Western Digital Corporation
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Item 1. Business
General
Western Digital was founded in 1970 and is a Standard & Poor’s 500 (“S&P 500”) company headquartered in San Jose, California. We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. HDDs are critical components in the worldwide data infrastructure market, powering the AI-driven digital economy. HDDs provide reliable, cost-effective, high-capacity storage needs for a wide range of applications, ranging from cloud data centers, enterprise storage systems, edge computing, and smart video to client and consumer devices.
At Western Digital, we believe that data storage provides the strategic foundation for the AI-driven data economy. We focus on designing and building data storage solutions that are intelligent, efficient, and reliable. We execute on this mission through rigorous scientific research, engineering excellence, and deep customer collaboration, so that each product advancement provides value for our customers and shareholders.
With much of the world’s data stored on Western Digital products, our innovation helps drive the global storage technology ecosystem, anchored in the cloud, and extending from consumer devices to the edge.
Our broad portfolio of technology and products, sold under the Western Digital® and WD® brands, addresses our customers’ storage needs through multiple end markets: “Cloud,” “Client” and “Consumer”.
Cloud. Cloud represents our largest and fastest growing end market comprised primarily of products for public or private cloud environments and enterprise customers. We enable cloud, Internet and social media infrastructure players to build more powerful, cost-effective and efficient data centers. We provide the Cloud end market with an array of high-capacity enterprise HDDs. Our high-capacity enterprise HDDs address growing storage demands with high reliability, easy scalability, and lower time to value for our customers — all while delivering a low total cost of ownership for cloud data center and smart video system markets. These drives are primarily for use in data storage systems, in tiered storage models and where data must be stored reliably for years.
Client. Through the Client end market, we provide our original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. Our products are designed for use in devices requiring high performance, reliability and capacity with various attributes such as low cost per gigabyte, quiet acoustics, and low power consumption.
Consumer. We have also built strong consumer brand recognition with tools to help individuals manage vast libraries of personal content and to push the limits of what is possible for storage. We serve the Consumer end market with a portfolio of HDD external storage products that we offer globally through our retail and channel partners.
Industry
We operate in the data storage industry. The ability to access, store and share data from anywhere on any device is increasingly important to our customers and end users. From the intelligent edge to the cloud, data storage is not just foundational to AI, but also a fundamental component underpinning global technology architecture. Our strengths in innovation, areal density and cost leadership provide a foundation upon which we are solidifying our position as an essential building block of the AI-driven data economy. We believe there is tremendous market opportunity created by the rapid global adoption of technology built with cloud infrastructure, connected intelligent devices, and high-performance networks.
The increase in computing complexity and advancements in AI, along with growth in cloud computing applications, connected mobile devices and Internet-connected products and edge devices is driving rapid growth in the volume of digital content to be stored and used. While this growth has led to the creation of several form factors for data storage and an increasing use of a tiered architecture approach, HDDs occupy a unique place in the market by providing an economical means to create, store and utilize an increasing amount of data in the age of AI. We believe HDDs provide a sustainable total cost of ownership advantage to our cloud customers to meet their storage needs.
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Research and Technology
The strong growth in the amount, value and use of data continues to create a global need for larger, faster and more capable storage solutions. We have extensive customer, partner and channel relationships across our end markets and geographies and a rich heritage of innovation and operational excellence. We have a wide range of intellectual property (“IP”) assets, including patent portfolios containing approximately 4,700 active patents, covering groundbreaking data storage technologies, magnetic recording and other technology building blocks. We have broad research and development (“R&D”) capabilities and devote substantial resources to the development of new products and the improvement of existing products. We focus our engineering efforts on optimizing our product design and manufacturing processes to bring our products to market in a cost-effective and timely manner. We continue to transform ourselves to address the growth in data by providing what we believe to be the broadest range of storage technologies in the industry with a comprehensive product portfolio and global reach. For a discussion of associated risks, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
HDD products provide non-volatile data storage by recording magnetic information on rotating disks. We design and manufacture substantially all of the recording head and magnetic media in our HDD products, positioning us as an industry leader in innovations that drive higher areal density and superior performance. Our improvements in HDD capacity, which lower product costs over time, have been enabled largely through advancements in magnetic recording head and media technologies. Our multi-year product roadmap for high-capacity HDDs, which include ePMR, OptiNAND, UltraSMR, heat-assisted magnetic recording (“HAMR”) and triple stage actuators to deliver a cutting-edge portfolio of drives, in commercial volumes, at a wide variety of capacity points, puts Western Digital in a strong position to capitalize on the opportunities presented by the large and growing storage markets. We invest considerable resources in R&D, manufacturing infrastructure and capital equipment for recording head and media technology, as well as other aspects of the magnetic recording system such as HDD mechanics, controller and firmware technology, in order to secure our competitive position and cost structure. Our products generally leverage a common platform for various products within product families, and in some cases across product families, resulting in the commonality of components which reduces our exposure to changes in demand, facilitates inventory management and allows us to achieve lower costs through purchasing economies. This platform strategy also enables our customers to leverage their qualification efforts onto successive product models.
