WDC 10-K & 10-Q changes, risk factors and insider trading
Western Digital Corp. · Nasdaq · Computer Storage Devices · CIK 106040 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Loss of revenue from Cloud or other key customers could harm our operating results.”
New heading “Long-term agreements expose us to certain execution, financial, and market risks, which could be significant.”
New heading “MACROECONOMIC AND INDUSTRY RISKS”
New heading “Our industry is subject to variations in demand, pricing and competitive factors, which can negatively impact our business.”
New heading “We may be adversely affected by the risks, challenges, and evolving regulatory landscape associated with the use of AI in our operations, product development, and business practices.”
New heading “We have historically experienced variability in our sales and cyclicality in our industry, which could cause our operating results to fluctuate. In addition, accurately forecasting demand is difficult, which could harm our business.”
New heading “If the completed Separation of Sandisk were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we and our stockholders could be subject to significant tax liabilities.”
Removed heading “BUSINESS AND STRATEGIC RISKS”
Removed heading “We are subject to risks related to the separation of Sandisk, our former Flash business, into an independent public company.”
Removed heading “We participate in a highly competitive industry that is subject to variations in average selling prices (“ASPs”) and demand, technological change and lengthy product qualifications, all of which can negatively impact our business.”
Removed heading “Loss of revenue from the Cloud end market or a key customer, or consolidation among our customer base, could harm our operating results.”
Removed heading “We experience variability in our sales and cyclicality in our industry, which could cause our operating results to fluctuate. In addition, accurately forecasting demand is difficult, which could harm our business.”
Largest changes
“In addition, armed conflicts and heightened geopolitical tensions can result in sanctions, export controls, tariffs and other trade restrictions, limit or restrict our ability to access certain markets and disrupt critical logistics networks, including air and ocean freight routes. For example, the escalation of the conflict involving Iran and heightened tensions in the Middle East could cause disruption to critical logistics and supply routes, which could affect the availability and cost of materials used in our business. …”see in full comparison
“Failing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition or divestiture, including pursuant to the Separation, may result in not realizing all or any of the anticipated benefits of the transaction. …”see in full comparison
“Failing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition or divestiture may result in not realizing all or any of the anticipated benefits of the transaction. …”see in full comparison
“Demand for our devices, software and solutions, which we refer to in this Item 1A as our “products”, depends in large part on the demand for systems manufactured by our customers and on storage upgrades to existing systems. The demand for systems has been volatile in the past and often has had an exaggerated effect on the demand for our products in any given period. …”see in full comparison
“Demand for and prices of our products are influenced by, among other factors, the actual and projected growth of data to be stored, the spending plans of our large hyperscale customers, the balance between supply and demand in the storage market, macroeconomic factors (such as tariffs and actual or perceived threat of recessions), business conditions, the emergence or growth of new or existing technologies (including AI), technology transitions and other actions taken by us or our competitors. …”see in full comparison
“In addition, the use of AI in the development of our products could potentially lead to ambiguities in intellectual property ownership, infringement or misappropriation risks, which could impact our competitive position and expose us to litigation, monetary penalties, or operational disruptions. …”see in full comparison
Full comparison: every changed paragraph (119)
BUSINESS AND OPERATIONAL RISKS
Loss of revenue from Cloud or other key customers could harm our operating results.
There is significant revenue concentration in our Cloud end market and among our top customers. For the year ended July 3, 2026, the Cloud end market accounted for 89% of our net revenue and our top 10 customers accounted for 73% of our net revenue, with three customers each accounting for 10% or more of our net revenue.
If demand declines for any reason, and/or we fail to respond to changes in demand, in Cloud or other key customers, our business could suffer. The impact of generative AI on the storage and data management markets and regulation thereof is still unfolding and could evolve unpredictably, and it could be difficult to accurately forecast related demands. As it evolves, our hyperscale customers could lower their investment in AI infrastructure. Our ability to maintain strong relationships with our principal customers is essential to our future performance. We have experienced and may in the future experience events such as the loss of a key customer, prohibition or restriction of sales to a key customer by law, regulation or other government action, reductions in sales to or orders by a key customer, customer requirements to reduce our prices before we are able to reduce costs or the acquisition of a key customer by one of our competitors. Further, government authorities may implement laws or regulations or take other actions that could result in significant changes to the business or operating models of our key customers. Any of these events could negatively impact our operating results.
The markets for our products continuously undergo technology transitions that can impact our product roadmaps and that we must anticipate in order to adapt our existing products or develop new products effectively. If we fail to adapt to or implement new technologies (including the transition to areal density recording technologies that use HAMR technology to increase HDD capacities), if we fail to quickly and cost-effectively develop new products that meet the specifications and requirements intended or desired by our customers or if technology transitions negatively impact our existing product roadmaps, our business may be harmed.
As we compete in new product areas, the overall complexity of our business may increase and may result in increases in R&D expenses and substantial investments in manufacturing capability, technology enhancements and go-to-market capability. Our gross margin could also face pressure if we are unable to achieve the desired manufacturing yields when we ramp our new technologies. Further, technological changes can reduce the volume and profitability of sales of existing products.
We must also qualify our products with customers through potentially lengthy testing processes with uncertain results. The success of our technology transitions and product development depends on a number of other factors, including difficulties faced in manufacturing ramp; market acceptance/qualification; effective management of inventory levels in line with anticipated product demand; the vertical integration of some of our products, which may result in more capital expenditures and greater fixed costs than if we were not vertically integrated; our ability to cost effectively respond to customer requests for new products or features (including requests for more efficient and efficiently-produced products with reduced environmental impacts) and software associated with our products; our ability to increase our software development capability; and the effectiveness of our go-to-market capability in selling new products.
Moving to new technologies and products may require us to align to, and build, a new supply base. Our success in new product areas may depend on our ability to enter into favorable supply agreements. In addition, if our customers choose to delay transition to new technologies, if demand for the products that we develop is lower than we expected or if the supporting technologies to implement these new technologies are not available, we may be unable to achieve the cost structure required to support our profit objectives or may be unable to grow or maintain our market position.
Additionally, new technologies could impact demand for our products in unforeseen or unexpected ways. For example, if a shift away from Cloud and toward on-premises hardware diminishes the need for large-scale data center infrastructure, demand
for our storage products could decline, and prior investments we have made in anticipation of storage demand may not generate the returns we expect. Further, new techniques to optimize data storage and usage could have an adverse impact on data growth. Moreover, new products could substitute for our current products and make them obsolete, each of which would harm our business. We also develop products to meet certain industry and technical standards, which may change and cause us to incur substantial costs as we adapt to new standards or invest in different manufacturing processes to remain competitive.
We may also experience changes to our customer base, such as a greater portion of our business shifting to neocloud and other customers. To remain competitive, we must respond to these changes by ensuring we have proper scale in this evolving market, as well as offer products that meet the technological requirements of our customer base at competitive pricing points. To the extent we are not successful in adequately responding to these changes, our operating results and financial condition could be harmed.
Further, some of our competitors offer products that we do not offer, which may allow them to win sales from us. We expect that competition will continue to be intense, and our competitors may be able to gain a product offering or cost structure advantage over us, which would harm our business. We may also have difficulty effectively competing with manufacturers benefiting from governmental investments and may be subject to increased complexity and reduced efficiency in our supply chain as a result of governmental efforts to promote domestic technologies in various jurisdictions.
We depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and other materials used in our product design and manufacturing. We also depend on suppliers for a portion of our wafer testing, chip assembly, product assembly and product testing, and on service suppliers for providing technical support for our products. In addition, we use logistics partners to manage our worldwide just-in-time hubs and distribution centers and to meet our freight needs. Many of the components and much of the equipment we acquire must be specifically designed for use in our products or for developing and manufacturing our products and are only available from a limited number of suppliers, some of whom are our sole-source suppliers. We therefore depend on these suppliers to meet our business needs, including dedicating adequate engineering resources to develop components that can be successfully integrated into our products.
Our suppliers have in the past been, and may in the future be, unable or unwilling to meet our requirements, including as a result of events outside of their control such as trade restrictions (including tariffs, quotas and embargoes), geopolitical conflicts, terrorism, public health crises or natural disasters. If we are unable to purchase sufficient quantities from our current suppliers or qualify and engage additional suppliers, or if we cannot purchase materials at a reasonable price, we may not be able to meet the demand for our products. Trade restrictions (including tariffs, quotas and embargoes), demand from other high-volume industries for materials or components used in our products, disruptions in supplier relationships or shortages in other components and materials used in our customers’ products could result in increased costs to us, which could negatively impact our business. Delays, shortages or cost increases experienced by our suppliers in developing or sourcing materials and components for use in our products or incompatibility or quality issues relating to our products could also harm our business.
Long-term agreements expose us to certain execution, financial, and market risks, which could be significant.
We have entered into long-term agreements with certain customers that commit us to deliver and our customers to purchase substantial volumes of products over multi-quarter or multi-year periods. These agreements also generally commit us to sell agreed volumes to these customers at predetermined or formula-based prices for the duration of the contract terms. As a result, we may be obligated to continue selling products to these customers even when demand from other customers, prevailing market prices, or other sales opportunities would be more favorable to us, and we may be unable to take full advantage of periods of rising prices, increased demand, or supply shortages. If market prices for our products increase above the prices set under these agreements, or if higher-margin or otherwise more attractive alternatives become available, our commitments under these agreements could prevent us from realizing the benefit of those conditions, which could result in significant opportunity costs and could have a material adverse effect on our results of operations and financial condition.
Our ability to fulfill our obligations under these agreements depends on a number of factors, including our manufacturing capacity, production yields, supply chain performance, and the availability of raw materials and other critical inputs. There can be no assurance that we will be able to perform these contractual obligations throughout the contract terms without disruption or shortfall. If we are unable to deliver products in the quantities, at the times, or meeting the specifications required under these agreements, we may be subject to pricing or volume reductions, contractual damages, other financial losses, or early termination. Any failure to perform could harm our customer relationships, damage our reputation, and have a material adverse effect on our results of operations and financial condition.
If a customer were to breach its purchase obligations, including by failing to meet its purchase commitments, or if a customer were to terminate the agreement due to our material breach of supply commitments, we may need to find alternative customers for any affected product volumes. Depending on market conditions at the time, we may be unable to resell those products at comparable prices, or at all, which could result in reduced revenue, lower margins, excess inventory, or manufacturing underutilization or asset impairment charges, and could have a material adverse effect on our business, results of operations, and financial condition.
