WESTERN DIGITAL CORP earnings calls

HAMR timing and cost per terabyte

Q (Amit Daryanani · Evercore): Analyst asked what steps remain between qualifying HAMR with two hyperscalers and starting volume shipments, and what drives the speed of scaling. He also asked about recent cost-per-terabyte improvement and how to think about it longer term.

A: Management said they expect to finish initial qualifications and will start qualifying two more customers in the first half of calendar '27, with volume shipments planned starting first half '27 and second-generation HAMR qualification in the second half of calendar year '27. They said cost per terabyte is on a long-run path to fall about 10% year-over-year, but near-term input cost increases (DRAM and NAND) mean cost-per-terabyte will be less than 10% down year-over-year while value-engineering is implemented.

"We will be starting qualification with 2 additional customers in the first half of calendar '27 as well." — Tiang Yew Tan (CEO)

industry consolidation and exabyte demand

Q (Wamsi Mohan · BofA): Analyst asked if new capacity from a smaller competitor or industry consolidation could affect the market or WD's pricing with hyperscalers. He also asked whether fiscal '27 exabyte growth should be around WD's long-term range and how much unconstrained demand exceeds supply.

A: Management said they do not see a change in long-term fundamentals and expect strong demand (25% plus CAGR) in a very tight supply environment. They said WD will rely on areal density via head and media technology rather than adding unit capacity, and they see the current quarter as a floor for exabyte growth that should accelerate as new platforms and HAMR come into the mix.

customer visibility and pricing drivers

Q (Erik Woodring · Morgan Stanley): Analyst asked how far out WD has demand visibility, how many customers that covers, and whether those customers' exabyte needs are expanding. He also asked what is driving the sharp pricing acceleration for the December quarter.

A: Management said for their top 7 customers they have good visibility up to 2030, 2031 and they see the demand signal increasing quarter after quarter. They added ASP per terabyte was up 28% year-over-year across nearline and non-nearline, and that pricing strength comes from executing the product roadmap, delivering higher-capacity drives that lower customer TCO; some LTAs are expiring and some exabytes are not under contract, which supports strong spot pricing.

"we have good visibility up to 2030, 2031 for across all of them" — Tiang Yew Tan (CEO)

drivers of gross margin improvement

Q (Christopher Muse · Cantor Fitzgerald): Analyst asked what drove much stronger-than-expected incremental gross margins and whether those gains are sustainable into '27 and beyond. He also asked how customer breadth affects LTAs, pricing and deposits.

A: Management said three drivers support gross margin expansion: pricing (contractual LTA price increases and better spot pricing), upmixing customers to higher-capacity drives which are more profitable, and shipping more exabytes via areal density which avoids fixed-cost increases. They also said the customer base is diversifying (frontier AI labs, neoclouds, hybrid OEMs) and WD is investing in head and media to meet that broader demand.

"So you put the combination of those 3 factors together, we feel very optimistic about ongoing gross margin expansion." — Tiang Yew Tan (CEO)

high-bandwidth drives and physical AI

Q (Asiya Merchant · Citi): Analyst asked how big the high-bandwidth drive opportunity is today, whether WD is shipping any, and how large the physical AI opportunity is and timing into '27 and '28.

A: Management said the high-bandwidth opportunity is nascent; current priority is getting capacity to customers, but high-bandwidth drives were sampled to many customers and received positive feedback while WD works on commercial pricing. On physical AI they said signs are promising, with demand from autonomous vehicle and robotics customers (noting NVIDIA cited about $10 billion of physical AI revenue) and that demand should grow over the next 2 to 3 years.

"We've been actually providing samples to many of our customers in terms of this product so that they can test out different use cases." — Tiang Yew Tan (CEO)

competitor capacity and neocloud exposure

Q (Benjamin Reitzes · Melius): Analyst asked whether a competitor could rapidly expand unit share and whether materials or bottlenecks would limit that. He also asked how big neoclouds are for WD and how worried WD would be if neocloud demand slowed.

A: Management declined to speculate about competitors but said WD's advantage is vertical integration and R&D across head, media, firmware and mechanics, and that they continue to invest in head and media manufacturing to enable areal density. On neoclouds they outlined four growth drivers (cloud/video, model training, inferencing/agentic AI, physical AI), said demand remains durable even if one segment softens, and that WD prioritizes strategic neoclouds with strong balance sheets.

"So all things added together, we see a very positive outlook in terms of the demand remaining strong and remaining durable." — Tiang Yew Tan (CEO)

sustainability of ASP per terabyte gains

Q (Thomas O'Malley · Barclays): Analyst asked whether the recent strong ASP per terabyte increases are sustainable and how to think about future momentum.

A: Management said they are operating well above their historical ASP growth and there is room for further ASP per terabyte increases over the next 3 to 4 quarters as they deliver higher-capacity drives and add customer value. They cautioned that eventually the rate will slow, but near term they expect further expansion.

