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Revenue: $3.75 billion in Q4 fiscal 2026, up 44% year-over-year; full-year revenue grew 36% to $12.9 billion.
Earnings per Share (EPS): Q4 EPS of $3.56, up 109% year-over-year; full-year EPS more than doubled to $10.22.
Gross Margin: Q4 gross margin expanded 1,310 basis points year-over-year to 54.4%; full-year gross margin expanded 970 basis points to 49.1%.
Operating Margin: Q4 operating margin of 44.2%, up 1,610 basis points year-over-year; full-year operating margin increased 1,290 basis points to 37.3%.
Free Cash Flow: Q4 free cash flow of $1.3 billion, with a 34% free cash flow margin; full-year free cash flow of $3.5 billion, a 27% margin.
Exabytes Shipped: 231 Exabytes in Q4, up 22% year-over-year.
Cloud Revenue: $3.3 billion, representing 89% of total revenue, up 43% year-over-year.
Client Revenue: $225 million, representing 6% of total revenue, up 61% year-over-year.
Consumer Revenue: $187 million, representing 5% of total revenue, up 38% year-over-year.
Operating Expenses: $382 million in Q4, approximately 10% of revenue.
Capital Expenditures (CapEx): $108 million in Q4.
Shareholder Returns: Returned $3.1 billion to shareholders in fiscal 2026, including $1 billion in Q4 share repurchases and $54 million in dividend payments.
Balance Sheet: Ended Q4 with $1.1 billion in debt and $1.6 billion in cash, resulting in a net positive cash position of $500 million.
Q1 Fiscal 2027 Guidance: Revenue expected at $4.1 billion (plus/minus $100 million), gross margin of 55% to 56%, and diluted EPS of $4.00 (plus/minus $0.15).
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For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Strong fiscal 2026 results with 36% year-over-year revenue growth, significant gross and operating margin expansion, and EPS more than doubling to $10.22.
Generated $3.5 billion in free cash flow and strengthened the balance sheet to a net positive cash position, while returning $3.1 billion to shareholders.
Robust demand driven by AI, inference, and Agentic AI, with storage demand becoming more durable as data creation compounds.
On track to ship 44TB HAMR products in the first half of calendar 2027, with positive customer feedback on qualifications.
Commenced shipments of 40TB ePMR drives and ramping Ultra SMR technology, with plans for Ultra SMR to make up around 60% of nearline exabyte shipments by fiscal 2027 exit.
Expanding innovation into new layers of the AI storage stack, including high bandwidth drives sampling with five customers, offering up to 8 times throughput without corresponding power increase.
Strong visibility with customers seeking long-term agreements extending to calendar 2029-2031, indicating sustained demand.
Favorable pricing dynamics with blended average price per terabyte improving to high teens year-over-year in Q4.
Gross margin expansion driven by mix shift to higher capacity drives, favorable pricing, and operational execution, with Q1 fiscal 2027 guidance for gross margin of 55-56%.
Growing demand from new customer segments including neoclouds, sovereign data centers, and physical AI companies, providing additional growth opportunities.
Exabyte growth in Q4 fiscal 2026 was 22% year-over-year, below the 30% growth seen in prior quarters, indicating potential lumpiness in demand.
Gross margin guidance for Q1 fiscal 2027 is slightly below competitor levels, with quarter-to-quarter variations due to timing of LTA repricing and product transitions.
Cost per terabyte declined only 8% year-over-year in Q4, slightly below the long-term target of 10% annual reduction.
Dependence on a few large hyperscale customers for the majority of nearline shipments, which can lead to volatility in quarterly exabyte shipments.
Pricing strategy for nearline products is focused on predictability, limiting the potential for rapid price increases compared to non-nearline segments.
The company only guides one quarter at a time, providing limited forward visibility to investors despite strong demand commentary.
Operating expenses are expected to increase sequentially in Q1 fiscal 2027, potentially impacting operating leverage.
The transition to next-generation products like 40TB ePMR and HAMR may create near-term supply constraints or execution risks.
Interest and other expenses are expected to rise to $15 million in Q1 fiscal 2027, slightly higher than the previous quarter.
The company's ability to sustain high growth depends on continued AI infrastructure investment, which could be subject to cyclicality or shifts in customer spending.