Each agreement provides for certain remedies designed to protect us if the customer fails to perform its purchase obligations. In such event, these contractual remedies are expected to offset at least some portion of revenue that may be lost due to the customer’s failure to perform, but they may not fully offset such lost revenue depending on the reason for such nonperformance, our ability to recover in any action and other factors. Any enforcement of these contractual remedies by us could be costly and time-consuming and could adversely affect our customer relationships. If we are unable or unsuccessful in enforcing or if we choose not to enforce any contractual remedy in the event of a customer’s failure to perform its purchase obligations, we may experience consequences that could have a material adverse effect on our business and results of operations.
We warrant the majority of our products for periods of one to five years. We test our products in our manufacturing facilities through a variety of means. However, our testing may fail to reveal defects in our products that may not become apparent until after the products have been sold into the market. In addition, our products may be used in a manner that is not intended or anticipated by us, resulting in potential liability. Accordingly, there is a risk that product defects will occur, including as a result of third-party components or applications that we incorporate in our products, which could require a product recall. Product recalls can be expensive to implement. As part of a product recall, we may be required or choose to replace the defective product. Moreover, there is a risk that product defects may trigger an epidemic failure clause in a customer agreement. If an epidemic failure occurs, we may be required to replace or refund the value of the defective product and to cover certain other costs associated with the consequences of the epidemic failure. In addition, product defects, product recalls or epidemic failures may cause damage to our reputation or customer relationships, lost revenue, indemnification costs for a recall of our customers’ products, warranty claims, litigation or loss of market share with our customers, including our OEM and original design manufacturer (“ODM”) customers. Our business liability insurance may be inadequate, or future coverage may be unavailable on acceptable terms, which could negatively impact our operating results and financial condition.
Our standard warranties contain limits on damages and exclusions of liability for consequential damages and for misuse, improper installation, alteration, accident or mishandling while in the possession of someone other than us. We record an accrual for estimated warranty costs at the time revenue is recognized based on certain assumptions. We may incur additional expenses if our warranty provisions do not reflect the actual cost of resolving issues related to defects in our products or if the failure rate is higher than we expected. If these additional expenses are significant, they could harm our business.
Our success depends upon the continued contributions of our talent. Changes in our key management team have resulted in and may in the future result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods. Global competition for skilled employees in the technology industry is intense, and our business success is increasingly dependent on our ability to attract, develop and retain top talent, implement succession plans for key management and staff and replace aging skilled employees. Changes in immigration laws and regulations, or more robust enforcement of new or existing laws, may impair our ability to recruit and hire technical and professional talent.
We have made and expect to continue to make acquisitions and divestitures, such as the separation of our former flash-based products (“Flash”) business in 2025 (the “Separation”), and engage in cost saving measures. In order to successfully execute on strategic initiatives, we must continue to identify and successfully complete attractive transactions, some of which may be large and complex, and manage post-closing issues such as integration of the acquired company or employees, integration of processes and systems, and post-Separation changes. We may not be able to identify or complete appealing acquisition or investment opportunities given the intense competition for these transactions. Even if we identify and complete suitable corporate transactions, we may not be able to successfully address any integration challenges in a timely manner or at all. There have been and may continue to be difficulties with implementing new systems and processes or with integrating systems and processes of companies with complex operations, which may result in inconsistencies in standards, controls, procedures and policies and may increase our vulnerability to cybersecurity attacks or the risk that our internal controls are found to be ineffective.
Failing to successfully integrate or realign our business to take advantage of efficiencies or reduce redundancies of an acquisition or divestiture may result in not realizing all or any of the anticipated benefits of the transaction. In addition, failing to achieve the financial model projections for an acquisition or changes in technology development and related roadmaps following an acquisition may result in the incurrence of impairment charges (including goodwill impairments or other asset write-downs) and other expenses, both of which could negatively impact our results of operations or financial condition. Acquisitions and investments may also result in the issuance of equity securities that may be dilutive to our stockholders as well as earn-out or other contingent consideration payments and the issuance of additional indebtedness that would put pressure on liquidity. Furthermore, we may agree to provide continuing service obligations or enter into other agreements in order to obtain certain regulatory approvals of our corporate transactions, and failure to satisfy these additional obligations could result in our failing to obtain regulatory approvals or the imposition of additional obligations on us, any of which could negatively affect our business. In addition, new legislation or additional regulations may affect or impair our ability to invest with or in certain other countries or require us to obtain regulatory approvals to do so, including investments in joint ventures, minority investments and outbound technology transfers to certain countries.
Cost saving measures, restructurings and divestitures have had and may in the future result in workforce reduction and consolidation of our facilities. As a result of these actions, we have experienced and may in the future experience a loss of continuity, loss of accumulated knowledge, disruptions to our operations and inefficiency during transitional periods. These actions could also impact employee retention. In addition, we cannot be sure that these actions will be as successful in reducing
our overall expenses as we expect, that additional costs will not offset any such reductions or consolidations or that we do not forego future business opportunities as a result of these actions.
We have entered into and expect to continue to enter into strategic relationships with various partners for product development, manufacturing, sales growth and the supply of technologies, components, equipment and materials for use in our product design and manufacturing. Please see the risk factor entitled “We are dependent on a limited number of qualified suppliers who provide critical services, materials or components, and a disruption in our supply chain could negatively affect our business,” for a further description of the risks associated with our reliance on external suppliers. Our strategic relationships are subject to various risks that could harm the value of our investments, our revenue and costs, our future rate of spending, our technology plans and our future growth opportunities. Further, our control over the operations of our strategic partnerships may be limited, and our interests could diverge from our strategic partners’ interests regarding ongoing and future activities.
Our strategic relationships are subject to additional risks that could harm our business, including, but not limited to, the following: failure by our strategic partners to comply with applicable laws or employ effective internal controls; difficulties and delays in product and technology development at, ramping production at, and transferring technology to, our strategic partners; declining financial performance of our strategic partners, including failure by our strategic partners to timely fund capital investments with us or otherwise meet their commitments, including the payment of amounts owed to us or third parties when due; losing the rights to, or ability to independently manufacture, certain technology or products being developed or manufactured by strategic partners, including as a result of any of them being acquired by another company, filing for bankruptcy or experiencing financial or other losses; a bankruptcy event involving a strategic partner, which could result in structural changes to or termination of the strategic partnership; and changes in tax or regulatory requirements, which may necessitate changes to the agreements governing our strategic partnerships.
MACROECONOMIC AND INDUSTRY RISKS
In addition, armed conflicts and heightened geopolitical tensions can result in sanctions, export controls, tariffs and other trade restrictions, limit or restrict our ability to access certain markets and disrupt critical logistics networks, including air and ocean freight routes. For example, the escalation of the conflict involving Iran and heightened tensions in the Middle East could cause disruption to critical logistics and supply routes, which could affect the availability and cost of materials used in our business. Additionally, China has imposed export restrictions on rare earth minerals and related materials critical to semiconductor and hard drive manufacturing. These developments have increased, and could further increase, costs for, or limit the availability of, energy, rare earth minerals, materials, components and transportation, constrain manufacturing capacity and may require us to redesign products or reconfigure aspects of our global supply chain. Geopolitical instability may also elevate cybersecurity risks, including state-sponsored attacks, which could disrupt our operations or those of our suppliers, customers or partners, and further adversely affect demand for our products.
Our revenue growth is significantly dependent on the growth of international markets, and we may face challenges in international sales markets. We are also subject to risks that could harm our business associated with our global manufacturing operations, global sales efforts and our utilization of contract manufacturers,manufacturers. includingThese risks include: the need to obtain governmental approvals and compliance with evolving foreign regulations; the need to comply with regulations on international business, including the Foreign Corrupt Practices Act, the United Kingdom Bribery Act 2010, the anti-bribery laws of other countries and rules regarding conflict minerals; the effects of political and economic instability; exchange, currency and tax controls and reallocations; the ongoing development and applicability of global and local tax systems; weaker protection of IP rights; policies and financial incentives by governments in China, the United States,U.S., and countries in Europe and Asia designed to reduce dependence on foreign manufacturing capabilities; trade restrictions, such as export controls, export bans, import restrictions, embargoes, sanctions, license and certification requirements (including encryption and other technology), trade wars, tariffs and complex customs regulations; difficulties in managing international operations, including appropriate internal controls; and fluctuations in financial markets and interruptions to supply chains from public health crises.
requirements (including encryption and other technology), trade wars, tariffs and complex customs regulations; difficulties in managing international operations, including appropriate internal controls; and fluctuations in financial markets and interruptions to supply chains from public health crises.
Our business, financial condition and results of operations may be adversely affected by uncertainty and changes in U.S. trade policies, including tariffs, trade agreements or other trade restrictions imposed by the United StatesU.S. or other governments. For example, the United States has announced changesChanges to itsU.S. trade policies, including increasing tariffs on imports,policy, in someparticular caseswith significantly.regard Theseto actionstariffs, have caused substantial market uncertainty and have also resultedand, in certain cases, retaliatory measures onby U.S.trading goods and exports to the United States.partners.
Any imposition of new tariffs or increase in tariffsexisting tariff rates may increase the cost of importing our products or the costs for materials or components used in our products, which would increase our overall costs unless we are able to implement actions to offset these costs, such as leveraging tariff exemptions where possible, optimizing our supply chain, sourcing from alternative suppliers, or passing the costs to our customers through tariff surcharges or increased prices. There can be no assurance that we will be able to successfully offset or mitigate any resulting increase in our costs. If we are unable to pass on any cost increases or if supply and demand conditions will not support price increases for our products, our revenue and gross margin would be negatively impacted. In addition, retaliatory actions by other countries in response to U.S. trade policy could increase pricesthe ultimate price for our products, negatively affect demand for our products or restrict our ability to manufacture our products.
Tariffs or other trade restrictions may also lead to increasednegative costseconomic impacts for our customers, declining consumer confidence, significant inflation and diminished expectations for the economy, as well as ultimately reduced demand for our products. Such conditions could have a material adverse impact on our business, results of operations and cash flows. In addition, tariff actions by the United StatesU.S. and retaliatory actions by other countries have caused, and may in the future cause, significant disruption and volatility in the financial markets, which could adversely affect the availability, terms and cost of capital, including to refinance our existing debt, and which in turn could reduce our cash flows and harm our business.
Our industry is subject to variations in demand, pricing and competitive factors, which can negatively impact our business.
Demand for and prices of our products are influenced by, among other factors, the actual and projected growth of data to be stored, the spending plans of our large hyperscale customers, the balance between supply and demand in the storage market, macroeconomic factors (such as tariffs and actual or perceived threat of recessions), business conditions, the emergence or growth of new or existing technologies (including AI), technology transitions and other actions taken by us or our competitors. We experience competition from other companies that produce alternative storage technologies such as flash memory, particularly in our legacy markets where we participate with our lower capacity, smaller form factor HDDs. The storage market has in the past experienced, and may in the future experience, periods of excess capacity leading to our factories running below the desired utilization levels, resulting in us taking underutilization charges, inventory write-downs and reductions in average selling prices (“ASPs”), all of which lead to negative impacts on our revenue and gross margins.
