to the unpredictability and volatility. And you would have heard a lot of comments in the marketplace around enterprises and consumers sort of pausing or holding back on making purchases as well.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So factoring all that in, that's the guide that we gave. But again, the growth that we've guided to is really driven primarily by the strength that we continue to see in the data centers specifically in our hyperscale business.

Don Bennett
Don Bennett
Interim CFO at Western Digital

And Aaron, I'll just add that in Irving's prepared remarks, we talked about establishing cross functional teams to minimize disruption and mitigation to both our customers as well as our internal operations. Additionally, we're taking a strategic view on looking at multiple alternatives depending on what the tariff situation looks like tomorrow or in mid May or June whenever the next round of tariff guidance comes out on our products. As you know, we're part of the semiconductor group and we currently have 0% tariff on our products.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Aaron, did you have a follow-up?

Aaron Rakers
Aaron Rakers
Managing Director & Technology Analyst at Wells Fargo

Yes, I do. Thanks, Ambrish. So when I think about the gross margin, right, 40.1%, I think at the Analyst Day, you talked about 38% plus is kind of being the longer term model. When I look at the guidance into this next quarter, if my math is right, it looks like the incremental margin that you're alluding to is like north of 45%. So I guess my question is, is there anything structurally in the business or kind of the path forward that keeps us from thinking that gross margin could trend into that mid-forty, if not higher range over time?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes, I think, Erinn, on at Investor Day, we provided a guide or a model on gross margin that was a floor of 38% and that's over a five year period. As you know, there are market vagaries and ups and downs along the way. So 38% was the floor. We obviously were able to deliver very strong gross margins this quarter. We crossed the 40% threshold and that's really driven by the value that customers see in the technology that we are providing them as well as very strong operational discipline and also pricing discipline that we've experienced within the market.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So, as we continue to kind deliver total cost of ownership value to our customers, innovation capability whilst maintaining their operational discipline within the customers within our operations, sorry, we see gross margins continuing to remain strong.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Arun.

Operator

Thank you. The next question comes from Karl Ackerman with BNP Paribas. Please go ahead.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

Yes. Thank you, gentlemen. My for my first question, I I know you have focused on technology transitions to drive exabyte demand from here. However, what are the hurdles for you to add manufacturing capacity? Is it driven by certain visibility you have on LTAs or other things we should consider?

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

Thank you.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks for the question, Kyle. A lot of our exabyte growth has really been driven by area density improvement and technology improvement. As we've highlighted, our Ultra SMR technology, which is unique to us, gives us a 20% capacity uplift over the standard recording media. So our ability to deliver incremental exabytes without having to put in CapEx in terms of more production units has been one of the big differentiators that we've been able to create. And so that's an area that we continue to invest in, in our R and D function to continue to drive greater aero density performance.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

We've recently just launched our 26 terabytes and 32 terabytes industry leading platforms, and we'll bring out in the next few months our 28 terabytes and 36 terabytes platforms as well. So, those increases through aero density will continue to enable us to deliver exabyte growth without having to invest in CapEx for additional unit growth.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up, Karl?

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

I do, Ambrish, please. Thanks for that, Erwin. I wanted to follow-up on the comments you made with regard to LTAs. It sounds like demand for hyperscale is quite good and has strong visibility into the first half of twenty twenty six. However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers.

Karl Ackerman
Managing Director - Equity Research at BNP Paribas

I'm curious whether you have seen perhaps any pull forward in counter Q2 ahead of tariffs? And secondarily, how you think about the demand dynamic for those customers in the second half? Thank you.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thank you. We definitely do see opportunities, especially in sovereign clouds and private clouds going forward. Even in the age of AI, where the primary beneficiaries have been the large hyperscalers, we also see growth sort of at the edge happening. So that's an opportunity that we look to pursue going forward as well as a growth driver.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

We haven't seen any pull forwards. The linearity that we saw within Q3 was very consistent with the linearity that we've seen in the past. And then also as we look at sequential quarter on quarter growth, very consistent with what we've seen in the past. So, no real change in terms of pull ins both last quarter and what we see happening this quarter as well.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Carl.

