Western Digital Corporation

Good day and welcome to the Western Digital first quarter fiscal 2026 earnings call. All participants will be in the listen-only mode. Should you need assistance during the conference call, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you press star, then one on your telephone keypad. To withdraw your question, you press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Amrish Srivastava, VP of Investor Relations. Thank you and over to you.

Thank you and good afternoon, everyone. Joining me today are Irving Tan, Western Digital's Chief Executive Officer, and Chris Senesal, Western Digital's Chief Financial Officer. Before we begin, please note that today's discussion will contain forward looking statements based on management's current assumptions and expectations, which are subject to various risks and uncertainties. These forward looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends, and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on the continuing operations basis unless stated otherwise. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the investor relations section of our website at investor.wdc.com. Lastly, I want to note that when we refer to we, us, are, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving?

Thanks, Ambish. Good afternoon, everyone, and thank you for joining us today. Across industries, adoption of AI is expanding, fueling innovation, reshaping business models, and ushering in a new wave of digital transformation marked by higher productivity and richer user experiences. As agentic AI begins to scale at several industries and multimodal LLMs become the norm, we are seeing a steady acceleration of AI use cases and applications, driving robust ongoing demand for the data infrastructure that enables this growth. AI is not only a consumer of data, but a prolific creator of data as well, both synthetic and real-world. It is reshaping how data is being generated, scaled, stored, and monetized. Data is the fuel that powers AI, and it is HDDs that provide the most reliable scalable, and cost-effective data storage solution, playing a vital role in storing the ever-increasing zettabytes of data created by the AI-driven economy. To cite an example of how AI is transforming various industries, one of the world's leading medical institutions is using an AI workflow that analyzes over 7 billion images derived from 14 million de-identified patient records. This process enables predictive analysis, improves the speed and accuracy of diagnostics to deliver enhanced patient outcomes. Such applications are generating massive volumes of new data that is being stored. At Western Digital, we are also leveraging AI internally to enhance productivity and accelerate innovation across our organization. For example, in engineering, AI is helping to modernize our firmware enabling us to deliver new features quickly to our customers, and in a more cost-effective manner. In our factories, we are seeing productivity gains of up to 10% in select AI use cases. AI tools are improving yield, detecting defect patterns through intelligent diagnostics, and optimizing our test processes. In parallel, they are also being used to up-level our technician capabilities. enabling them to perform higher-skilled tasks, accelerating issue diagnostics and troubleshooting. Across corporate functions, AI is streamlining workflows, making the organization more efficient every day. The rapid adoption of AI in data-driven workloads at hyperscalers is driving robust demand for our products and solutions. To fulfill the demand of more exabytes of storage, our customers are increasingly transitioning to higher capacity drives. Shipments of our latest ePMR products, offering up to 26TB CMR and 32TB UltraSMR capacities, continue to grow at an impressive pace, surpassing 2.2M units in the September quarter. Our ability to reliably scale our ePMR technology and transition customers to higher capacity drives is one of several ways we support the growing demand for exabytes. We are also investing in head wafer and media technology and capacity to drive aerial density higher. In addition, we are increasing our manufacturing throughput by leveraging automation, AI tools, and enhancing our test capabilities. We recently inaugurated our system integration and test lab, 25,600 square foot state-of-the-art facility in Rochester, Minnesota to enable rapid adoption of our next-generation high-capacity drives. This lab provides dedicated test capabilities that mirror our hyperscale customers' production environments, enabling collaborative integrated product development with our customers, accelerating qualification cycles, thereby ultimately shortening time to market for our products and time to value for our customers. The AI-driven growth in data storage is accelerating demand for high capacity drives, which comes with greater manufacturing complexity and longer production lead times. As a result, our customers are providing greater visibility into their long-term needs, which in turn strengthens our partnership and helps us to support their future growth requirements. Our top seven customers have now provided purchase orders extending throughout the first half of calendar year 2026. And five of them have provided purchase orders covering all of calendar year 2026. I'm also pleased to share that one of our largest hyperscale customers has signed an agreement covering all of calendar year 2027. These commitments underscore both essential role of our products in the AI data economy, and our customers' strong confidence in our product roadmap, including the transition to Hammer technology. We are making rapid progress in our Hammer development and are on track to start Hammer qualification for one hyperscale customer in the first half of calendar year 2026 and to expand the qualification process to up to three hyperscale customers through calendar year 2026. The key focus of our qualification efforts is to ensure the highest level of reliability, quality and scalable performance so that once qualification is complete, our customers have strong confidence in our hammer products and can rapidly deploy them at scale. This positions us well for the ramp up of volume production in the first half of calendar year 2027. In parallel, We will begin qualification of our next-generation ePMR drives in the first quarter of calendar year 2026, building on our industry-leading ePMR technology, a trusted, scalable, and proven solution that our customers are very familiar with and that has been used reliably in their data centers. Together, our ePMR and HAMR technologies will enable high-capacity drives that meet the growing demand for exabytes from cloud and AI workloads. Our platform's business is also sharing in the upward momentum, driven by overall growth of on-prem and cloud storage, including AI and social media applications. We will continue to invest in this business as more opportunities unfold and continue to scale up. Innovation lies at the heart of what we do. we continue to expand our proven ePMR roadmap even further, while bringing new technologies, including Hammer, to market. In parallel, our engineering teams are focused on improving data, throughput speed, and bandwidth of our drives, as well as power efficiency. Major progress is being made on all fronts, and we will keep all stakeholders, including customers and investors, updated on any new developments. Let me now turn to our quarterly results and capital allocation updates. For the fiscal first quarter, Western Digital delivered revenue of $2.8 billion, non-GAAP gross margin of 43.9%, and non-GAAP earnings per share of $1.78. Free cash flow for the quarter was $599 million. This quarter yet again underscores our business' strong free cash flow generation. We remain confident in the long-term strength of the business and our balance sheet. As a result, this quarter we significantly increased our share repurchases and I'm pleased to announce that we will increase our dividend per share by 25% to 12.5 cents per share. Chris will discuss our capital allocation in more detail later. Looking ahead, we're excited about the opportunities AI continues to unlock for our business, even as we navigate macroeconomic uncertainties. For the fiscal second quarter of 2026, we expect continued revenue growth driven by data-centred demand and improved profitability led by the adoption of higher capacity drives. Let me now turn the call over to Chris, who will discuss our fiscal first quarter results and the outlook for the second fiscal quarter in more detail.