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 7. 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 Consolidated Financial Statements and the notes thereto included in Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. See also “Forward-Looking Statements” immediately prior to Part I, Item 1, Business, of this Annual Report on Form 10-K.
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 2026, which ended on July 3, 2026, comprised 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks. Fiscal years 2025 and 2024, which ended on June 27, 2025 and June 28, 2024, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.
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Key Developments
Market Conditions and Outlook
The increasing long-term demand for data storage in the cloud is benefiting our HDD business. The adoption of AI and workloads driven by hybrid data are propelling growth in data storage as well. This creates an accelerated demand for higher-capacity drives, which have 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, which improves our long-term visibility of demand.
Separation of Business Units and Monetization of Sandisk Shares
In the previous fiscal year, on February 21, 2025, we completed the Separation to create two independent public companies, with WD continuing our existing HDD business and Sandisk, formerly a wholly-owned subsidiary of the Company, operating the Flash business. We believe the Separation has better positioned us as a pure-play HDD company that can execute innovative technology and product development, capitalize on unique growth opportunities, extend our leadership position, operate more efficiently, and pursue capital allocation strategies to maximize long-term shareholder value. As part of the Separation, we initially retained 28.8 million shares of Sandisk common stock. In June 2025, we used 21.3 million shares of Sandisk common stock in a tax-free exchange to reduce approximately $800 million in principal amount of our term loan A-3 (the “Term Loan A-3”). In February 2026, we executed a series of transactions pursuant to which we used 5.8 million shares of Sandisk common stock to further reduce our debt and fully redeem our previously outstanding 4.75% senior unsecured notes due 2026, 2.85% senior notes due 2029, 3.10% senior notes due 2032 and Term Loan A-3 through a tax-free exchange. In the fourth quarter of 2026, we completed two separate equity-for-equity exchanges, which used our remaining 1.7 million shares of Sandisk common stock to acquire 4.8 million shares of our common stock, thereby reducing our share count. As of July 3, 2026, we no longer held shares of Sandisk common stock.
Capital Allocation Actions
In addition to the actions taken to monetize our initial retained interest in shares of Sandisk, as noted above, we have continued to take significant actions to deleverage our business, reduce dilution and return capital to our investors.
In February 2026, we converted all remaining outstanding shares of our Preferred Shares, in accordance with their terms, into 7 million shares of our common stock.
In June 2026, we fully settled the conversion obligation on $32 million in aggregate principal amount of our 2028 Convertible Notes that were tendered in March 2026 (the “Tendered Notes”). We used $32 million of cash to settle the principal amount of the Tendered Notes, as required by the indenture, and elected to use an additional $328 million of cash to settle the conversion premium instead of settling the premium with 0.8 million shares of our common stock.
Also in June 2026, we entered into separate, privately negotiated exchange agreements with certain holders of $858 million in aggregate principal of our 2028 Convertible Notes. Pursuant to these agreements, we fully settled the obligation for $860 million in cash (which reflected principal amount and a small inducement cost) and 21.3 million shares of our common stock.
During our previous fiscal year, our Board of Directors authorized the adoption of a quarterly cash dividend program. Under the cash dividend program, holders of our common stock will receive dividends when and as declared by our Board of Directors. During the year ended July 3, 2026, we paid aggregate cash dividends of $0.50 per share of our outstanding common stock, totaling $174 million, plus $2 million paid to holders of our then-outstanding Preferred Shares in accordance with their participation rights.
Subsequent to year-end, on August 4, 2026, our Board of Directors declared a cash dividend of $0.15 per share of our common stock, which will be paid on September 17, 2026 to our shareholders of record as of the close of business on September 8, 2026.
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During our previous fiscal year, our Board of Directors authorized a Share Repurchase Program for the repurchase of up to $2.0 billion of our common stock, and in February 2026, our Board of Directors authorized the repurchase of up to an additional $4.0 billion of our common stock. During the year ended July 3, 2026, we repurchased 14.7 million shares for a total cost of $2.59 billion. As of July 3, 2026, we had $3.26 billion available for repurchases under the Share Repurchase Program. Repurchases under the Share Repurchase Program may be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. We expect shares repurchased under the Share Repurchase Program to be funded primarily by operating cash flows.
