Western Digital Corporation

Good afternoon and welcome to the Western Digital's fourth quarter fiscal 2026 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Mr. Ambrish Srivastava, Vice President of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Joining me today are Irving Tan, WD's Chief Executive Officer, and Kris Sennesael, WD'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. 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 defer materially from expectations. In our prepared remarks, our comments will be related to non-GAAP results on a 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 Thanks Ambrish. Good afternoon everyone and thank you for joining us today. Let me begin by reflecting on our first full fiscal year of WD as a focused pure play HDD company.

We drove strong year-on-year revenue growth of 36% while expanding our gross and operating margins significantly. We doubled EPS, generated $3.5 billion in free cash flow and strengthened our balance sheet to a net positive cash position while continuing to make significant capital returns to shareholders. These strong financial results are an outcome of meeting our customers' growing storage demand by focusing on innovation, and driving operational excellence across the global WD organization. We enter fiscal year 2027 with robust customer demand, increased visibility and continued confidence in the durability of demand, as well as our ability to service this demand with our industry-leading products and technology roadmap. Demand for storage is being driven both by AI as well as by core cloud services. Within the AI infrastructure market, there is a key dynamic taking shape. While compute cycles can be reused, data compounds, training and inference workloads share and reuse compute resources over time. Yet the data generated by these workloads, including model inputs, outputs, logs, and retained contacts, continues to accumulate. As AI usage scales, this creates a growing need for storage The inflection we have discussed in the past, from AI training to inference to agentic AI, has only become more pronounced. Training models create significant initial data requirements, but inference generates and retains data continuously. Today, the largest AI platforms process tens of billions of tokens per minute and billions of prompts per day creating a rapidly expanding body of data that must be stored, managed, and accessed over time. Recent disclosures show token volumes growing several-fold year-over-year, underscoring the pace at which inference is scaling. Meanwhile, AI is moving rapidly from merely answering questions to agentic AI that does the work coordinating tasks, accessing data, and operating continuously across multi-step workflows. This transition creates a fundamentally more data-intensive workload, and one that is increasingly persistent rather than transient. The storage implications are significant. Agents generate data at every step of a workflow, increasing both the volume of data created and the amount that must be stored over time. This is why we continue to view agentic AI as a structural and step function driver of capacity-orientated storage demand. Beyond inference and agentic AI, we are also seeing the emergence of physical AI, autonomous vehicles, robotics, and industrial automation systems and humanoids, where the volume of real-world data needed to train these systems is insufficient, thereby requiring the generation and storage of synthetic datasets, creating another driver of storage demand. Infrastructure investment is important, but it's only the beginning. Training creates the initial data foundation. Inference generates data continuously. Agentic systems multiply the volume and frequency of that data. And physical AI accelerates the cycle further. Together, these trends create a more durable demand environment for data storage, driven not just by building AI infrastructure, but by the continuous creation and retention of data once that infrastructure is deployed. As AI workloads move from deployment to sustained use, storage demand becomes less about the one-time infrastructure build cycle and more about the compounding of data. That is the underlying secular demand growth driver for our business. Today, roughly 80% of data stored in a hyperscale data center resides on hard disk drives. and that is likely to continue. That reflects what HDDs do exceptionally well, delivering the scale, economics and power efficiency required for long-retention, large-scale data storage. Let me now turn to why these secular growth drivers play to WD's strengths. WD's robust technology roadmap is based on the industry-leading aerial density per platter with a focus on innovation, to meet our customers' capacity needs at scale, along with our growing ability to meet their requirements by providing cost-effective storage solutions in additional layers of the AI storage stack. We are on track to ship our 44TB Hammer product in the first half of calendar year 2027. Customer feedback on the qualification process continues to be very positive, with the capacity, performance and reliability of our drives exceeding customer expectations. For our next generation 40TB ePMR drives, we commenced shipments in our June quarter and are now entering volume production with two customers. We are currently ramping our UltraSMR technology with a third major customer and we expect that UltraSMR will make up around 60% of our near-lying exabyte shipments as we exit fiscal 2027. Since our last update, we have continued to broaden our customer engagement and Qualification Pipeline with additional hyperscale and cloud customers advancing through qualification and deployment planning. Beyond capacity, we are also extending innovation into new layers of the AI storage stack. We are making progress on improving drive performance with our high bandwidth drives and are now sampling with five customers. We are targeting up to eight times the throughput of today's drives without the corresponding increase in power draw Exactly the kind of performance AI workloads require. In closing, the opportunity in front of us is real, and at WD we are well positioned to capture it. Data creation isn't slowing, it's accelerating, and as the value of data grows, so does the infrastructure storage requirements to store, manage, and protect it. That's a durable, long-term tailwind for our business, and we intend to fully capitalize on it. Our technology roadmap is strong, our customer relationships are deep, and we have the operational discipline to translate this opportunity into sustained earnings and free cash flow growth and long-term shareholder value. With that, let me hand it over to Kris to walk you through the financial and our outlook for Q1.