Operator

Thank you. The next question comes from C. J. Muse with Cantor Fitzgerald. Please go ahead.

CJ Muse
Senior Managing Director at Cantor Fitzgerald

Yes, good morning. Thank you for taking the question. I guess to follow-up on the prior question, I was hoping you could speak a bit about supply and what kind of exabyte growth you can get just from delivering higher capacity drives? And I guess, what is the timeframe where you would potentially consider adding more capacity?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks for the question, C. J. Look, we feel confident right now with the forecast that we have and outlook that we see in terms of exabyte growth. We are able to deliver that through, again, the technology and innovation we're delivering that provides us that capacity uplift without putting in any capacity. If there was any need to put in any capacity, it would probably be more on the hidden media side of the house, but we don't anticipate any capacity investments in those areas for the near term.

Don Bennett
Don Bennett
Interim CFO at Western Digital

And C. J, I'll just add that in this uncertain environment, we're very tightly managing our capital expenditures and we continue to manage the business to the low end of our guidance range of 4% to 6%.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up C. J?

CJ Muse
Senior Managing Director at Cantor Fitzgerald

I do have a brief. Thank you. I guess could you speak to gross margins? Obviously, great results and guide. Curious in terms of the drivers from here, is there still kind of a fixed cost benefit that would arise?

CJ Muse
Senior Managing Director at Cantor Fitzgerald

Or is it really all capacity drives delivering higher ASPs? Is that the main driver or are there other factors that we should consider? Thanks so much.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Yes, CJ, you hit it right. It's really about the product technology that delivering to our customers. We continue to add TCO benefit to them and we're participating in that value that we're bringing to the customers. We're tightly matching supply and demand. So we're not going to see great impact from increased production over time, because we're very tight in our supply allocation.

Don Bennett
Don Bennett
Interim CFO at Western Digital

So, it's really about delivering value to our customers through technology and continue to drive leading edge products at scale.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, CJ.

Operator

Thank you. The next question comes from Vamsi Mohan with Bank of America. Please go ahead.

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Yes, thank you so much. Nice results here. Irving, if I heard right in, you noted the potential for some enterprise slowdown driven by tariffs. I was curious, have you seen anything in your order patterns to suggest that? Or is this sort of more, anticipatory in terms of, what could happen if a tariff regime became more onerous?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yeah. Thanks for the question, Wamsi. It's more the latter. Right? We haven't seen any, slowdown just yet, but obviously, there is demand uncertainty, because of the tariffs.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And obviously, we've heard a lot of news coming out of enterprises and earnings over the last few days around customers being a bit more cautious in terms of spending and capital investments as well. So given that, we've just factored that into the guide. But nothing untowards for the time being. That's why we've just widened the range in terms of our guide for Q4.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

A follow-up, Wamsi?

Wamsi Mohan
Wamsi Mohan
Senior Equity Research Analyst at Bank of America Merrill Lynch

Yes. Thanks, Ambrish. Maybe for Don, as you look into the September where you're calling out the fourteen weeks, any parameters you can help us think through in terms of revenue and OpEx into that quarter, please? Thank you.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Yes. So we guide one quarter at a time. But the reason I mentioned a fourteen week is because obviously we'll have fourteen weeks of expenses. Typically our customers order on a quarterly basis. So the revenue will be it'll follow typical seasonal patterns, But at this point, we're not guiding revenue for that quarter.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Wamsi.

Operator

Thank you. The next question comes from Assia Mershun with Citigroup. Please go ahead.

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

Great. Thank you for the question and great quarter by the way. Just there seems to be some concern like just around hyperscalers. I know your competitor talked about demand being very strong there as well and good visibility. Just anything on why you don't think this could be double ordering?

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

Anything as it relates to pricing negotiations that would limit or limit the impact if indeed there was any double ordering? Thank you.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question, Aisha. We definitely don't see any double ordering at this time. I think one of the key things is we are in a very tight supply demand environment. So, even if there were double orders, I think we would be challenged to fulfill them, right now.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And I think more importantly, the demand profile that we're seeing given the LTA visibility that we have all the way to middle of twenty twenty six, is we are seeing order patterns very much follow the LTA demand. So there's nothing really abnormal. It, as Don mentioned, it follows very much both seasonality quarter to quarter and linearity within quarter as well. So, we don't see any double ordering. If anything on pricing, obviously, as we transition to new platforms, that always gives us an ability to deliver better TCO value to our customers and an opportunity for us to deliver greater pricing upside as well.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Assia, did you have a follow-up?