Competition
We believe we are well-positioned in a competitive industry with our leading product portfolio, differentiated innovation engine, global manufacturing footprint, and leadership in driving areal density and cost efficiency. Nevertheless, we face strong competition from several manufacturers of storage products and storage systems and solutions, whether directly or indirectly. Our competitors include HDD competitors such as Seagate Technology Holdings plc, and Toshiba Electronic Devices & Storage Corporation along with NAND flash suppliers that provide and enable alternative storage technologies, as well as storage systems and solutions providers.
Business Strategy
Our vision is to unleash the power and value of data. Our mission is to be the market leader in data storage by delivering storage solutions for now and the future. By understanding our customers’ needs, together we can help them unlock the value and power of data that we are starting to see come to the fore, especially in this age of AI.
Our overall strategy focuses on leadership, innovation and execution, based on our core capabilities grounded in magnetics and photonics expertise and our strength in nano-feature fabrication. Our goal is to further WD as an industry-leading and broad-based developer, manufacturer and provider of advanced technology storage devices and solutions that support and enable the proliferation of data. We believe this positions us well for emerging opportunities in adjacent and new technology markets. Our strategy reflects the following foundational elements: (1) Enhanced customer focus for driving greater customer advocacy and deeper customer engagement across our current and future addressable markets, (2) Product and technology leadership for realizing the best total cost of ownership through disciplined product management and for enabling innovation in new product categories, (3) Rigorous financial discipline by having a clear capital allocation strategy, ambitious financial targets and prudent capital investment, (4) Operational excellence for driving best-in-class cost to achieve industry-leading margin profiles with strong execution, (5) Innovation and growth for creating new products and applications and identifying new market opportunities, and (6) High performance teams with the skill sets to meet go-forward business needs.
Patents, Licenses and Proprietary Information
We rely on a combination of patents, trademarks, copyright and trade secret laws, confidentiality procedures and licensing arrangements to protect our IP rights.
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We have approximately 4,700 active patents worldwide and have many patent applications in process. We continually seek additional United States (“U.S.”) and international patents on our technology. We believe that, although our active patents and patent applications have considerable value, the successful manufacturing and marketing of our products also depends upon the technical and managerial competence of our staff. Accordingly, the patents held and applied for cannot alone ensure our future success.
In addition to patent protection of certain IP rights, we consider elements of our product designs and processes to be proprietary and confidential. We believe that our non-patented IP, particularly some of our process technology, is an important factor in our success. We rely upon non-disclosure agreements, contractual provisions and a system of internal safeguards to protect our proprietary information. Despite these safeguards, there is a risk that competitors may obtain and use such information. The laws of foreign jurisdictions in which we conduct business may provide less protection for confidential information than the laws of the U.S.
We rely on certain technology that we license from other parties to manufacture and sell our products. We believe that we have adequate cross-licenses and other agreements in place in addition to our own IP portfolio to compete successfully in the storage industry. For a discussion of associated risks, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10‑K.
Manufacturing and Suppliers
We believe that we have significant know-how, unique product manufacturing processes, test and tooling, execution skills, human resources and training to continue to be successful and to adjust our manufacturing operations as necessary. We strive to maintain manufacturing flexibility, achieve high manufacturing yields, and produce reliable products and high-quality components. The critical elements of our production are high volume and utilization, low-cost assembly and testing, strict adherence to quality metrics and maintaining close relationships with our strategic component suppliers to access best-in-class technology and manufacturing capacity. We continually monitor our manufacturing capabilities to respond to the changing requirements of our customers and maintain our competitiveness and position as a data technology leader.
HDD manufacturing is a complex process involving the production and assembly of precision components with narrow tolerances and rigorous testing. The manufacturing processes involve a number of steps that are dependent on each other and occur in “clean room” environments that demand skill in process engineering and efficient space utilization to control the operating costs of these manufacturing environments. We continually evaluate our manufacturing processes in an effort to increase productivity, sustain and improve quality and decrease manufacturing costs. We continually evaluate which steps in the manufacturing process would benefit from automation and how automated manufacturing processes can improve productivity and reduce manufacturing costs. We also leverage contract manufacturers when strategically advantageous.
