Western Digital Corp Q3 2025 Earnings Call Summary

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

Question: Erik Woodring - Morgan Stanley & Co. LLC - Analyst : Congrats on the nice quarter at the gate. Instead of asking a demand question, I wanted to actually ask about capital allocation. And so Irving, you have a dividend yield of about 1% soon to be lower than that given how your stock is trading in the premarket, that's about $100 million annual cash outflow. Can you maybe just help us understand how we should be thinking about both dividend growth going forward, given it seems like you have some capacity there, but then also maybe how you're thinking about potential share buybacks. And I know your intent is to delever with the SanDisk stake. But just help us understand on the cash return side to equity holders, how we could be thinking about the cadence of both dividend growth and buybacks.

Question: Erik Woodring - Morgan Stanley & Co. LLC - Analyst : Yes, just the quick follow-up was Irving, what I hear from you is kind of more visibility because of some of these LTAs. And I'm just -- and I'm curious, with customers now giving you some indications into the first half of calendar '26, does that mean you have enough visibility to expect revenue margins and EPS sequential growth through calendar '25? Or is it too early to make that call? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, WDC.OQ - Q3 2025 Western Digital Corp Earnings Call

Question: Aaron Rakers - Wells Fargo Securities, LLC - Analyst : Congrats on the first quarter out of the gate. In the comments around the guidance you guys alluded to into the fiscal fourth quarter, you did point out that it reflected all known or anticipated tariff impact. I'm curious if you could unpack that a little bit I believe the majority, if not all, of your manufacturing footprint is in Thailand. So just curious on how you're thinking about how your best assessment of what these tariff impacts might be or any indications that you've seen with customers at this point?

Question: Aaron Rakers - Wells Fargo Securities, LLC - Analyst : Yes, I do. Thanks, Ambrish. When I think about the gross margin, right, 40.1%, I think at the Analyst Day, you talked about 38% plus is kind of being the longer-term model. When I look at the guidance into this next quarter, if my math is right, it looks like the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, WDC.OQ - Q3 2025 Western Digital Corp Earnings Call incremental margin that you're alluding to is like north of 45%. So I guess my question is, is there anything structurally in the business or kind of the path forward that keeps us from thinking that gross margin could trend into that mid-40%, if not higher range overtime?

Question: Karl Ackerman - BNP Paribas Exane - Analyst : For my first question. I know you have focus on technology transitions to drive exabyte demand from here. However, what are the hurdles for you to add manufacturing capacity? Is it driven by a certain visibility you have on LTAs or other things we should consider.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : I do, Ambrish, please. Thanks for that, Irving. I wanted to follow up on the comments you made with regard to LTAs. It sounds like demand for hyperscale is quite good and has strong visibility into the first half of '26. However, I was hoping you could provide a bit more color on the growth curve of private cloud and SMB customers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, WDC.OQ - Q3 2025 Western Digital Corp Earnings Call I'm curious whether you have seen perhaps any pull forward in counter Q2 ahead of tariffs? And secondarily, how you think about the demand dynamic for those customers in the second half?

Question: C.J. Muse - Cantor Fitzgerald - Analyst : I guess to follow up on the prior question, I was hoping you could speak a bit about supply and what kind of exabyte growth you can get just from delivering higher capacity drives. And I guess what is the time frame where you would potentially consider adding more capacity?

Question: C.J. Muse - Cantor Fitzgerald - Analyst : I do, Ambrish. I guess could you speak to gross margins? Obviously, great results and guide. Curious in terms of the drivers from here, is there still kind of a fixed cost benefit that would arise? Or is it really all about higher capacity drives delivering higher ASPs? Is that the main driver? Or are there other factors that we should consider? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. APRIL 30, 2025 / 12:30PM, WDC.OQ - Q3 2025 Western Digital Corp Earnings Call

Question: Wamsi Mohan - BofA Global Research (US) - Analyst : Nice results here. Irving, if I heard right, the potential for some enterprise slowdown driven by tariffs. I was curious, have you seen anything in your order patterns to suggest that? Or is this sort of more anticipatory in terms of what could happen if a tariff regime became more onerous.

Question: Wamsi Mohan - BofA Global Research (US) - Analyst : Yes. Thanks, Ambrish. Maybe for Don, as you look into the September quarter, where you're calling out the 14 weeks, any parameters you can help us think through in terms of revenue and OpEx into that quarter, please?

Question: Asiya Merchant - Citi Investment Research (US) - Analyst : Great quarter, by the way. Just there seems to be some concerns like just around hyperscalers. I know your competitor talked about demand being very strong there as well and good visibility. Just anything on why you don't think this could be double ordering? Anything as it relates to pricing negotiations that would limit the impact if indeed there was any double ordering?

Question: Asiya Merchant - Citi Investment Research (US) - Analyst : Yes, sure. On gross margins, it was better than expected in the current quarter that you reported. Why can't gross margins do similar incremental step up, you are seeing better revenues in the June quarter? And then as you think about the remainder of the calendar or the fiscal '26, should we continue to expect margin expansion from these levels?

Question: Amit Daryanani - Evercore ISI - Analyst : I guess maybe just to stop on the tariff dynamic, I realize you don't have much of an impact on tariff right now. But as you're signing these LTAs in 2026, can you talk about if you sort of have tariff escalators embedded in them to ensure you can pass through the cost of these to your customers? Or would that be a difference sort of discussions to be had once you know what the tariff scenario looks like?

Question: Amit Daryanani - Evercore ISI - Analyst : I do. And then maybe just on the HAMR side, I think you folks mentioned you're working with two cloud customers at this point on HAMR. Just any sense on when you expect these qualifications to happen, and as you work towards them, should we think of some sort of upside bias to your R&D or OpEx investments through that process?