While our ASPs tend to be relatively stable, we may experience periods during an industry downturn when we face adverse headwinds to our ASPs. Additionally, our gross margin may face downward pressure if we are unable to migrate our product mix to the higher capacity needs of our customers and/or to reach the desired manufacturing yield in our production.
Additionally, if there is consolidation among our customer base, our customers may be able to command increased leverage in negotiating prices and other terms of sale, which could negatively impact our profitability. Consolidation among our
customer base may also lead to reduced demand for our products, increased customer pressure on our prices, replacement of our products by the combined entity with those of our competitors and cancellations of orders, each of which could harm our operating results.
We depend on an external supply base for technologies, software (including firmware), preamps, controllers, dynamic random-access memory, components, equipment and materials for use in our product design and manufacturing. We also depend on suppliers for a portion of our wafer testing, chip assembly, product assembly and product testing, and on service suppliers for providing technical support for our products. In addition, we use logistics partners to manage our worldwide just-in-time hubs and distribution centers and to meet our freight needs. Many of the components and much of the equipment we acquire must be specifically designed for use in our products or for developing and manufacturing our products and are only available from a limited number of suppliers, some of whom are our sole-source suppliers. We therefore depend on these suppliers to meet our business needs, including dedicating adequate engineering resources to develop components that can be successfully integrated into our products.
Our suppliers have in the past been, and may in the future be, unable or unwilling to meet our requirements, including as a result of events outside of their control such as trade restrictions (including tariffs, quotas and embargoes), geopolitical conflicts, terrorism, public health crises or natural disasters. If we are unable to purchase sufficient quantities from our current suppliers or qualify and engage additional suppliers, or if we cannot purchase materials at a reasonable price, we may not be able to meet demand for our products. Trade restrictions (including tariffs, quotas and embargoes), demand from other high-volume industries for materials or components used in our products, disruptions in supplier relationships or shortages in other components and materials used in our customers’ products could result in increased costs to us or decreased demand for our products, which could negatively impact our business. Delays, shortages or cost increases experienced by our suppliers in developing or sourcing materials and components for use in our products or incompatibility or quality issues relating to our products, could also harm our business.
We conduct our operations primarily at large, high-volume, purpose-built facilities in California and throughout Asia. The facilities of many of our customers, our suppliers and our customers’ suppliers are also concentrated in certain geographic locations throughout Asia and elsewhere. If a fire, flood, earthquake, tsunami or other natural disaster, condition or event such as a power outage, contamination event, terrorist attack, cybersecurity incident, physical security breach, political instability, civil unrest, localized labor unrest or other employment issues or a health epidemic or pandemic negatively affects any of these facilities, it would significantly affect our ability to manufacture or sell our products and source components and would harm our business. Possible impacts include work and equipment stoppages and damage to or closure of our facilities, or those of our suppliers or customers, for an indefinite period of time. Climate change has in the past and is expected to continue to increase the incidence and severity of certain natural disasters, including wildfires, floods and other adverse weather events. In addition, the geographic concentration of our manufacturing sites could exacerbate the negative impacts resulting from any of these problems.
customers, for an indefinite period of time. Climate change has in the past and is expected to continue to increase the incidence and severity of certain natural disasters, including wildfires, floods and other adverse weather events. In addition, the geographic concentration of our manufacturing sites could exacerbate the negative impacts resulting from any of these problems.
We may incur losses beyond the limits of, or outside the scope of, the coverage of our insurance policies. There can be no assurance that in the future we will be able to maintain existing insurance coverage or that premiums will not increase substantially. Due to market availability, pricing or other reasons, we may elect not to purchase insurance coverage or to purchase only limited coverage. We maintain limited insurance coverage and, in some cases, no coverage at all, for natural disasters and damage to our facilities, as these types of insurance are sometimes not available or available only at a prohibitive cost. Climate change may reduce the availability or increase the cost of certain types of insurance by contributing to an increase in the incidence and severity of certain natural disasters.disasters and adverse weather events. Losses not covered by insurance may be significant, which could materially harm our results of operations and financial condition.
We may be adversely affected by the risks, challenges, and evolving regulatory landscape associated with the use of AI in our operations, product development, and business practices.
We are increasingly leveraging AI technologies, including generative AI applications and tools, to support and enhance our various operational processes. While AI may promote efficiency and offer analytical advantages, it is complex and rapidly-changing, and its implementation carries inherent risks. Implementation of AI technologies can be costly and time-consuming, and the effectiveness or potential benefits of such technologies may vary depending on use case, integration, and oversight. The incorporation of AI algorithms or training methodologies into our operations or decision-making processes may result in flawed, irrelevant, insufficient, inaccurate, biased or non-compliant outputs, potentially impacting our strategic choices, operational effectiveness, and regulatory compliance. These inaccuracies can arise from limitations in training data, algorithmic design, or unintended consequences of machine learning models. Actual or perceived deficiencies, failures or misuse in our implementation or use of AI could result in competitive disadvantages, operational inefficiencies, regulatory action, legal liability, brand or reputational harm, and negative financial results.
In addition, the use of AI in the development of our products could potentially lead to ambiguities in intellectual property ownership, infringement or misappropriation risks, which could impact our competitive position and expose us to litigation, monetary penalties, or operational disruptions. The unauthorized or unapproved use of generative AI tools by our employees, contractors, or other third parties, as well as overreliance on AI automation or agentic AI without appropriate human oversight, may lead to the inadvertent disclosure of confidential, proprietary, or personal information, flawed or unauthorized actions, or other adverse consequences, including disruptions to business operations, exposing us to data security, privacy, legal, regulatory, and reputational risks.
Misuse of such tools can also result in violations of applicable laws and regulations, including data protection and intellectual property laws. Governments worldwide are adopting or proposing AI-specific regulations, including the European Union’s Artificial Intelligence Act, as well as various proposed frameworks in the U.S., China, and other jurisdictions. These regulations may impose requirements on the development, deployment, and use of AI systems in our products or operations, require jurisdiction-specific product configurations, increase compliance costs, or limit our ability to leverage AI technologies. The evolving and potentially divergent nature of these regulations creates uncertainty and could adversely affect our business. Public and governmental perceptions regarding the use and impact of AI may evolve over time and could give rise to new regulatory requirements, legal liability, or reputational harm. If we enable or offer products that support AI solutions that draw
controversy due to their perceived or actual impact on society, including concerns relating to human rights, privacy, employment, or other social, economic, or political issues, we may experience reputational harm, competitive harm, or legal liability, even if we do not directly control the end-use applications.
Further, the rapid growth of AI infrastructure, including data centers that use our products, requires substantial energy consumption. Environmental concerns about the energy demands of AI workloads, including actual or perceived environmental issues associated with data center power consumption, could lead to regulatory constraints on data center development, increased sustainability reporting obligations, or shifts in customer or public sentiment regarding AI infrastructure expansion. Any of these developments could adversely affect demand for our products or increase our customers’ costs of deploying storage solutions in AI environments, which could have a material adverse effect on our business.
We have historically experienced variability in our sales and cyclicality in our industry, which could cause our operating results to fluctuate. In addition, accurately forecasting demand is difficult, which could harm our business.
The variety and volume of products we manufacture are based in part on accurately forecasting market and customer demand for our products, which are influenced by a wide variety of factors. As a result of the number and complexity of these factors, accurately forecasting demand has at times been difficult for us, our customers and our suppliers. In addition, because our products are designed to be largely interchangeable with competitors’ products, our demand forecasts may be impacted significantly by the strategic actions of our competitors. If our forecasts exceed actual market demand, there could be periods of product oversupply, excess inventory, underutilization of manufacturing capacity and price decreases, which could impact our sales, ASPs and gross margin or require us to incur inventory write-downs or charges for unabsorbed manufacturing overhead, thereby negatively affecting our operating results and our financial condition. If market demand increases significantly beyond our forecasts or beyond our ability to add manufacturing capacity, then we may not be able to satisfy customer product needs, possibly resulting in a loss of market share if our competitors are able to meet customer demands. In addition, some of our components have long lead-times, requiring us to place orders several months in advance of anticipated demand. Such long lead-times increase the risk of excess inventory, potentially resulting in inventory write-downs, or loss of sales in the event our forecasts vary substantially from actual demand.
Our success depends upon the continued contributions of our talent. Changes in our key management team have resulted in and may in the future result in loss of continuity, loss of accumulated knowledge, departure of other key employees, disruptions to our operations and inefficiency during transitional periods. Global competition for skilled employees in the technology industry is intense, and our business success is increasingly dependent on our ability to attract, develop and retain top talent, implement succession plans for key management and staff and replace aging skilled employees. Changes in immigration policies may also impair our ability to recruit and hire technical and professional talent.
We experiencehave experienced cybersecurity incidents of varying degrees on our technology infrastructure and information systems and, as a result, unauthorized parties have obtained in the past, and may obtain in the future, access to our computer systems and networks, including cloud-based platforms. These incidents have in the past caused, and may in the future cause, disruption to parts of our business operations and result in various investigation, recovery and remediation expenses. In addition, the technology infrastructure and information systems of some of our suppliers, vendors, service providers, cloud solution providers and partners have in the past experienced, and may in the future experience, such incidents. CybersecurityTypes of cybersecurity incidents caninclude bebut causedare bynot limited to ransomware, network or computer denial-of-service attacks, wormsunauthorized access to and othertheft maliciousof softwareconfidential programsdata, or other attacks, including the covert introduction of malware to computers and networks, and the use of techniques or processes that change frequently, may be disguised or difficult to detect, or are designed to remain dormant until a triggering event, and may continue undetected for an extended period of time. Cybersecurity incidents have in the past resulted from, and may in the future result from, social engineering or impersonation of authorized users, and may also result from efforts to discover and exploit any design flaws, bugs, security vulnerabilities or security weaknesses, intentional or unintentional acts by employees or other insiders with access privileges, intentional acts of vandalism or fraud by third parties and sabotage. In some instances, efforts to correct vulnerabilities or prevent incidents have in the past, and may in the future, reduce the functionality or performance of our information systems and networks, which could negatively impact our business. We believe malicious cybersecurity acts are increasing in number and that cybersecurity threat actors are increasingly organized and well-financed or supported by state actors and are developing increasingly sophisticated systems and means to not only infiltrate information systems, but also to evade detection or to obscure their activities. Additionally, as AI capabilities continue to evolve and become more readily available, we may face increasingly sophisticated cyberattacks that leverage AI technologies. These may include highly convincing phishing or social engineering attacks that use AI-generated deepfakes, the exploitation of vulnerabilities in electronic identity validation security programs via AI-replicated images or voices, or the inadvertent incorporation of malicious or hallucinated content generated by AI tools into our systems or those of our customers or partners. Separately, the AI technologies that we employ for business purposes may be vulnerable to prompt-injection or other
technologies. These may include highly convincing phishing or social engineering attacks that use AI-generated deepfakes, the exploitation of vulnerabilities in electronic identity validation security programs via AI-replicated images or voices, or the inadvertent incorporation of malicious or hallucinated content generated by AI tools into our systems or those of our customers or partners. Separately, the AI technologies that we employ for business purposes may be vulnerable to prompt-injection or other adversarial attacks, which could result in unauthorized access to or leakage of sensitive information. Geopolitical tensions or conflicts may also create heightened risk of cybersecurity incidents.
adversarial attacks, which could result in unauthorized access to or leakage of sensitive information. Geopolitical tensions or conflicts may also create heightened risk of cybersecurity incidents.