HDD consists primarily of recording heads, magnetic media, controllers and firmware and printed circuit board assembly. We design and manufacture substantially all of the recording heads and magnetic media required for our products. As a result, we are more dependent upon our own development and execution efforts for these components and less reliant on recording head and magnetic media technologies developed by other manufacturers. We depend on an external supply base for all remaining components and materials for use in our design, manufacturing and testing. We believe the use of our in-house manufacturing, assembly and test facilities offers the control necessary to provide the demanding capabilities, performance and reliability our customers require.
Our vertically integrated, in-house assembly and test operations are concentrated in Prachinburi and Bang Pa-In, Thailand; Penang, Johor Bahru, and Kuching, Malaysia; Laguna, Philippines; Shenzhen, China; and San Jose and Fremont, California, USA.
We generally retain multiple suppliers for our component requirements, but for business or technology reasons, we source some of our components from a limited number of sole or single source providers. For a discussion of such risks, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
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Sales and Distribution
We focus on markets where our storage technologies deliver exceptional scale, efficiency, and economics. By combining HDD innovation with systems, firmware, and software, we enable customers to manage and monetize data at global scale. We sell our products to hyperscale cloud service providers, neoclouds, computer manufacturers and OEMs, resellers, distributors and retailers throughout the world, utilizing long-term agreements with certain customers. Our sales organization blends technical depth with market expertise, enabling effective engagement with customers across diverse use cases. Our sales engagements mostly involve sales, customer technical support engineers, and product engineers, who support pre-sales and post-sales activities, collaborating with customers to design, test, and qualify system solutions built on our technologies.
Our sales and marketing teams are strategically located across the major geographies of the Americas, Asia Pacific, Europe and the Middle East. Our international sales, which include sales to foreign subsidiaries of U.S. companies but do not include sales to U.S. subsidiaries of foreign companies, represented 60%, 55%, and 58% of our net revenue for 2026, 2025, and 2024, respectively. Our sales are subject to certain risks, including exposure to tariffs and various trade regulations. For a discussion of such risks, see Part I, Item 1A, Risk Factors, of this Annual Report on Form 10-K.
We perform our marketing and advertising functions through a combination of internal teams and outside firms utilizing business and consumer media as well as trade publications to engage our end-user markets. We maintain customer relationships through direct communication and by providing information and support through our digital platforms. In accordance with standard storage industry practice, we offer distributors and retailers limited price protection and programs under which we reimburse certain marketing expenditures. We also offer sales incentive programs to distributors, resellers, and OEMs.
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Financial statements
data from SEC XBRL filings. Values are as-reported; restatements supersede originals. Values reported in .
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis contains forward-looking statements within the meaning of the federal securities laws and should be read in conjunction with the disclosures we make concerning risks and other factors that may affect our business and operating results. You should read this information in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto included in Part II, Item 8 of our 2026 Annual Report on Form 10-K. See also “Forward-Looking Statements” immediately prior to Part I, Item 1 in this Quarterly Report on Form 10‑Q.
Our Company
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on HDD technology. HDDs are critical components of the global data infrastructure market and play an essential role in enabling the AI-driven data economy. They provide reliable, cost-effective, high-capacity storage for a broad range of applications, including cloud data centers, enterprise storage systems, edge computing, smart video, client and consumer devices.
Our broad portfolio of technology and products, sold under the Western Digital® and WD® brands, addresses our customers’ storage needs through multiple end markets: “Cloud,” “Client” and “Consumer”. Cloud is our largest and fastest growing end market comprised primarily of products for public or private cloud environments and enterprise customers. Through the Client end market, we provide our OEM and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market offers a comprehensive portfolio of HDD external storage products that we offer globally through our retail and channel partners.
Our fiscal year ends on the Friday nearest to June 30 and typically consists of 52 weeks. Approximately every five to six years, we report a 53-week fiscal year to align the fiscal year with the foregoing policy. Fiscal year 2027, which will end on July 2, 2027, will be comprised of 52 weeks, with all quarters presented consisting of 13 weeks each. Fiscal year 2026, which ended on July 3, 2026, was comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks each.
Key Developments
Macroeconomic Conditions and Outlook
The increasing long-term demand for data storage in the cloud is benefiting our HDD business. The adoption of AI is contributing to additional data storage requirements as the development and use of AI applications increase the volume of data that is generated, collected and retained, including data used to train and operate AI models. In addition, the continued growth of cloud and other data-intensive workloads is increasing the need for scalable, cost-effective storage infrastructure. These trends are accelerating demand for high-capacity drives and are resulting in greater manufacturing complexity and longer production lead times. In response, customers are partnering with us earlier to support their future growth requirements and are extending the duration of their commercial arrangements.
Recent changes to U.S. trade policy, including with regard to tariffs, and related measures by trading partners, have not materially impacted our business and results of operations through the first quarter of 2027, but we are actively monitoring developments and assessing options to mitigate potential future actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2026 Annual Report on Form 10-K.
