Western Digital (WDC) Q1 2027 earnings review
Western Digital sales accelerate, while factory spending more than doubles
Western Digital, a maker of hard disk drives for cloud data centers, is growing faster as drive prices climb. Revenue rose 55% from a year ago — or 67% per week by our math against last year's longer quarter — and beat what the company's own plan pointed to. Finance chief Kris Sennesael set a second-quarter outlook that lifts gross margin excluding one-offs past 60%.
| Weekly revenue (13-week vs 14-week year-ago period) | +67% reported revenue: $4,381M (+55% from a year ago) |
|---|---|
| Gross margin, excluding one-offs | 58.1% +14.2 percentage points from a year ago |
| Profit per share, excluding one-offs | $4.64 +161% from a year ago |
| Second-quarter revenue outlook | $5.0–5.2B middle of the range: +69% from a year ago |
⚖️ Verdict: 🟢 Bullish
The story got better because the second-quarter plan shows sequential sales and margin gains speeding up rather than cooling off. Higher prices and a 14-point drop in manufacturing costs as a share of sales carried operating margin near 50%. One caution: factory equipment spending more than doubled from last quarter, and $1 billion of buybacks merely offset new shares issued for debt and employee pay.
The question now is how much of this surge comes from shipping more storage capacity versus charging higher prices on constrained supply. Either new 40-terabyte drives are lifting shipment volume, or output is capped until next-generation heat-assisted drives arrive in 2027. The shipment numbers from the conference call and quarterly filing will tell.
🐂 Bull Case
Sales Acceleration Beyond the Calendar Quirk
Western Digital makes hard disk drives that store data for cloud computing giants. First-quarter revenue reached $4.38 billion, beating the middle of the company's plan by 6.9% — well above its 4.3% average beat over the prior five quarters. Chief executive Irving Tan said the group is working to "deepen our customer relationships, broaden the customer base to new areas of the market, and extend our visibility into future demand".
- Weekly revenue growth: up 67.4% from a year ago by our math, compared with 55.5% reported growth across a 13-week quarter versus 14 weeks last year
- Sequential revenue growth: up 16.9% from last quarter, beating the 6.8% to 12.1% range implied by the prior outlook
- Second-quarter revenue plan: $5.1 billion at the middle of the range, up 69.0% from a year ago and 16.4% from this quarter
The prior outlook pointed to sequential growth slowing below 10%, but revenue sped up instead. Because the second-quarter forecast calls for another 16.4% sequential jump with no calendar distortion, demand from cloud customers is still strengthening.
What to watch: total exabytes shipped — a measure of total storage capacity sold — on the conference call. A reading above 245 exabytes would show that higher drive volume, not just price increases, is carrying sales.
Pricing Power Lifts Gross Margin Past 60%
Finance chief Kris Sennesael credited "robust exabyte growth and improved pricing driving another quarter of strong financial performance". Gross margin excluding one-offs rose 14.2 percentage points from a year ago to 58.1%, beating the top of the company's 55% to 56% plan by 2.1 points.
The cost of making the drives fell by 14.2 percentage points of revenue from a year ago. Research and development plus overhead expenses excluding one-offs rose only 2.6% to $391 million, so operating expenses fell by 4.6 percentage points of revenue. That lifted operating margin excluding one-offs by 18.7 points to 49.1%, and the second-quarter plan puts gross margin at 60% to 61%.
What to watch: price per terabyte and cost per terabyte commentary on the earnings call. Further price gains alongside an 8% to 10% unit cost decline would show whether margins can hold above 60%.
🐻 Bear Case
Buybacks Still Offset Dilution rather than Shrinking Shares
Tan highlighted the group's "commitment to return capital to shareholders" and announced it is "raising our quarterly cash dividend by 17% to $0.175 per share". Supporters view the buybacks and dividend hikes as a disciplined return of cash from a balance sheet that holds $525 million more cash than debt by our math.
- Cash outflows for equity and debt settlements: $1,001 million for buybacks, $570 million for convertible debt settlements, and $317 million for employee stock plans
- Total capital outflows: $1,944 million including $56 million in dividends, exceeding free cash flow of $1,377 million by $567 million by our math
- Diluted share count excluding one-offs: 383 million, up 3.8% from 369 million a year ago (basic shares rose 6.1% to 366 million)
This cuts against the company's framing because nearly $1.9 billion in equity-related cash outflows in a single quarter still left the diluted share count 14 million shares higher than a year ago. Issuing shares to settle convertible debt and employee stock awards absorbed the buybacks and forced the business to draw $300 million in net new debt.
What to watch: the diluted share count in the second quarter against the 380 million forecast. A drop below 380 million without new debt borrowing would show buybacks are finally reducing the share count.
