Benefiting from the massive data storage demand driven by the AI boom, Western Digital's revenue for the first quarter of fiscal year 2027 increased by 55%, and its guidance for the next quarter significantly exceeded expectations. Management disclosed on the earnings call that order visibility from key customers has been extended through 2030 and 2031.
After hours trading on October 22, Western Digital reported its first-quarter fiscal year 2027 results. The company's revenue reached $4.381 billion, a 55% year-over-year increase, surpassing analysts’ expectations of $4.14 billion; non-GAAP earnings per share were $4.64, up 161% year-over-year, exceeding the expected $4.11.
During the conference call, CEO Irving Tan stated that AI is fundamentally a data system, and any workload generates more data, creating a more enduring market opportunity for HDDs than raw computing power alone.
He stated that the growth in storage demand has surpassed the traditional core cloud and hyperscale customer segments and is rapidly extending into end markets such as enterprise environments, cloud service providers, and AI frontier labs. For example, among the company’s top seven customers, Western Digital’s visibility into demand from these seven clients extends through 2030 to 2031.
In response to market concerns about potential overcapacity in the industry, management stated that the company will continue to increase areal storage density by advancing head and magnetic media technologies to meet long-term supply and demand growth, without blindly investing to expand unit capacity.
AI drives long-term demand, with visibility into orders from the top seven customers extending to 2030 and 2031.
Irving Tan stated at the meeting that most market discussions about AI focus on computing power, but the company believes the more enduring opportunity lies in the data itself.
He said, "AI is essentially a data system. Every workload generates more data, and that data must be stored, managed, and accessed in a scalable and cost-effective manner."
He noted that this demand is not only present in traditional cloud and supercomputing centers but is also rapidly spreading to cloud services, AI frontier labs, and physical AI applications such as robotics and autonomous driving.
Irving Tan said: "If we look at our top seven customers, we have strong visibility through 2030 and 2031 with these seven clients. In fact, we are seeing demand signals strengthen quarter over quarter."
Regarding physical AI, he also noted that the company’s customers in Asia’s autonomous driving sector are seeking to increase demand to support their physical AI initiatives. He mentioned that NVIDIA has recently highlighted a $10 billion revenue opportunity in the field of physical AI, adding, “If you see this kind of development on the compute side, it’s clear that there will also be storage demand to support this compute.”
Pricing remained strong, with the average selling price per TB increasing by 28% year-over-year in Q1.
Amid tightening supply and demand, Western Digital stated that its pricing environment remains strong.
Chief Financial Officer Kris Sennesael stated that the average blended price per TB in the first quarter of fiscal year 2027 increased by 28% year-over-year, surpassing the high single-digit to low double-digit growth rate seen in the previous quarter.
Irving Tan said: “The level of shipment (EB-scale) we are seeing this quarter can be considered the bottom. We expect this to accelerate for the remainder of this fiscal year.”
Regarding the product roadmap, the company is advancing two technology lines: ePMR and HAMR.
- ePMR: The latest-generation platform offers up to 40TB capacity and has launched with strong initial production. Management expects this platform to account for approximately 30% of nearline HDD shipments by the second fiscal quarter and reach 50% by the third quarter of fiscal year 2027.
- HAMR: The first-generation HAMR products are expected to complete certification with two hyperscale customers in the first quarter of 2027 and begin mass shipment in the first half of 2027. The second-generation HAMR products, featuring an 11-platter platform and 5 TB per platter, are expected to begin certification in the second half of 2027.
Kris Sennesael said: "Whether shipping HAMR or ePMR, the price is the price—we will not discount HAMR products in any way."
Regarding the sustainability of gross margins, Irving Tan noted that the long-term drivers primarily consist of three factors: periodic price increases under long-term contracts and stronger spot prices for non-long-term contracts, customers migrating to higher-capacity and higher-margin drives, and economies of scale driven by increased storage density.
He said, "When you combine these three factors, we are very optimistic about sustained gross margin expansion."
Capital expenditures will exceed the long-term average, but will not be used to expand unit capacity.
In response to concerns about potential overcapacity in the industry and rumors of competitors expanding production, Western Digital reaffirmed on the earnings call that its strategy is to invest in technology rather than increase unit capacity.
Kris Sennesael stated that capital expenditures over the next two years will be slightly above the five-year long-term average of 4% to 6% of revenue, but the use of funds is very clear: “These capital expenditures will be directed toward head technology, magnetic media technology, and factory automation, not toward increasing unit capacity.”
