WESTERN DIGITAL CORP Q3 FY2025 earnings call

• Irving Tan, new CEO, recognized employee efforts in separation process and innovation. • Welcomed new Chief Product Officer Ahmed Shihab. • Highlighted exponential data growth, HDDs as backbone of data infrastructure, and progress with 11 disk drives and HAMR technology. • Quarterly results: revenue $2.3B, non-GAAP gross margin 40.1%, non-GAAP EPS $1.36, free cash flow $436M. • Redeemed $1.8B of 2026 senior notes, initiated quarterly dividend of $0.1 per share.

In the fiscal third quarter, Western Digital's total revenue was $2.3 billion. Cloud segment represented 87% of total revenue at $2.0 billion, down 4% sequentially and up 38% year-over-year. Client segment was 6% of total revenue at $137 million, down 2% sequentially and year-over-year. Consumer segment was 7% of revenue at $150 million, down 13% sequentially and 4% year-over-year.

• Fiscal fourth quarter revenue expected to be $2.45 billion ± $150 million. • Gross margin expected to be between 40% and 41%. • Operating expenses expected to increase slightly to $330M-$340M. • Interest and other expenses anticipated to be ~$70M. • Tax rate expected to be between 8% and 10%. • EPS expected to be $1.45 ± $0.20.

• Geopolitical uncertainty and shifting trade dynamics. • Tariff impacts on certain segments like enterprise, distribution, and retail. • Potential demand uncertainty in segments affected by tariff environment.

Q: Erik Woodring asked about capital allocation and visibility with LTAs.

A: Irving Tan stated goal to get net leverage to 1.15x and then return 100% of excess cash to shareholders via dividends and buybacks; LTAs provide greater visibility.

Q: Aaron Rakers inquired about gross margin drivers.

A: Don Bennett said gross margin is driven by product technology, TCO benefit to customers, and operational discipline.

Q: Karl Ackerman asked about manufacturing capacity hurdles.

A: Irving Tan said exabyte growth driven by aero density improvement, no immediate need for capacity investments.

Q: Wamsi Mohan asked about enterprise slowdown from tariffs.

A: Irving Tan said no current slowdown but factored tariff uncertainty into guidance.

Q: Asiya Merchant asked about gross margin expansion.

A: Irving Tan said gross margin will expand as they continue to deliver value to customers through innovation.

Q: Amit Daryanani asked about tariffs and LTAs.

A: Irving Tan said working with customers to mitigate tariff impacts and evaluate supply chain shifts.

Q: Thomas O'Malley asked about LTAs and unit pricing.

A: Don Bennett said structural change in business with sustained ASP increases due to segment and customer mix.

Q: Steven Fox asked about free cash flow.

A: Don Bennett said focus on operating profit and free cash flow generation for capital allocation.

Q: Harlan Sur asked about exabyte growth.

A: Irving Tan said forward demand profile aligns with low 20% exabyte growth.

Q: Ananda Baruah asked about HAMR architectural impacts.

A: Irving Tan said some rack and software changes needed, but customers familiar with adjustments.

Q: Mehdi Hosseini asked about CFO search.

A: Irving Tan said search progressing, will communicate when CFO identified.

Q: Tim Arcuri asked about drive unit watermark.

A: Irving Tan said depends on mix and yield; Don Bennett added segment mix impact.

Q: Vijay Rakesh asked about tariffs and production locations.

A: Irving Tan said products to US not from China, products to China not subject to tariffs.

Q: Unidentified Analyst asked about rare earth export controls and 11 disc platform margin impact.

A: Irving Tan said supply chain resiliency mitigates rare earth impact; Don Bennett said margin accretion factored into guidance.