Factory Spending More Than Doubled
Western Digital has kept drive unit capacity flat during this boom, relying on denser drives to grow storage volume. That capital-light pattern shifted this quarter as purchases of property, plant and equipment more than doubled from last quarter to $227 million, up 211% from $73 million a year ago.
By our math, capital spending jumped to 5.2% of revenue, up from 2.6% a year ago and 2.9% last quarter. Management previously indicated full-year spending would rise for drive heads, media and factory automation, and the first-quarter run rate already exceeds the entire $418 million spent across fiscal 2026.
What to watch: second-quarter capital expenditures and full-year spending commentary on the call. A second quarter above 5% of revenue would show that building next-generation drives requires much heavier factory investment.
Risks this quarter didn't answer
Five standing concerns around volume ceilings, product transitions and customer contracts cannot be read from the earnings release alone and await the conference call or quarterly filing.
- Total exabytes shipped and 40-terabyte ePMR (energy-assisted magnetic recording) drive mix: not in the release; the call remarks will show if volume sped up from last quarter's 22% growth.
- HAMR (heat-assisted magnetic recording) 44-terabyte drive qualification: due to ship in the first half of calendar 2027; the call will update progress against its main rival.
- Long-term agreement repricing and enforcement: contracts are not take-or-pay; the call Q&A will test how 2029–2031 deals are priced.
- Customer concentration: cloud customers were 89% of revenue last quarter; the quarterly filing will update top-customer share.
- Flash memory substitution in data centers: awaiting executive commentary on the call regarding hard drive share of cloud storage.
💲 Other KPIs
Free cash flow — operating cash flow minus factory equipment purchases — rose 130% from a year ago and 7.5% from last quarter. It has climbed from $599 million to $653 million, $978 million, $1,281 million and now $1,377 million over the past five quarters, converting 31.4% of revenue into cash by our math.
Inventories rose 17.9% from last quarter and 27.9% from a year ago by our math, absorbing $269 million of operating cash. Accounts receivable — money owed by customers — rose 10.2% from last quarter and 64.7% from a year ago to $2,232 million, consuming another $206 million of cash as sales grew.
Reported profit per share rose 51% from a year ago and fell 44% from last quarter's $8.21. Prior quarters included $6.5 billion of paper gains on Western Digital's retained stake in Sandisk, its spun-off flash memory unit. With those shares now gone, reported profit matched the $4.64 figure excluding one-offs.
🔮 Guidance
New. The $5.1 billion middle of the range calls for 69.0% growth from a year ago and 16.4% sequential growth by our math. Western Digital has beaten its revenue plan in all six standalone quarters; if the five-quarter average beat of 4.3% holds, second-quarter revenue would reach about $5.32 billion by our math.
New. The plan puts gross margin at 60.5% at the middle of the range, up 2.4 percentage points from this quarter and 14.4 points from a year ago by our math. The storage maker has beaten the top of its gross margin range in six straight standalone quarters.
New. At the $5.80 middle of the range, profit per share excluding one-offs would rise 172.3% from a year ago and 25.0% from this quarter by our math. The forecast excludes about $95 million of stock-based pay and other items.
New. Planned operating expenses rise 3.6% from this quarter and 8.9% from a year ago at the $405 million middle of the range by our math. Because revenue grows much faster, implied operating margin excluding one-offs expands to 52.6% by our math.
New. Management plans for $15 million of net interest and other expense, matching the forecast set for the first quarter and up from the $10 million actual result.
New. The planned effective tax rate stays at 17%, matching the first-quarter actual rate after the expiration of a tax holiday in Thailand.
New. The share count forecast drops by 3 million shares from the first quarter's 383 million and assumes no benefit from capped call options on the 2028 convertible debt.
❓ Key Questions
How many exabytes did Western Digital ship in Q1?
The press release cited exabyte growth and better pricing for the revenue beat but left out the shipment table. After exabyte growth slowed to 22% last quarter, the figure will show whether volume sped back up or price did the work.
What share of nearline bits came from 40TB drives?
Management aims for its 40-terabyte ePMR platform to cross 50% of data-center storage volume by the third quarter. Knowing the first-quarter share and customer count will test whether the manufacturing ramp is on schedule.
What drove the doubling of factory capital spending?
Capital expenditures jumped to $227 million, or 5.2% of revenue, up from $108 million last quarter. Investors need to know the full-year budget and how much goes to head and media tooling versus automation.
How much convertible debt dilution remains after Q1 settlements?
Western Digital spent $570 million settling convertible notes and $1.0 billion on buybacks, yet diluted shares still rose 3.8% from a year ago. Management should clarify how many shares the remaining $789 million of current debt could add.