Irving Tan further stated that the best way to meet demand is by increasing areal storage density and single-drive capacity, which delivers the best total cost of ownership for customers and maximizes profits for the company.
He stated that if other market participants lack the capability to independently manufacture magnetic media, heads, and increase areal storage density, they may be forced to maintain market share by increasing unit volumes. Western Digital will continue to uphold its commitment to not increase incremental unit capacity.
Key points of the phone call
Management reported that revenue for the first quarter of fiscal year 2027 reached approximately $4.4 billion, a 55% year-over-year increase; shipments totaled 248 exabytes, up 22% year-over-year and 8% quarter-over-quarter. Cloud business revenue amounted to $3.9 billion, accounting for 88% of total revenue, with a 54% year-over-year increase; client business revenue reached $320 million, representing 7% of total revenue, with a 119% year-over-year increase; consumer business revenue was $193 million, accounting for 5% of total revenue, with a 19% year-over-year increase.
The company's gross margin for the first quarter was 58.1%, an increase of 1,420 basis points year-over-year; operating expenses amounted to $391 million, approximately 9% of revenue; operating profit reached $2.2 billion, a 152% increase year-over-year; and the operating margin expanded to 49.1%.
Interest and other expenses amounted to $10 million, with an effective tax rate of 17%. On a diluted share count of 383 million shares, non-GAAP earnings per share were $4.64, representing a 161% year-over-year increase.
The company generated $1.4 billion in free cash flow this quarter and returned $1.1 billion to shareholders through share repurchases and dividends. The board approved a 17% increase in the quarterly cash dividend, raising it from $0.15 per share to $0.175 per share, to be paid on December 17, 2026, to shareholders of record as of December 4, 2026.
On the balance sheet, the company reported a net cash position of $500 million at the end of the quarter and stated that it has further simplified its capital structure by significantly reducing its remaining 2028 convertible notes.
Second Quarter Guidance
For the second quarter of fiscal year 2027, Western Digital expects revenue of $5.1 billion, plus or minus $100 million, with the midpoint representing a 69% year-over-year growth; gross margin is expected to be 60% to 61%; operating expenses are expected to be $400 million to $410 million; interest and other expenses are expected to be $15 million; and the tax rate is expected to be 17%.
Based on 380 million non-GAAP diluted shares outstanding, the company expects diluted earnings per share for the second fiscal quarter to be $5.80, plus or minus $0.20.
Management stated that, as technology and product migration progress, the growth in exabyte supply is expected to accelerate throughout fiscal years 2027 and 2028.
Summary of the Q&A session
During the Q&A session, management expressed “very strong satisfaction” with HAMR progress, expecting the first-generation HAMR products to complete certification with two customers by the first quarter of 2027 and begin volume shipments in the first half of 2027; they also plan to initiate certification with two additional customers in the first half of 2027.
Regarding cost issues, Kris Sennesael stated that the company’s long-term goal remains a year-over-year cost reduction of approximately 10% per TB; however, in the short term, recent increases in raw material costs such as DRAM and NAND have resulted in a smaller per-TB cost reduction than 10%.
Regarding concerns about industry competition and potential capacity expansion, Irving Tan stated that the company’s long-term fundamentals remain unchanged, with demand continuing to grow at a compound annual rate exceeding 25%, and supply conditions still tight. The company will continue to focus on improving areal storage density through head and magnetic media technologies, rather than increasing unit capacity.
Regarding order visibility, Irving Tan again stated that, based on the seven major customers, the company has strong visibility extending through 2030 to 2031 for all seven clients, and demand signals are strengthening quarter over quarter.
Regarding pricing trends, Kris Sennesael stated that strong pricing conditions are evident across both near-term and non-near-term businesses, including consumer and enterprise markets. Some business segments operate under long-term agreements, while others with long-term contracts are nearing expiration and set to be renegotiated; additionally, some exabytes fall outside of contractual agreements, yet their pricing remains robust.
Regarding capital expenditures, management has repeatedly emphasized that capital spending over the next two years will be slightly above the long-term range, primarily due to the increased number of production steps and longer cycles for HAMR heads and magnetic media, requiring corresponding investment to support the technology roadmap—not to expand unit capacity.
In his closing remarks, Irving Tan stated that the first phase of AI investment has focused on the infrastructure required to train models, and the next phase will be the large-scale deployment of AI—from inference to agents, and ultimately to physical AI. As this progression advances, data will continue to compound, encouraging customers to plan further ahead and adopt higher-capacity products. The company believes this creates a sustained opportunity for Western Digital that far exceeds the initial AI infrastructure phase.