Overview
Western Digital
WDC · NASDAQQ1 FY2027Data Storage · Hard Disk Drives (HDD)
Since the Report + 8.2%
Revenue grew 55.5% year over year, EPS beat the estimate by 13.7%; the stock fell 6.5% in its first reaction.
- RevenueQ1
- $4.38B
- ▲ 55% Annual · 5.8% Above Estimate
- EPSAdjusted
- $4.64
- Estimate $4.08 · 13.7% Beat
Verdict
BUYWestern Digital beat revenue estimates by 5.8% and earnings by 13.7%, and its second-quarter guidance came in 12% above market expectations. The stock still fell 6.5% after hours because management said price increases will slow after three to four quarters. The one measure to watch from here is the annual rise in price per terabyte.
Close on Report DayOct 22
$354.19▼ 6.5%Report-Day Move
- Market Cap(Today)
- ≈ $143 B
- 1Y Return(At Report)
- + 192%
- P/E(At Today's Price · $13.05 · Trailing 12M)
- 29.4
- Net Margin(Trailing 12M)
- 69.2%
Earnings Summary
In 30 Seconds- Revenue of $4.38B beat estimates by 5.8%, and adjusted EPS of $4.64 beat by 13.7%.
- Second-quarter guidance of $5.1B in revenue and a 60-61% gross margin is 12% above market expectations.
- The stock fell 6.5% after hours on the message that price increases will slow after three to four quarters.
The Numbers
Adjusted Gross Margin
58.1%
Guidance Was 55 – 56% · GAAP 57.8%
Free Cash Flow
$1.38B
▲ 7.5% Quarterly · Operating $1.60B
Share Repurchases
$1.00B
Dividend ▲ 17% · $0.175 Per Share
Stock Reaction
▼ 6.5%
After Hours · Price Is Oct. 22 Close
Quarterly Revenue ($ Billion)
2.82
Q1 FY26 · $2.82 B
3.02
Q2 FY26 · $3.02 B · QoQ + 7.1%
3.34
Q3 FY26 · $3.34 B · QoQ + 10.6%
3.75
Q4 FY26 · $3.75 B · QoQ + 12.3%
4.38
Q1 FY27 · $4.38 B · QoQ + 16.9% · YoY + 55.5%
5.0–5.2
Q2 FY27E · 5.0–5.2 · QoQ + 16.4% · YoY + 69.0%
- Q1 FY26
- Q2 FY26
- Q3 FY26
- Q4 FY26
- Q1 FY27
- Q2 FY27E
Q2 FY27 Company Guidance
- Revenue5.0 – 5.2 B5.0 B5.2 B5.0 – 5.2 B
Midpoint 5.10 · Market Expectation 4.5711.6% Above Estimate ▲
- Adjusted EPS5.6 – 6.0 $5.6 $6.0 $
Midpoint 5.80 · Market Expectation 4.8220.3% Above Estimate ▲
- Adjusted Gross Margin60% – 61%60%61%60% – 61%
Last Quarter Actual 58.1%2.4-Point Expansion ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±19% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Cloud$3.87 BShare 88.3%▲ 54.1% YoY
- Client$320 MShare 7.3%▲ 119.2% YoY
- Consumer$193 MShare 4.4%▲ 19.1% YoY
Key Metrics
Free Cash Flow
$1.38 B
Press Release
Operating Cash Flow
$1.60 B
Press Release
Share Repurchases
$1.00 B
Press Release
Dividends Paid
$56.0 M
Press Release
Shares are computed over the segment total: $4.38 B. Source: 10-Q.
Metrics come only from the company's own filings; each one names the document it was taken from.
“Fiscal 2027 is off to a strong start, with results exceeding expectations, driven by robust customer demand. There has not been any diminishing in demand.”
- No Weakening in Demand
- Price Increases for Three to Four Quarters
- HAMR Qualification in Early 2027
Summary and Review
Summary
Western Digital reported revenue of $4.38 billion for the first quarter of fiscal 2027. Revenue rose 55% year over year and beat market expectations by 5.8%. The company's own guidance was $4.0-4.2 billion, and the result topped that range too. Adjusted earnings per share were $4.64 against an expected $4.08, a 13.7% beat. Second-quarter guidance calls for $5.1 billion in revenue and $5.80 in EPS. That is 11.6% above expectations on revenue and 20.3% above on earnings. All three gates are open.
The stock fell 6.4% in the October 22 session, before the results, closing at $354.19. Selling continued after hours, and the price was $331.19 at 7:59 p.m. ET. The shares had already lost more than half their value since the June peak. The market did not read this report as a demand story; it read it as a question about the peak. Management said price increases will slow after three to four quarters. Rising component costs also limit the decline in unit costs.
