Western Digital NASDAQ: WDC reported a strong start to fiscal 2027, with first-quarter revenue rising 55% year over year to $4.4 billion as demand for high-capacity hard drives remained robust across cloud, enterprise and emerging AI-related markets.
Chief Executive Officer Irving Tan said the company exceeded its own expectations during the quarter, citing customer demand, operational discipline and progress in product and technology transitions. On a non-GAAP basis, Western Digital reported gross margin of 58.1%, operating margin of 49.1% and diluted earnings per share of $4.64, up 161% from a year earlier. The company generated $1.4 billion in free cash flow.
Cloud Drives Growth as Higher-Capacity Mix Expands
Western Digital shipped 248 exabytes during the quarter, an increase of 22% from a year earlier and 8% sequentially. Cloud revenue totaled $3.9 billion, or 88% of company revenue, rising 54% year over year. Client revenue was $320 million, up 119%, while consumer revenue increased 19% to $193 million.
Chief Financial Officer Kris Sennesael said the results reflected strong exabyte growth, favorable pricing and a mix shift toward higher-capacity nearline hard drives. Average selling price per terabyte rose 28% year over year, compared with growth in the high teens during the prior quarter.
Tan said storage demand is broadening beyond the company’s traditional cloud and hyperscale customers to enterprise users, NeoCloud providers and AI frontier labs. He said customers are extending their infrastructure planning horizons into the next decade and that Western Digital has visibility through 2030 and 2031 across its top seven customers.
The company characterized the demand outlook as durable, supported by continued cloud expansion, AI model training, inference and agentic AI workloads, and physical AI applications such as robotics, factory automation and autonomous vehicles.
Technology Transitions Target Higher Exabyte Growth
Western Digital said its latest ePMR platform, which provides capacities of up to 40 terabytes, has begun volume production and is seeing faster adoption than prior transitions. The company expects the platform to account for nearly 30% of nearline shipments in the second quarter of fiscal 2027 and about 50% in the third quarter.
The company also remains on schedule with its first-generation heat-assisted magnetic recording, or HAMR, drives. Tan said Western Digital expects to complete qualifications with two hyperscale customers in the first quarter of calendar 2027 and begin volume shipments during the first half of that year. It also plans to begin qualifications with two additional customers during the first half of calendar 2027.
Western Digital expects to begin qualifying second-generation HAMR drives in the second half of calendar 2027. Tan said those products will use a five-terabyte-per-platter design on an 11-disc platform.
Management said the current quarter represented a floor for exabyte growth, with growth expected to accelerate as the ePMR and HAMR transitions advance. Sennesael said the company’s nearline exabyte growth is expected to exceed its longer-term target of greater than 25% once the new platforms gain further traction.
Margins Benefit From Pricing, Mix and Areal Density
Western Digital’s gross margin expanded by 1,420 basis points year over year to 58.1%, while operating expenses were $391 million, or about 9% of revenue. Operating income rose 152% to $2.2 billion.
Tan identified three key drivers of continued margin expansion: pricing, a greater mix of higher-capacity drives and increased exabyte shipments enabled by higher areal density. The company said delivering more capacity per drive helps customers lower total cost of ownership through improved rack density and lower power consumption.
Sennesael said the company continues to face near-term input-cost increases, including for DRAM and NAND used in hard drives. Western Digital is addressing those costs through value-engineering efforts, though it expects its near-term cost-per-terabyte reduction to be less than its longer-term goal of approximately 10% annually.
Management said it is not discounting HAMR products relative to ePMR drives, with pricing based on dollars per terabyte. The company also said some long-term agreements include periodic price adjustments, while a portion of its exabyte shipments is not under contract.
Outlook, Capital Returns and Investment Plans
For the second quarter of fiscal 2027, Western Digital forecast revenue of $5.1 billion, plus or minus $100 million. At the midpoint, that would represent 69% year-over-year growth. The company expects gross margin of 60% to 61%, operating expenses of $400 million to $410 million, and non-GAAP diluted earnings per share of $5.80, plus or minus $0.20.
The company returned $1.1 billion to shareholders during the first quarter through repurchases and dividends. Its board approved a 17% increase in the quarterly dividend to $0.175 per share from $0.15 per share. The dividend is scheduled to be paid Dec. 17, 2026, to shareholders of record on Dec. 4, 2026.
Western Digital ended the quarter with a net cash position of $500 million after substantially reducing its remaining 2028 convertible notes. The company expects capital expenditures to average 4% to 6% of revenue over a five-year period, although spending should be modestly above that range during the next two years.
Management said the additional investment will support heads, media technology and factory automation for higher-density products and HAMR manufacturing rather than an expansion of unit capacity. Tan said the company’s strategy remains focused on increasing capacity through technology and areal density, which it views as the most economical approach for customers and its own business.
About Western Digital (NASDAQ:WDC)
Western Digital Corporation NASDAQ: WDC is a data storage technology company that develops and manufactures hard disk drives (HDDs) and related storage solutions. Its products are used in data centers, cloud infrastructure, enterprise systems, personal computers, gaming platforms and external storage devices.
The company offers HDD-based products for business and consumer applications, including high-capacity drives designed for hyperscale and cloud data centers, enterprise storage environments, network-attached storage systems and personal computing.
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