When efforts to breach our infrastructure, information systems or products are successful or we are unable to protect against such attacks,successful, we have in the past suffered, and could in the future suffer, interruptions, delays or cessation of operations of our information systems, and loss or misuse of proprietary or confidential information, IP, or sensitive or personal information. We may also experience disruptions or outages of our information systems due to internal or third-party mistakes or technical errors, including due to software updates, which could disrupt our business operations. Compromises of our infrastructure, information systems or products could also cause our customers and other affected third parties to suffer loss or misuse of proprietary or confidential information, IP, or sensitive or personal information and could harm our relationships with customers and other third parties and subject us to liability. As a result of actual or perceived cybersecurity incidents or other information system disruptions, we have in the past experienced and may in the future experience additional costs, notification requirements, civil and administrative fines and penalties, indemnification claims, litigation or damage to our brand and reputation. All of these consequences could harm our reputation and our business and materially and negatively impact our operating results and financial condition.
We warrant the majority of our products for periods of one to five years. We test our products in our manufacturing facilities through a variety of means. However, our testing may fail to reveal defects in our products that may not become apparent until after the products have been sold into the market. In addition, our products may be used in a manner that is not intended or anticipated by us, resulting in potential liability. Accordingly, there is a risk that product defects will occur, including as a result of third-party components or applications that we incorporate in our products, which could require a product recall. Product recalls can be expensive to implement. As part of a product recall, we may be required or choose to replace the defective product. Moreover, there is a risk that product defects may trigger an epidemic failure clause in a customer agreement. If an epidemic failure occurs, we may be required to replace or refund the value of the defective product and to cover certain other costs associated with the consequences of the epidemic failure. In addition, product defects, product recalls or epidemic failures may cause damage to our reputation or customer relationships, lost revenue, indemnification for a recall of our customers’ products, warranty claims, litigation or loss of market share with our customers, including our OEM and original design manufacturer (“ODM”) customers. Our business liability insurance may be inadequate, or future coverage may be unavailable on acceptable terms, which could negatively impact our operating results and financial condition.
Our standard warranties contain limits on damages and exclusions of liability for consequential damages and for misuse, improper installation, alteration, accident or mishandling while in the possession of someone other than us. We record an accrual for estimated warranty costs at the time revenue is recognized. We may incur additional expenses if our warranty provisions do not reflect the actual cost of resolving issues related to defects in our products, whether as a result of a product recall, epidemic failure or otherwise. If these additional expenses are significant, they could harm our business.
Management's Discussion & Analysis (MD&A)
New heading “Separation of Business Units and Monetization of Sandisk Shares”
New heading “Share Repurchase Program”
New heading “Liability for Unrecognized Tax Benefits”
New heading “Global Minimum Tax”
Removed heading “Separation of Business Units”
Removed heading “Operational Update”
Removed heading “Unrecognized Tax Benefits”
Removed heading “Dividend Rights”
Removed heading “Mandatory Deemed Repatriation Tax”
Removed heading “Mandatory Research and Development Expense Capitalization”
Largest changes
“In fiscal 2025, we saw an improvement in the supply and demand dynamic relative to the prior year, and we anticipate that digital transformation, including the AI data-cycle, will drive improved market conditions in the long term. However, macroeconomic factors such as tariffs, inflation, changes in interest rates, and recession concerns can affect demand for our products. …”see in full comparison
“The United States has recently announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly. Several of these recent tariff actions have been followed by announcements of limited exemptions and temporary pauses. These actions have caused substantial uncertainty and have also resulted in retaliatory measures on U.S. goods. Our business and results of operations were not materially impacted in fiscal 2025 as a result of the recent tariff actions. …”see in full comparison
“As of June 27, 2025, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was approximately $569 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 related to unrecognized tax benefits as of June 27, 2025, were approximately $82 million. …”see in full comparison
Insee in full comparisonaddition to our outstanding debt,addition, as ofJuneJuly27,3,2025,2026, we had$1.25$350billionmillionavailableoutstandingfor borrowing underon ourrevolvingRevolvingcreditCreditfacilityFacility maturing in January20272027.(theAs“2027ofRevolvingJulyCredit3,Facility”),2026, we had $900 million remaining available borrowing capacity under this facility, subject to customary conditions under theLoan Agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. Theloanagreement governing our 2027 Revolving Credit Facility and our Term Loan A-3 (as amended, the “Loan Agreement”) requires us to comply with a financial leverage ratio covenant. As of June 27, 2025, we were in compliance with the financial covenant.agreement. Additional information regarding our indebtedness, including information about availability under our2027Revolving CreditFacility and the principal repayment terms,Facility, interest rates, covenants, collateral and other key terms of our outstanding indebtedness, is included in Part II, Item 8, Note8,7, Debt, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Full comparison: every changed paragraph (123)
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. We leverage our capability in the HDD industry primarily for the cloud and hyperscale data center markets. HDDs are critical components inof the worldwideglobal data infrastructure market,market poweringand play an essential role in enabling the digitalAI-driven data economy. HDDsThey provide reliable, cost-effective, high-capacity storage needs for a widebroad range of applications, ranging fromincluding cloud data centers, enterprise storage systems, edge computing, videosmart surveillance tovideo, client and consumer.consumer devices.
Our broad portfolio of technology and productsproducts, 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 original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance HDD solutions across desktop and notebooks. The Consumer end market providesoffers a broadcomprehensive rangeportfolio of HDD external storage products that we offer globally through our retail and otherchannel end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.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, endingwhich ended on July 3, 2026 will be2026, comprised of 53 weeks, with the first quarter consisting of 14 weeks and the remaining quarters consisting of 13 weeks. Fiscal years 2025, 2024,2025 and 2023,2024, which ended on June 27, 2025,2025 and June 28, 2024, and June 30, 2023, respectively, each comprised 52 weeks, with all quarters presented consisting of 13 weeks.
Separation of Business Units
On February 21, 2025 (the “Separation Date”), we completed the separation of our HDD and Flash business units (the “Separation”) to create two independent public companies, with Western Digital focusing on our existing HDD business and Sandisk Corporation (“Sandisk”), formerly a wholly-owned subsidiary of the Company, holding the Flash business. We believe the Separation better positions each business unit to execute innovative technology and product development, capitalize on unique growth opportunities, extend respective leadership positions, operate more efficiently with distinct capital structures, and pursue capital allocation strategies that maximize long-term shareholder value. The Separation was effected through a pro rata distribution of 80.1% of the outstanding shares of Sandisk common stock to holders of the Company’s common stock as of February 12, 2025, the record date for the distribution. The Company did not issue fractional shares of Sandisk common stock in connection with the distribution. Sandisk is now an independent public company, and Sandisk common stock commenced trading “regular way” under the symbol “SNDK” on the Nasdaq Stock Market LLC (“Nasdaq”) on February 24, 2025, which was the next trading day following the distribution date. The Company continues to trade on Nasdaq under the symbol “WDC” following the Separation. Following the Separation, the Company no longer consolidates Sandisk within the Company’s financial results. As part of the Separation, the Company retained 28.8 million shares of Sandisk common stock, or a 19.9% stake. During the quarter ended June 27, 2025, the Company disposed of 21.3 million shares of Sandisk common stock, along with $4 million in cash, in a tax-free exchange for $800 million principal amount of the Company’s term loan A-3. The Company expects to monetize its remaining stake in Sandisk within one year from the Separation Date.
Information provided herein is presented on a continuing operations basis to reflect the impact of the Separation. See Part II, Item 8, Note 3, Discontinued Operations, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information regarding the Separation.
MacroeconomicMarket 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.
The United States has recently announced changes to its trade policy, including increasing tariffs on imports, in some cases significantly. Several of these recent tariff actions have been followed by announcements of limited exemptions and temporary pauses. These actions have caused substantial uncertainty and have also resulted in retaliatory measures on U.S. goods. Our business and results of operations were not materially impacted in fiscal 2025 as a result of the recent tariff actions. We are actively monitoring developments and plan to leverage tariff exemptions where possible and will take other actions as appropriate to offset any resulting increase in the cost of importing our products or the costs for materials or components in our products, including optimizing our supply chain, sourcing from alternative suppliers, or passing the costs to our customers through tariff surcharges, or increased prices. There can be no assurance that we will be able to successfully offset or mitigate any resulting increase in our costs. In addition, the impact of the tariff actions on our customers, retaliatory measures by other countries in response to U.S. trade policy and any resulting decline in consumer confidence, significant inflation and diminished expectations for the economy could reduce demand for our products and adversely affect our business, financial condition and results of operations. For additional information, please see Part I, Item 1A, Risk Factors, included in this Annual Report on Form 10-K.
Operational Update
In fiscal 2025, we saw an improvement in the supply and demand dynamic relative to the prior year, and we anticipate that digital transformation, including the AI data-cycle, will drive improved market conditions in the long term. However, macroeconomic factors such as tariffs, inflation, changes in interest rates, and recession concerns can affect demand for our products. As an example, in fiscal 2024, we and our industry experienced a supply-demand imbalance, which led to reduced shipments, negatively impacted pricing, and resulted in business realignment charges and charges for unabsorbed manufacturing overhead costs due to the underutilization of facilities as we temporarily scaled back production and took other actions to align our operations to the market at the time.
We will continue to actively monitor developments impacting our business and may take future responsive actions that we determine to be in the best interest of our business and stakeholders.
WeIn addition to the actions taken to monetize our initial retained interest in shares of Sandisk, as noted above, we have takencontinued to take significant actions to deleverage our businessbusiness, reduce dilution and to initiate programs to 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.
