Price rises drive WD's revenues higher and AI tailwind helps

Western Digital (WD) reported fiscal Q4 2026 revenue of $3.75 billion, up 44% year-over-year, with net income of $3.2 billion boosted by $1.7 billion from selling SanDisk shares. Full-year revenue reached $12.92 billion, up 36%, and profits of $6.2 billion, up 230%. CEO Irving Tan attributed growth to strong exabyte growth and favorable pricing, with AI-driven inference and agentic AI expected to sustain disk drive demand for several years.

Price rises drive WD's revenues higher and AI tailwind helps Cloud and AI market disk sales contributed to a good quarter for WD https://www.blocksandfiles.com/disk/2026/05/18/wd-securing-disk-drives-with-post-quantum-cryptography/5242064 , with inferencing and agentic AI set to sustain strong disk drive demand for several years. Revenues in the quarter ended were $3.75 billion, at the high-end of its guidance and 44 percent higher than a year ago with a GAAP profit net income of $3.2 billion, equating to 85 percent of its revenues. This was inflated by WD selling Sandisk shares and pulling in $1.7 billion from that and general investment interest. Full fy2026 revenues were $12.92 billion, 36 percent higher than last year, with profits of $6.2 billion, 230 percent more than fy2025. CEO Irving Tan said: “WD concluded fiscal year 2026 with strong performance. In our fiscal fourth quarter, revenue increased 44 percent year over year, gross and operating margins expanded, and earnings per share more than doubled.” CFO Kris Sennesael commented that the revenue increase was due to ”strong exabyte growth and favorable pricing dynamics.” An analyst commented “price per terabyte went up pretty dramatically, high teens year-over-year.“ And Sennesael dropped this little gem: “In terms of the non-nearline space, particularly in our client and consumer space, we saw a higher opportunity to increase pricing, predominantly driven by the pricing structures on alternative products that are flash-based as well.” So, as SSD prices went up, widening the cost/TB between them and HDDs, WD opportunistically upped its disk drive prices to narrow the gap. Financial summary: Gross margin: 54.4% vs 50.5 percent in prior quarter Operating cash flow: $1.39 billion vs prior quarter’s $1.12 billion Free cash flow: $1.28 billion vs prior quarter’s $978 million Cash and cash equivalents: $1.57 billion vs $2.05 billion last quarter Diluted EPS: $8.21 vs $8.20 in last quarter This was WD’s first full fiscal year as a pure HDD manufacturing company, following the spin-off of Sandisk https://www.blocksandfiles.com/disk/2025/02/25/western-digital-sandisk-begin-separate-trading-after-split/1615056? gl=1 4phu2j ga MTY2OTcyMjAyNS4xNzcwODg2MTMy ga NSDTXHMMN0 czE3ODYwMjcxMjUkbzE5OCRnMSR0MTc4NjAyODQxMyRqNjAkbDAkaDA. . The market is being driven by hyperscaler sand public cloud sales, boosted by AI. The AI market is changing shape with inference becoming more important compared to training, Tan said in the earnings call https://finance.yahoo.com/quote/WDC/earnings/WDC-Q4-2026-earnings call-658556.html : “Training models create significant initial data requirements, but inference generates and retains data continuously.” The change also from using AI models to agentic AI exacerbates this. Tan again: “Agents generate data at every step of a workflow, increasing both the volume of data created and the amount that must be stored over time. This is why we continue to view agentic AI as a structural and step function driver of capacity-oriented storage demand.” Another AI tailwind he identified is physical A; “Physical AI accelerates the cycle further.” AI “is the underlying secular demand growth driver for our business.” The business segment results were; Cloud: $3.3 billion, up 43.3 percent Y/Y and 89 percent of WD's total revenues Client: $225 million, 60.7 percent higher Y/Y and 6 percent of WD’s revenues Consumer: $186 million, increasing 37.9 percent and representing 5 percent of WD’s revenues WD shipped 231 EB of capacity, 26.1 percent up on the year, with 209 EB being mass-capacity nearline drives and 22 EB going into the not-nearline category. The nearline proportion was 90.5 percent of the total EB shipped, up from the year-ago 89.5 percent, and is steadily rising. A couple of charts make clear the importance and dominance of nearline, mass-capacity drives going into the cloud market for WD's revenues; It's almost becoming a one disk product class company. The company is steadily increasing its capacity per drive, with Tan revealing: “We are on track to ship our 44 terabyte HAMR product in the first half of calendar 2027,” with 50 