During the year ended July 3, 2026, our repurchases under our Share Repurchase Program and our election to settle the conversion premium on the Tendered Notes in cash, instead of shares of common stock, aggregated $2.92 billion, which resulted in an effective impact to our outstanding shares of common stock of approximately 15.5 million shares.
Information regarding our indebtedness, including the principal repayment terms, interest rates, covenants and other key terms of our outstanding indebtedness, and additional information on the terms of our Preferred Shares is included in Part II, Item 8, Note 7, Debt, and Note 13, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
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Results of Operations
Information provided herein is presented on a continuing operations basis to reflect the impact of the Separation. See Part II, Item 8, Note 4, Discontinued Operations, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding the Separation.
Summary Comparison of 2026, 2025 and 2024
The following table sets forth, for the periods presented, selected summary information from our Consolidated Statements of Operations by dollars and percentage of net revenue(1):
| 2026 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue, net | $ | 12,919 | 100.0 | % | $ | 9,520 | 100.0 | % | $ | 6,317 | 100.0 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 6,608 | 51.1 | 5,828 | 61.2 | 4,544 | 71.9 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 6,311 | 48.9 | 3,692 | 38.8 | 1,773 | 28.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 1,161 | 9.0 | 994 | 10.4 | 950 | 15.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | 551 | 4.3 | 568 | 6.0 | 726 | 11.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Litigation matter | — | — | (198) | (2.1) | 291 | 4.6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business realignment charges (credits) | 146 | 1.1 | (6) | (0.1) | 209 | 3.3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 1,858 | 14.4 | 1,358 | 14.3 | 2,176 | 34.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | 4,453 | 34.5 | 2,334 | 24.5 | (403) | (6.4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other income (expense): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | 51 | 0.4 | 45 | 0.5 | 33 | 0.5 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (165) | (1.3) | (357) | (3.8) | (414) | (6.6) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on retained interest in Sandisk | 6,498 | 50.3 | (772) | (8.1) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs in connection with debt-for-equity exchange | (545) | (4.2) | (100) | (1.1) | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs in connection with convertible notes transactions | (108) | (0.8) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs in connection with equity-for-equity exchanges | (254) | (2.0) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense), net | (25) | (0.2) | (20) | (0.2) | 45 | 0.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total interest and other income (expense), net | 5,452 | 42.2 | (1,204) | (12.6) | (336) | (5.3) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income (loss) before taxes | 9,905 | 76.7 | 1,130 | 11.9 | (739) | (11.7) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax expense (benefit) | 481 | 3.7 | (513) | (5.4) | 26 | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | $ | 9,424 | 72.9 | % | $ | 1,643 | 17.3 | % | $ | (765) | (12.1) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(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:
| 2026 | 2025 | 2024 | |||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||
| Net revenue by end market | |||||||||||||||||||||||||
| Cloud | $ | 11,490 | $ | 8,341 | $ | 5,052 | |||||||||||||||||||
| Client | 726 | 556 | 577 | ||||||||||||||||||||||
| Consumer | 703 | 623 | 688 | ||||||||||||||||||||||
| Total net revenue | $ | 12,919 | $ | 9,520 | $ | 6,317 | |||||||||||||||||||
Net revenue by geography(1) | |||||||||||||||||||||||||
| Americas | $ | 5,682 | $ | 4,592 | $ | 2,858 | |||||||||||||||||||
| Asia | 5,123 | 3,392 | 2,392 | ||||||||||||||||||||||
| Europe, Middle East and Africa | 2,114 | 1,536 | 1,067 | ||||||||||||||||||||||
| Total net revenue | $ | 12,919 | $ | 9,520 | $ | 6,317 | |||||||||||||||||||
(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer.
Net Revenue
Net revenue increased by 36% in 2026 compared to 2025, primarily driven by a 25% increase in exabytes sold and an 8% increase in ASPs per exabyte, both of which were driven by strong demand across all of our end markets.
Cloud revenue, representing 89% of total net revenue, increased by 38% in 2026 compared to 2025, driven by a 27% increase in exabytes sold and an 8% increase in ASPs per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in ASPs per exabyte was due to an improved pricing environment.
Client revenue, representing 6% of total net revenue, increased by 31% in 2026 compared to 2025, driven by a 3% increase in exabytes sold and a 26% increase in ASPs per exabyte. The increase in exabytes sold and ASPs per exabyte were driven by dynamics largely consistent with our other end markets.