In February 2025, in connection with the Separation, we amended the loan agreement governing our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”) and Term Loan Facility (as defined below), dated as of January 7, 2022 (as amended, the “Loan Agreement”) to, among other changes, permit the Separation, provide for the issuance of a new $2.51 billion Term Loan A-3 maturing in January 2027 (the “Term Loan A-3”) in a noncash exchange to replace our previously existing Term Loan A-2 (the “Term Loan A-2” and, together with the Term Loan A-3, the “Term Loan Facility”); facilitate a subsequent exchange of a portion of the Term Loan A-3 for shares of Sandisk retained by us at the Separation; and reduce the aggregate commitments under the 2027 Revolving Credit Facility from $2.25 billion to $1.25 billion.
In April 2025, we redeemed, at our election, $1.80 billion aggregate principal amount of our 4.75% senior unsecured notes due 2026 (the “2026 Notes”) at par plus accrued interest.
In June 2025, we settled $800 million principal amount of our Term Loan A-3 through an exchange of 21.3 million shares of Sandisk common stock held by us and $4 million in cash paid by us.
These actions, along with scheduled principal payments made on our term loans, reduced the principal amount of our debt by $2.78 billion during fiscal 2025.
OnDuring Aprilour 29,previous 2025,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 JuneJuly 27,3, 2025,2026, we paid aggregate cash dividends of $0.10$0.50 per share of our outstanding common stock, totaling $36$174 million, includingplus payment$2 million paid to holders of our Series Athen-outstanding Preferred StockShares in accordance with their participation rights.
Subsequent to year-end, on JulyAugust 29,4, 2025,2026, our Board of Directors declared a cash dividend of $0.10$0.15 per share of our common stock, which will be paid on September 18,17, 20252026 to our shareholders of record as of the close of business on September 4,8, 2025.2026.
OnDuring Mayour 9,previous 2025,fiscal year, our Board of Directors authorized a shareShare repurchaseRepurchase programProgram 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. ForDuring the year ended JuneJuly 27,3, 2025,2026, we repurchased 2.814.7 million shares for a total cost of $149$2.59 million.billion. TheAs remainingof amountJuly 3, 2026, we had $3.26 billion available tofor be repurchasedrepurchases under ourthe shareShare repurchaseRepurchase program as of June 27, 2025 was $1.85 billion.Program. Repurchases under the shareShare repurchaseRepurchase programProgram may be made in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. We expect shareshares repurchasesrepurchased under the Share Repurchase Program to be funded principallyprimarily 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 convertiblePreferred preferred sharesShares is included in Part II, Item 8, Note 8,7, Debt, and Note 12,13, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
Tax Resolution
As previously disclosed, we had reached a final agreement with the U.S. Internal Revenue Service (the “IRS”) and received notices of deficiency with respect to years 2008 through 2012, and in February 2024, we also reached a final agreement for resolving the notices of proposed adjustments with respect to years 2013 through 2015. During the year ended June 27, 2025, we made payments aggregating to $162 million for tax and interest with respect to years 2008 through 2015 and have no remaining liability as of June 27, 2025 related to all years from 2008 through 2015. Additional information regarding these settlements and related tax matters is provided in Part II, Item 8, Note 13, Income Taxes, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
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.
(1) Net revenue is attributed to geographic regions based on the ship-to location of the customer.
Net revenue increased by 51% in 2025 compared to 2024, primarily driven by a 29% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives. The increase was also driven by a 15% increase in units sold as a result of higher shipments of our high-capacity enterprise products stemming from data center expansions.
Cloud revenue increased by 65% in 2025 compared to 2024, primarily driven by a 36% increase in units sold and a 20% increase in average selling price per unit. The increase in units sold was driven by higher shipments of our high-capacity enterprise products. The increase in average selling price per unit was primarily due to a shift in product mix to higher capacity drives.
Client revenue decreased by 4% in 2025 compared to 2024, primarily driven by a 16% decrease in units sold, reflecting lower demand in the market, partially offset by a 14% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.
Consumer revenue decreased by 9% in 2025 compared to 2024, primarily driven by a 14% decrease in units sold, reflecting lower demand in the market, partially offset by a 5% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.
Net revenue increased by 1% in 2024 compared to 2023, primarily driven by a 25% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives, partially offset by a 13% decrease in units sold reflecting lower demand in the market. The increase was offset by approximately 7 percentage points due to a decline in data storage systems revenues resulting from weakness in the market.
Cloud revenue increased by 6% in 2024 compared to 2023, primarily driven by a 1% increase in units sold and a 16% increase in average selling price per unit. The changes in units sold and average selling price per unit were primarily due to customers moving to higher capacity drives. The increase was offset by approximately 9 percentage points due to a decline in data storage systems revenues resulting from weakness in the market.
Client revenue decreased by 17% in 2024 compared to 2023, primarily driven by a 30% decrease in units sold, reflecting lower demand in the market, partially offset by a 19% increase in average selling price per unit as a result of a shift in product mix to higher capacity drives.
ConsumerNet revenue decreasedincreased by 15%36% in 20242026 compared to 2023,2025, primarily driven by a 25% decreaseincrease in unitsexabytes sold,sold reflectingand loweran demand in the market, partially offset by a 13%8% increase in average selling priceASPs per unitexabyte, as a resultboth of awhich shiftwere indriven productby mixstrong todemand higheracross capacityall drives.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 2025,2026, 20242025 and 2023,2024, our top 10 customers accounted for 68%,73%, 55%68% and 56%,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 and 2023,2024, 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 2025,2026, 20242025 and 2023,2024, these programs represented 10%,9%, 11%10% and 18%,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, seasonal demand, competitor actions, 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 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.
Gross profit increased by $1.92 billion in 2025 compared to 2024. The increase was largely due to higher revenues, cost reductions due to efficiencies achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix. The increase also reflected charges for unabsorbed manufacturing overhead of approximately $155 million in 2024 which were not incurred in 2025. Gross margin increased 10.7 percentage points in 2025 compared to 2024, with approximately 2.5 percentage points of the increase due to the impact of unabsorbed manufacturing overhead costs in the prior year and the remainder driven by the factors as noted above.
Gross profit increased by $382 million in 2024 compared to 2023. The increase was largely due to cost efficiencies achieved through improved manufacturing operations, cost-saving actions, and a more favorable product mix. The increase also reflected a reduction in charges for unabsorbed manufacturing overhead costs as a result of the reduced utilization of our manufacturing capacity to approximately $155 million in 2024, from approximately $200 million of such costs in 2023. Gross margin increased 5.9 percentage points in 2024 compared to 2023, with approximately 1 percentage point of the increase due to the reduction in unabsorbed manufacturing overhead costs from the prior year and the remainder driven by the factors as noted above.
Research and development (“R&D”) expense increased by $44$167 million or 5%17% in 20252026 compared to 2024.2025. This increase was primarilyattributable drivento by a $46$70 million increaseof inincremental product development related costs foras compensationwe and benefits, which was attributedcontinue to anexecute increase in headcount in support ofon our innovative technology and product roadmap.roadmap, Thisalong increasewith was$75 partiallymillion offsetof byhigher acompensation-related decreasecosts, inreflecting depreciationincreased headcount and amortization.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.
R&D expense decreased by $36 million or 4% in 2024 compared to 2023. This decrease was driven by relatively equal decreases in depreciation and amortization and in outside services as we scaled back expenditures in response to market conditions.
Selling, general and administrative (“SG&A”) expense decreased by $158 million or 22% in 2025 compared to 2024. This decrease was primarily driven by a $122 million decrease in costs for compensation and benefits, which was attributed to certain shared overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. The decrease also reflects a $38 million decrease in strategic review costs incurred in the prior year but not incurred in the current year.
SG&A expense decreased by $81 million or 10% in 2024 compared to 2023. This decrease was primarily driven by a $37 million decrease in costs for compensation and benefits, attributed to a decrease in headcount, a $19 million decrease in outside services and various smaller savings as we scaled back expenditures in response to market conditions.
For information regarding litigationLitigation matters,matter, see Part II Item 8, Note 17,16, Legal Proceedings, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
For information regarding Business realignment charges,charges (credits), see Part II Item 8, Note 15,10, Business Realignment Charges,Charges (Credits), of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K.
Total interest and other expense,income (expense), net increasedchanged by $868$6.66 millionbillion or 258%553% in 20252026 compared to 2024,2025. The change primarily reflectingreflects a $772 million mark-to-market lossgain on our retained interest in Sandisk andof $6.50 billion in the current year compared to a $100loss of $772 million loss onin the extinguishmentprior year. The change also reflects $545 million of debtcosts incurred in connection with theour debt-for-equity exchange.exchange Thein increasethe wascurrent partiallyyear offsetcompared byto $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 drivenof by$192 lowermillion, which reflects the reduction in our debt balances.levels.
Total interest and other expense, net increased by $35 million or 12% in 2024 compared to 2023. The increase primarily reflects higher interest rates and higher outstanding debt balances in the period.
Previously, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the ability to deduct R&D expenditures in the year incurred, requiring capitalization and amortization under Internal Revenue Code Section 174. On July 4, 2025, the One Big Beautiful Bill Act of 2025 (“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 with our fiscal year 2026. The legislation also includes favorable modifications to international tax provisions, including changes to the Global Intangible Low-Taxed Income regime and enhancements to the Foreign-Derived Intangible Income deduction. Because the OBBBA provisions are not effective for us until fiscal year 2026 and the enactment date occurred after the balance sheet date, the tax effects of the OBBBA are not included in the Company’s operating results for the fiscal year ended June 27, 2025.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.00 billion. The CAMT became effective for us beginning with fiscal year 2024. We were not subject to CAMT in fiscal year 2024 and do not expect to be subject to CAMT for fiscal year 2025 as our average annual AFSI did not exceed $1.0 billion for the preceding three-year period.
On December 20, 2021, the Organization for Economic Co-operation and Development G20 Inclusive Framework on Base Erosion and Profit Shifting released Model Global Anti-Base Erosion rules under Pillar Two. Several non-U.S. jurisdictions have either enacted legislation or announced their intention to enact future legislation to adopt certain or all components of Pillar Two, also known as Global Minimum Tax (“GMT”), some of which are effective for us in fiscal year 2025. For fiscal year 2025, we currently expect to be able to meet certain transitional safe harbors and do not expect any material GMT taxes. As most of the jurisdictions in which we operate have adopted this legislation for our fiscal year 2026, we expect there will be increases in our future tax obligations in these jurisdictions.
The primary drivers of the difference between the effective tax rate for fiscal year 2025 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for foreign derived intangible income, credits, and tax holidays in the Philippines and Thailand that will expire at various dates during 2026 through 2033. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for fiscal year 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.
