Company Reports

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount, but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital delivered another exceptional quarter, with fiscal fourth-quarter revenue rising 44% year over year to $3.75 billion and non-GAAP gross margin expanding to 54.4%, both at or above the high end of guidance.

Western Digital delivered another blowout quarter. Third-quarter revenue grew 45% year over year and non-GAAP gross margin exceeded 50% for the first time in company history. The company beat its own guidance, our expectations, and FactSet consensus.

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount, but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount, but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital's revenue grew 25% year over year, while gross margins improved another 220 basis points quarter over quarter. We expected Western Digital to beat guidance and consensus, and it did.

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount, but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital's first-quarter fiscal 2026 revenue grew 27% year over year to $2.8 billion, 89% of which were cloud-related sales. Non-GAAP gross margin expanded 660 basis points year over year to 43.9% while non-GAAP operating margins expanded 1,200 basis points to 30.4%.

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount, but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital delivered robust fiscal fourth-quarter results, reporting year-over-year revenue growth of 30% to $2.6 billion, exceeding the high end of guidance. Non-GAAP gross margin improved to 41.3%, the best result in many years.

Western Digital is a leader in hard disk drives. This market is concentrated, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets in favor of solid-state drives, but we still see a future for HDDs in data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount but immediate read access is less important. This is commonly referred to as nearline storage, which we expect will make up almost all of Western’s business over time.

Western Digital is a leader in the hard disk drive market. HDDs have become a concentrated market, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets, in favor of solid-state drives, but we still see a future for HDDs within data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount while immediate read access is less important. This is commonly referred to as “nearline” storage, which we expect will make up almost all of Western’s business over time.

Western Digital reported its first stand-alone quarterly results after the spinoff of SanDisk. The company saw year-over-year revenue growth of 38% and instituted a quarterly dividend.

We are relaunching our coverage of Western Digital after the spinoff of its NAND memory business SanDisk, with a fair value estimate of $41 for the stand-alone company. With shares trading at $49 as of writing, we think they are a bit expensive. We retain our no-moat, High Morningstar Uncertainty, and Standard Capital Allocation Ratings for the firm.

Western Digital is a leader in the hard disk drive market. HDDs have become a concentrated market, with only three players remaining: Western Digital, Seagate, and Toshiba. Seagate and Western Digital have jostled back and forth for top share over the last decade, while Toshiba remains a distant third. HDDs are being phased out in key end markets, in favor of solid-state drives, but we still see a future for HDDs within data centers. Total cost of ownership still favors HDDs over SSDs for large workloads where controlling costs is paramount while immediate read access is less important. This is commonly referred to as “nearline” storage, which we expect will make up almost all of Western’s business over time.

We are putting shares of Western Digital under review following the spinoff of SanDisk. We plan to relaunch coverage under a new analyst for standalone Western Digital within 24 hours.

Western Digital is a leader in both of the pre-eminent data storage markets: hard disk drives, or HDDs, and NAND flash memory. We think Western's position in these markets paves the way for a strong top-line growth trajectory over the next five years, but believe these markets feature commoditylike products and massive investment requirements that leave Western vulnerable to cyclical downturns and prevent it from carving out an economic moat.

Western Digital's December-quarter revenue rose 41% year over year and 5% sequentially to $4.29 billion. Management's outlook for the March quarter calls for a sequential revenue decline of 10%, at the midpoint, and implies more than 600 basis points of margin compression.

We maintain our $60 fair value estimate for the shares of no-moat Western Digital with our cyclical rebound thesis intact. Fiscal 2025 first-quarter results met our expectations, and while guidance was light relative to our model, directionally we saw it as positive. We expect strong growth through calendar 2025 as Western rebounds from a steep cyclical downturn across calendar 2022 and 2023. We expect most of this growth to be led by cloud demand for mass-capacity drives, particularly for hard disk drives. The shares jumped more than 8% in after-hours trading due to better-than-expected profit in the quarter, which we see as an overreaction. Western’s margins have been stellar the past two quarters, but we maintain our forecast for these to come down over the next two years as prices normalize. We see the shares as overvalued.

We increase our fair value estimate for no-moat Western Digital to $60 per share from $51, as we lift our medium-term growth and profitability estimates to reflect a stronger cyclical recovery over the next two years. During the June quarter, both hard disk drive and solid-state drive sales grew sequentially because of rebounding demand and favorable pricing. We are also impressed by Western Digital’s profitability as the firm continues to reap the benefits of improving pricing in the upcycle. We expect strong pricing to continue through calendar 2024, but settle at lower, normalized levels in the long term. We now see shares as fairly valued.