Western Digital Corp. ((WDC)) has held its Q3 earnings call. Read on for the main highlights of the call.
Western Digital Corp. recently held its earnings call, revealing a generally positive sentiment with strong growth in cloud revenue and high gross margins. The company also made strategic moves in debt reduction and announced a new dividend, though it faced challenges in consumer and client segments and potential tariff impacts. Overall, the positive aspects of the earnings call slightly outweighed the challenges due to robust demand and solid financial performance.
Strong Cloud Revenue Growth
Cloud revenue was a standout performer, representing 87% of Western Digital’s total revenue at $2.0 billion. Although this was a 4% sequential decline, it marked a significant 38% year-over-year increase, driven by the strength of the company’s product portfolio.
High Gross Margin
The company reported a non-GAAP gross margin of 40.1% for the fiscal third quarter, which was a 1.7 percentage point improvement from the previous quarter and exceeded guidance expectations.
Successful Debt Reduction
Western Digital took a significant step in strengthening its balance sheet by redeeming $1.8 billion of its 2026 senior notes, showcasing its commitment to financial health.
Initiation of Quarterly Dividend
In a move reflecting confidence in its long-term cash-generating ability, Western Digital announced a quarterly dividend of $0.1 per share, starting in fiscal Q4.
Data Center Demand Strength
The company experienced strong demand from hyper-scale customers, supported by long-term agreements that extend through the first half of calendar year 2026.
Decline in Consumer and Client Segments
Western Digital reported a decline in client revenue by 2% and consumer revenue by 13% sequentially, primarily due to lower unit shipments and pricing pressures.
Potential Tariff Impact
The company acknowledged the uncertainty and potential demand impact in the enterprise and certain parts of its distribution and retail business due to tariffs and global trade tensions.
Forward-Looking Guidance
Looking ahead, Western Digital provided guidance for the upcoming fiscal fourth quarter, projecting revenue to be $2.45 billion, plus or minus $150 million. The gross margin is expected to range between 40% and 41%, with operating expenses slightly increasing due to variable compensation, new hires, and increased R&D investments. The company also anticipates interest and other expenses to be around $70 million, with a tax rate between 8% and 10%. EPS is projected to be $1.45, plus or minus $0.20, based on approximately 360 million shares outstanding. Additionally, fiscal year 2026 will be a 53-week year, impacting the first fiscal quarter with an additional week.
In summary, Western Digital’s earnings call highlighted a generally positive outlook with strong cloud revenue growth and strategic financial moves. Despite challenges in consumer and client segments and potential tariff impacts, the company’s robust demand and solid financial performance provide a promising outlook for the future.