What changed in the latest 10-Q
Risk Factors
We have described under the heading “Risk Factors” in Part I, Item 1A of our 2025 Annual Report on Form 10-K a number of risks and uncertainties that could cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. There have been no material changes from these risk factors previously described in Part I, Item 1A of our 2025 Annual Report on Form 10-K. These risks and uncertainties are not the only risks facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, results of operations or the market price of our common stock.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Conversion of Preferred Shares”
New heading “Comparison of Three and Nine Months Ended April 3, 2026 to Three and Nine Months Ended March 28, 2025”
Removed heading “Comparison of Three and Six Months Ended January 2, 2026 to Three and Six Months Ended December 27, 2024”
Removed heading “Dividend Rights”
Largest changes
“Comparison of Three and Six Months Ended January 2, 2026 to Three and Six Months Ended December 27, 2024”see in full comparison
“Comparison of Three and Nine Months Ended April 3, 2026 to Three and Nine Months Ended March 28, 2025”see in full comparison
see in full comparisonThe United States has been makingRecent changes toitsU.S. trade policy,including increasing tariffs on imports,insomeparticularcaseswithsignificantly.regardSeveraltoof these tariff actions have been followed by announcements of limited exemptions, temporary pauses or other changes. These actionstariffs, have caused substantial market uncertaintyand have also resultedand, in certain cases, retaliatorymeasures.measures by trading partners. Our business and results of operations have not been materially impacted through thesecondthird quarter of 2026 as a result of thesetariffactions, but we are actively monitoring developments andexploringassessingopportunitiesoptions to mitigate potential futuretariff and retaliatoryactions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2025 Annual Report on Form 10-K.
On February 21,see in full comparison2025 (the “Separation Date”),2025, we completed theseparation of our HDD and Flash business units (the “Separation”)to create two independent public companies, with Western Digital continuing our existing HDD business andSandisk Corporation (“Sandisk”),Sandisk, formerly a wholly-owned subsidiary of the Company, holding 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 commonstock,stock.ofInwhichJune 2025, we used 21.3 million shareswereofused in the three months ended June 27, 2025Sandisk in a tax-free exchange to reduce approximately $800 million principal amount of our term loan A-3.WeIn February 2026, we executed a series of transactions to monetize additional Sandisk shares and further reduce our outstanding debt. Initially, we entered into a $1.50 billion Bridge Loan, which was utilized to fully redeem all of our Senior Notes and consolidate the broad creditor base to two holders to facilitate a debt-for-equity exchange. Following the redemptions of the Senior Notes, we retired the Bridge Loan and our existing Term Loan A-3 through a tax-free exchange for 5.8 million shares of Sandisk common stock. As of April 3, 2026, we still held 1.7 million shares of Sandisk common stock, which we expect to monetizeourbyremainingthestakeend of 2026 inSandiskonetoorfurthermorereducesubsequent exchanges for ourdebtoutstandingwithincommonone year from the Separation Date.stock.
Full comparison: every changed paragraph (45)
We are a leading developer, manufacturer, and provider of data storage devices and solutions based on hard disk drive (“HDD”) technology. We leverage our capability in the HDD industry primarily for the cloud and hyperscale data center markets. HDDs are critical components in the worldwide data infrastructure market, powering the 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, videosmart surveillance,video, to client and consumer.
Our broad portfolio of technology and products addresses our customers’ storage needs through multiple end markets: “Cloud,” “Client” and “Consumer”.Consumer. Cloud is 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 provides a broad range of retail and other end-user products, which capitalize on the strength of our product brand recognition and vast points of presence around the world.
Separation of Business Units and Monetization of Sandisk Shares
On February 21, 2025 (the “Separation Date”),2025, we completed the separation of our HDD and Flash business units (the “Separation”) to create two independent public companies, with Western Digital continuing our existing HDD business and Sandisk Corporation (“Sandisk”),Sandisk, formerly a wholly-owned subsidiary of the Company, holding 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,stock. ofIn whichJune 2025, we used 21.3 million shares wereof used in the three months ended June 27, 2025Sandisk in a tax-free exchange to reduce approximately $800 million principal amount of our term loan A-3. WeIn February 2026, we executed a series of transactions to monetize additional Sandisk shares and further reduce our outstanding debt. Initially, we entered into a $1.50 billion Bridge Loan, which was utilized to fully redeem all of our Senior Notes and consolidate the broad creditor base to two holders to facilitate a debt-for-equity exchange. Following the redemptions of the Senior Notes, we retired the Bridge Loan and our existing Term Loan A-3 through a tax-free exchange for 5.8 million shares of Sandisk common stock. As of April 3, 2026, we still held 1.7 million shares of Sandisk common stock, which we expect to monetize ourby remainingthe stakeend of 2026 in Sandiskone toor furthermore reducesubsequent exchanges for our debtoutstanding withincommon one year from the Separation Date.stock.
Conversion of Preferred Shares
On February 17, 2026, we converted all remaining outstanding Preferred Shares into 7 million shares of our common stock in accordance with the Certificate of Designations, Preferences and Rights of the Preferred Shares.
The United States has been makingRecent changes to itsU.S. trade policy, including increasing tariffs on imports, in someparticular caseswith significantly.regard Severalto of these tariff actions have been followed by announcements of limited exemptions, temporary pauses or other changes. These actionstariffs, have caused substantial market uncertainty and have also resultedand, in certain cases, retaliatory measures.measures by trading partners. Our business and results of operations have not been materially impacted through the secondthird quarter of 2026 as a result of these tariff actions, but we are actively monitoring developments and exploringassessing opportunitiesoptions to mitigate potential future tariff and retaliatory actions. For additional information, please see Part I, Item 1A, Risk Factors, included in our 2025 Annual Report on Form 10-K.
SecondThird Quarter and FirstNine HalfMonth Overview
Comparison of Three and Nine Months Ended April 3, 2026 to Three and Nine Months Ended March 28, 2025
Comparison of Three and Six Months Ended January 2, 2026 to Three and Six Months Ended December 27, 2024
Net revenue increased by 25% for the three months ended January 2, 2026 from the comparable period in the prior year, driven by a 22% increase in exabytes sold and a 2% increase in average selling price per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in average selling price per exabyte was due to improved pricing on our higher capacity drives. Net revenue increased by 26% for the six months ended January 2, 2026 from the comparable period in the prior year, driven by a 23% increase in exabytes sold and a 3% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Cloud revenue increased by 28% for the three months ended January 2, 2026 from the comparable period in the prior year, driven by a 24% increase in exabytes sold and a 3% increase in average selling price per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in average selling price per exabyte was due to improved pricing on our higher capacity drives. Cloud revenue increased by 29% for the six months ended January 2, 2026 from the comparable period in the prior year, driven by a 25% increase in exabytes sold and a 3% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Client revenue increased by 26% for the three months ended January 2, 2026 from the comparable period in the prior year, driven by a 17% increase in average selling price per exabyte and a 7% increase in exabytes sold. The increase in average selling price per exabyte was due to a shift in product mix to our higher capacity drives. The increase in exabytes sold was driven by strong demand. Client revenue increased by 15% for the six months ended January 2, 2026 from the comparable period in the prior year, driven by a 18% increase in average selling price per exabyte, partially offset by a 2% decrease in exabytes sold. The increase in average selling price per exabyte was due to a shift in product mix to our higher capacity drives. The decrease in exabytes sold was driven by lower demand in the first three months of the year.
ConsumerNet revenue decreasedincreased by 3%45% for the three months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year, driven by a 5%34% decreaseincrease in exabytes sold,sold partially offset byand a 3%9% increase in average selling price per exabyte, both of which reflectwere variationsdriven inby productstrong mixdemand andacross demand.all Consumerof our end markets. Net revenue decreasedincreased by 2%33% for the sixnine months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year, driven by a 2%26% decreaseincrease in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte whilewere volumeattributable remainedto relativelythe flat,same whichfactors reflectsnoted routinefor variationsthe inthree-month productperiod mix and demand.above.
Cloud revenue, representing 89% of total revenue, increased by 48% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 36% increase in exabytes sold and a 9% increase in average selling price per exabyte. The increase in exabytes sold was driven by strong demand for our high-capacity enterprise products. The increase in average selling price per exabyte was due to an improved pricing environment. Cloud revenue, representing 89% of total revenue, increased by 36% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 29% increase in exabytes sold and a 5% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Client revenue, representing 5% of total revenue, increased by 31% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 19% increase in exabytes sold and a 10% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Client revenue, representing 5% of total revenue, increased by 20% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 4% increase in exabytes sold and a 16% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
Consumer revenue, representing 6% of total revenue, increased by 24% for the three months ended April 3, 2026 from the comparable period in the prior year, driven by a 6% increase in exabytes sold and a 17% increase in average selling price per exabyte. The increase in exabytes sold and average selling price per exabyte are driven by dynamics largely consistent with our other end markets. Consumer revenue, representing 6% of total revenue, increased by 6% for the nine months ended April 3, 2026 from the comparable period in the prior year, driven by a 1% increase in exabytes sold and a 4% increase in average selling price per exabyte. The increase in exabytes sold and increase in average selling price per exabyte were attributable to the same factors noted for the three-month period above.
The change in mix of net revenue by geography for the three and nine months ended JanuaryApril 2,3, 2026 was relatively consistent withfrom the comparable period in the prior year. The mix of net revenue by geography for the six months ended January 2, 2026 compared to the comparable periodperiods in the prior year reflects higherlarger revenuepercentage increases in the Asia and Europe, Middle East and Africa regions as customers expandedare ramping up data center capacity in these regions in the first three months of the year.regions.
Our top 10 customers accounted for 76%71% and 77%,74%, respectively, of our net revenue for the three and sixnine months ended JanuaryApril 2,3, 2026, compared to 67%73% and 65%,68%, respectively, of our net revenue for the three and sixnine months ended DecemberMarch 27,28, 2024.2025. For the three months ended JanuaryApril 2,3, 2026, three customers accounted for 17%, 15%, 14%, and 14%,11%, respectively, of our net revenue, and for the three months ended DecemberMarch 27,28, 2024,2025, twothree customers accounted for 18%18%, 16% and 13%, respectively, of our net revenue. For the sixnine months ended JanuaryApril 2,3, 2026, three customers accounted for 17%,16%, 15%, and 14%,13%, respectively, of our net revenue, and for the sixnine months ended DecemberMarch 27,28, 2024,2025, two customers accounted for 18% and 11%, respectively, of our net revenue.