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

Yes. Sure. Thank you very much. On gross margins, it was better than expected in the current quarter that you reported. Why can't gross margins do similar incremental step up?

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

You are seeing better revenues in the June. And then as you think about the remainder of the calendar or the fiscal twenty six, should we continue to expect margin expansion from these levels? Thank you.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question. I think the strong gross margins that we have delivered and also guided to is a reflection of the value that we bring to our customers, particularly through the technology enhancements that really gives them both better TCO, but also very fast time to value. And that's what we continue to focus on. And if we are able to continue to deliver that innovation, continue to deliver that total cost of ownership benefit and giving them fast time to value, we don't see any reason why gross margin could not expand going forward as well.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So that's our focus. We don't worry too much about the gross margin, but continue to focus on delivering value to our customers and I think the gross margin will flow from that. Thank you, Asiya.

Operator

The next question comes from Amit Daryanani with Evercore. Please go ahead.

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

Thanks a lot. I guess maybe just to stop it on the tariff dynamic. I realize you don't have much of an impact on tariff right now. But as you're signing these LTAs into calendar '20 '6, can you talk about if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers? Would that be a different set of discussions to be had once you know what the tariff scenario looks like?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks for the question. We are obviously working very closely with our customers. As we all know, I think the situation is evolving on a daily basis and extremely fluid. So it's hard for us to really speculate what the outcome would be. Right now, as I mentioned in my prepared remarks and Don emphasized as well, we have teams that are working across the company closely with our customers to really understand how we can mitigate the impacts of tariffs and also any supply disruptions in the near term.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And then in the long term, we're also evaluating with them what their supply chain shifts may be, so that we can also align to that. So we are also prepared both from an agility, resiliency and long term readiness perspective to be able to work for our customers as they shift their supply chains to be able to best support them as well.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Amit, did you have a follow-up?

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

I do. Thanks, Ambrish. And then maybe just on the HAMR side, I think you folks mentioned you're working with two cloud customers at this point on HAMR. Just any sense on when you expect these qualifications to happen? And as you work towards them, should we think of some sort of upside bias to your R and D or OpEx investments through that process?

Amit Daryanani
Senior Managing Director - Equity Research at Evercore

Thank you.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question. I think we've laid it out very clearly at Investor Day. We are looking to start qualification in the second half of calendar year twenty twenty six and then ramping up production at scale in the first half of calendar year twenty twenty seven. We have engineering samples with two large hyperscalers already today.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

We're in close contact with them on the performance of those drives. We're getting regular feedback from them. I would say so far the performance has been meeting the milestones that we both laid out. And on a quarterly basis based on the feedback that we receive from them, we are delivering the next generation of enhancements on those drives. So I would say we are comfortable with where we are.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

We are on track with that roadmap that we laid out. At the same time, we're also preparing to introduce our new 28 terabyte and 36 terabyte ePMR platforms as well. So our whole focus is on ensuring that we really derisk transitions for our customers, continue to deliver very scalable, predictable, reliable capacity points that gives them the fastest time to value.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Amit.

Operator

The next question comes from Tom O'Malley with Barclays. Please go ahead.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Hey, guys. Thanks for taking my questions. I just wanted to focus in a little bit on the LTAs. So we had this period in memory on the NAND and DRAM side through the pandemic where in the end, LTAs were pretty much torn up and were largely hyperscalers advantage over supplier. So, like, could you talk about, like, what benefit you get from these LTAs?