"there is definitely further room for ASP per terabyte increases going forward over the next, call it, 3, 4 quarters." — Kris Sennesael (CFO)

CapEx focused on heads and media

Q (Thomas O'Malley · Barclays): Analyst asked why CapEx will be modestly above the average and whether that spending is for head capacity only or also expanding unit capacity.

A: Management clarified CapEx is targeted to head and media and factory automation and not to expanding unit capacity. They added HAMR requires longer production cycle times for head wafers and media, so WD is investing to support the technology and to offset throughput impacts from the additional steps involved in HAMR production.

"And Tom, just to be clear, in the prepared remarks, we explicitly said that the CapEx is going to head and media and factory automation and not to expanding our unit capacity." — Kris Sennesael (CFO)

closing exabyte growth gap with peers

Q (Timothy Arcuri · UBS): Analyst asked if WD intends to increase exabyte shipment growth to match peers in the mid-30s and what the target should be.

A: Management said they delivered 22% exabyte growth last quarter and are between product transitions, and that executing the up-to-44 TB ePMR transition and first/second-generation HAMR will drive meaningful areal density gains and accelerate exabyte supply growth over the next 6 to 8 quarters. They indicated that those transitions will meaningfully increase capacity and accelerate year-over-year exabyte growth.

"and that is going to drive a meaningful increase in our areal density and a meaningful increase to higher capacity drives, and that will definitely accelerate our exabyte year-over-year supply growth over the next 6, 7, 8 quarters." — Kris Sennesael (CFO)

near-term exabyte guidance approach

Q (Timothy Arcuri · UBS): Analyst asked whether WD expects to be shipping about 35% exabyte growth in six quarters.

A: Management said they only guide one quarter at a time but affirmed the analyst was thinking in the right direction. They did not give a multi-quarter numerical guide.

"So we're only guiding one quarter at a time, but you're thinking about it in the right direction." — Kris Sennesael (CFO)

HAMR pricing and head capacity effects

Q (Sreekrishnan Sankarnarayanan · TD Cowen): Analyst asked whether ramping HAMR with early customers would pressure ASPs, and whether adding head capacity effectively increases overall capacity even if unit counts stay the same.

A: Management said they are not discounting HAMR versus ePMR and price on a dollar-per-terabyte basis with LTAs that have periodic price reviews. They also said HAMR head production has longer cycle times causing throughput loss that requires additional head capacity to offset, and they have a roadmap (up to 14 platters) that increases heads per drive without increasing unit counts.

"No, we're not discounting our HAMR products in any way versus our ePMR products." — Tiang Yew Tan (CEO)

head sourcing strategy

Q (James Schneider · Goldman Sachs): Analyst asked if WD uses external vendors for heads or surge capacity and whether internal head investments aim to remove third-party suppliers.

A: Management said WD uses some external head and media capacity as part of a build-and-buy approach to benchmark performance and drive innovation with partners, and that WD's investments aim to ensure internal access to leading technology for key products. They noted third-party heads are typically used in lower-capacity drives while high-capacity leading-edge platforms use internal heads.

"all the high-cap leading-edge platforms that we introduce are all on our own internal heads." — Tiang Yew Tan (CEO)

response to competitor adding unit capacity

Q (James Schneider · Goldman Sachs): Analyst asked hypothetically how WD would respond if a competitor meaningfully expanded unit capacity.

A: Management said their response is to continue focusing on areal density and translate that into the highest-capacity drives they can bring to market, because that delivers the best TCO for customers and the best economics for WD. They emphasized product and technology focus rather than competing on unit count alone.

"our response is going to be the same as we've communicated over the last year, to continue to focus on the areal density, translate that into the highest capacity drives that we can bring into the market." — Tiang Yew Tan (CEO)

non-HAMR nearline capacity while HAMR ramps

Q (Karl Ackerman · BNP Paribas): Analyst asked whether non-HAMR nearline capacity will also expand while HAMR ramps.

A: Management said they will ramp HAMR in the first half of calendar year '27 while continuing to ramp and supply their latest ePMR platform in parallel. They gave detail that in Q2 they expect 30% of nearline bits on the up-to-40 TB platform and by Q3 of calendar fiscal '27 they expect 50% of nearline bits shipped on that 40-terabyte platform.

"By Q3 of calendar fiscal '27, we expect 50% of all the nearline bits that we ship will be on that 40-terabyte platform as well." — Tiang Yew Tan (CEO)

price visibility and long-term exabyte growth

Q (Mark Newman · Bernstein): Analyst asked how far price visibility extends in LTAs and whether current pricing cadence will continue or accelerate. He also asked if the long-term nearline exabyte growth target of 25% is still intact.

A: Management said LTAs create long-term visibility by aligning technology and product roadmaps, and LTAs include base and upside volumes so pricing has flexibility; not all exabytes are covered and coverage declines further out. They reiterated they target greater than 25% long-term nearline exabyte growth, noted current growth is slightly below 25% while between product transitions, and said they expect to exceed 25% as transitions gain traction.

"So the most important thing with LTAs and our customer engagements is to create that long-term visibility and making sure we are aligned from a technology and product road map." — Kris Sennesael (CFO)