Western Digital NASDAQ: WDC reported fiscal fourth-quarter revenue and earnings above the high end of its guidance, citing strong demand for high-capacity hard disk drives, favorable pricing and growth in cloud storage needs tied to artificial intelligence workloads.
For fiscal 2026, the hard drive manufacturer increased revenue 36% to $12.9 billion, expanded gross margin by 970 basis points to 49.1% and lifted operating margin by 1,290 basis points to 37.3%, according to Chief Financial Officer Kris Sennesael. Non-GAAP earnings per share more than doubled to $10.22, while free cash flow reached $3.5 billion, or a 27% free-cash-flow margin.
“Fiscal 2026 was an outstanding year for WD, driven by broadening demand, deepening customer engagements, and disciplined execution,” Sennesael said.
Fourth-Quarter Results Beat Guidance
Fourth-quarter revenue rose 44% year over year to $3.75 billion, driven by strong exabyte growth and pricing. Non-GAAP diluted earnings per share increased 109% from a year earlier to $3.56. The company shipped 231 exabytes during the quarter, up 22% year over year.
Cloud revenue totaled $3.3 billion, or 89% of total sales, increasing 43% from the prior-year quarter. Client revenue rose 61% to $225 million, while consumer revenue increased 38% to $187 million. Management said the client and consumer segments benefited from improved pricing.
Gross margin expanded 1,310 basis points year over year to 54.4%. Sennesael attributed the improvement to a shift toward higher-capacity drives, favorable pricing across the product portfolio and manufacturing execution. The blended average price increase per terabyte improved from high single digits in the prior quarter to the high teens in the fiscal fourth quarter, he said.
Operating income reached $1.66 billion, up 126% year over year, producing an operating margin of 44.2%. Operating cash flow was $1.4 billion, and capital expenditures were $108 million, resulting in quarterly free cash flow of $1.3 billion.
AI and Cloud Demand Support Storage Outlook
Chief Executive Officer Irving Tan said Western Digital sees AI-related data creation, inference workloads, agentic AI and physical AI applications as long-term drivers of capacity-oriented storage demand. He said that while compute resources can be reused, data generated through AI inputs, outputs, logs and retained context continues to accumulate.
Tan also pointed to demand from core cloud services, including video-driven applications, as well as emerging demand from autonomous vehicle, robotics and industrial automation companies. He said the company has gained improved visibility into physical-AI-related storage requirements, including needs for synthetic data used in model training.
“As AI workloads move from deployment to sustained use, storage demand becomes less about the one-time infrastructure build cycle and more about the compounding of data,” Tan said.
Management said roughly 80% of data stored in hyperscale data centers currently resides on hard disk drives. The company expects HDDs to remain important for long-retention, large-scale storage because of their scale, economics and power efficiency.
Tan said Western Digital is discussing long-term agreements, or LTAs, with customers extending into calendar years 2029 through 2031. The discussions provide visibility into expected exabyte demand, though the company is still working through pricing structures for those agreements.
Product Roadmap and Margin Drivers
Western Digital began shipping next-generation ePMR drives with capacities up to 40 terabytes during the June quarter and said it has entered volume production with two customers. The company expects the platform to account for more than 50% of nearline exabytes by the third quarter of fiscal 2027.
The company is also ramping its UltraSMR technology with a third major customer and expects UltraSMR to represent about 60% of nearline exabyte shipments by the end of fiscal 2027. It remains on track to ship a 44-terabyte HAMR product during the first half of calendar 2027, Tan said, adding that customer feedback on qualification has been positive.
Western Digital is sampling high-bandwidth drives with five customers and is targeting throughput of up to eight times that of current drives without a corresponding increase in power draw.
Sennesael said cost per terabyte declined about 8% year over year in the fourth quarter. Over the medium to long term, the company expects cost per terabyte to decline by about 10% annually, driven by higher areal density and transitions to higher-capacity products.
Management said it expects exabyte demand to grow more than 25% over time, while cautioning that quarterly shipment growth can vary based on customer mix and the balance of conventional magnetic recording and UltraSMR products.
First-Quarter Outlook and Capital Returns
For the first quarter of fiscal 2027, Western Digital forecast revenue of $4.1 billion, plus or minus $100 million, representing 45% year-over-year growth at the midpoint. The company expects gross margin of 55% to 56%, operating expenses of $390 million to $400 million and non-GAAP diluted earnings per share of $4.00, plus or minus $0.15.
The company ended the quarter with $1.6 billion in cash and $1.1 billion in debt, resulting in a net cash position of $500 million. During the quarter, it repurchased 2.3 million shares for $1 billion and paid $54 million in dividends. The board declared a $0.15-per-share cash dividend payable Sept. 17, 2026, to shareholders of record on Sept. 8.
Sennesael said the company remains committed to returning free cash flow to shareholders through dividends and share repurchases.
About Western Digital (NASDAQ:WDC)
Western Digital Corporation is a global data storage company that designs, manufactures and sells a broad range of storage devices and systems for personal, enterprise and cloud applications. Headquartered in San Jose, California, the company develops hard disk drives (HDDs), solid-state drives (SSDs), NAND flash components and finished storage products used in PCs, external storage, servers, network-attached storage (NAS) and embedded systems.
Its product portfolio spans consumer and commercial markets, including internal and external HDDs and SSDs, removable flash memory products and storage platforms for data center and enterprise environments.
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