0001628280-26-004207
SEC filingRevenue surged 25% to $3.02B driven by 22% exabyte growth and improved pricing, with gross margin expanding 800 bps to 45.7%.
For the three months ended January 2, 2026 (Q2 FY2026), Western Digital reported net revenue of $3.017B, a 25% increase year-over-year compared to $2.409B in Q2 FY2025. The growth was driven by a 22% rise in exabytes sold and a 2% increase in average selling price per exabyte, reflecting strong demand for high-capacity enterprise HDDs and improved pricing. Gross profit jumped 52% to $1.380B, with gross margin expanding 8 percentage points to 45.7% from 37.7% a year ago, benefiting from a lower cost structure on newer generation products and better pricing. Operating income rose 62% to $908M, and operating margin improved 690 bps to 30.1%. Net income from continuing operations surged 295% to $1.842B, significantly bolstered by a $1.103B unrealized gain on retained interest in Sandisk.
Cloud revenue, the dominant segment, increased 28% to $2.673B, accounting for 89% of total revenue. Growth was fueled by a 24% increase in exabytes sold and a 3% higher ASP, driven by strong customer demand for high-capacity enterprise products. Client revenue grew 26% to $176M, with a 17% ASP increase from product mix shift to higher capacity drives, partially offset by a modest 7% exabyte growth. Consumer revenue declined 3% to $168M, as a 5% drop in exabyte volume was only partially offset by a 3% ASP increase. The mix shift toward Cloud continues to be the primary growth driver, while Client and Consumer segments remain relatively stable.
Management expects HDD demand to remain robust, driven by cloud and AI-related workloads. The company continues to invest in R&D for higher capacity and performance HDDs, with R&D expense expected to increase modestly. Capital expenditures for fiscal year 2026 are guided at 4% to 6% of net revenue. The Separation of the Flash business (now Sandisk) has positioned Western Digital as a pure-play HDD company, and the company expects to monetize its remaining Sandisk stake to further reduce debt. While no specific revenue or margin guidance was provided, the strong operational trends and improved cost structure suggest continued margin expansion potential.
As of January 2, 2026, Western Digital reported cash and cash equivalents of $1.975B, down from $2.114B at June 27, 2025. The company holds a retained interest in Sandisk valued at $2.068B (Level 1 fair value), up from $354M due to market appreciation and no further divestiture in the period. Total debt stood at $4.655B (carrying value) with a fair value of $11.026B, reflecting the deep in-the-money convertible notes. Current portion of long-term debt is $2.226B, including the 2028 Convertible Notes due to a triggered conversion feature. Shareholders' equity more than doubled to $7.111B from $5.311B, driven by $3.024B net income and offset by $1.168B in share repurchases and $77M in dividends.
Purchase commitments totaled $88M as of January 2, 2026, comprising $32M due in the remaining six months of fiscal 2026 and $56M in fiscal 2027. These are minimum long-term commitments under supplier agreements, generally contingent on performance conditions. Operating lease liabilities were $148M, with $33M current. The company also has unrecognized tax benefits of $607M, of which $130M could result in cash payments within 12 months.
Western Digital's capital allocation program includes a $2.0B share repurchase authorization (May 2025). During the six months ended January 2, 2026, the company repurchased 10.2M shares for $1.168B plus $8M excise tax, leaving $684M available. A cash dividend program was initiated, with $0.125 per share quarterly; $77M was paid to common shareholders and $2M to preferred shareholders in the first half. Debt repayment totaled $63M on the Term Loan A-3, with no new issuance. Capital expenditures were $165M, or 2.8% of revenue. The company also redeemed $800M of Term Loan A-3 in a tax-free exchange for Sandisk shares in June 2025.
The company operates as a single reportable segment (HDD-based data storage). Disaggregated revenue by end market for the six months: Cloud $5.183B (89%), Client $322M (6%), Consumer $330M (5%). Geographically, Americas $2.391B (41%), Asia $2.292B (39%), EMEA $1.152B (20%). Top 10 customers accounted for 77% of revenue, with three customers at 17%, 15%, and 14% each. Net accounts receivable were $1.685B, with customer concentration of 24%, 14%, and 14%.
Operating cash flow (CFO) of $1,417M was significantly lower than net income of $3,024M, primarily due to a non-cash gain on retained interest in Sandisk of $1,714M and a prior-year gain on business divestiture. Excluding these, CFO reflects underlying strength. Working capital consumed $557M (net), driven by a $199M increase in receivables, $55M inventory build, and a $577M decrease in income taxes payable—likely from one-time tax payments. Capex of $165M was modest, resulting in strong CFO coverage of investments. Capital returns totaled $1,255M ($1,168M buybacks + $87M dividends), fully funded by CFO and available cash. The cash balance declined $139M to $1,975M, still solid. Overall, cash generation improved markedly year-over-year, with operating cash flow rising from $437M to $1,417M, driven by higher net income and positive working capital changes in some areas.