0001628280-26-029054
SEC filingStrong HDD demand drove 45% revenue growth and 10pp gross margin expansion, with net income surging to $3.2 billion.
For the third fiscal quarter ended April 3, 2026, Western Digital reported robust results driven by strong HDD demand across all end markets. Revenue reached $3.337 billion, a 45% increase year-over-year, fueled by a 34% rise in exabytes sold and a 9% improvement in average selling price per exabyte. Gross profit soared 84% to $1.676 billion, with gross margin expanding 10.4 percentage points to 50.2%, benefiting from a lower cost structure on newer generation products and better pricing. Operating income grew 57% to $1.190 billion, though operating margin improved only modestly to 35.7% from 33.1% as operating expenses increased 220% due to a $201 million prior-year litigation benefit (reversal) and $45 million in business realignment costs. Net income from continuing operations surged to $3.205 billion from $772 million, largely driven by a $2.734 billion mark-to-market gain on retained Sandisk shares, partially offset by $545 million in costs related to the debt-for-equity exchange.
Cloud revenue, representing 89% of total revenue, increased 48% to $2.972 billion, driven by a 36% increase in exabytes sold (strong demand for high-capacity enterprise products) and a 9% higher ASP from improved pricing. Client revenue grew 31% to $179 million (5% of revenue), with 19% more exabytes and 10% higher ASP. Consumer revenue rose 24% to $186 million (6% of revenue) on 6% exabyte growth and 17% ASP increase. The revenue mix shifted further toward Cloud, underscoring the hyperscale data center buildout. Geographically, Asia and EMEA saw larger percentage gains as customers ramped capacity in those regions.
Management remains optimistic about long-term demand for data storage, particularly from cloud and AI-driven workloads, which are expected to sustain the need for high-capacity HDDs. However, the company highlighted recent U.S. tariff policy changes causing market uncertainty, though no material impact was seen through Q3. Western Digital expects capital expenditures of 4%-6% of revenue. The company has reduced debt significantly through asset exchanges and maintains a $1.25 billion revolving credit facility. No specific quantitative guidance was provided; the outlook focuses on navigating tariff developments and continuing to leverage technology leadership to capture growing storage demand.
Net income of $6.23B exceeded operating cash flow of $2.54B, primarily due to a $4.45B non-cash gain on retained interest in Sandisk. Excluding that, CFO would be well below net income, indicating working capital drag. Capex intensity improved to 12.2% of CFO (from 36% prior). Working capital changes consumed cash: accounts receivable increased $408M, while inventories declined only slightly. Deferred taxes added $131M. Financing activities consumed $2.28B due to $1.92B in share buybacks and $130M dividends, partially offset by net debt issuance. The large repurchase program signals strong confidence, but CFO alone does not cover the capital returns; the company relied on debt and divestiture proceeds. The prior period's CFO was $0.945B, showing significant recovery. Overall, cash flow quality is moderate with heavy reliance on non-cash gains and one-time items.