In the early hours of October 23rd, Beijing time, Western Digital (Western Digital, NASDAQ: WDC), a US hard drive manufacturer, announced its financial results for the first quarter of fiscal year 2027. Driven by strong demand for data center storage and rising product prices, the company's quarterly revenue increased by 55% year-on-year to $4.381 billion, and adjusted earnings per share soared by 161% year-on-year to $4.64, both exceeding Wall Street's expectations.
Western Digital also provided a more optimistic outlook for its performance in the next quarter: it expects revenue to reach up to $5.2 billion, with the adjusted gross margin expected to exceed 60%. This indicates that the ongoing growth in demand and improvement in prices within the storage industry continue to drive the company's profitability.
However, the strong financial results stand in sharp contrast to the company's previous stock price performance. Although Western Digital's stock price has still risen by more than 100% this year, it has fallen by about 53% from its peak in June of this year. Investors' concerns regarding whether investments in AI data centers will be sustainable and whether competitors' capacity expansions will weaken hard drive manufacturers' pricing power have become important factors putting pressure on the stock price recently.
After the financial report was released, Western Digital's stock price rose by about 1.8% during after-hours trading in the U.S. market, reaching $360.64. As of the time of publication, Western Digital's stock price had fallen by 7.1% after hours, at $328.750.
I. Revenue increased by 55%, and earnings per share after adjustment soared by 161%
Western Digital reported revenue of $4.381 billion in the first quarter of its fiscal year 2027, which ended on October 2, representing a year-over-year increase of 55% and a quarter-over-quarter increase of 17%, exceeding Wall Street's previous forecast of around $4.14 billion.
In terms of profitability, the company's operating profit calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP) was $2.046 billion, a year-on-year increase of 158%; after adjustment, the operating profit reached $2.153 billion, a year-on-year increase of 152%. The adjusted earnings per share were $4.64, a 161% increase from $1.78 in the same period last year, and higher than the market expectation of around $4.11.
The improvement in profit margins is particularly notable. Western Data's adjusted gross margin for this quarter reached 58.1%, an increase of 14.2 percentage points from 43.9% in the same period last year, and a 3.7 percentage point increase from the previous quarter; the adjusted operating margin reached 49.1%, up 18.7 percentage points year-over-year.
In other words, Western Digital currently generates approximately $49 in adjusted operating profit for every $100 in revenue. Compared to a year ago, the company has not only expanded its revenue scale but also significantly improved its profitability per unit of revenue.
It is worth noting that the company's GAAP net profit for this quarter was $1.779 billion, a decrease of 44% compared to $3.195 billion in the previous quarter. However, this decline was mainly due to the valuation gains from the remaining equity in SanDisk, which amounted to approximately $2.05 billion in the previous quarter. Excluding non-recurring factors, the company's adjusted net profit for this quarter increased by 172% year-over-year to $1.779 billion and by 29% quarter-over-quarter, indicating that the profitability of its core business is still improving.
Dell Technologies CEO Owen Tan ( Irving Tan ) stated that the company had a strong start to the fiscal year 2027, with robust customer demand and excellent operational execution driving results that exceeded expectations. The company is working to improve the predictability of future storage needs by upgrading technologies, expanding customer coverage, and strengthening cooperation with existing customers.
II. Storage requirements and product price increases jointly drive profit growth
Western Digital's Chief Financial Officer, Chris Sennesar ( Kris Sennesael ), stated in the financial report that the company's performance growth this quarter was mainly driven by an increase in demand for storage capacity and improvements in product prices.
As one of the world's leading hard drive manufacturers, Western Digital currently focuses on mechanical hard drives ( HDD ) and related storage solutions. Since separating its flash memory business into an independently listed company named SanDisk ( Sandisk ) in 2025, the company's focus has become even more concentrated on cloud computing, hyperscale data centers, and enterprise-level storage markets.
As the data generated by the AI model training, inference, and related applications continues to increase, large technology companies not only need to purchase high-performance computing chips but also require the deployment of a large number of storage devices to preserve this data. Mechanical hard drives still hold an important position in large-scale data storage scenarios due to their cost advantage per unit of capacity.
An important feature of this round of growth is that the improvement in product prices is transforming demand growth into higher profit levels.
According to the financial report, Western Digital's revenue this quarter increased by 55% year-over-year, but its adjusted operating profit increased by 152% year-over-year, with a profit growth rate far exceeding that of revenue. At the same time, the company's adjusted gross margin increased from 43.9% a year ago to 58.1%, indicating that improvements in product pricing and operational efficiency are significantly expanding its profit margin.
However, Western Digital's press release for this financial report did not provide specific hard drive shipment capacities, average selling prices, or the proportion of revenue from different types of customers. Therefore, it is still not possible to accurately determine how much each factor—increased sales volume and rising prices—contributed to the overall revenue growth.
III. Revenues for the next quarter are expected to reach up to $5.2 billion, with a gross margin forecast to exceed 60%.
Compared to the already announced quarterly results, Western Digital's forecast for the next quarter may attract more attention from investors.
The company expects that revenue for the second quarter of fiscal year 2027 will reach $5 billion to $5.2 billion, with a median of $5.1 billion, which is an increase of about 16.4% compared to the actual revenue of this quarter and about 11.6% higher than Wall Street's previous forecast of around $4.57 billion.
According to the company's forecast, revenue growth in the next quarter is expected to reach 66% to 72% year-on-year, which is higher than the 55% growth rate of this quarter, indicating that management believes the momentum of growth driven by increased storage demand and improving prices will continue.
