Leading data storage manufacturer Western Digital (NASDAQ: WDC) reported Q2 CY2025 results beating Wall Street’s revenue expectations, with sales up 30% year on year to $2.61 billion. On top of that, next quarter’s revenue guidance ($2.7 billion at the midpoint) was surprisingly good and 5% above what analysts were expecting. Its non-GAAP profit of $1.66 per share was 12.1% above analysts’ consensus estimates.
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Western Digital (WDC) Q2 CY2025 Highlights:
- Revenue: $2.61 billion vs analyst estimates of $2.49 billion (30% year-on-year growth, 4.8% beat)
- Adjusted EPS: $1.66 vs analyst estimates of $1.48 (12.1% beat)
- Adjusted EBITDA: $818 million vs analyst estimates of $759 million (31.4% margin, 7.8% beat)
- Revenue Guidance for Q3 CY2025 is $2.7 billion at the midpoint, above analyst estimates of $2.57 billion
- Adjusted EPS guidance for Q3 CY2025 is $1.54 at the midpoint, above analyst estimates of $1.38
- Operating Margin: 26.1%, up from -4.5% in the same quarter last year
- Inventory Days Outstanding: 76, down from 86 in the previous quarter
- Market Capitalization: $26.48 billion
StockStory’s Take
Western Digital's second quarter was marked by strong demand for high-capacity drives, which management attributed to rapid growth in AI-driven data storage needs and robust adoption among hyperscale cloud customers. CEO Tiang Yew Tan emphasized that the company’s latest ePMR and UltraSMR drives shipped over 1.7 million units, reflecting “one of the shortest qualification and ramp cycles in our history.” The company highlighted that operational discipline and a focus on higher-yield, larger-capacity products helped drive margin improvements and outperformance relative to Wall Street’s expectations.
Looking ahead, Western Digital’s management anticipates continued revenue growth as demand for large-scale storage accelerates in both traditional and emerging AI applications. Tan noted that firm purchase orders or long-term agreements now cover the company’s top five hyperscale customers through next year, which offers greater visibility into future demand. CFO Kris Sennesael indicated that further margin gains will be pursued by emphasizing product mix shifts, particularly toward higher-capacity drives, and by maintaining tight cost controls even as the broader industry faces ongoing tariff uncertainties.
Key Insights from Management’s Remarks
Management pointed to several drivers for the quarter’s strong results and positive outlook, including AI-fueled storage demand, rapid customer adoption of new drive technologies, and disciplined execution on cost structure.
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AI-driven storage growth: Western Digital credited escalating storage needs from AI applications, such as Agentic AI and large language models, as a major catalyst for increased demand. The company is already utilizing Agentic AI to accelerate its own product development cycles and expects broader industry adoption to fuel further growth.
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High-capacity drive adoption: Shipments of the latest ePMR and UltraSMR drives more than doubled quarter-over-quarter, passing 1.7 million units. Management said this rapid uptake was due to the drives’ total cost of ownership (TCO) advantages and reliability, particularly valued by data center customers.
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Cloud customer concentration: Cloud infrastructure providers represented 90% of total revenue, reflecting a strategic realignment toward large hyperscale clients with long-term capital expenditure plans. Management believes this shift reduces traditional seasonal volatility.
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Operational efficiency: CFO Kris Sennesael highlighted tight cost management throughout manufacturing and the supply chain, which, combined with product mix improvements, drove gross margin expansion and strong free cash flow generation.
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Capital allocation and leadership changes: The quarter marked the introduction of a new CFO, Kris Sennesael, as well as the launch of a quarterly dividend and a $2 billion share repurchase program, signaling a commitment to disciplined capital returns.
Drivers of Future Performance
Western Digital expects AI adoption, product mix improvements, and hyperscale cloud partnerships to shape its growth and profitability in the coming quarters.
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AI and hyperscale tailwinds: Management anticipates that ongoing AI adoption will drive higher exabyte growth rates, with Tan suggesting exabyte growth could trend between 15% and 23% annually. This is expected to translate into mid-teens revenue growth as hyperscale customers continue to expand their storage infrastructure.
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Product mix and margin focus: The company’s outlook depends heavily on continued customer migration to higher-capacity drives, especially UltraSMR and upcoming ePMR models. Sennesael stated that product mix shifts are the most important lever for gross margin expansion, while stable pricing and further operational efficiencies are expected to support profitability.
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Tariffs and supply chain risks: Management acknowledged that tariff uncertainties remain a risk factor, but noted that so far, there has been no evidence of demand pull-forward or double ordering. The company closely monitors customer inventories and supply chain trends to mitigate these risks and maintain execution.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will closely watch (1) the pace of adoption for next-generation ePMR and UltraSMR drives, (2) continued gross margin expansion through product mix and operational discipline, and (3) further progress in securing long-term agreements with hyperscale customers. Additionally, the impact of tariffs and the company’s ability to maintain its capital return commitments will be important markers of execution.
Western Digital currently trades at $75.88, up from $71.51 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).
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