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Results of Operations
First Quarter Overview
The following table sets forth, for the periods presented, selected summary information from our Condensed Consolidated Statements of Income by dollars and percentage of net revenue(1):
| Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| October 2, 2026 | October 3, 2025 | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue, net | $ | 4,381 | 100.0 | % | $ | 2,818 | 100.0 | % | $ | 1,563 | 55 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 1,847 | 42.2 | 1,591 | 56.5 | 256 | 16 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 2,534 | 57.8 | 1,227 | 43.5 | 1,307 | 107 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 283 | 6.5 | 294 | 10.4 | (11) | (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 162 | 3.7 | 138 | 4.9 | 24 | 17 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business realignment charges | 43 | 1.0 | 3 | 0.1 | 40 | 1,333 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 488 | 11.1 | 435 | 15.4 | 53 | 12 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income | 2,046 | 46.7 | 792 | 28.1 | 1,254 | 158 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest and other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | 7 | 0.2 | 17 | 0.6 | (10) | (59) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (11) | (0.3) | (59) | (2.1) | 48 | (81) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on retained interest in Sandisk | — | — | 611 | 21.7 | (611) | (100) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | (4) | (0.1) | (24) | (0.9) | 20 | 83 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest and other income (expense), net | (8) | (0.2) | 545 | 19.3 | (553) | (101) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income before taxes | 2,038 | 46.5 | 1,337 | 47.4 | 701 | 52 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income tax expense | 259 | 5.9 | 155 | 5.5 | 104 | 67 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 1,779 | 40.6 | % | $ | 1,182 | 41.9 | % | $ | 597 | 51 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
(1) Percentages may not total due to rounding.
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The following table sets forth for the periods presented, summary information regarding our disaggregated revenue:
| Three Months Ended | |||||||||||||||||||
| October 2, 2026 | October 3, 2025 | ||||||||||||||||||
| (in millions) | |||||||||||||||||||
| Net revenue by end market | |||||||||||||||||||
| Cloud | $ | 3,868 | $ | 2,510 | |||||||||||||||
| Client | 320 | 146 | |||||||||||||||||
| Consumer | 193 | 162 | |||||||||||||||||
| Total net revenue | $ | 4,381 | $ | 2,818 | |||||||||||||||
Net revenue by geography(1) | |||||||||||||||||||
| Americas | $ | 2,081 | $ | 1,100 | |||||||||||||||
| Asia | 1,708 | 1,175 | |||||||||||||||||
| Europe, Middle East and Africa | 592 | 543 | |||||||||||||||||
| Total net revenue | $ | 4,381 | $ | 2,818 | |||||||||||||||
(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer.
Net Revenue
Comparison of Three Months Ended October 2, 2026 to Three Months Ended October 3, 2025
Net revenue increased by 55% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by strong demand in our Cloud, Client and Consumer markets as further discussed below.
Cloud revenue, representing 88% of total revenue, increased by 54% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by a more than 20% increase in exabytes shipped along with an approximately 25% increase in average selling price per exabyte. The increase in exabytes shipped was driven by strong demand for our high-capacity products due to continued data growth, fueled by the ongoing expansion of cloud environments and the increasing storage demands from AI. The increase in average selling price per exabyte was due to an improved pricing environment.
Client revenue, representing 7% of total revenue, increased by 119% for the three months ended October 2, 2026 from the comparable period in the prior year, driven by an approximately 15% increase in exabytes shipped and an approximately 90% increase in average selling price per exabyte. The increase in average selling price was driven by a shift in product mix to higher capacity drives and an improved pricing environment, while our exabytes shipped increase was driven by strong demand for our products.
Consumer revenue, representing 5% of total revenue, increased by 19% for the three months ended October 2, 2026 from the comparable period in the prior year, which reflects an approximately 70% increase in average selling price per exabyte partially offset by an approximately 30% decrease in exabytes shipped. The increase in average selling price per exabyte was due to a shift in product mix to higher capacity drives and an improved pricing environment. The decrease in exabytes shipped was driven by general softness in demand in these end markets as a result of the increased pricing levels.
The change in mix of net revenue by geography for the three months ended October 2, 2026 from the comparable periods in the prior year is largely driven by the deployment and build plans of our larger Cloud customers.
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Beginning in the three months ended October 2, 2026, we updated our methodology for identifying customers for purposes of revenue concentration disclosure. Under the updated methodology, concentrations are attributed to the ultimate end customer when products are purchased on its behalf by distributors, contract manufacturers, or other resellers (collectively referred to as “intermediary purchasers”), rather than being attributed to such intermediary purchasers. We believe this presentation provides investors with a more meaningful reflection of the economic relationship with our customers. Prior year concentrations have been revised to conform to the current year presentation.
