Western Digital (WDC) Financials

Western Digital’s (NASDAQ: WDC) financial results show a sharp recovery in operating performance through fiscal 2026. Revenue increased from $2.21 billion in Q1 2025 to $3.75 billion in Q4 2026, while gross profit expanded from $806 million to $2.03 billion. The Q4 2026 gross margin was approximately 54%, compared with roughly 36% in Q1 2025 and only 21% in Q3 2024. Operating income also climbed to $1.56 billion, producing an operating margin of approximately 42%.

Profitability has improved substantially, although reported earnings are heavily affected by non-operating items. Net income rose from losses in fiscal 2024 to $1.18 billion in Q1 2026, $1.84 billion in Q2, $3.21 billion in Q3 and $3.20 billion in Q4. However, Q3 and Q4 2026 each included more than $1.6 billion of net other income. That means the unusually strong earnings growth may not be entirely attributable to Western Digital’s core storage operations.

Cash generation has strengthened alongside earnings. Operating cash flow increased from $34 million in Q1 2025 to $1.39 billion in Q4 2026. Across the four quarters of fiscal 2026, Western Digital generated approximately $3.93 billion in operating cash flow and spent about $418 million on capital expenditures, implying estimated annual free cash flow of roughly $3.5 billion before financing activities.

The balance sheet has also changed materially. At the end of Q3 2026, Western Digital reported $2.05 billion of cash and $1.19 billion of short-term investments, versus total current liabilities of $4.64 billion. Short-term debt stood at $1.58 billion and long-term debt was reported at zero, compared with more than $4.6 billion of total debt in Q2 2026. The company used significant cash to repay debt and repurchase shares, but its liquidity remains meaningful.

• Revenue momentum is strong: quarterly revenue rose approximately 68% from Q1 2026 to Q4 2026, indicating a substantial improvement in demand and/or product mix.
• Margins have expanded sharply: Q4 2026 gross profit reached $2.03 billion and operating income reached $1.56 billion, a major improvement from the low-margin and loss-making periods in fiscal 2023 and 2024.
• Operating cash flow is scaling: quarterly operating cash flow reached $1.39 billion in Q4 2026, more than doubling from $672 million in Q1.
• Free cash flow appears robust: fiscal 2026 operating cash flow of approximately $3.93 billion substantially exceeded capital expenditures of about $418 million.
• Debt reduction improved financial flexibility: the company repaid $1.32 billion of debt in Q4 2026 and reported no long-term debt on the Q3 2026 balance sheet.
• Share repurchases are supporting per-share value: Western Digital repurchased $678 million of common stock in Q4 2026, following repurchases in each prior fiscal 2026 quarter.
• Reported earnings include significant non-operating income: net other income was $1.69 billion in Q4 2026 and $2.74 billion in Q3, so investors should distinguish recurring operating earnings from transaction-related or other one-time items.
• Balance-sheet figures show major reclassification or restructuring effects: goodwill fell from roughly $10 billion in earlier periods to $4.32 billion in Q3 2026, while common equity and debt levels changed rapidly. These movements may reflect a significant corporate transaction and complicate year-over-year comparisons.
• Cash declined in Q4 despite strong cash generation: net cash fell by $471 million because debt repayments, share repurchases, dividends and other financing outflows exceeded operating cash flow.
• Share count trends require monitoring: weighted-average basic shares increased from 339 million in Q2 2026 to 361 million in Q4, which diluted the benefit of higher net income on a per-share basis even though the company continued repurchasing stock.