Gross profit increased by $473$764 million for the three months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year, due to an increased volume of shipments, a lower cost structure on our newer generation products and improved pricing on our higher capacity drives.pricing. Gross margin increased by 810 percentage points year over year, primarily due to a lower cost structure on our newer generation products and improved pricing on our higher capacity drives.pricing. Gross profit increased by $894$1.66 millionbillion for the sixnine months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year and gross margin increased by 89 percentage points yearduring overthe year,same year-over-year period, primarily due to the same factors noted for the three-month period above.
Research and development (“R&D”) expense increased by $64$49 million for the three months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year. The increase was attributable to higher$25 variablemillion compensation,of incremental product development related costs as awe resultcontinue ofto execute on our company performance and further investment for innovation,innovative technology and product development.roadmap along with $20 million higher compensation-related costs aligned with the improved financial performance during the current year. R&D expense increased by $96$145 million for the sixnine months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year. The increase was attributable to $95 million of higher compensation-related costs and $50 million of higher incremental product development related costs, driven by the same factors noted for the three-month period above. In future periods, we expect modest increases in R&D as we continue to innovate and develop higher capacity and performance HDD.
Selling, general and administrative (“SG&A”) expense increased by $39 million for the three months ended April 3, 2026 from the comparable period in the prior year. The increase was primarily attributable to higher compensation-related expense, as a result of our improved financial performance. SG&A expense decreased by $31 million for the nine months ended April 3, 2026 from the comparable period in the prior year, as that period included substantial costs associated with the final planning and execution of the Separation, including duplicative personnel costs and higher outside service fees.
Selling, general and administrative (“SG&A”) expense was relatively flat for the three months ended January 2, 2026 from the comparable period in the prior year, which reflects approximately $30 million of higher variable compensation, as a result of our company performance, offset by general corporate overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. SG&A expense decreased by $70 million for the six months ended January 2, 2026 from the comparable period in the prior year. The decrease reflects $37 million of lower compensation and benefits in the first three months of the year, which was driven by certain general corporate overhead roles in the prior year that have since transferred to Sandisk and were not backfilled after the Separation. The decrease also reflects $30 million of lower service fees resulting from reduced marketing activities and legal costs in the first three months of the year.
Total interest and other income (expense), changed by $1.15$2.86 billion for the three months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year. The change reflects an unrealizeda gain of $1.10$2.73 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of JanuaryApril 2,3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $39$53 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with our debt-for-equity exchange, which reflects the discount provided on the monetization of Sandisk shares. Total interest and other income (expense), changed by $1.78$4.64 billion for the sixnine months ended JanuaryApril 2,3, 2026 from the comparable period in the prior year. The change primarily reflects an unrealized gain of $1.71$4.45 billion on our retained interest in Sandisk in the current period based on the mark-to-market value as of JanuaryApril 2,3, 2026, compared to a loss of $606 million in the prior year, and lower interest expense of $79$132 million, which reflects the reduction in our debt. These changes were partially offset by $545 million of costs incurred in connection with the debt-for-equity exchange as described above.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed into law, which contained, among other things, a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income (“AFSI”) exceeding $1.0 billion. Although CAMT became effective for us beginning with 2024, we were not subject to CAMT for 2024 andor 2025. We do not expect to be subject to CAMT in 2026 as our annual average AFSI did not exceed $1.0 billion for the preceding three-year period.
The following table presents our Income tax expense (benefit) and the effective tax rate:
The primary drivers of the difference between the effective tax rate for the three and sixnine months ended JanuaryApril 2,3, 2026 and the U.S. Federal statutory rate of 21% are the relative mix of earnings and losses by jurisdiction, the deduction for FDDEI, tax credits, and the gain on the retained interest in Sandisk being tax-free due to the Separation of the Flash business.Separation. These resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the three and sixnine months ended JanuaryApril 2,3, 2026. Our income tax provision for the three and sixnine months ended JanuaryApril 2,3, 2026 includes GMT for Malaysia as well as Thailand and the Philippines, countries for which we maintain tax holidays.
The primary drivers of the difference between the effective tax rate for the three and sixnine months ended DecemberMarch 27,28, 20242025 and the U.S. Federal statutory rate of 21% were the relative mix of earnings and losses by jurisdiction, tax credits, and tax holidays in Thailandthe Philippines and theThailand Philippines.that Inwill addition,expire theat various dates between 2026 and 2033. These tax holidays resulted in decreases to our effective tax rate below the U.S. Federal statutory rate for the sixthree and nine months ended DecemberMarch 27,28, 20242025. includesHowever, the discretetax effecteffects of athe netmandatory decreasecapitalization of $30R&D millionexpenses offset these decreases, resulting in our effective tax rate being close to the liabilityU.S. Federal statutory rate for unrecognizedthe tax benefits, which includes interestthree and offsettingnine taxmonths benefits,ended March 28, 2025. In anticipation of us operating as a resultstandalone HDD business in a GMT environment, we executed an inter-entity asset transfer in conjunction with the Separation. This resulted in the recognition of adjustmentsone-time deferred tax benefits to aligncontinuing withoperations U.S.of Internal$711 Revenuemillion Servicefor (“IRS”)the calculations.three and nine months ended March 28, 2025.
We currently expect our capital expenditures for 2026generally to be approximately 4% to 6% of our net revenue.
A total of $1.35$1.31 billion and $0.98$984 billionmillion of our cash and cash equivalents was held by our foreign subsidiaries as of JanuaryApril 2,3, 2026 and June 27, 2025, respectively. There are no material tax consequences that were not previously accrued for on the repatriation of this cash.
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. Net cash used for changes in operating assets and liabilities was $275$368 million for the sixnine months ended JanuaryApril 2,3, 2026, compared to $1.04$1.15 billion for the sixnine months ended DecemberMarch 27,28, 2024.2025. The year over year decreaseimprovement largely reflects a $232$365 million reduction in inventory as a result of increased shipments to customers, a $345 million improvement infrom timingaccrued andexpenses collectionresulting of accounts receivable,from a $127significant reduction in our derivative hedging activities since the Separation, a $225 million improvement from accrued compensation resulting from amount and timing of payment of variable compensation, and a $906$883 million improvement in other assets and liabilities driven by the timing of recognition and realization of income taxes receivable. These were partially offset by a $520$504 million increase in accounts receivable driven by the growth in our business volume and a $518 million increase in cash used driven by the timing of recognition and payment of income taxes.
Net cash used in investing activities for the sixnine months ended JanuaryApril 2,3, 2026 primarily consisted of $165$310 million in capital expenditures. Net cash provided by investing activities for the sixnine months ended DecemberMarch 27,28, 20242025 primarily consisted of $191$401 million in net proceeds from our sale of a majority interest in one of our subsidiaries and $92$148 million in net proceeds from activity related to Flash Ventures, partially offset by $208$336 million in capital expenditures, net of proceeds from disposals of assets.
Net cash used in financing activities for the sixnine months ended JanuaryApril 2,3, 2026 primarily consisted of $1.17$1.92 billion for share repurchases, $87$1.56 millionbillion for dividendsrepayments onof our commondebt, stock and Preferred Shares, $95$197 million for taxes paid on vested stock awards under employee stock plans, and $63$130 million for scheduled repaymentsdividends on our termcommon loan.stock and Preferred Shares. These uses were partially offset by $1.50 billion of net proceeds from a bridge loan and $32 million of proceeds from the issuance of stock under employee stock plans. Net cash usedprovided inby financing activities for the sixnine months ended DecemberMarch 27,28, 20242025 primarily consisted of $225$2.15 billion of proceeds from drawing on the Sandisk credit facilities in connection with the Separation as well as the 2027 Revolving Credit Facility and $69 million of proceeds from the issuance of stock under employee stock plans, partially offset by $1.37 billion of cash transferred to Sandisk in connection with the Separation, $257 million for repayment of amounts borrowed under the revolving2027 creditRevolving facilityCredit Facility and scheduled repayments on ourthe termTerm loanLoan A-3 and $80prior Term Loan A-2, $92 million for taxes paid on vested stock awards under employee stock plans, partiallyand offset by $150$74 million ofpaid proceedsfor from drawing on the revolving credit facility and $52 million of proceeds from thedebt issuance of stock under employee stock plans.costs.
The following is a summary of our known material cash requirements as of JanuaryApril 2,3, 2026. In addition, see the discussions further below related to liability for unrecognized tax benefits, litigation matters, cash dividend program, dividend rights with respect to the Preferred Shares, global minimum tax, foreign exchange contracts and indemnifications.
(1)Principal portion of debt, excluding issuance costs.
As of JanuaryApril 2,3, 2026, the liability for unrecognized tax benefits (excluding accrued interest and penalties) was $607$603 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 JanuaryApril 2,3, 2026 was $97$123 million. Of these amounts, approximately $130$133 million could result in potential cash payments to be made within the next twelve months.
On April 29, 2025, our Board of Directors authorized the adoption of a 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 three months ended JanuaryApril 2,3, 2026, we paid cash dividends of $0.125 per share of our outstanding common stock, totaling $43 million, plus $1 million paid to holders of our Preferred Shares in accordance with their participation rights.million. During the sixnine months ended JanuaryApril 2,3, 2026, we paid aggregate cash dividends of $0.225$0.350 per share of our outstanding common stock, totaling $77$120 million, plus $2 million paid to holders of our Preferred Shares in accordance with their participation rights.
Subsequent to quarter-end, on JanuaryApril 28,29, 2026, our Board of Directors declared a cash dividend of $0.125$0.15 per share of our common stock, which will be paid on MarchJune 18,17, 2026 to our shareholders of record as of the close of business on MarchJune 5, 2026.
Dividend Rights
As of January 2, 2026, 235,000 shares of our Preferred Shares remained outstanding. These shares are entitled to cumulative preferred dividends and will also participate in any dividends declared for common shareholders on an as-converted equivalent basis. See Part II, Item 8, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Consolidated Financial Statements in our 2025 Annual Report on Form 10-K and Part I, Item 1, Note 12, Shareholders’ Equity and Convertible Preferred Stock, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information regarding the dividend provisions.
As described in Part I, Item 1, Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, the Companywe issued $1.60 billion aggregate principal amount of convertible senior notes in November 2023, which bear interest at an annual rate of 3.00% and mature on November 15, 2028 (the “2028 Convertible Notes”). The 2028 Convertible Notes are convertible at the option of any holder beginning August 15, 2028 at a conversion price of approximately $37.74$37.72 per share of common stock (as adjusted in accordance with the indenture as a result of theApril Separation3, and the payment of dividends on the Company’s common stock).2026. Prior to August 15, 2028, if the trading price of our common stock remains above 130% of the conversion price for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading-day period prior to the end of a calendar quarter, holders of the 2028 Convertible Notes would have the right to convert the 2028 Convertible Notes during the next succeeding calendar quarter. The 2028 Convertible Notes are also convertible prior to August 15, 2028 upon the occurrence of certain corporate events. Upon any conversion of the 2028 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 our 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. On or after November 15, 2026, we may redeem for cash, at par plus accrued interest, all or any portion of the 2028 Convertible Notes, at our option, if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 10 trading days during any 20 consecutive trading day period immediately preceding the date of our redemption notice.