Our top 10 customers accounted for 64% of our net revenue for the three months ended October 2, 2026, compared to 73% of our net revenue for the three months ended October 3, 2025. For the three months ended October 2, 2026, two customers accounted for 14% and 13%, respectively, of our net revenue, and for the three months ended October 3, 2025, four customers accounted for 16%, 13%, 13% and 12%, respectively, of our net revenue.
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Gross Profit and Gross Margin
Gross profit increased by $1.31 billion, or 14 percentage points, for the three months ended October 2, 2026 from the comparable period in the prior year, due to improved pricing, an increased volume of shipments, and a lower cost structure on our newer generation products.
Operating Expenses
Research and development expense decreased by $11 million for the three months ended October 2, 2026 from the comparable period in the prior year. The decrease was attributable to lower compensation-related costs.
Selling, general and administrative expense increased by $24 million for the three months ended October 2, 2026 from the comparable period in the prior year. The increase was primarily attributable to higher compensation-related costs.
For information regarding Business realignment charges, see Part I, Item 1, Note 8, Business Realignment Charges, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Interest and Other Income (Expense)
Total interest and other income (expense) changed by $553 million for the three months ended October 2, 2026 from the comparable period in the prior year. The change reflects a non-recurring gain of $611 million on our retained interest in Sandisk in the prior period based on the mark-to-market value as of October 3, 2025, partially offset by lower interest expense of $48 million, which reflects the reduction in our debt.
Income Taxes
The following table presents our Income tax expense and the effective tax rate:
| Three Months Ended | |||||||||||||||||||
| October 2, 2026 | October 3, 2025 | ||||||||||||||||||
| ($ in millions) | |||||||||||||||||||
| Income before taxes | $ | 2,038 | $ | 1,337 | |||||||||||||||
Income tax expense | 259 | 155 | |||||||||||||||||
| Effective tax rate | 13% | 12% | |||||||||||||||||
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 2, 2026 are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, excess tax over book deductions for stock-based compensation, as well as certain tax credits. We maintain tax holidays on a portion of our earnings in the Philippines and Thailand, which are set to expire at various dates from 2029 through 2033. The tax benefits from these holidays are minimized by the implementation of the GMT and are not material to our Condensed Consolidated Financial Statements for the three months ended October 2, 2026.
The primary drivers of the difference between the effective tax rate and the U.S. Federal statutory rate of 21% for the three months ended October 3, 2025 were the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, certain tax credits, and the tax-free gain on the retained interest in Sandisk.
Previously, TCJA eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization. In July 2025, the OBBBA was signed into law, which includes broad tax reform provisions that extend and modify key elements of the TCJA. Notably, the new legislation now allows an option for the immediate expensing of domestic R&D expenditures, beginning in 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime, which is renamed as Net CFC Tested Income and enhancements to the FDDEI deduction that became effective for us in 2027.
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Beginning in 2027, we became subject to CAMT of 15% on corporations as our average annual AFSI exceeded $1.0 billion for the preceding three-year period. We anticipate that our CAMT liability will exceed our regular tax liability due to tax deductions in excess tax of book deductions attributable to stock-based compensation during the year. We anticipate that any CAMT paid in 2027 will generate credit carryforwards that can be carried forward indefinitely to offset future regular tax liabilities in cases where they exceed CAMT liabilities. Because we expect regular tax liabilities to exceed CAMT liabilities in future periods, no valuation allowance is required against these credit carryforwards. As a result, the CAMT liability did not impact the effective tax rate for the three months ended October 2, 2026.
In January 2026, the OECD released a side-by-side package that modifies key elements of the Pillar Two GMT by introducing new safe harbors and providing an exemption for U.S. based multinational companies from parts of the GMT. While these safe harbors and exemptions are generally favorable to us, they require local legislative action by each country before they can be considered enacted for financial accounting purposes. We evaluated the potential effects of these rules based on current local legislative developments in jurisdictions where we operate and expect the financial statement impact associated with their enactment to be immaterial. For 2027, our effective tax rate considers GMT in Malaysia and Thailand.
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Liquidity and Capital Resources
The following table summarizes our statements of cash flows.
| Three Months Ended | |||||||||||||||
| October 2, 2026 | October 3, 2025 | ||||||||||||||
| (in millions) | |||||||||||||||
| Net cash provided by (used in): | |||||||||||||||
| Operating activities | $ | 1,604 | $ | 672 | |||||||||||
| Investing activities | (225) | (57) | |||||||||||||
| Financing activities | (1,644) | (678) | |||||||||||||
| Effect of exchange rate changes on cash | — | (3) | |||||||||||||
| Net decrease in cash and cash equivalents | $ | (265) | $ | (66) | |||||||||||
Operating Activities
Net cash provided by operating activities primarily consists of net income, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. The significant improvement in cash from operating activities for the three months ended October 2, 2026 was primarily driven by the improved profitability in the business from the comparable period in the prior year, partially offset by the increased net cash used for changes in operating assets and liabilities.
