Western Digital NASDAQ: WDC Chief Financial Officer Kris Sennesael said the company is seeing accelerating storage demand tied to artificial intelligence and broader data growth, and is positioning its hard disk drive (HDD) roadmap around higher-capacity products, performance improvements, and deeper long-term customer engagements with hyperscale cloud providers.
AI-driven storage demand and rising exabyte growth outlook
In response to a question from Barclays analyst Tim Long about AI shifting from training to inferencing, Sennesael said HDDs remain “the most reliable, economical way” to store the rapidly expanding volumes of data produced by AI and other sources. He described a “compounding loop” in which training creates better models, inferencing generates outputs that are stored, and the stored data feeds further model improvement.
Sennesael noted the company has raised its expectations for exabyte growth over successive updates. He said that in February 2025, shortly after Western Digital’s flash separation, management expected mid-teens year-over-year exabyte growth CAGR for the next three to five years, with potential upside from AI. By February 2026, at the company’s Innovation Day, Western Digital said it expected 25% CAGR. “Last week, at our earnings call,” he added, the company was “very confident” it now expects greater than 25% CAGR over the next three to five years, “maybe something trending that starts with a three.”
He broke AI-related storage demand into three areas:
- Training: Continued retraining and refinement of large language models and development of specialized models.
- Inferencing: Sennesael said roughly two-thirds of installed compute power this year will be used for inferencing, and he emphasized that outputs, intermediate data, and “reasoning” are being stored for history and reuse.
- “Physical AI”: Early-stage growth from robots, humanoids, and autonomous driving, including large-scale video capture and the use of synthetic data to augment real-world datasets.
How Western Digital is planning without a “direct attach” model
Long noted the difficulty investors face in modeling HDD demand versus GPU or accelerator deployments. Sennesael agreed that HDD demand does not map directly to compute installations, arguing that compute is reused while data generated by inferencing is stored “forever.” He said the company has built deeper engagements with hyperscalers globally over the last 12 to 18 months to improve long-term visibility, including discussions on customer technology roadmaps, data center build-outs, and expected capacity needs over three to five-plus years.
Dual-track capacity roadmap: stretching ePMR and ramping HAMR
Sennesael said Western Digital’s roadmap is designed to scale areal density and deliver higher-capacity drives through multiple technology paths. He said ePMR has been the dominant recording technology for roughly a decade and that earlier industry assumptions capped ePMR at around 30 TB. “We’ve broken that logic,” he said, noting Western Digital is shipping up to 32 TB ePMR drives today.
He said the company has a path to extend ePMR to 40 TB, 50 TB, and 60 TB. According to Sennesael, the company already has a 40 TB product in qualification with three customers and is preparing for a “pretty steep ramp” in the second half of calendar 2026.
In parallel, he said Western Digital plans to begin ramping HAMR (heat-assisted magnetic recording) in calendar 2027 with 44 TB drives, which are in qualification with four customers. Sennesael said customer feedback has been strong on “performance, the quality, the reliability,” and areal density, while adding the company is not “rushing it” because ePMR provides a parallel path that de-risks the transition for both Western Digital and customers.
Looking beyond 44 TB, Sennesael said HAMR is expected to scale to 50 TB, 60 TB, 70 TB, and eventually “more than 100 TB per drive.” He also said Western Digital is already investing in a longer-term successor technology, HDMR (Heat Dot Magnetic Recording), which he suggested could be a “10 years down the road” innovation.
Performance improvements: High-Bandwidth Drives and dual-pivot
Sennesael said that while roughly 80% of cloud data is stored on HDDs and about 20% on SSDs, SSDs maintain a performance advantage. He said customers have asked Western Digital to improve HDD speed and throughput, and the company has developed approaches that can increase throughput “up to 8x faster.”
He pointed to High-Bandwidth Drives, discussed at Innovation Day, which he said are largely enabled through firmware and software, and combined with a hardware approach using dual-pivot actuators. He said Western Digital is shipping samples to two customers and that feedback has been “very positive.” Sennesael framed the opportunity as a way to expand into “warmer and/or hot data” use cases and as a necessary capability as capacity rises toward 50 TB, 60 TB, and ultimately 100 TB drives.
Cloud mix shift, long-term agreements, pricing, and margin outlook
Sennesael said Western Digital’s business mix has shifted significantly toward hyperscale cloud. He said that while more than 50% of revenue previously came from client and consumer, “fast-forward to today, 90% of our business is cloud,” with about 5% in consumer and 5% in client PC.
He said the commercial model has changed from largely “turns business” (same-quarter ordering and shipping) to longer-range planning, citing that it takes “almost a year to produce a hard disk drive,” including “nine months” for wafer fabrication for heads plus “three months” for assembly and testing. Sennesael said customers now place orders 52 weeks in advance, with volume, price, and specific SKUs fixed for those purchase orders. He also said Western Digital has entered into long-term agreements (LTAs) with large customers covering calendar 2027, and in some cases extending into 2028 and 2029, with volume and price components and some flexibility.
On pricing, Sennesael said Western Digital focuses on value-based pricing and customer total cost of ownership. He said higher-capacity drives offer benefits such as better rack density, lower real estate cost, and lower power consumption, allowing the company to charge more per terabyte while still reducing customers’ total cost of ownership. He said price per terabyte increases are currently in the mid- to high-single digits, adding that last quarter it was up 9% year-over-year, and he expects all four quarters of calendar 2026 to show mid- to high-single-digit increases.
Long also asked about gross margin sustainability. Sennesael said the business has shifted from long-standing margins in the 20% range to higher levels as Western Digital delivers more value through capacity gains. He cited last quarter’s gross margin of 50.5%—“the first one crossing into something starting with a five handle”—and said the company guided to 51% to 52% for the current quarter. He said further expansion is expected as ASP per terabyte rises and cost per terabyte declines, both driven by higher-capacity drives. He added that HAMR introduces some additional cost due to lasers and more expensive media, but the cost is offset by capacity gains over time.
Sennesael also discussed vertical integration related to HAMR lasers, saying the company has an external laser source but acquired intellectual property and talent to develop an internal source as well. He said internal development could improve areal density, enable tighter integration of the laser into the head, create space that could allow more platters in a drive, and ultimately provide performance and cost advantages. He described the work as a multi-year effort over “the next two, three, five years.”
On competitive dynamics, Sennesael said the HDD market has “basically three players,” including two large players “including Western Digital,” and a third smaller player. He said the company does not see new entrants due to the complexity of head manufacturing, magnetic recording expertise, and the difficulty of scaling production, noting Western Digital has been building HDDs for 55 years and that next-generation transitions can take a decade.
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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