Score 86, verdict buy. The reasoning is simple: all three gates cleared the 2% threshold comfortably. Adjusted gross margin of 58.1% beat the company's own 55-56% guidance. The company expects a 60-61% margin next quarter. Free cash flow was $1.38 billion, and $1.06 billion went back to shareholders through buybacks and dividends. Two caveats pull the score down within the band: the timing of the price cycle and rising input costs for components.
Full Review
Pricing power is growing faster than volume.
According to the earnings call, average price per terabyte rose 28% year over year. The increase was 18% in the prior quarter. Shipments reached 248 exabytes, up 22% year over year. Much of the 55% revenue growth therefore comes from price. Management expects three to four more quarters of annual price increases, after which the rise should moderate. Supply remains tight. The company is not adding production lines; it grows by raising capacity per platter. CEO Irving Tan said on the call that demand has not diminished. Visibility across the seven largest customers extends to 2030-2031. Expiring long-term agreements are being renewed. The new contracts include base and upside volume plus periodic price reviews. Pricing is also strong on uncontracted exabytes.
Margin beat guidance; the next stop is 60%.
Adjusted gross margin was 58.1% and GAAP gross margin was 57.8%. Last quarter the company had guided to a 55-56% range. Adjusted operating expenses held at $391 million. Adjusted operating income therefore reached $2.15 billion. That is roughly half of revenue. Adjusted net income was $1.78 billion, compared with $673 million a year earlier. Guidance for next quarter is a 60-61% margin, a 2.4-point expansion from this quarter. The only brake is input costs. Because DRAM and NAND prices are rising, cost per terabyte will fall by less than 10% a year in the near term. The long-term target is a decline of about 10% a year. If price increases slow while cost declines stay slow, room for margin expansion narrows.
Cash is flowing back to shareholders.
Operations generated $1.60 billion in cash. Capital spending was $227 million. The remaining free cash flow was $1.38 billion, up 7.5% from the prior quarter. The company made $1.00 billion of share repurchases in the quarter. It paid $56 million in dividends. The quarterly dividend was raised 17% to $0.175 per share. Management said on the call that the net cash position is about $0.5 billion. Capital spending is expected to average 4-6% of revenue over five years. It will run slightly above that range for the next two years; the money goes to heads, media and automation. About 77% of free cash flow went back to shareholders this quarter.
The product roadmap is on schedule.
Last quarter's expected milestone, the shipment ramp of 40TB ePMR drives, has begun. The product is in volume production, and the transition is moving faster than prior generations. Management expects these drives to reach about 30% of nearline shipments in the second quarter and 50% in the third. The ePMR transition to up to 44TB is also starting. On HAMR, qualification with two hyperscale customers will finish in the first calendar quarter of 2027. Volume shipments come in the first half of 2027, keeping the schedule given last quarter. Two more customers begin qualification in the first half. Tan stressed that HAMR is not sold at a discount to ePMR. Second-generation HAMR, with 5TB per platter, enters testing in the second half of 2027.
Next quarter, watch a single number.
In the next report, look at one line: the annual rise in price per terabyte. This quarter it was 28%. If it stays above 20%, the 60-61% margin guidance is credible and the story holds. If it drops below 15%, this quarter will read as the peak of the pricing cycle. The stock is already partly pricing in that possibility. The second check is whether HAMR qualification finishes in the first calendar quarter. If the schedule slips, the capacity gains meant to offset slower pricing are delayed too. The third measure is gross margin, guided at 60-61%. A result below 60% would mean cost pressure has started to erode pricing power.
Looking Ahead
Strengths and Risks
5 Strengths · 5 RisksStrengths
5- Revenue, earnings and next-quarter guidance beat expectations by 5.8%, 13.7% and 11.6% respectively.
- Adjusted gross margin of 58.1% came in above the company's 55-56% guidance.
- Price per terabyte rose 28% year over year, accelerating from 18% in the prior quarter.
- 40TB ePMR drives are in volume production and are expected to reach half of nearline shipments in the third quarter.
- The company repurchased $1.00 billion of stock in the quarter and raised its dividend 17%.
Risks
5- Management expects annual price increases to slow after three to four quarters.
- Rising DRAM and NAND costs mean cost per terabyte will fall by less than 10% in the near term.
- Most revenue depends on a small number of hyperscale cloud customers.
- Capital spending will run slightly above the 4-6% of revenue target range for the next two years.
- The stock is down more than 50% from its June peak, and volatility is high.
What to Watch
6- December 17, 2026Quarterly dividend of $0.175 per share is payable; record date December 4.
- ~January 2027Q2 FY2027 earnings; guidance calls for $5.1 billion in revenue and $5.80 in EPS.
- First calendar quarter of 2027HAMR qualification is expected to finish at two hyperscale customers.
- First half of 2027Volume HAMR shipments begin and qualification starts at two new customers.
- Q3 FY202740TB ePMR drives are targeted to reach about half of nearline shipments.
- Second half of 2027Second-generation HAMR with 5TB per platter enters qualification.
Upcoming Earnings
To Understand This