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Like, is this a take or pay agreements? Are these, you know, in writing where you get some sort of compensation if your customers are going to take these? Or is this just like a framework that you have with your customers that says, we will supply this much over this period of time? Could you just maybe dive into those a little bit? Because historically, they really haven't meant much.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question, Tom. Well, first of all, we don't disclose the terms of the commercial contracts that we have. But I think it's important to note, there's some quite significant structural changes that have happened within, our business, I would say, across the entire hard drive industry over the last year, where a lot of the excess capacity and existing inventory within the supply chain has been removed from the system to really reset the entire supply base to where we think the right demand profile is going forward. And the LTAs play a very critical role to ensure that we have that right supply demand balance.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

And given the criticality that hard drives plays to the business of our hyper hyperscale customers, I think as I've mentioned in my opening comments as well, they've been working very closely with us to ensure that sort of supply demand imbalance that we saw during COVID and for period post COVID as well doesn't reoccur. And I think we're in a good place where the LTAs really give us good visibility. We're seeing pretty much demand stick to those LTAs that we've outlined with them with and the LTAs have moved from pretty much three to six months now to nine to twelve months as well. So that's giving us a lot more visibility to plan our supply chain very closely for our customers as well.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up, Tom?

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Yes. I just want to dive into the differences between the unit and pricing in the guide. So like you had a pretty consistent track over the last couple of years of increased pricing. Is there any different type of dynamic we should think about? I know you guys don't guide by more than one quarter out, but looking into the June units versus pricing, any commentary you have that get you to that guide?

Don Bennett
Don Bennett
Interim CFO at Western Digital

Sure, Tom. Yes, we've had, as Irving mentioned a structural change in our business. So, the majority of our business today is in data centers or at the edge. And so, we've seen this continued progression of ASP. Currently, announced we're at $179 which is up 23% year over year on an aggregate weighted average basis.

Don Bennett
Don Bennett
Interim CFO at Western Digital

So, as that mix continues to move to cloud, we should see sustained increases in ASP. Obviously, it'll move around quarter to quarter depending on what our client and consumer mix is because that typically is a lower capacity drive overall. But so impacted by segment mix, customer mix as well as we continue to drive TCO value to our customers. So, we see price per unit stable or up in most cases as we deliver further technology into those accounts.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Tom.

Operator

The next question comes from Steven Fox with Fox Advisors. Please go ahead.

Steven Fox
Founder & CEO at Fox Advisors, LLC

Hi, good morning. Thanks for taking my question. I guess, first one, I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter. It seemed pretty good to me at 78% of net income. And how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow?

Steven Fox
Founder & CEO at Fox Advisors, LLC

And then I have a follow-up. Thanks.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Yes. Thanks for the question. So free cash flow, we don't guide cash flow on a quarterly basis because there's a lot of moving parts in cash flow. As you mentioned, we did have very strong both operating and free cash flow. We are driving the business to operating profit and to free cash flow generation so that we can execute on our capital allocation priorities.

Don Bennett
Don Bennett
Interim CFO at Western Digital

And Irving laid those out in the script, but I'll just repeat them. One is to reinvest in the business, so deliver leading edge technology at scale to our customers. The second thing is to delever our balance sheet and you've seen us do that with taking out $1,800,000,000 of our 2026 notes. So we're now down below $4,000,000,000 of net debt on the balance sheet. And lastly is returning capital to our shareholders.

Don Bennett
Don Bennett
Interim CFO at Western Digital

We started that with the initiation of the dividend and there will be more to come on that in the future.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up, Steve?

Steven Fox
Founder & CEO at Fox Advisors, LLC

Yes. I was just curious when we think about non enterprise and non cloud markets, how you're managing those against all the demand you're seeing? Do you feel like you're deemphasizing those or figuring out a way to maybe more efficiently manage them? I'm just curious what we think about those markets over the next year or two? Thanks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. We're definitely not deemphasizing them. They're still a material part of our business. The supply chains for cloud and non cloud business are really quite discrete and separate, and we sort of manage them independently. If anything, we are looking at opportunities to see whether we can sort of drive incremental growth in those areas.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Steve.

Operator

Thank you. The next question comes from Mark Miller with Benchmark Company. Please go ahead.