In terms of profitability, the company expects that the adjusted gross margin for the next quarter will reach 60% to 61%, with a median of 60.5%, an increase of 2.4 percentage points from this quarter; the adjusted earnings per share are expected to be $5.60 to $6.00, with a median of $5.80, representing a 25% growth compared to this quarter.
In addition, the company expects adjusted operating expenses for the next quarter to be between $400 million and $410 million. Based on the median values of the guidance for revenue, gross margin, and operating expenses, adjusted operating profit for the next quarter is expected to reach approximately $2.681 billion, corresponding to an operating margin of about 52.6%.
If this prediction comes true, Western Digital's adjusted operating margin will exceed 50%, continuing the trend of profit growth outpacing revenue growth.
In terms of cash flow, the company's cash flow from operating activities this quarter reached $1.604 billion, a year-on-year increase of approximately 139%; free cash flow amounted to $1.377 billion, with a year-on-year increase of about 130%. During the same period, the company spent approximately $1 billion on share repurchases and announced an increase in quarterly dividends by 17% to $0.175 per share.
However, there are also some changes in the financial reports that require continued observation. Capital expenditures for this quarter reached $227 million, an increase of about 211% compared to $73 million in the same period last year; inventory increased by 17.9% to $1.781 billion, while cash and cash equivalents at the end of the quarter decreased from $1.579 billion in the previous quarter to $1.314 billion.
An increase in capital expenditure indicates that the company is investing more funds to maintain or expand its operational capacity; a rise in inventory may be related to higher sales targets for the next quarter. It is not yet possible to conclude that there has been a slowdown in demand based on this, but given the rapidly changing supply and demand dynamics in the industry, these indicators are still worth continuous monitoring.
IV. Performance continues to exceed expectations, so why has the stock price still fallen by more than 50% from its high point?
Western Digital's recent stock price performance indicates that investors are beginning to diverge in their assessments of the storage industry's future profitability.
It is reported that although Western Digital's performance announced this time significantly exceeded expectations, its stock price has still fallen by approximately 53% compared to its peak in June. The market's previous concerns regarding the sustainability of AI's infrastructure investments and the intensifying competition in the hard drive industry were important factors contributing to the stock price correction.
Among these, the most direct risk comes from competitors increasing their production capacity.
In early October, Japanese company Toshiba plans to invest approximately $380 million to expand the hard drive production capacity of its factory in the Philippines for AI data centers, with the goal of doubling the relevant production capacity by the fiscal year 2027. After this news was announced, the stock prices of Western Digital and its main competitor Seagate Technologies were significantly affected.
The market is concerned that as more hard drive production capacity is gradually released, the tight supply and demand situation that has supported price increases in the industry over the past period may ease, which in turn could affect the pricing power of hard drive manufacturers.
On October 16th, Joseph Quattrone ( Joseph Quatrochi ), an analyst at Wells Fargo, significantly lowered Western Data's target price from $730 to $450, a decrease of about 38%, while maintaining a 'overweight' rating. Wells Fargo also reduced Seagate Technology's target price from $1185 to $865, reflecting the market's re-evaluation of the valuation and future growth sustainability of the entire hard drive industry.
However, Wall Street has not reached a consensus of pessimism on this matter. Morgan Stanley believes that even taking into account Toshiba's expansion plans, the supply and demand in the hard drive industry may remain tight until 2028. The firm thinks that concerns about intensified competition may be overstated, and the continuously increasing storage demands from large data center customers are likely to support future growth in the industry.
In addition to industry competition, customer concentration is also an important risk that Western Data faces. The company explicitly noted in this financial report that its revenue is highly dependent on the cloud computing end-market and a few large customers. This means that if major cloud service providers adjust their capital expenditure plans or slow down the procurement of storage devices, Western Data's revenue and product pricing could both be affected.
Therefore, despite the company's current strong growth momentum, investors still need to assess how long this round of hard drive price increases will last, and whether the additional production capacity of competitors can be absorbed by the continuously expanding demand for cloud computing and AI storage.
V. The storage industry remains strong, and the next test will be whether high profit margins can be sustained.
Judging from the latest financial reports, Western Digital's current main business does not yet show any obvious signs of growth slowdown.
The company's revenue has grown from $3.747 billion in the fourth quarter of fiscal year 2026 to $4.381 billion this quarter, and it is expected to further reach $5.1 billion in the next quarter. The adjusted gross margin has increased from 54.4% to 58.1%, and is expected to reach around 60.5% in the next quarter.
This indicates that, for at least the next quarter, management still expects that the growth in storage capacity demand and improvements in prices will continue to drive an increase in the company's profitability.
However, for Western Data, whose stock price has already fallen significantly from its highs, the focus of market attention is changing. Quarterly earnings that exceed expectations can prove that current demand remains strong, but they are not enough to completely dispel investors' concerns about future changes in industry supply and demand.
Next, the key challenges Western Digital faces include whether large cloud service providers will be able to maintain their current level of storage procurement, when competitors' new production capacity will enter the market, and whether the company will be able to continue to maintain a gross margin of nearly 60% after the increase in industry supply.
This financial report demonstrates that Western Digital is still a significant beneficiary of the expanding infrastructure demands of AI. However, what will determine its future profit growth and market valuation is how long this period of high prosperity in the storage industry can actually last.
Responsible Editor: Long Yunxiang
