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Western Digital: Western Digital's Stellar Performance Driven by Cloud Demand

Western Digital's fourth-quarter fiscal 2025 revenue reached $2.6 billion, with a non-GAAP gross margin of 41.3% and non-GAAP earnings per share (EPS) of $1.66, beating estimates of $1.48. The company's revenue was driven by strong nearline shipments and the ramp-up of 26 terabytes CMR and 32-terabyte UltraSMR drives, resulting in 190 exabytes delivered to customers, up 32% year-over-year. Cloud revenue was $2.3 billion, up 36% year-over-year, while Client and Consumer revenues were $140 million and $136 million, respectively.

WDC

USD 166.26

-4.76%

A-Score: 4.5/10

Publication date: July 30, 2025

Full Report

Author: Analystock.ai

📋 Highlights
  • Revenue Performance $2.6 billion in Q4 FY2025, with 41.3% non-GAAP gross margin and $1.66 non-GAAP EPS.
  • Cloud Revenue Growth $2.3 billion in cloud revenue, up 36% year-over-year.
  • Debt Reduction $2.6 billion debt reduction, achieving net leverage target range of 1 to 1.5x.
  • Future Outlook Q1 FY2026 revenue expected at $2.7 billion, with 41-42% gross margin range.
  • Free Cash Flow $675 million in free cash flow, representing a 26% free cash flow margin.

Financial Highlights

The company's financial performance was impressive, with a 26% free cash flow margin and $675 million of free cash flow generated in the fourth quarter. Western Digital strengthened its balance sheet by lowering debt by $2.6 billion and achieving a net leverage target range of 1 to 1.5x. The company initiated a quarterly cash dividend program and a $2 billion share repurchase program, purchasing nearly $150 million worth of shares in the June quarter.

Outlook and Guidance

For the fiscal first quarter of 2026, Western Digital expects revenue growth driven by data center demand and improved profitability, with revenue expected to be $2.7 billion, plus/minus $100 million, and gross margin between 41% and 42%. The company's capital allocation strategy prioritizes returning cash to shareholders through a combination of dividend payments and share repurchases, with room to grow the dividend over time.

Industry Trends and Competitive Positioning

According to CEO Tiang Yew Tan, the seasonality of the past doesn't apply to the current business, which is driven by cloud CapEx spend. The company sees strong demand and a long visibility period of 12-18 months, with some customers having visibility up to 2 years. Western Digital's aerial density road map includes ePMR products with 26-terabyte CMR and 32-terabyte UltraSMR, with next-generation ePMR to be qualified in the first half of calendar year 2026.

Valuation and Estimates

Analysts estimate next year's revenue growth at 10.2%. With a P/E Ratio of 14.48 and a P/S Ratio of 2.07, the stock seems reasonably valued. The Dividend Yield is 0.13%, and the Free Cash Flow Yield is 4.66%. The ROIC is 33.1%, and the ROE is 21.67%, indicating a strong return on capital. The Net Debt / EBITDA ratio is 0.8, suggesting a manageable debt position.

Western Digital's A-Score