Consumer revenue, representing 5% of total net revenue, increased by 13% in 2026 compared to 2025, driven by a 1% increase in exabytes sold and a 12% increase in ASPs per exabyte. The increase in exabytes sold and ASPs per exabyte were driven by dynamics largely consistent with our other end markets.
For 2026, 2025 and 2024, our top 10 customers accounted for 73%, 68% and 55%, respectively, of our net revenue. For 2026, three customers accounted for 16%, 15%, and 13%, respectively, of our net revenue. For 2025, three customers accounted for 17%, 12%, and 10%, respectively, of our net revenue. For 2024, no single customer accounted for 10% or more of our net revenue.
Consistent with standard industry practice, we have sales incentive and marketing programs that provide customers with price protection and other incentives or reimbursements that are recorded as a reduction to gross revenue. For 2026, 2025 and 2024, these programs represented 9%, 10% and 11%, respectively, of gross revenue. The amounts attributed to our sales incentive and marketing programs generally vary according to several factors, including industry conditions, list pricing strategies, channel mix and overall availability of products. Changes in future customer demand and market conditions may require us to adjust our incentive programs as a percentage of gross revenue.
Gross Profit and Gross Margin
Gross profit increased by $2.62 billion in 2026 compared to 2025. The increase was largely due to an increased volume of shipments, a better cost structure on our newer generation products, a mix shift towards higher capacity drives and improved pricing. Gross margin increased 10.1 percentage points in 2026 compared to 2025. The shift toward higher capacity drives has benefited gross margin through both a better cost structure and improved pricing.
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Operating Expenses
R&D expense increased by $167 million or 17% in 2026 compared to 2025. This increase was attributable to $70 million of incremental product development related costs as we continue to execute on our innovative technology and product roadmap, along with $75 million of higher compensation-related costs, reflecting increased headcount and variable compensation aligned with our improved financial performance during the current year.
Selling, general and administrative expense decreased by $17 million or 3% in 2026 compared to 2025, as 2025 included higher costs associated with the final planning and execution of the Separation, including transitional personnel costs and higher outside service fees.
For information regarding Litigation matter, see Part II Item 8, Note 16, Legal Proceedings, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
For information regarding Business realignment charges (credits), see Part II Item 8, Note 10, Business Realignment Charges (Credits), of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Interest and Other Expense
Total interest and other income (expense), net changed by $6.66 billion or 553% in 2026 compared to 2025. The change primarily reflects a mark-to-market gain on our retained interest in Sandisk of $6.50 billion in the current year compared to a loss of $772 million in the prior year. The change also reflects $545 million of costs incurred in connection with our debt-for-equity exchange in the current year compared to $100 million in the prior year, $254 million of costs in connection with our equity-for-equity exchanges and $108 million of costs in connection with our convertible notes transactions in the current year, as well as lower interest expense of $192 million, which reflects the reduction in our debt levels.
Income Tax Expense (Benefit)
The following table sets forth Income tax information from our Consolidated Statements of Operations by dollar and effective tax rate:
| 2026 | 2025 | 2024 | ||||||||||||||||||||||||
| (in millions, except percentages) | ||||||||||||||||||||||||||
| Income (loss) before taxes | $ | 9,905 | $ | 1,130 | $ | (739) | ||||||||||||||||||||
Income tax expense (benefit) | 481 | (513) | 26 | |||||||||||||||||||||||
| Effective tax rate | 5 | % | (45) | % | (4) | % | ||||||||||||||||||||
The primary drivers of the difference between the effective tax rate for 2026 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for Foreign-Derived Deduction Eligible Income (“FDDEI”) tax credits, and the gain on the retained interest in Sandisk being tax-free due to the Separation. These resulted in decreases to the Company’s effective tax rate below the U.S. Federal statutory rate. The Company’s income tax provision for 2026 includes Global Minimum Tax (“GMT”) for Malaysia as well as Thailand, a country for which the Company maintains a tax holiday.
The primary drivers of the difference between the effective tax rate for 2025 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, credits, and tax holidays in the Philippines and Thailand. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for 2025. In anticipation of us operating as a standalone HDD business in a GMT environment, we executed an inter-entity asset transfer in conjunction with the Separation. This resulted in the recognition of one-time deferred tax benefits to continuing operations of $690 million. Our income before tax is reduced by a loss in our retained interest in Sandisk. This loss is not deductible for tax purposes and provides no income tax benefit to us.
