Western Digital’s fourth quarter results surpassed Wall Street’s expectations on both revenue and non-GAAP profitability, yet the market responded negatively. Management attributed the strong performance to robust demand for higher-capacity nearline hard drives, especially from cloud and hyperscale customers, as well as a favorable mix shift toward UltraSMR and ePMR products. CEO Tiang Yew Tan emphasized that “firm purchase orders with our top seven customers through calendar year 2026” signaled continued customer confidence, while CFO Kris Sennesael highlighted tight cost controls and manufacturing efficiency as key factors supporting margin expansion.
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Western Digital (WDC) Q4 CY2025 Highlights:
- Revenue: $3.02 billion vs analyst estimates of $2.95 billion (25.2% year-on-year growth, 2.2% beat)
- Adjusted EPS: $2.13 vs analyst estimates of $1.93 (10.5% beat)
- Adjusted EBITDA: $1.11 billion vs analyst estimates of $1.03 billion (36.8% margin, 8.3% beat)
- Revenue Guidance for Q1 CY2026 is $3.2 billion at the midpoint, above analyst estimates of $3.00 billion
- Adjusted EPS guidance for Q1 CY2026 is $2.30 at the midpoint, above analyst estimates of $1.99
- Operating Margin: 30.1%, up from 23.2% in the same quarter last year
- Inventory Days Outstanding: 75, down from 80 in the previous quarter
- Market Capitalization: $91.34 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Western Digital’s Q4 Earnings Call
- Aaron Rakers (Wells Fargo) asked about the durability of gross margin expansion, to which CFO Kris Sennesael explained that stable pricing and ongoing cost reductions should sustain margins, with a 75% incremental margin flow-through likely to persist.
- Erik Woodring (Morgan Stanley) inquired about the strategy behind longer-term purchase orders and whether tighter supply is changing contract economics. CEO Tiang Yew Tan confirmed that longer-term deals now reflect the increased value delivered to customers and more predictable pricing.
- Aisling Grueninger (Bank of America) questioned the mix shift toward UltraSMR, with Tan highlighting that a higher UltraSMR mix is both margin-accretive and supports customer demand for higher capacity drives.
- Michael Cadiz (Citigroup) asked for details on yields and the impact on cost per bit, with Tan reporting yields in the low 90s percent and confirming that both higher yields and UltraSMR adoption are lowering costs.
- Karl Ackerman (BNP Paribas) queried whether AI-driven data growth could push exabyte growth above historical trends, with Tan stating inference workloads should significantly boost future storage demand.
Catalysts in Upcoming Quarters
Looking ahead, the StockStory team will be monitoring (1) the scaling and qualification of HAMR and next-generation ePMR drives with hyperscale customers, (2) the pace of UltraSMR adoption and its impact on product mix and gross margins, and (3) progress in securing additional long-term agreements with major cloud providers. The ability to execute on new product ramps and sustain cost reductions will remain essential to Western Digital’s trajectory.
Western Digital currently trades at $272.52, down from $278.41 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).
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