Net cash used for changes in operating assets and liabilities was $331 million for the three months ended October 2, 2026, compared to $99 million for the three months ended October 3, 2025. For the three months ended October 2, 2026, net cash used for changes in operating assets and liabilities primarily consisted of a $269 million increase in inventories as we ramped production in response to growing demand and a $206 million increase in accounts receivable driven by our growth in revenue. These uses were partially offset by a $131 million increase in income taxes payable resulting from the timing of tax payments.
For the three months ended October 3, 2025, net cash used for changes in operating assets and liabilities primarily consisted of a $503 million decrease in income taxes payable resulting from the timing of tax payments and a $101 million increase in inventories as we ramped production in response to growing demand. These uses were partially offset by a $248 million increase in accounts payable as we ramped up purchases for production as well as more favorable payment terms with suppliers, a $141 million increase in other assets and liabilities primarily driven by timing of recognition and application of taxes receivable, and a $131 million decrease in accounts receivable driven by timing of collections.
Investing Activities
Net cash used in investing activities for the three months ended October 2, 2026 primarily consisted of $227 million in capital expenditures. Net cash used in investing activities for the three months ended October 3, 2025 primarily consisted of $73 million in capital expenditures.
We expect capital expenditures to average 4% to 6% of revenue over the next five years; however, we anticipate capital expenditures as a percentage of revenue will be modestly above that range over the next two years as we invest in heads and media technology and factory automation.
Financing Activities
Net cash used in financing activities for the three months ended October 2, 2026 primarily consisted of $1.00 billion for share repurchases, $570 million to settle a portion of our Convertible Notes, $317 million for taxes paid on vested stock awards under employee stock plans, and $56 million of dividends paid on our common stock. These uses were partially offset by $300 million of net borrowings from our Revolving Credit Facility. Net cash used in financing activities for the three months ended October 3, 2025 primarily consisted of $553 million for share repurchases, $39 million of dividends paid on our common stock and Preferred Shares, $55 million for taxes paid on vested stock awards under employee stock plans and $31 million of scheduled repayments on our term loan.
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We believe our cash and cash equivalents and cash flows from operations will be sufficient to meet our working capital, debt, dividend and capital expenditure needs and fund our share repurchases for at least the next twelve months and for the foreseeable future thereafter. We also believe we can access the various debt and equity capital markets to further supplement our liquidity position, if necessary. Our ability to sustain our working capital position is subject to a number of risks that we discuss in Part I, Item 1A, Risk Factors, in our 2026 Annual Report on Form 10-K.
In August 2024, we filed a shelf registration statement (the “Shelf Registration Statement”) with the SEC that expires in August 2027. The Shelf Registration Statement allows us to offer and sell shares of common stock, preferred stock, warrants, and debt securities. We may use the Shelf Registration Statement or other capital sources, including other offerings of equity or debt securities or the credit markets, to satisfy future financing needs, including planned or unanticipated capital expenditures, investments, debt repayments or other expenses. Any such additional financing will be subject to market conditions and may not be available on terms acceptable to us or at all.
A total of $1.00 billion and $1.08 billion of our cash and cash equivalents was held by our foreign subsidiaries as of October 2, 2026 and July 3, 2026, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.
Our cash equivalents are primarily invested in money market funds that invest in U.S. Treasury securities and U.S. Government agency securities. In addition, from time to time, we also invest directly in certificates of deposit, asset-backed securities and corporate and municipal notes and bonds.
Off-Balance Sheet Arrangements
Other than certain indemnification provisions (see “Short- and Long-term Liquidity – Purchase Obligations and Other Commitments” below), we do not have any other material off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any other obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the Condensed Consolidated Financial Statements. Additionally, we do not have an interest in, or relationships with, any variable interest entities.