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For additional information regarding Income tax expense (benefit), see Part II, Item 8, Note 9, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
A discussion of our results of operations for 2024, including a comparison of such results of operations to 2025, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year ended June 27, 2025 filed with the SEC on August 14, 2025.
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Liquidity and Capital Resources
The following table summarizes our statements of cash flows, which are presented on a consolidated basis. Cash flows related to discontinued operations have not been segregated. See Part II, Item 8, Note 4, Discontinued Operations, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional cash flow information related to our discontinued operations.
| 2026 | 2025 | 2024 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 3,929 | $ | 1,691 | $ | (294) | |||||||||||
| Investing activities | (429) | 150 | (27) | ||||||||||||||
| Financing activities | (4,032) | (1,612) | 187 | ||||||||||||||
Effect of exchange rate changes on cash | (3) | 6 | (10) | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (535) | $ | 235 | $ | (144) | |||||||||||
Operating Activities
Net cash provided by or used in operating activities primarily consists of net income or loss, adjusted for non-cash charges, plus or minus changes in operating assets and liabilities. The significant improvement in cash from operating activities was driven by the improved profitability in the business during 2026. Net cash used for changes in operating assets and liabilities was $658 million for 2026, as compared to $1.03 billion of net cash used for such changes for 2025. Net cash used for changes in operating assets and liabilities in 2026 primarily consisted of a $627 million decrease in taxes payable resulting from the timing of payments, a $541 million increase in accounts receivable driven by our growth in shipments to customers, and a $218 million increase in inventories as we ramped production in response to growing demand. These uses were partially offset by a $385 million increase in accounts payable as we ramped up purchases for production as well as more favorable payment terms with suppliers, a $144 million increase in accrued compensation driven by higher performance on our variable compensation plans, and $230 million from other assets and liabilities primarily driven by recognition and payment of other taxes. Net cash used for changes in operating assets and liabilities in 2025 primarily consisted of a $409 million increase in inventories as we ramped production in response to growing demand, a $366 million decrease in accrued expenses resulting from a significant reduction in our derivative hedging activities since the Separation, and a $905 million decrease in other assets and liabilities, driven by the timing of recognition and realization of income taxes receivable. These uses were partially offset by a $307 million increase in accounts payable as we ramped up purchases for production as well as more favorable payment terms with suppliers and a $348 million increase in taxes payable resulting from the timing of payments.
Investing Activities
Net cash used in investing activities in 2026 primarily consisted of $418 million in capital expenditures. Net cash provided by investing activities in 2025 primarily consisted of $401 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $148 million in net notes receivable proceeds from Flash Ventures, partially offset by $412 million in capital expenditures.
Financing Activities
During 2026, net cash used in financing activities primarily consisted of $2.59 billion for share repurchases, $1.22 billion to settle a portion of our 2028 Convertible Notes, $1.66 billion for repayments of our other debt, $376 million for taxes paid on vested stock awards under employee stock plans, and $184 million for dividends on our common stock and Preferred Shares. These uses were partially offset by $1.95 billion of proceeds from a bridge loan and a drawdown on our Revolving Credit Facility, along with $64 million of proceeds from the issuance of stock under our employee stock plans. During 2025, net cash used in financing activities primarily consisted of $2.09 billion used for the partial repayment of our 4.75% senior unsecured notes due 2026, repayment of borrowings on the Revolving Credit Facility, and scheduled principal payments on our term loans; $1.37 billion of cash transferred to Sandisk at the Separation; $149 million in share repurchases; $113 million for taxes paid on vested stock awards; $73 million in debt issuance costs; and $44 million in dividends on our common stock and our Preferred Shares. These uses were partially offset by $2.00 billion of proceeds from drawing on the Sandisk credit facilities in connection with the Separation, $150 million from the Revolving Credit Facility, and $77 million from issuances of shares under our employee stock plans.
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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.
Over the next five years, we expect our capital expenditures to average between 4% to 6% of our net revenue.
We believe our cash and cash equivalents and our available Revolving Credit Facility 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 believe we can also 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 this Annual Report on Form 10-K.
A total of $1.08 billion and $0.98 billion of our cash and cash equivalents were held outside of the U.S. as of July 3, 2026 and June 27, 2025, respectively. There are no material tax consequences that were not previously accrued for relating to 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.