Mark Miller
Equity Research Analyst at The Benchmark Company LLC

Congratulations on your first report after the spin out. I'm just curious, can you tell us how many shares you currently hold with SanDisk? And have your plans changed because of the relatively low price of SanDisk about what you're going to do with the shares?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. We own 19.9% of SanDisk. That's the retained stake that we have. And as we've communicated in Investor Day, we will look to disposition those shares, ideally over a twelve month period starting in February as part of our deleveraging strategy going forward.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you.

Operator

Thank you. The next question comes from Harlan Sur with JPMorgan. Please go ahead.

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

Good morning. Thanks for taking my question and great job on the quarterly execution. Back in February, the team outlined a three year nearline exabyte growth CAGR of around 2025%, which is what some of the third party research firms are kind of forecasting for this calendar year, which is also consistent, you know, Irving, with the strong cloud data center CapEx spending trend that you talked about this year. Given your fairly good visibility, does your Ford demand profile also suggest a low 20% exabyte growth profile in this calendar year or better?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

I I think you're in the ballpark.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

And Harlan, this is Ambrish. Remember, we had given a three to five year, forecast?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Right.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Did you have a follow-up, Harlan?

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

Yeah. No. Know I know Ervin has given a three to five year forecast, but that that sort of 23% kind of aligns with some of the what the third party research guys are kind of forecasting for this calendar year. But, appreciate the answer there. Also Yep.

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

Back in February, Irvin, you did articulate about a 40%, like, mix of your nearline capacity was ultra SMR base. As you as you look at your order book and shipment plans, what do you expect that mix to be either second half of this year or exiting this calendar year? And you're driving, obviously strong TCO benefits, you're driving strong pricing power. But on a like for like basis capacity wise, which carries the higher gross margin profile? Is it your CMR or ultra SMR based drives?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Well, think we look to deliver value across the portfolio. So, I think we see a pricing leverage across both our CMR, and Ultra SMR platforms. Obviously, our Ultra SMR platforms give us better, ESPs per drive because of the additional capacity we deliver from it. It also helps us with CapEx, as I've highlighted earlier, because of the technology benefit we have without having to put CapEx into it. In terms of mix in any given quarter, it's probably around 40% to 45% ratio.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So, it depends on because these are large hyperscalers and they have different deployment timeframes and different hyperscalers use different technologies, so it can fluctuate from quarter to quarter, but somewhere between 40% to 45% in any given quarter is what we see.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Harlan.

Operator

Thank you. The next question comes from Ananda Baruah with Loop Capital. Please go ahead.

Ananda Baruah
Research Analyst at Loop Capital

Yes. Hey, guys. Thanks for taking the question and congrats on getting out the gate here as NewCo. Guess, yes, Ambrish, two if I could. I guess the first one is really an architectural question.

Ananda Baruah
Research Analyst at Loop Capital

So as like assuming Seagate continues to progress with HAMR and you guys continue to progress over the next call it twenty four months with your legacy tech, kind of pre getting to hammer volume just as per the Analyst Day. Does that create new any new architectural realities inside the data center with what can be mixed and matched or how folks begin thinking about storage system stacks? Would love any context there if there's anything. And then I have a quick follow-up. Thanks, Ambrish.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Look, I think there will be some architectural adjustments accordingly. Obviously, the highest level, the interplay between what's on flash, what's on hard drives and what's on tape will continue to be there. As we've highlighted in Investor Day, hard drives again will be the predominant storage media with over 80% of bits stored On hard drives, we don't anticipate that changing, whether that's EPMR or HAMR, going forward. There are some rack level changes that will be required, for the deployment of HAMR.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So, you're not going to be able to mix and match the drives that easily. Similar to UltraSMR, there are some whole site software changes, that are required, as well. But these are very sophisticated customers. Their data center architects are very familiar with what's needed to be done. And again, the success that we've had and the continued growth that we see in our ultra SMR portfolio is a great example of people really embracing the technology and really making and investing in the architectural changes within both their data center environment and their software stack to be able to take advantage of that benefit, and we see that going forward.

Ananda Baruah
Research Analyst at Loop Capital

Do have a follow-up on that? Yes. Thanks. Maybe this is for Don. I guess, the March gross margin, am I correct in your recalling that March gross margin was actually originally anticipated to be impacted by product transition, yield dynamics, normal stuff?