Question: Tom O'Malley - Barclays Capital Inc. - Analyst : I just wanted to focus in a little bit on the LTA. So we had this period in memory on the NAND and DRAM side through the pandemic, where in the end, LTAs were pretty much torn up and were largely hyperscalers advantage over suppliers. Could you talk about like what benefit you get from these LTAs, like is this a take-or-pay agreements, are these in writing where you get some sort of compensation if your customers aren't going to take these? Or is this just like a framework that you have with your customers that says we will supply this much over this period of time. Can you just maybe dive into those a little bit because historically, they really haven't meant much.

Question: Tom O'Malley - Barclays Capital Inc. - Analyst : Yes. I just want to dive into the differences between the unit and pricing in the guide. So like you had a pretty consistent track over the last couple of years of increased pricing. Is there any different type of dynamic we should think about? I know you guys don't guide by more than one quarter out. But looking into the June quarter, units versus pricing? Any commentary you have that get you to that guide?

Question: Steven Fox - Fox Advisors LLC - Analyst : I guess, first one, I just was curious if you could sort of give yourself a grade on the free cash flow for the quarter. It seemed pretty good to me at 78% of net income. And how we can think about sort of what you're measuring yourselves against in future quarters for free cash flow? And then I have a follow-up.

Question: Steven Fox - Fox Advisors LLC - Analyst : Yes. I was just curious, when we think about non-enterprise and non-cloud markets, how you're managing those against all the demand you're seeing? Do you feel like you're deemphasizing those or figuring out a way to maybe more efficiently manage them? I'm just curious what we think about those markets over the next year or two.

Question: Mark Miller - The Benchmark Company LLC - Analyst : Congratulations on your first report after the spin out. I'm just curious, can you tell us how many shares you currently hold with SanDisk? And have your plans changed because of the relatively low price of SanDisk about what you're going to do with the shares?

Question: Harlan Sur - J.P. Morgan Securities LLC - Analyst : Great job on the quarterly execution. Back in February, the team outlined a three-year nearline exabyte growth CAGR of around 20%, 25%, which is what some of the third-party research firms are kind of forecasting for this calendar year, which is also consistent, Irving, with the strong cloud data center CapEx spending trends that you talked about this year, given your fairly good visibility. Does your forward profile also suggest a low 20% exabyte growth profile in this calendar year or better?

Question: Harlan Sur - J.P. Morgan Securities LLC - Analyst : Yes. No, I know Irving had given a three- to five-year forecast, but that sort of 23% kind of aligns with some of the what the third-party research guys are kind of forecasting for this calendar year, but I appreciate the answer there. Also, back in February, Irving, you did articulate about a 40% like current mix of your nearline capacity was UltraSMR base. As you look at your order book and shipment plans, where do you expect that mix to be either second half of this year or exiting this calendar year and you're driving obviously strong TCO benefits. You're driving strong pricing power. But on a like-for-like basis capacity-wise, which carries the higher gross margin profile? Is it your CMR or UltraSMR based drives?

Question: Ananda Baruah - Loop Capital - Analyst : Congrats on getting out the gate here as Newco. I guess, yes, Ambrish, to you if I could. I guess the first one is really an architectural question. So as -- like assuming Seagate continues to progress with HAMR and you guys continue to progress over the next, call it, 24 months with your legacy tech kind of pre getting to HAMR volume just as per the Analyst Day. Does that create any new architectural realities inside the data center with what can be mixed and matched or how folks begin thinking about storage system stacks would love any context there if there's anything? And then I have a quick follow-up.

Question: Ananda Baruah - Loop Capital - Analyst : Yes. Maybe this is for Don. I guess the March quarter gross margin, am I correct in recalling that March quarter gross margin was actually originally anticipated to be impacted by product transition, yield dynamics, normal stuff. And if that did in fact occur, does that actually mean that the normal -- the structural margin is actually set up higher than what you guys reported?

Question: Mehdi Hosseini - Susquehanna Financial Group LLLP - Analyst : Your main competitor recently announced their intention to acquire Intevac. And I want to learn more how you're thinking about procuring the key components for HAMR technology, especially as you engage with two hyperscalers that you highlighted in your prepared remarks. And I have a follow-up.

Question: Mehdi Hosseini - Susquehanna Financial Group LLLP - Analyst : Yes, sir. And a follow-up has to do with the CFO, sir, especially since you're executing well read and coming into dividend, cash dividend. And to what extent, what's the update on the CFO search? And how should we think about the execution and search for the CFO.

Question: Tim Arcuri - UBS - Analyst : Drive units were down from $13.5 million down to like $12.1 million in March. So is $13.5 million, is that kind of like -- should we think about that as the high watermark for the number of drivers you could produce in a quarter?

Question: Tim Arcuri - UBS - Analyst : I do. Yes. Just back on this question about these LTAs. I mean these same large customers have similar deals for memory, and they routinely overstate what they need. So why would they not be doing that with you as well? So I mean, I certainly understand that demand is good. But for this stuff that is looking out to next year, why would they not if they need two drives, why would they not tell you that they need three? And if they didn't take the driver, are you going to enforce the cancellation policy on them?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Just a quick question on the hammer side. When you look at the two hyperscale customers you mentioned, is that -- are you still looking at ramping those like in calendar '26, second half '26, I think, as you mentioned on the Analyst Day, Irving?

Question: Vijay Rakesh - Mizuho Securities USA - Analyst : Got it. And then on the tariffs, just a quick clarification. When you look at shipping into China, is that going from your Malaysia facilities? Or do you ship hard drives into China? And likewise, in the US, how much of that is you have production here versus coming in from Malaysia, et cetera? If you can give a little bit of color around that.