Key Takeaways:
Western Digital reported Q4 revenue of $3.75 billion, up 44 percent from a year earlier, beating estimates, yet shares slid 10 percent after hours.
"Continued confidence in the durability of demand," Chief Executive Officer Irving Tan said on the earnings call, citing long-term agreements that now extend to 2031.
Adjusted earnings of $3.56 a share rose 109 percent year over year and beat the FactSet consensus of $3.31 by 7.6 percent. Revenue topped the $3.70 billion estimate by 1.3 percent. Non-GAAP gross margin widened to 54.4 percent, and free cash flow reached $1.28 billion, a 34 percent margin.
The stock dropped about 10 percent in extended trading to near $466, after falling 5.4 percent in the regular session. Seagate Technology, Western Digital's main hard-drive rival, slipped about 1 percent. The decline reflects valuation caution rather than weakening demand: shares nearly tripled in 2026 before the report. The September-quarter midpoint implies revenue growth of about 9 percent sequentially, slowing from 12 percent in the June quarter, with gross margin expansion easing to 110 basis points from 390.
Cloud accounted for 89 percent of fourth-quarter revenue, or $3.3 billion, up 43 percent year over year. Client revenue rose 61 percent to $225 million, and consumer revenue gained 38 percent to $187 million. Western Digital shipped 231 exabytes, up 22 percent, and began deliveries of 40-terabyte EPMR drives, with 44-terabyte HAMR products due in the first half of 2027.
For the September quarter, Western Digital forecast revenue of $4.0 billion to $4.2 billion, with a midpoint of $4.1 billion, up 45 percent year over year and above the $4.06 billion FactSet estimate. Adjusted EPS guidance of $3.85 to $4.15 compares with a $3.84 consensus. Gross margin is projected at 55 percent to 56 percent.
Tan said customers are pressing to extend long-term agreements through 2029, 2030 and 2031, locking in exabyte demand growth above 25 percent and giving Western Digital pricing power in a tight supply market. Chief Financial Officer Kris Sennesael projected a midpoint gross margin of 55.5 percent.
The company returned $672 million to shareholders through buybacks in the quarter and declared a dividend of 15 cents a share. Full-year free cash flow totaled $3.51 billion.
The deceleration in sequential growth is the key test for a stock trading near $466, roughly 29 percent above the $329.76 fair value calculated by Simply Wall St. Investors will watch whether Western Digital can hold a 55.5 percent gross margin without another price increase, with 44-terabyte HAMR shipments in the first half of 2027 the next event to watch.
This article is for informational purposes only and does not constitute investment advice.
