Western Digital Corp Q1 2026 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Christopher Muse - Cantor Fitzgerald - Analyst : Thank you for taking the question storage demand is off the charts. And part of the great narrative for the HDD industry is an oligopoly acting very rational with supply. On the other hand, we're seeing SSD adoption rise for certain AI workloads given the tight overall storage supply. So my question, how do you plan to meet rising customer demand while keeping supply or demand in balance?

Question: Christopher Muse - Cantor Fitzgerald - Analyst : Yes, Ambrish. I guess on gross margins, great, 660 bps uplift year-on-year. But obviously, we're always looking forward. So how should we think about incremental gross margins from here? Is there a framework that we should use?

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : Yeah, thanks, for taking the question and congrats on the quarter. I think in the prepared remarks, you alluded to even further extending out UltraSMR. It's good to hear kind of a reaffirmation of the HAMR road map. But I'm curious if you could unpack that a little bit more if there's further room above and beyond the 36 terabytes that you see for UltraSMR, is there a 12-platter stack? I know one of your smaller competitors recently made some announcements around that. I'm just curious of how far before we can get to HAMR if there's further potential upward expansion on average capacities? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2025 / 8:30PM, WDC.OQ - Q1 2026 Western Digital Corp Earnings Call

Question: Aaron Rakers - Wells Fargo Securities LLC - Analyst : Yeah, I do. I guess thinking about kind of sticking with C.J.'s comments, we're always kind of looking forward. Historically, there's been some attributes of seasonality to think about into the March quarter, but it sounds to me like you're pretty much stocked out from a capacity perspective through calendar '26. So curious if you have any thoughts on how we should maybe think about seasonality or whether or not that even applies for the March quarter at this point?

Question: Erik Woodring - Morgan Stanley - Analyst : Hey guys, thank you very much for taking my questions and congrats on the results.Irving, your February Analyst Day feels like it was in a completely different time in the market, even though it was only eight months ago. At the time, you talked about kind of 16% to 23% exabyte growth and something like 7% annual price per terabyte deflation. It's probably safe to say that the market has inflected since then. And just -- so I'd love to just get your updated thoughts on how we should be, maybe thinking about the growth of these two metrics over the next few years. Just any update you could share? Thank you very much.

Question: Erik Woodring - Morgan Stanley - Analyst : Super. I do. Irving, I'd just also love to get your perspective on how short do you think demand is relative -- or excuse me, supply is relative to demand today? And just based on kind of your new product introduction timeline, when do you think that supply can maybe more materially expand such that your EV growth really reflects more so demand than supply?

Question: Erik Woodring - Morgan Stanley - Analyst : Thanks so much. Good luck thank you.

Question: Tom O'Malley - Barclays Services Corp - Analyst : Hey guys, thanks for taking my question and really nice results. I wanted to go into the long-term agreements. Irving, during the pandemic, we've been conditioned with kind of the DRAM and NAND suppliers to think about long-term agreements to something that is really good while things are moving up and to the right and kind of get torn up when things correct. Could you talk about the hooks that are in these agreements? Are these take-or-pay? How are they structured so that you feel confident around your ability to get value for the length of agreements that you're signing?

Question: Tom O'Malley - Barclays Services Corp - Analyst : Yeah, I've been asking this question throughout earnings here. We heard from Lam about their impact to AI spend. I asked Seagate just on what they think on $100 billion of AI spend you would see from a benefit to their business. They kind of talked about a high single-digit percentage of CapEx traditionally has gone there. Do you guys have any different view or would you be more nuanced in the way you looked at that?

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Yeah, good afternoon. Thanks for taking my question and congratulations on the strong execution. This year, it looks like nearline exabyte growth is trending more towards that sort of 35% range for the full year. You drove 36% year-over-year growth in June, 30% growth during the September quarter. You've got an order book that extends out over the next, call it, 12 months, which is reflective, like you said, of your customers' exabyte demand profiles. Does the forward exabyte demand profile really suggest the normalization back to a 23% demand CAGR as you talked about, Irving, or is that more of a supply constraint-driven profile and demand is really trending above that range. My point is that given all this AI infrastructure investment in compute, networking, memory and storage, a 23% bit demand CAGR may not be too conservative, but wanted to get your views.

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Yes, just a quick follow-up. So on the UltraSMR mix shift, good to see the team at a 50-50 mix. I don't think you guys answered this question, but given the order book, POs, LTAs, what is the mix trend on UltraSMR into 2026? And is this mix shift towards UltraSMR a rather important part of the driver of the stronger incremental gross margin flow through?

Question: Harlan Sur - JPMorgan Chase & Co - Analyst : Thank you. Yeah, thank you.

Question: Asiya Merchant - Citibank Cameroon SA - Analyst : Great results here. If I can, just trying to unpack pretty strong beat relative to the guide. Given that you guys are in these long-term agreements and there is capacity constraints, just if you could help me unpack what drove the upside? Was it some pricing that came through? Was there some extra drive that you were able to push through. I don't know if it was a mix shift. If you could just help me unpack that, that would be great.

Question: Asiya Merchant - Citibank Cameroon SA - Analyst : Sure. And how should I think about then, given you guys have been running very well on your productivity initiatives, how should we think about that cost decline, especially given you have some calls that are ramping up faster than expected. How should we think about the cost declines here in the outer quarters. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2025 / 8:30PM, WDC.OQ - Q1 2026 Western Digital Corp Earnings Call

Question: Asiya Merchant - Citibank Cameroon SA - Analyst : Thank you.

Question: Steven Fox - Fox Advisors LLC - Analyst : Hi, good afternoon. If I adjust your free cash flow for the tax payment, it's $930 million against the non-GAAP net income of $655 million. I'm assuming there's something unusually positive in that number. And I'm trying just to right size how we should think about free cash flows relative to net income going forward because that's just a tremendous performance in one quarter.

Question: Steven Fox - Fox Advisors LLC - Analyst : Yeah, just real quick on the prior question. So it's maybe a chicken and egg question, but you said the customers are recognizing the need to mix up to get the exabytes they need. So is it the fact that they're pushing harder on you that you're then pushing harder on your development team to get these higher mix products out? Is that sort of the dynamic that's going on? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 30, 2025 / 8:30PM, WDC.OQ - Q1 2026 Western Digital Corp Earnings Call

Question: Krish Sankar - TD Cowen - Analyst : Strong quarter. This is Eddy for Krish. I do have a long-term question regarding the shortages. It seems like you and your main peer are very disciplined about adding capacity, which, of course, makes sense from a financial standpoint. But I do wonder how you balance that discipline on one hand with the risk of pushing customers more towards SSDs because they have no other choice. Which in turn results in more NAND capacity in the industry, which lowers NAND prices longer term. So it's a tricky situation, and it would be great to know how your company is planning on navigating this?

Question: Krish Sankar - TD Cowen - Analyst : Yeah, sure. Thank you, Irving. Your main peer did purchase Intevac earlier this year, which sells equipment that are needed for HAMR. And you guys sounded pretty positive about the qualification. I do wonder if you have fully navigated the risk from the Intevac purchase or it's something that's still in progress today.