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Short- and Long-term Liquidity
Material Cash Requirements
The following is a summary of our known material cash requirements as of October 2, 2026. In addition, see the discussions further below for other potential uses of cash related to our cash dividend program, Share Repurchase Program, liability for unrecognized tax benefits, global minimum tax, foreign exchange contracts, litigation matters, and potential indemnifications.
| Total | 1 Year (Remaining Nine Months of 2027) | 2-3 Years (2028-2029) | 4-5 Years (2030-2031) | More than 5 Years (Beyond 2031) | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Debt | $ | 791 | $ | 791 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Operating leases | 152 | 28 | 56 | 35 | 33 | ||||||||||||||||||||||||
| Long-term purchase obligations and other commitments | 304 | 48 | 87 | 169 | — | ||||||||||||||||||||||||
| Total | $ | 1,247 | $ | 867 | $ | 143 | $ | 204 | $ | 33 | |||||||||||||||||||
Debt
As described in Part I, Item 1, Note 5, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, as of October 2, 2026, $141 million in aggregate principal amount of Convertible Notes remained outstanding. The Convertible Notes are currently convertible at the option of any holder, at a conversion price of approximately $37.70 per share of common stock as of October 2, 2026. Upon any conversion of the Convertible Notes, we will pay cash for the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination thereof, at our election, in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. Through October 2, 2026, $31 million in aggregate principal amount of these notes had been tendered for conversion. We have elected to issue shares of our common stock to satisfy the conversion obligation in excess of the principal amount for substantially all of the notes tendered for conversion, which are expected to settle in the second quarter of 2027.
On September 14, 2026, we issued a notice of redemption to redeem at par plus unpaid and accrued interest, on November 16, 2026 (the “Redemption Date”), all then-outstanding Convertible Notes that have not been converted prior to the Redemption Date. We currently expect that holders of substantially all Convertible Notes will convert such Convertible Notes before the Redemption Date.
In addition, as of October 2, 2026, we had $650 million outstanding on our Revolving Credit Facility maturing in January 2027 and had $600 million remaining available borrowing capacity under this facility, subject to customary conditions under the loan agreement. We believe our existing cash and cash expected to be generated from our business will be adequate to meet our debt repayment requirements.
Additional information regarding our indebtedness, including information about availability under our 2027 Revolving Credit Facility and the principal repayment terms, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note 7, Debt, of the Notes to Consolidated Financial Statements included in our 2026 Annual Report on Form 10-K and Note 5, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
We may issue additional debt securities in the future that may be guaranteed by our 100% owned domestic subsidiary, Western Digital Technologies, Inc. (“Guarantor” and, together with Western Digital Corporation, the “Obligor Group”). Such guarantees may be full and unconditional, joint and several, on a secured or unsecured, subordinated or unsubordinated basis, and may be subject to certain customary guarantor release conditions. We conduct operations almost entirely through our subsidiaries. Accordingly, the Obligor Group’s cash flow and ability to service any guaranteed registered debt securities will depend on the earnings of our subsidiaries and the distribution of those earnings to the Obligor Group, including the earnings of the non-guarantor subsidiaries, whether by dividends, loans or otherwise. Holders of such guaranteed registered debt securities would have a direct claim only against the Obligor Group.
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The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on a combined basis, excluding intercompany balances and transactions between the Company and the Guarantor, excluding net intercompany balances between the Obligor Group and non-guarantor subsidiaries, and excluding investments in and equity in the earnings of non-guarantor subsidiaries. The Obligor Group’s amounts due from, amounts due to, and transactions with non-guarantor subsidiaries have been presented in separate line items in the tables below.
The assets and liabilities of the Obligor Group include the following:
| October 2, 2026 | July 3, 2026 | ||||||||||
| (in millions) | |||||||||||
| Current assets | $ | 2,152 | $ | 2,360 | |||||||
| Non-current assets | 4,399 | 4,415 | |||||||||
| Net intercompany payables to non-guarantor subsidiaries | 231 | 516 | |||||||||
| Current liabilities | 1,988 | 2,204 | |||||||||
| Non-current liabilities | 590 | 449 | |||||||||
The operating results of the Obligor Group include the following:
| Three Months Ended | Year Ended | ||||||||||
| October 2, 2026 | July 3, 2026 | ||||||||||
| (in millions) | |||||||||||
| Net sales | $ | 2,077 | $ | 5,726 | |||||||
| Gross profit | 976 | 2,543 | |||||||||
| Operating income | 601 | 1,092 | |||||||||
| Net income | 337 | 6,196 | |||||||||
Results for the Obligor Group include the following transactions with non-guarantor subsidiaries:
| Three Months Ended | Year Ended | ||||||||||
| October 2, 2026 | July 3, 2026 | ||||||||||
| (in millions) | |||||||||||
| Intercompany revenue | $ | 2,374 | $ | 7,458 | |||||||
| Net intercompany interest expense | 21 | 33 | |||||||||
| Intercompany dividend income | 44 | 94 | |||||||||
Purchase Obligations and Other Commitments
In the normal course of business, we enter into purchase orders with suppliers for the purchase of components used to manufacture our products. These purchase orders generally cover forecasted component supplies needed for production during the next quarter, are recorded as a liability upon transfer of the components, and generally may be changed or canceled at any time prior to shipment of the components. We also enter into long-term agreements with suppliers that contain fixed future commitments, which are contingent on certain conditions, such as performance, quality and technology of the vendor’s components. These arrangements are included under “Purchase obligations and other commitments” in the table above.
