Key Highlights
- Western Digital delivered fiscal Q3 revenue of $3.34 billion, representing a 45% year-over-year increase and exceeding the $3.23 billion estimate.
- Earnings per share reached $2.72, marking a 97% year-over-year surge and topping the anticipated $2.36.
- The company achieved a gross margin of 50.5%, expanding by 1,040 basis points compared to the prior year.
- Cloud segment revenue totaled $3.0 billion, accounting for 89% of overall revenue and growing 48% year over year.
- TD Cowen upgraded its price target from $325 to $500 while maintaining a Buy recommendation.
Shares of Western Digital (WDC) advanced 5.27% to reach $434.52 following the release of exceptional fiscal third-quarter 2026 results that significantly surpassed Wall Street projections across key metrics.
Western Digital Corporation, WDC
The storage technology leader generated $3.34 billion in quarterly revenue, marking a robust 45% year-over-year expansion and outpacing the consensus forecast of $3.23 billion. Earnings per share totaled $2.72, representing a remarkable 97% increase from the year-ago period and comfortably exceeding the $2.36 Street estimate.
The company’s gross margin expanded to 50.5% during the quarter, reflecting sequential improvement of 440 basis points and a year-over-year gain of 1,040 basis points. Operating income reached $1.3 billion, more than doubling from the prior year with an operating margin of 38.6%.
The cloud business served as the primary growth catalyst. Cloud-related revenue hit $3.0 billion, comprising 89% of total quarterly revenue and expanding 48% compared to the same period last year. Company executives highlighted increased demand for higher-capacity nearline storage solutions as the key growth driver.
Total unit shipments reached 222 exabytes, climbing 34% year over year. This figure included 4.1 million EPMR drives representing 118 exabytes, with capacity configurations extending up to 32 terabytes.
Average selling prices increased 7% sequentially and 9% year over year during the March quarter. Pricing measured on a per-terabyte basis rose 9% year over year, bolstered by long-term agreements with major customers.
The company generated free cash flow of $978 million, translating to a 29% free cash flow margin. During the quarter, Western Digital repurchased 2.9 million shares for $752 million and distributed $43 million in dividend payments.
Western Digital also announced a 20% increase to its quarterly dividend, raising it to $0.15 per share. The dividend is payable on June 17, 2026, to shareholders of record as of June 5.
SanDisk Divestiture Eliminates Net Debt
The divestiture of 5.8 million SanDisk shares enabled Western Digital to reduce debt by $3.1 billion. The company concluded the quarter with a net cash position of $450 million, while retaining 1.7 million SanDisk shares.
Since initiating its capital return program in fiscal 2025, Western Digital has distributed $2.2 billion to shareholders through buybacks and dividends.
On the product development front, the company’s 44-terabyte HAMR and 40-terabyte EPMR drives are currently undergoing customer qualification processes. HAMR technology is being evaluated by four customers, while the 40-terabyte EPMR platform is with three. The company’s product roadmap extends storage capacity beyond 100 terabytes.
UltraSMR technology has gained traction with the three largest customers, with two of them fulfilling nearly all their exabyte requirements using this technology. Western Digital expects UltraSMR to constitute approximately 60% of exabyte shipments by fiscal 2027.
Forward Outlook and Market Response
For the upcoming fourth quarter, Western Digital projected revenue of $3.65 billion (plus or minus $100 million), implying approximately 40% year-over-year growth at the midpoint. The company anticipates gross margin in the 51% to 52% range, with non-GAAP earnings per share of $3.25 (plus or minus $0.15).
The fourth-quarter guidance exceeded Street expectations by 18%, though the stock experienced some after-hours pressure. TD Cowen attributed the modest selloff to marginally slower gross margin expansion — projected at 60–65% for the June quarter versus 90% achieved in March — particularly when compared to Seagate’s implied 80% growth rate.
TD Cowen elevated its price target to $500 from the previous $325 while reiterating its Buy rating. The firm’s analysis projects calendar year 2027 EPS of $21, based on assumptions of 8% year-over-year average selling price growth.
Recent regulatory filings revealed that insiders sold $28.7 million worth of stock during the period, with no insider purchases reported.