Q: How does Western Digital's gross margin performance compare to its main competitor, and what are the drivers for future gross margin expansion?A: Irving Tan (CEO) acknowledged quarter-to-quarter variations in gross margins due to factors like the timing of long-term agreement (LTA) expirations and new platform introductions. He highlighted the commencement of shipments of next-generation 40TB ePMR drives in Q4, with a target for these to represent over 50% of nearline exabytes by the third quarter of calendar 2027. He expressed confidence that pricing structures, higher-capacity drives, and operational efficiencies will drive stronger exabyte growth and ongoing margin expansion.
Q: Can you provide more detail on the 22% year-over-year exabyte growth in Q4, which decelerated from prior quarters, and what is the outlook for exabyte growth in fiscal 2027?A: Irving Tan (CEO) explained that exabyte growth rates can fluctuate quarter-to-quarter due to product mix, as different customers adopt different technologies (e.g., CMR vs. UltraSMR). He reiterated the company's expectation for demand to grow at over 25% going forward. He noted that exabyte growth is expected to accelerate in the second half of the fiscal year as the 40TB ePMR ramp intensifies, followed by the introduction of 44TB HAMR products in the first half of calendar 2027.
Q: How should we think about the progression of cost per terabyte through fiscal 2027, given the product transition to 40TB ePMR drives?A: Kris Sennesael (CFO) stated that cost per terabyte in Q4 fiscal 2026 was down approximately 8% year-over-year. He reiterated the long-term target of a ~10% year-over-year reduction in cost per terabyte, driven by the transition to higher-capacity drives with better areal density. He expressed high conviction in executing on this trajectory through the technology roadmap, including next-generation ePMR and HAMR products.
Q: With the strong pricing environment, how do you see the velocity of price increases evolving, especially with a significant portion of cloud revenue under long-term agreements?A: Irving Tan (CEO) explained that while a significant portion of cloud business is under LTAs, not all contracts start at the same time, allowing for price adjustments throughout the fiscal year. He reiterated the strategy of "predictable pricing" for nearline products, providing customers with visibility. He noted that more rapid price increases have been seen in the non-nearline space (client and consumer). For future LTAs covering 2029-2031, the company is working through commercial constructs but has strong visibility on volume requirements.
Q: Can you elaborate on the demand you are seeing from sovereign, neocloud, and physical AI customers, and how significant is this opportunity?A: Irving Tan (CEO) stated that the opportunity from these segments is materializing, with increasing demand from neoclouds, frontier AI labs, and physical AI companies. He cited an example of an autonomous vehicle company significantly increasing its exabyte demand for calendar 2027. He noted that these customers are price-sensitive but the tight supply environment provides an opportunity for increased pricing leverage.
Q: What is the current gross margin difference between nearline and non-nearline products, and how much of the nearline LTA will reprice over the next 12 months?A: Kris Sennesael (CFO) stated that the gross margins for nearline and non-nearline products are now in the same "zip code," with little differentiation. He did not provide a specific percentage for LTA repricing but indicated that the margins are converging.
Q: How should we think about the capital structure and the company's commitment to returning capital to shareholders?A: Kris Sennesael (CFO) reaffirmed the company's strategy and commitment to returning free cash flow to shareholders through a combination of dividends and share repurchases, consistent with actions over the last four to five quarters. There is no change to this strategy.
Q: Can you provide more color on the types of workloads driving LTA discussions for 2028-2030, and how they differ from near-term contracts?A: Irving Tan (CEO) stated that the bulk of workloads are the same, but highlighted growth drivers including core cloud services (especially video-driven applications) and AI workloads. He noted a shift from model training to inference, Agentic AI, and the early stages of physical AI. He also mentioned the high bandwidth drives, now sampling with five customers, as a future growth driver that opens up new workloads for HDDs.
Q: With the strong demand environment, should we expect Q1 fiscal 2027 to be the low point for sequential revenue growth and incremental margins, with acceleration throughout the year?A: Kris Sennesael (CFO) reiterated that the company only guides one quarter at a time. He expressed high conviction in continued strong revenue growth and further gross margin improvement based on the strong demand environment, execution on the technology roadmap, and the ramp of next-generation products. He pointed to strong year-over-year incremental gross margins of 80-81% implied in the Q1 guide.
Q: How should we view the opportunity in the China hyperscale and AI lab market, and how does it impact the supply-demand dynamic?A: Irving Tan (CEO) viewed the Asian market as a very exciting opportunity. He noted the proliferation of open-source AI frontier models in China, which he believes will be good for the industry by driving greater access to AI with superior economics. He emphasized that regardless of the model type, the underlying requirement for data storage will compound and grow, which is positive for demand. He also noted that the growth in inference will drive even more demand for high-capacity drives, as storing data is more economical than re-running it through compute resources.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.