During the three months ended April 3, 2026, holders of $32 million aggregate principal amount of the 2028 Convertible Notes tendered them for conversion (the “Tendered Notes”). We made an irrevocable election to settle in cash the conversion obligation in excess of the principal amount of the Tendered Notes, as permitted by the Indenture. Settlement is scheduled for June 2026. We still retain the right to settle any conversion obligation in excess of the principal amount of the remaining 2028 Convertible Notes in cash or shares or a combination thereof, at its election.
The sale price conditional conversion feature of the 2028 Convertible Notes was triggered during the calendar quarter ended DecemberMarch 31, 20252026 and, accordingly, the holders of the 2028 Convertible Notes have the right to convert the notes during the succeeding calendar quarter ending MarchJune 31,30, 2026. As a result, the 2028 Convertible Notes have been classified in Current portion of long-term debt in the Condensed Consolidated Financial Statements as of JanuaryApril 2,3, 2026. The CompanyWe will continue to evaluate the conversion feature quarterly to determine if the 2028 Convertible Notes remain convertible in future periods.
In addition to our outstanding debt, as of JanuaryApril 2,3, 2026, we had $1.25 billion available for borrowing under our revolving credit facility maturing in January 2027 (the “2027 Revolving Credit Facility”), subject to customary conditions under the Loan Agreement. The agreements governing our credit facilities each include limits on secured indebtedness and certain types of unsecured subsidiary indebtedness and require us and certain of our subsidiaries to provide guarantees and collateral to the extent the conditions providing for such guarantees and collateral are met. During the three months ended April 3, 2026, the Company obtained investment grade ratings from two rating agencies and therefore, pursuant to the terms of the Loan Agreement, the guarantees and collateral on the 2027 Revolving Credit Facility were released. The Loan Agreement requires us to comply with a financial leverage ratio covenant. As of JanuaryApril 2,3, 2026, we were in compliance with the financial covenant. 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 8, Debt, of the Notes to Consolidated Financial Statements included in our 2025 Annual Report on Form 10-K and Note 7, Debt, of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
As of JanuaryApril 2,3, 2026, we have accrued GMT liabilities of $42$62 million that are not expected to be paid until the second quarter of 2028.
WDC insider buying and selling (Form 4)
Form 4 filings since 2026-04-11: 0 open-market purchases and 128 open-market sales (about $35.6M; 121 reported as made under a Rule 10b5-1 trading plan), across 49 filings with stock transactions. Awards, option exercises, tax withholding and gifts are listed but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-20 | Tan Irving |
Option exercise | 57 | — | — |
| 2026-09-20 | Tan Irving |
Shares withheld for tax | 1,091 | $441.36 | $481.5K |
| 2026-09-20 | Davis Brian Scott |
Option exercise | 8 | — | — |
| 2026-09-20 | Davis Brian Scott |
Shares withheld for tax | 963 | $441.36 | $425.0K |
| 2026-09-17 | Shihab Ahmed Mohammed |
Option exercise | 56 | — | — |
| 2026-09-17 | Shihab Ahmed Mohammed |
Shares withheld for tax | 5,150 | $423.87 | $2.2M |
| 2026-09-04 | Tregillis Cynthia L |
Open-market sale |
432 | $451.20 | $194.9K |
| 2026-09-04 | Gubbi Vidyadhara K |
Open-market sale | 1,795 | $459.87 | $825.5K |
| 2026-09-03 | Tregillis Cynthia L |
Option exercise |
7 | — | — |
| 2026-09-03 | Tregillis Cynthia L |
Shares withheld for tax |
700 | $441.57 | $309.1K |
| 2026-09-03 | Gubbi Vidyadhara K |
Option exercise | 14 | — | — |
| 2026-09-03 | Gubbi Vidyadhara K |
Shares withheld for tax | 1,764 | $441.57 | $778.9K |
| 2026-09-03 | Davis Brian Scott |
Shares withheld for tax | 882 | $441.57 | $389.5K |
| 2026-09-03 | Davis Brian Scott |
Option exercise | 7 | — | — |
| 2026-09-01 | Tan Irving |
Gift | 112,500 | — | — |
| 2026-09-01 | Tan Irving |
Gift | 112,500 | — | — |
| 2026-09-01 | Streeter Stephanie A |
Open-market sale | 1,600 | $455.00 | $728.0K |
| 2026-08-31 | Tan Irving |
Other | 112,500 | — | — |
| 2026-08-31 | Tan Irving |
Other | 112,500 | — | — |
| 2026-08-31 | Streeter Stephanie A |
Open-market sale | 2,000 | $448.58 | $897.2K |
| 2026-08-31 | Streeter Stephanie A |
Open-market sale | 2,000 | $447.06 | $894.1K |
| 2026-08-27 | Tregillis Cynthia L |
Open-market sale |
1,007 | $478.36 | $481.7K |
| 2026-08-26 | Tregillis Cynthia L |
Open-market sale |
476 | $450.78 | $214.6K |
| 2026-08-26 | Tregillis Cynthia L |
Option exercise |
9 | — | — |
| 2026-08-26 | Tregillis Cynthia L |
Shares withheld for tax |
1,631 | $468.88 | $764.7K |
| 2026-08-26 | Tan Irving |
Shares withheld for tax | 3,314 | $468.88 | $1.6M |
| 2026-08-26 | Tan Irving |
Option exercise | 42 | — | — |
| 2026-08-26 | Shihab Ahmed Mohammed |
Option exercise | 15 | — | — |
| 2026-08-26 | Shihab Ahmed Mohammed |
Shares withheld for tax | 2,741 | $468.88 | $1.3M |
| 2026-08-26 | Sennesael Kris |
Option exercise | 19 | — | — |
| 2026-08-26 | Sennesael Kris |
Shares withheld for tax | 4,317 | $468.88 | $2.0M |
| 2026-08-26 | Gubbi Vidyadhara K |
Option exercise | 9 | — | — |
| 2026-08-26 | Gubbi Vidyadhara K |
Shares withheld for tax | 2,056 | $468.88 | $964.0K |
| 2026-08-26 | Davis Brian Scott |
Option exercise | 7 | — | — |
| 2026-08-26 | Davis Brian Scott |
Shares withheld for tax | 1,644 | $468.88 | $770.8K |
| 2026-08-25 | Tregillis Cynthia L |
Option exercise |
7 | — | — |
| 2026-08-25 | Tregillis Cynthia L |
Grant/award |
3,878 | — | — |
| 2026-08-25 | Tregillis Cynthia L |
Shares withheld for tax |
771 | $450.75 | $347.5K |
| 2026-08-25 | Tan Irving |
Grant/award | 16,548 | — | — |
| 2026-08-25 | Tan Irving |
Shares withheld for tax | 476 | $450.75 | $214.6K |
| 2026-08-25 | Tan Irving |
Option exercise | 32 | — | — |
| 2026-08-25 | Shihab Ahmed Mohammed |
Grant/award | 6,722 | — | — |
| 2026-08-25 | Sennesael Kris |
Grant/award | 8,274 | — | — |
| 2026-08-25 | Gubbi Vidyadhara K |
Shares withheld for tax | 1,143 | $450.75 | $515.2K |
| 2026-08-25 | Gubbi Vidyadhara K |
Option exercise | 9 | — | — |
| 2026-08-25 | Gubbi Vidyadhara K |
Grant/award | 5,171 | — | — |
| 2026-08-25 | Feller Brad |
Grant/award | 2,068 | — | — |
| 2026-08-25 | Davis Brian Scott |
Option exercise | 7 | — | — |
| 2026-08-25 | Davis Brian Scott |
Grant/award | 3,619 | — | — |
| 2026-08-25 | Davis Brian Scott |
Shares withheld for tax | 971 | $450.75 | $437.7K |
| 2026-08-24 | Tregillis Cynthia L |
Open-market sale |
684 | $446.17 | $305.2K |
| 2026-08-21 | Tregillis Cynthia L |
Shares withheld for tax |
1,109 | $459.44 | $509.5K |
| 2026-08-21 | Tregillis Cynthia L |
Option exercise |
11 | — | — |
| 2026-08-21 | Tregillis Cynthia L |
Open-market sale |
235 | $477.27 | $112.2K |
| 2026-08-21 | Tan Irving |
Shares withheld for tax | 545 | $459.44 | $250.4K |
| 2026-08-21 | Tan Irving |
Option exercise | 25 | — | — |
| 2026-08-21 | Gubbi Vidyadhara K |
Option exercise | 5 | — | — |
| 2026-08-21 | Gubbi Vidyadhara K |
Shares withheld for tax | 694 | $459.44 | $318.9K |
| 2026-08-21 | Davis Brian Scott |
Shares withheld for tax | 593 | $459.44 | $272.4K |
| 2026-08-21 | Davis Brian Scott |
Option exercise | 4 | — | — |
Well-known investors holding WDC (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 2,940,948 | $1.9B | 0.65% | Reduced 15% |
| Two Sigma Investments | 2026-06-30 | 0 | $1.5B | 1.13% | No change |
| D. E. Shaw & Co. | 2026-06-30 | 1,901,787 | $1.2B | 0.75% | Reduced 29% |
| D. E. Shaw & Co. | 2026-06-30 | 0 | $1.1B | — | Sold out |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $980.0M | 0.66% | No change |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 0 | $696.7M | — | Sold out |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 657,878 | $420.2M | 0.24% | Added 147% |
| Renaissance Technologies | 2026-06-30 | 537,473 | $343.3M | 0.47% | Reduced 53% |
| PRIMECAP Management | 2026-06-30 | 516,440 | $329.9M | 0.2% | Reduced 11% |
| Whale Rock Capital Management | 2026-06-30 | 400,687 | $255.9M | 2.05% | Reduced 3% |
| Millennium Management (Israel Englander) | 2026-06-30 | 351,962 | $224.8M | 0.15% | Added 27% |
| Bridgewater Associates | 2026-06-30 | 172,415 | $110.1M | 0.45% | Reduced 31% |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 166,756 | $106.5M | 0.25% | Reduced 55% |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 73,593 | $47.0M | 0.07% | Reduced 88% |
| Two Sigma Investments | 2026-06-30 | 48,556 | $31.0M | 0.02% | Added 2365% |