A discussion of our cash flows for 2024, including a comparison of such cash flows to 2025, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources, included in our Annual Report on Form 10-K for the year ended June 27, 2025 filed with the SEC on August 14, 2025.
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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 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, including those for capital expenditures, as of July 3, 2026. In addition, see the discussions further below related to our cash dividend program, share repurchase program, liability for unrecognized tax benefits, global minimum tax, foreign exchange contracts, litigation matters and indemnifications.
| Total | 1 Year (2027) | 2-3 Years (2028-2029) | 4-5 Years (2030-2031) | More than 5 Years (Beyond 2031) | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Debt, including interest | $ | 1,075 | $ | 1,075 | $ | — | $ | — | $ | — | |||||||||||||||||||
| Operating leases | 160 | 37 | 55 | 34 | 34 | ||||||||||||||||||||||||
| Purchase obligations and other commitments | 310 | 65 | 77 | 97 | 71 | ||||||||||||||||||||||||
| Total | $ | 1,545 | $ | 1,177 | $ | 132 | $ | 131 | $ | 105 | |||||||||||||||||||
Debt
As described in “Key Developments – Capital Allocation Actions” above, we undertook several financing actions during 2026, to settle a substantial portion of our debt.
As described in Part II, Item 8, Note 7, Debt, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, as of July 3, 2026, $710 million in aggregate principal amount of our 2028 Convertible Notes remained outstanding. The holders of the notes have had and continue to have the right to convert the notes through the calendar quarter ending September 30, 2026 based on the sale price conditional conversion feature in their terms. As of July 3, 2026, $343 million in aggregate principal amount of these notes had been tendered for conversion and we believe the remaining $367 million principal amount will likely be tendered in the next few months. We expect the settlement of these notes will require the use of an aggregate $710 million of cash to settle the principal amount with substantially all of any premium being settled in shares under the original terms of the notes.
In addition, as of July 3, 2026, we had $350 million outstanding on our Revolving Credit Facility maturing in January 2027. As of July 3, 2026, we had $900 million remaining available borrowing capacity under this facility, subject to customary conditions under the loan agreement. Additional information regarding our indebtedness, including information about availability under our Revolving Credit Facility, 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 this Annual Report on Form 10-K.
We believe our existing cash and cash expected to be generated from our business will be adequate to meet our debt repayment requirements.
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.
The following tables include summarized financial information for the Obligor Group. The financial information for the Obligor Group is presented on 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.
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The assets and liabilities of the Obligor Group include the following:
Recent insider activity
| Date | Insider | Role | Action | Shares | Price | Value |
|---|---|---|---|---|---|---|
| 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 |
| 2026-07-28 | Cole Martin I | Director | Sell | -4,000 ×32 | $449.34 | -$1,797,357 |
| 2026-07-21 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -808 | $529.63 | -$427,941 |
| 2026-06-09 | Cole Martin I | Director | Sell | -4,000 ×44 | $515.63 | -$2,062,525 |
| 2026-06-05 | Tregillis Cynthia L | Chief Legal Officer & Corp Sec | Sell | -432 | $545.60 | -$235,699 |
| 2026-06-01 | Gubbi Vidyadhara K | Chief of Global Operations | Sell | -2,475 | $556.24 | -$1,376,694 |
| 2026-05-28 | KIDDOO BRUCE E | Director | Sell | -750 | $528.52 | -$396,390 |
Source: SEC Form 4 filings.
Next expected filings
- ~2026-10-30 10-Q expected by 2026-11-05 (in 65 days)
- ~2027-01-29 10-Q expected by 2027-02-04 (in 156 days)
- ~2027-04-30 10-Q expected by 2027-05-06 (in 247 days)
- ~2027-08-13 10-K expected by 2027-08-20 (in 352 days)
Predicted from historical filing cadence; not an SEC commitment.
Recent SEC filings
- 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
- 2026-02-18 8-K Material Modification to Rights
- 2026-02-09 8-K Other Events
- 2026-01-30 10-Q Quarterly Report
- 2026-01-29 8-K Earnings Release; Financial Statements and Exhibits
- 2025-11-24 8-K Officer/Director Change; Shareholder Vote Results; Financial Statements and Exhibits
- 2025-11-03 8-K Officer/Director Change