terabyte products coming out towards the second half of calendar year 2027. WD started volume-producing 40 TB ePMR Enhanced Perpendicular Magnetic Recording drives in the June quarter Q3 cy2026 and is now entering volume production with two customers. The UltraSMR https://www.blocksandfiles.com/glossary/2022/05/06/smr/1587852 technology partially overlaps tracks to increase capacity further but requires customers to modify their disk write behaviour. However, capacity needs are persuading them to do this, Tan saying: “We are currently ramping our UltraSMR technology with a third major customer. We expect that UltraSMR will make up around 60 percent of our nearline exabyte shipments as we exit fiscal 2027.” It has technology to increase disk I/O bandwidth and he said: “We are making progress on improving drive performance with our high bandwidth drives and are now sampling with five customers. We are targeting up to eight times the throughput of today's drives without the corresponding increase in power draw. Exactly the kind of performance AI workloads require.” Most but not all nearline drives are going to hyperscale customers. Tan said: “The vast majority of the nearline bits that we're shipping are going to hyperscale customers. Increasingly, there's actually increased demand from enterprise OEM players in the storage space, especially as they are pivoting to more hybrid-based storage solutions, where most recently they were looking at all potentially 100 percent flash array systems. There's a shift back towards hybrid systems that's driving more demand for us.” The only other HDD manufacturer, Seagate https://www.blocksandfiles.com/disk/2026/07/30/seagate-hamring-customers-generating-more-and-more-/tb/5281058 , has been making more revenue from its drives than WD for the past 10 quarters in a row. Cantor Fitzgerald analyst CJ Muse reflected this in the earnings call: “It's hard not to compare your results with your main competitor, where they're seeing better sequential top-line growth” and better gross margins. Tan was hopeful about dealing with Seagate’s revenue and profit superiority, saying: “We feel very confident … in terms of the pricing structures that we have put in place with LTAs Long Term Agreements , the introduction of our higher cap drives coming out in the second half of the year, and our ongoing operational efficiencies that will lead to stronger exabyte growth, continuous top-line growth, and obviously, ongoing margin expansion.” The LTA area looks good, Tan saying: “The last time we reported on LTAs, we talked about having one LTA of a large customer all the way up to calendar year 2029. We are very much in the throes of discussions with customers to establish LTAs for calendar year 2029, 2030, and 2031 as well. Visibility remains very strong. Customer-driven demand for LTAs extending all the way out to 2031 remains very strong.” The gross margin area looks good too, Sennesael saying: “We're moving to higher capacity drives that provides more value to our customers, and that enables us to increase our price per terabyte while at the same time driving down the cost per terabyte. I think that's a great recipe for further gross margin improvements. … the mid to long-term cost per terabyte decline is on or about 10 percent year-over-year.” The outlook CFO Kris Sennesael said: “Fiscal 2026 was an outstanding year for WD, characterized by broadening demand, deeper customer engagement, and disciplined execution across all end markets. As the cloud and other data-intensive workloads continue to expand, we remain confident in the long-term growth trajectory of our business, further margin expansion, and strong free cash flow generation.” He added:”We continue to operate in a strong demand environment, with improving longer-term visibility and favorable pricing dynamics across our cloud, consumer, and client end markets.” Tan said: “We enter fiscal year 2027 with robust customer demand, increased visibility, and continued confidence in the durability of demand,” Revenues in its next quarter Q1 fy2027 are expected to be $4.1 billion +/- $100,000, a 44.4 percent increase at the mid-point. Bootnote Despite high, sustained demand for disk drive capacity, WD is not increasing the number of disk drives it manufactures. Sennesael said: “Our industry-leading technology and product roadmaps, combined with strong operational execution, enable us to deliver substantially more exabytes to our customers. This does not require spending CapEx to add unit capacity, but we are making the necessary investments in our heads and media operations, as well as in automation to increase our productivity.”