Cash Dividend Program
On April 29, 2025, our Board of Directors authorized the adoption of a cash dividend program. See Part I, Item 1, Note 10, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q under the caption “Dividends to Common Shareholders” for further details.
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Share Repurchase Program
Our Board of Directors has authorized a Share Repurchase Program and as of October 2, 2026, we had $2.26 billion available for repurchases under the program. See Part I, Item 1, Note 10, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q under the caption “Share Repurchase Program” for further details.
Liability for Unrecognized Tax Benefits
As of October 2, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $635 million. Accrued interest and penalties related to unrecognized tax benefits are recognized in liabilities for uncertain tax positions and are recorded in the provision for income taxes. Accrued interest and penalties included in our liability related to unrecognized tax benefits as of October 2, 2026 was $126 million. Of these amounts, approximately $351 million could result in potential cash payments to be made within the next twelve months.
In connection with IRS settlements for the years 2008 through 2015, we expect to realize reductions to our mandatory deemed repatriation tax obligations aggregating to approximately $101 million. These tax receivables are classified in Other current assets on the Condensed Consolidated Balance Sheets as of October 2, 2026.
Global Minimum Tax
As of October 2, 2026, we have accrued GMT liabilities of $90 million, which encompass obligations originating from both 2026 and for the three months ended October 2, 2026. Due to transitional 18-month filing extensions permitted under the OECD Pillar Two framework, initial cash payments for these obligations are not expected to be fully settled until the second quarter of 2028.
Foreign Exchange Contracts
We purchase foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities and commitments for Operating expenses and product costs denominated in foreign currencies. See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, included in this Quarterly Report on Form 10-Q for additional information.
Litigation Matters
For additional information on our litigation matters, see Part I, Item 1, Note 12, Legal Proceedings, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
Indemnifications
In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of agreements, products or services to be provided by us, environmental compliance or from intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. We maintain director and officer insurance, which may cover certain liabilities arising from our obligation to indemnify our directors and officers in certain circumstances.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses. Historically, we have not incurred material costs as a result of obligations under these agreements.
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Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 2026-10-21 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -807 | $380.00 | -$306,660 |
| 2026-09-04 | Gubbi Vidyadhara K | Chief of Global Operations | Sell | -1,795 | $459.87 | -$825,472 |
| 2026-09-04 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -432 | $451.20 | -$194,918 |
| 2026-09-01 | STREETER STEPHANIE A indirect | Director | Sell | -1,600 | $455.00 | -$728,000 |
| 2026-08-31 | STREETER STEPHANIE A indirect | Director | Sell | -4,000 ×2 | $447.82 | -$1,791,280 |
| 2026-08-27 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -1,007 | $478.36 | -$481,709 |
| 2026-08-26 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -476 | $450.78 | -$214,571 |
| 2026-08-24 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -684 | $446.17 | -$305,180 |
| 2026-08-21 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -235 | $477.27 | -$112,158 |
| 2026-08-11 | Tan Irving | Chief Executive Officer | Sell | -20,000 ×7 | $444.97 | -$8,899,329 |
Source: SEC Form 4 filings.
Next expected filings
- ~2027-01-29 10-Q expected by 2027-02-04 (in 93 days)
- ~2027-04-30 10-Q expected by 2027-05-06 (in 184 days)
- ~2027-08-13 10-K expected by 2027-08-20 (in 289 days)
- ~2027-10-22 10-Q expected by 2027-10-28 (in 359 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 2026-10-23 10-Q Quarterly Report
- 2026-10-22 8-K Earnings Release; Financial Statements and Exhibits
- 2026-10-05 DEF 14A Proxy Statement
- 2026-09-14 8-K Regulation FD Disclosure; Other Events; Financial Statements and Exhibits
- 2026-08-27 8-K/A Unregistered Equity Sale
- 2026-08-26 8-K Unregistered Equity Sale; Other Events
- 2026-08-14 10-K Annual Report
- 2026-08-05 8-K Earnings Release; Financial Statements and Exhibits
- 2026-06-11 8-K Other Events
- 2026-06-08 8-K/A Unregistered Equity Sale
- 2026-06-03 8-K Unregistered Equity Sale; Other Events
- 2026-05-28 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
- 2026-05-01 10-Q Quarterly Report
- 2026-04-30 8-K Earnings Release; Financial Statements and Exhibits
- 2026-02-24 8-K Bylaws/Articles Amended; Other Events; Financial Statements and Exhibits