Ananda Baruah
Research Analyst at Loop Capital

And if that did in fact occur, does that actually mean that the normal the structural margin is actually set up higher than what you guys reported?

Don Bennett
Don Bennett
Interim CFO at Western Digital

Well, I think we guided at 50 basis point improvement. We actually saw better yields and utilization and the ramp up our new product technology was faster than expected as we announced in our press release. So, we shipped over 800,000 units of our new 11 disc platform and that's being produced at very high quality, reliability and yields in our factory today. So that was one of the things that improved gross margin above guide.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Anand.

Operator

The next question comes from Mehdi Hosseini with SIG. Please go ahead.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Yes. Thanks for taking my question. Your main competitor recently announced their intention to acquire Intevac. And I wanna learn more how you're thinking about procuring the key components for HAMR technology, especially as you engage with two hyperscalers that you highlighted in the prepared remarks. And I have a follow-up.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yeah. First and foremost, I think the InterVac acquisition by our peer, doesn't have any impact on us because we have, obviously, two sputtering systems that we use. So we have resiliency within our technology supply chains. As well, we're obviously looking out for opportunities in which we can continue to capture even more value and accrete even more value to our products through potential acquisitions and vertical integration. So, we continue to keep a lookout for them.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

In many cases, in terms of tool providers, we actually do feel and our philosophy is that they actually benefit from actually servicing multiple customers because that's how they can innovate better as well, but that's generally our rule of thumb. But we're constantly looking at opportunities to see how we can, continue to vertically integrate and capture more value within our portfolio.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up, Mehdi?

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Yes, sir. And a follow-up has to do with the CFO search, especially since you're executing well right out of the gate and coming into dividend cash dividend? And to what extent, what's the update on the CFO search? And how should we think about the execution and search the CFO?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question. First and foremost, I really must thank Don for agreeing and stepping into the interim CFO role. He's done a great job, as you can hear from the results. As well, the search is progressing very well, and we'll communicate in due course once we have a CFO identified.

Mehdi Hosseini
Senior Equity Research Analyst at SIG

Thank you, Mehdi.

Operator

Thank you. The next question comes from Tim Ackuri with UBS. Please go ahead.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Thanks a lot. DRIVE units were down from $13,500,000 down to like 12,100,000.0 in March. So is 13,500,000.0, is that kind of like should we think about that as the high watermark for the number of drives you could produce in a in a quarter?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

I I wouldn't use that as a watermark. I think it really depends on mix. It also depends on the various capacities that we are delivering. As Don mentioned, the teams continue to do a great job on really pushing the boundaries of yield and output that we can within the supply environment that we have. So again, it fluctuates really based on yield and mix of products that we have.

Don Bennett
Don Bennett
Interim CFO at Western Digital

And I'll just add there's segment mix client and consumer was down for the quarter as we ramp into seasonal periods with Prime Day and back to school and Christmas. We may see some of that volume come back in the client consumer space as well And we have capacity there to expand.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Do you have a follow-up, Tim?

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

I do, yeah. Just back on this question about these LTAs, I mean, same large customers have similar deals for memory and they and they routinely overstate what they what they what they need. So why why would they not be doing that with you as well? So, I mean, you know, I I certainly understand that demand is good, but, you know, for this stuff that is booking out to next year, why would they not if they need two drives, why would they not tell you that they need three? And if they didn't take the drive, are you going to enforce a cancellation policy on that?

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Thanks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Look, I think, we've got into a good healthy relationship, with our customers. They have understood that in order for a hard drive to be healthy for us to continue to be able to be profitable and invest in innovation that they benefit from a TCO advantage, it's in both our best interest to provide as best as possible the demand outlook given the long lead times, especially when it comes to nearline drives. So that's something we've clearly gotten visibility. And in fact, for the two LTAs that we have into the first half of calendar twenty twenty six, we actually have firm POs associated with them as well.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

I guess the question is, you know, do we do we put in a clause around take or pay? To be frank, we're I'm not we are not a fan of that because all you're doing is creating problems down the road. And so, we'd rather work with our customers to smooth out demand and make sure we continue to work with them to have the right and appropriate supply demand balance to sustain a profitable business that we can continue to invest in innovation for them going forward.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Tim.

