0001628280-25-047613
SEC filingRevenue grew 27% YoY to $2.82B, driven by Cloud demand and mix shift to high-capacity drives, with gross margin expanding 7ppts.
Revenue increased 27% year-over-year to $2.82 billion, primarily driven by a 31% surge in Cloud end-market revenue. Gross profit rose 52% to $1.23 billion, and gross margin expanded 7 percentage points to 43.5% due to higher volumes, product cost reductions, and improved pricing. Operating income more than doubled to $792 million, reflecting operating leverage from revenue growth and a decrease in SG&A expenses (down 32% due to cost savings from the Separation). Net income from continuing operations reached $1.18 billion, including a $611 million unrealized gain on the retained Sandisk interest, which also contributed to a lower effective tax rate of 12% (versus 37% in the prior year).
Cloud revenue grew 31% to $2.51 billion, comprising 89% of total revenue. The growth was driven by a 5% increase in units sold and a 19% increase in average selling price per unit, along with a 6 percentage point contribution from data storage systems. Client revenue increased 5% to $146 million, as an 11% ASP lift offset a 6% unit decline. Consumer revenue was flat at $162 million. Geographically, Asia and Europe, Middle East and Africa saw strong growth as customers expanded data center capacity; Americas revenue declined slightly. Customer concentration increased, with top 10 customers accounting for 77% of net revenue versus 65% a year ago.
Management expects capital expenditures for fiscal 2026 to be approximately 4% to 6% of net revenue, reflecting continued investment in HDD capacity. The company holds a remaining 28.8 million shares of Sandisk (with 21.3 million used for debt reduction in Q4 FY25) and expects to monetize the rest within one year of the Separation (by February 2026). Subsequent to quarter-end, the Board declared a quarterly dividend of $0.125 per common share, up from $0.10. Liquidity remains strong with $1.25 billion available under the revolving credit facility. The MD&A notes no material impact from recent tariff actions through Q1 FY26, but monitoring continues.
Cash and cash equivalents stood at $2,048M, down from $2,114M at June 27, 2025, primarily due to share repurchases and debt repayments. The retained interest in Sandisk common stock, a Level 1 fair value asset, increased to $965M from $354M, reflecting market value changes. Total debt (carrying value) was $4,683M, including $1,600M of convertible notes due 2028 that are currently convertible and classified as current. The company has $1.25B available under its revolving credit facility.
As of October 3, 2025, the company had $62M in minimum long-term commitments under supply agreements, with $35M due within the next twelve months and $27M in fiscal 2027. Operating lease obligations total $154M in undiscounted payments, with $25M due in the remainder of fiscal 2026. The pension plans have an unfunded status of $71M.
The company repurchased 6.4M shares for $553M during Q1, leaving $1.30B remaining under the $2.0B program authorized in May 2025. Common dividends of $0.10 per share ($34M) were paid, and preferred dividends of $5M were paid in cash. Net debt repayments totaled $31M, all on Term Loan A-3. Capital expenditures were $73M, or 2.6% of revenue, down from $96M in the prior-year quarter.
The company operates as a single HDD segment. Revenue by end market: Cloud $2,510M (89% of total), Client $146M (5%), Consumer $162M (6%). Geographic breakdown: Asia $1,175M (42%), Americas $1,100M (39%), EMEA $543M (19%). Three customers accounted for 48% of revenue.
Operating cash flow (CFO) of $672M significantly exceeded net income of $1,182M, primarily due to non-cash gains (gain on retained interest in Sandisk of $611M) and working capital changes. Depreciation and amortization of $88M and stock-based compensation of $53M were standard non-cash add-backs. Accounts receivable decreased $131M, while inventories increased $101M and accounts payable increased $248M, contributing to cash generation. A large income tax payment of $503M (cash paid for taxes $446M) reduced CFO, but overall cash flow was strong.
Capital expenditures (capex) were $73M, down from $96M in the prior year, indicating lower investment intensity. The investing cash flow also included $16M from strategic investments. Free cash flow, though not explicitly stated, would be CFO minus capex ($599M), but this is not disclosed. The company returned significant capital to shareholders: $553M in share repurchases and $39M in dividends. Financing cash flow was negative $678M due to these returns and debt repayments of $31M.
Anomalies: The $611M gain on retained interest in Sandisk is a non-cash item that boosted net income but was excluded from CFO. The $503M increase in income taxes payable (negative adjustment) reflects a large cash tax payment. Overall, cash generation improved dramatically from a weak prior-year quarter (CFO $34M).