Operator

The next question comes from Vijay Rakesh from Mizuho. Please go ahead.

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

Yes. Hey, just a quick question on the HAMR side. When you look at two hyperscale customers you mentioned, are you still looking at ramping those like in calendar twenty six, like second half twenty six, I think as you mentioned on the Analyst Day earnings?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. So, as per the roadmap we've communicated, which has been shared with our customers for quite a while. At Analyst Day was when we made it more public to the general population, but that roadmap has been done in partnership for customers for quite a while. Just to reiterate what we shared, we're looking to start qualifications in the second half of calendar twenty twenty six with high volume production ramp in the first half of calendar year twenty twenty seven.

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

Got it. And then on the Thadis side, just a quick clarification. When you look at shipping into China, is that going from your Malaysia facilities or do you ship hard drives into China? Likewise, in The US, how much of that is you have production here versus coming in from Malaysia, etcetera? If you can give

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

us a little bit

Vijay Rakesh
Vijay Rakesh
Managing Director at Mizuho Financial Group

of color around that. Thanks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. We have production facilities throughout Asia. So none of our products that we ship into The U. S. Is coming from China.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Most of it's coming in from Southeast Asia. Products going to China are not subject to any tariffs. As of April 11, products that we ship into The U. S. Are also not subject to any tariffs.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Obviously, that situation is evolving and fluid, so we stay very close to it.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Thank you, Vijay.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thanks.

Operator

Thank you. The last question comes from Krish Sankar from TD Cowen. Please go ahead.

Analyst

Hey, guys. This is Adi for Krish. How should the investors think about the impact from rare earth export control from China? I think historically you guys were able to recycle some of these metals, but at some point it did impact your margins. I just wonder if down the road, it's an area investors should be thinking about?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Thanks for the question, and it's a good one. We, over the last few years, have really been on a supply chain resiliency program where we have been able to develop, alternate sources of supply for both rare earth and precious minerals, as well. So, we don't anticipate there being any material impact, as a result of some of those controls.

Ambrish Srivastava
Ambrish Srivastava
VP - Investor Relations at Western Digital

Did you have a follow-up?

Analyst

Sure. Thanks, everyone. And, as you guys ramp the 11 disc platform, how how should we think about the margin impact? Because my understanding is as you add discs, it may reduce the gross margin accretion? Or do you think it's at a point where it's mature enough where margins would be unaffected by that ramp?

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Thank you.

Don Bennett
Don Bennett
Interim CFO at Western Digital

Yes. So the margin accretion is included in our guidance. So we factor the ramp of the new technology into guidance.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Yes. Maybe just to add on to Don's comment, we were already ahead of our ramp plans in Q3. As I mentioned in my prepared remarks, we shipped over 800,000 units of that new Eleventhes platform. We'll be shipping well over 1,000,000 units in Q4. We are seeing very high yields and productivity coming out of those platforms.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

So I guess to your question, they're actually margin accretive as opposed to being dilutive. You.

Operator

You. Operator, this concludes our question and answer session. I would like to turn the conference back over to Mr. Irving Tan, Chief Executive Officer for any closing remarks.

Irving Tan
Irving Tan
Chief Executive Officer at Western Digital

Well, first, thank you all very much for joining us today and it's very exciting to have our first quarter out as a standalone HDD company. As you can see from the results and the guide, we're executing well on our strategy that we've laid out at Investor Day, really being focused on our customers, driving leading edge innovation, being extremely disciplined on operational excellence and having rigorous financial discipline and a very capital friendly return policy. This quarter and the guide that we have shared, I think truly reflects that. And so we ask that we thank you for your ongoing interest in WDC and I look forward to catching up with all of you in due course.

Operator

This concludes today's conference call. Thank you for joining us. You may now disconnect.

Executives
    • Ambrish Srivastava
      Ambrish Srivastava
      VP - Investor Relations
    • Irving Tan
      Irving Tan
      Chief Executive Officer
    • Don Bennett
      Don Bennett
      Interim CFO
Analysts
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Earnings Conference Call
Western Digital Q3 2025
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